ACA Litigation Round-Up, Part 3: Section 1557, The ACA’s Primary Nondiscrimination Provision

This post summarizes the latest in litigation over an Obama-era rule implementing Section 1557. There are at least two pending challenges to the Obama-era interpretation of this provision.

Litigation continues over implementation of the Affordable Care Act (ACA) and ACA-related issues. A prior post provided a status update on many ACA-related lawsuits that are pending before the Supreme Court or that have been put on hold given new agency leadership under the Biden administration. A second post took a deeper dive into recent ACA-related court decisions related to the “take care” lawsuit, the health insurance tax on Medicaid managed care entities, and the preventive services mandate.

This post summarizes the latest in litigation over an Obama-era rule implementing Section 1557, the ACA’s primary nondiscrimination provision. There are at least two pending challenges to the Obama-era interpretation: Franciscan Alliance (before the Fifth Circuit Court of Appeals) and Religious Sisters of Mercy (which will likely be appealed to the Eighth Circuit Court of Appeals).

Franciscan Alliance was filed in 2016 by a group of private religious entities and states led by Texas. The Fifth Circuit heard oral argument on March 3, 2021 on the question of whether religious plaintiffs are entitled to permanent injunctive relief from certain interpretations of Section 1557. On April 15, the Fifth Circuit remanded the lawsuit back to the district court. This outcome was not surprising: it was suggested repeatedly at oral argument. In remanding the litigation back to Judge Reed O’Connor, the panel cited changed circumstances since the district court ruled. New developments include the Supreme Court’s decision in Bostock v. Clayton County, litigation over the Trump-era rule to implement Section 1557, and assumptions about how the Biden administration will address Section 1557.

Brief Background

Section 1557 prohibits health programs or facilities that receive federal funds from discriminating based on race, color, national origin, age, disability, or sex. Section 1557 incorporates existing federal civil rights laws, including protections on the basis of sex under Title IX of the Education Amendments of 1972, and applies them to federally funded health programs. In a rule finalized in 2016, the Obama administration interpreted “on the basis of sex” to include discrimination based on gender identity and termination of pregnancy. That part of the rule was quickly challenged by the Franciscan Alliance (a Catholic hospital system), a Catholic medical group, a Christian medical association, and five states (later joined by three additional states). Judge O’Connor issued a nationwide injunction to stop the Department of Health and Human Services (HHS) from enforcing those parts of the 2016 rule. 

After multiple delays including remand to the agency, the plaintiffs succeeded in vacating parts of the 2016 rule to implement Section 1557. Then, in June 2020, the Trump administration issued a new rule that eliminated the 2016 rule’s definition of “on the basis of sex,” including the protections based on gender identity, sex stereotyping, and termination of pregnancy. The 2020 rule did not adopt a new explicit definition of this phrase, but the preamble suggested that HHS would interpret “sex” solely as “biological sex” (defined to mean a person’s genetic sex at birth). Some of these changes were, in turn, set aside by other district courts as arbitrary and capricious and contrary to law for failing to account for the Supreme Court’s decision in Bostock.

Turning back to Franciscan Alliance, the plaintiffs had seemingly won: the objectionable parts of the 2016 rule were vacated by the district court. However, the religious plaintiffs pressed forward to ask that HHS be permanently enjoined from enforcing any interpretation that stems from the challenged provisions, though vacated. Judge O’Connor declined to do so, concluding that an injunction was unnecessary since the challenged parts of the rules had been vacated. The religious plaintiffs, led by Franciscan Alliance, then appealed this decision to the Fifth Circuit.

(The Department of Justice argued that the appeal was moot and that Judge O’Connor did not abuse his discretion in declining to issue a permanent injunction against parts of a rule he had already vacated. This is notable because the Department, under the Trump administration, previously sided with the plaintiffs in the litigation and did not defend the 2016 rule in court.)

Anticipating Bostock, the litigation was stayed and resumed following the Supreme Court’s decision. Briefing was completed in December 2020, and the plaintiffs filed several notices of supplemental authority since then. This includes the decision in Religious Sisters of Mercy and an executive order from President Biden directing federal agencies, including HHS, to implement Bostock. The plaintiffs argued that the executive order signals how HHS will interpret Section 1557 in the future and that this poses an enforcement threat. The Department of Justice and the ACLU (which intervened in the lawsuit) argued that a permanent injunction is improper, that the plaintiffs never challenged Section 1557 itself, and that vacatur of the 2016 rule was sufficient to redress the plaintiffs’ harms under the Administrative Procedure Act (APA) and the Religious Freedom Restoration Act (RFRA).

Oral Argument

Oral argument in Franciscan Alliance was held on March 3 before Judges Jennifer Walker Elrod, Kurt D. Engelhardt, and Don R. Willett. (Fun fact: Judges Elrod and Engelhardt made up the majority in the Fifth Circuit’s decision in California v. Texas and would have remanded that decision back to Judge O’Connor.) All three members of the panel asked questions, and Judge Elrod was especially vocal from the bench.

As noted above, the appeal itself was on rather narrow grounds: whether the district court erred in declining to issue a permanent injunction against HHS. This appeal was not over whether Judge O’Connor’s decision to vacate the 2016 rule was proper or not; rather, it was over whether he should have gone further and issued a permanent injunction alongside the vacatur. Given this question, the judges were especially interested in the parties’ views of the status of the regulations and whether the dispute is over the 2016 rule, the 2020 rule (and the lawsuits over that rule), or the Section 1557 statute itself.

Franciscan Alliance said it was concerned about both rules and the statute. The 2016 rule is a concern because it prohibits discrimination based on sex stereotyping which could extend to transgender people. (This part of the 2016 rule was eliminated in the 2020 rule but remains in effect following litigation over the 2020 rule.) However, the plaintiffs did not challenge this part of the 2016 rule, and Judge O’Connor did not preliminarily enjoin or vacate that part of the definition of “on the basis of sex” in his rulings. (The plaintiffs’ initial complaint and amended complaint each mention this provision only once in a summary of the 2016 rule whereas the claims focus on the lack of a religious exemption and the inclusion of gender identity and termination of pregnancy in the definition of “on the basis of sex.”)

Even so, the panel seemed concerned that the sex stereotyping protections might be used against the plaintiffs and asked for assurances that the government did not intend to enforce that provision against these plaintiffs. The Department of Justice responded that the plaintiffs have not shown any risk of enforcement against them. And the ACLU argued that the plaintiffs are protected by a declaratory judgement that the 2016 rule violates RFRA. In the ACLU’s view, the plaintiffs are protected from enforcement action under the entire 2016 rule—including the sex stereotyping provision—by this declaratory judgment.

Setting aside the sex stereotyping provision, the plaintiffs remain concerned about any future HHS action to implement or enforce Section 1557 in a way that is consistent with the 2016 rule. They argued that subsequent events—presumably the Bostock decision and the election—have shown that vacatur of the 2016 rule is not enough to protect them from the threat of enforcement of Section 1557. In essence, the plaintiffs take issue with the Section 1557 statute and whether it protects transgender people and people with a history of abortion.

These concerns notwithstanding, the plaintiffs never challenged Section 1557 itself. Rather, their complaint focused solely on the 2016 rule to implement Section 1557. The Department of Justice emphasized that the plaintiffs prevailed in district court: Judge O’Connor vacated all the provisions that they challenged, and HHS rescinded and replaced those challenged provisions with a new rule. The attorney representing the department went on to read various passages from the plaintiffs’ complaint and briefs, all pointing to the Section 1557 rule rather than the statute. Given the nature of the challenge below, the plaintiffs cannot use this appeal, she argued, to challenge different agency actions or the statute when those provisions were never raised in district court.

The ACLU raised similar points, noting that the plaintiffs’ entire theory below was that the Section 1557 statute did not protect transgender people and thus the 2016 rule was invalid. Arguing or assuming Section 1557 does, in fact, protect transgender people—and thus should not apply to the plaintiffs—would conflict with the plaintiffs’ underlying theory under the APA.

Franciscan Alliance countered by pointing to a proposed order submitted to the district court that referred to enjoining the enforcement of Section 1557 itself. The panel pushed back, asking why this was not reflected in the complaint or the briefing and was instead buried in a draft order. Franciscan Alliance responded that its RFRA claims were focused on whether the government can apply the Section 1557 interpretation against the plaintiffs. The plaintiffs also pointed to recent contraceptive mandate cases as examples where district courts enjoined the government under both a statute and regulations in the face of a RFRA violation. But, when pressed, Franciscan Alliance acknowledged that none of these RFRA cases also involved claims under the APA, as this one does. ACLU separately suggested that the broad injunctions in the contraceptive mandate cases were likely to be overturned on appeal.

The Department of Justice and ACLU emphasized the fact that the plaintiffs could go back to Judge O’Connor to seek additional relief if there is future agency action that threatens imminent harm. But, instead, the plaintiffs wanted the Fifth Circuit to impose a broad permanent injunction against future agency action. Doing so, they argued, would enjoin future regulations that have not yet been promulgated and thus result in an advisory opinion from the court. When asked about this, Franciscan Alliance argued that Judge O’Connor was focused more on providing additional relief from the 2016 rule (rather than a future rule). Franciscan Alliance also pointed to the Religious Sisters of Mercy decision and insisted that the plaintiffs are not trying to strike down future regulations on Section 1557 or stop HHS from adopting new regulations.

One potential outcome, suggested multiple times by Judge Elrod, was remand back to Judge O’Connor to reassess the case in light of the new developments cited by the plaintiffs. Even after oral argument, Franciscan Alliance notified the Fifth Circuit of a Department of Justice memo regarding the application of Bostock to Title IX. The plaintiffs believe that this new memo supports their argument that their appeal remains live and is not moot.

The Decision

On April 15, the Fifth Circuit issued a short, unpublished decision remanding the case back to Judge O’Connor. The Fifth Circuit accurately noted that the religious plaintiffs challenged the 2016 rule under both the APA and RFRA, and this should have been an easy decision to affirm Judge O’Connor’s discretion in not granting a permanent injunction.

However, the Fifth Circuit opted instead for remand. They reasoned that “the legal landscape has shifted significantly” since the plaintiffs’ initial challenge, citing Bostock, the 2020 rule, litigation over the 2020 rule, President Biden’s executive order on Bostock implementation, and the Department of Justice memo on Title IX. Consistent with oral argument, the panel seemed especially concerned that the two district court decisions setting aside parts of the 2020 rule—thereby restoring the 2016 rule’s ban on discrimination based on sex stereotyping—could harm the plaintiffs. The decision notes that this provision, alongside the provision on gender identity and termination of pregnancy, is “at the center of this case.”

It is also “unclear,” the panel writes, whether the religious plaintiffs are “pressing the same claim before us as they did in the district court.” They emphasized that the parties themselves could not agree on what relief was granted by the district court. Even though the parties referred to the outcome in different ways, the Fifth Circuit still could have ruled and simply affirmed the district court’s decision on this narrow appeal.

From here, the lawsuit is remanded back to Judge O’Connor’s courtroom for further proceedings. On remand, Judge O’Connor is asked to consider whether the plaintiffs did (or did not) ask for relief against Section 1557 itself (rather than just the 2016 rule). The panel is not taking a position on the merits but will rehear any future appeal of Franciscan Alliance.

In response to the remand, Judge O’Connor ordered the parties to file a joint status report on April 22 on how they would like to proceed. The parties all ask to submit supplemental briefs but could not agree on the issues that those briefs should address or a proposed briefing schedule. The religious plaintiffs want to submit briefs on the full scope of issues (whether they are entitled to a permanent injunction against an interpretation under the 2016 rule and the Section 1557 statute or whether the case is moot and they never requested this relief). They propose a briefing schedule that would allow them to submit two briefs while the federal government and ACLU would submit one brief. The federal government and the ACLU ask to provide a second reply brief so that briefing is equitable among the parties. The state plaintiffs, led by Texas, will not be filing briefs. Their claims were final from the district court and they have nothing at issue in the appeal or on remand. From here, Judge O’Connor will set a supplemental briefing schedule.