Costs loom amid evolving trans care policies

Hospitals urged CMS to withdraw proposed rules aimed at barring “sex-rejecting procedures” on children, while others warned of costs.

Several hospital groups raised objections to two proposed rules from CMS that would:

• Add a ban on “sex-rejecting procedures on children” to Medicare’s conditions of participation (CoP)
• Bar Medicaid and the Children’s Health Insurance Program (CHIP) from paying for such procedures

A violation of the CoPs can result in monetary sanctions, exclusion from Medicare and Medicaid and, potentially, False Claims Act violations, noted a December blog post from Hall Render.

The American Hospital Association (AHA) said in its comment letter that no prior CoP either barred or mandated a particular treatment for a particular diagnosis. In 2011, the Obama CMS proposed amending the CoP to mandate offering flu vaccines but never finalized it.

“That has never been — and never should be — the role of CoPs, especially if it leads to a continual back-and-forth across administrations over what specific medical procedures hospitals can, cannot or must provide,” AHA wrote.

The Children’s Hospital Association stated that the rules “… would effectively ban children’s hospitals from furnishing gender-affirming care to youth, even in states where state law authorizes — or requires — the provision of these services, and even for youth whose families are not beneficiaries of federal health care programs.”

Financial questions

Hospital revenue was estimated by CMS to decrease under the Medicare CoP rule by $53 million over 10 years and provider revenue would decrease by $318 million over 10 years from the Medicaid and CHIP rule.

A group of attorneys general from 20 Democrat-led states and the District of Columbia wrote to CMS stating that the agency “woefully” underestimates hospitals’ financial losses from the proposed rules.

CMS identified $31 million in 2023 Medicaid and CHIP spending for the targeted services. The agency cited published research in estimating that 9,851 children under the age of 18 undergo either or both surgical procedures and hormone treatments.

The Democrat attorneys general noted that “hospitals currently provide the vast majority of transgender healthcare to youth” and the proposed rule “is likely to impose significant burdens” not captured in CMS’s cost analysis. CMS estimated CoP rule compliance would cost hospitals a total of $1.9 million.

The attorneys general said hospitals would face a “terrible choice” of complying with the new CMS rules or complying with state antidiscrimination laws that mandate such treatments.

The chief law enforcement officers cited administrative complaints and lawsuits in Pennsylvania, Connecticut and Colorado, alleging hospitals have violated those states’ antidiscrimination laws by terminating their transgender healthcare programs for youth. More than 40 hospitals and health systems have paused or stopped offering some form of gender-affirming care for young people, including hormonal treatments and surgical procedures, according to a recent published report.

The Massachusetts Health & Hospital Association (MHMA) said in comments to CMS that the potential financial consequences from the rules could have extreme results.

“Faced with regulatory uncertainty and the risk of severe financial penalties, hospitals may limit services beyond gender-affirming care, curtail pediatric specialties or exit federal programs altogether to mitigate risk of penalties,” wrote Steven Walsh, president and CEO of MHMA.

Fast-moving developments

The proposed rules come amid numerous developments that underscored the tumultuous legal and financial situation for hospitals.

On Jan. 30, California Attorney General Rob Bonta sued Rady Children’s Health for discontinuing its gender-affirming care program for patients younger than 19. The three-hospital system said the move was in response to escalating federal pressure. But Bonta sought unspecified financial penalties due to the system allegedly violating state conditions on Rady Children’s Hospital of San Diego’s merger with Children’s Hospital of Orange County and its affiliates.

Also on Jan. 30, a New York jury awarded [subscription required] $2 million to a 22-year-old “detransitioner” for medical malpractice stemming from a gender-transition mastectomy she received at age 16. Legal analysts described it as the first such award against healthcare providers and noted that hospitals face similar lawsuits.

On Feb. 18, Texas Attorney General Ken Paxton filed a $1 million lawsuit against Children’s Health System of Texas and a pediatric gynecologist. Paxton alleged they violated state law barring gender-affirming care to minors and committed Medicaid fraud. The suit also sought up to $15,000 per violation since 2017. Texas is one of 26 states that have banned minors from accessing transition-related treatments.

On Feb. 3, the American Society of Plastic Surgeons reversed its stance and recommend against such procedures for minors, stating that surgeons should “delay gender-related breast/chest, genital and facial surgery until a patient is at least 19 years old.”

On Feb. 4, the American Medical Association said that surgical interventions [subscription required] for children and teens seeking gender-related care should usually be deferred until patients are adults.

Among numerous other Trump administration actions on youth gender care, HHS General Counsel Mike Stuart referred six hospitals for investigation to the HHS Office of Inspector General. The referrals were “for allegedly failing to protect our children from sex-rejecting procedures — procedures that cause permanent terrible harm,” according to a Jan. 15 post on X.

Hospital options

Attorneys note “there is a building tension between state laws and the administration’s efforts to restrict or prevent medication and surgical gender-affirming care, especially for minors,” according a 2025 blog post by the law firm Epstein Becker & Green.

Recommended steps for providers include the following:

• Review relevant policies and procedures, including those relating to informed consent.
• Consider billing and coding audits and review clinical documentation practices to ensure accuracy and compliance with evolving regulations and developments.
• Understand dual obligations under both federal and state law, although there may be areas where they are irreconcilable.
• Look to state agencies and licensing boards for guidance or legal support.
• Assess the value of second opinions, or even committee review, before undertaking gender-affirming care.
• Consult with legal, risk, compliance and ethics professionals.