On July 3, 2024, a federal court in Texas stayed provisions of the Centers for Medicare & Medicaid Services’ (“CMS”) contract year 2025 Final Rule that amended the longstanding Medicare Advantage (“MA”) and Part D agent and broker compensation methodology and prohibited certain terms in contracts with third party marketing organizations (“TPMOs”). This decision follows two lawsuits filed against CMS and the Department of Health and Human Services (“HHS”) arguing that the Final Rule exceeds CMS’s statutory authority, is arbitrary and capricious, and was promulgated without complying with procedural requirements. The Texas federal judge stayed the effective date of the “Fixed Fee” and “Contract-Terms Restriction” of the Final Rule during the pendency of the lawsuits, and chose not to remand to the agency, instead promising an expeditious ruling on the merits at the parties’ request.

The Final Rule

These lawsuits were initiated in response to three major changes made to MA and Part D regulations on agent, broker, and other third-party requirements by the Final Rule that were set to take effect on October 1, 2024 for CY2025:

  1. Contract-Terms Restriction: MA organizations and Part D sponsors must ensure that no contractual arrangement with an agent, broker, or other TPMO includes a provision that “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.”
  2. Compensation: The definition of “compensation” was revised to include administrative payments – a type of payment previously excluded from the definition and previously not required to comply with the fair market value (“FMV”) cap on agent and broker compensation. Under the Final Rule, “compensation” includes all “payments made to an agent or broker that are tied to enrollment, related to an enrollment in an MA plan or product, or for services conducted as a part of the relationship associated with the enrollment into an MA plan or product.”
  3. Fixed Fee: In response to the major industry shift created by (2), CMS implemented a one-time increase of $100 to the FMV cap for new enrollments to account for administrative payments now being included under the compensation rate.

Legal Proceedings

Six weeks after CMS published the Final Rule, Americans For Beneficiary Choice (“ABC”), a trade association based in Dallas, Texas, and the Council for Medicare Choice (“CMC”), a nonprofit corporation in Austin, Texas composed of unaffiliated insurance agencies, brokerages, and field marketing organizations (“FMOs”), filed separate lawsuits in the Northern District of Texas, challenging the Final Rule and seeking a stay of the Final Rule (or in the alternative, a preliminary injunction) on an expedited timeline. The lawsuits, which were filed two days apart, were assigned to Judge Reed O’Connor for possible consolidation.

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