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Texas District Court Rules New ACA Regulation Exceeds HHS’ Authority


Email Alert

January 9, 2017

By Kelly Jolley and Jacob Hunt*

On December 31, 2016, the U.S. District Court for the Northern District of Texas, Wichita Falls Division, issued an order for a preliminary injunction in Franciscan Alliance v. Burwell, a case involving the implementation of Section 1557 of the Affordable Care Act through a new rule entitled “Nondiscrimination in Health Programs & Activities.” The plaintiffs, composed of eight states and three private health care providers, sued the U.S. Department of Health and Human Services (HHS) and HHS Secretary Sylvia Burwell to challenge HHS’ interpretation of discrimination “on the basis of sex” as it pertains to the newly enacted Section 1557.

Section 1557 forbids discrimination on the basis of “gender identity” and “termination of pregnancy.” The plaintiffs argued that the rule would require them to perform and provide insurance coverage for gender transitions and abortions regardless of their religious beliefs or medical judgment, in violation of the Administrative Procedure Act, the Religious Freedom Restoration Act, the First Amendment’s Free Speech Clause, and the Spending Clause of Article I of the Constitution.

The plaintiffs also argued that under Title IX, discrimination “on the basis of sex” does not encompass “gender identity” or “termination of pregnancy,” and that since Section 1557 incorporates Title IX’s prohibition on sex discrimination, the new rule’s scope should be limited by Title IX’s definition of “sex” as “the immutable, biological differences between males and females as acknowledged at or before birth.” Lastly, the plaintiffs argued that Section 1557 does not apply to them because the rule failed to incorporate the religious and abortion exemptions from Title IX that would protect them from enforcement.

Section 1557 took partial effect on May 18, 2016, and the insurance provisions became effective on January 1, 2017. Plaintiffs sought a preliminary injunction against enforcement of Section 1557 because those found to be in violation of the rule face the loss of federal funding, debarment from doing business with the federal government, and false claims liability.

In refuting the plaintiffs’ claims, the defendants argued that a preliminary injunction should not issue because the plaintiffs are unlikely to succeed on the merits, the court lacks jurisdiction, and the rule is entitled to Chevron deference. Defendants further argued that the plaintiffs failed to establish irreparable injury, that the balance of equities and public interest favored denying the plaintiffs injunctive relief, and that the plaintiffs’ suit was not ripe.

The district court emphasized that a preliminary injunction is an extraordinary remedy within the sound discretion of the court to grant or deny. The court found that no further factual development was needed and that the suit was ripe because of “the impossible choice faced by Plaintiffs” which constitutes a substantial hardship. The court then further reasoned that the defendants were not entitled to Chevron deference because Congress clearly addressed the issue of sex discrimination by incorporating Title IX’s existing legal structure into the rule, and that HHS had no legal authority to interpret such a significant policy decision as including other definitions of sex discrimination. Because Congress knew how but did not use language that would have expanded the rule’s scope, the court ruled that the binary definition of sex was unambiguously adopted by Section 1557. The court stated that it did not discount the defendants’ stated goal for the rule, question the seriousness of the problem the rule seeks to address, or weigh the merits of the issue, but that “an administrative agency’s power to regulate in the public interest must always be grounded in a valid grant of authority from Congress.”

Once finding the plaintiffs had a likelihood of success on the merits for a preliminary injunction, the court found that they also were threatened with irreparable harm beginning January 1, 2017, and that for the state plaintiffs, the rule was in direct conflict with state law pertaining to physicians’ independent medical judgment. In finding the balance of hardships and public interest tipped in the plaintiffs’ favor, the court cited the little to no harm that HHS would face from a delayed implementation of the challenged portion of the rule pending final review on the merits. The court then granted the preliminary injunction and ruled that its scope be nationwide to reflect “the extent of the violation established.” Lastly, the court required no bond on the part of the plaintiffs because of a lack of evidence that the defendants would suffer financial loss due to the injunction.

*We would like to thank Kelly M. Jolley and Jacob Hunt (Jolley Law Group LLC, Hilton Head Island, SC) for authoring this email alert.

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