Florida operates a Medicaid Directed Payment Program that allows local governments to impose provider taxes on healthcare facilities. The state uses the revenue from these taxes to supplement its Medicaid contributions, which in turn triggers increased federal matching funds under the Medicaid program. However, federal law includes a 'hold harmless' rule that prohibits states from using provider taxes to artificially inflate federal matching funds if the state guarantees that taxpayers will be reimbursed for the tax costs. In 2023, the Centers for Medicare and Medicaid Services (CMS) issued an Informational Bulletin stating that private-to-private redistributions of Medicaid payments to offset provider taxes constitute impermissible hold-harmless arrangements. Florida sued, arguing the Bulletin was not reviewable agency action and was arbitrary and capricious. The district court dismissed the case, ruling the Bulletin was not final agency action. Florida appealed, seeking a preliminary injunction to stop the Bulletin's implementation while the case proceeded.
The court addressed two primary issues: jurisdiction and the merits of the preliminary injunction request. First, regarding jurisdiction, the court rejected CMS's argument that the Bulletin was merely a restatement of existing policy and thus not final agency action. Applying a pragmatic test, the court found the Bulletin determined rights and obligations because it threatened the clawback of billions in federal funds, mandated new information collection, and initiated financial management reviews. The court held that the Bulletin was final agency action and the challenge was ripe for review. Second, on the merits, the court analyzed whether CMS's interpretation of the hold-harmless rule was lawful. The statute, 42 U.S.C. § 1396b(w)(4)(C)(i), prohibits a state from providing a payment that 'guarantees to hold taxpayers harmless' for tax costs. Florida argued this required an explicit state promise of reimbursement. The court disagreed, holding that the statute requires the state to provide a payment that, in turn, guarantees the tax offset. The court found CMS's interpretation—that private redistributions of Medicaid payments resulting in tax offsets fall within the statute—was consistent with the text and did not render other statutory clauses superfluous. The court also rejected Florida's claims that CMS acted arbitrarily or capriciously, noting the Bulletin merely reiterated a 2008 policy position and did not change the law. Finally, the court determined the Bulletin was an interpretive rule, not a legislative rule, and thus did not require notice-and-comment procedures.
The decision allows Florida's lawsuit to proceed on the merits in the district court, as the case was remanded for further proceedings. While the preliminary injunction remains denied, the ruling clarifies that CMS Informational Bulletins threatening enforcement actions and fund clawbacks constitute final agency action subject to judicial review. The court did not issue a final judgment on the merits of the hold-harmless interpretation, leaving that question for the district court to resolve after the case is remanded.