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CMS issues new rule limiting third-parties who conduct Medicare Advantage marketing

Greatly expands potential liability for health plans

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Home Perspectives CMS issues new rule limiting third-parties who conduct Medicare Advantage marketing
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.

Background

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.