A federal judge in Texas has permanently blocked a CMS rule that redefined how states calculate their share of Medicaid costs. Judge Jeremy Kernodle ruled that CMS overstepped its authority by expanding the definition of prohibited “hold harmless” agreements, which are financial arrangements that states have long used to pool provider contributions and cover their Medicaid obligations. The policy would have jeopardized up to $10 billion in state Medicaid funding, force repayments and saddle states with heavy compliance costs. 

The ruling applies nationwide, preventing CMS from enforcing the regulation. However, the Agency will likely appeal the decision, setting up a possible legal battle. The final outcome could reshape how Medicaid is financed across the country.