By Pension and Benefits Editorial Staff
"When the Supreme Court announces a major decision, it seems a sensible thing to pause and reflect on the decision’s impact," a federal court in New York observed, finding in a nonemployment law case that an HHS rule implementing a provision of the Affordable Care Act, known as the civil rights provision, was not only contrary to the Supreme Court’s June 2020 Bostock decision, but HHS acted capriciously and arbitrarily in enacting the rule. Accordingly, the court stayed the repeal of the 2016 definition of discrimination based on sex and enjoined HHS from enforcing the repeal.
Section 1557. Section 1557 of the Affordable Care Act, which prohibits various forms of discrimination in "any health program or activity" makes it unlawful to discriminate "on the basis of sex." To implement this section, HHS proposed a series of rules (2016 Rules), known as the Nondiscrimination in Health Programs and Activities. One of these rules defined discrimination "on the basis of sex" to include, among other things, sex stereotyping or gender identity." Finalized in May 2016, the rules took effect in July.
A month later, a coalition of states and health care providers, arguing that HHS exceeded its authority under Section 1557 by defining discrimination on the basis of sex to include discrimination based on gender identity, sued to enjoin enforcement of the 2016 Rules. Agreeing, a federal court in Texas, in Franciscan Alliance, Inc. v. Burwell, enjoined enforcement of that portion of the rules. Three weeks after the court issued its injunction, a new Administration took office. As a result, HHS did not appeal the injunction, which was later converted into a vacatur.
2020 Rules. Around the same time, HHS gave notice of a proposal "to repeal the novel definition of ‘sex’ in the Section 1557 regulation in order to make the Department’s regulations implementing Title IX through the Section 1557 Regulation more consistent with the Title IX regulations of other Federal agencies." HHS finalized the proposal (the 2020 Rules) a year later. "Among many other things," the court noted, HHS "finalize[d] its repeal of § 92.4 of the 2016 Rule without change." Aware, however, that Bostock v. Clayton County, Georgia, was on the horizon, HHS recognized that "[T]o the extent that a Supreme Court decision is applicable in interpreting the meaning of a statutory term, the elimination of a regulatory definition of such term would not preclude application of the Court’s construction."
Bostock. In the preamble to the 2020 Rules, HHS took the position that the "plain meaning of ‘sex’ under Title IX encompasses neither sexual orientation nor gender identity." HHS proposed the 2020 Rules two months after the Supreme Court granted cert in Bostock. On June 15, 2020, the High Court held in Bostock that "it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex." The final 2020 Rules, slated to take effect on August 18, 2020, were filed three days before the Supreme Court’s decision and published four days after.
Lawsuit. Seeking a declaration that the 2020 Rules are invalid under the Administrative Procedure Act as well as a vacatur of the rules, the plaintiffs—two transgender women with serious medical conditions that require ongoing care—sued, asking the court to stay the effective date and to preliminarily enjoin HHS from enforcing them. They alleged that due to their transgender status, they have been mocked by medical office staff and refused treatment by health care professionals. One claimed that during lung cancer treatment, she was required to answer invasive treatment about her genitals before receiving necessary care and was subjected to misgendering and physical abuse. The second claimed that during routine visits, doctors have mocked her body, refused to treat her, and used offensive language toward her after realizing she is transgender. Some doctors, she alleged, have also tried to treat her gender identity against her wishes and have refused to prescribe her necessary hormones.
Standing. Although HHS first argued that the plaintiffs lacked standing to sue, the court disagreed. The court agreed with the plaintiffs that based on their transgender status they suffered past discrimination in receiving health care, which "alone constitutes an injury in fact.
Remedies. Turning to the plaintiffs’ request for a stay and a preliminary injunction, the court, found it easy to conclude that the harm would be irreparable. As to the balance of equities and the public interest, HHS’ interest in its preferred policy could not outweigh the harm to the many nongender conforming members of the public for whom discrimination imposes a very concrete cost, said the court.
Likelihood of success. Calling disingenuous HHS’ claim that the 2020 Rules are legally valid, the court noted that while the rules themselves do not explicitly state that discrimination based on gender identity is permissible, the preamble makes it clear that a central reason for HHS’ action was a fundamental disagreement as to whether Title IX—and, by implication, Section 1557—prohibited discrimination based on gender identity and sex stereotyping. "HHS took a position on that issue, as it was entitled to do, but that position was effectively rejected by the Supreme Court."
Contrary to law. Although Bostock interpreted Title VII, HHS recognized that the decision would have "ramifications" because "Title VII case law has often informed Title IX case law with respect to the meaning of discrimination ‘on the basis of sex.’" If HHS had correctly predicted the outcome in Bostock, it may have taken a different path, the court noted. That it "continued on the same path even after Bostock was decided," however, satisfied the court that the premise of the repeal was a disagreement with a concept of sex discrimination later embraced by the Supreme Court. Therefore, the court found the repeal was contrary to law.
Arbitrary and capricious. As to HHS’ contention that its thorough reasoning for its proposed rules shows it did not act arbitrarily or capriciously, nothing, said the court, "could be further from the truth." The preamble makes clear that HHs’ reasoning was based upon its pre-Bostock understanding and contention that "reasonable distinctions on the basis of sex, as the biological binary of male and female, may, and often must, play a part in the decision-making process—especially in the field of health services."
One way an agency action can be arbitrary and capricious, said the court, is by entirely failing to consider an important aspect of the problem. And here, "the unmistakable basis for HHS’s action was a rejection of the position taken in the 2016 Rules that sex discrimination includes discrimination based on gender identity and sex stereotyping." Whether or not Bostock is dispositive of that issue with respect to Title IX and Section 1157, it is at least "an important aspect of that problem," said the court, pointing out that HHS knew the case was pending and would have "ramifications."
While it had an opportunity to reevaluate its proposed rules after Bostock, "it did nothing," the court observed. Indeed, the "timing might even suggest to a cynic that the agency pushed ahead specifically to avoid having to address an adverse decision," the court suggested. "But whether by design or bureaucratic inertia, the fact remains that HHS finalized the 2020 Rules without addressing the impact of the Supreme Court’s decision in Bostock. This makes it likely that plaintiff will succeed on their claim that the rules are arbitrary and capricious."
SOURCE: Walker v. Azar, (E.D.N.Y.), No. 20-CV-2834 (FB) (SMG), August 17, 2020.
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