On December 5, 2025, the U.S. Court of Appeals for the Eleventh Circuit issued a decision addressing a challenge by the State of Florida to a 2023 CMS “Informational Bulletin” interpreting the Medicaid “hold harmless” provisions governing provider taxes (the Bulletin). The Eleventh Circuit held that the district court erred in dismissing the case for lack of jurisdiction, concluding that the Bulletin constitutes a final agency action subject to judicial review under the Administrative Procedure Act. At the same time, the court affirmed the denial of preliminary injunctive relief, holding that Florida failed to demonstrate a substantial likelihood of success on the merits.
Medicaid is jointly funded by states and the federal government, with federal matching payments tied to a state’s Medicaid expenditures. As the court explained, states may implement provider taxes to generate additional federal matching funds. Congress imposed limits on the states’ ability to “juice federal contributions” through the “hold harmless” rule, which generally requires CMS to exclude revenues from health-care-related taxes from federal matching calculations if the tax arrangement effectively reimburses providers for the cost of the tax.
The statutory provision at issue, 42 U.S.C. § 1396b(w)(4)(C)(i), provides that a hold-harmless arrangement exists where a state “provides (directly or indirectly) for any payment, offset, or waiver that guarantees to hold taxpayers harmless for any portion of the costs of the tax.” The Eleventh Circuit emphasized that the case turned primarily on the meaning and application of this clause.
In February 2023, CMS issued the Bulletin addressing health care-related taxes and hold harmless arrangements involving the redistribution of Medicaid payments. The Bulletin stated that arrangements in which Medicaid payments are redistributed among private providers can violate the hold-harmless rule if they create a reasonable expectation that tax-paying providers will be held harmless for the cost of the tax. The Bulletin also warned that CMS could disallow federal financial participation if it identifies impermissible arrangements.
Florida challenged the Bulletin under the APA, arguing that it exceeded CMS’s statutory authority, was arbitrary and capricious, and was issued without required notice and comment. Florida also sought a preliminary injunction to prevent CMS from enforcing the Bulletin. The district court denied injunctive relief and dismissed the case on the ground that the Bulletin was not a final agency action.
The Eleventh Circuit rejected the district court’s jurisdictional ruling. Applying the Supreme Court’s two-part test for finality laid out in Bennett v. Spear, 520 U.S. 154, 177–78 (1997), the court concluded that the Bulletin consummates CMS’s decision-making process and had concrete legal consequences concerning investigation and enforcement. For example, the Bulletin explained that CMS would look into redistribution agreements, condition financial reviews, warned that non-compliance with the Bulletin’s requirements could result in potential disallowance of federal Medicaid matching funds. The Eleventh Circuit also noted that CMS’s subsequent actions reviewing Florida’s financing arrangements further support final agency action. Taken together, these factors demonstrated that the Bulletin imposed practical legal consequences sufficient to constitute final agency action reviewable under the APA.
Although the court found jurisdiction proper, it concluded that Florida was unlikely to succeed on the merits and therefore was not entitled to preliminary injunctive relief. The court rejected Florida’s argument that CMS’s interpretation conflicted with the statutory text, explaining that the statutory provision focuses on whether a payment guarantees that taxpayers are held harmless, not on whether the state expressly intends to guarantee reimbursement. The Eleventh Circuit also rejected Florida’s two additional extra-textual arguments. It was not persuaded that it would be absurd for the legality of a provider tax scheme to depend in part on private conduct, noting that federal Medicaid law already requires states to monitor Medicaid funding recipients and that adherence to the hold harmless rule is part of the bargain for receiving federal funds. The Eleventh Circuit likewise concluded that CMS’s interpretation of the Bulletin is superior to Florida’s and satisfied the limitations imposed by the Spending Clause.
The court also rejected Florida’s other arguments, including that CMS’s actions were arbitrary and capricious. The Eleventh Circuit explained that CMS’s interpretation was consistent with positions the agency had articulated as early as 2008 in a final rule preamble. Accordingly, the Eleventh Circuit reversed the dismissal for lack of jurisdiction, affirmed the denial of preliminary injunctive relief, and remanded the case for further proceedings.
This decision follows the Eastern District of Texas’s September 24, 2025 ruling in Texas v. Centers for Medicare & Medicaid Servs., No. 6:23-CV-161-JDK, 2025 WL 2724375 (E.D. Tex. Sept. 24, 2025), which reviewed CMS’s 2024 Final Rule that adopted the Bulletin’s requirements, the Bulletin, and another 2024 informational bulletin addressing the Medicaid hold-harmless provisions. In that case, the district court concluded that CMS exceeded its statutory authority, issuing injunctive relief against the challenged agency action. CMS is appealing that decision. Taken together, these decisions reflect that different courts have differing opinions on CMS’s interpretation and implementation of the hold-harmless provisions, underscoring the uncertainty surrounding how CMS will proceed in administering and enforcing the hold harmless provision going forward.
A copy of the decision is available here.
