The Centers for Medicare & Medicaid Services (“CMS”) has published its final rule (“Final Rule”) revising the Medicare Advantage (“MA”) and Part D regulations related to, inter alia, marketing and communications. In response to what CMS reports as a substantial increase in the number of Medicare beneficiary complaints associated with third-party marketing organizations (“TPMOs”) that sell, or assist in the sale of, MA and Part D plans, the Final Rule codifies several new communications and marketing requirements aimed at further safeguarding Medicare beneficiaries and indirectly increasing regulatory oversight over TPMOs. The revised regulations will become effective on June 28, 2022.
MA organizations and Part D plan sponsors must comply with CMS’s regulations set forth at Title 42 of the Code of Federal Regulations Parts 422 and 423. These rules include an obligation to monitor and oversee the activities of their subcontractors, i.e., “first tier entities,” and downstream and related entities (collectively, “FDRs”). FDRs are subject to CMS’s marketing and communications regulations via contractual “flow-down” provisions and must comply with the MA or Part D requirements set forth in the payors’ contracts with CMS. In other words, the regulatory obligations imposed on MA organizations and Part D plan sponsors are not imposed as a matter of law on FDRs; they are imposed as a matter of contract by an MA organization, Part D plan sponsor, or other upstream entity. Similarly, as there is no contractual or regulatory relationship between CMS and the TPMOs, CMS is unable to enforce federal regulations directly against these entities.
Currently numerous companies in the marketplace are involved in the business of generating “leads” of potential Medicare enrollees, and such leads may be sold to FDRs, typically agents and brokers. These lead companies, however, often do not have direct (or indirect) contractual relationships with plans, or the contractual relationships with FDRs do not contain flow-down provisions, putting them outside of existing regulatory limitations. Lead generators may also be in the business of selling leads to other brokers or consolidators, again outside of any federal contractual regulatory obligations, although they may be regulated by state insurance law. Plans may also not be aware of the identities (or existence) of companies that are serving as lead generators for enrolled beneficiaries; plans typically may limit enrollment marketing relationships to licensed brokers and agents.
CMS has long expressed concerns about marketing activities related to MA and Part D enrollment, issuing extensive sub-regulatory guidance on marketing communication, and warning repeatedly about excessive fees for enrollment (including leads), which it believes may cause abusive practices. In October of 2021, CMS’s Medicare Drug & Health Plan Contract Administration Group issued a memorandum reminding MA organizations that they are responsible for FDRs’ adherence to the organizations’ contracts with CMS and compliance with all applicable Medicare laws and regulations. The memorandum called attention to complaints received from beneficiaries and their caregivers regarding “sales tactics designed to push or rush beneficiaries into enrolling into a plan.”
The most recent rulemaking and the subject of this client alert was issued as a proposed rule in January and, on May 9, 2022, as the Final Rule. The Final Rule implements several new communications and marketing requirements to protect against “confusing and potentially misleading activities,” including 1) defining TPMOs, 2) requiring TPMOs to use a standard disclaimer when the entities are marketing fewer than all plans available in a given geographic area, and 3) adding several new rules and obligations regarding MA organizations’ and Part D plan sponsors’ TPMO oversight responsibilities.
Changes to Medicare Advantage and Part D marketing & communications regulations
1. Definition of third-party marketing organization
With the goal of removing any ambiguity associated with MA organizations’ and Part D plan sponsors’ responsibility for TPMOs’ activities associated with the sale of plans, CMS is adding a definition of TPMO to the regulations.1 TPMOs will be defined as organizations and individuals, including independent agents and brokers, that are compensated to perform lead generation, marketing, sales, and any enrollment-related functions as part of the chain of enrollment (i.e., the steps taken by a beneficiary from becoming aware of a plan or plans to making an enrollment decision). The definition specifies that a TPMO may be an FDR, but that they may also be other businesses that provide services to customers, including a plan’s FDRs. This definition is intentionally broad, as it aims to capture all entities or individuals that conduct marketing and/or enrollment activities that ultimately result in a beneficiary’s enrollment in a Medicare plan and, as a result, it expands the existing obligations of MA organizations and Part D plan sponsors to monitor relationships with their direct or indirect vendors.
2. Use of a standard disclaimer by TPMOs regarding plan offerings in the area
Unless a TPMO markets or communicates information for every plan option in a particular service area, the revised regulations require TPMOs to prominently display a standard disclaimer that states: “We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.”2 This disclaimer must be included on TPMO websites and on all marketing materials, and must also be provided verbally, electronically, or in writing, depending on how the TPMO is interacting with a given beneficiary. CMS believes this disclaimer will reduce the beneficiary confusion that CMS observed when listening to TPMO-based sales calls.
The Final Rule states that MA organizations and Part D plan sponsors must ensure that TPMOs with which they do business, whether directly or indirectly or an FDR or not, utilize this disclaimer where appropriate. This new requirement translates into an affirmative obligation to ensure TPMOs’ adherence to these requirements through contractual arrangements, review of TPMO materials, and other oversight methods such as complaint reviews or compliance audits.
3. Plans’ oversight responsibilities of TPMOs
The Final Rule requires plans to ensure that TPMOs that are not otherwise FDRs adhere to stricter oversight requirements associated with FDRs.3 These requirements, summarized below, are in addition to what is already required.
a. Plans will be responsible for ensuring that all TPMOs adhere to any requirements that apply to the plan.
In a significant departure from how many MA organizations and Part D plans have done business with TPMOs in the past, plans that do business with a TPMO, either directly or indirectly through an FDR, will be responsible for ensuring that the TPMO adheres to any requirements that apply to the plans themselves.4 As CMS stated in the Final Rule, an MA or Part D plan “cannot purchase the services of a TPMO and thereby evade responsibilities for compliance with Medicare marketing and communication requirements.” Further, the Final Rule imposes on plans an affirmative requirement to know how and from where it or its FDR obtains any leads or enrollments. This will require many plans to expand existing compliance functions in order to maintain sufficient oversight of their TPMOs’ activities.
b. Plans and their FDRs must require TPMOs to disclose any applicable subcontracted relationships.
Plans and their FDRs, in their contracts, written arrangements, or other agreements with TPMOs, must require TPMOs to disclose to the plan any subcontracted relationships used for marketing, lead generation, and enrollment.5 They must also require sales calls with beneficiaries to be recorded and require TPMOs to report to the plans any TPMO staff disciplinary actions associated with Medicare beneficiary outreach and marketing on a monthly basis.
c. Plans must ensure that TPMOs notify beneficiaries of the TPMOs’ role.
Plans are required to ensure that TPMOs conducting lead generating activities inform beneficiaries that their information will be provided to a licensed agent for future contact, or that the beneficiary is being transferred to a licensed agent who can enroll them into a new plan.6 CMS believes that this requirement will “help to eliminate beneficiary confusion by making the role of lead generating TPMOs more transparent.”
Discussion, implications, and questions
CMS intends for the new requirements implemented by the Final Rule to result in greater plan oversight of TPMOs by MA and Part D plans, which in turn will result in a more positive beneficiary experience. Because CMS is unable to regulate TPMOs directly, the Final Rule imposes significant new requirements on MA organizations and Part D sponsors to make the plans – which are regulated directly by CMS – responsible for oversight of TPMOs providing any services on behalf of the plans. Stated otherwise, CMS can only directly regulate plans and clearly intends to materially ramp up enforcement of the marketing requirements on plans.
To avoid CMS enforcement action, MA organizations and Part D sponsors should ensure they have adequate systems of oversight over all entities (including lead generators and individual agents/brokers) performing any type of marketing functions for their plans ‒ even indirectly. It is especially essential that MA organizations and Part D sponsors document all such oversight activities and any remedial actions taken against TPMOs who are not in compliance with the requirements. Failure to do so could result in enforcement action against the plan, including compliance actions, civil money penalties, suspension, and termination.
For clients who are TPMOs, we expect that upstream entities may wish to enter into, renegotiate, or amend contracts and implement additional compliance procedures. That said, not all lead generation companies will be TPMOs, and it is possible that some lead generating activity will be outside of the Final Rule.