November 13 and 17 Deadlines for Reporting MA and Part D Plan Broker Compensation Structures to CMS

The Centers for Medicare and Medicaid Services (CMS) yesterday—November 10—released and made effective modified requirements for the compensation that Medicare Advantage (MA) organizations and Medicare Part D prescription drug plan (Part D) sponsors (collectively, Sponsors) may pay brokers. CMS made these modifications by Interim Final Rules (Interim Rules), which will be published in the Federal Register on November 14[1] and which amend the broker compensation rules that CMS published on September 18 in its final Medicare marketing rules.[2] CMS will accept public comment on the Interim Rules until December 15.

November 13 and 17 Deadlines for Broker Compensation Structure Reporting

Each Sponsor must certify and report to CMS the broker compensation structures that the Sponsor used for 2006, 2007 and 2008 and will use for 2009 (which must be in compliance with the Interim Rules). Thereafter, any change in a Sponsor’s broker compensation structure must be approved by CMS. CMS set these reporting requirements by memorandum dated and posted to its web site yesterday—November 10.[3]

November 13 is the deadline for a Sponsor that bases its 2009 compensation structure on its 2006 compensation structure to submit certification by its CEO or another authorized official to that effect to CMS.

November 17 is the deadline for these Sponsors and all others to submit their 2006, 2007, 2008 and 2009 broker compensation structures to CMS. The CEO or another authorized official of each Sponsor must certify that the broker compensation structures the Sponsor submits are accurate and complete.

A Sponsor is not required to report broker compensation structure data for any year from 2006 through 2008 in which it did not sell MA or Part D products through brokers. The Sponsor must still submit and certify any 2009 broker compensation structure by November 17.

CMS warns that Sponsors who fail to submit and certify their 2006 through 2009 broker compensation structures by November 17 will be “out of compliance with [Medicare] marketing requirements” and “face potential sanctions and/or other penalties.”

Permitted Broker Compensation Structures

The Interim Rules permit Sponsors to base 2009 broker compensation only on either (a) the Sponsor’s 2006 broker compensation structure, or (b) the “market” broker compensation structures in 2006 and 2007 in an area where the Sponsor will offer its Medicare plans in 2009, determined by a “market analysis” of the broker compensation paid by all Sponsors in the area in 2006 and 2007 for initial sales of the same types of Medicare plans.

CMS says that it will use the 2006 and 2007 broker compensation structure data that Sponsors must report by November 17 to determine if a Sponsor’s 2009 broker compensation structure “is commensurate with fair market value.” CMS intends to “investigate outliers” and “take enforcement action as appropriate, including requiring [Sponsors] to be prepared to adjust the compensation rates submitted to CMS, or to take other steps to ensure that beneficiaries’ interests are not harmed by the excessive compensation paid.” CMS warns Sponsors to “be mindful that their compensation arrangements . . . must comply with the fraud and abuse laws, including the anti-kickback statute.”

The Interim Rules require Sponsors to establish a six-year payment cycle. This cycle will require a Sponsor to pay its brokers not more than 50% of the “initial” year compensation for a beneficiary’s enrollment in each of the five following “renewal” years.

The Interim Rules deem 2009 to be a “renewal” year such that Sponsors may pay their brokers no more than 50% of their “initial” year compensation rates. A Sponsor may adjust the amount paid a broker in 2009 to the “initial” year compensation rate only if (a) the Sponsor determines that the beneficiary whom the broker enrolled in its Medicare plan had enrolled upon first becoming eligible for Medicare (e.g., when first turning 65) or (b) CMS determines that the beneficiary whom the broker enrolled is new to the MA or Part D program. CMS will produce reports “[s]everal times in 2009” that will identify beneficiaries who are newly entitled to Medicare or enrolled in an MA or Part D plan for the first time.

For 2010 and later years, the Interim Rules require a Sponsor’s broker compensation structure to be based on its previous year’s broker compensation structure. The Sponsor may adjust its broker compensation structure annually after 2009 by only an inflation factor to be published by CMS. This means that a Sponsor may not increase the 2009 broker compensation structure it submits on November 17 more than CMS’s published inflation rate in subsequent years. CMS will allow Sponsors to reduce their broker compensation structures in any year.

The broker compensation requirements of the Interim Rules reflect CMS’s implementation of the charge of the Medicare Improvements for Patients and Providers Act (MIPPA) that broker compensation structures “create[] incentives for agents and brokers to enroll individuals in the Medicare Advantage plan that is intended to best meet their health care needs.” The Interim Rules are CMS’s answer to Congressional and other criticism that its September 18 broker compensation rules and guidance prompted Sponsors to offer “extremely generous compensation in 2009 far in excess of amounts paid for the previous three years . . . or substantially in excess of the amounts paid generally in the area for the plan type involved.”

Employed Sales Agents

The Interim Rules do not apply their broker compensation requirements to sales agents who are employees of Sponsors. CMS considers a sales agent who sells exclusively for a single Sponsor to be “employed” by the Sponsor if the sales agent receives a “set salary in addition to any compensation tied to volume of sales.” CMS asks for comments on how to address compensation for employed sales agents.

Field Marketing Organizations and Other Third Parties

The broker compensation restrictions of the Interim Rules apply to payments made to brokers by Sponsors’ intermediaries, such as field marketing organizations. Sponsors thus cannot circumvent the broker compensation requirements of the Interim Rules by contracting with third parties. CMS also seeks to prevent “bidding wars” between Sponsors for the services of intermediaries by prohibiting payment to third parties in excess of either (a) the fair market value of their services or (b) an amount “commensurate with the amounts paid by the [Sponsor] for similar services during each of the previous 2 years.”