In its November 2023 Proposed Rule[1] and in its recently issued Final Rule that will be published in the Federal Register later this month,[2] the Centers for Medicare & Medicaid Services (CMS) addressed concerns related to agent and broker compensation as well as how payments from Medicare Advantage (MA) plans to third party marketing organizations (TPMOs) may further influence or obscure the activities of agents and brokers.

Background

In its 2023 Proposed Rule, CMS started the discussion of agent and broker compensation by noting that pursuant to section 1851(j)(2)(D) of the Social Security Act, the Secretary has a “statutory obligation to establish guidelines to ensure that the use of agent and broker compensation creates incentives for agents and brokers to enroll individuals in the Medicare Advantage (MA) plan that is intended to best meet beneficiaries health care needs.”[3] In 2008, CMS published the first regulation to establish requirements for agent and broker compensation, which was driven by concerns that the previously permitted compensation resulted in financial incentives for agents to strategically market and enroll beneficiaries in some plan products and not others due to larger commissions.[4] Based on the CMS commentary, the revised rules regarding agent and broker compensation are trying to address similar concerns, along with TPMO concerns.

Fraud and Abuse Risks

In several places in the Proposed and Final Rules, CMS noted that, depending on the circumstances, agent and broker relationships can also be problematic under the Federal anti-kickback statute if they involve, for example, compensation in excess of fair market value (FMV), compensation structures tied to the health status of the beneficiary (e.g., cherry picking), or compensation that varies based on the attainment of certain enrollment targets.[5] It seems likely that the upcoming revised Office of Inspector General (OIG) Compliance Program Guidance for Medicare Advantage, which, in February and again in April 2024, OIG announced was forthcoming as the first in the series of its specific compliance guidances, will address this anti-kickback risk.[6] (Note that the prior Compliance Program Guidance for Medicare+Choice was published on November 15, 1999, which predated the agent and broker compensation regulation.[7])

The MA Marketplace Has Changed

CMS noted that the MA marketplace has become increasingly consolidated into a few large national parent organizations, which have more money to spend on sales, marketing and other incentives and bonus payments to agents and brokers than the smaller MA plans. CMS noted advertisements where agents and brokers are offered bonuses and perks (e.g., golf parties, trips and extra cash) framed as allowable administrative add-ons in exchange for enrollments. According to CMS, these payments to agents and brokers are being offered as innocuous bonuses or incentives, but implemented in a way that allows the plan to account for these “anti-competitive payments as ‘administrative’ rather than ‘compensation,’ and these payments are therefore not limited by the [fair market value] regulatory limits on compensation.”[8] CMS noted that such payments may implicate and potentially violate the Federal anti-kickback statute. 

With regard to TPMOs, CMS noted its concerns that MA plan payments to TPMOs may “further influence or obscure the activities of agents and brokers.”[9] In particular, CMS is interested in the effect of payments made to Field Marketing Organizations (FMOs), which are a type of TPMO that employs agents and brokers to complete MA enrollment activities and may also conduct additional marketing activities on behalf of MA plans, such as lead generating and advertising. CMS noted that the concerns regarding FMO activities are not new, having been expressed during the first rulemaking on agent and broker compensation (73 Fed. Reg. at 54239). Examples of FMO services include training, material development, customer service, direct mail and agent recruitment. Again, CMS raised the Federal anti-kickback statute, reminding parties to be “mindful” that their compensation arrangements including arrangements with FMOs and other similar type entities must comply with the fraud and abuse laws including the Federal anti-kickback statute.[10]

A Three-Pronged Approach to Revisions to Payment Structures

In the proposed rule and mirrored in the Final Rule, CMS outlined the following approach for revisions to the agent, broker and TPMO payment structures:

1. generally prohibit contract terms between MA organizations and agents, brokers or other TPMOs that may interfere with the agent’s or broker’s ability to objectively assess and recommend the plan which best fits a beneficiary’s health care needs;
2. set a single agent and broker compensation rate for all plans, while revising the scope of what is considered “compensation”; and
3. eliminate the regulatory framework which currently allows for separate payment to agent and brokers for administrative services.[11]

Contracts Must Encourage Objective Assessments

With regard to the first point – contract terms – CMS proposed and finalized an addition at Section 422.2274(c)(13) that beginning with contract year 2025, MA plans must ensure that contracts with agents, brokers and TPMOs including FMOs do not include language that has the “direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent’s, broker’s or TPMO’s ability to objectively assess and recommend a plan that best meets the health care needs of the beneficiary.”[12] CMS provided examples of anti-competitive contract terms that they intend to prohibit including those that:

• specify renewal or other terms of a plan’s contract with an agent broker or FMO contingent upon preferentially higher rates of enrollment;
• make an MA organization’s contract with an FMO or reimbursement rates for marketing activities contingent upon agents and brokers employed by the FMO meeting specified enrollment quotas;
• contain terms that provide for bonuses or additional payments from an MA organization to an FMO with the explicit or implicit understanding that the money be passed on to agents or brokers based on enrollment volume in plans sponsored by that MA organization;
• allow an FMO to provide an agent or broker leads or other incentives based on previously enrolling beneficiaries into specific plans for a reason other than what best meets their health care needs.[13]

CMS was deliberate in not being too prescriptive, allowing plans flexibility in how to structure the arrangements.

In the Final Rule’s comments, with regard to the contract requirements, CMS said that it was important that it be clear in its meaning of “direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent’s, broker’s or TPMO’s ability to objectively assess and recommend a plan that best meets the health care needs of the beneficiary . . . .” If, by way of example, a TPMO or agent was offered a bonus or other payment by a plan or plans, in exchange for declining to represent a competing MA plan, this would be an example of a contract term that would likely violate the rule, as it is inherently anti-competitive in nature and on its face has the effect of encouraging enrollment in one plan over another based largely on the receipt of a financial reward for not representing or promoting a competitor plan’s product.”[14] Another example provided by CMS was bonuses for hitting volume-based targets for sales of a plan, which although CMS admitted may not be directly anti-competitive if they do not outwardly discourage or preclude a TPMO from marketing other plans, would nevertheless likely have the indirect effect of creating an incentive for the TPMO to prioritize sales of one plan over another based on those financial incentives and not the best interests of the enrollees. Because the indirect effect of volume-based bonuses of this kind would be anti-competitive in nature, they would likely run afoul of the provision, and, like other potential scenarios described herein, could implicate fraud and abuse laws as well – again, noting Federal anti-kickback risks.[15] CMS noted it would rely on its review of contracts as well as complaints and OIG efforts to enforce this provision.

Compensation

With regard to the second concern raised by CMS in the proposed rule – compensation rates – CMS explained that current compensation rates for agents and brokers are set at Section 422.2274(d)(2) at amounts that should not exceed certain fair market value caps, excluding administrative expenses as described in Section 422.2274(e). CMS noted that the total amounts paid to agents and brokers varies significantly, and raised the concern that the lack of a uniform compensation standard across plans can encourage the arrangements that provide financial incentives for agents and brokers to favor some plans over others and that such incentives could result in beneficiaries enrolling in plans that do not best fit their needs. For contract year 2025 (i.e., effective October 1, 2024), CMS proposed and finalized revisions to the definition of “compensation,” requiring that all payments to agents or brokers that are tied to, related to, or are for services conducted as part of the relationship associated with the enrollment into an MA plan or product must be included.

That revised definition of “compensation” at Section 422.2274(a) includes categories of payments that were previously excluded from the definition including: (a) payment of fees to comply with state appointment laws, training, certification, and testing costs; (b) reimbursement for mileage to, and from, appointments with beneficiaries; and (c) reimbursement for actual costs associated with beneficiary sales appointments such as venue rent, snacks, and materials.

Finally, CMS incorporated previously excluded administrative expenses into the definition of compensation. Agents and brokers will be paid the same amounts from the MA plan directly or by an FMO. (Note: CMS left its discussion of payments for referrals under Section 422.2274(f) as it was, noting that the cap is sufficient to avoid the previously described risks and harms.)

Administrative Expenses Included in Payment Structures

As part of the third discussion point related to payment structures for agents, brokers and TPMOs, CMS addressed the folding in of the administrative expenses into compensation with a flat amount increase to the FMV cap. In the proposed rule, CMS recommended an increase of $31 to reflect call recording, training and testing, but commenters stated that the expenses were broader than those recognized by CMS in the proposed rule, noting plan comparison tools and appointment fees. CMS also acknowledged that it may have undervalued call recording/customer-relationship management (CRM) software.[16] Commenters to the proposed rule provided CMS with different administrative expense calculation methodologies, but CMS stated that the true cost of most administrative expenses can vary greatly from one agent or broker to another and is based on data and contracts that CMS does not have access to, so it would be extremely difficult for them to accurately capture, making a line-item calculation not practicable.[17] CMS accordingly defaulted to a higher flat rate in the Final Rule, noting there is no need to vary administrative payments based on plan type and a flat rate approach is the most appropriate way to achieve the goal of eliminating financial incentives in the form of larger, purported administrative payments which are over and above FMV from a particular plan or plans.[18] CMS decided on a one-time increase of $100 for new enrollments (with 50% of the new enrollment fee being paid for renewals) with annual inflation increases.

In the commentary, CMS was clear that this change in compensation to agents and brokers was intended to focus on enrollment, not all payments related to marketing services. Specifically, CMS stated: “Though we are continuing to consider future rulemaking in this space, our current policy does not extend to placing limitations on payments from an MAO to a TPMO who is not an independent agent or broker for activities that are not undertaken as part of an enrollment by an independent agent or broker.”[19]

Applicability to Part D

Finally, CMS also revised the agent and broker compensation regulations related to Part D plans in the same way that it revised the Medicare Advantage regulations.

Conclusion

The CMS Final Rule is a significant change in the way that Medicare Advantage and Part D plans will be allowed to pay agents, brokers and TPMOs related to enrollments and renewals. Although given until October to make the compensation changes, plans should start planning now, as should agents, brokers and TPMOs, because the covering of administrative expenses is now bundled into a flat, FMV cap that is set by the government. Also notable for industry are the multiple references to the Federal anti-kickback statute (and general fraud and abuse analysis), which has been tied more firmly to the analysis of the MAO/PDP payments to agents, brokers and TPMOs, and we should watch for the upcoming OIG Compliance Program Guidance for Medicare Advantage to address those risks.

[1] 88 Fed. Reg. 78,476 (Proposed Rule, Nov. 15, 2023).

[2] CMS, Unpublished Rule, Document No. 2024-07105, available at https://www.federalregister.gov/public-inspection/2024-07105/medicare-program-medicare-advantage-and-the-medicare-prescription-drug-benefit-program-for-contract (Final Rule, Filed Apr. 4, 2024) (hereinafter, “Unpublished April 2024 Final Rule”). It is scheduled for publication on April 23, 2024.

[3] 88 Fed. Reg. at 78,551.

[4] Id. at 78,552.

[5] Id.; see also Unpublished April 2024 Final Rule at 562, 563, 566 and 584.

[6] See OIG, Compliance Guidance page, “February 21, 2024 update,” available at https://oig.hhs.gov/compliance/compliance-guidance/. 

[7] See OIG, Compliance Program Guidance for Medicare+Choice Organizations Offering Coordinated Plans (Nov. 15, 1999), available at https://oig.hhs.gov/documents/compliance-guidance/802/111599.pdf. 

[8] 88 Fed. Reg. at 78,552.

[9] 88 Fed. Reg. at 78,553; see also Unpublished April 2024 Final Rule at 566.

[10] Id. OIG noted in a 2010 report that CMS should issue additional regulations more clearly defining how and how much FMOs should be paid for their services. Id. (quoting Levinson, Daniel R, BENEFICIARIES REMAIN VULNERABLE TO SALES AGENTS’ MARKETING OF MEDICARE ADVANTAGE PLANS (March 2010), available at https://oig.hhs.gov/oei/reports/oei-05-09-00070.pdf)

[11] 88 Fed. Reg. at 78,554; see also Unpublished April 2024 Final Rule at 571.

[12] 88 Fed. Reg. at 78,554; see also Unpublished April 2024 Final Rule at 572.

[13] Id.

[14] Id.

[15] Unpublished April 2024 Final Rule at 574

[16] Id. at 588-589. While potentially undervalued, CMS also noted that the CRM software could be used for plans outside of the MA plans.

[17] Id. at 589.

[18] Id. at 590.

[19] Id. at 592.