Medicare Managed Care Marketing Reboot Imperiled by Legal Fight

A trio of legal challenges have staggered—and threaten to topple—an HHS rule that restricts compensation for field marketing organizations that provide back-office support for independent insurance agents and brokers.

Each of the complaints claims the Centers for Medicare & Medicaid Services overstepped its statutory authority by finalizing the rule in April. If the rule is overturned by the courts, the Biden administration will have to find a new way to make sure financial incentives from Medicare Advantage plans don’t cause agents, brokers, and field marketing organzations (FMOs) to steer potential enrollees into plans that don’t meet their needs.

Revamping Medicare Advantage marketing guidelines is a priority for the Biden administration as the plans now cover 33.8 million beneficiaries, more than half of all those eligible.

The disputed rule would effectively reduce MA plan payments for FMO services to $100 per new enrollee, industry leaders say. Current fees range from $200 to $300 per new signup. The rule also prohibits MA plan contracts with FMOs from creating incentives—like volume-based enrollment bonuses for certain plans—that could inhibit an agent or broker’s “ability to objectively assess and recommend” the best plan.

“Recent studies suggest that MA plans offer additional or alternative incentives to agents and brokers, often through third parties such as FMOs, to prioritize enrollment into some plans over others,” the rule said.

“The CMS has been monitoring this, and it looks to me like, in 2023, they kind of said ‘enough is enough’ and they promulgated this regulation,” said Alice Bers, litigation director at the Center for Medicare Advocacy, which supports the rule.

Put on Hold

But on July 3, a federal judge in Texas, who’s hearing two consolidated legal challenges to the rule, delayed the October implementation of both the changes to FMO fees and the restriction on FMO contract terms until the cases are resolved.

The memorandum opinion by Judge Reed O’Connor of the US District Court for the Northern District of Texas found the plaintiffs were likely to prevail on their arguments that the rule’s payment changes for agents, brokers, and FMOs and its restrictions on contract terms are “arbitrary and capricious.” The opinion also indicated that judicial relief should be universal and not limited to just the parties in the cases.

Those cases are Americans for Beneficiary Choice v. HHS and Council for Medicare Choice v. HHS. The Americans for Beneficiary Choice suit claims the final rule (RINs 0938-AV24 and 0938-AU96) “upends the regulatory status quo, dramatically limiting administrative fees that Congress did not intend” for CMS regulate.

A third suit was brought by AmeriLife Holdings LLC, of Clearwater, Fla., and its subsidiary field marketing organizations. That complaint, filed in the US District Court for the Middle District of Florida, also contends the CMS overstepped its legal authority by finalizing the rule. The case is being held in abeyance pending resolution of the Texas cases.

The plaintiffs have asked for relief in time to prepare for the Medicare open enrollment period for 2025 that runs from Oct. 15 to Dec. 7.

Field marketing organizations typically help agents and brokers field and record calls; launch marketing campaigns; develop plan comparison tools; and help obtain licenses, certification and training.

But the CMS has “seen the FMO landscape change from mostly smaller, regionally based companies to a largely consolidated group of large national private equity-backed or publicly traded companies,” the rule said.

Impact on the Market

Payments by Medicare Advantage plans to FMOs for administrative services weren’t previously regulated by the CMS. But the new rule now categorizes them as part of the agent/broker compensation package, which is regulated by the agency.

The rule increases the maximum rate that Medicare Advantage plans pay agents and brokers from $611 per new enrollee, to $711 in 2025. But that, presumably, would leave only the additional $100 to cover administrative payments to FMOs. The CMS doesn’t think the change will have an adverse effect on third-party marketing organizations, FMOs, or independent brokers, the rule said.

Mike Andel, vice president of congressional relations at the National Association of Benefits and Insurance Professionals, disagreed. “I don’t think there’s a clear understanding of how this is going to impact the market,” he said.

“The industry isn’t sure how CMS decided on the $100 increase,” Andel added. “There’s no hard data as to why this was picked.”

Judge O’Connor, a preferred jurist for conservative health-care challenges, was equally puzzled by the move. His July 3 order said the CMS “didn’t substantiate the decision to raise the maximum fee” for agents and brokers by $100.

It also said the CMS ignored comments and concerns that the final rule would harm longstanding business models, failed to provide fair notice of what was prohibited by the restriction on contract terms, and failed to sufficiently respond to public comments when the rule was proposed.

Andel’s trade association supports O’Connor’s decision to stay the rate increase, but it also wants full disclosure and transparency of Medicare Advantage plan payments to FMOs, Andel said. It supports the CMS’ “flat rate” payment formula to eliminate incentives for plan favoritism. But that rate should be at least $250 per new enrollee and should be adjusted annually for inflation, the group said when the rule was proposed.

Invoking Loper Bright

On Thursday, O’Connor ordered that plaintiffs file summary judgment motions in both cases by Sept. 27, with government cross motions by Nov. 8. Per the request of both sides, O’Connor also agreed that both cases could proceed to resolution on the basis of the summary judgment briefing, without a response from the defendants.

Plaintiff attorneys in the Americans for Beneficiary Choice lawsuit argue the US Supreme Court’s opinion in Loper Bright Enterprises v. Raimondo, which overturned the Chevron doctrine, affects their complaint.

Under Chevron, courts deferred to federal agencies’ reasonable interpretations of ambiguous statutes. But the high court in Loper Bright said judges must interpret laws regardless of ambiguity, according to the “best” reading of the statute.

The plaintiff attorneys’ July 2 motion in the ABC suit said the Loper Bright decision “forecloses” a previous CMS request for deference that claimed the agency’s interpretation of federal regulations is entitled to “‘very great respect’—even deference.” But after the Loper Bright decision, “that position no longer can be defended,” the motion claimed.

“Rather, this Court ‘must exercise its “independent judgment in deciding whether [the] agency has acted within its statutory authority, as the Administrative Procedure Act requires,’ without deference of any kind.”

All three suits challenging the rule were brought under the Administrative Procedure Act, which governs the way federal agencies develop and issue regulations.

The high court’s decision “potentially throws a wrench into cases like this,” said Bers, of the Center for Medicare Advocacy.

But Congress, through the Medicare Act, “couldn’t be clearer” in requiring that the Department of Health and Human Services “shall ensure that incentives are created for agents and brokers to enroll beneficiaries in the plan that best meets their health care needs,” Bers said.

“So Congress has instructed CMS to do exactly this kind of oversight to ensure a level playing field,” she said.