CMS releases new Proposed Rule for Medicare Advantage and Part D

On December 10, 2024, the Centers for Medicare and Medicaid Services (CMS) released a Proposed Rule for revisions to the regulations governing the Medicare Advantage (MA) program, Medicare Prescription Benefit (Part D), Medicaid, Medicare cost plans, and the Programs of All-Inclusive Care for the Elderly (PACE). CMS is proposing a broad range of revisions, with the publication of the Proposed Rule consisting of 240 pages.

This alert highlights a sampling of the proposals. CMS will be accepting comments on the proposals through 5:00 pm EST on January 27, 2025.

Changes to quality and bonus expenses for medical loss ratio reporting

Medical loss ratio (MLR) is a percentage that represents the amount of revenue that MA organizations and Part D plan sponsors spend on patient care instead of other purposes, such as administrative expenses or profit. The formula for calculating the MLR differs somewhat between MA and Part D. However, the MLR for each is set at 85 percent. A failure to meet the MLR leads to a number of adverse consequences, including rebating payments back to CMS for the amounts that should have been spent on patient care.

MA organizations are permitted to count incentive or bonus payments to providers as patient care expenses. CMS notes that these expenses are being included regardless of whether they are tied to clinical or quality improvement standards. In the Proposed Rule, CMS expresses concern that some of these incentive or bonus payments are merely transferring excess premium revenue to “affiliated” providers to circumvent the MLR rebate requirement.

In addition to other proposals, CMS is specifically proposing to require that those incentives and bonuses be tied to clearly defined, objectively measurable, and well-documented clinical or quality improvement standards. This proposal would not prohibit MA organizations from making other bonus or incentive payments, but those other payments would count against them when calculating their MLR. For various reasons offered by CMS, it is not proposing a parallel change to Part D.

Another proposal to the MLR rules would limit the expenses that an MA organization or a Part D plan sponsor may include as a quality improvement activity (QIA). QIA expenses also count as medical care expenses that help plans meet their MLR obligations. As proposed by CMS, QIA expenses would only be included to the extent that they are directly related to activities that improve health care quality. For example, CMS would no longer permit a plan to report the full salary of an employee who only conducts QIA on a part-time basis. The reportable portion of the salary must be tied to the portion of the employee’s time spent on QIA. The same would be true for other overhead costs, such as information technology infrastructure, marketing, lobbying, travel, and company events. If finalized, MA organizations and Part D plan sponsors may need to adjust their methodologies for calculating QIA expenses for MLR purposes and may need to assess their contractual arrangements that impact MLR calculations.

It is worth noting that, in proposing the MLR changes, CMS discloses that it is relying on information and experiences in the “commercial” market and not on information or experience specifically drawn from the MA or Part D markets.

Administration of supplemental benefits through debit cards

Lately, CMS has expressed significant interest in the supplemental benefits offered by MA organizations and has recently upended how those benefits are reported, as we discussed in a previous alert. Our alert provides a Q&A explaining supplemental benefits and the changes that CMS made. Since then, CMS has issued multiple rounds of guidance, including technical materials to aid in the submission of data on these benefits.

In this Proposed Rule, CMS is primarily focused on the administration of supplemental benefits that are paid for via debit cards issued by MA organizations to their members. These debit cards can be used to cover 100 percent of the cost of plan-covered items and services, or to administer reduced cost sharing for covered services. For example, a card might be used to reduce cost sharing for dental or vision services for claims submitted to the plan for payment. They might also be used to cover the full cost of supplemental benefits, such as over-the-counter (OTC) products, fitness-related benefits (eg, gym memberships), food and produce, transportation, and utilities support.

The cards have to be carefully structured in order to ensure that they are not used to purchase non-covered items or services. For example, certain MA plan members might have coverage for groceries under their plans, but it would be impermissible if other MA members without this coverage could purchase groceries as well. It would likewise be impermissible for an MA member to use a debit card from a prior plan year or shorter period of coverage. For example, if a debit card provides an allowance for an entire plan year and the member fails to spend that full allowance, the member would not be permitted to use that unspent amount during the subsequent plan year. CMS expects the use of these debit cards to be appropriately restricted, including limiting use to the appropriate benefit period under a member’s plan.

Some of CMS’s proposals regarding the marketing and use of MA debit cards include:

• Requiring MA organizations to have a process for delivering all MA plan covered supplemental benefits to their members with appropriate access to suppliers and providers. Plans may specify networks or providers from whom members may obtain services if the plans can ensure that all covered services, including supplemental benefits, are available and accessible under the plan.


• Establishing “new guardrails” for plan debit cards. CMS is focused on ensuring access to benefits and requiring plans to inform beneficiaries about the availability of the debit card and the ways in which debit cards can be used, including through disclosing usage information in explanations of benefits (EOBs).


• Codifying existing sub-regulatory guidance that the cards be electronically linked to plan covered benefits through a real-time mechanism that verifies eligibility at the point of sale. This system must also restrict the card’s ability to be used only for plan-covered benefits. Prior CMS guidance has suggested linking the cards to appropriate merchant codes. Still, CMS is refraining from proscribing explicit rules on how plans must comply with these proposals to allow for flexibility “to innovate around these processes.”


• Mandating transparency requirements for supplemental benefits, including cost sharing, premiums (for optional benefits), and any conditions and limitations associated with the benefits.


• Prohibiting plans from marketing the dollar value of a supplemental benefit or the method by which the benefit is administered (ie, the debit card). For example, an MA organization would be permitted to advertise its covered supplemental benefits (eg, a reduced cost sharing for a benefit, or coverage for gym memberships). However, CMS would no longer permit MA organizations to advertise the card itself. It also would not allow them to advertise how many dollars would be available to use on that card.

Expanding the definition of MA and Part D marketing

For a few years, CMS has been actively investigating and more stringently regulating the marketing by MA and Part D plans, third-party marketing organizations, agents, and brokers. In this Proposed Rule, CMS seeks to expand the meaning of “marketing” under the MA and Part D regulations to bring more advertising materials and activities under its process for review and approval.

Marketing is a more highly regulated subset of MA and Part D “communication” materials and activities. Communications only constitute marketing if they meet certain “content” and “intent” standards. By content, CMS looks to see if the communication includes information about a plan’s benefits, benefits structure, premiums, or cost sharing; measuring or ranking standards (eg, Star Ratings or plan comparison); or, for MA plans, reward and incentives information.

Under this Proposed Rule, CMS is proposing to eliminate these content standards. If finalized, going forward, CMS would rely solely on the intent standard to determine if a communication constitutes marketing. That intent standard is established in the MA regulations and provides that CMS will consider “objective information,” such as the audience of the activity or materials, other information communicated, and any other context. CMS does not limit itself to the MA organization’s stated intent.

CMS expects that this change would result in a broader scope of materials being submitted to it for review and provide it with a stronger role in overseeing marketing to Medicare beneficiaries.

Expansion of agent/broker disclosure obligations

The introductory paragraphs of the Proposed Rule suggest that the rule contains changes to “agent/broker compensation.” CMS updated the agent/broker compensation rules earlier this year to broaden what constitutes “compensation” under those rules, although those rules were put on hold under a temporary injunction, as we discussed here.

This Proposed Rule, however, does not actually contain any proposals to change agent/broker compensation. Instead, it proposes to restructure the rules governing disclosures that agents/brokers must make to a Medicare beneficiary prior to enrollment in a plan. These rules fall under the oversight requirements applicable to MA organizations and Part D plan sponsors and would expand their compliance obligations in overseeing any agent or broker selling their products.

Pharmacy network contracting

CMS is proposing to require Part D plan sponsors – or their first tier, downstream, or related entities (FDRs), including pharmacy benefit managers – to notify network pharmacies about the plans in which the pharmacies will participate in the upcoming plan year. This notice would need to be provided by October 1 of the preceding year.

CMS also proposes that, if a pharmacy contract allows the sponsor or the FDR to terminate the pharmacy “without cause,” the pharmacy must also be permitted to terminate the contract without cause after providing the same notice that the sponsor or FDR would be required to provide under the contract.

CMS believes that such reciprocal termination rights are a solution to two problems. First, it would allow pharmacies to exit contracts with which they are unhappy on the same terms that the sponsor or FDR could use to terminate the contract. Second, it would help avoid situations in which pharmacies, in essence, “terminate” their contracts by simply refusing to fill prescriptions, causing disruptions in care for beneficiaries.

In a request for information (RFI), CMS reports that some pharmacies may be declining to fill certain prescriptions that would result in a net loss in reimbursement. The RFI seeks input on data or information that CMS should consider in order to protect beneficiaries’ convenient access to Part D drugs.

Lastly, if finalized, the Proposed Rule will require sponsors or their FDRs to include in their network pharmacy contracts a provision requiring the pharmacy to be enrolled as a “dispensing entity” in the Medicare Transaction Facilitator (MTF) Data Module (DM), or any successor, requiring them to maintain and certify to CMS that their enrollment information is accurate, complete, and up to date. CMS sees this mandated enrollment obligation as necessary to ensuring the success of the Medicare Drug Price Negotiation Program established under the Inflation Reduction Act of 2022. A dispensing entity will have access to the negotiated pricing in addition to certain systems and data related to the program.

As noted above, CMS will be accepting comments on the proposals through 5:00 pm EST on January 27, 2025. It remains to be seen whether the incoming Trump Administration will finalize the Proposed Rule. Given longstanding, bipartisan interest in MA marketing, as well as in controlling Medicare spending, it is possible that it will look to finalize the Proposed Rule to some extent, along with revisions based on public comments.

DLA Piper will continue to monitor developments related to the Proposed Rule. For more information, please contact the authors.