Federal Judge Sides With Texas, Strikes Down CMS Medicaid Tax Funding Rule

A Trump-appointed federal judge has struck down a U.S. Centers for Medicare & Medicaid Services (CMS) rule about how states can provide funding for their share of Medicaid costs, according to multiple outlets.

U.S. District Judge Jeremy Kernodle in Tyler, Texas, on Wednesday permanently halted CMS from imposing a regulation that alters how states calculate their portion of Medicaid costs, Reuters reported on Wednesday. The judge ruled that the agency had overstepped its authority after it reinterpreted what types of provider tax arrangements constituted impermissible “hold harmless” agreements in a 2024 rule, Bloomberg Law reported on Thursday.

In April 2023, Republican Texas Attorney General Ken Paxtonannounced that he had filed a lawsuit against the Biden administration’s Department of Health and Human Services (HHS) and CMS challenging an informational bulletin from the agency that would force the Texas Health and Human Services Commission to provide information regarding private mitigation arrangements.

Paxton said in an April 2023 statement that CMS’s actions “imperil not only local governments’ ability to support Medicaid providers in their area, but the entire State of Texas’s ability to adequately fund its Medicaid program.” He further argued that the “unlawful” policy change would “endanger vulnerable Texans’ access to health care and handicap local providers’ ability to serve our citizens in every community across the state.”