Americans for Beneficiary Choice v. United States Department of Health and Human Services

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

FORT WORTH DIVISION

AMERICANS FOR BENEFICIARY §

CHOICE, et al., §

§

Plaintiffs §

§

v. §

Civil Action No. 4:24-cv-00439-O

§

UNITED STATES DEPARTMENT OF §

HEALTH AND HUMAN SERVICES; et §

al., §

§

Defendants. §

§

COUNCIL FOR MEDICARE CHOICE, §

et al., §

Plaintiffs §

§

v. §

§ Civil Action No. 4:24-cv-00446-O

UNITED STATES DEPARTMENT OF §

HEALTH AND HUMAN SERVICES; et §

al., §

§

Defendants. §

MEMORANDUM OPINION & ORDER

Before the Court are Americans for Beneficiary Choice (“ABC”) and Council for Medicare

Choice’s (“CMC”) (collectively, “Plaintiffs”) Motions for Summary Judgment (ECF No. 50 (Case

4:24-CV-439); ECF No. 50 (Case 4:24-CV-446)) and accompanying briefs (ECF No. 51 (Case

4:24-CV-439); ECF No. 51 (Case 4:24-CV-446)); Defendants’ Motions for Summary Judgment

(ECF No. 52 (Case 4:24-CV-439); ECF No. 53 (Case 4:24-CV-446)) and accompanying briefs

(ECF No. 54 (Case 4:24-CV-439); ECF No. 55 (Case 4:24-CV-446)); Plaintiffs’ respective

Responses and Replies (ECF No. 55 (Case 4:24-CV-439); ECF Nos. 56, 57 (Case 4:24-CV-446));

and Defendants’ respective Responses and Replies (ECF Nos. 53, 58 (Case 4:24-CV-439); ECF

Nos. 54, 60 (Case 4:24-CV-446)). For the reasons stated herein, Plaintiffs’ Motions for Summary

Judgment are GRANTED in part and DENIED in part. And as explained below, Defendants’

Motion for Summary Judgment is GRANTED in part and DENIED in part.

I. BACKGROUND

A. The Final Rule

Medicare is a federal health-insurance program for the elderly and persons with certain

disabilities. Medicare Advantage (“MA”) 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). 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 in the Social Security Act authorized

the Centers for Medicare and Medicaid Services (“CMS”) to set “guidelines” to “ensure 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 needs.” 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 “compensation” 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) (to be codified at 42

C.F.R. pts. 417, 422, 423, 460).

In addition to payments made to agents and brokers, insurance carriers, i.e., Medicare

Advantage Organizations, also reimburse third-party firms like field-marketing organizations

(“FMOs”) for administrative services provided to agents and brokers as part of the MA enrollment

process. These services include fielding and recording beneficiaries’ 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.

Until recently, CMS did not cap payments for administrative services because it did not

classify payment for those services as “compensation.” 42 U.S.C. § 1395w-21(j)(2)(D); see

Medicare Program Revisions, 73 Fed. Reg. 54226, 54239 (Sept. 18, 2008) (to be codified at

42 C.F.R. pts. 417, 422, 423); Medicare and Medicaid Programs, Contract Year 2022 Changes, 86

Fed. Reg. 5864, 5993 (Jan. 19, 2021) (to be codified at 42 C.F.R. pts. 405, 417, 422, 423, 455,

460). Instead, CMS only required that administrative payments not exceed “the value of those

services in the marketplace.” 42 C.F.R. § 422.2274(e)(1)–(2).

CMS shifted course and 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 “Final Rule”). Changes to MA for Contract Year 2024, 89 Fed. Reg. at 30448. Key

provisions of the Final Rule seek to regulate administrative payments as “compensation” and limit

the total payments that carriers can make for administrative services to $100 (the “Fixed Fee”). 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 “Contract-Terms Restriction”). 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

ensure 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 broker’s ability to objectively

assess and recommend which plan best fits the health care needs of a beneficiary.

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 “distributing any personal beneficiary data that they collect” to

any other third-party marketing organizations without consent (the “Consent Requirement”). Id.

at 30599. This prohibition covers a beneficiary’s “name, address, and phone number,” as well as

“any other information given by the beneficiary for the purpose of finding an appropriate MA or

Part D plan.” Id. at 30604. Notably, this same data qualifies as “protected health information” for

purposes of the Health Insurance Portability and Accountability Act (“HIPAA”). 45 C.F.R.

§ 164.105(c).

B. Relevant Procedural History

Plaintiffs filed two separate cases1 seeking vacatur of the Final Rule along with declaratory

and injunctive relief.2 Plaintiffs later moved for a stay of the Final Rule under 5 U.S.C. § 705 or,

in the alternative, a preliminary injunction enjoining enforcement of the Fixed Fee, Contract-

Terms Restriction, and Consent Requirement.3 On July 3, 2024, this Court granted in part and

denied in part Plaintiffs’ Motions for a Stay. See Ams. for Beneficiary Choice v. HHS, No. 4:24-

CV-00439-O, 2024 WL 3297527, at *7 (N.D. Tex. July 3, 2024). Specifically, the Court held the

Fixed Fee and Contract-Terms Restriction were arbitrary and capricious under Section 706 of the

1 Ams. for Beneficiary Choice v. HHS, No. 4:24-cv-00439-O and Council for Medicare Choice v. HHS, No.

4:24-cv-446-O. For clarity, citations to ABC’s summary judgment briefing and Complaint reference Case

No. 4:24-cv-00439-O, while citations to CMC’s summary judgment briefing and Complaint and

Defendants’ summary judgment briefing correspond to Case No. 4:24-cv-446-O.

2 ABC Compl. 31, ECF No. 1; CMC Compl. 45, ECF No. 1.

3 See ABC Mot. Prelim. Inj, ECF No. 7; CMC Mot. Prelim. Inj., ECF No. 19. Only ABC challenged the

sharing of personal data prohibitions. 42 C.F.R. §§ 422.2274(g), 423.2274(g). ABC Br. 9, ECF No. 8.

Administrative Procedure Act (“APA”). So, the Court stayed the effective date of the Final Rule’s

amendments to 42 C.F.R. §§ 422.2274(a), (c), (d), (e) and §§ 423.2274(a), (c), (d), (e) for the

pendency of this suit and any appeal. Id. at *3–5. The Court, though, held that ABC failed to

demonstrate a substantial likelihood of success on its challenge to the Consent Requirement, and

denied ABC’s Motion for a Stay insofar as it sought a stay for the Final Rule’s amendments to

42 C.F.R. § 422.2274(g) and 42 C.F.R. § 423.2274(g). Id. at *6.

Given the similarity of issues raised by the Plaintiffs in the two cases, the parties agreed to

a joint scheduling order regarding their Cross-Motions for Summary Judgment. Plaintiffs filed

separate Motions, Responses, and Replies,4 while Defendants addressed both cases in their

consolidated Cross-Motion for Summary Judgment, Response, and Reply.5 The parties’ Cross-

Motions for Summary Judgment are ripe for the Court’s review.

C. The Parties

Plaintiffs are ABC, Senior Security Benefits, LLC (“Senior Security”); CMC; Fort Worth

Association of Health Underwriters, Inc. (“NABIP–Fort Worth”);6 and Vogue Insurance Agency

LLC (“Vogue”). 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

carriers and either employ individual agents directly or provide administrative services to a

4 ABC Mot. Summ. J., ECF No. 50; ABC. Resp. and Reply, ECF No. 55; CMC Mot. Summ. J., ECF No.

50; CMC Resp., ECF No. 56; CMC Reply, ECF No. 57.

5 CMS Mot. Summ. J., ECF No. 53; CMS Resp., ECF No. 54; CMS Reply, ECF No. 60.

6 CMC and NABIP–Fort Worth will be referred to collectively as “CMC.”

7 ABC Compl. 6, ECF No. 1; CMC Compl. 7, ECF No. 1.

8 ABC Compl. 7, ECF No. 1.

network of independent-contractor agents or brokers.”9 NABIP–Fort Worth represents firms that

provide administrative services to agents and brokers.10 Individual Plaintiff Vogue is a member of

NABIP–Fort Worth.11

Defendants in these suits are the United States Department of Health and Human Services

(“HHS”); CMS; Robert F. Kennedy, Jr. in his official capacity; and Mehmet Oz in his official

capacity.12 The Court collectively refers to Defendants as “CMS” throughout this Order.

II. LEGAL STANDARD

The APA “authorizes suit by ‘[a] person suffering legal wrong because of agency action,

or adversely affected or aggrieved by agency action within the meaning of a relevant statute.’”

Norton v. S. Utah Wilderness All., 542 U.S. 55, 61 (2004) (alteration in original) (quoting 5 U.S.C.

§ 702). Upon review of agency action, a district court is required to “hold unlawful and set aside

agency action” that the court finds is “(A) arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C)

in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; [and] (D)

without observance of procedure required by law.” 5 U.S.C. § 706(2)(A)–(D).

Disputes arising under the APA are commonly resolved on summary judgment, where

district courts sit as an appellate tribunal to decide legal questions on the basis of the administrative

record. Amin v. Mayorkas, 24 F.4th 383, 391 (5th Cir. 2022). In APA cases challenging agency

action, summary judgment “serves as the mechanism for deciding, as a matter of law, whether the

agency action is supported by the administrative record and otherwise consistent with the APA

9 CMC Compl. 4, ECF No. 1.

10 Id.

11 Id.

12 Id. at 8–9. Pursuant to Federal Rule of Civil Procedure 25(d), Robert F. Kennedy, Jr. and Mehmet Oz

were substituted for their predecessors as Secretary of HHS and Administrator of CMS, respectively.

standard of review.” Gadhave v. Thompson, No. 3:21-CV-2938-D, 2023 WL 6931334, at *1 (N.D.

Tex. Oct. 19, 2023) (citations omitted). The agency “resolve[s] factual issues to arrive at a

decision . . . supported by the administrative record,” and the district court applies the APA

standards of review to determine whether, as a matter of law, “the evidence in the administrative

record permitted the agency’s decision.” Yogi Metals Grp. Inc. v. Garland, 567 F. Supp. 3d 793,

797–98 (S.D. Tex. 2021), aff’d, 38 F.4th 455 (5th Cir. 2022) (internal quotation marks and citation

omitted).

III. ANALYSIS

Plaintiffs challenge the Final Rule on two primary grounds. First, Plaintiffs argue that CMS

exceeded its statutory authority.13 Second, Plaintiffs contend the Final Rule is arbitrary and

capricious.14 The Court addresses each argument in turn.

A. Excess of Authority

Plaintiffs argue the Fixed Fee and Contract-Terms Restriction exceed CMS’s statutory

authority.15 As explained below, the Court agrees.

1. The Fixed Fee

The Court begins with the Fixed Fee. Congress enabled CMS to set “guidelines” to “ensure

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 needs.” 42 U.S.C. § 1395w-

21(j)(2)(D) (emphasis added). ABC argues this statutory “language is incompatible with CMS’s

13 CMC Br. Supp. Mot. Summ. J. 16–21, 35, ECF No. 51; ABC Br. Supp. Mot. Summ. J. 12–19, ECF No.

51.

14 CMC Br. Supp. Mot. Summ. J. 22–35, 38–40, ECF No. 51; ABC Br. Supp. Mot. Summ. J. 20–37, ECF

No. 51.

15 CMC Br. Supp. Mot. Summ. J. 16–21 (arguing the Fixed Fee exceeds authority), 35 (arguing the

Contract-Terms Restriction exceeds authority), ECF No. 51; ABC Br. Supp. Mot. Summ. J. 12–19 (arguing

the Fixed Fee exceeds authority), ECF No. 51.

position that any and all payments related to MA marketing are prohibited unless they are made

pursuant to the agency’s inflexible rules, including rate setting.”16 Similarly, CMC contends the

Fixed Fee exceeds CMS’s “statutory authority in two ways: (1) CMS has no authority to regulate

the amount of compensation provided, much less to fix that compensation at a single, artificially

depressed rate; and (2) CMS has no authority to regulate administrative payments as

‘compensation.’”17

“The APA, in short, incorporates the traditional understanding of the judicial function,

under which courts must exercise independent judgment in determining the meaning of statutory

provisions.” Loper Bright Enters. v. Raimondo, 603 U.S. 369, 394 (2024). And “[c]ourts must

exercise their independent judgment in deciding whether an agency has acted within its statutory

authority, as the APA requires.” Id. at 412. “[W]hen a particular statute delegates authority to an

agency consistent with constitutional limits, courts must respect the delegation, while ensuring that

the agency acts within it.” Id. at 413.

Statutory interpretation starts with the text. “[S]tatutory terms are generally interpreted in

accordance with their ordinary meaning.” Sebelius v. Cloer, 569 U.S. 369, 376 (2013) (citation

omitted). The traditional approach for courts is to “interpret the words consistent with their

ordinary meaning . . . at the time Congress enacted the statute.” Wis. Cent. Ltd. v. United States,

585 U.S. 274, 277 (2018) (alteration in original) (internal quotation marks and citation omitted).

Moreover, “[i]t is a fundamental canon of statutory construction that the words of a statute must

be read in their context and with a view to their place in the overall statutory scheme.” Roberts v.

Sea-Land Servs., Inc., 566 U.S. 93, 101 (2012) (citation omitted).

16 ABC Br. Supp. Mot. Summ. J. 12, ECF No. 51.

17 CMC Br. Supp. Mot. Summ. J. 16, ECF No. 51.

Here, the statutory language states that CMS’s “guidelines shall ensure 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 needs.” 42 U.S.C. § 1395w-

21(j)(2)(D). As promulgated, the Fixed Fee regulates administrative payments as “compensation”

and places a $100 fixed fee on the total payments for administrative services. Changes to MA for

Contract Year 2024, 89 Fed. Reg. at 30621.

The Court first addresses whether CMS had the statutory authority under 42 U.S.C.

§ 1395w-21(j)(2)(D) to fix payment for administrative services at $100 and then turns to whether

§ 1395w-21(j)(2)(D) authorized CMS to regulate administrative payments as compensation.

i. $100 Payment Limit

CMC posits that “CMS’s Fixed Fee hinges on an asserted power to engage in ratemaking

for plans, firms, agents, and brokers in the industry. But Congress gave CMS no such power.”18

The Court agrees. The statutory text delegates to CMS the authority to set “guidelines” to “ensure

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 needs.” 42 U.S.C. § 1395w-

21(j)(2)(D) (emphasis added). As shown below, CMS may only regulate how compensation is

used, not engage in ratemaking.

The Court first consults the plain meaning of § 1395w-21(j)(2)(D), which indicates

Congress did not authorize CMS to establish price controls. See NPR Invs., L.L.C. ex rel. Roach v.

United States, 740 F.3d 998, 1007 (5th Cir. 2014) (“We follow the plain and unambiguous meaning

of the statutory language, interpreting undefined terms according to their ordinary and natural

meaning and the overall policies and objectives of the statute.” (internal quotation marks and

18 Id.

citations omitted)). “Dictionaries are a principal source for ascertaining the ordinary meaning of

statutory language.” Thompson v. Goetzmann, 337 F.3d 489, 497 n.20 (5th Cir. 2003).

Beginning with the term “use,” its plain meaning is “application or employment.” Use,

BLACK’S LAW DICTIONARY (8th ed. 2004).19 So, CMS may establish “guidelines” to “ensure that

the use of compensation,” i.e., the “application or employment” 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 needs.” 42 U.S.C. § 1395w-21(j)(2)(D) (emphasis added);

Use, BLACK’S LAW DICTIONARY (8th ed. 2004) (emphasis added). The “application or

employment” of “compensation”—read collectively with the term “guidelines”—allows CMS to

regulate “how agents and brokers put compensation into action,”20 not the specific rate of

compensation.

Further, as CMC explains, this language starkly contrasts with other statutes in which

Congress has given agencies the authority to engage in ratemaking.21 For instance, Congress in the

Social Security Act, which includes § 1395w-21(j)(2)(D), expressly authorized HHS and CMS to

set payments to physicians “based on the lesser of . . . the actual charge for the service, or . . . under

the fee schedule.” 42 U.S.C. § 1395w-4(a)(1)(A)–(B) (emphasis added). The Act also gave these

agencies authority to “establish separate rates of payment to a Medicare+Choice organization.” Id.

§ 1395w-23(a)(1)(H) (emphasis added).

Other statutes likewise demonstrate Congress’s ability to give agencies the power to

regulate set or fixed amounts of compensation. For instance, Congress has enabled the Department

of Transportation to “prescribe guidelines” that “shall be used to determine the reasonable amount

19 The Court considers the 2004 edition of Black’s Law Dictionary as it was the current edition when

42 U.S.C. § 1395w-21(j)(2)(D) was enacted.

20 CMC Br. Supp. Mot. Summ. J. 18, ECF No. 51.

21 Id. at 17–18.

of compensation required to ensure the continuation of air service or air transportation.” 49 U.S.C.

§ 41737(a) (emphasis added).

The statutory language at issue here contains no such language expressly delegating

ratemaking authority. Rather, CMS is allowed to set “guidelines” to “ensure 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 needs.” 42 U.S.C. § 1395w-

21(j)(2)(D) (emphasis added). Thus, after consulting the statutory text’s plain meaning and other

statutory schemes, the Court interprets the “use of compensation” not to encompass the $100

payment limit.

CMS counters that “the word ‘use’ is much more flexible than what CMC posits.”22

Specifically, CMS argues that “[b]y using a capacious word like ‘use,’ Congress made sure to

capture the existing limits on both the amount of compensation paid and the practical effects of

particular compensation schemes.”23 But the Court declines to assume Congress imparted such a

specific power to CMS as ratemaking or setting price controls without any explicit delegation or

by implication. The foregoing examples of other statutory schemes confirm “that when Congress

meant to set a limit on fees, it knew how to do so.” Crawford Fitting Co. v. J. T. Gibbons, Inc.,

482 U.S. 437, 442 (1987). And CMS has not provided the Court any statutory schemes

demonstrating otherwise.

In sum, based on the statutory text’s plain meaning and other statutory schemes, the Court

concludes CMS lacked the authority to establish the $100 payment limit.

22 CMS Br. Supp. Mot. Summ. J. 28, ECF No. 55.

23 Id. at 29.

ii. Administrative Payments as Compensation

Having decided that CMS exceeded its authority to establish the $100 payment limit, the

Court now turns to whether CMS has the authority to regulate administrative payments as

compensation. Plaintiffs argue the plain meaning of “compensation” and CMS’s historical

interpretations of compensation demonstrate that the Final Rule’s inclusion of administrative

payments as compensation exceeds CMS’s statutory authority.24 Again, the Court agrees with

Plaintiffs.

The plain meaning of “compensation” is “payment or remuneration for a service.”25 See

Tanzin v. Tanvir, 592 U.S. 43, 48 (2020) (“[W]e turn to the phrase’s plain meaning at the time of

enactment.”). Administrative payments, though, are not “payment or remuneration” for the

services agents and brokers provide “to enroll individuals in the Medicare Advantage plan that is

intended to best meet their health care needs.” 42 U.S.C. § 1395w-21(j)(2)(D). Rather, they “seek

to reimburse agents and brokers for the costs incurred in rendering a service other than enrollment,

such as their ‘operational overhead.’” 26 Specifically, CMS defines administrative payments as

“payments made for services other than enrollment of beneficiaries” such as “training, customer

service, agent recruitment, operational overhead, or assistance with completion of health risk

assessments.” 42 C.F.R. § 422.2274(e)(1). This definition of “administrative payments” does not

fall within the plain meaning of “compensation” because administrative payments are

24 CMC Br. Supp. Mot. Summ. J. 19–21, ECF No. 51; ABC Br. Supp. Mot. Summ. J. 13–18, ECF No. 51.

25 ABC Br. Supp. Mot. Summ. J. 13, ECF No. 51 (citing Compensation, BLACK’S LAW DICTIONARY (8th

ed. 2004)); see CMC Br. Supp. Mot. Summ. J. 20, ECF No. 51 (same). As stated before, the Court consults

the 2004 edition of Black’s Law Dictionary as it was the current edition when 42 U.S.C. § 1395w-

21(j)(2)(D) was enacted.

26 CMC Br. Supp. Mot. Summ. J. 19–20, ECF No. 51 (emphasis added) (quoting 42 C.F.R. §

422.2274(e)(1)); see ABC Br. Supp. Mot. Summ. J. 13, ECF No. 51 (“[T]he administrative fees paid to

FMOs are best understood as reimbursements for overhead and other hard costs incurred by independent

agents and brokers.” (emphasis added)).

“reimbursements for overhead and other hard costs incurred by independent agents and brokers.”27

Said simply, administrative payments are distinct from the enrollment process that agents and

brokers facilitate. So, the plain meaning of the statutory text forecloses CMS regulating

administrative payments as compensation.

CMS’s previous regulations also support Plaintiffs’ position that CMS should not treat

administrative payments as compensation. For example, when CMS historically promulgated

regulations following the enactment of § 1395w-21(j)(2)(D), CMS explicitly stated administrative

payments were “not considered compensation.” Medicare Program Revisions, 73 Fed. Reg. at

54238. Tellingly, CMS in 2021 agreed with a commenter who stated that an administrative

payment “is a payment other than compensation because the payment is not for the sale or renewal

of a policy.” Contract Year 2022 Changes, 86 Fed. Reg. at 5993.

CMS posits that the Fixed Fee is a result of its “broad authority to promulgate ‘fair

marketing standards’” under 42 U.S.C. § 1395w-21(h)(4)(D) “that, at minimum, limit

‘compensation other than as provided under guidelines established by’ CMS.”28 CMS touts that

“[n]either the individual words Plaintiffs pluck out of § 1395w-21(j)(2)(D) nor vague economic

policy considerations can upset those broad delegations.”29 CMS’s argument, though, is

misguided.

It is true that CMS cited § 1395w-21(h)(4)(D) along with § 1395w-21(j)(2)(D) in the Final

Rule as sources of authority to establish the Fixed Fee. Changes to MA for Contract Year 2024,

89 Fed. Reg. at 30619. But § 1395w-21(h)(4)(D) does not give CMS the power to regulate “fair

27 ABC Br. Supp. Mot. Summ. J. 13–14, ECF No. 51.

28 CMS Br. Supp. Mot. Summ. J. 20, ECF No. 55 (emphasis added) (quoting 42 U.S.C. §§ 1395w-

21(j)(2)(D), (h)(4)(D)).

29 Id. (emphasis added).

marketing standards” as broadly as it purports.30 Rather, § 1395w-21(h)(4)(D) articulates that “fair

marketing standards . . . shall only permit a Medicare Advantage organization (and the agents,

brokers, and other third parties representing such organization) to conduct the activities described

in subsection (j)(2).” 42 U.S.C. § 1395w-21(h)(4)(D) (emphasis added).

As ABC explains, this “is nothing but an incorporation by reference of the guidelines that

CMS is to establish under [§] (j)(2), which must stand on their own. In other words, [§] (h)(4)(D)

cannot be read to authorize any regulation of compensation that is not already authorized by

[§] (j)(2).”31 So, § 1395w-21(h)(4)(D) does not prescribe such sweeping power to regulate fair

marketing standards as CMS posits. Rather, CMS’s power to regulate “fair marketing standards”

in § 1395w-21(h)(4)(D) is cabined by § 1395w-21(j)(2)(D)’s narrow delegation of power to CMS

to regulate the “use of compensation.” The Court thus rejects CMS’s argument that the Fixed Fee

stems from its broad power to regulate fair marketing standards.

CMS also relies on In re Riley, 923 F.3d 433 (5th Cir. 2019), to argue that “[a] key problem

for Plaintiffs’ proposed line between reimbursements and payment for services is that the Fifth

Circuit has rejected it.”32 In re Riley involved a bankruptcy dispute. Id. at 435. The Fifth Circuit

addressed whether reimbursement of filing fees, credit counseling fees, and credit report fees

“could be permissible as attorney compensation.” Id. at 440. The bankruptcy court held it “lack[ed]

the discretion to ever award debtor’s counsel compensation that includes reimbursement for

advancing the costs of those three fees.” Id. at 441 (emphasis added).

But the Fifth Circuit rejected that conclusion. Id. The Fifth Circuit first looked to the plain

meaning of “compensation,” which it explained “is broad enough that it would generally be

30 ABC Resp. and Reply 2, ECF No. 55.

31 ABC Resp. and Reply 2, ECF No. 55

32 CMS Br. Supp. Mot. Summ. J. 21, ECF No. 55.

understood to include reimbursement.” Id. (citing Compensation, BLACK’S LAW DICTIONARY (6th

ed. 1990); Reimburse, BLACK’S LAW DICTIONARY (6th ed. 1990)). The Fifth Circuit then turned

to whether the operative statutory language “permitt[ed] the reimbursement of filing fees, credit

counseling fees, and credit report fees.” Id. The bankruptcy court said no, but the Fifth Circuit

disagreed. Id.

According to the Fifth Circuit, the statutory language “says courts may allow compensation

‘for representing the interests of the debtor in connection with the bankruptcy case[.]’” Id. at 443

(alteration in original) (quoting 11 U.S.C. § 330(a)(4)(B)). “A filing fee (and the other two fees)

are, by any ordinary understanding of the words, ‘interests of the debtor in connection with the

bankruptcy case.’” Id. So, the statute allowed bankruptcy courts to grant “compensation to a

Chapter 13 debtor’s counsel even when the underlying activity fulfills a personal obligation of the

debtor—such as advancing the cost of a filing fee—so long as that obligation is an interest of the

debtor connected with the bankruptcy case.” Id. In sum, the Fifth Circuit held that bankruptcy

courts have “the discretion to compensate debtor’s counsel for advancing the costs of filing fees,

credit counseling fees, and credit report fees if they choose to do so.” Id.

The Fifth Circuit’s holding in In re Riley, though, is distinguishable from the instant action.

CMS’s argument that In re Riley “concluded that the plain meaning of compensation ‘generally’

includes reimbursement”33 fatally ignores the specific bankruptcy context of the Fifth Circuit’s

decision. Thus, In re Riley is not particularly instructive to CMS’s position here.

Moreover, as ABC explains, “[Medicare Advantage Organizations] pay FMOs for the

separate and distinct service of establishing and administratively supporting networks of

independent agents and brokers. [These Organizations] then separately pay commissions to agents

33 Id. at 24.

and brokers for the sales services they provide.”34 Indeed, “this is wholly unlike a lawyer’s

payment of filing fee,” as in In re Riley, “which is itself part of the service provided to the client.”35

In other words, the administrative payments here are not included in the services that agents and

brokers provide to Medicare Advantage Organizations; they are separate and are thus not

subsumed under the plain meaning of compensation. And so, the Fifth Circuit’s holding that

compensation “is broad enough that it would generally be understood to include reimbursement”

is inapplicable to the context here. In re Riley, 923 F.3d at 441.

In sum, the Court concludes the Fixed Fee exceeds CMS’s authority. After all, “judges

need only fulfill their obligations under the APA to independently identify and

respect . . . delegations of authority, police the outer statutory boundaries of those delegations, and

ensure that agencies exercise their discretion consistent with the APA.” Loper Bright, 603 U.S. at

404.

2. The Contract-Terms Restriction

Only CMC argues the Contract-Terms Restriction exceeds CMS’s authority.36

Specifically, CMC argues the Contract-Terms Restriction regulates terms that are not

“compensation,” and, consequently, exceeds CMS’s authority for the same reasons as the Fixed

Fee.37 The Court agrees.

The Contract-Terms Restriction requires Medicare Advantage Organizations to provide

that no part “of a contract with an agent, broker, or other [third-party organization] 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

34 ABC Br. Supp. Mot. Summ. J. 14, ECF No. 51 (emphasis added).

35 Id.

36 CMC Br. Supp. Mot. Summ. J. 35, ECF No. 51.

37 Id.

a beneficiary.” Changes to MA for Contract Year 2024, 89 Fed. Reg. at 30829. But, as CMC

explains, the Contract-Terms Restriction includes “the same administrative payments as the Fixed

Fee.”38 For the same reasons as the Fixed Fee, the Contract-Terms Restriction exceeds CMS’s

authority because it regulates administrative payments, and administrative payments are not

“compensation” as used in 42 U.S.C. § 1395w-21(j)(2)(D).

Further, not only does the Contract-Terms Restriction erroneously regulate administrative

payments, but it also regulates contract terms that do not sound in compensation—directly running

afoul of Congress’s mandate to regulate the “use of compensation.” 42 U.S.C. § 1395w-

21(j)(2)(D). Indeed, it regulates virtually any contract provision that could be construed as

“inhibit[ing] an agent or broker’s ability to objectively assess and recommend which plan best fits

the health care needs of a beneficiary.” Changes to MA for Contract Year 2024, 89 Fed. Reg. at

30829. CMS in the Final Rule provided examples of “contract terms” it “proposed to prohibit.” Id.

at 30620. These examples included contract provisions “that specify renewal or other terms of a

plan’s contract with an agent broker or FMO contingent upon preferentially higher rates of

enrollment.” Id. But contract terms contemplating “renewal” or “higher rates of enrollment” have

nothing to do with compensation.

CMS argues that “conditioning contract renewal based on a party achieving ‘higher rates

of enrollment’” squarely falls “within the agency’s authority to limit the ‘use of compensation’ in

such a way as to guard against perverse incentives.”39 Not so. “[A] renewal term governs whether

plans and FMOs will continue to do business at all, not what carriers pay firms, agents, or

brokers.”40 By CMS’s logic, “it could regulate any contract terms because contracts, as a whole,

38 CMC Reply 30, ECF No. 57 (citing Changes to MA for Contract Year 2024, 89 Fed. Reg. at 30829).

39 CMS Br. Supp. Mot. Summ. J. 35, ECF No. 55.

40 CMC Reply 31, ECF No. 57 (emphasis added).

govern business relationships that involve payments. That proves too much, and nullifies

Congress’s phrase ‘use of compensation.’”41

The Court thus concludes that the Contract-Terms Restriction exceeds CMS’s authority as

it oversteps CMS’s narrow power to regulate the “use of compensation.” 42 U.S.C. § 1395w-

21(j)(2)(D).

B. Arbitrary and Capricious

Having concluded the Fixed Fee and Contract-Terms Restriction run afoul of the relevant

statutory text, the Court could stop there. But Plaintiffs also argue the Final Rule is arbitrary and

capricious. Specifically, both ABC and CMC contend the Fixed Fee constitutes arbitrary and

capricious agency action.42 Only CMC argues the Contract-Terms Restriction is arbitrary and

capricious,43 while only ABC argues the Final Rule’s restrictions on the sharing of personal

beneficiary data, i.e., the Consent Requirement, are arbitrary and capricious.44

The Court incorporates its reasoning from its July 3, 2024, Order, which held that the Fixed

Fee and Contract-Terms Restriction are arbitrary and capricious. Ams. for Beneficiary Choice,

2024 WL 3297527, at *3–5. Specifically, the Court held “CMS never substantiated its decision to

raise the fixed fee by $100 to account for administrative payments,” “[t]he Final Rule also

insufficiently addressed reliance interests,” and “the Contract-Terms Restriction failed to provide

fair notice of what was prohibited.” Id. at *4. The Court also determined that CMS “failed to

sufficiently respond to public comments” concerning both the Fixed Fee and Contract-Terms

Restriction. Id. at *5.

41 Id. (quoting 42 U.S.C. § 1395w-21(j)(2)(D)).

42 CMC Br. Supp. Mot. Summ. J. 22–35, ECF No. 51; ABC Br. Supp. Mot. Summ. J. 20–33, ECF No. 51.

43 CMC Br. Supp. Mot. Summ. J. 38–40, ECF No. 51.

44 ABC Br. Supp. Mot. Summ. J. 35–37, ECF No. 51.

At the summary-judgment stage of litigation, CMS has failed to demonstrate otherwise.

So, the Court concludes that in addition to exceeding CMS’s authority, the Fixed Fee and Contract-

Terms Restriction are arbitrary and capricious.

The Court briefly addresses CMS’s supplemental authority. After the parties fully briefed

their Motions for Summary Judgment, the Court allowed CMS to file supplemental authority,

namely, the Supreme Court’s decision in FDA v. Wages & White Lion Investments, L.L.C., 145 S.

Ct. 898 (2025), which vacated the Fifth Circuit’s decision in Wages & White Lion Investments,

L.L.C. v. FDA, 90 F.4th 357 (5th Cir. 2024).45 In Wages, the Supreme Court confirmed that

“[a]gencies are free to change their existing policies as long as they provide a reasoned explanation

for the change, display awareness that [they are] changing position, and consider serious reliance

interests.” 145 S. Ct. at 917 (alterations in original) (internal quotation marks and citations

omitted). The Supreme Court explained that “[b]ased on the FDA’s largely noncommittal guidance

on scientific evidence and its specific reasons for rejecting respondents’ applications,” it could not

“say that the agency deviated ‘from a prior policy sub silentio or simply disregard[ed]’ what it had

previously said.” Id. at 921 (first emphasis added) (second alteration in original) (quoting FCC v.

Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)).

But here, CMS’s historical positions—as demonstrated by previous regulations—cannot

be understood as “noncommittal.” Indeed, as explained in the Court’s previous Order, “[t]he

[Final] Rule never mentions CMS’s prior understanding that administrative payments are ‘not

considered compensation’ or are payments ‘other than compensation.’” Ams. for Beneficiary

Choice, 2024 WL 3297527, at *4 (quoting Medicare Program Revisions, 73 Fed. Reg. at 54239;

Contract Year 2022 Changes, 86 Fed. Reg. at 5993). So, not only did CMS fail to sufficiently

45 See CMS Notice Suppl. Authority, ECF No. 68.

explain its change in position, but its prior positions also never stated that administrative payments

are compensation. In other words, CMS’s prior regulations clearly affirmed that administrative

payments were not considered compensation, which can hardly be interpreted as a “noncommittal”

position. Thus, Wages is not particularly instructive here.

Now the Court turns to the Consent Requirement. Unlike the Fixed Fee and Contract-

Terms Restriction, the Court in its July 3, 2024, Order determined ABC failed to show a substantial

likelihood of success on the merits of its challenge to the Consent Requirement. Ams. for

Beneficiary Choice, 2024 WL 3297527, at *6. ABC argued the Consent Requirement was in

tension with HIPAA. Id. The Court at the then-preliminary injunction stage of litigation agreed

with CMS’s argument that “even if HIPAA might facilitate data sharing in some circumstances,

that does not control whether CMS may limit certain harmful data-sharing practices under the

Medicare statute.” Id. (citation omitted).

At this summary-judgment juncture of litigation, the Court still agrees with CMS. ABC

currently advances a similar argument as before; that is, “CMS failed to address the concern that

the [Final] Rule is in significant respects more limiting than what HIPAA regulations require, and

therefore that compliance will undermine the carefully reticulated HIPAA scheme that finely

balances privacy interests with societal interests in the sharing of health information.”46 But “CMS

expressly took steps to avoid any conflict with HIPAA, such as by explaining that CMS was not

‘attempting to classify this information as [Personally Identifiable Information] or [Protected

Health Information],’ and explained it could nevertheless ‘take steps within its authority’ to protect

beneficiaries.”47 ABC does not dispute this. The Court concludes CMS’s promulgation of the

46 ABC Br. Supp. Mot. Summ. J. 36, ECF No. 51.

47 CMS Br. Supp. Mot. Summ. J. 42–43, ECF No. 55 (alterations in original) (quoting Changes to MA for

Contract Year 2024, 89 Fed. Reg. at 30604).

Consent Requirement was not arbitrary and capricious. Thus, the Court DENIES ABC’s Motion

as it relates to the Consent Requirement.

In sum, the Court concludes the Fixed Fee and Contract-Terms Restriction are arbitrary

and capricious.

IV. REMEDY

The Court now considers the proper remedy. Plaintiffs argue vacatur is the appropriate

remedy.48 The Court agrees.49

“When an agency action is ‘arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law,’ the APA directs the reviewing court to ‘hold unlawful and set aside [that]

agency action.’” Rest. L. Ctr. v. U.S. Dep’t of Lab., 120 F.4th 163, 177 (5th Cir. 2024) (quoting

5 U.S.C. § 706(2)). “In such circumstances, [the Fifth Circuit’s] ‘default rule is that vacatur is the

appropriate remedy.’” Id. (quoting Data Mktg. P’ship, LP v. U.S. Dep’t of Lab., 45 F..4th 846, 859

(5th Cir. 2022)).

Heeding the Fifth Circuit’s “default rule,” the Court concludes vacatur of the Fixed Fee

and Contract-Terms Restriction is the proper remedy.

V. CONCLUSION

For the reasons stated above, Plaintiffs’ Motions are GRANTED in part and DENIED in

part, and Defendants’ Motion is GRANTED in part and DENIED in part. For clarity, Plaintiffs’

Motions are only denied insofar as Plaintiffs seek relief from the Consent Requirement, and

Defendants’ Motion is only granted insofar as Defendants seek relief from the Consent

48 CMC Br. Supp. Mot. Summ. J. 40–42, ECF No. 51; ABC Br. Supp. Mot. Summ. J. 40–41, ECF No. 51.

49 To the extent CMS argues that Plaintiffs lack associational standing, the Court disagrees and incorporates

its standing analysis from its July 3, 2024, Order. See CMS Br. Supp. Mot. Summ. J. 49–50, ECF No. 55

(arguing the associational Plaintiffs lack standing); Ams. for Beneficiary Choice, 2024 WL 3297527, at *2–

3 (holding that Plaintiffs demonstrated associational standing).

Requirement, that is, 42 C.F.R. §§ 422.2274(g), 423.2274(g). The Court hereby VACATES the

Fixed Fee and Contract-Terms Restriction in the Final Rule, specifically, the provisions amending

42 C.F.R. $§ 422.2274(a), (c), (d), (e) and 423.2274 (a), (c), (d), (e). Separate Final Judgment shall

issue.

SO ORDERED on this 18th day of August, 2025.

A fA —~

UNITED STATES DISTRICT JUDGE

22