Council for Medicare Choice et al v. United States Department of Health and Human Services et al

Filing 37

MEMORANDUM OPINION AND ORDER: Plaintiffs' #19 Motions are GRANTED in PART and DENIED in PART. The Court STAYS the effective date of the Fixed Fee and Contract-Terms Restriction in the Final Rule. The Parties SHALL submit a joint schedule for summary judgment briefing by no later than July 17, 2024. (Ordered by Judge Reed C. O'Connor on 7/3/2024) (jnp)

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS FORT WORTH DIVISION AMERICANS FOR BENEFICIARY CHOICE, et al., Plaintiffs v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; et al., Defendants. COUNCIL FOR MEDICARE CHOICE, et al., Plaintiffs v. UNITED STATES DEPARTMENT OF HEALTH AND HUMAN SERVICES; et al., Defendants. § § § § § § § § § § § § § § § § § § § § § § § § Civil Action No. 4:24-cv-00439-O Civil Action No. 4:24-cv-00446-O MEMORANDUM OPINION AND ORDER Before the Court are Americans for Beneficiary Choice Choice (collectively, Motions for a Stay of Effective Date (ECF Nos. 7, 19) and accompanying briefs (ECF Nos. 8, 20); the (ECF Nos. 24, 25); and herein, and Council for Medicare Consolidated Response respective replies (ECF Nos. 28, 30). For the reasons stated Motions for a Stay are GRANTED in part and DENIED in part.1 1 For clarity, the Plaintiffs Motions for a Stay under section 705 are only denied in so far as they seek to stay the rules for the sharing of personal beneficiary information. 1 I. BACKGROUND A. The Final Rule Medicare is a federal health insurance program for the elderly and persons with certain disabilities. Medicare Advantage is a private alternative to traditional Medicare in which the government contracts with private health insurers to provide beneficiaries with the coverage they would otherwise receive under traditional Medicare. 42 U.S.C. § 1395w-22(a). Additionally, under Medicare Part D, the federal government contracts with private drug plan sponsors to provide drug benefits. Id. § 1395w-101. About fifteen years ago, Congress authorized the Centers for Medicare and Medicaid Services to set to that the use of compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care Id. § 1395w-21(j)(2)(D); see also id. § 1395w-104(l)(2) (applying same to Part D). Under this scheme, CMS regulates compensation that MA and Medicare Part D plans pay to independent agents and brokers who help beneficiaries select and enroll in private plans. In doing so, CMS places price caps on paid to agents and brokers for enrollments. 42 C.F.R. § 422.2274(d)(2) (3). The current price cap for new enrollments is $611. Changes to MA for Contract Year 2024, 89 Fed. Reg. 30448, 30621 (Apr. 23, 2024). In addition to payments made to agents and brokers, insurance carriers also reimburse third-party firms for administrative services provided to agents and brokers as part of the MA enrollment process. These services include fielding and recording calls; developing technology such as plan-comparison tools that agents deploy in the field; assisting agents and brokers with obtaining necessary licenses, certifications, and trainings; and launching marketing campaigns. 2 Until recently, CMS did not cap payments for administrative services because it did not classify payment for those services as . 42 U.S.C. § 1395w-21(j)(2)(D); see Medicare Program Revisions, 73 Fed. Reg. 54226, 54239 (Sept. 18, 2008); Medicare and Medicaid Programs, Contract Year 2022 Changes, 86 Fed. Reg. 5864, 5993 (Jan. 19, 2021). Instead, CMS only required that administrative payments not exceed value of those services in the 42 C.F.R. § 422.2274(e)(1) (2). This changed when CMS shifted course this year and began to set fixed rates for a wide range of administrative payments that were previously uncapped and unregulated as compensation. To that end, CMS promulgated a new rule (the . Changes to MA for Contract Year 2024, 89 Fed. Reg. at 30448. Key provisions of the Final Rule seek to regulate administrative payments as services to $100 (the and limit the total payments that carriers can make for administrative Id. at 30621 (42 C.F.R § 422.2274(a), (e) and § 423.2274(a), (e)). The Final Rule also introduces new prohibitions on contract terms that health plan carriers may offer third-party firms or agents and brokers (the -Terms Id. at 30620 (42 C.F.R. § 422.2274(c)(13) and § 423.2274(c)(13). Under the Contract-Terms Restriction, health plan carriers must that no provision of a contract with an agent, broker, or other [third- party marketing organization] has a direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent or ability to objectively assess and recommend which plan best fits the health care needs of a Id. at 30829. CMS provided examples of prohibited terms, which focus on schemes to circumvent existing compensation caps, such as volume-based bonuses. Id. at 30621. In conjunction with the Fixed Fee and Contract-Terms Restriction, the Final Rule also prohibits third-party firms from beneficiary data that they any personal to any other third-party marketing organizations without consent 3 Requirement . Id. at 30599. This prohibition covers a and phone as well as other information given by the beneficiary for the purpose of finding an appropriate MA or Part D health address, Id. at 30604. Notably, this same data qualifies as for purposes of the Health Insurance Portability and Accountability Act ( HIPAA ). 45 C.F.R. § 164.105(c). Plaintiffs filed two separate cases2 seeking a section 705 stay or, in the alternative, a preliminary injunction of the Fixed Fee, Contract-Terms Restriction, and Consent Requirement.3 Given the similarity of issues raised by the Plaintiffs in these cases, the parties agreed to a joint scheduling order and Defendants agreed to respond to both ABC and Motions in one consolidated response.4 Plaintiffs filed their separate responses on June 7, 2024, making both ABC and Motions for a Stay ripe for review.5 B. The Parties Plaintiffs are ABC, Senior Security Benefits, LLC Association of Health Underwriters, Inc. LLC Fort CMC, Fort Worth ,6 and Vogue Insurance Agency Senior Security and Vogue are Individual Plaintiffs whose businesses are impacted by the Final Rule. ABC is a trade association who represents health industry stakeholders in litigation.7 Individual Plaintiff Senior Security is a member of ABC.8 CMC represents independent, third-party firms that contract with multiple MA and Medicare Part D health plan 2 Ams. for Beneficiary Choice v. HHS, No. 4:24-cv-00439-O and Council for Medicare Choice v. HHS, No. 4:24-cv446-O. Notice, ECF Nos. 14, 18 and complaint will reference Case No. 4:24-cv00439-O consolidated response will correspond to Case No. 4:24-cv-446-O. 3 Only ABC challenges the sharing of personal data prohibitions. 42 C.F.R. §§ 422.2274(g), 423.2274(g). ABC Br. 9, ECF No. 8. 4 5 ABC Reply, ECF No. 28; CMC Reply, ECF No. 30. CMC and NABIP Fort Worth will be referred to colle 7 ABC Compl. 6, ECF No. 1. 8 Id. at 7. 6 4 carriers and either employ individual agents directly or provide administrative services to a network of independent-contractor agents or brokers 9 NABIP Fort Worth represents firms that provide administrative service to agents and brokers.10 Individual Plaintiff Vogue is a member of NABIP Fort Worth.11 II. STANDING Because Plaintiffs seek relief on behalf of their members, they must establish associational standing. As a defense, Defendants argue that Plaintiffs Motions must be denied because the Plaintiffs lack associational standing.12 The associational standing doctrine permits a traditional membership organization behalf of its invoke the [injunctive or declaratory] remedial powers on Warth v. Seldin, 422 U.S. 490, 515 (1975). To do so, the organization must satisfy the three-prong Hunt test by showing that its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the Students for Fair Admissions, Inc. v. President & Fellows of Harv. Coll., 143 S. Ct. 2141, 2157 (2023) (quoting Hunt v. Wash. State Apple Advert. , 432 U.S. 333, 343 (1977)). Here, Plaintiffs satisfy the three-prong Hunt test. First, ABC and CMC both seek relief on behalf of their members, Individual Plaintiffs, Senior Security and Vogue, who have standing to sue. First, Senior Benefits is a firm that provides administrative services to agents. Senior Security has standing to sue because the Final Rule will directly regulate how plan issuers, agents, and brokers pay Senior Security for the critical training and administrative support services it 9 CMC Compl. 4, ECF No. 1. Id. 11 Id. 10 12 5 provides. 13 Likewise, Vogue, a brokerage agency, has standing to sue because the Final Rule may cause them to lose access to administrative services.14 Second, ABC organizational purpose of protecting the best interests of Medicare and other health insurance beneficiaries through legislative and regulatory advocacy and participation in litigation and CMC shared organizational purpose of promoting firms, agents, and brokers, and the proven value they provide to plans and to 15 are clearly germane to this suit challenging parts of the Final Rule. Third, because ABC and CMC seek the equitable remedies of injunctive and declaratory relief from the Final Rule, there is no need for all of their individual members to participate in the lawsuit. In sum, the Court holds that ABC and CMC have demonstrated associational standing and may pursue relief on behalf of their members. III. LEGAL STANDARD 13 ABC Compl. 7, ECF No. 1. CMC Compl. 4 5, ECF No. 1. 15 Id. at 19. 14 6 IV. ANALYSIS A. Likelihood of Success on the Merits Plaintiffs must first show a substantial likelihood that they will succeed on the merits of their claims. Daniels Health Servs., 710 F.3d at 582. show a likelihood of success, the plaintiff must present a prima facie case, but need not prove that he is entitled to summary Id. The Court determines that Plaintiffs have shown a likelihood of success that the Fixed Fee and Contract-Terms Restrictions are arbitrary and capricious. However, the Court finds that ABC has not demonstrated a likelihood of success regarding the Consent Requirement.16 1. The Fixed Fee and Contract-Terms Restrictions are Arbitrary and Capricious. Section 706 of the APA provides that reviewing courts must set aside agency action found to be capricious, an abuse of discretion, or otherwise not in accordance with U.S.C. § 706(2)(A). and capricious review focuses on whether an agency articulated a rational connection between the facts found and the decision U.S. 5 ExxonMobil Pipeline Co. v. of Transp., 867 F.3d 564, 571 (5th Cir. 2017) (internal quotation marks and citation 16 Because the Court holds that Plaintiffs have shown a likelihood of success that the Fixed Fee and Contract-Terms restrictions are arbitrary and capricious, it does not reach the merits of Plaintiffs claims that the Final Rule exceeds statutory authority. 7 omitted). An agency must provide a more for a policy [that] rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into FCC v. Fox Television Stations, Inc. (Fox I), 556 U.S. 502, 515 (2009) (citing Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735, 742 (1996)). Plaintiffs are substantially likely to succeed on the merits because the Fixed Fee and Contract-Terms Restriction are arbitrary and capricious. a. CMS Failed to Substantiate Key Parts of the Final Rule. CMS never substantiated its decision to raise the fixed fee by $100 to account for administrative payments. The $100 fee purports to provide administrative tools and and for Changes to MA for Contract Year 2024, 89 Fed. Reg. at 30626. Yet commentors noted that this overhead; technology to power quote engines; software and hardware for call routing; hiring and training agents; marketing campaigns; data security systems, and many others, thus guaranteeing that firms will be left to provide those services at a loss. 17 Instead of responding to these warnings and studying the costs, CMS simply claimed that these expenses be extremely difficult to accurately capture Id. at 30625. Even so, CMS cannot flout APA standards by merely insisting that administrative costs are unquantifiable. Chamber of Com. of U.S. v. SEC, 85 F.4th 760, 776 (5th Cir. 2023) [B]y continuing to insist that the rule s economic effects are unquantifiable in spite of petitioners suggestions to the contrary . . . fail[s] to demonstrate that its conclusion that the proposed rule. . . is he product of reasoned decision[-]making. It is true that, in reviewing an agency for that of the 17 action, a court may not its judgment Ohio v. Env t Prot. Agency, No. 23A349, 2024 WL 3187768, at *7 (U.S. CMC App. 43 44, ECF No. 21. 8 June 27, 2024) (citing Fox I, 556 U.S. at 513)). However, a court must still ensure that the agency has offered satisfactory explanation for its action[,] including a rational connection between the facts found and the choice Id. (citing Motor Vehicle Mfrs. Assn. of U.S., Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29, 43 (1983)). Accordingly, CMS important aspect[s] of the simply ignore . . . such as the costs of overhead, marketing, data security, and other administrative costs that CMS failed to consider and quantify when developing the Fixed Fee. Id. Because CMS failed to substantiate how they calculated the costs of administrative expenses; Plaintiffs are substantially likely to show that the Fixed Fee is arbitrary and capricious. b. The Final Rule Did Not Sufficiently Address Reliance Interests. The Final Rule also insufficiently addressed reliance interests. When an agency changes course, as [CMS] did here, it must cognizant that longstanding policies may have engendered serious reliance interests that must be taken into of Homeland Sec. v. Regents of the Univ. of Cal., 591 U.S. 1, 30 (2020) (quoting Encino Motorcars, LLC v. Navarro, 579 U. S. 211, 222 (2016)). would be arbitrary and capricious to ignore such Id. But this is exactly what CMS did when it switched its position on administrative payments without providing sufficient explanations and notice. The Rule never mentions administrative payments are considered prior understanding that or are payments than Medicare Program Revisions, 73 Fed. Reg. at 54239; Medicare and Medicaid Programs; Contract Year 2022 Changes, 86 Fed. Reg. at 5993. Nor did CMS assess whether their reliance interest or competing policy concerns. CMS ignored comments and concerns that the Final Rule would harm long standing business models and possibly upend the industry. This further indicates that the Final Rule is arbitrary and capricious. 9 c. The Contract-Terms Restriction Did Not Provide Fair Notice. In this same vein, the Contract-Terms Restriction failed to provide fair notice of what was prohibited. See FCC v. Fox Television Stations, Inc. (Fox II), 567 U.S. 239, 253 (2012). The Contract-Terms Restriction prohibits any contract term that a direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent or ability to objectively assess and recommend which plan best fits the health care needs of a Changes to MA for Contract Year 2024, 89 Fed. Reg. at 30829. In response to comments asking for clarity, CMS offered examples of prohibited conduct in the preamble. Id. at 30620 30621. While listing in the preamble examples of what conduct the Final Rule prohibits clarified the Contract-Terms Restriction to a certain extent, it also may have expanded the reach of the restriction without some meaningful identification of exactly what conduct is prohibited. This too is arbitrary and capricious. See Mock v. Garland, 75 F.4th 563, 585 (5th Cir. 2023) (setting aside a rule that provided meaningful clarity about what constitutes conduct). d. CMS Did Not Sufficiently Respond to Public Comments. Finally, CMS also failed to sufficiently respond to public comments. Agencies are required to consider all relevant factors raised by the public comments and provide a response to significant points within. Chamber of Com. of U.S. v. SEC, 85 F.4th at 774 (citing Huawei Techs. USA, Inc. v. FCC, 2 F.4th 421, 449 (5th Cir. 2021). The agency must respond to comments that be thought to challenge a fundamental premise underlying the proposed agency decision or points that if true and adopted would require a change in an proposed Carlson v. Postal Regul. Comm n, 938 F.3d 337, 344 (D.C. Cir. 2019) (cleaned up) (quoting MCI WorldCom, Inc. v. FCC, 209 F.3d 760, 765 (D.C. Cir. 2000)); Mexican Gulf Fishing Co. v. U.S. Dep t of Com., 60 F.4th 956, 971 (5th Cir. 2023) (cleaned up) (quoting Huawei, 2 F.4th at 449). 10 Industry comments to the proposed rule included: (i) asking CMS to clarify the ContractTerms Restriction,18 (ii) warning that the use of a fixed fee compensation could harm the industry and push some participants to leave, in turn, reducing plan options that are available to beneficiaries, 19 and (iii) noting that many carriers typically pay more than $100 for administrative services.20 Defendants claim that the sources Plaintiffs criticized were not significant enough to warrant defending them.21 But many comments considered central points to the Final Rule, such as the Commonwealth Report, which is payments have central evidence for its assertion that current outpaced . . . market or the $100 Fixed Fee. Medicare Program; Contract Year 2025, 88 Fed. Reg. 78476, 78554 (Nov. 15, 2023). Similarly, commenters asked CMS to clarify the Contract-Terms Restriction and explain how the Rule would apply to contracts predating its effective date. Accordingly, because CMS failed to address important problems to their central evidence, the Fixed Fee, and Contract-Terms Restriction that members of the public raised during the comment period, those aspects of the Final Rule are most likely arbitrary and capricious. e. Response Does Not Remedy These Issues. CMS responds to these deficiencies by citing to factual material that was not disclosed by CMS when it promogulated the Final Rule. While this material may substantiate some of 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.22 Because 18 App. 13 17, ECF No. 21. Id. at 46 49. 20 Id. 21 CMS Resp. 34, ECF No. 24. 22 This material also raises the issue of post hoc rationalizations and lack of disclosure during the rule making process. Texas v. Becerra, 575 F. Supp. 3d 701, 720 (N.D. Tex. 2021) (quoting State Farm 19 agency action and cannot consider post hoc rationali . 11 CMS failed to (i) substantiate key claims, (ii) consider reliance interest, (iii) provide fair notice, and (iv) respond to comments about the Fixed and Contract-Terms Restriction, the Final Rule is likely arbitrary and capricious. Thus, Plaintiffs have shown that they are substantially likely to succeed on the merits of their claims against the Fixed Fee and Contract-Terms Provision. 2. ABC Fails to Show Substantial Likelihood of Success on Their Claim Against the Consent Requirement. 23 24 25 23 ABC Br. 20, ECF No. 8. Id. at 9. 25 CMS Resp. 38, ECF No. 24. 24 12 B. Next, Plaintiffs must demonstrate a substantial threat of irreparable harm. The Fifth Circuit if it cannot be undone through monetary Dennis Melancon, Inc. v. City of New Orleans, 703 F.3d 262, 279 (5th Cir. 2012) (quoting Interox Am. v. PPG Indus., Inc., 736 F.2d 194, 202 (5th Cir. 1984)). A showing of economic loss is usually insufficient to establish irreparable harm because damages may be recoverable at the conclusion of litigation. Janvey v. Alguire, 647 F.3d 585, 600 (5th Cir. 2011). However, exception exists where the potential economic loss is so great as to threaten the existence of the Atwood Turnkey Drilling, Inc. v. Petroleo Brasileiro, S.A., 875 F.2d 1174, 1179 (5th Cir. 1989). Or where costs are nonrecoverable because the government-defendant enjoys sovereign immunity from monetary damages, as is the case here, irreparable harm is generally satisfied. See Wages & White Lion Invs., L.L.C. v. FDA, 16 F.4th 1130, 1142 (5th Cir. 2021). Irreparable harm must be concrete, non-speculative, and more than merely de minimis. Daniels Health Servs., 710 F.3d at 585; Dennis Melancon, Inc., 703 F.3d at 279 (cleaned up). Plaintiffs have shown that their members and the Individual Plaintiffs are likely to suffer irreparable harm in at least two ways if the Final Rule is not temporarily stayed while litigation is pending. First, Plaintiffs contend that the Final Rule will alter their business operations. Namely, if the Final Rule is not stayed, stakeholders will have to expense. 26 at great Likewise, firms will have to alter how much they will spend on marketing activities and hiring new agents.27 At bottom, Rule remains in effect in mid-July, firms will hire fewer agents than usual and shrink their marketing budgets. 26 ABC Br. 23, ECF No. 8. CMC Br. 22, ECF No. 20. 28 CMC App. 225, 231-32, ECF No. 21. 27 13 28 Career Colls. & Schs. of Texas v. DOE, 98 F.4th 220, 237 (5th Cir. 2024) (finding irreparable harm where agency action forced plaintiff to abandon business plans). Second, Plaintiffs estimate that parts of Final Rule could cost carriers upwards of onethey may go out of business if the Final Rule is not stayed. 29 immunity from monetary damages, demonstrate irreparable harm. Wages & White Lion, 16 F.4th at 1142. Plaintiffs purported delay in seeking relief does not militate against a showing of irreparable harm.30 Wireless Agents, L.L.C. v. T-Mobile, USA, Inc., No. 3:05-cv-0094-D, 2006 WL 1540587, at *4 (N.D. Tex. June 6, 2006) (cleaned up). Courts generally consider anywhere from a three-month delay to a sixLeaf Trading Cards, LLC v. Upper Deck Co., No. 3:17-cv-3200-N, 2019 WL 7882552, at *2 (N.D. Tex. Sept. 18, 2019) (collecting cases). Here, Plaintiffs waited only six weeks to seek a stay. This alleged delay does not undermine a finding of irreparable harm. C. The Balance of Equities and the Public Interest Favor Issuing a Stay. The final two elements necessary to support injunctive relief the balance of the equities (the difference in harm to the respective parties) and the public interest Government is a party. Nken claims of injury and . . . consider[s] the effect on each party of the granting or withholding of the 29 30 CMC App. 46, ECF No. 21. 24, ECF No. 24. 14 simultaneously considering the public consequences of granting injunctive relief. Winter, 555 U.S. at 24 (internal citations omitted). The harms ABC, CMC, and their members face by failing to maintain the status quo are substantially more severe than those faced by CMS. The Court is not convinced that the current compensation framework which has been in place for over fifteen years is so flawed that it requires these sweeping new requirements now or that beneficiaries would be unfairly prejudiced by granting a stay pending final judgment. Additionally, the Court has already concluded that Plaintiffs have each established credible threats of irreparable injury absent relief from enforcement of the Fixed Fee and Contract-Terms Restriction. Generally, there is no public interest in the perpetuation of unlawful agency Louisiana v. Biden, 55 F.4th 1017, 1035 (5th Cir. 2022) (citing State v. Biden, 10 F.4th 538, 560 (5th Cir. 2021)). In this respect, the government-public-interest equities evaporate upon an adverse decision touching upon the merits. See Sierra Club v. U.S. Army Corps of Eng rs, 990 F. Supp. 2d 9, 43 44 (D.D.C. 2013) (Jackson, J.) (expounding that public interest arguments are . . . [the] This remains true even in pursuit of desirable ends that the Government may seek here. Wages & White Lion Invs., 16 F.4th at 1143 (quoting Ala. Ass n of Realtors v. HHS, 141 S. Ct. 2485, 2490 (2021)). For these reasons, the Court holds that the balance of equities weighs in favor of granting Motions for a Stay and that the public interest is not disserved by affording such relief. * * * * 15 * * * Having considered the arguments, evidence, and applicable law, the Court holds that the relevant factors weigh in favor of a section 705 stay of the Fixed Fee and Contract-Terms Restriction. D. Relief Should Not be Party Restricted Career Colls. & Schs. of Texas 16 V. CONCLUSION For the reasons stated above, Motions are GRANTED in PART and DENIED in PART. The Court STAYS the effective date of the Fixed Fee and Contract-Terms Restriction in the Final Rule specifically, those amending 42 C.F.R. § 422.2274(a), (c), (d), (e) and § 423.2274(a), (c), (d), (e) during the pendency of this suit and any appeal. The Parties SHALL submit a joint schedule for summary judgment briefing by no later than July 17, 2024. SO ORDERED on this 3rd day of July 2024. _____________________________________ Reed O’Connor UNITED STATES DISTRICT JUDGE 17

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