District Court Vacates HHS Declaration Threatening to Cut Medicaid and Medicare Funding for Gender-Affirming Care

The court granted summary judgment to a coalition of states and the District of Columbia in State of Oregon et al v. Kennedy et al, finding that Secretary Kennedy’s December 2025 declaration exceeded his statutory authority, violated Medicare and APA notice-and-comment requirements, and unlawfully interfered with state-administered Medicaid plans.

The dispute centers on Secretary Kennedy’s declaration titled “Safety, Effectiveness, and Professional Standards of Care for Sex-Rejecting Procedures on Children and Adolescents.” The document declared that gender-affirming care for minors fails to meet professionally recognized standards of health care and superseded existing state and national standards.

Following the declaration’s issuance, HHS General Counsel Mike Stuart announced referrals of at least seventeen healthcare providers, including children’s hospitals in Seattle, Colorado, and California, to the Office of Inspector General for exclusion from federal programs.

The threat of exclusion caused immediate disruption. By February 2026, more than forty hospital systems across the country had suspended gender-affirming care for minors, citing the risk of losing critical federal funding.

Judge Kasubhai held that the declaration constituted final agency action subject to judicial review, rejecting the government’s argument that it was merely a non-binding opinion. The court noted that HHS had already treated the declaration as a definitive standard, using it to justify enforcement referrals and demanding immediate compliance.

The court found the declaration violated the Medicare Act’s requirement for notice and comment rulemaking when establishing substantive legal standards governing provider eligibility. It also ruled the declaration violated the APA’s notice-and-comment procedures because it functioned as a binding rule rather than a general statement of policy.

Furthermore, the court held that the declaration exceeded statutory authority because no statute grants the HHS Secretary the power to unilaterally declare a treatment modality unsafe and effective for the purpose of excluding providers. The court emphasized that states, not the federal government, are the primary regulators of medical conduct.

The opinion also addressed the impact on Medicaid, noting that the declaration effectively prevented payment for services covered under approved state Medicaid plans without providing the “reasonable notice and opportunity for hearing” required by statute.

In its remedy, the court vacated the Kennedy Declaration and issued a permanent injunction prohibiting HHS and the Office of Inspector General from implementing the declaration or any materially similar policy against providers in the plaintiff states.

The court declared that Defendants lack the authority to unilaterally establish standards of care that supersede professionally recognized standards for gender-affirming care in the plaintiff states or to exclude providers based on their provision of such care.