On July 3, 2024, a federal court in Texas (“the Court”) issued a stay related to certain provisions of CMS’s Contract Year 2025 Medicare Advantage and Part D (“MAPD”) Final Rule (“2025 Final Rule”), which would change how agents and brokers are paid by Medicare Advantage (“MA”) and Part D plans. Specifically, the Court found in a joint ruling on Ams. for Beneficiary Choice (“ABC”) v. HHS and Council for Medicare Choice (“CMC“) v. HHS that CMS’s changes to three specific provisions of the 2025 Final Rule related to agent and broker compensation: 1) were arbitrary and capricious; 2) bypassed requirements of the Administrative Procedures Act (“APA”); and 3) exceeded CMS’s authority.
The Court’s ruling came only days after the U.S. Supreme Court overturned the long-standing Chevron doctrine, which addressed a court’s deference to a government agency’s actions during administrative proceedings. (You can read more about the Supreme Court’s Chevron decision here.) The Court made no reference to the U.S. Supreme Court’s overturning of Chevron in its order.
Although the Court’s stay in the ABC and CMC cases is only temporary, the language in the decision suggests that the Court may overturn at least part of the 2025 Final Rule. Based on the briefing schedule, the Court will not make a decision in the case before this year’s Medicare Annual Enrollment Period. In the meantime, MA and Part D plans and their partners should refer to CMS’s July 18, 2024, Memo regarding updated compensation rates and referral/finder’s fees for contract year 2025 for additional guidance.
Background: 2025 Contract Year Final Rule
On April 4, 2024, CMS issued the 2025 Final Rule. As part of the 2025 Final Rule, CMS continued its recent actions of reining in Third Party Marketing Organizations (“TPMOs”) and their subcategory, Field Marketing Organizations (“FMOs”), by removing the “administrative fees” payment methodology often used by MA plans to compensate TPMOs and FMOs for various administrative services. In the 2025 Final Rule, CMS relocated the treatment of administrative fees to an expanded definition of “compensation” in 42 CFR § 422.2274(a) and 42 CFR § 423.2274(a) and capped the administrative portion of compensation from MAPD plans to third parties to $100 for initial enrollments (the “Fixed Fee Requirement”).
Additionally, CMS prohibited MA plans via the 2025 Final Rule from including specific provisions in their agent and broker contracts to “ensure that no provision of a contract with an agent, broker or other [TPMO] has a direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent or broker’s ability to objectively assess and recommend which plan best fits the health care needs of a beneficiary” (the “Contract Terms Restriction.”) Finally, CMS prohibited the distribution of personal beneficiary information collected by third-party marketing firms without the beneficiary’s consent (the “Consent Requirement”).
These regulatory changes were due to become effective on October 1, 2024.
Challenge to the Final Rule – Request for 705 Stay or Preliminary Injunction
In May 2024, two industry groups filed suit against CMS seeking an injunction and invalidation of the Fixed Fee Requirements, Contract Terms Restriction and Consent Requirement in the Northern District of Texas. The lead plaintiff in the first suit is ABC, a health care industry trade association that represents various industry participants on Medicare issues. In the second suit, the CMC, which represents TPMOs, filed suit on behalf of itself and certain members. Acknowledging the similar nature of the plaintiffs’ suits, the parties agreed to a joint scheduling order and the Court considered both cases’ issues in its order.
The Court’s Rulings
Fixed Fee and Contract Term Restrictions
In its order, the Court made the following rulings with respect to the Fixed Fee Requirement and Contract Terms Restrictions:
- CMS’s actions were arbitrary and capricious in that CMS did not provide a “rational connection between the facts found and the decision made.”
- CMS did not properly substantiate its decision to set the Fixed Fee at $100, ignoring public comments and stating it “would be extremely difficult to accurately capture” administrative expenses – a move the Court stated “flout[s] APA standards” that “fails to demonstrate…that the proposed rule…is ‘the product of reasoned decision[-] making.’”
- CMS did not appropriately consider stakeholders’ reliance interests after 15 years of history and the impact to the industry’s long-standing business practices.
- CMS did not provide fair notice of the prohibited contract provisions and did not provide “meaningful identification of exactly what conduct is prohibited.”
- CMS did not sufficiently respond to the public’s comments, failing “to consider all relevant factors raised by the public comments and provide a response to significant points within.”
Consent Requirement
With respect to the plaintiffs’ third challenge, the Consent Requirement, the Court found that the plaintiffs had not met their burden showing a substantial likelihood to succeed at this stage of the proceeding and denied issuing a stay on the Consent Requirement implementation.
Expedited Decision on Merits
The Court chose not to remand the matter to CMS for new action in light of the finding that the underlying action exceeded CMS’s authority. Stating that the parties deserve prompt resolution, the Court promised an expedited ruling on the merits and ordered the parties to submit a briefing schedule by July 17, 2024. The briefing schedule was approved by the Court on July 18, 2024, and sets the date motions for summary judgment to be filed as September 27, 2024, with final submission of the parties’ answer briefs for January 24, 2025.
In light of the Court’s order, CMS issued a memo on July 18, 2024, (“July Memo”) revising its previous directions for 2025 benefit year commissions. In the July Memo, CMS acknowledged the Court’s stay and stated that the rules in effect prior to the publication of the 2025 Final Rule would remain in effect while the stay is in effect. Additionally, CMS updated the CY2025 FMV amounts previously published in its June 28, 2024, memo and also stated that CMS will not pursue compliance actions against MAPD plans for failing to submit required agent and broker data to CMS in light of the uncertainty presented by the pending ABC and CMC litigation. Finally, CMS updated portions of the Agent/Broker Training & Testing guidelines in light of the Court’s preliminary injunction. Updated Agent/Broker Training & Testing is available here.
Practical Takeaways
For those MAPD plans that have developed plans or have already implemented the 2025 Final Rule changes, the plans should consider the following actions:
- Update the commission schedule filed with CMS for the 2025 benefit year. The due date was July 26, 2024; however, in the July Memo, CMS stated it would provide leniency for those plans needing to adjust or delay filing to comply with the removal of the administrative fee component.
- Review their contracts with agents and brokers to determine if additional updates are needed in light of the July Memo.
- Continue robust TPMO oversight and monitoring in light of CMS’s activities over the past several years designed to protect beneficiaries’ best interests. The MAPD plans should continue to ensure that actions taken by a TPMO do not implicate federal fraud and abuse laws which may subject the MAPD plan or TPMO to civil monetary or other penalties.
Hall Render will continue to monitor this case and the Court’s final determination, as well as any potential impact on TPMO and agent/broker compensation and related contract provisions.
For more information on agent and broker compensation or MAPD plan issues generally, please contact:
- Jennifer Hatchett at jlhatchett@hallrender.com or (859) 361-5706;
- Julie Lappas at jlappas@hallrender.com or (317) 977-1490; or
- Your primary Hall Render contact.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot give legal advice outside of an attorney-client relationship.
