Transgender bias case against Dignity Health could set off religious freedom clash

Dignity Health has answered a federal discrimination lawsuit filed by a transgender nurse by arguing that civil rights law does not require its self-insured employer health plan to cover gender reassignment-related care. It says Title VII of the Civil Rights Act does not cover transgender status as a protected classification.

The San Francisco-based hospital chain also argued last month in response to the closely watched suit—one of the first of its kind in the country—that HHS' May rule barring categorical exclusion of coverage for gender transition services does not take effect until Jan. 1, 2017. Prior to that, it argues, federal law does not require an employer to provide health coverage for “sex transformation” treatment.

In addition, the new federal anti-bias rule does not bar self-insured employer health plans from excluding benefits for services that are not medically necessary, according to Dignity's motion for dismissal. It said “the medical efficacy of sex transformation surgery remains the subject of debate.”

But lawyers for the American Civil Liberties Union who are representing nurse Josef Robinson say both Title VII and the new HHS rule interpreting Section 1557 of the Affordable Care Act clearly require employers and health plans to cover treatment related to gender dysphoria. That's the name for the condition where people feel they are not the gender they were assigned at birth.

Legal experts expect more such lawsuits following HHS' issuance of the anti-bias rule in May.

Lisa deFilippis, an attorney at Jackson Lewis in Cleveland who counsels employers on benefits, predicted that Catholic and other religious groups will turn to the courts seeking a religious freedom exemption from the federal prohibition against discrimination relating to gender reassignment-related care. It will be similar to legal challenges against the Affordable Care Act mandate to provide contraceptive coverage. “I would not be the least surprised to see people waving the Hobby Lobby and Zubik cases, saying this is the same thing and we shouldn't have to provide these services,” she said.

Robinson was assigned the gender of female at birth but identifies as a man. He claims the self-insured health plan operated by Chandler (Ariz.) Regional Medical Center, the Dignity-owned hospital where Robinson works, denied him coverage for double mastectomy and phalloplasty operations, and he had to pay thousands of dollars for the mastectomy and hasn't been able to afford the phalloplasty.

The Phoenix office of the federal Equal Employment Opportunity Commission found that the denial of coverage by Chandler Regional's plan was a Title VII violation and granted Robinson a notice of right to sue.

Dignity “is making an argument that's been rejected over and over and is flatly inconsistent with controlling law in the 9th Circuit,” said Josh Block, a senior staff attorney at the ACLU's LGBT Project in New York City.

The lead attorney for Dignity Health, Barry Landsberg, of Manatt Phelps & Phillips in Los Angeles, said he could not comment on pending litigation.

Dignity Health issued a written statement saying it is "committed to an inclusive, respectful, and nondiscriminatory workplace" and that Robinson "continues to be a valued member of our staff."

While the new HHS rule is not specific about every type of transgender-related healthcare service that must be covered, some legal experts say there's a medical consensus that gender reassignment care is medically necessary, depending on the patient. A growing number of employers are covering their employees for these services, including both nonsurgical and surgical care, according to the National Business Group on Health.

Michelle Phillips, a principal and litigator at Jackson Lewis, which represents employers, said the EEOC takes the position that excluding transgender medical benefits is discriminatory when the employee can show the services are medically necessary. The agency won't accept a categorical carve-out of such benefits. Some employers “are hiding behind the concept of 'medically necessary' to discriminate against transgender people,” she said.

In the wake of the new HHS rule, legal experts expect more lawsuits over denials of coverage for transgender-related care. There are an estimated 700,000 transgender people in the U.S. “It's natural for transgender people to ask 'Why do my co-workers get covered for their medical issues and I'm not covered for my mine?' ” deFilippis, said.

There is a similar federal case pending in Minnesota involving a nurse practitioner, Brittany Tovar, who claims that her employer, Essentia Health, and its third-party administrator improperly denied coverage for gender reassignment-related care to her teenage son during his transition from female to male. A judge granted the defendants' motion to dismiss based on lack of standing, and the plaintiff is appealing, according to Tovar's attorney, Lisa Gaulding of Minneapolis.

The extra twist in the Robinson case is a question about whether Dignity Health denied coverage at least partly because it was following the Ethical and Religious Directives of the U.S. Conference of Catholic Bishops, which prohibit sterilization.

Robinson's complaint cited an email exchange last November between his fiancé and Dignity's chief human resources officer, in which the executive wrote that Dignity officials considered “our ethical & religious directives” along with other factors in finding that the denial of coverage was not discriminatory. But neither the complaint nor Dignity's motion for dismissal otherwise raise the religious objection issue. That issue could be raised later if the judge doesn't grant Dignity's motion at a scheduled hearing next month.

The complaint also notes that Dignity filed a statement in the case asserting that exclusion of coverage for gender dysphoria was not discriminatory because “health benefits under the Dignity plan are not provided for any personality disorders, including sexual-gender identity disorders.”

That statement is consistent with the view of Catholic ethicists who oppose gender reassignment surgery and argue that many people who seek such treatment have a personality disorder that calls for psychotherapy, not gender reassignment surgery.

On Wednesday, a Dignity Health spokeswoman said her organization's original statement inaccurately described the basis for the categorical coverage exclusion in Robinson's case, which was gender dysphoria, not personality disorder.

When HHS proposed its rule last year barring discrimination based on transgender status, the U.S. Conference of Catholic Bishops in its public comments opposed the rule. The bishops said the rule violates the Religious Freedom Restoration Act. The ACLU's Block said those comments signaled that the bishops would seek a religious exemption from the rule.

But a number of medical organizations, including the American Medical Association, the American Psychiatric Association and the World Professional Association for Transgender Health, support gender reassignment-related treatment, saying it is beneficial and effective in appropriate cases.

The CMS, however, recently decided there's not enough evidence to support Medicare coverage nationally for sex-reassignment operations and that it would allow its local administrative contractors to make case-by-case determinations. On the other hand, the Veterans Affairs Department recently proposed a rule change to begin covering gender reassignment surgeries and related care for transgender veterans on a case-by-case basis.

A key issue in cases involving transgender discrimination claims against self-insured employer health plans is whether the plans fall under Section 1557 and the new HHS rule interpreting the law. That's because entities are only covered if they are part of a program that receives federal healthcare funding. The issue is clearer, however, when the employer is a hospital system receiving Medicare and Medicaid dollars. Hospitals are responsible for ensuring that their health plans comply with Section 1557, said Tim Jost, an emeritus law professor at Washington and Lee University who is an authority on the ACA.

But discrimination complaints against self-insured employer plans that do not fall under Section 1557 and the HHS rule still could be considered by the EEOC under Title VII and by state civil rights agencies, deFilippis said.

She expects more employers to extend gender reassignment-related benefits to their employees, while others with religious objections will resist. “From a public relations standpoint, the company looks inclusive and progressive,” deFilippis said. “The benefit for the individual is huge, and the reality is it's not costing the employer a lot. After all, how many transgender employees do you have?”