The Uncertain Landscape of Medicare Agent/Broker Compensation Rules

In the Proposed Medicare Advantage and Part D Rules for 2025, the Centers for Medicare & Medicaid Services (CMS) proposed significant changes to how Medicare Advantage organizations (MAOs) are allowed to contract with and compensate entities that provide agent/broker and enrollment services.  The proposed rules were heavily disfavored by entities that provide such services, but were not widely commented on by MAOs or Part D sponsors (PDP Sponsors), which are the entities to which the rules actually apply.

On April 23, 2024, CMS largely finalized its proposed changes.  The most impactful of those changes were likely:

• Contract-Terms Restrictions. CMS required MAOs and PDPs to ensure that no provision of a contract with an agent, broker, or third-party marketing organization (TPMO) have 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.”
• Fixed Fee. CMS expanded the definition of “compensation” to include all payments for “administrative services” performed by agents, brokers, or other third-party organizations, and to include reimbursement for various state appointment laws, mileage, and costs associated with beneficiary appointments such as venue rent and snacks (collectively, “cost reimbursement”). Previously, payments for such administrative services (such as health risk assessments conducted by agents and brokers) and cost reimbursement made to assist agents and brokers with obtaining necessary licenses, certifications, and trainings, and overhead were not included in the calculation of enrollment-based compensation that CMS limited to its published fair market value limit. Instead the regulations required MAOs and PDP Sponsors to ensure that administrative service payments and cost reimbursements did not exceed “the value of those services in the marketplace.” CMS capped the amount payable to brokers and agents for administrative services and cost reimbursements at $100 per new enrollment by increasing its historical enrollment-based compensation limit by $100. 
• Consent/Information Sharing. CMS prohibited third-party firms from “distributing any personal beneficiary data that they collect” from TPMOs without beneficiary consent.  This requirement applies to the beneficiary’s name, address, phone number, and any “other information given by the beneficiary for the purpose of finding an appropriate MA or Part D plan.” (Such information would also qualify under HIPAA as protected health information (PHI)). 

In May 2024, multiple entities that provide agent/broker services sued CMS arguing that CMS’s finalization of contract-term restrictions, the fixed fee, and consent/information sharing violate the Administrative Procedure Act (APA) in three ways. First, they posited that CMS exceeded its statutory authority provided by Congress through the Social Security Act. Second, they argued that the rule is arbitrary and capricious under the APA, claiming that CMS finalized the rule based on “pure speculation,” ignored objections from the public, and failed to acknowledge reliance interests of brokers. Lastly, the field marketing organizations (FMOs) contended that the rule failed to properly adhere to the notice and comment procedural requirements because CMS relied upon evidence not presented during notice and comment rulemaking. The plaintiffs included in their complaint a request for a preliminary injunction because the rules, while not effective until the fall of 2024, impact contracting practices that have already started.  CMS replied on June 3, 2024, defending its authority and citing to Section 1851(j)(2)(D) of the Social Security Act which states that CMS has the authority to establish “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.”  

Last week, on July 3, 2024, the court granted the plaintiffs’ request for the preliminary injunction relating to the contracting requirements and the $100 compensation cap for administrative services, and denied the preliminary injunction as applied to the information sharing matter. In its opinion, the court explains its findings as follows:

• CMS acted arbitrarily and capriciously when it set a compensation cap of $100 for administrative services and cost reimbursement because it did not substantiate its reasoning for the dollar amount. In its response to the suit, CMS stated that administrative costs, such as hiring and training agents, are “extremely difficult to accurately capture.” The court found this reasoning insufficient and agreed with the FMOs’ assertion that CMS failed to address the reliance interests of agents and brokers. 
• The contract-terms restriction did not provide fair notice because it was too vaguely described in the rule. The court noted that although CMS provided examples of what may constitute a prohibited incentive under the restrictions, these examples had the potential to broaden the restriction without a meaningful definition of the conduct being prohibited. 
• The consent/information sharing requirement under the rule failed to show a likelihood of success in a future case. While the plaintiffs argued that HIPAA already regulates and protects the handling of PHI, this fact alone does not prevent CMS from limiting potentially harmful data-sharing practicing under its own statutory regime. 

Technically, this is a preliminary injunction so the case can move forward and hypothetically the court’s position could change. But the court’s analysis and outcome of the preliminary injunction leaves a very uncertain landscape for MAOs and PDP sponsors. In its explanation of why it was adopting the changes, CMS repeatedly expressed its concern with how arrangements that are currently in place are negatively impacting beneficiaries, suggested multiple times that MAOs and PDP sponsors were paying for services at above fair market value, and alluded to potential violations of the Anti-Kickback Statute. CMS then adopted regulations that it thought would make it even more clear what conduct and arrangement it is seeking to prohibit. With CMS currently enjoined from requiring compliance with the new regulations, it seems likely that some will seek to maintain the status quo. Maintaining such payment arrangements in light of CMS’s discussion of beneficiary harm and payments for services that are hypothetically above fair market value seems to create risk, most directly for MAOs and PDP Sponsors but also for entities that provide agent/broker and enrollment services.

Plenty of entities have been investigated and prosecuted and have settled claims that they have violated the False Claims Act for failing to comply with vague regulations (e.g., most enforcement relating to risk adjustment). By leaving the old regulations in place after CMS has publicly put other enforcement agencies on notice of CMS’s own concerns, it seems that the court’s preliminary injunction will potentially create an environment of increased scrutiny and enforcement.

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