1 Rule, 100M+ Patients: HHS Abandons Medicare/Medicaid Threat Over Trans Care

For legal and regulatory professionals, HHS’s quiet retreat from this unprecedented “conditions of participation” rule is a striking case study in executive overreach. The rule would have transformed a safety enforcement tool into a mechanism for banning specific, lawful medical treatments—a move that Sam Bagenstos, former HHS general counsel, says is precisely what the Medicare Act prohibits. The agency’s decision to drop the rule avoids a likely court defeat and preserves a key legal precedent: that Medicare and Medicaid cannot be wielded to dictate clinical practice.

The Department of Health and Human Services (HHS) under President Trump has decided not to finalize a proposed rule that would have severed all Medicare and Medicaid funding from hospitals that provide gender-affirming care to minors. This decision, revealed in an internal HHS document obtained by NPR, represents a significant retreat from one of the administration’s most aggressive federal actions against healthcare for transgender youth. The rule, which was never formally published in the Federal Register with a specific notice number, would have used the “conditions of participation” regulatory mechanism—the same lever HHS traditionally uses to enforce basic health and safety standards like emergency protocols and staffing ratios—to completely bar certain hospitals from the two largest federal health insurance programs. Its abandonment averts what legal experts describe as an almost certain court defeat, but it also leaves intact the underlying policy hostility that spawned it.

“

The rule would have transformed a safety enforcement tool into a mechanism for banning specific, lawful medical treatments—a move that Sam Bagenstos, former HHS general counsel, says is precisely what the Medicare Act prohibits.

The proposed rule was unprecedented. Historically, conditions of participation have been about ensuring hospitals meet minimum safety requirements—things like having stockpiles of equipment, proper emergency procedures, and adequate staffing. As Sam Bagenstos, former general counsel at HHS under the Biden administration and now a professor at the University of Michigan Law School, explains, this type of funding leverage has never been used to prohibit specific medical treatments for a particular population. The rule would have covered all gender-affirming care, which for minors primarily consists of mental health therapy, social transition support, and medications like puberty blockers and hormones; surgical interventions are extremely rare among patients under 18. Yet HHS’s press secretary, Emily Hilliard, defended the aborted rule with a statement that “The Trump Administration rejects ideologically driven surgical interventions on vulnerable children,” conflating the spectrum of care with the most invasive options.

The legal vulnerability of the rule was glaring. Bagenstos pointed out that it likely violated the Medicare Act, which explicitly states that nothing in the Medicare program shall authorize federal officers to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided (42 U.S.C. § 1395). By threatening to defund hospitals for offering medically appropriate, evidence-based care, HHS was arguably attempting exactly that kind of supervision. Additionally, the rule would have faced challenges under the Affordable Care Act’s Section 1557 nondiscrimination provisions, which prohibit sex-based discrimination in federally funded health programs, and likely under the Administrative Procedure Act for being arbitrary and capricious. The retreat, therefore, may reflect a strategic decision to avoid setting a damaging precedent in federal court that could further limit executive authority over healthcare.