iMost Medicare Advantage (“MA”) beneficiaries rely on agents and brokers to help them navigate the complex process of selecting a health plan that will meet their needs. In exchange, brokers and agents received certain fixed payments set by Medicare, as well as, in some cases, significant additional payments from health plans. Concerned over the potential for abuse, these arrangements have been the subject of Congressional scrutiny and an enforcement priority for both the Department of Justice (“DOJ”) and the Department of Health and Human Services Office of the Inspector General (“HHS OIG”). The Biden Administration and the Centers for Medicare & Medicaid Services (“CMS”) are tackling this issue head-on in a recently published final rule that addresses both marketing tactics and compensation methodologies used by Medicare Advantage organizations (“MAOs”) to pay MA agents or brokers.[1]
Shifting Regulatory Landscape
Current Regulation. MAOs must comply with the requirements and compensation caps applicable to agent and broker remuneration, set forth in 42 CFR § 422.2274.[i] Currently, agents or brokers can receive “compensation”– including commissions, bonuses, gifts, prizes or awards – set at or below fair market value (“FMV”), for each MA beneficiary’s enrollment into an MA plan in the initial enrollment year and up to 50% of FMV for enrollment in a renewal year.[ii]
If an MA agent or broker engages in services other than beneficiary enrollment, or “administrative” services (e.g., agent recruitment, training, operational overhead, customer service, assistance with completion of health risk assessments), payment “must not exceed the value of those services in the marketplace.”[iii] These “administrative payments” can be based on enrollment, so long as the “payments are at or below the value of those services in the marketplace.”[iv]
In addition, MAOs may also reimburse individuals for referrals. A referral includes a “recommendation, provision, or other means of referring beneficiaries” to an MA agent, broker, or other entity for enrollment purposes.[v] A referral payment “may not exceed $100 for a referral into an MA or MA–PD plan and $25 for a referral into a PDP plan.”[vi]
Final Rule. In November 2023, CMS proposed a new rule to revise 42 CFR § 422.2274 and “enhance guardrails” for MA agent/broker compensation.[vii] CMS published the final rule on April 4, 2024, which will go into effect on October 1, 2024.[viii]
While CMS has already implemented upper limits on agent/broker compensation, it claims that “many MA and PDP plans, as well as third-party entities with which they contract (such as Field Marketing Organizations (FMOs)) have structured payments to agents and brokers that that allow for separate payments for these agents and brokers and have the effect of circumventing compensation caps.”[ix] The final rule revises the definition of “compensation” to set a single compensation rate for all plans, removes “administrative” payments, and prohibits contractual terms between MAOs and agents/brokers that may interfere with the agent/broker’s ability to objectively assess and recommend a plan that best fits a beneficiary’s health needs.
CMS notes a shift in the MA marketplace, as MAOs have “increasingly consolidated,” resulting in centralized, increased capital to spend on agent/broker marketing, incentives, and other bonus payments that many smaller MAOs cannot afford.[x] Because many of these bonus payments are categorized as “administrative” rather than “compensation,” CMS states that the MAOs can operate “outside and potentially in violation of” the regulatory compensation caps.[xi] CMS claims that greater financial incentives “distort” the marketing tactics of agents/brokers, who may encourage a beneficiary to enroll in a plan that will offer the agent/broker a substantial administrative payment, even though the MA plan may not be the best fit for the beneficiary’s health needs.[xii] While current regulations are designed to prohibit agents/brokers from engaging in marketing tactics that mislead or confuse beneficiaries, CMS believes additional payment limitations are necessary to address the rise in MA marketing complaints.[xiii]
CMS also expresses continued concern surrounding third party marketing organizations (“TPMOs”), including Field Marketing Organizations (“FMOs”), which employ agents/brokers and engage in MA marketing activities, including lead generating (i.e., an FMO obtains information about potential enrollees and provides their affiliated agents/brokers with their contact information for MA plan enrollment purposes).[xiv] Because FMOs have also consolidated into large, often private equity backed or publicly traded companies, larger MAOs continue to increase the administrative payments to these entities, contributing to CMS’ (and HHS OIG’s) concern about the unlevel playing field among plans and the double dipping effect, as both the FMO and agent/broker may receive administrative payments for the same enrollment.[xv]
The goal of CMS’ final rule is “to deter anti-competitive practices engaged in by MA organizations, agents, brokers, and TPMOs that prevent beneficiaries from exercising fully informed choice and limit competition in the Medicare plan marketplace among Traditional Medicare, MA plans, and Medigap plans.”[xvi] The current regulation and finalized changes to 42 CFR § 422.2274 are outlined below (with changes highlighted in bold):
| Regulatory Provision | Current Regulatory Language Under § 422.2274 | Regulatory Language Under The Final Rule |
| § 422.2274(a) – Compensation | (i)Includes monetary or non-monetary remuneration of any kind relating to the sale or renewal of a plan or product offered by an MA organization including, but not limited to the following: (A) Commissions. (B) Bonuses. (C) Gifts. (D) Prizes or Awards. (ii) Does not include any of the following: |
(i) Includes monetary or non-monetary remuneration of any kind relating to the sale, renewal, or services related to a plan or product offered by an MA organization including, but not limited to the following: (A) Commissions. (B) Bonuses. (C) Gifts. (D) Prizes or Awards. (E) Beginning with contract year 2025, payment of fees to comply with State appointment laws, training, certification, and testing costs. (F) Beginning with contract year 2025, reimbursement for mileage to, and from, appointments with beneficiaries. (G) Beginning with contract year 2025, reimbursement for actual costs associated with beneficiary sales appointments such as venue rent, snacks, and materials. (H) Beginning with contract year 2025, any other 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. |
| § 422.2274(a) – Fair Market Value | [F]or purposes of evaluating agent or broker compensation under the requirements of this section only, the amount that CMS determines could reasonably be expected to be paid for an enrollment or continued enrollment into an MA plan. Beginning January 1, 2021, the national FMV is $539…For subsequent years, FMV is calculated by adding the current year FMV and the product of the current year FMV and MA Growth Percentage for aged and disabled beneficiaries, which is published for each year in the rate announcement issued pursuant to § 422.312. | [F]or purposes of evaluating agent or broker compensation under the requirements of this section only, the amount that CMS determines could reasonably be expected to be paid for an enrollment or continued enrollment into an MA plan. Beginning January 1, 2021, the national FMV is $539… For contract year 2025, there will be a one-time increase of $100 to the FMV to account for administrative payments included under the compensation rate. (iii) For subsequent years, FMV is calculated by adding the current year FMV and the product of the current year FMV and MA growth percentage for aged and disabled beneficiaries, which is published for each year in the rate announcement issued in accordance with § 422.312. |
| § 422.2274(c)(5) – MAO Oversight | On an annual basis by the last Friday in July, report to CMS whether the MA organization intends to use employed, captive, or independent agents or brokers in the upcoming plan year and the specific rates or range of rates the plan will pay independent agents and brokers. Following the reporting deadline, MA organizations may not change their decisions related to agent or broker type, or their compensation rates and ranges, until the next plan year. | On an annual basis for plan years through 2024, by the last Friday in July, report to CMS whether the MA organization intends to use employed, captive, or independent agents or brokers in the upcoming plan year and the specific rates or range of rates the plan will pay independent agents and brokers. Following the reporting deadline, MA organizations may not change their decisions related to agent or broker type, or their compensation rates and ranges, until the next plan year. |
| § 422.2274(c)(13) – MAO Oversight | [Does not currently exist] | Beginning with contract year 2025, ensure that no provision of a contract with an agent, broker, or other TPMO 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. |
| § 422.2274(d)(1) (ii) – Compensation Requirements: General Rules | MA organizations may determine, through their contracts, the amount of compensation to be paid, provided it does not exceed limitations outlined in this section. | For contract years through contract year 2024, MA organizations may determine, through their contracts, the amount of compensation to be paid, provided it does not exceed limitations outlined in this section. Beginning with contract year 2025, MA organizations are limited to the compensation amounts outlined in this section. |
| § 422.2274(d)(2)& (3) – Initial Enrollment Year & Renewal Compensation | For each enrollment in an initial enrollment year, MA organizations may pay compensation at or below FMV.
For each enrollment in a renewal year, MA plans may pay compensation at an amount up to 50 percent of FMV. |
For each enrollment in an initial enrollment year for contract years through contract year 2024, MA organizations may pay compensation at or below FMV.
For each enrollment in a renewal year for contract years through contract year 2024, MA plans may pay compensation at a rate of up to 50 percent of FMV. For contract years beginning with contract year 2025, for each enrollment in a renewal year, MA organizations may pay compensation at 50 percent of FMV. |
| § 422.2274(e)(1) – Administrative Payments | Payments made for services other than enrollment of beneficiaries (for example, training, customer service, agent recruitment, operational overhead, or assistance with completion of health risk assessments) must not exceed the value of those services in the marketplace. | For contract years through contract year 2024, payments made for services other than enrollment of beneficiaries (for example, training, customer service, agent recruitment, operational overhead, or assistance with completion of health risk assessments) must not exceed the value of those services in the marketplace. |
| § 422.2274(e)(2) – Administrative Payments | Administrative payments can be based on enrollment provided payments are at or below the value of those services in the marketplace. | Beginning with contract year 2025, administrative payments are included in the calculation of enrollment-based compensation. |
| § 422.2274(g)(4) – TPMO Oversight | [Does not currently exist] | Beginning October 1, 2024, personal beneficiary data collected by a TPMO for marketing or enrolling them into an MA plan may only be shared with another TPMO when prior express written consent is given by the beneficiary. Prior express written consent from the beneficiary to share the data and be contacted for marketing or enrollment purposes must be obtained through a clear and conspicuous disclosure that lists each entity receiving the data and allows the beneficiary to consent or reject to the sharing of their data with each individual TPMO. |
CMS requested comments regarding the proposed rule through January 5, 2024 and over 1,500 comments were received.[xvii] The Office of Information and Regulatory Affairs (“OIRA”) recently completed regulatory review of the proposed rule on March 29, 2024, and published the final rule shortly thereafter.[xviii]
Government Inquiry & Enforcement
Congressional Scrutiny. Although MA agent and broker compensation has been on the Congressional agenda since 2008,[xix] Congress renewed its focus in 2022 after an uptick in complaints surrounding alleged deceptive broker advertising, an increase in robocalls, and the enrollment of beneficiaries into MA plans without their consent.[xx] As open enrollment kicked off last fall, and following CMS’ implementation of additional broker marketing regulations,[xxi] the Senate Finance Committee held a hearing on MA broker and agent marketing practices to emphasize the importance of objective advertising, protections for beneficiaries, and effective broker payment schemes.[xxii]
In January of this year, the Senate Finance Committee opened an investigation into MA brokers, sending letters to multiple TPMOs to gain a better understanding into how they market to potential MA beneficiaries.[xxiii] The letters include questions about how FMV is determined for brokers’ services (i.e., enrollment and member onboarding) and how TPMOs ensure that any inducements are not used to procure names on a lead generator purchased list or that any gifts are of nominal value.
DOJ & HHS OIG Enforcement. The DOJ has identified “protecting the Medicare Advantage program” as a “significant health care fraud priority” in 2024 and is focused particularly on the role of third parties, like brokers and agents.[xxiv] Enforcement efforts by DOJ and HHS OIG have focused on alleged violations of the Anti-Kickback Statute (“AKS”) and False Claims Act (“FCA”). The AKS prohibits offering or accepting kickbacks in exchange for referrals for, recommendations of, and arrangement of the order or purchase of items or services reimbursed by federal health care programs.[xxv] This prohibition applies to MAOs, TPMOS, FMOs, and agents or brokers who are paid to encourage beneficiaries to enroll in an MA plan, since MA is funded by the federal government, unless such arrangements fit within an applicable AKS safe harbor. This type of violation can also expose these organizations to FCA liability, as a claim arising from an AKS violation may also constitute a false or fraudulent claim for purposes of the FCA.[xxvi] The DOJ is currently investigating and pursuing a large number of these broker and agent arrangements under the FCA —a statute that is known to bring in hefty recoveries for the federal government and whistleblowers alike, given the availability of treble recoveries and substantial per-claim penalties. As of the date of this article, no court has weighed in yet as to whether or which of these broker or agent arrangements, in fact, violate the FCA.
Takeaways & Next Steps
CMS’ final rule introduces a drastic shift in agent/broker compensation – mainly through the revised, all-inclusive definition of “compensation” and removal of “administrative” payments. MAOs, TPMOs, FMOS, and agents/brokers need to adapt quickly to ensure their contractual compensation arrangements align with the final rule. Impacted entities should also review CMS regulations governing agents and broker conduct generally to confirm compliance with all marketing and broker certification regulations, in addition to payment methodologies, in order to reduce the risk of AKS and FCA exposure.
With the final rule set to take effect on October 1, 2024 and the Congressional investigation ongoing, compliance with the updated regulation will be critical, and the Congressional inquiry will be telling as to whether Congress pressures CMS to implement additional regulations or Congress itself decides to take legislative action.
FOOTNOTES
[1] For more information on the final rule’s changes to the Part C and Part D marketing rules as well as other provisions of the final rule, please read our other blog post available here.
[i] 42 CFR 422.2274, available here; An MAO is defined as “a public or private entity organized and licensed by a State as a risk-bearing entity (with the exception of provider-sponsored organizations receiving waivers) that is certified by CMS as meeting the MA contract requirements.” An “MA Plan” means “health benefits coverage offered under a policy or contract by an MA organization that includes a specific set of health benefits offered at a uniform premium and uniform level of cost-sharing to all Medicare beneficiaries residing in the service area of the MA plan. See 42 CFR 422.2, available here.
[ii] 42 CFR 422.2274(d), available here.
[iii] 42 CFR 422.2274(e), available here.
[iv] Id.
[v] 42 CFR 422.2274(f), available here.
[vi] Id.
[vii] Medicare Program; Contract Year 2025 Policy and Technical Changes, 88 Fed. Reg. 78476 (proposed Nov. 15, 2023), available here.
[viii] https://public-inspection.federalregister.gov/2024-07105.pdf
[ix] Id.
[x] Id.
[xi] Id.
[xii] Id.
[xiii] Id.
[xiv]Id.; see also Levinson, Daniel R., Beneficiaries Remain Vulnerable to Sales Agents’ Marketing of Medicare Advantage Plans, Dept. of Health & Human Servs., March 2010, available here.
[xv] Id.
[xvi] Id.
[xvii] https://www.regulations.gov/document/CMS-2023-0187-0376/comment
[xviii] https://mobile.reginfo.gov/public/do/eoDetails?rrid=416811
[xix] https://www.federalregister.gov/d/E8-21686
[xxi] https://www.ecfr.gov/current/title-42/part-422/subpart-V
[xxiii] https://www.finance.senate.gov/chairmans-news/wyden-questions-medicare-marketers-business-tactics
[xxv] 42 U.S. Code § 1320a–7b
[xxvi] Id.
