Understanding the Eleventh Circuit’s Medicaid Decision
The potential circuit split in Medicaid jurisprudence emerged following the Eleventh Circuit’s December 5, 2025, ruling in Florida Agency for Health Care Administration v. Administrator for the Centers for Medicare & Medicaid Services. This landmark decision addresses critical questions about federal authority over state Medicaid financing arrangements and could reshape how states fund their healthcare programs for low-income residents.
The Eleventh Circuit’s ruling examined a 2023 Centers for Medicare and Medicaid Services informational bulletin that reinterpreted the statutory “hold harmless” provisions governing provider taxes. These provisions, codified in 42 U.S.C. § 1396b(w)(4)(C)(i), prohibit states from creating arrangements that guarantee healthcare providers will be reimbursed for taxes they pay to support Medicaid programs.
The Hold Harmless Provision Controversy
States have historically relied on provider taxes to generate revenue that triggers federal matching funds for Medicaid programs. Under this financing mechanism, states impose taxes on healthcare providers such as hospitals and nursing facilities. These tax revenues count toward the state’s share of Medicaid spending, which the federal government then matches based on each state’s Federal Medical Assistance Percentage.
The controversy centers on whether private agreements among healthcare providers to redistribute Medicaid payments violate federal hold harmless rules. The Centers for Medicare and Medicaid Services issued its February 2023 informational bulletin warning that such redistribution arrangements could create reasonable expectations that tax-paying providers would be held harmless for their tax costs, potentially disqualifying states from receiving federal matching funds.
Eleventh Circuit Ruling Creates Legal Uncertainty
The Eleventh Circuit’s decision contained two significant components that have major implications for state Medicaid programs nationwide. First, the court rejected the district court’s dismissal on jurisdictional grounds, finding that the Centers for Medicare and Medicaid Services bulletin constituted final agency action reviewable under the Administrative Procedure Act. This determination opened the door for judicial scrutiny of the agency’s interpretation.
Final Agency Action Determination
Applying the Supreme Court’s Bennett v. Spear framework, the Eleventh Circuit concluded the bulletin consummated the agency’s decision-making process and imposed concrete legal consequences. The court noted that the bulletin explained Centers for Medicare and Medicaid Services would investigate redistribution agreements, condition financial reviews on compliance, and potentially disallow federal matching funds for non-compliant arrangements.
However, the court simultaneously held that Florida failed to demonstrate a substantial likelihood of success on the merits. The Eleventh Circuit rejected Florida’s argument that the Centers for Medicare and Medicaid Services interpretation conflicted with statutory text, explaining that the hold harmless provision focuses on whether payments guarantee reimbursement rather than whether states expressly intend such guarantees.
Texas Eastern District Creates Circuit Split
The potential circuit split emerged when the Eastern District of Texas issued a September 24, 2025, ruling in Texas v. Centers for Medicare & Medicaid Services that directly contradicted the Eleventh Circuit’s substantive analysis. The Texas district court concluded that the Centers for Medicare and Medicaid Services exceeded its statutory authority and issued injunctive relief preventing enforcement of the challenged agency actions.
Conflicting Interpretations of Federal Authority
The Texas court found that Centers for Medicare and Medicaid Services lacked authority to prohibit private agreements among healthcare providers. The court emphasized that from 1993 through 2019, the agency maintained that private provider agreements did not violate hold harmless statutes because states played no role in guarantees made among private parties. This position was reinforced through Office of Inspector General audits, statements in rulemaking preambles, and email correspondence.
The Eastern District of Texas determined that the Centers for Medicare and Medicaid Services’s 2023 bulletin represented an unlawful reversal of longstanding policy without adequate justification. The court noted that the agency’s November 2019 proposed Medicaid Fiscal Accountability Regulation first signaled this shift, indicating an intention to remove the requirement for state action in determining hold harmless violations.
Implications for State Medicaid Financing
These conflicting rulings create substantial uncertainty for states operating Medicaid programs that rely on provider tax financing mechanisms. Florida, Texas, Louisiana, and numerous other states have implemented Local Provider Participation Funds and similar arrangements that could be jeopardized by the Centers for Medicare and Medicaid Services’s expanded interpretation of hold harmless provisions.
Financial Stakes for Healthcare Systems
The financial implications are enormous. Texas officials estimated that enforcement of the Centers for Medicare and Medicaid Services bulletin could cost the state tens of billions of dollars in federal matching funds. Florida negotiated an extension until January 31, 2026, to submit detailed reports about provider agreements and assessment rates as a condition for federal approval of its Section 1115 demonstration waiver amendment.
Healthcare provider organizations including the Florida Essential Healthcare Partnerships, Louisiana Essential Healthcare Partnerships, and Florida Hospital Association filed amicus curiae briefs supporting Texas’s legal challenge. These organizations argued that the Centers for Medicare and Medicaid Services’s policy shift threatens funding mechanisms that states have relied upon for decades to provide healthcare services to vulnerable populations.
Administrative Procedure Act Challenges
Both Florida and Texas challenged the Centers for Medicare and Medicaid Services actions under the Administrative Procedure Act, arguing the agency exceeded its statutory authority, acted arbitrarily and capriciously, and failed to follow required notice and comment procedures. The Eleventh Circuit rejected Florida’s arbitrary and capricious claim, finding the agency’s interpretation consistent with positions articulated in a 2008 final rule preamble.
Notice and Comment Requirements
Critics argue the Centers for Medicare and Medicaid Services improperly used an informational bulletin to implement substantive policy changes that should have undergone formal rulemaking procedures. The agency subsequently codified the bulletin’s requirements in an April 2024 final rule on Medicaid managed care, which Texas challenged through a supplemental complaint. The Centers for Medicare and Medicaid Services indicated it would defer enforcement of hold harmless prohibitions until 2028, allowing current legal challenges to proceed.
Broader Healthcare Policy Implications
The circuit split reflects fundamental disagreements about federalism, state sovereignty in administering Medicaid programs, and the scope of federal regulatory authority under the Social Security Act. States argue they should retain flexibility to design financing mechanisms that maximize federal matching funds while maintaining adequate provider reimbursement. The Centers for Medicare and Medicaid Services contends it must prevent states from circumventing statutory limitations on provider tax arrangements.
Future of Medicaid Financing
The conflicting rulings may ultimately require Supreme Court intervention to establish uniform national standards. Until then, states in different federal circuits face divergent legal obligations. States within the Eleventh Circuit must comply with the Centers for Medicare and Medicaid Services bulletin interpretation, while states in the Eastern District of Texas enjoy temporary protection from enforcement.
Healthcare providers, state Medicaid agencies, and policy experts are closely monitoring how this legal uncertainty affects ongoing Medicaid financing arrangements. The Centers for Medicare and Medicaid Services has appealed the Texas Eastern District decision, setting the stage for potential Fifth Circuit review that could either deepen the circuit split or provide an opportunity for reconciliation with the Eleventh Circuit’s approach.
Conclusion: Awaiting Resolution
The emerging circuit split on Medicaid hold harmless provisions represents one of the most significant healthcare financing disputes in recent years. With billions of dollars in federal matching funds at stake and fundamental questions about federal-state relations unresolved, stakeholders across the healthcare industry await further judicial clarification. States must navigate this uncertain legal landscape while ensuring continued access to Medicaid services for millions of vulnerable beneficiaries who depend on these critical healthcare programs.
