The Eleventh Circuit Court of Appeals affirmed the denial of Florida’s motion for a preliminary injunction of the implementation of an informational bulletin issued by the Centers for Medicare and Medicaid (CMS) entitled “Health Care-Related Taxes and Hold Harmless Arrangements Involving the Redistribution of Medicaid Payments.” Florida Agency for Health Care Admin. v. Adm’r for the Ctrs. for Medicare & Medicaid Servs., 161 F.4th 765 (11th Cir. Dec. 5, 2025).
In 2023, CMS issued an informational bulletin stating that under federal Medicaid law, the statutory hold-harmless provision, which prohibits states from receiving federal matching Medicaid funds that correspond to state Medicaid funding derived from healthcare-related taxes, applies to private-to-private redistribution arrangements. The State of Florida and Florida’s Agency for Healthcare Administration (Florida) brought an action seeking judicial review of the informational bulletin and filed a motion for a preliminary injunction, asserting that the informational bulletin incorrectly interpreted 42 U.S.C. § 1396b(w)(1)(A)(iii), was arbitrary and capricious, and was improperly issued without a notice and comment period as required by the Administrative Procedure Act (APA).
The federal district court did not address Florida’s arguments on the merits but denied its motion for a preliminary injunction on the basis that it lacked jurisdiction to review the informational bulletin because it was not a final agency action. The court granted CMS’s motion to dismiss the action. Florida appealed.
The Eleventh Circuit Court of Appeals noted that under 42 U.S.C. § 1396b(w)(1)(A)(iii), the U.S. Department of Health and Human Services (HHS) must deduct any funding a state obtains through healthcare-related taxes from its federal matching calculation. However, HHS is not required to deduct revenue a state raises through broad-based healthcare-related taxes. Nevertheless, even broad-based healthcare-related taxes must be deducted if there is a hold-harmless mechanism whereby “[t]he State or other unit of government imposing the tax 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.” 42 U.S.C. § 1396b(w)(4)(C)(I)) (emphasis added). CMS issued the informational bulletin and similar prior regulations because of its concern that hospitals could circumvent the hold-harmless rule by redistributing Medicaid payments among themselves to offset healthcare-related taxes.
Florida’s directed payment program allows local governments to assess fees on private hospitals, which they then pool in local provider participation funds and transfer to Florida’s Agency for Healthcare Administration. Florida uses the funds to increase its Medicaid contribution, which enables it to collect more federal matching funds. The Agency for Healthcare Administration provides those federal funds to managed care organizations that return them to the hospitals, which receive higher Medicaid payments than they would have in the absence of the directed payment program.
The court determined that under the APA, CMS’s informational bulletin was a final agency action subject to judicial review. To be final, an agency’s action must (1) mark the consummation of the agency’s decision-making process and (2) be an action from which rights or obligations have been determined or legal consequences will flow. CMS argued that the informational bulletin was not a final agency action because it was merely a restatement of a preexisting policy and did not, on its own, determine any rights or obligations or impose any legal consequences. The court disagreed, finding that the informational bulletin was an interpretive rule rather than merely a restatement of preexisting policy. The court stated that an interpretive rule that revises a prior interpretive rule can be final and thus subject to judicial review under the APA if, as a practical matter, it has direct and appreciable legal consequences.
The informational bulletin, although it purported to reiterate CMS’s preexisting position, went further than earlier regulations by stating that CMS would investigate healthcare-related tax programs that it suspected were impermissible redistribution arrangements, including private-to-private arrangements, and claw back Medicaid funding if it found noncompliant arrangements. It further demanded that states make pertinent information available and notify hospitals of updated expectations. In addition, following the issuance of the informational bulletin, CMS took several additional actions: It began a review of Florida’s local provider participation funds, issued an announcement that it was deferring enforcement actions, and imposed a new requirement that Florida must provide copies of agreements regarding arrangements among healthcare providers funded by local taxes. The court found that these actions collectively confirmed that the informational bulletin imposed new, practical legal consequences and thus was a final agency action subject to judicial review.
Further, the court determined that Florida’s challenge to the informational bulletin was ripe for review for many of the same reasons it was a final action. Delaying review would cause significant harm to Florida because of the bulletin’s new requirement disallowing private hold-harmless arrangements. In addition, the informational bulletin represented CMS’s definite and refined views, which did not require additional development, so judicial review would not inappropriately interfere with a decision-making process.
The court rejected Florida’s arguments that the informational bulletin was unlawful because it exceeded CMS’s statutory authority. The court found that CMS’s interpretation of 42 U.S.C. § 1396b(w)(4)(C)(i)—that is, that a direct guarantee is found when a state payment is made available to a taxpayer or a party related to the taxpayer in the reasonable expectation that the taxpayer would be held harmless for any part of the tax—was stronger than Florida’s interpretation that the state must intentionally and deliberately cause the taxpayer’s liability to be offset. The court agreed with CMS that § 1396b(w)(4)(C)(i) did not say that the state must guarantee anything but rather that the state provides a payment that guarantees that the taxpayer will be held harmless.
Further, CMS’s issuance of the informational bulletin was not arbitrary and capricious: CMS had not changed its position but had simply used more specific language to apply a policy that it had adopted in 2008.
In addition, the court ruled that CMS was not required by the APA to comply with notice and comment procedures because the informational bulletin was an interpretative rather than legislative rule.
Consequently, the court held that because Florida was unlikely to succeed on the merits, the district court had properly denied its motion for a preliminary injunction. The court affirmed the district court’s denial of Florida’s preliminary injunction on the merits and remanded the case for further proceedings.
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