UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF TEXAS

TYLER DIVISION

STATE OF TEXAS; TEXAS HEALTH 

AND HUMAN SERVICES 

COMMISSION,

No. 6:23-cv-00191-JDK

Plaintiffs,

v.

CHIQUITA BROOKS-LASURE, in her 

official capacity as Administrator of the 

Centers for Medicare and Medicaid 

Services; THE CENTERS FOR MEDICARE

AND MEDICAID SERVICES; XAVIER 

BECERRA, in his official capacity as 

Secretary of the United States 

Department of Health and Human 

Services; UNITED STATES DEPARTMENT 

OF HEALTH AND HUMAN SERVICES; and 

the UNITED STATES OF AMERICA,

Defendants.

PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION

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TABLE OF CONTENTS

Table of Contents............................................................................................................i

Table of Authorities ......................................................................................................iii

Introduction ................................................................................................................... 1

Background ................................................................................................................... 4

I. Overview of Medicaid and Hold Harmless Arrangements ..................... 4

A. The Medicaid program .................................................................. 4

B. Statutory prohibitions barring hold harmless 

arrangements................................................................................. 6

C. Subsequent regulatory developments........................................... 7

II. Texas Medicaid and Local Provider Participation Funds..................... 11

III. CMS’s February 17 Bulletin and Immediate Threats of 

Enforcement ........................................................................................... 14

Argument ................................................................................................................. 16

I. Texas Is Likely to Succeed on the Merits. ............................................. 16

A. The February 17 bulletin exceeds CMS’s statutory and 

regulatory authority. ................................................................... 17

1. The February 17 bulletin’s definition of hold harmless

arrangements conflicts with the Social Security Act. ... 18

2. CMS’s agency regulations do not encompass the 

bulletin’s definition of a prohibited hold harmless 

arrangement. ................................................................... 22

B. The February 17 bulletin is procedurally invalid because 

it did not go through notice-and-comment rulemaking. ............ 23

C. The bulletin is arbitrary and capricious because it 

departed from past practice and did not consider the 

States’ substantial reliance interests. ........................................ 26

II. Texas Will Suffer Irreparable Harm Absent a Preliminary 

Injunction................................................................................................ 29

A. The bulletin imposes compliance burdens that Texas will 

never be able to recover............................................................... 30

B. The bulletin also appears to require HHSC to violate the 

rights of private parties............................................................... 32

III. The Balance of the Equities and the Public Interest Favor 

Temporary and Preliminary Injunctive Relief...................................... 33

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Conclusion ................................................................................................................. 34

Certificate of Conference ............................................................................................. 35

Certificate of Service.................................................................................................... 35

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TABLE OF AUTHORITIES

Page(s)

Cases:

Abraham Lincoln Mem. Hosp. v. Sebelius,

698 F.3d 536 (7th Cir. 2012) .................................................................................... 5

Ams. for Prosperity Found. v. Bonta,

141 S. Ct. 2373 (2021) ............................................................................................ 32

Ark. Dep’t of Health & Hum. Servs. v. Ahlborn,

547 U.S. 268 (2006) .............................................................................................. 4, 5

Azar v. Allina Health Servs.,

139 S. Ct. 1804 (2019) ............................................................................................ 24

Bowen v. Massachusetts,

487 U.S. 879 (1988) .................................................................................................. 5

BST Holdings, L.L.C. v. OSHA,

17 F.4th 604 (5th Cir. 2021)............................................................................. 28, 29

Cameron v. EMW Women’s Surgical Ctr., P.S.C.,

142 S. Ct. 1002 (2022) ............................................................................................ 30

City of Sherman v. Pub. Util. Comm’n of Tex.,

643 S.W.2d 681 (Tex. 1983).................................................................................... 30

Commonwealth v. Biden,

57 F.4th 545 (6th Cir. 2023)............................................................................. 30, 32

Corley v. United States,

556 U.S. 303 (2009) ................................................................................................ 21

DHS v. Regents of the University of California,

140 S. Ct. 1891 (2020) ............................................................................................ 27

DFW Metro Line Servs. v. Sw. Bell Tel. Co.,

901 F.2d 1267 (5th Cir. 1990) ................................................................................ 30

Douglas v. Indep. Living Ctr. of S. Cal., Inc.,

565 U.S. 606 (2012) .................................................................................................. 5

Easom v. US Well Servs., Inc.,

37 F.4th 238 (5th Cir. 2022)................................................................................... 19

Entergy Servs., Inc. v. FERC,

375 F.3d 1204 (D.C. Cir. 2004)............................................................................... 22

Environmental, LLC v. FCC,

661 F.3d 80 (D.C. Cir. 2011) .................................................................................. 21

FCC v. Fox Television Stations, Inc.,

556 U.S. 502 (2009) .......................................................................................... 26, 27

FCC v. Prometheus Radio Project,

141 S. Ct. 1150 (2021) ............................................................................................ 26

Harris v. McRae,

448 U.S. 297 (1980) .................................................................................................. 5

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Hibbs v. Winn,

542 U.S. 88 (2004) .................................................................................................. 21

League of Women Voters of U.S. v. Newby,

838 F.3d 1 (D.C. Cir. 2016) .................................................................................... 32

Lincoln v. Vigil,

508 U.S. 182 (1993) ................................................................................................ 25

Marsh v. Or. Nat. Res. Council,

490 U.S. 360 (1989) ................................................................................................ 27

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,

463 U.S. 29 (1983) .................................................................................................. 26

NFIB v. OSHA,

142 S. Ct. 661 (2022) .............................................................................................. 30

Nken v. Holder,

556 U.S. 418 (2009) ................................................................................................ 29

Perez v. Mortg. Bankers Ass’n,

575 U.S. 92 (2015) ............................................................................................ 23, 24

Physicians for Soc. Resp. v. Wheeler,

956 F.3d 634 (D.C. Cir. 2020) ................................................................................ 27

Protestant Mem. Med. Ctr., Inc. v. Maram,

471 F.3d 724 (7th Cir. 2006) ........................................................................ 6, 13, 19

Roho, Inc. v. Marquis,

902 F.2d 356 (5th Cir. 1990) .................................................................................. 16

Sec’y of State of Md. v. Joseph H. Munson Co.,

467 U.S. 947 (1984) ................................................................................................ 32

Shell Offshore Inc. v. Babbitt,

238 F.3d 622 (5th Cir. 2001) .................................................................................. 25

Sw. Airlines Co. v. FERC,

926 F.3d 851 (D.C. Cir. 2019) ................................................................................ 27

Tex. Oil & Gas Ass’n v. EPA,

161 F.3d 923 (5th Cir. 1998) .................................................................................. 26

Texas v. Brooks-LaSure,

No. 6:21-cv-00191, 2021 WL 5154219 (E.D. Tex. Aug. 20, 2021) ..................... 1, 11

Texas v. Brooks-LaSure,

No. 6:21-cv-00191, 2022 WL 741065 

(E.D. Tex. Mar. 11, 2022)............................................................. 1, 3, 7, 8, 9, 14, 19

Texas v. United States,

524 F. Supp. 3d 598 (S.D. Tex. 2021)..................................................................... 24

Texas v. United States,

787 F.3d 733 (5th Cir. 2015) .................................................................................. 32

Texas v. United States,

809 F.3d 134 (5th Cir. 2015) .................................................................................. 24

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Thomas v. Reeves,

961 F.3d 800 (5th Cir. 2020) (en banc) .................................................................. 19

Thunder Basin Coal Co. v. Reich,

510 U.S. 200 (1994) ................................................................................................ 29

U.S. Dep’t of Lab. v. Kast Metals Corp.,

744 F.2d 1145 (5th Cir. 1984) ................................................................................ 24

Univ. of Tex. M.D. Anderson Cancer Ctr. v. HHS,

985 F.3d 472 (5th Cir. 2021) .................................................................................. 26

Valley v. Rapides Par. Sch. Bd.,

118 F.3d 1047 (5th Cir. 1997) ................................................................................ 16

Wages & White Lion Invs., LLC v. FDA,

16 F.4th 1130 (5th Cir. 2021)................................................................................. 27

West Virginia v. EPA,

142 S. Ct. 2587 (2022) ...................................................................................... 20, 25

Constitutional Provisions, Statutes, and Rules:

U.S. Const. amend. I.............................................................................................. 29, 32

5 U.S.C.:

§ 551(4).................................................................................................................... 23

§ 553(b).................................................................................................................... 23

§ 553(b)(A)............................................................................................................... 24

§ 553(c) .................................................................................................................... 23

§ 706(2)(A)......................................................................................................... 17, 21

§ 706(2)(C)............................................................................................................... 17

§ 706(2)(D) .............................................................................................................. 23

42 U.S.C.:

§ 1315 ...................................................................................................................... 11

§ 1396b(a)(1) ............................................................................................................. 5

§ 1396b(w)................................................................................................................. 6

§ 1396b(w)(1)(A)(iii).......................................................................................... 1, 9, 6

§ 1396b(w)(3)(A)........................................................................................................ 2

§ 1396b(w)(4)(A).................................................................................................. 6, 26

§ 1396b(w)(4)(B)........................................................................................................ 6

§ 1396b(w)(4)(C)........................................................................................................ 7

§ 1396b(w)(4)(C)(i).................................................................................................. 28

§ 1396b(d)................................................................................................................ 12

§ 1396b(w)(1)(A)........................................................................................................ 6

§ 1396b(w)(4)............................................................................................... 17, 18, 27

§ 1396b(w)(4)(A)...................................................................................................... 19

§ 1396b(w)(4)(C)...................................................................................................... 18

§ 1396b(w)(4)(C)(i) ............................................................................................ 20, 21

§ 1396b(w)(4)(C)(ii) ................................................................................................. 18

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§ 1903(w)................................................................................................................... 6

§ 1903(w)(4) ............................................................................................................ 17

§ 1936b(w)(4)(C)(i).................................................................................................. 27

§ 1936b(w)(4)(C)(ii)................................................................................................. 27

§ 1983 ...................................................................................................................... 32

§ 1988 ...................................................................................................................... 32

Texas Constitution art. IX............................................................................................. 2

Pub. L. No. 102-234:

§ 2, 105 Stat. 1793 (1991)......................................................................................... 6

§ 2, 105 Stat. 1793 (1991)......................................................................................... 6

Tex. Health & Safety Code:

ch. 288..................................................................................................................... 12

chs. 288-300A.......................................................................................................... 12

§ 300.0001 ............................................................................................................... 12

§ 300.0103(b)(1) ...................................................................................................... 12

§ 300.0151 ............................................................................................................... 12

§ 300.0151(b)................................................................................................. 2, 12, 20

42 C.F.R.:

§ 433.10(b)................................................................................................................. 5

§ 433.55..................................................................................................................... 2

§ 433.62(f) ............................................................................................................... 25

§ 433.68(d)(2)(i)....................................................................................................... 21

§ 433.68(f) ..................................................................................................... 7, 18, 20

§ 433.68(f)(3) ......................................................................................... 17, 10, 17, 22

Limitations on Payments to Disproportionate Share Hospitals, 

57 Fed. Reg. 55,118 (Nov. 24, 1992)......................................................................... 7

at 55,129-30 .............................................................................................................. 7

at 55,142-43 .............................................................................................................. 8

Limitations on Payments to Disproportionate Share Hospitals, 58 Fed. 

Reg. 43,156 (Aug. 13, 1993)................................................................................ 7, 25

Health Care-Related Taxes, 73 Fed. Reg. 9,685 (Feb. 22, 2008) ................................. 8

at 9,694 ......................................................................................................... 9, 22, 30

at 9,694-95 .......................................................................................................... 9, 22

Act of May 24, 2013, 83d Leg., R.S., ch. 1369, 2013 

Tex. Gen. Laws 3630 .............................................................................................. 12

Medicaid Fiscal Accountability Regulation, 84 Fed. Reg. 63,722 

(Nov. 18, 2019)....................................................................................................... 6,9

at 63,734 ................................................................................................................. 10

at 63,735 ........................................................................................................... 10, 26

Medicaid Fiscal Accountability Regulation, 

86 Fed. Reg. 5,105 (Jan. 19, 2021)......................................................................... 11

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Other Authorities:

Amended Complaint, Texas v. Brooks-LaSure, 

No. 6:21-cv-00191, (E.D. Tex. Aug. 31, 2021), ECF No. 54..................................... 4

Guarantee, Black’s Law Dictionary (10th ed. 2014)................................................... 19

In re: Hawaii Dept. of Human Servs., Docket No. A-01-40 (lead), 

Decision No. 1981, 2005 WL 1540188 (Dep’t Appeals Bd., Appellate 

Div. June 24, 2005), 

https://www.hhs.gov/sites/default/files/static/dab/decisions/boarddecisions/2005/dab1981.htm)................................................................. 8, 19, 21, 27

Sidney Greenbaum, The Oxford English Grammar § 3.14-15 (1996) ....................... 18

Tex. Health & Human Servs. Comm’n., Texas Medicaid and CHIP 

Reference Guide (14th ed. 2022), http://hhs.texas.gov/sites/

default/files/documents/texas-medicaid-chip-reference-guide-14thedition.pdf................................................................................................................. 4

Tex. House Bill 1, tit. 2, 88th Leg. (2023)................................................................... 25

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INTRODUCTION

Medicaid is designed as a cooperative endeavor between the federal and state 

governments to fulfill a vital need: the delivery of healthcare services to low-income 

Americans. But for the second time in three years, the Centers for Medicare and 

Medicaid Services (CMS) has disregarded Congress’s cooperative-federalism design, 

reversed its prior position regarding what States must do to fund their share of 

Medicaid, ignored the Administrative Procedure Act’s requirements, and attempted 

to force Texas to adopt a cumbersome regulatory regime entirely foreign to the Social 

Security Act.

“Turmoil in the State’s Medicaid program resulted” the last time that CMS 

tried to arbitrarily revoke its approval of Texas’s request to extend and amend the 

State’s long-running, managed-care system for the delivery of most Medicaid 

services. See Texas v. Brooks-LaSure, No. 6:21-cv-00191, 2021 WL 5154219, at *1 

(E.D. Tex. Aug. 20, 2021). That turmoil only relented when this Court threatened to 

sanction CMS for the litany of pretexts it offered to justify its actions. Texas v. BrooksLaSure, No. 6:21-cv-00191, 2022 WL 741065, at *1, *10 (E.D. Tex. Mar. 11, 2022).

That turmoil has returned because CMS now threatens to retroactively disallow 

funds based on one of those same pretexts: Texas’s refusal to police private contracts 

that are entirely legal under the text of the Social Security Act and CMS’s existing 

regulations. See id. at *8-10.

This dispute turns on a statutory provision that the parties raised, but the 

Court did not need to definitively interpret, in the prior litigation: the Social Security 

Act’s prohibition on government guarantees that healthcare providers will be held 

harmless for certain taxes they pay to fund Medicaid. 42 U.S.C. § 1396b(w)(1)(A)(iii). 

Because Medicaid depends on the federal government matching state spending, 

Congress has prohibited States from artificially inflating the amount of federal funds 

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they claim by purporting to tax health-care providers for Medicaid services while 

guaranteeing—directly or indirectly—that a taxpaying healthcare provider will 

receive its total tax payment back through Medicaid payments. Id. These “hold 

harmless” agreements are prohibited when a State or local government provides the 

guarantee. Consistent with federal law, Texas law bars such arrangements. See, e.g., 

Tex. Health & Safety Code § 300.0151(b). And as Texas’s Medicaid agency, the Texas 

Health and Human Services Commission (HHSC) has promulgated rules and 

established processes to ensure that no such arrangements occur. 

With CMS’s encouragement, Texas has authorized local governments to tax 

healthcare providers1 to provide one source of the state contribution to financing 

Medicaid. Those funds are placed in a local government’s dedicated account known 

as a Local Provider Payment Fund (LPPF). The State has always understood that 

because Texas does not guarantee that it will directly or indirectly hold taxpaying 

providers harmless for such a healthcare tax, the State may use those LPPF funds to 

finance a substantial portion of the 40% of Medicaid costs for which it is responsible. 

Just four years ago, CMS reassured state officials that those understandings were 

correct. Texas has made substantial investments and structured its compliance 

regime based on that assurance.

This case arises because CMS has, through sub-regulatory guidance,

attempted to require Texas to put an end to any purely private agreements that may 

exist by which Medicaid providers whose taxes are paid into LPPFs may have 

financial-risk-mitigation agreements amongst themselves. CMS tried to impose such 

1 The Texas statutes which authorize hospital districts to collect and deposit 

mandatory payments into LPPFs explicitly state that such mandatory payments are 

not taxes for the purposes of Article IX of the Texas Constitution. However, these 

payments are considered healthcare-related taxes for purposes of federal law. See, 

e.g., 42 U.S.C. § 1396b(w)(3)(A); 42 C.F.R. § 433.55. 

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a requirement by rule in 2019. That failed. CMS tried to impose such a requirement 

as a special term and condition (STC) of renewing Texas’s section 1115 waiver 

program in 2021. That was rejected—and properly identified by this Court as a 

pretext as well. Brooks-Lasure, 2022 WL 741065, at *10 (denying a request for 

sanctions “without prejudice to its reassertion in the future”). In 2022, CMS tried to 

demand it as a condition of approving the State’s directed payments during litigation 

before this Court. Again, to no avail. 

Apparently hoping that the fourth time will be the charm, on February 17, 

2023, CMS published an “informational bulletin” with neither prior notice nor

opportunity for comment. Ex. A, Dep’t of Health & Hum. Servs., CMCS Informational 

Bulletin (Feb. 17, 2023). In that bulletin, CMS declared that it intends to include—

and has supposedly always included—private arrangements among providers within 

the scope of prohibited hold harmless arrangements even though such arrangements 

do not involve the government. And the bulletin announced that CMS is requiring

state governments to seek out and eliminate those arrangements on pain of the loss 

of billions of dollars in federal funding. Because CMS insists that this has been its 

longstanding position, it has made clear that it intends to apply this guidance 

retroactively to payments already made. To that end, the Health and Human Services 

Office of the Inspector General (OIG) has begun auditing four Texas jurisdictions for 

compliance with the bulletin’s pronouncements—starting with the county in which 

this Court is located.

CMS’s departures from the text of the Social Security Act, its regulations, and 

its prior dealings with Texas are unlawful. HHSC lacks the authority to investigate

business arrangements between private providers of healthcare services—much less 

to prohibit them. HHSC has thus been put to an impossible choice: either (a) arrogate

power found nowhere in state (or even federal) law and immediately invest millions 

of dollars (that have never been appropriated) in a comprehensive auditing and 

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enforcement program or (b) decline to comply with the bulletin and risk a level of 

sudden financial loss that would undoubtedly result in significant negative impacts 

to Medicaid providers and the Medicaid safety net in Texas. Neither option is tenable. 

Because of this irreparable and ongoing injury, Texas requests that the Court 

preliminarily enjoin the federal defendants from enforcing or relying on the bulletin

pending resolution of its legality.

BACKGROUND

I. Overview of Medicaid and Hold Harmless Arrangements

A. The Medicaid program

“The Medicaid program, which provides joint federal and state funding of 

medical care for individuals who cannot afford to pay their own medical costs, was 

launched in 1965 with the enactment of Title XIX of the Social Security Act.” Ark. 

Dep’t of Health & Hum. Servs. v. Ahlborn, 547 U.S. 268, 275 (2006). At the federal 

level, the Medicaid program is administered by the “Secretary of Health and Human 

Services (HHS), who in turn exercises his authority through the Centers for Medicare 

and Medicaid Services.” Id. Although “States are not required to participate in 

Medicaid . . . all of them do,” id., Texas among them. At present, Texas serves roughly 

4.9 million Texans through its Medicaid program.2

2 Tex. Health & Human Servs. Comm’n., Texas Medicaid and CHIP Reference 

Guide, at 4 (14th ed. 2022), http://hhs.texas.gov/sites/default/files/documents/texasmedicaid-chip-reference-guide-14th-edition.pdf. A more fulsome background of the 

Texas Medicaid system is also available in Texas’s First Amended Complaint from its 

earlier-filed lawsuit. See Amended Complaint, Texas v. Brooks-LaSure, No. 6:21-cv00191, (E.D. Tex. Aug. 31, 2021), ECF No. 54. This motion covers only those aspects 

of Texas Medicaid necessary for resolving the parties’ current dispute. To avoid 

burdening the Court, Texas is not attaching voluminous, publicly available 

documents or copies of the filings in its previous lawsuit as exhibits to this Motion. It 

would be happy to provide them on request.

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The administration of Medicaid is designed to be “cooperative”: the federal 

government pays a certain percentage of the “costs that States incur for patient care, 

and, in return, the State pays its portion of the costs and complies with certain 

statutory requirements for making eligibility determinations, collecting and 

maintaining information, and administering the program.” Id.

“To qualify for federal funds, States must submit” to CMS for approval “a state 

Medicaid plan that details the nature and scope of the State’s Medicaid program.” 

Douglas v. Indep. Living Ctr. of S. Cal., Inc., 565 U.S. 606, 610 (2012). And if a State’s 

plan satisfies the requirements of the Social Security Act, “the Federal Government 

shares in the cost [of administering the program] by reimbursing3 a participating 

State for patient care costs on the basis of a federal medical assistance percentage 

(FMAP).” Abraham Lincoln Mem. Hosp. v. Sebelius, 698 F.3d 536, 543 (7th Cir. 2012) 

(citing 42 U.S.C. § 1396b(a)(1) and 42 C.F.R. § 433.10(b)) (footnote added); see also 

Harris v. McRae, 448 U.S. 297, 308-09 (1980). “The FMAPs are used in determining 

the amount of federal matching funds, known as the federal financial participation

. . . , participating States receive.” Sebelius, 698 F.3d at 543. The FMAP can fluctuate 

based on a range of circumstances. Id. (citing 42 C.F.R. § 433.10(b)). For Texas, it is 

currently set at approximately 60%. Ex. B, Declaration of Victoria Grady, Director of 

Provider Finance and Government Relations Specialist for Finance, Texas Health 

and Human Services Commission (“Grady Declaration”) ¶ 6.

3 “Although the federal contribution to a State’s Medicaid program is referred 

to as a ‘reimbursement,’ the stream of revenue is actually a series of huge quarterly 

advance payments that are based on the State’s estimate of its anticipated future 

expenditures.” Bowen v. Massachusetts, 487 U.S. 879, 883-84 & n.2 (1988) (citing 42 

U.S.C. § 1396b(d)).

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B. Statutory prohibitions barring hold harmless arrangements

This case concerns the Social Security Act’s requirements for calculating the

FMAP and provisions that reduce the federal contribution to the States. “In the late 

1980s and early 1990s, [S]tates began to take advantage of a ‘loophole’ in the 

Medicaid program that allowed [S]tates to gain extra federal matching funds without 

spending more state money.” Protestant Mem. Med. Ctr., Inc. v. Maram, 471 F.3d 724, 

726 (7th Cir. 2006). In that scheme, a State would “make payments to hospitals and 

collect the federal matching funds;” the State “would then recoup a portion of the 

state funding from the hospital, often in the form of a ‘tax.’” Id.; see also Medicaid

Program; Medicaid Fiscal Accountability Regulation (MFAR), 84 Fed. Reg. 63,722, 

63,730 (Nov. 18, 2019) (proposed rule) (recounting this history). 

Congress responded to this problem in 1991 through the Medicaid Voluntary 

Contribution and Provider-Specific Tax Amendments. Pub. L. No. 102-234, § 2, 105 

Stat. 1793 (1991) (adding subsection 1903(w), codified at 42 U.S.C. § 1396b(w), to the 

Social Security Act). The 1991 amendments require a reduction in the amount of 

patient-care costs for which the States may seek reimbursement—and which are used

to calculate the federal financial participation payment—when the State obtains 

revenues from certain sources. See 42 U.S.C. § 1396b(w)(1)(A). Relevant here, the 

amendments require the amount of the State’s requested reimbursement to be 

“reduced by the sum of any revenues received by the State” through a “broad-based 

health care related tax” that operates as “a hold-harmless provision.” Id. 

§ 1396b(w)(1)(A)(iii).

The statute, in turn, articulates three definitions of a “hold harmless”

provision. Id. § 1396b(w). The first is when the taxing authority “provides (directly or 

indirectly) for a payment . . . to taxpayers” that is “positively correlated either to the 

amount of such tax or to the difference between the amount of the tax and the amount 

of payment under the State plan.” Id. § 1396b(w)(4)(A). The second is when “[a]ll or 

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any portion of the payment made under this subchapter to the taxpayer varies based 

only upon the amount of the total tax paid.” Id. § 1396b(w)(4)(B) (emphasis added).

And the third is when the 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.” Id. § 1396b(w)(4)(C).

Written in terms of actions by a taxing authority—and against the backdrop of state 

action to inflate Medicaid reimbursements—none of these provisions textually 

includes agreements to which no governmental actor is a party.

C. Subsequent regulatory developments

Since the passage of the 1991 amendments, CMS has taken several regulatory 

actions to implement these restrictions on hold harmless arrangements. 

1. CMS first promulgated implementing regulations in 1993. See Medicaid 

Program; Limitations on Provider-Related Donations and Health Care-Related 

Taxes; Limitations on Payments to Disproportionate Share Hospitals, 58 Fed. Reg. 

43,156 (Aug. 13, 1993) (final rule); see also Medicaid Program; Limitations on 

Provider-Related Donations and Health Care-Related Taxes; Limitations on 

Payments to Disproportionate Share Hospitals, 57 Fed. Reg. 55,118 (Nov. 24, 1992) 

(interim final rule). 

This regulation incorporated the statute’s definition of a hold harmless 

provision into subsection (f) of 42 C.F.R. § 433.68 by “set[ting] out the three ways of 

finding a ‘hold harmless provision’ for a state tax program.” Brooks-LaSure, 2022 WL 

741065, at *5 (setting out this history). Relevant here, this regulation “added detail 

on the third hold-harmless definition” by adopting a two-part test—later formally 

adopted by Congress—for determining when the taxing authority’s levy of an 

excessive amount of taxes on a healthcare provider rises to the level of a hold

harmless “guarantee.” Id. at *5-6; see also 57 Fed. Reg. at 55,129-30. Under that test, 

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“[i]f the tax on the providers’ revenue was at or below 6% (selected as the national 

average sales tax), the tax would be assumed permissible,” but if “the tax was above 

6%,” “a numerical test would deem a hold harmless situation to exist when Medicaid 

rates are used to repay (within a 12-month period) at least 75 percent of providers for 

at least 75 percent of their total tax cost.” Brooks-LaSure, 2022 WL 741065, at *5 

(citing 57 Fed. Reg. at 55,142-43).

2. The second regulatory action took place in 2008, after HHS’s 

Departmental Appeals Board rejected CMS’s effort to retroactively disallow years of 

federal funding to five States based on an overbroad interpretation of what 

constitutes a hold harmless arrangement. There, CMS determined that certain state 

programs providing grants to nursing homes or tax credits to patients impermissibly 

held taxpayers harmless under CMS’s regulations. See id. at *6-7 (citing In re: Hawaii 

Dept. of Human Servs., Docket No. A-01-40 (lead), Decision No. 1981, 2005 WL 

1540188 (Dep’t Appeals Bd., Appellate Div. June 24, 2005), https://www.hhs.gov/

sites/default/files/static/dab/decisions/board-decisions/2005/dab1981.htm). But the 

Board held that the programs at issue did not meet either the first or third definitions 

of a hold harmless provision. Id. As to the third definition, the Board explained that 

no language in the States’ grant or credit programs offered an explicit or direct 

assurance of any payment to a taxpayer-provider, and it rejected CMS’s argument 

that the third definition was merely a “broad catch-all provision.” Id. at *6. 

Ultimately, the Board explained that for a state taxing authority to guarantee a 

payment, offset, or waiver, the Board expected to see a “legally enforceable” promise 

in “these States’ laws.” Id. at *7. 

Following this interpretation of its own rules by its own internal adjudicative

system, CMS’s enforcement arm proposed amendments to 42 C.F.R. § 433.68 to 

“clarify” the agency’s tests for finding the existence of an impermissible hold harmless 

arrangement. See, e.g., Medicaid Program; Health Care-Related Taxes, 73 Fed. Reg. 

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9,685, 9,689-90 (Feb. 22, 2008) (final rule).4 In turn, CMS amended the regulatory 

definition of the third kind of hold harmless arrangement to “cover the situation 

where a government provides for a certain measure ‘such that’ the measure 

guarantees” the taxpayer will be held harmless. Brooks-LaSure, 2022 WL 741065, at 

*8 (emphasis added). This was a departure from the statutory definition in which 

Congress defined a hold harmless provision to include “certain financial measure[s]

‘that guarantees’ indemnification.” Id. at *7 (emphasis added). This change 

“deliberate[ly]” “removes the statute’s tight grammatical link between the 

government, as the actor providing for something, and a guarantee, as the thing 

provided for.” Id. at *8. As a result of the agency’s “loosen[ing]” of the required link 

between the state taxing authority and the guarantee itself, CMS has contended that 

the third definition “focus[es] on the ‘reasonable expectation’ [of the taxpayer] about 

the ‘result’ of a state payment, as opposed to merely what the [S]tate provided when 

making a payment.” Id. (citing 73 Fed. Reg.at 9,694-95) (emphasis in original).

3. Eleven years passed before, in 2019, CMS tried—and failed—again to 

stretch the third definition of hold harmless agreements even farther to cover private 

arrangements. See 84 Fed. Reg. at 63,722. In the intervening years, States—and 

especially Texas—built their compliance regimes around CMS’s existing rules and 

interpretations. For example, in early 2019, Kristin Fan, the Director of CMS’s 

Financial Management Group, told counsel for concerned providers that although 

4 Specifically, in explaining what would constitute a hold harmless arrangement 

under the newly amended regulation, CMS invoked the example of a state law 

providing grants to a nursing-home residents who incur increased rates as a result of 

bed taxes on nursing homes. 73 Fed. Reg. 9,694. This comment makes clear that CMS 

was seeking to address not private agreements between independent third parties,

but a circumstance where one of two related parties receives a grant from the State 

but, because of the nature of the parties’ relationship, is compelled to pass that grant 

funding to a related party, creating a state guarantee. Id.

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CMS is “aware that there may be arrangements” between providers that CMS may 

“not particularly like,” CMS “do[es] not have statutory authority to address” those 

arrangements. Ex. C at 1, Email Exchange Between Kristin Fan and Barbara Eyman

(Apr. 10, 2019). Director Fan also agreed that States should not be expected “to seek 

information about these agreements or providers to disclose these agreements to the 

state/local government in connection with CMS’ questions.” Id. CMS similarly 

assured HHSC officials—in direct response to a specific question—that, so long as 

neither the State nor a unit of local government was providing a guarantee, there was 

no prohibition on private business arrangements. Grady Decl. ¶ 24. Texas relied upon 

that assurance in setting up its compliance regime—a significant financial 

investment that would eventually include more than a dozen full-time employees and 

a custom information-technology system. Id. ¶ 42.

But in the proposed rule released later that year, the agency said something 

else entirely. The proposal explained that CMS had “become aware of impermissible 

arrangements that exist where a [S]tate or other unit of government imposes a 

health-care related tax, then uses the tax revenue to fund the non-federal share of 

the Medicaid payments back to the taxpayers.” 84 Fed. Reg. at 63,734. Critically, 

CMS clarified that it considered such arrangements to violate the law even if “a 

private entity makes the redistribution” to another private entity. Id. at 63,735. It 

reasoned that a purely private arrangement still “constitutes an indirect payment 

from the [S]tate or unit of government to the entity being taxed that holds it harmless 

for the cost of the tax.” Id. That is because “[t]he taxpayers have a reasonable 

expectation to be held harmless for all or a portion of their tax amount.” Id. at 63,734. 

As a result, CMS proposed to amend 42 C.F.R. § 433.68(f)(3) to specify that CMS 

would consider the “net effect” of a particular arrangement—i.e., whether the “net 

effect” is a “reasonable expectation” by the taxpayer that it will recoup all or a portion 

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of its tax payment through Medicaid payments—to determine whether a hold

harmless arrangement exists. Id. at 63,735. 

The proposed rule met swift backlash. After a torrent of more than 10,000 

comments—many of which faulted CMS for “lack[ing] statutory authority for its 

proposals” and “creating regulatory provisions that were ambiguous or unclear and 

subject to excessive Agency discretion”—CMS ultimately opted to “withdraw the 

proposed provisions.” Medicaid Program; Medicaid Fiscal Accountability Regulation, 

86 Fed. Reg. 5,105, 5,105 (Jan. 19, 2021). One such commenter was Daniel Tsai—

CMS’s current Deputy Administrator and its Director of Center for Medicaid and 

CHIP Services—who was then serving as the Medicaid Director for the State of 

Massachusetts. Ex. D, Dan Tsai Comment (Jan. 27, 2020). Tsai explained that the 

proposed rule—including its “‘net effect[]’ tests”—“introduce[d] significant new state 

obligations,” that “[i]f implemented, . . . would represent an unprecedented federal 

overreach,” “exceed[ed] CMS’ statutory authority,” contained “provisions [that] are 

highly susceptible to arbitrary and capricious application,” was “not supported by the 

underlying statute,” and “includ[ed] reporting on business dealings of private entities 

that are not available to the [S]tate.” Id. HHSC submitted a comment letter along 

similar lines, as did others. Grady Decl. ¶ 17; Ex. E.

II. Texas Medicaid and Local Provider Participation Funds 

Over the last decade, Texas has modified its Medicaid program to better serve 

the needs of program’s enrollees as well as to comply with Congress’s statutory 

requirements and CMS’s lawful regulatory directives. Two developments are 

particularly relevant here. First, in 2011, Texas transitioned from a fee-for-service to 

a managed-care delivery model.5 Brooks-LaSure, 2021 WL 5154219, at *1. Second, in

5 Texas accomplished this through a demonstration project submitted pursuant 

to 42 U.S.C. § 1315, which CMS then approved. CMS’s sudden refusal to extend the 

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2013, the Texas Legislature authorized designated hospital districts, counties, and

municipalities to “administer a health care provider participation program to provide 

additional compensation to certain hospitals located in the hospital district, county, 

or municipality by collecting mandatory payments from each of those hospitals to be 

used to provide the nonfederal share of a Medicaid supplemental payment program.”

Tex. Health & Safety Code § 300.0001; see Act of May 24, 2013, 83d Leg., R.S., ch. 

1369, 2013 Tex. Gen. Laws 3630 (codified at Tex. Health & Safety Code Ch. 288); Tex. 

Health & Safety Code chs. 288-300A. In contrast to its position now, CMS encouraged

Texas to implement these funds, which collectively comprised approximately 17.7% 

of Texas’s state share of Medicaid funding in the last fiscal year. Grady Decl. ¶¶ 10, 

22; see also Compl., ECF No. 1 ¶¶ 42-46.

The funds are managed by local governments, Grady Decl. ¶¶ 7-13, and subject 

to a host of relevant restrictions. If the taxing authority authorizes a healthcare 

provider participation program, it must require an annual mandatory payment to be 

assessed based upon the net patient revenue of each institutional healthcare provider 

located in the applicable local unit of government. Tex. Health & Safety Code

§ 300.0151. Money deposited into a taxing authority’s LPPF is authorized to be used 

for limited purposes, including intergovernmental transfers from the local 

government to the State to provide the state share of Medicaid payments for 

statutorily specified Medicaid programs. See id. § 300.0103(b)(1). The taxes imposed 

by the local unit of government must be broad-based and uniform, as required under 

federal law. See id. § 300.0151(b). And Texas law specifically prohibits these 

programs from holding harmless any institutional healthcare provider. Id.

demonstration project in 2021 precipitated Texas’s 2021 lawsuit before this Court. 

See Brooks-LaSure, 2021 WL 5154219, at *2-3.

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As the statewide administrator of Texas Medicaid, HHSC ensures that the 

authority that administers each LPPF does not provide for any payment, offset, or 

waiver that directly or indirectly guarantees to hold the taxpaying providers 

harmless for any portion of their tax costs. Grady Decl. ¶¶ 13-16. But HHSC does not

have taxing or regulatory authority over the governmental entities that manage those 

funds, nor does HHSC have authority to examine or consider any contractual 

arrangements that might exist between private businesses whose taxes contribute to

those funds. Grady Decl. ¶ 12.

The taxes that flow into those funds are unrelated to the methodology for

calculating the Medicaid reimbursements that HHSC disburses to healthcare 

providers. Grady Decl. ¶ 16. The State does not make any such reimbursements based 

on the amount that a provider is taxed by a local government. Id. Instead, Medicaid 

payments to providers are based exclusively on programmatic methodologies that 

consider, among other factors, what an estimated Medicare or average commercial 

payer would have paid for those same services. Id. These provisions together ensure 

that Texas’s “complex” hospital systems, Grady Decl. ¶ 21, comport with the Social 

Security Act and avoid the problems that motivated Congress’s 1991 amendments, 

see Maram, 471 F.3d at 726.

Nonetheless, since the withdrawal of the MFAR, Grady Dec. ¶ 27-28, CMS has 

at least twice sought to force HHSC to police private agreements: first, during

negotiations over the State’s demonstration project, CMS attempted to insert special 

terms and conditions imposing many of the same requirements from the withdrawn 

proposed rule (which CMS now attempts to impose by bulletin). Grady Decl. ¶¶ 30-

31. Second, in the middle of the prior litigation, CMS held approval of five statedirected payment programs (which used LPPF funds) hostage until Texas agreed to 

CMS’s terms. Id. ¶¶ 34-37. Neither gambit worked. 

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III. CMS’s February 17 Bulletin and Immediate Threats of Enforcement 

On February 17, 2023, the Deputy Administrator and Director of CMS issued 

a bulletin announcing a retroactive change in CMS’s definition of a hold harmless 

arrangement. See Ex. A. Without the notice-and-comment procedures that CMS 

acknowledged were necessary when it proposed the MFAR, the bulletin deemed any 

agreement between private providers to redistribute Medicaid payments to constitute

“a hold harmless arrangement involving Medicaid payment redistribution” when 

there is a “reasonable expectation” that the taxpaying provider will receive a portion 

of their provider-tax costs returned as part of a private agreement. Id. at 3-4. CMS

described how, in its view, “taxpayers appear to have entered into oral or written 

agreements” to redirect or redistribute their Medicaid payments “to ensure that all 

taxpayers receive all or a portion of their tax back.” Id. at 3. Notwithstanding the 

acknowledged absence of state participation in such agreements, CMS concluded they 

were impermissible because “[t]he redistributions occur so that taxpaying providers 

are held harmless for all or a portion of the health care-related tax.” Id. But, as this 

Court has recognized, this is circular: CMS has “noted a specific result that it thought 

should obtain on a certain fact pattern and justified the new approach because it 

would allow that result.” Brooks-LaSure, 2022 WL 741065, at *8.

Without pointing to any statutory authority, the bulletin further states CMS 

“intends to inquire about potential redistribution arrangements and may conduct 

detailed financial management reviews of healthcare-related tax programs that 

appear to include redistribution arrangements or that CMS has information may 

include redistribution arrangements.” Ex. A at 5. Henceforth, States are expected “to 

make available all requested documentation regarding arrangements involving 

possible hold harmless arrangements and the redistribution of Medicaid payments” 

as part of CMS’s “oversight activities and review of state payment proposals[.]” Id.

(emphasis added). CMS threatened to “take enforcement action as necessary” if an 

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audit uncovers “impermissible financing practices.” Id. And without regard to 

whether the requested documentation exists, CMS ominously warned that a State’s 

failure to supply requested documentation regarding redistribution arrangements 

“may result in a deferral or disallowance of federal financial participation.” Id.

CMS has made clear that it intends to enforce this bulletin retrospectively. At 

virtually the same time that CMS sought to avoid sanctions from this Court by 

agreeing to Texas’s directed payment programs, OIG announced that it would 

conduct an audit of the LPPF in the very county in which this Court is located. Grady 

Decl. ¶ 40. That audit process was ongoing when the bulletin issued. OIG initially 

told HHSC that it would issue its report and findings during the summer of 2023, but 

it moved up the date to May 2023 after the bulletin was announced. Id. Shortly 

thereafter, OIG sent a new letter to HHSC, indicating its intent to conduct new audits

of LPPFs in the City of Amarillo as well as Tarrant and Webb Counties.6 See Ex. E, 

Letter to Cecile Erwin Young (Mar. 3, 2023). The “objective” of the audits “is to 

determine whether the State agency adhered to the hold-harmless provisions in 

Federal regulations.” Id. at 1.

When CMS issued similar sub-regulatory guidance in 2014, the resulting 

litigation before the Department Appeals Board (DAB) left the challenged funding in 

limbo for approximately 9 years. Grady Decl. ¶ 22. Such an outcome would be 

devastating to the social safety net in Texas: LPPFs are used to fund nearly a fifth of 

Texas’s state share of Medicaid expenditures. Id. ¶ 10. Moreover, LPPFs are 

frequently run by hospital districts—meaning that CMS’s current effort to shut off 

Medicaid funding is aimed at the aspect of the social-safety net that serves emergent 

6 OIG’s letter incorrectly identified the LPPFs as operated by Amarillo County 

(which does not exist) and Tarrant County (which does not operate an LPPF). OIG 

appears to be referring to LPPFs operated by the City of Amarillo and the Tarrant 

County Hospital District. Grady Decl. ¶ 50 n.5.

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or acute medical needs. Id. ¶¶ 10, 50 n.5. Of the hospitals in the jurisdictions that 

currently operate LPPFs, more than 1 in 4 is a non-profit, and all are part of the 

safety net that Texans rely on for care. In Texas, most hospital associations—which 

are presumably the entities most likely to be a third-party intermediary for private 

hospitals of the sort contemplated by the bulletin—are non-profits. Id. ¶ 44. They 

simply cannot afford the type of uncertainty that will result if the bulletin were to be 

implemented, and the results litigated before the DAB.

To avoid the impact that removing as much as $6 billion in annual funding 

would visit upon its hospital system, the State of Texas and HHSC have sued CMS, 

CMS Administrator Chiquita Brooks-LaSure, the U.S. Department of Health and 

Human Services, HHS Secretary Xavier Becerra, and the United States, asserting 

that the bulletin is unlawful under the APA. Compl., ECF No. 1, ¶¶ 9-13. Plaintiffs 

now seek a preliminary injunction to halt defendants’ ongoing reliance on and 

enforcement of the bulletin while its legality is being determined.

ARGUMENT

The issuance of a preliminary injunction is appropriate when the movant 

shows (1) a likelihood of success on the merits, (2) that he is likely to suffer irreparable 

harm in the absence of preliminary relief, (3) that the balance of equities tips in his 

favor, and (4) that an injunction is in the public interest. Valley v. Rapides Par. Sch. 

Bd., 118 F.3d 1047, 1051 (5th Cir. 1997) (citing Roho, Inc. v. Marquis, 902 F.2d 356, 

358 (5th Cir. 1990)). Texas satisfies each of those requirements.

I. Texas Is Likely to Succeed on the Merits.

For at least three reasons, Texas is likely to succeed on its claims for relief under 

the APA. First, the bulletin’s redefinition of a hold harmless provision to encompass 

purely private agreements exceeds CMS’s statutory authority—as well as its own 

regulatory framework—because the Social Security Act defines a hold harmless 

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provision as a guarantee by the government, rather than a private party, to a 

taxpayer. Second, because the CMS bulletin is a substantive rule, the agency was 

required to go through the notice-and-comment process. The bulletin, which 

represents an about-face from not just the text but CMS’s subjective understanding 

of the relevant law as recently as 2019, it is not an interpretive statement exempt 

from the APA’s notice-and-comment procedures. Third, even if the agency could 

promulgate such a significant regulatory change by policy bulletin, CMS acted 

arbitrarily and capriciously by promulgating the bulletin because (a) it is an 

unexplained reversal of prior policy; and (b) the agency failed to consider the States’ 

longstanding reliance interests in the understanding, which CMS endorsed, that 

private arrangements were not a violation of the Social Security Act or within the 

purview of state oversight. Any one of these reasons is sufficient to hold that the 

bulletin is unlawful—let alone all three. 

A. The February 17 bulletin exceeds CMS’s statutory and 

regulatory authority.

The APA requires courts to “hold unlawful and set aside agency action” that is 

“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” 

or “in excess of statutory . . . authority, or limitations, or short of statutory right.” 5 

U.S.C. § 706(2)(A), (C). Here, neither the Social Security Act nor its implementing 

regulations provides a basis for CMS to define a prohibited hold harmless 

arrangement the way that the bulletin does. See 42 U.S.C. § 1396b(w)(4); see also 42 

C.F.R. § 433.68(f)(3). The bulletin therefore conflicts with the Act and its

implementing regulations, and it is substantively unlawful under the APA. See 5 

U.S.C. § 706(2)(A), (C).

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1. The February 17 bulletin’s definition of hold harmless 

arrangements conflicts with the Social Security Act.

CMS’s sub-regulatory guidance is flatly incompatible with the Act’s text.

Section 1903(w)(4) of the Act provides that “there is in effect a hold harmless 

provision with respect to a broad-based health care related tax imposed with respect 

to a class of items or services if the Secretary determines” that any of the following 

circumstances exist:

(A) The State or other unit of government imposing the tax provides 

(directly or indirectly) for a payment (other than under this title) to 

taxpayers and the amount of such payment is positively correlated 

either to the amount of such tax or to the difference between the amount 

of the tax and the amount of payment under the State plan.

(B) All or any portion of the payment made under this title to the 

taxpayer varies based only upon the amount of the total tax paid.

(C)(i) The 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; 

(ii) For purposes of clause (i), a determination of the existence of an 

indirect guarantee shall be made under paragraph (3)(i) of section 

433.68(f) of title 42, Code of Federal Regulations, as in effect on 

November 1, 2006....

42 U.S.C. § 1396b(w)(4).7

a. Nothing in the plain language of these three statutory definitions, 

prohibits an arrangement between private parties as a hold harmless provision. 

Instead, the defining feature of a hold harmless provision is a guarantee by the 

government—not a private party—to the taxpayer. This is most apparent in 42 U.S.C. 

§ 1396b(w)(4)(A) and 42 U.S.C. § 1396b(w)(4)(C), which expressly make the “State or 

other unit of government” the subject of the sentence. Congress is presumed to 

7 There is an “exception” to this provision which adjusts the percentages 

discussed in the cited provision of the Code of Federal Regulations based on the year. 

42 U.S.C. § 1396b(w)(4)(C)(ii). That exception is not relevant here.

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understand the ordinary rules of English grammar and usage. Antonin Scalia & 

Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 140 (2012). And 

the subject of the sentence is the person or thing doing the action. See Sidney 

Greenbaum, The Oxford English Grammar § 3.14-15 (1996). Here, Congress chose to 

consider only the activity of the “State or other unit of government” when prohibiting 

hold harmless arrangements. The choice to omit private parties from the statute’s 

ambit is presumed intentional. See Easom v. US Well Servs., Inc., 37 F.4th 238, 244 

(5th Cir. 2022) (discussing the expressio unius canon of construction). 

That presumption is further buttressed by the provision’s context—both 

statutory and historical. After all, without involvement by the State in those 

agreements, the payment of Medicaid reimbursements alone cannot constitute a 

“guarantee[] to hold taxpayers harmless.” See 42 U.S.C. § 1396b(w)(4)(C)(i). A 

guarantee denotes an obligation by the guarantor. See Guarantee, Black’s Law 

Dictionary (10th ed. 2014). But as a non-party to any agreement that may or may not 

exist, Texas assumes no obligation regarding any reimbursements by private 

providers. And the statutory history of section 1396b(w)(4)(A) underscores that it was 

aimed at obligations assumed by Texas or one of its political subdivisions—not 

obligations assumed by private parties that Texas cannot control and of which the 

State may be entirely unaware. See Thomas v. Reeves, 961 F.3d 800, 817 n.45 (5th 

Cir. 2020) (en banc) (Willett, J., concurring) (explaining that while legislative history 

is disfavored as an interpretive aid, statutory history may give important context). 

After all, the “‘loophole’ in the Medicaid program” that Congress was trying to 

address, Maram, 471 F.3d at 726, was not that a private party might take steps to

insure against losses incurred from the Medicaid program or governmental taxes,

including indemnifying themselves in a way that CMS does “not particularly like.” 

Ex. C at 1.

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Given this statutory text and history, it is unsurprising that HHS’s own 

adjudicative system (correctly) found nearly two decades ago that reading the 

regulations as allowing the agency “to examine the use of a payment without regard 

to the two-prong test where there is no explicit guarantee is unreasonable.” In re: 

Hawaii, 2005 WL 1540188, at *23. Since 1991, Congress has not changed those three 

definitions of a disqualifying hold harmless provision. Brooks-LaSure, 2022 WL 

741065, at *4. The Board’s analysis is thus as sound today as it was when the decision 

issued. 

b. In its bulletin, CMS nevertheless tries to justify this “unreasonable” 

position, id., by pointing to subsection 1936b(w)(4)(C)(i). See Ex. A at 3. But that 

subsection creates two clear conditions: (1) the State or other unit of government 

imposing the tax must provide the payment, offset, or waiver; and (2) that payment, 

offset, or waiver must guarantee to hold taxpayers harmless. See 42 U.S.C. 

§ 1396b(w)(4)(C)(i). The private-provider agreements that CMS believes may exist 

satisfy neither of those. The statute requires an act by “[t]he State or other unit of 

government imposing the tax,” see id., and private agreements are not an act of the 

government. To the extent CMS implies that merely reimbursing private providers 

for qualified Medicaid expenditures satisfies the statute’s requirement of state 

involvement in a hold harmless provision, that is wrong for the reasons discussed 

above.

CMS also notes that subsection (C)(i) contains the phrase “(directly or 

indirectly).” Ex. A at 4. But the word “indirectly” cannot salvage CMS’s construction 

of section 1396b for at least three reasons.8

8 The bulletin does not suggest any “direct” action by the State, nor would that 

make any sense. As HHSC has explained, state law forbids local governments from 

entering into hold harmless agreements. See, e.g., Tex. Health & Safety Code 

§ 300.0151(b).

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First, Congress specifically stated that “a determination of the existence of an 

indirect guarantee shall be made under paragraph (3)(i) of section 433.68(f) of Title

42, Code of Federal Regulations, as in effect on November 1, 2006.” 42 U.S.C. 

§ 1936b(w)(4)(C)(ii) (emphasis added). This bulletin obviously was not in the Code of 

Federal Regulations on November 1, 2006. 

Second, “the words of a statute must be read in their context and with a view 

to their place in the overall statutory scheme.” West Virginia v. EPA, 142 S. Ct. 2587, 

2607 (2022). Properly framed, the word “indirectly” should not be read to modify 

“provides”—which seems to be CMS’s position (although that is unclear)—because 

there would have been no need to set it off by parentheses. Ordinary rules of 

construction would have taken care of it. Scalia & Garner, supra, at 152 (“When the 

syntax involves something other than a parallel series of nouns or verbs, a prepositive 

or postpositive modifier normally applies only to the nearest reasonable referent.”).

This is confirmed by the text of the regulations in which CMS has interpreted the 

“guarantee” term to mean a state program that “results, directly or indirectly,” in an 

impermissible tax outcome. 42 C.F.R. § 433.68(d)(2)(i). 

Third, Congress’s use of the word “indirectly” cannot eliminate the two 

requirements subsection (C)(i) spells out: a governmental payment and governmental 

guarantee. 42 U.S.C. § 1396b(w)(4)(C)(i). After all, “[o]ne of the most basic 

interpretive canons [is] that ‘[a] statute should be construed so that effect is given to 

all its provisions, so that no part will be inoperative or superfluous, void or 

insignificant.’” Corley v. United States, 556 U.S. 303, 314 (2009) (quoting Hibbs v. 

Winn, 542 U.S. 88, 101 (2004)).

In sum, as the Board recognized long ago, the “guarantee” test in subsection 

(C) is not “a broad catch-all provision,” see In re: Hawaii, 2005 WL 1540188, at *3, 

and a private agreement that the State is not aware of, let alone responsible for, is 

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not a “direct or indirect” provision by the State that guarantees to hold a private party 

harmless. 

2. CMS’s agency regulations do not encompass the bulletin’s 

definition of a prohibited hold harmless arrangement.

Because the bulletin is inconsistent with the Social Security Act, it is unlawful 

under the APA, and the Court can grant relief on that basis alone. 5 U.S.C. 

§ 706(2)(A). But the bulletin is also inconsistent with CMS’s own regulations, and an 

agency action may be set aside as arbitrary and capricious if the agency fails to 

“comply with its own regulations.” Environmental, LLC v. FCC, 661 F.3d 80, 85 (D.C. 

Cir. 2011). 

CMS insists that “[i]mplementing regulations at 42 C.F.R. § 433.68(f)(3)

specify that a hold harmless arrangement exists where ‘[t]he State (or other unit of 

government) imposing the tax provides for any direct or indirect payment, offset, or 

waiver such that the provision of the payment, offset, or waiver directly or indirectly 

guarantees to hold taxpayers harmless for all or any portion of the tax amount.’” Ex. 

A at 4. But CMS effectively conceded that was not true when it sought—

unsuccessfully—to amend section 433.68(f)(3) through formal notice-and-comment 

rulemaking. 84 Fed. Reg. at 63,722. Moreover, the subject of the regulation still 

identifies “the State (or other unit of government)”—not private parties—as the one 

“provid[ing]” the hold harmless guarantee. In any case, this portion of the regulation

merely restates the relevant provisions of the Act itself, meaning that the same two 

conditions regarding state action apply under the regulations, too. Supra 20-21. 

The preamble to the 2008 final rule amending 42 C.F.R. § 433.68(f)(3)—upon 

which CMS previously relied—is also unhelpful. A rule’s preamble cannot impose 

obligations that are inconsistent with the rule’s text. See Entergy Servs., Inc. v. FERC, 

375 F.3d 1204, 1209 (D.C. Cir. 2004). Regardless, a full reading of the preamble 

demonstrates that it is focused on governmental—not private-party—guarantees. For 

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example, the preamble notes that a “direct guarantee will be found when a [s]tate 

payment is made available to a taxpayer or a party related to the taxpayer with the 

reasonable expectation that the payment would result in the taxpayer being held 

harmless for any part of the tax (through direct or indirect payments).” Ex. A at 4

(citing 73 Fed. Reg. at 9,694-95). But the immediately preceding sentence confirms

that “[t]he clarification of the guarantee test is meant to specify that a State”—not 

the taxpayer—“can provide a direct or indirect guarantee through a direct or indirect 

payment.” 73 Fed. Reg. at 9,694 (emphasis added). And in that preamble, CMS found

that “the element necessary to constitute a direct guarantee is the provision for 

payment by [s]tate statute, regulation, or policy”—not a private contract to which the 

State is not a party and of which the State may not be aware Id. The language of its 

own regulation refutes CMS’s attempt to expand the definition of a hold harmless 

arrangement. And in any case, the term “reasonable expectation” does not appear in 

section 1396b(w)(4) and cannot supplant the requirements that Congress expressly 

set out. 

* * *

CMS has no authority to override Congress’s legislative judgment that hold

harmless agreements must involve state action just because private parties may 

enter into agreements that CMS does “not particularly like.” Ex. C at 1. The bulletin’s 

attempt to do so conflicts with the Social Security Act and CMS’s own regulations. 

Texas is therefore likely to succeed on its claim that the bulletin is unlawful and 

should be set aside under the APA.

B. The February 17 bulletin is procedurally invalid because it did 

not go through notice-and-comment rulemaking.

Even if CMS could direct Texas to ban private contracts because CMS finds 

them uncongenial, CMS was required go through notice-and-comment rulemaking to 

issue the challenged bulletin. See 5 U.S.C. § 553(b), (c). It did not, and the bulletin 

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should therefore be “held unlawful and set aside” as issued “without observance of 

procedure required by law[.]” Id. § 706(2)(D). 

The APA establishes a three-step “notice-and-comment” procedure that 

governs administrative-agency rulemaking. Perez v. Mortg. Bankers Ass’n, 575 U.S. 

92, 95-96 (2015). The “rules” that are subject to this procedure “include ‘statement[s] 

of general or particular applicability and future effect’ that are designed to 

‘implement, interpret, or prescribe law or policy.’” Id. (quoting 5 U.S.C. § 551(4)). But 

“[n]ot all ‘rules’ must be issued through the notice-and-comment process”: the APA 

exempts “‘interpretative rules, general statements of policy, or rules of agency 

organization, procedure, or practice’” from notice-and-comment procedures. Id. at 96 

(quoting 5 U.S.C. § 553(b)(A)). These exceptions, however, “must be narrowly 

construed.” Texas v. United States, 809 F.3d 134, 171 (5th Cir. 2015) (DAPA). 

Moreover, a rule adopted through notice-and-comment rulemaking may be 

amended or abandoned only through the same notice-and-comment procedures; 

agencies must “use the same procedures when they amend or repeal a rule as they 

used to issue the rule in the first instance.” Perez, 575 U.S. at 101. These rules of 

construction “protect[] the vital interests notice and comment is intended to protect,” 

such as “ensur[ing] those affected by a proposed rule have a voice in the rule-making 

process and assist[ing] the agency in crafting rules that better account for the costs 

and benefits of agency action.” Texas v. United States, 524 F. Supp. 3d 598, 657 (S.D. 

Tex. 2021); see also U.S. Dep’t of Lab. v. Kast Metals Corp., 744 F.2d 1145, 1153 n.17 

(5th Cir. 1984) (same). 

“Agencies have never been able to avoid notice and comment simply by 

mislabeling their substantive pronouncements.” Azar v. Allina Health Servs., 139 

S. Ct. 1804, 1812 (2019). “On the contrary, courts have long looked to the contents of 

the agency’s action, not the agency’s self-serving label, when deciding whether 

statutory notice and comment demands apply.” Id. Courts must be “mindful but 

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suspicious of the agency’s own characterization.” DAPA, 809 F.3d at 171. Accordingly, 

courts “evaluate two criteria to distinguish policy statements from substantive rules: 

whether the rule (1) impose[s] any rights and obligations and (2) genuinely leaves the 

agency and its decision-makers free to exercise discretion.” Id. (quotations omitted). 

A court should “focus[] primarily on whether the rule had binding effect on agency 

discretion or severely restricts it.” Id. (quotations omitted). And “an agency’s 

pronouncement will be considered binding as a practical matter if it either appears 

on its face to be binding, or is applied by the agency in a way that indicates it is 

binding.” Id. (cleaned up).

In this case, the bulletin is subject to notice-and-comment rulemaking because 

it is a substantive rule:9 it purports to change a rule adopted by notice-and-comment 

rulemaking after that construction was definitely rejected by the DAB. 58 Fed. Reg. 

at 43,156. Moreover, it imposes rights and obligations and does not leave CMS and 

its decisionmakers free to exercise discretion regarding the scope of the Social 

Security Act’s hold harmless prohibition: because of the bulletin, “an arrangement in 

which providers receive Medicaid payments from the state (or from a state-contracted 

managed care plan), then redistribute those payments such that taxed providers are 

held harmless for all or any portion of their cost of the tax, would constitute a 

prohibited hold harmless provision under” the Social Security Act. Ex. A at 5. CMS 

is required to “reduce a state’s medical assistance expenditures by the amount of 

health care-related tax collections that include hold harmless arrangements, prior to 

calculating federal financial participation.” Id. The bulletin is substantive because it 

9 Some cases describe “substantive rules” as “legislative rules” in contrast to “nonlegislative” or “interpretive” rules. E.g., Lincoln v. Vigil, 508 U.S. 182, 196 (1993). 

Texas is unaware of any distinction between the concepts—let alone one that is 

relevant here. Cf. Shell Offshore Inc. v. Babbitt, 238 F.3d 622, 628 (5th Cir. 2001) 

(equating “legislative” and “substantive rules”).

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imposes more than “derivative, incidental, or mechanical burdens” on Texas. DAPA, 

809 F.3d at 176-77. Indeed, it directly affects billions of dollars in funding, Grady 

Decl. ¶ 19, and it threatens the stability of a program that is consistently the largest 

expenditure in Texas’s budget, compare id. ¶ 19, with, e.g., see also Tex. House Bill 1, 

tit. 2, 88th Leg. (2023). Moreover, it “change[s] the substantive standards by which” 

CMS determines how to enforce the Social Security Act and its implementing 

regulations, DAPA, 809 F.3d at 176-77—standards that arguably can only be set by 

Congress, see West Virginia, 142 S. Ct. at 2607-08. 

Perhaps the best evidence that the bulletin introduces a substantive rule is 

CMS’s own attempt to amend its regulations in 2019. That proposal would have 

amended 42 C.F.R. § 433.68(f)(3) such that CMS would consider the “net effect” of a 

particular arrangement to determine the existence of a hold harmless arrangement. 

84 Fed. Reg. at 63,735. That CMS brought its 2019 proposal through the formal 

rulemaking process is more than ample evidence that it was required to do so here. 

Texas is therefore likely to show that the bulletin is invalid for failure to follow proper 

procedure under the APA.

C. The bulletin is arbitrary and capricious because it departed 

from past practice and did not consider the States’ substantial 

reliance interests.

Finally, even if CMS could amend the Code of Federal Regulations by 

interpretive bulletin, it could not do so here because it neither adequately explained

its departure from past practice nor considered States’ substantial reliance interests

of which it had actual notice—not just through comment letters in prior rulemakings 

but through actual communications between the parties both before and during the 

prior lawsuit. “The APA’s arbitrary-and-capricious standard requires that agency 

action be reasonable and reasonably explained.” FCC v. Prometheus Radio Project, 

141 S. Ct. 1150, 1158 (2021). Agency action qualifies as arbitrary and capricious “‘if 

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the agency has relied on factors which Congress has not intended it to consider, 

entirely failed to consider an important aspect of the problem, offered an explanation 

for its decision that runs counter to the evidence before the agency, or is so 

implausible that it could not be ascribed to a difference in view or the product of 

agency expertise.’” Tex. Oil & Gas Ass’n v. EPA, 161 F.3d 923, 933 (5th Cir. 1998) 

(quoting Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 

(1983)). “Put simply, [the Court] must set aside any action premised on reasoning 

that fails to account for ‘relevant factors’ or evinces a ‘clear error of judgment.’” Univ. 

of Tex. M.D. Anderson Cancer Ctr. v. HHS, 985 F.3d 472, 475 (5th Cir. 2021) (quoting 

Marsh v. Or. Nat. Res. Council, 490 U.S. 360, 378 (1989)). This review has never been 

“toothless,” and “after [Department of Homeland Security v. Regents of the University 

of California, 140 S. Ct. 1891 (2020)], it has serious bite.” Wages & White Lion Invs., 

LLC v. FDA, 16 F.4th 1130, 1136 (5th Cir. 2021).

1. “It is axiomatic that the APA requires an agency to explain its basis for 

a decision.” Physicians for Soc. Resp. v. Wheeler, 956 F.3d 634, 644 (D.C. Cir. 2020). 

“This foundational precept of administrative law is especially important where, as 

here, an agency changes course.” Id. Consequently, “[r]easoned decision-making 

requires that when departing from precedents or practices, an agency must ‘offer a 

reason to distinguish them or explain its apparent rejection of their approach.’” Id.

(quoting Sw. Airlines Co. v. FERC, 926 F.3d 851, 856 (D.C. Cir. 2019)). In other words, 

when an agency reverses “prior policy,” it must provide a “detailed justification” for 

doing so. FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515-16 (2009) (plurality 

op.).

The bulletin fails to acknowledge CMS’s change in position—let alone explain 

it—and thus cannot survive arbitrary-and-capricious review. CMS previously (both 

repeatedly and appropriately) acknowledged that it lacked the statutory or regulatory 

authority either to police or to require States to police private-provider agreements

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under the Act. Grady Decl. ¶ 24; Ex. C at 1; accord In re: Hawaii, 2005 WL 1540188, 

at *23. Without even hinting at those prior representations, CMS now claims that it 

is merely “reiterating the federal requirements concerning hold harmless 

arrangements with respect to health care-related taxes.” Ex. A at 2. 

Not so. This position is consistent only with the failed regulations that CMS 

withdrew in 2019 after a fulsome notice-and-comment process in which CMS’s own 

current deputy administrator then decried as “unprecedented federal overreach” 

which “introduce significant new state obligations” that “exceed[] CMS’ statutory 

authority. Ex. D at 1, 2. Section 1396b(w)(4) has not been amended since this rule 

was withdrawn. And CMS provides no reasons for changing its view that this rule 

needs to go through notice-and-comment rulemaking—let alone a “detailed 

justification” for this substantive shift from past practice. Fox, 556 U.S. at 515-16 

(plurality op.).

2. Even if CMS could overcome that deficiency (and it cannot), the bulletin 

also ignores the States’ tremendous reliance interests in the enforcement regime that 

existed for decades until the bulletin upended it—interests of which the agency had 

actual notice. “[A]gencies must typically provide a ‘detailed explanation’ for 

contradicting a prior policy, particularly when the prior policy has engendered serious 

reliance interests.” BST Holdings, L.L.C. v. OSHA, 17 F.4th 604, 614 (5th Cir. 2021). 

For three decades, States complied with the plain language of the Act and its 

regulations. But States have never been subject to a mandate that purports to compel 

them to police redistribution agreements between private providers. States have 

adjusted their own regulatory framework accordingly. In Texas, for example, HHSC 

has no statutory authority, and thus, no administrative apparatus, to demand that 

private parties turn over contractual arrangements that do not involve a 

governmental unit. Grady Decl. ¶ 12. The State cannot instantaneously build up the

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kind of monitoring regime that CMS has unreasonably insisted upon. Id. ¶¶ 46-47.10

Unlike some APA claims, the agency cannot even claim ignorance of these reliance 

interests: HHSC raised them in a comment letter in response to the MFAR in 2020,

Ex. E; during the negotiations that led to the extension of the section 1115 waiver

beginning in 2021, id. ¶ 30; and again during court-ordered negotiations regarding 

the state directed payments beginning in late 2021 and into 2022, id. ¶¶ 36, 39,

The bulletin also fails to identify, let alone to justify, its potential effects on the 

States’ healthcare markets. CMS well knows that Texas relies on $3 billion local 

provider participation funds as part of the non-federal share of Medicaid payments.

Id. ¶ 19. Withholding federal matching funds for this large amount of funding based 

on the State’s inability to immediately comply with the bulletin, as CMS has 

threatened, Ex. A at 5-6, would undoubtedly result in significant negative impacts to 

Medicaid providers individually and the Medicaid safety net. Grady Decl. ¶ 19.

CMS was required to engage in a far more searching inquiry before it 

disregarded the States’ settled interests in how hold harmless arrangements are 

monitored. Texas is therefore likely to succeed on its claim that the bulletin should 

be set aside under the APA because it is arbitrary and capricious.

II. Texas Will Suffer Irreparable Harm Absent a Preliminary Injunction.

Texas faces at least two separate, but related, irreparable injuries absent a 

preliminary injunction. See Nken v. Holder, 556 U.S. 418, 434 (2009). First, the 

bulletin imposes substantial compliance costs—both monetary and sovereigntybased—that the State will never be able to recover even if it eventually prevails in 

10 This too is confirmed by Mr. Tsai’s letter on behalf of Massachusetts, which 

described the MFAR as “operational[ly] impracticable” because it “creates the 

potential for substantial new ad hoc demands for information by CMS as each 

potential program, arrangement, fee, assessment, or donation is considered under . . . 

vague and broad standards of review.” Ex. D at 4.

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this suit. And second, the bulletin will require HHSC to inquire about the donors of 

private entities, thereby violating those entities’ First Amendment rights and 

subjecting the State to liability from those entities.

A. The bulletin imposes compliance burdens that Texas will never 

be able to recover.

The Fifth Circuit recently held that “complying with a regulation later held 

invalid almost always produces the irreparable harm of nonrecoverable compliance 

costs.” BST Holdings, LLC, 17 F.4th at 618; see Thunder Basin Coal Co. v. Reich, 510 

U.S. 200, 220-21 (1994) (Scalia, J., concurring in part); Commonwealth v. Biden, 57 

F.4th 545, 556 (6th Cir. 2023); see also NFIB v. OSHA, 142 S. Ct. 661, 666 (2022)

(factoring “billions of dollars in unrecoverable compliance costs” into assessment of 

the equities). This is particularly problematic where the party whose compliance is

compelled is a sovereign with a sovereign’s rights to set its own policies and enforce 

its own laws. Both harms are present here.

1. To start with the latter, Texas is a sovereign. “Paramount among the States’ 

retained sovereign powers is the power to enact and enforce any laws that do not 

conflict with federal law.” Cameron v. EMW Women’s Surgical Ctr., P.S.C., 142 S. Ct. 

1002, 1011 (2022). The loss of that prerogative is, by definition, an irreparable harm 

because it cannot compensated through monetary damages. Cf. id.; DFW Metro Line 

Servs. v. Sw. Bell Tel. Co., 901 F.2d 1267, 1269 (5th Cir. 1990) (defining “irreparable 

harm” for the purposes of a preliminary injunction). Here, there is no Texas statute 

that creates or permits HHSC to act in the manner demanded by the bulletin: neither 

CMS nor Texas has statutorily conferred authority to examine or consider any 

contractual agreements or arrangements that might exist between two private 

businesses. Grady Decl. ¶¶ 12, 26, 27, 46. As a result, to comply with the bulletin, 

HHSC will have to arrogate power to itself in a way that is irreconcilable with bedrock 

principles of Texas administrative law. See, e.g., City of Sherman v. Pub. Util. 

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Comm’n of Tex., 643 S.W.2d 681, 686 (Tex. 1983) (“Agencies may only exercise those 

powers granted by statute, together with those necessarily implied from the statutory 

authority conferred or duties imposed.”).

2. Apart from its status as a sovereign, Texas faces significant

irrecoverable monetary costs to comply with CMS’s whims: it would be required to

create and operate a regulatory entity with sufficient resources to examine the 

contractual arrangements and financial management of every private hospital that 

exists in a jurisdiction with a LPPF. Ex. A at 5 (States are expected “to make available 

all requested documentation regarding arrangements involving possible hold 

harmless arrangements and the redistribution of Medicaid payments.” (emphasis 

added)). That is the only way HHSC could accurately determine what private 

contractual relationships exist and whether those contracts are related to their 

provider tax payments. Grady Decl. ¶¶ 44-45. HHSC would then need to take decisive 

action to halt private contractual agreements that fell within the scope of the 

bulletin’s definition of a hold harmless arrangement. Ex. A at 5 (States must “take 

steps to curtail these practices if they exist.”). 

The financial and labor costs of compliance would be massive. Texas hospitals 

are complex and sophisticated business entities with potentially thousands of 

contractual agreements. Grady Decl. ¶ 21. It is not uncommon for a hospital to have 

a contractual agreement with other healthcare providers or entities—in fact it is this 

interwoven fabric of cooperation amongst the more than 600 hospitals on which Texas 

relies to create a safety net for Medicaid patients. Id.

Conservatively, HHSC estimates expenditures of upwards of $50 million 

annually to achieve compliance. Id. ¶ 27. There are 304 privately-owned hospitals 

located in jurisdictions that currently have a LPPF, 27% of which are not-for-profit 

organizations. Id. HHSC would need hundreds of additional staff to “curtail” any 

actions that might be inconsistent with the bulletin; those staff would include 

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professionals like auditors, financial examiners, financial analysts, and attorneys 

who could competently interpret the thousands (potentially millions) of contracts or 

other business documents at each hospital and the billions of dollars of revenues and 

expenditures that are associated with the running of those hospitals. Id.

B. The bulletin also appears to require HHSC to violate the rights 

of private parties.

HHSC would also need to investigate private associations or individual citizens 

who may have financial or other contractual relationships with any Medicaid 

provider. Id. ¶ 24. And at that juncture, HHSC would risk transgressing the First 

Amendment, which protects the free-association rights of individuals and nonprofit 

organizations—including nonprofit hospital associations. Ams. for Prosperity Found. 

v. Bonta, 141 S. Ct. 2373, 2382 (2021). Indeed, HHSC would likely violate the First 

Amendment by demanding that nonprofit organizations disclose the identities of 

their donors. See id. at 2385-89. A governmental mandate that “creates an 

unnecessary risk of chilling” that could deter free association violates the First 

Amendment and would subject the State to liability. Sec’y of State of Md. v. Joseph 

H. Munson Co., 467 U.S. 947, 968 (1984). If Texas demanded this information from 

these entities and individuals, the State could be liable to them; those entities might 

bring suits that could subject the State to injunctive relief, subject individual 

defendants to personal liability, and subject multiple parties to attorney’s fees 

awards. See 42 U.S.C. §§ 1983, 1988. As with the State’s compliance costs, the State 

would never be able to recover those costs because of the federal government’s 

sovereign immunity. Commonwealth, 57 F.4th at 556. All these harms are 

irreparable and warrant immediate injunctive relief. 

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III. The Balance of the Equities and the Public Interest Favor Temporary 

and Preliminary Injunctive Relief.

The two final elements of the inquiry for entry of preliminary-injunctive relief 

also tilt in Texas’s favor. CMS has no legitimate interest in the implementation or 

enforcement of an unlawful agency action. See League of Women Voters of U.S. v. 

Newby, 838 F.3d 1, 12 (D.C. Cir. 2016). Federal courts regularly enjoin federal 

agencies from implementing and enforcing challenged new regulations pending 

litigation to preserve the relative positions of the parties until a trial on the merits. 

See, e.g., Texas v. United States, 787 F.3d 733, 769 (5th Cir. 2015).

An injunction also protects and promotes the public interest. Texas has a 

strong interest in the continued stability of its Medicaid program. The last several 

years have been challenging for Texas Medicaid: the pandemic, combined with CMS’s 

past conduct that precipitated Texas’s earlier lawsuit, have put providers and 

patients on edge. Grady Decl. ¶ 51. CMS’s latest salvo threatens to undermine the 

work that HHSC has done to restore confidence in the Texas Medicaid Program and 

is “destabilizing to the safety net that Texans enrolled in the Medicaid program rely 

on to provide them life-saving care.” Id. On the other side of the ledger, CMS has not 

demonstrated any harm arising from LPPFs or private agreements that might 

tangentially have something to do with those funds. The balance of the equities and 

the public interest strongly favor preservation of the status quo.

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CONCLUSION

Texas respectfully requests that the Court preliminarily enjoin defendants

from enforcing the February 17 bulletin or taking other any actions in reliance on the 

bulletin. 

Dated: April 24, 2023. Respectfully submitted.

KEN PAXTON

Attorney General of Texas

BRENT WEBSTER

First Assistant Attorney General

CHRISTOPHER D. HILTON

Chief, General Litigation Division

Tex. State Bar No. 24087727

Christopher.Hilton@oag.texas.gov 

LEIF A. OLSON 

Chief, Special Litigation Division

Tex. State Bar No. 24032801

Leif.Olson@oag.texas.gov

MUNERA AL-FUHAID

Special Counsel

Tex. State Bar No. 24094501 

Munera.Al-Fuhaid@oag.texas.gov

OFFICE OF THE ATTORNEY GENERAL

P.O. Box 12548 (MC-009)

Austin, Texas 78711-2548

(512) 463-2100

JUDD E. STONE II

Solicitor General 

/s/ Lanora C. Pettit

LANORA C. PETTIT

Principal Deputy Solicitor General

Lead Counsel

Texas Bar No. 24115221

Lanora.Pettit@oag.texas.gov

MICHAEL R. ABRAMS

Assistant Solicitor General

Texas Bar No. 24087072

Michael.Abrams@oag.texas.gov 

WILLIAM F. COLE

Assistant Solicitor General

Texas Bar No. 24124187

William.Cole@oag.texas.gov 

Counsel for Plaintiffs

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CERTIFICATE OF CONFERENCE

1.

On April 14, 2023, counsel for plaintiffs, Lanora Pettit and Michael Abrams, 

conferred by telephone with James Bickford, counsel for defendants, regarding 

plaintiffs’ intention to file this motion. No agreement could be reached by the parties 

because defendants disagree with plaintiffs’ contention that a preliminary injunction 

is warranted. The discussions conclusively ended in an impasse, leaving the issue of 

whether a preliminary injunction should be issued in this case for the Court to 

resolve. 

/s/ Lanora C. Pettit 

Lanora C. Pettit

Principal Deputy Solicitor General

CERTIFICATE OF SERVICE

I certify that a true and accurate copy of the foregoing document was filed and 

served electronically (via CM/ECF) on April 24, 2023. 

 

/s/ Lanora C. Pettit 

Lanora C. Pettit

Principal Deputy Solicitor General

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