CMS reverses changes to agent and broker compensation rules

What changes did CMS make to agent/broker compensation?

While CMS’s regulations have always governed the “compensation” that MA organizations and PDP sponsors could pay to agents and brokers in connection with selling MA and PDP products, compensation only meant commissions, bonuses, gifts, and prizes or awards. Anything that constitutes “compensation” is and remains subject to significant caps that limit the amount paid to agents and brokers.

Compensation did not include a variety of other costs and expenses for agents and brokers, including administrative payments. “Administrative payments” refer to payments for services other than enrollment of Medicare beneficiaries, such as training, customer service, agent recruitment, operational overhead, or assistance with the completion of health risk assessments. CMS permitted MA organizations and PDP sponsors to pay additional amounts for administrative services as long as the payments do not exceed the value of those services in the marketplace. Other than this standard, no caps applied to these administrative payments.

Under the new rules, CMS classified administrative services as “compensation,” which means that payment for those services would be subject to the single cap on compensation. CMS allowed for a one-time $100 payment to offset administrative costs for contract year 2025, but in subsequent years, CMS would calculate compensation through its normal fair market value determinations.

What contractual obligations would the new rules have prohibited to ensure agent/broker objectivity in selling MA and PDP plans?

MA organizations and PDP sponsors must oversee their downstream contractors to ensure agents and brokers comply with applicable state and federal laws. CMS added an additional oversight requirement that prohibits any contractual provision with an agent, broker, or other TPMO that 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.

CMS provided two examples of arrangements that would violate this prohibition: (1) a bonus or payment by a plan or TPMO for an agent or broker to decline representing a competing plan, and (2) volume-based targets for sales of a plan (due to the so-called indirect effect of creating an incentive to prioritize sales of one plan over another based on those financial interests and not the best interests of the enrollees).

As an example of a potentially compliant arrangement, CMS stated that payors would not violate this rule if they contract with an agent who represents some, but not all, payors in a market, as long as there is no contractual or financial incentive preventing the agent from seeking to represent and sell competitors’ plans.

What restrictions did CMS place on TPMOs when sharing data among each other?

CMS amended the rules to prohibit personal beneficiary data collected by TPMOs for marketing or enrollment into MA and PDP plans from sharing that data with other TPMOs, unless a TPMO received the prior express written consent from the beneficiary. The consent must meet certain content and disclosure requirements.

Which of these requirements are subject to the court-ordered injunction?

The injunction has placed a stay on the changes to the compensation and objectivity rules. It did not extend to the TPMO data sharing rule.

What guidance does the CMS memorandum provide to address the impact of the injunction?

According to the July 18 memorandum, for the duration of the litigation, CMS will apply the regulatory language in 42 CFR 422.2274 and 42 CFR 423.2274 governing compensation and plan oversight (ie, subsections (a) through (e)) that was effective prior to the changes included in the final rule.

CMS is generally silent in the memorandum on the specific impact of the injunction, other than to note that the compensation amounts for contract year 2025 no longer include an administrative payment adjustment.

Consistent with the injunction, the CMS memorandum confirms that administrative payments will remain outside of the definition of compensation for now and, therefore, outside of the cap on agent/broker compensation.

Is there anything else that I should keep in mind about agent/broker compensation arrangements?

The injunction has temporarily paused the new agent/broker compensation rules from going into effect, and the litigation may lead to permanently striking those changes. However, MA organizations, PDP plans, and agents and brokers are encouraged to continue to carefully monitor the litigation as it moves forward.

Additionally, the litigation does not impact the intense scrutiny that the MA and PDP markets have been subject to in recent years. CMS has targeted MA and PDP marketing through multiple rounds of industry guidance and rulemaking.  

It is also continuing its application of a variety of oversight tools, including secret shopping, monitoring recordings of sales calls, and other similar tools. Even the US Congress has been investigating MA marketing and issued a scathing report.

Given this level of scrutiny, both payors and agents and brokers are encouraged to continue to remain vigilant in assessing the compliance risks for their operations, including their marketing efforts.

In particular, while key aspects of the revised agents/broker compensation rules are on hold, a warning by CMS in its commentary to the April rule changes could be easy to miss but should be taken into account for any MA and PDP marketing efforts.

CMS warned that conduct that would be prohibited by the agent/broker objectivity requirement “could implicate fraud and abuse laws as well.” The injunction would not prohibit CMS or the applicable enforcement agencies from using their existing oversight and enforcement tools to pursue conduct that they might believe poses a risk of fraud or harm to Medicare beneficiaries.

Payors, agents, and brokers, as well as TPMOs, are recommended to proceed cautiously within a regulatory enforcement environment that is heavily scrutinizing marketing and sales, continually updating and changing the rules for marketing, and looking for any signs of noncompliance or fraud and abuse risks.

For information or questions about this alert, please contact the author of this alert or any member of our Healthcare Regulatory practice group.