Medicaid Gender Care Rule May Face Uphill Legal Battle

CMS' final rule prohibiting federal Medicaid and Children's Health Insurance Program (CHIP) funding for sex-rejecting procedures for individuals under the age of 18 and 19 years, respectively, took effect October 13, 2026, and is already facing legal challenges.^1,2

In an interview with The American Journal of Managed Care^® (AJMC^®), Alice Hall-Partyka, JD, of Crowell & Moring LLP, discussed the lawsuits filed against the rule, where its legal footing may be weakest, and what options remain for opponents beyond litigation.

This transcript has been lightly edited for length and clarity.

Lawsuits Challenge CMS' Medicaid Rule on APA and Constitutional Grounds

AJMC: Have any states or organizations filed suit or petitioned against the rule since it was published, and given CMS' novel use of the "best interests" and "quality of care" provisions, where do you see its biggest legal weaknesses?

Hall-Partyka: There have been 2 main lawsuits filed challenging the rule. The first, State of Illinois et al v US Department of Health and Human Services, was brought in early September by 21 states and the District of Columbia. The complaint challenged the rule as arbitrary and capricious and exceeding statutory authority on Administrative Procedure Act grounds, as well as in violation of the Spending Clause of the US Constitution.

A second lawsuit was filed earlier [in October] by families, including parents and their transgender adolescent children who are currently enrolled in Medicaid in New Hampshire, on similar Administrative Procedure Act grounds. It also makes an equal protection argument under the Fifth Amendment—essentially that the rule was motivated by discriminatory animus against transgender individuals and intentionally classified on the basis of sex and transgender status.

The plaintiffs' arguments under the Administrative Procedure Act in particular may be strong in light of the Supreme Court decision in Loper Bright. The Trump administration suffered a loss in court in April when a federal district court in Oregon vacated a declaration that HHS Secretary Robert F. Kennedy Jr. had released that attempted to exclude health care providers that offer gender-affirming care to minors from federal health care programs. This declaration had been released around the same time as the proposed Medicaid rule that was just recently finalized.

The court concluded that the Kennedy declaration violated federal requirements for notice-and-comment rulemaking, exceeded HHS' statutory authority, and interfered with state rights. Some of the court's analysis in that case could be analogous here, although key differences include that the Medicaid rule went through notice-and-comment rulemaking and does not as directly touch on the practice of medicine.

Court Rulings, Midterms Could Shape the Rule's Future

AJMC: The California v Kennedy ruling came 1 day after this rule was published, and CMS had referenced the essential health benefits (EHB) exclusion in the rule's preamble. Does losing that provision weaken the Medicaid rule's legal footing?

Hall-Partyka: It could weaken the administration's position, although the grounds on which the US District Court for the District of Massachusetts vacated the essential health benefits exclusion are not clearly analogous here. Specifically, in that case, the court found that the restriction on gender-affirming care as an essential health benefit was unlawful because the agency did not follow the specific process set forth in the Affordable Care Act to revise the essential health benefits list.

These grounds would not apply here. However, the trend between this decision and the Kennedy declaration decision could suggest that the Trump administration will face an uphill battle in defending the rule in the ongoing litigation.

AJMC: Beyond litigation, what options do opponents have? For example, petitions for rulemaking, the Congressional Review Act, or comments on the pending hospital Conditions of Participation rule.

Hall-Partyka: Opponents could petition for new rulemaking or issue comments on the still-pending Conditions of Participation rule, but success in these measures is unlikely. The administration has been focused on restricting gender-affirming care, particularly services provided to minors, since President Trump took office.

That multipronged effort continues with the finalization of this rule as well as significant enforcement actions by agencies such as the Department of Justice and recent referrals of health care providers to the HHS Office of Inspector General. However, depending on how the midterm elections go, Congress could seek to take action on these issues.

References

1. McCrear S. CMS rule ends Medicaid, CHIP funding for pediatric gender care. AJMC. October 13, 2026. Accessed October 16, 2026. https://www.ajmc.com/view/cms-rule-ends-medicaid-chip-funding-for-pediatric-gender-care

2. Medicaid program; prohibition on federal Medicaid and Children's Health Insurance Program funding for sex-rejecting procedures furnished to children. Fed Regist. 2026;91(155):52406-52474. Accessed October 16, 2026. https://www.federalregister.gov/documents/2026/08/13/2026-16508/medicaid-program-prohibition-on-federal-medicaid-and-childrens-health-insurance-program-funding-for