New regulations took effect September 18, 2008, so Plan Sponsors must rapidly adopt operational changes in order to comply with the regulations in time for the launch of 2009 marketing on October 1, 2008.

The Centers for Medicare and Medicaid Services (CMS) released two final rules on September 15, 2008, that adopt in final form regulatory provisions implementing strict marketing restrictions and other operational aspects for the Medicare Advantage and Part D Programs (the Programs). All of these regulatory provisions take effect on September 18, 2008, the date the rules were published in the Federal Register.

The new regulations adopt, in large part, changes to the Programs proposed by CMS in May 2008 as well as changes implemented by the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), such as restrictions on agent/broker compensation; restrictions on marketing activities, including at provider locations; provider network requirements for private fee-for-service (PFFS) plans; and prompt-pay requirements for Part D Plan Sponsors. Those regulatory changes that were initially proposed by CMS in its May 2008 proposed rule are adopted in a final rule, and the regulations codifying changes imposed by MIPPA are adopted via an interim final rule with comment period. Comments are due to the agency by 5 pm EST on November 17, 2008.

Interestingly, CMS does not address its proposed changes to Part D Plan Sponsors' compensation arrangements with pharmacy benefit managers (the so-called "pass through" and "lock-in" pricing arrangements) or the civil money penalty regulations, both of which were part of the May 2008 proposed rule. Rather, CMS indicates it will address these issues (and others) in a separate rule at another time.

New Marketing Provisions for MA Organizations and Part D Plan Sponsors

As expected, the final rules reflect significant changes to CMS's regulation of marketing activities undertaken by Medicare Advantage Organizations (MA Organizations) and Part D Plan Sponsors (collectively, Plan Sponsors) as well as individuals and entities marketing on Plan Sponsors' behalf. The regulations took effect upon publication, which means Plan Sponsors must rapidly incorporate new changes—including modifying relevant contracts—to comply with the new regulations in time for the launch of 2009 marketing on October 1, 2008.

Agent and Broker Licensing and the Role of Customer Service Representatives

CMS codified its existing requirement that Plan Sponsors use only state-licensed marketing representatives for marketing activities (when state law so requires). Additionally, Plan Sponsors now must comply with applicable state appointment laws. Administrative obligations under such laws could include (i) reporting to state officials use of agents and brokers; (ii) maintaining a registry of marketing representatives, including their license numbers and dates they began selling (and, when applicable, cease selling) the Plan Sponsors' products; (iii) reporting the basis for terminating a relationship with the marketing representative; and (iv) payment of fees, beginning on and after January 1, 2009.

Given the heightened licensure and (potential) reporting requirements associated with individuals engaging in marketing activities on Plan Sponsors' behalf, CMS took care in the preamble to the final rule to distinguish marketing activities from the activities and role of customer service representatives, which do not trigger the licensure and appointment law requirements. Answering questions, accepting enrollments on behalf of enrollees who have decided to enroll in a particular plan, taking demographic information for enrollment purposes and fulfilling a request for materials all are "legitimate customer service activities that would not trigger the need for using State-licensed marketing representatives."

In the preamble to the final rule, CMS acknowledged that under the preemption provisions set out in the Social Security Act, "States do not have the authority to regulate the marketing of Medicare Part C and D plans. However, as noted, any abuses by an agent in marketing such plans would have direct relevance to the State's oversight of the agent generally, and implications for the agent's marketing of products over which the State has jurisdiction, and Medicare beneficiaries would benefit from having the agents who engage in Medicare marketing subject to this State oversight."

Agent and Broker Compensation

Incorporating both the comments received from the May 2008 proposed rule and the changes required by MIPPA, CMS adopted a set of regulations governing agent and broker compensation that apply to both independent agents and brokers (including individuals working for field marketing organizations, general agents or other marketing organizations) as well as employed agents and brokers.

An agent or broker's first year compensation may not exceed 200 percent of the aggregate compensation in each subsequent renewal year, of which there must be a total of five (creating a six-year aggregate compensation cycle). Compensation still must be based on fair market value for the geographic area, and "CMS encourages plans to keep compensation as level as possible across plan types and among agents providing similar services." Compensation, for purposes of the regulations, is defined as "pecuniary or non-pecuniary remuneration of any kind relating to the sale or renewal of the policy (for example commission, bonuses, gifts, prizes, awards, and finders' fees)" but not salary or other employment-related benefits that are unrelated to sales volume.

Compensation is earned for months 4 through 12 of the benefit year so long as the member remains active with the plan. If a member disenrolls after the third month (but before the start of the next benefit year), compensation is paid on a prorated basis only for the months in which the individual actually was enrolled. Plan Sponsors must recoup all dollars paid in advance to an agent or broker if a beneficiary disenrolls during the first three months of enrollment.

Importantly, CMS states that compliant compensation structures, which must be available to CMS upon request, "must be in place by the beginning of the plan marketing period, October 1."

CMS also codified requirements regarding agent and broker training and testing previously set out in the 2009 Call Letter and May 2008 proposed rule.

Marketing Activities at Provider Locations

The final rule reiterates CMS's prohibition on marketing activities in "areas where health care is delivered to individuals," although an exception exists for marketing activities in "common areas" within such health care settings. As described in the Medicare Marketing Guidelines, "common areas, where marketing activities are allowed, include areas such as hospital or nursing home cafeterias, community or recreational rooms and conference rooms." In response to comments, CMS further expanded on this point, noting that "patients that are hospitalized or receiving care in a dialysis center" are in such areas for the primary purpose of receiving care "and therefore [these] are prohibited areas [for marketing activities]." The agency notes, however, that Plan Sponsors "are permitted to schedule appointments with beneficiaries residing in long-term care facilities just as with other individuals living in a private residence."

CMS also clarified that providers, including pharmacies, may "accept and display materials" for all Plan Sponsors "with which the provider, provider group or pharmacy is contracted." Providers are not obligated to make available information about Medicare Advantage or Part D plans in which the provider does not participate.

Prohibition on Unsolicited Direct Contact and Exception for Current Enrollees

Not surprisingly, CMS adopted the prohibition on unsolicited direct contact with Medicare beneficiaries, which includes door-to-door marketing and cold calling. "We believe this clarification would help prevent inappropriate conduct on the part of agents in aggressively pursuing the marketing [of Plans] to beneficiaries outside of approved common areas ... (for example, approaching beneficiaries directly in parking lots)."

Importantly, CMS notes it does not intend the prohibition to apply to Plan Sponsors calling existing members. However, this exception should not be interpreted as meaning that Plan Sponsors may contact former members or individuals in the process of disenrolling.

Additional Marketing-Related Changes

Additional Prohibited Activities: Plan Sponsors also are prohibited from (i) providing meals at marketing events, although "snacks" and "refreshments" may be served; (ii) distributing (or accepting completed) enrollment applications or undertaking other marketing activities at educational events; (iii) cross-selling non-health care related products, such as annuities and life insurance, during appointments with Medicare beneficiaries; (iv) offering cash or monetary rebates (regardless of value); and (v) offering gifts or promotional items, except those of "nominal" value (retail value less than $15 per item).

  • Marketing Appointments: Agents and brokers must establish, in advance of each sales appointment with a Medicare beneficiary, the range of products that will be addressed during the meeting. Such agreement must be documented by the Plan Sponsor, and additional lines of business not identified in advance may not be addressed in the initial meeting but instead can be addressed only in a separate appointment occurring at least 48 hours after the initial meeting.
  • File and Use: CMS modified the "file and use" review process, eliminating eligibility for file-and-use based on a Plan Sponsor's track record. Moving forward, a uniform policy is in place so that all Plan Sponsors may access the "file and use" review process for any materials deemed eligible by CMS.
  • Plan Names: Effective with the 2010 benefit year, Plan Sponsors must include the type of plan being offered in the plan name (e.g., Acme Medicare Gold HMO).
  • Employer Group Plans: CMS codified its position that marketing materials for employer-sponsored plans are not subject to CMS prior review and approval.

Provider Network Requirements and Other PFFS Plan Regulatory Changes

MA Organizations sponsoring PFFS plans face new provider network requirements as a result of MIPPA and CMS's interim final rule, with such network requirements intended to increase beneficiary access to health care providers. Currently, PFFS plans may meet MA Program provider network access standards by establishing payment rates for non-contracted providers that equal or exceed the rates such providers would receive for the same services under traditional Medicare FFS. If a non-contracted provider knows (or has reason to know) that the beneficiary is enrolled in a PFFS plan and the provider renders the service, the provider is "deemed" to participate in the PFFS plan's network and required to accept the plan's payment rate.

Effective with the 2011 benefit year, individual market PFFS plans that operate in a geographic area with two or more "network plans" (defined as MA coordinated care plans, network-based medical savings account (MSA) plans and reasonable cost reimbursement plans) must meet MA Program network access standards through written contractual arrangements. All employer-sponsored PFFS plans also would be required to meet access standards through written contracts with providers, beginning with the 2011 benefit year. Providers still may be "deemed" to participate in a (individual or group) PFFS plan network, although not for purposes of meeting network access standards.

  • PFFS Plan Payment Rates: Pursuant to MIPPA, MA Organizations sponsoring PFFS plans must establish payment rates for covered items and services provided by network (including deemed) providers. Such payment rates may vary based on specialty, geographic location or other factors so long as the variation is unrelated to utilization. Provider payment rates may increase, however, based on greater utilization of specified preventive or screening services.
  • Quality Improvement Program: Also pursuant to MIPPA, CMS eliminated the exception to quality improvement (QI) programs that existed for PFFS and MSA plans. For 2010, PFFS and MSA Plans may meet these requirements using administrative claims data only, but must comply with all QI requirements effective with the 2011 benefit year.

Regulatory Changes for Special Needs Plans (SNPs)

In addition to complying with the general requirements applicable to all MA plans, SNPs must comply with several new SNP-specific requirements in the wake of CMS's interim final rule. First, an SNP must implement an evidence-based model of care that includes a sufficient number of providers and specialists to meet the needs of the SNP's enrollees. Additionally, each enrollee must receive an initial comprehensive health risk assessment of his or her physical, psychosocial and functional needs, as well as an annual follow-up reassessment. Comprehensive individual plans of care must be provided through an interdisciplinary team.

SNPs serving dual eligible populations must enter into a formal written agreement with the applicable state Medicaid agency that includes provisions pertaining to (i) the MA Organization's responsibility to provide or arrange for Medicaid benefits; (ii) the categories of dual eligibles eligible to enroll in the SNP; (iii) the cost-sharing protections covered under the SNP; and (iv) the identification and sharing of information relating to Medicaid benefits and eligibility, among others. New dual eligible SNPs must have contracts reflecting these provisions; MA Organizations sponsoring existing SNPs must have such a contract in place by January 1, 2010, in order to expand their service area. States, however, are not similarly bound to contract with SNPs serving dual eligibles, which empowers states with a tremendous bargaining position. CMS also has not indicated whether it will monitor MA Organizations' ability to enter into (reasonable) contracts with states, which could affect the expansion, if not fundamental operation, of SNPs serving dual eligibles.

All SNPs must implement a QI program by January 1, 2010, that includes collection, analysis and reporting of data on a specific set of parameters that measures health outcomes and other indices of quality for the special needs population.

Mandatory Updates to Prescription Drug Pricing

In a significant step, MIPPA, and thus the interim final rule, require Part D Plan Sponsors to update their prescription drug pricing for network pharmacies on a regular basis if the pricing is based on a standard tied to the drug's cost (e.g., average wholesale price). Specifically, as of January 1, 2009, Part D Plan Sponsors must update their prices on January 1 of each year, and not less frequently than every seven days thereafter.

The regulation further explains that Part D Plan Sponsors must address this requirement in their pharmacy contracts, including specifying the source that will be used to make such updates. To ensure compliance, CMS will incorporate this mandatory requirement into its review of pharmacy contract templates beginning in 2010.

Part D Pharmacy Requirements

MIPPA imposed a prompt-pay standard on Part D Plan Sponsors, effective with the 2010 benefit year. Thus, contracts between Part D Plan Sponsors and CMS must include a provision that requires Part D Plan Sponsors to make payment on all electronically submitted "clean claims" within 14 days (30 days for clean claims submitted through other mediums). CMS, via the interim final rule, also is requiring that Part D Plan Sponsors include in pharmacy contracts a provision requiring prompt payment that meets this standard. This Part D Program requirement does not apply to claims from mail-order or long-term care (LTC) pharmacies.

The interim final rule, consistent with MIPPA, does require that Part D Plan Sponsors provide pharmacies "located in or having a contract with a long-term care facility" with at least 30 days, but no more than 90 days, to submit claims. Effective with the 2010 benefit year, language to this effect must be included in Part D Plan Sponsors' LTC pharmacy contracts.

Examples of Other Program Changes

  • IME Payment Phase-Out: Consistent with MIPPA, the Indirect Medical Education (IME) component within MA plan payments will be reduced annually, beginning with the 2010 benefit year, until phased out entirely.
  • Part D Late Enrollment Penalty: Since the inception of the Part D Program in 2006, CMS has conducted a Medicare payment demonstration that permits low income subsidy-eligible individuals to enroll in a Part D Plan at any time without incurring late enrollment penalties. This demonstration was set to expire at the end of 2008, but MIPPA (and thus CMS, via the interim final rule) permanently eliminated the late payment penalty for low income subsidy-eligible beneficiaries, effective with the 2009 benefit year.
  • Part D Claims Data: The interim final rule implements MIPPA's provision regarding use of Part D Prescription Drug Event Data (PDE Data) to incentivize provider use of electronic prescribing and to remove restrictions in § 423.322 limiting use of PDE Data by employees, officers and contractors of HHS, so that such data may be used for research on utilization, safety, effectiveness, quality and efficiency of health care services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.