On July 3, a Texas district court ordered to stay portions of the Contract Year (CY) 2025 Medicare Advantage Final Rule (Final Rule), which would significantly alter the structure by which independent agents and brokers can be compensated for Medicare Advantage (MA) enrollments.
The district court judge has not issued a final decision in the case but signaled that he intends to expedite his ruling on the merits. The ruling does not suspend other portions of the Final Rule related to prior authorization, health equity and social determinants of health, treatment of beneficiary data, or network adequacy requirements, among other changes, which we and our colleagues previously considered here.
CY 2025 CMS MA Final Rule
Relevant from the Final Rule are two changes to the way MA plans pay third-party agents and broker firms to assist with enrolling patients in MA plans included in the Final Rule. CMS maintains that the marketing portions of the Final Rule deter what it views as "anti-competitive" behavior and "high pressure tactics" in MA plan marketing.
First, the Final Rule prohibits any contract terms that CMS believes would create an improper incentive and prevent agents or brokers from recommending the best plan for the beneficiary's healthcare needs. CMS listed a few examples of these "anti-competitive" contract terms, including bonuses for hitting volume-based targets for sales of a plan; bonuses in exchange for an agent or broker declining to represent a certain competitor's plan; terms in which renewal of an agent or broker's contract is contingent upon rates of enrollment; and terms that tie reimbursement for marketing activities by agents or brokers to rates of enrollment.
The second change at issue relates to payments by insurers to third-party agents and broker firms for administrative services that those third-party firms provide in the process of enrolling patients in MA. Examples of these administrative services include providing technology tools used by insurance agents, fielding phone calls from beneficiaries, and assisting with broker and agent licensing and certification.
The status quo leaves the amount of payments from insurers to agents and brokers for administrative services uncapped within the bounds of fair market value. Historically, CMS has not capped payment for these administrative services payments because it has not viewed payment for these services as "compensation" that it is empowered by Congress to regulate. However, the new Final Rule represents a change in that view by including administrative payments in the calculation of enrollment-based compensation and setting a fixed rate of $100 per new enrollment for administrative payments.
Americans for Beneficiary Choice et al. v. U.S. Dept. of Health & Human Services
In Americans for Beneficiary Choice et al. v. U.S. Dept. of Health & Human Services, the U.S. District Court for the Northern District of Texas heard challenges to these two provisions, ultimately granting the plaintiffs' motions to stay after finding that the plaintiffs have a "substantial likelihood" of success on the merits of their claims that these portions of the rules are "arbitrary and capricious" and in violation of the Administrative Procedure Act.
In its analysis, the court reasoned that CMS failed to provide sufficient justification for these two provisions. For example, the court pointed out that, in making its decision regarding administrative payments, CMS did not respond to industry stakeholders worried about serious financial detriment and did not conduct studies of the actual cost of appropriate administrative services: "Instead of responding to these warnings and studying the costs, CMS simply claimed that these expenses would be extremely difficult to accurately capture . . . CMS cannot flout [Administrative Procedure Act] standards by merely insisting that administrative costs are unquantifiable."
The court also took issue with CMS' failure to respond sufficiently to public comments. Industry comments ranged from seeking clarification on whether certain contract terms in existing agent and broker agreements would be permissible to warnings that the fixed $100 administrative services rate could financially harm the industry such that some participants would be forced to leave the MA program altogether (thereby reducing plan options available to beneficiaries). CMS did provide factual material to the court to address some of these concerns from public comments, but the court was not satisfied: "While this material may substantiate some of CMS's claims, it does not adequately explain how or why CMS reached the $100 Fixed Fee, its reasoning for reversing a fifteen-year position, or its lack of responses to significant comments."
Following this decision, we expect CMS to quickly file an appeal of the stay of these two provisions in the Fifth Circuit—a court that has not been shy about upholding or granting stays of administrative rules. It is also possible that CMS will try to initiate litigation on this issue in other jurisdictions in an attempt to create a circuit split. Overall, this decision (coupled with the recent overturn of Chevron) signals to CMS and other agencies that they will be expected to provide more justification for their decisions moving forward.
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