Rule Amendments to Implement MIPPA. The Centers for Medicare and Medicaid Services (CMS) issued final amendments to the Medicare Advantage (MA) and Prescription Drug (Part D) Rules to implement the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), passed by Congress on July 15, 2008.[1] These Rule amendments were published on September 18, 2008 at 73 Federal Register 54207 and 73 Federal Register 54225. CMS has posted guidance for interpreting these Rule amendments on its website.[2]

The Rule amendments make effective October 1, 2008 MIPPA’s marketing prohibitions and restrictions, including increased oversight and control of agents, brokers and sales representatives. The Rule amendments also implement MIPAA provisions regarding: (a) the phase out of indirect medical education payments for MA plan sponsors, starting in 2010; (b) prompt pay requirements and other Part D program changes affecting Part D plan sponsors, effective 2010; (c) contracted provider network requirements for MA private fee-for-service (PFFS) plans, effective 2011; (d) care management, beneficiary disclosure and State Medicaid agency contracting requirements for MA special needs plans (SNPs), effective 2010; and (e) quality improvement requirements for MA PFFS plans, MA medical savings account (MSA) plans, and SNPs effective 2010.

Corrections to Prior MA and Part D Rule Amendments. On September 26, 2008 at 73 Federal Register 55763, CMS corrected errors in the MA and Part D Rule amendments published on December 5, 2007. These corrections reinstate 42 C.F.R. §§ 422.756(d)(3) and 423.756(d)(3) regarding the duration of intermediate sanctions, and 42 C.F.R. § 423.505(i)(2)(ii) requiring record retention for 10 years. CMS had inadvertently deleted these provisions in issuing the December 5, 2007 Rule amendments.

Updates to NGE Compiled MA and Part D Rules. We are revising the NGE Compiled Medicare Advantage Rule (42 C.F.R. Part 422) and the NGE Compiled Medicare Prescription Drug Rule (42 C.F.R. Part 423) to incorporate these amendments and corrections. Please watch our web site at for the posting of the updated NGE Compiled MA and Part D Rules for free download.

Medicare Marketing

The Rule amendments implement MIPAA’s prohibitions and restrictions on marketing Medicare plans. CMS promises to give detailed guidance on these marketing prohibitions and restrictions in updates to the Medicare Marketing Guidelines.[3] CMS warns that Medicare plan sponsors “should have internal reporting requirements established to maintain appropriate oversight of . . . all marketing activities.”

Marketing Prohibitions. The Rule amendments ban the following sales and promotional activities considered abusive to Medicare beneficiaries. These prohibitions apply as of the October 1, 2008 start of the marketing season for the 2009 Medicare plan year.

  • Unsolicited Direct Contacts. The existing prohibition on door-to-door solicitation is expanded to prohibit any unsolicited direct contact of Medicare beneficiaries. These prohibitions include: (a) outbound telephone calls not resulting from the beneficiary initiating the contact; (b) telephone calls to confirm whether beneficiaries received mailed information; (c) telephone calls to confirm appointments arranged by agents or other third parties; (d) contact of former enrollees or enrollees in the process of disenrolling to market Medicare plans or other products; (e) follow-up contacts of beneficiaries who attended sales events, but did not give express permission at the event for follow-up contact; and (f) contact of beneficiaries in parking lots or other common areas outside those where the MA and Part D Rules allow marketing displays and presentations.
  • Cross-Selling. Cross-selling of non-health-related products during sales activities or presentations for Medicare plans is prohibited.
  • Meals. Meals, regardless of value, may not be furnished to prospective enrollees during promotional or sales activities or otherwise. CMS does not intend to define “meal,” but observes that “light snacks,” such as fruit, raw vegetables, pastries, cookies, crackers, muffins, cheese, chips, yogurt and nuts are “generally . . . acceptable.” Medicare plan sponsors must ensure “that items provided could not be reasonably considered a meal, and/or that multiple items are not being ‘bundled’ and provided as if a meal.” Medicare plan sponsors are responsible for “the actions of all agents selling their plan(s)” and must “take proactive steps to enforce [the] prohibition” on meals.
  • Educational Events. Neither sales presentations nor promotions nor distribution or collection of Medicare plan enrollment applications is allowed at educational events, such as health fairs, conferences and government- or community-sponsored programs. CMS views “the sole purpose of an education event” to be “to provide objective information about the Medicare program, not steering an enrollee towards a specific plan or limited number of plans.”
  • Health Care Settings. Neither sales activities nor the display or distribution of promotional materials is allowed in health care settings, such as patient waiting and care areas of physicians’ offices, hospitals, skilled nursing facilities, or pharmacies. Sales activities and promotional materials must be limited to common areas not intended for delivery of health care, such as a cafeteria, recreational or community room or conference room. Common areas for pharmacies included in retail stores are those “outside of where patients wait for service or interact with pharmacy providers and obtain medications.”
  • Monetary Inducements. The provision of cash or other monetary payments to induce enrollment or otherwise is prohibited.
  • Discriminatory Tactics. Sales tactics calculated to discriminate against Medicare beneficiaries—such as recruiting enrollment only in higher income areas, ignoring low-income neighborhoods, or using Medicare plan names that suggest the plan is not open to all eligible Medicare beneficiaries—are prohibited.
  • Misrepresentation. Activities that may mislead or confuse beneficiaries, suggest that Medicare or CMS endorses or recommends enrollment in a Medicare plan, or otherwise misrepresent the Medicare plan or its sponsor are prohibited.

Marketing Restrictions. The Rule amendments impose the following restrictions on sales and promotional activities. These restrictions apply as of the October 1, 2008 start of the marketing season for the 2009 Medicare plan year.

  • Scope of Marketing Appointments. Medicare plan sponsors and their agents and brokers must determine and document the health-related products that a Medicare beneficiary wants to discuss before the start of a marketing appointment with the beneficiary. No other products, including other health-related products, may be discussed during that marketing appointment.

If the beneficiary wants to discuss health-related “lines of plan business” other than those that had been identified before the marketing appointment, a separate appointment must be made with the beneficiary. That separate appointment may not take place until at least 48 hours after the initial appointment. CMS considers “lines of plan business” to be, respectively, Part D prescription drug plans, MA plans with and without Part D prescription drug benefits, and Medigap plans.

  • Provider Displays of Marketing Materials. Providers, such as pharmacies and physician offices, may display and distribute Medicare plan marketing materials only if they do so for all Medicare plans with which the providers contract. Providers are not required to display or distribute marketing materials or information about other Medicare plans.
  • Co-Branding with Providers. Medicare plans may not display the names or logos of network providers on an enrollee’s identification card, unless the enrollee selects those providers. Any other plan marketing material that is co-branded with the names or logos of network providers must “clearly indicate” that other providers are available in the network.
  • Promotional Gifts. Non-monetary gifts and promotional items of “nominal value,” such as pens, pencils and calendars, may be distributed at promotional events only if offered to all potential enrollees in attendance without regard for whether they enroll. The Medicare Marketing Guidelines currently define “nominal value” as worth not more than $15 retail per prospective enrollee per promotional event. CMS promises to “update this number as necessary to account for inflation and other relevant factors.”

File and Use Marketing Materials. Effective September 18, 2008, any Medicare plan sponsor may distribute—5 days after submission to CMS—marketing materials that CMS has designated as “file and use” eligible, as long as the sponsor has submitted a one-time certification to CMS that attests that the sponsor’s materials will follow all applicable CMS marketing guidelines and use, when applicable and without modification, CMS’s model language. CMS eliminates “file and use” eligibility based on a Medicare plan sponsor’s track record of meeting CMS’s performance standards for marketing material compliance.

Plan Content Disclosure. Effective September 18, 2008, Medicare plan sponsors must disseminate their Medicare plans’ Annual Notice of Change and Evidence of Coverage describing plan service areas, benefits, grievance and appeal procedures, and other required information at enrollment and at least 15 days before the November 15 start of each annual coordinated election period (i.e., no later than October 31).

Descriptive Product Names. Effective January 1, 2010, the names that Medicare plan sponsors use for their Medicare plans must state, at the end of the name, the plan type (e.g., “Part D prescription drug plan,” “PPO,” HMO,” “private fee-for-service plan,” or “medical savings account plan”).

Agents, Brokers and Sales Representatives

The Rule amendments address: (a) State oversight of Medicare plan marketing by independent agents and brokers and by employed sales representatives (collectively, “producers”); (b) producer training and testing; and (c) producer compensation.

Producer Licensure and Appointment. CMS, through its Medicare Marketing Guidelines, has required Medicare plan sponsors to use only State-licensed producers to sell their Medicare plans in States that require producer licensure. CMS imposed this requirement to “ensure that [producers] meet minimum standards of integrity and professionalism” and to “benefit from State efforts to deny licensure to under-educated, unscrupulous or otherwise substandard individuals.” The Rule amendments make the State licensure requirement part of the MA and Part D Rules.

The Rule amendments also require that, effective September 18, 2008, Medicare plan sponsors comply with State appointment laws. That means Medicare plan sponsors must, if State law requires, appoint their producers—report to the State the producers they authorize to sell their Medicare plans. CMS believes State appointment law compliance will “enable States to monitor [producers’] activities [and] fitness” and thereby “strengthen [CMS’s] ability to collaborate with States in addressing fraudulent and inappropriate marketing practices.” Starting January 1, 2009, Medicare plan sponsors must pay any appointment fees levied by the States.

Customer Service Personnel. CMS stresses that the Rule amendments do not change that customer service representatives—personnel who are not engaged in “the act of steering to a plan”—may continue to provide “factual information,” fulfill “a request for materials,” take “demographic information in order to complete an enrollment application at the initiative of the enrollee,” and similar customer service functions without having to be State-licensed or -appointed.

Producer Training and Testing. Effective September 18, 2008, Medicare plan sponsors must ensure that their producers are trained and tested at least annually on “Medicare rules and regulations and on plan details specific to the plan products” they sell. CMS expects producers to score at least 85% on the tests to be allowed to sell Medicare plans.

Producer Compensation. To “eliminate inappropriate moves of beneficiaries from plan-to-plan,” the Rule amendments regulate the producer compensation that Medicare plan sponsors may pay. CMS “expects that [Medicare plan sponsors] will set compensation levels that are reasonable, and reflect fair market value for service performed.” Although CMS acknowledges that “compensation can vary (for example, by geographic area, plan type, [producer] experience),” it nonetheless “encourages [Medicare plan sponsors] to keep compensation as level as possible across plan types and among [producers] providing similar services.”

CMS stresses that Medicare plan sponsors and producers are responsible “for compliance with fraud and abuse laws.” CMS cautions that producer “relationships can be problematic under the anti-kickback statute if they involve . . . compensation in excess of fair market value, compensation structures tied to the health status of the beneficiary . . ., or compensation that varies based on the attainment of certain enrollment targets.”

The precise compensation requirements imposed by the Rule amendments are as follows and apply with 2009 as the base year:

  • Compensation Structure. A producer’s aggregate compensation for the sale of a Medicare plan in the year of the sale must not exceed 200% of the aggregate compensation to the producer for selling or servicing the enrollee in each of at least 5 subsequent renewal years, resulting in a 6-year compensation cycle per Medicare plan enrollee. According to CMS, this structure “eliminates the incentive for [producers] to move their clients from plan to plan since the compensation that [producers] receive for a replacement plan will be nearly the same as if the client had stayed in the original plan.”
  • As 2009 is the base year, the 6-year cycle will begin in 2009 for each beneficiary enrolled in a Medicare plan in 2009. Thereafter, the 6-year cycle will begin in the year in which a beneficiary enrolls in the Medicare plan. CMS intends by 2010 “to track the cycle by beneficiary and direct [Medicare plan sponsors] as to whether a first year or renewal compensation will be paid for subsequent years.”
  • Compensation Earned. A producer can earn compensation only if the enrollee remains in the Medicare plan for at least 3 months. Hence, no compensation can be earned for an enrollee who leaves the plan prior to month 4. If an enrollee leaves the plan after month 3, compensation may be paid only on a prorated basis for the months in which the enrollee actually was a plan member.

A Medicare plan sponsor may pay a producer (a) upfront, (b) prorated over 12 months, or (c) over the 4 to 12 month period, but if the beneficiary disenrolls before month 4, the Medicare plan sponsor must recapture from the producer any compensation paid, and if the beneficiary disenrolls after month 3, the Medicare plan sponsor must recapture from the producer any compensation paid for months in which the beneficiary was not enrolled in the plan.

  • Compensation on Replacement Plans. For years following the 2009 base year, a producer’s aggregate compensation, for replacing an existing Medicare plan with a “like plan type” during the 6-year compensation cycle of the existing Medicare plan, must not exceed the “renewal compensation payable by the replacing plan on renewal policies.” A “like plan type” means “PDP replaced with another PDP, MA or MA-PD replaced with another MA or MA-PD, or cost plan replaced with another cost plan.” A producer who sells an enrollee a PDP to add to an MA-only plan may receive new compensation for the PDP sale.
  • Compensation Structure Timing and Reporting. Medicare plan sponsors must establish their compensation structures for new and replacement enrollments and for plan renewals no later than the October 1 start of the annual Medicare plan marketing season. Medicare plan sponsors must make their compensation structures available to CMS upon request, including for audits, investigations and resolution of complaints.
  • Compensation Defined. “Compensation” encompasses all “pecuniary and non-pecuniary remuneration of any kind relating to the sale or renewal of [a Medicare plan] including but not limited to commissions, bonuses, gifts, prizes, awards and finders fees.” “Compensation” does not encompass salary and benefits related to employment, unless the salary or benefits vary based on the producer’s sales volume. “Compensation” also does not encompass State appointment fees, costs related to required producer licensure, training and testing, or reimbursement for mileage or the expense for venues, snacks, materials and similar items associated with beneficiary sales promotions and appointments.

Producer Terminations, State Investigations and CMS Information Requests. Starting January 1, 2009, Medicare plan sponsors are required to report each producer termination to the appropriate States. The reason for the producer’s termination must also be reported if State law requires.

Medicare plan sponsors must comply with State requests for information regarding producer performance in connection with a State investigation of the producer’s conduct. CMS intends to enter into memoranda of understanding with the States to share compliance and oversight information regarding producers and Medicare plan sponsors.

Effective September 18, 2008, Medicare plan sponsors must provide CMS upon request the information that CMS deems necessary to conduct oversight of the sponsors’ marketing activities and those of the sponsors’ producers.

MA Plan Payment Reductions

Beginning in 2010, the indirect medical education (“IME”) component of the per capita amounts payable to MA plan sponsors will begin being phased out. The phase-out will reduce annual aggregate payments to MA plan sponsors until the IME component reaches zero. (PACE programs are excluded from the IME phase-out.) The Congressional Budget Office estimates that the IME phase-out will reduce payments to MA plan sponsors by $700 million in 2010, by $2.9 billion in 2011, reaching $7.9 billion in 2016.[4]

Pharmacy Claim Prompt Payment and Other Part D Rule Changes

Prompt Claim Payment. Effective January 1, 2010, Part D plan sponsors (including sponsors of MA plans offering Part D prescription drug coverage) must pay, within 14 days of receipt, “clean claims” that their network pharmacies submit electronically and, within 30 days of receipt, “clean claims” that their network pharmacies submit on paper. Part D plan sponsors must pay interest on pharmacy “clean claims” not paid within these prompt pay timelines. Interest payments will not count against a Part D plan sponsor’s administrative costs nor be treated as allowable costs for risk corridor calculations. These prompt pay requirements do not apply to claims submitted by mail-order pharmacies or by pharmacies located in, or contracted with, long-term care facilities.

  • Clean Claim Defined. A “clean claim” has no defect or impropriety, such as lack of required substantiating documentation, and no particular circumstance requiring special treatment that prevents timely payment. A pharmacy claim is deemed “clean” unless the Part D plan sponsor notifies the claimant in writing of a defect or impropriety within 10 days of an electronic claim’s receipt and within 15 days of a paper claim’s receipt.
  • Claim Receipt and Payment. An electronic claim is deemed received on the date it is transferred; a paper claim is deemed received on the 5th day after its postmark or its transmission date stamp. An electronic payment is deemed made on the date it is transferred; a paper payment is deemed made on the date it is mailed. Part D plan sponsors must pay electronic “clean claims” by electronic fund transfer if the submitting pharmacy so requests.
  • Downstream Contracts. Part D plan sponsors must amend (and require their pharmacy benefits managers and other downstream contractors to amend) their pharmacy contracts to include these prompt pay requirements.

Long-Term Care Pharmacy Claim Submission. Effective January 1, 2010, Part D plan sponsors must ensure that their contracts (and their pharmacy benefits managers’ and other downstream entities’ contracts) with pharmacies, located in or under contract with long-term care facilities, allow at least 30, but no more than 90, days for these pharmacies to submit claims.

Part D Pricing Updates. Effective January 1, 2009, Part D plan sponsors must update, each January 1 and at least once every 7 days thereafter, the prescription drug pricing standards (such as average wholesale price, average wholesale cost, average manufacturer price, or average sale price) that the sponsors use to reimburse their network pharmacies for the cost of Part D drugs.

Part D plan sponsors must amend (and require their pharmacy benefits managers and other downstream contractors to amend) their pharmacy contracts to include these drug pricing update requirements, as well as to disclose the sources used to make the drug pricing updates. CMS stresses that Part D plan sponsors must “design their internal processes to ensure that fee schedules tied to any drug pricing standard are updated within these prescribed timeframes, and that all claims are adjudicated in accordance with appropriately updated fee schedules.”

Elimination of Late Enrollment Penalties for LIS Beneficiaries. Effective January 1, 2009, Medicare beneficiaries eligible for the Part D low-income subsidy will not be subject to late enrollment penalties. This Part D Rule amendment makes permanent the suspension of late enrollment penalties that CMS had instituted as a demonstration project in 2006 (when the Part D program began).

LIS Resource Exemptions. Effective January 1, 2010, the determination of eligibility for the Part D low-income subsidy will exclude from “income” any in-kind support and maintenance and exclude from “resources” the value of any life insurance policy. In-kind support and maintenance includes food or shelter (such as room, board, rent, mortgage payments, real estate taxes, heating fuel, gas, electricity, water, sewage, and garbage collection) that a beneficiary or beneficiary’s spouse receives from or is paid for by another. Life insurance includes whole life, term, and combination products with features of whole life and term.

Part D Data Use. Consistent with MIPPA’s clarification of CMS’s authority, the Part D Rule amendments expand on the amendment that CMS adopted on May 28, 2008 (at 73 Federal Register 30664) regarding use and disclosure of prescription drug event and related data on Part D drug claims for purposes other than payments to Part D plan sponsors. CMS may now release such Part D claims data, without a “minimum necessary” restriction, to congressional support agencies, such as the Congressional Budget Office, the Government Accountability Office, the Medicare Payment Advisory Commission, and the Congressional Research Office when acting on behalf of a Congressional Committee, for overseeing, monitoring, analyzing or making recommendations about the Medicare program. The Part D Rule amendments also permit CMS to use such Part D claims data to support the Medicare incentive payments and penalties to promote electronic prescribing.

MA PFFS Plan Provider Networks

PFFS Plan Network Adequacy. For 2010, MA PFFS plans may continue to satisfy provider access and availability requirements through “deemed” providers who, without written contracts with the MA PFFS plan, agree to treat the MA PFFS plan’s enrollees under the terms and conditions of payment that the MA PFFS plan makes available in a manner reasonably designed to inform the provider before treatment is rendered. For MA PFFS plans that also have contracted provider networks, those contracted provider networks must satisfy Medicare provider access and availability standards as of January 1, 2010.

PFFS Plan Network Requirements. Effective January 1, 2011, MA PFFS plans operating in “network areas” must have contracted provider networks that satisfy Medicare provider access and availability standards. MA PFFS plans may no longer rely solely on “deemed” providers to meet provider access and availability requirements in these “network areas,” though they may continue to use “deemed” providers to augment their contracted provider networks in these “network areas.”

  • Network Areas. The “network areas” in which MA PFFS plans must have contracted provider networks are those counties that CMS determines have at least two “network-based” MA plans. CMS will identify the “network areas” for 2011 when it publishes on the first Monday of April in 2009 the MA capitation rates for 2010. CMS will continue to identify the “network areas” thereafter in its annual publication of the MA capitation rates the first Monday of each April.

Sponsors may not maintain “mixed” MA PFFS plans that cover some counties that are “network areas” and others that are not. Instead, the sponsors will be required to establish separate MA PFFS plans for counties that are “network areas” and, therefore, require use of contracted provider networks, and for counties that are not and, therefore, may meet provider access and availability requirements through “deemed” providers.

  • Network-Based MA Plans. “Network-based” MA plans are MA coordinated care plans, MSA plans with contracted provider networks, and Medicare cost plans. MA regional PPOs are not considered “network-based” MA plans with respect to geographic areas where CMS has allowed them to meet provider access and availability requirements without contracted providers.

PFFS Employer/Union Group Plan Network Requirements. Effective January 1, 2011, MA PFFS plans serving employer and union groups (“800 series” waiver plans) must have contracted provider networks that satisfy Medicare provider access and availability standards in all geographic areas in which the MA PFFS plans serve the groups. This includes geographic areas with fewer than two “network-based” MA plans. MA PFFS plans may continue to use “deemed” providers to augment their contracted provider networks for the groups served.

PFFS Provider Payment Rates. MA PFFS plans may now vary the reimbursement rates they pay providers based on such factors as specialty, location, and increased utilization of specified preventive or screening services. MA PFFS plans may not vary reimbursement based on the amount of utilization of a provider’s services.


Models of Care. Effective January 1, 2010, every SNP must implement a model of care that is (a) “evidence-based,” (b) has an “appropriate network of providers and specialists to meet the specialized needs of the SNP target population,” and (c) employs a “battery of care management services that includes (1) a comprehensive initial assessment and annual reassessments of the individual’s physical, psychosocial, and functional needs, (2) an individualized plan of care having goals and measurable outcomes, including specific services and benefits to be provided, and (3) an interdisciplinary team to manage care.”

Benefits Disclosure and Cost-Sharing Protections. Effective January 1, 2010, SNPs serving dually-eligible beneficiaries must furnish prospective enrollees a comprehensive written description of the benefits and cost-sharing protections to which the prospective enrollees are entitled under Medicare and Medicaid. Neither SNPs nor any other type of MA plan may impose on their full-benefit dually-eligible beneficiaries cost-sharing that exceeds cost-sharing permitted for such beneficiaries under Medicaid.

Contracts with States. MA plan sponsors applying for new SNPs to serve dually-eligible beneficiaries in 2010 must have written contracts with applicable State Medicaid agencies. Sponsors of existing SNPs will have until January 1, 2011 to obtain these contracts, but will not be permitted to expand their service areas for 2010 unless they have written contracts with applicable State Medicaid agencies in 2010. CMS acknowledges that “States are not required to enter into written contracts with [SNP sponsors].”

The SNP sponsor’s contract with a State Medicaid agency must specify their respective “roles and responsibilities with regard to dual-eligible individuals” and document (a) the SNP sponsor’s responsibility, including financial obligations, to provide or arrange for Medicaid benefits; (b) the Medicaid benefits, cost-sharing protections and service area covered by the SNP; (c) the eligibility categories for dually-eligible beneficiaries to be enrolled in the SNP; (d) the means to verify the dual-eligibility of the SNP’s enrollees; and (e) the identification and information sharing on Medicaid provider participation.

Quality Improvement Requirements for MA PFFS, MSA and SNPs

PFFS and MSA Plans. Effective January 1, 2010, sponsors of MA PFFS plans and of MSA plans must implement quality improvement programs. Their quality data collection, analysis and reporting for 2010 must cover claims data from all providers, whether contracting providers, deemed PFFS providers, or non-contracting providers. Effective January 1, 2011, their quality data collection, analysis and reporting will cover claims data only from their contracting providers, the same as applies to sponsors of MA local PPO plans.

SNPs. Effective January 1, 2010, the quality improvement programs of sponsors of SNPs must collect, analyze and report data that measure (a) health outcomes and quality indicia pertaining to the SNP’s targeted special needs population, and (b) the effectiveness of the SNP’s model of care.