On April 4, 2024, the Centers for Medicare & Medicaid Services (“CMS”) published its Final Rule1 amending the existing Medicare Advantage (“MA”) agent broker compensation regulations. The Final Rule has significant implications for the compensation relationships between MA Organizations (“MAOs”) and independent agents and brokers. The silver lining for Third-Party Marketing Organizations (“TPMOs”) — including Field Marketing Organizations (“FMOs”) — is that some payments from MAOs to TPMOs are beyond the reach of the new regulatory limits on agent broker compensation in the Final Rule. Also, we believe the logical reading of the new regulatory text is that it does not apply to compensation arrangements between MAOs and TPMOs that are negotiated at arm’s length; that pay a flat, market rate per enrollment; and that have no impact on the compensation paid to employed, salaried agents or brokers of the TPMO.
The Final Rule makes four primary changes to the regulations governing agent broker compensation in the MA program.
First, the Final Rule changes the definition of compensation at 42 C.F.R. § 422.2274(a), so that all payments made to an agent or broker that are tied to enrollment, related to an enrollment in an MA plan or product, or for services conducted as a part of the relationship associated with the enrollment into an MA plan or product are included in the definition. Compensation now includes payments that were previously excluded under §§ 422.2274(a)(ii)(A)-(C).2 In addition, the Final Rule requires that MAOs pay independent agent broker compensation at or below fair market value (“FMV”), and sets a single independent agent broker compensation rate for all MA plans, making a one-time $100 increase to the FMV compensation rate to agents and brokers for initial enrollments, with a resulting increase for renewal payments to a maximum amount of 50% of the total compensation amount.
Second, the Final Rule adds a new provision at 42 C.F.R. § 422.2274(c)(13) that requires that MAOs ensure that no provision of a contract with an agent, broker, or TPMO has the direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent’s or broker’s ability to objectively assess and recommend which plan best meets the healthcare needs of a beneficiary.
Third, the Final Rule eliminates separate payments for administrative services by amending 42 C.F.R. § 422.2274(e)(2) to clarify that, beginning with contract year 2025, administrative payments should be included in the calculation of enrollment-based compensation.
Fourth, the Final Rule also makes conforming edits to the Part D agent broker compensation rules.
CMS acknowledges in the preamble to the Final Rule that some payments from MAOs to TPMOs are beyond the reach of the new definition of compensation at 42 C.F.R. § 422.2274(a), and the single independent agent broker compensation rate for all MA plans. CMS explains that “there is a subset of agents and brokers who are directly employed by TPMOs — specifically FMOs and call centers — and these agents and brokers may not experience the same change in incentives because their salaried income may not be directly based on the CMS-defined compensation rates.” 89 Fed. Reg. at 30,624. CMS further explains that the changes serve as “a limitation on payments in excess of those paid under ‘compensation’ only for commissions paid for enrollments to independent agents,” and not as a limitation on “payments from a [MAO] to a TPMO who is not an independent agent or broker for activities that are not undertaken as part of an enrollment by an independent agent or broker.” 89 Fed. Reg. at 30,626. This preamble language is consistent with the preexisting regulatory text at 42 C.F.R. §422.2274(d), which applies a range of compensation requirements only to independent agents and brokers. We believe the most logical reading of the preamble language is that CMS does not intend for the Final Rule to limit payments to FMOs for contractually negotiated administrative services (assuming that such payments are not passed through to independent agents and brokers).
There is presently a debate within the MA industry about whether the new 42 C.F.R. § 422.2274(c)(13) goes further than 42 C.F.R. § 422.2274(a) and the single independent agent and broker compensation rate for all MA plans, to effectively prohibit enrollment-based compensation between MAOs and TPMOs. We do not read § 422.2274(c)(13) to operate that way. To the contrary, we believe the logical reading of § 422.2274(c)(13) is that it falls short of reaching compensation arrangements that pay a flat market rate per enrollment to the TPMO, without any pass-through to the employed and salaried agents and brokers of the TPMO.
The plain language of § 422.2274(c)(13) does not specifically mention enrollment-based compensation between MAOs and TPMOs. Rather, it says that the MAO must “ensure that no provision of a contract with an agent, broker, or TPMO has the direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent’s or broker’s ability to objectively assess and recommend which plan best meets the health care needs of a beneficiary.” While this broad, flexible standard leaves CMS room to decide which contract provisions are permissible on a case-by-case basis, it does not expressly prohibit any particular types of compensation arrangement, enrollment-based or otherwise.
To be sure, CMS expresses significant concerns about enrollment-based compensation in the preamble to the Final Rule. It identifies so-called “anti-competitive” contract terms between MAOs and FMOs that it plans to treat as violations of § 422.2274(c)(13) as a matter of enforcement policy. The terms include ones that: make renewal or other contract terms contingent upon preferentially higher rates of enrollment; render the contract or reimbursement rates for marketing activities contingent upon agents and brokers employed by the FMO meeting specified enrollment quotas; provide for bonuses or additional payments from an MAO to an FMO with the explicit or implicit understanding that the money will be passed on to agents or brokers based on enrollment volume in plans sponsored by that MAO; or require an FMO to provide an agent or broker leads or other incentives based on previously enrolling beneficiaries into specific plans for a reason other than what best meets their healthcare needs. 89 Fed Reg. at 30,620, 30,621. CMS does not identify the payment of a flat market rate per enrollment as anti-competitive. Id.
The payment of a flat market rate per enrollment is not anti-competitive on its face. CMS itself has chosen a flat-rate structure for the compensation of independent agents and brokers, and CMS acknowledges in the preamble that its analysis of contractual provisions will turn on the facts and circumstances. See id. It is hard to envision facts and circumstances under which a flat-rate structure would be anti-competitive. Rates negotiated at arm’s length are, by definition, competitive. Plus, flat rates have no links to enrollment rates, quotas, or volumes.
Nevertheless, when negotiating any compensation arrangement for contract year 2025 that implicates enrollment, FMOs should proceed with care. CMS is focused on such arrangements, and stated in the preamble that it will be reviewing contract provisions for compliance. A legal analysis of compensation arrangements and related facts and circumstances under the Final Rule is a good compliance practice for any FMO.
CMS signaled in the preamble that in future rulemakings, it may look to further regulate arrangements between MAOs and TPMOs, and target amounts paid to FMOs for services that are unrelated to enrollments or renewals, such as training, material development, customer service, direct mail, and agent recruitment. 89 Fed.Reg. at 30,619, 30,621. We doubt that CMS has the statutory authority to do so. In the Final Rule, CMS primarily looks to Section 1851(j)(2)(D) of the Social Security Act for its authority to establish guidelines that “ensure that the use of compensation creates incentives for agents and brokers to enroll individuals in the [MA] plan that is intended to best meet their health care needs.” CMS also cites Section 1851(h)(4)(D) of the Act, pursuant to which CMS shall permit only MAOs and TPMOs to conduct activities described in Section 1851(j)(2) in accordance with the applicable limitations established under that section. Because Section 1851(j)(2) provides authority only to regulate MA compensation to create incentives for agents and brokers to enroll individuals in the most appropriate MA plan, we do not believe that CMS’ authority extends to compensation arrangements between MAOs and FMOs for services that are unrelated to agent or broker decision making.
The Final Rule becomes effective June 3, 2024. However, CMS clarified that the agent broker compensation changes are applicable to the 2025 contract year, such that parties will need to comply for all 2025 marketing and communications activities beginning October 1, 2024.
[1] Medicare Program; Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Program for Contract Year 2024–Remaining Provisions and Contract Year 2025 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All Inclusive Care for the Elderly (PACE), 89 Fed. Reg. 30,448, 30,617 (Apr. 23, 2024),
[2] Specifically: (A) Payment of fees to comply with State appointment laws, training, certification, and testing costs; (B) reimbursement for mileage to, and from, appointments with beneficiaries; and (C) reimbursement for actual costs associated with beneficiary sales appointments such as venue rent, snacks, and materials.
