backEleventh Circuit Upholds CMS’s 2023 Bulletin on Medicaid Hold Harmless Provisions While Rejecting Jurisdictional Dismissal
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.
Reporter, Dennis Mkrtchian, Los Angeles, + 1 213 218 4046, dmkrtchian@kslaw.com
CMS Issues Home Health Prospective Payment Final Rule for CY 2026
On November 28, 2025, CMS issued its annual Home Health Prospective Payment System Final Rule for Calendar Year (CY) 2026 (the Final Rule). The Final Rule continues recent trends of using provisions of the Bipartisan Budget Act of 2018 (BBA ’18) to decrease Medicare home health rates through permanent adjustments, and, for the first time, uses that authority to enact “temporary” cuts to the rates to correct for behavioral adjustments made in response to the Patient-Driven Groupings Model (PDGM) adopted in 2020. However, the Final Rule has finalized a smaller decrease than that in the Proposed Rule. The Final Rule makes a -1.023 percent permanent adjustment and a -3.0 percent temporary adjustment to the base payment rates. CMS estimates that Medicare payments to home health providers under the Final Rule will decrease in the aggregate by approximately 1.3 percent, or $220 million, compared to CY 2025. This reflects a decrease from the estimated 7.159 aggregate decrease proposed in the July Proposed Rule.
Background on The Bipartisan Budget Act of 2018 and the Behavioral Adjustments
In BBA ’18, Congress directed CMS to revamp its methodology for calculating payments for home health encounters. CMS was directed to calculate a new payment rate based upon a 30-day episode of care versus a 60-day episode of care used under the prior methodology. BBA ’18 also directed CMS to eliminate therapy visit thresholds as a determinant of the amount of payment per episode of care. Additionally, BBA ’18 directed CMS to adjust the new payment rate to ensure that the total amount of home health expenditures in 2020 would not be greater than what expenditures would be if payment methodologies had not changed. 42 U.S.C. § 1395fff. BBA ’18 also directed CMS to make predictions as to whether the new payment methodology would change provider behavior and, if so, to make an adjustment to the 2020 rate to offset these predicted behavioral changes.
Congress also instructed CMS, beginning in CY 2020 and lasting until 2026, to compare its predictions to actual changes in behavior and, depending on the results, make two types of adjustments. First, CMS could make a temporary positive or negative adjustment to the rates for the upcoming year to account for any underpayment or overpayment in the prior year resulting from the difference between its behavioral predictions and actual behavioral changes. Second, CMS could make a permanent adjustment to the home health rates going forward—again, either a positive or negative adjustment depending on the difference between its predicted and actual behavior changes. 42 U.S.C. § 1395fff(b)(3)(D).
CMS implemented the changes required by BBA ’18 and established the PDGM in CY 2020. CMS predicted at that time that changes in behavior would increase aggregate payments and adjusted the rates to offset the anticipated budgetary impact of those changes.
In the CY 2023 rule, in accordance with BBA ’18, CMS began to further adjust the rates to account for differences between predicted and actual behavior. CMS took actual claims data from CY 2020 and repriced those claims to determine how much Medicare would have expended under the pre-PDGM methodology. Based on that analysis, CMS determined in CY 2023 that unaccounted for changes in behavior had increased aggregate expenditures by more than predicted and, accordingly, applied permanent downward adjustments to prevent those behavioral changes from increasing expenditures on a prospective basis.
CMS took the same approach in the CY 2024 and 2025 rules and again reduced the rates based on the difference between predicted and actual changes in behavior. In prior years, CMS acknowledged that a full permanent adjustment in a single year might be burdensome to providers. Thus, in the CY 2023–2025 final rules, CMS finalized only half of the permanent adjustments.
In the CY 2026 Proposed Rule, CMS estimated based on the latest claims data that a permanent adjustment of -4.059 percent to the prior year’s rate would be needed to adjust the rates on a prospective basis to correct for the difference between predicted and actual behavior changes.
In the Final Rule, CMS considered additional data, from which CMS determined permanent adjustment of -4.162 percent would be necessary. However, again recognizing burdens that this decrease could place on providers, CMS has decided to instead finalize a -1.023 percent permanent adjustment, based only on changes in estimated aggregate expenditures as previously calculated for CYs 2020–2022.
For the first time since implementing PDGM, CMS is adopting temporary behavioral adjustments in CY 2026. Based on its analysis of claims data between CYs 2020 through 2024, CMS estimates that differences between assumed and actual behavioral changes increased aggregate program expenditures by approximately $5.3 billion. CMS projects that a budget neutrality adjustment of approximately -3.4 percent would be needed to recoup that amount in CY 2026. Acknowledging an adjustment of that magnitude would impose a significant hardship on HHAs, CMS has finalized a temporary adjustment of -3.0 percent in CY 2026, with the expectation that CMS may make up the difference with additional temporary adjustments in future years. This marks a decrease from the -5.0 percent proposed in the July Proposed Rule.
Additional Final Rules
CMS also finalized an update factor of positive 2.4 percent to the national, standardized 30-day payment rate and per-visit rates. The update factor reflects a positive 3.2 percent market basket percentage increase and a negative 0.8 percentage productivity adjustment.
CMS also has expanded the types of practitioners who can perform the mandatory face-to-face encounter preceding the start of home health care. Under the prior rule, the face-to-face encounter had to be performed by the certifying physician or a practitioner who cared for the patient in the acute or post-acute facility from which the patient was directly admitted to home health care. Under the new rule, physicians, nurse practitioners, clinical nurse specialists and physician assistants will be permitted to perform the face-to-face encounter regardless of whether they are the certifying practitioner or whether they cared for the patient in the acute or post-acute facility from which the patient was admitted to home health care.
The Final Rule is available here. The CMS fact sheet is available here.
Reporter, William Mavity, Los Angeles, +1 213 218 4043, wmavity@kslaw.com
Upcoming Events
What Healthcare Providers That Sponsor ERISA Plans Need to Know For 2026
- Wednesday, December 17, 2025, 12:00 p.m. – 1:00 p.m. ET
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Regulators and the press are highlighting perceived abuses by insurers who serve as third-party administrators of self-funded ERISA health plans. Meanwhile, participant lawsuits alleging that health plan fiduciaries have paid excessive fees to TPAs and PBMs are emerging, alongside litigation against TPAs and PBMs themselves. In this environment, healthcare providers sponsoring their own ERISA plans may be concerned that, even as insurers underpay their medical claims as providers, they may be charging excessive or concealed fees on their employee health plan claims.
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Editors: Chris Kenny and Ahsin Azim
Issue Editors: Robert Stenzel and Marcia Foti