Broker compensation rules tighten

January 1, 2009

Brokers can no longer churn enrollees from plan to plan just to gain extra commission checks

Generally, the guidance attempted to add to the list and clarify the existing "dos and don'ts" around marketing events and calls and encounters with potential enrollees. It requires that all internal and external sales personnel be certified prior to writing a Medicare Advantage (MA), Medicare Advantage Part D prescription drug plan (MA/PD) or stand-alone Part D prescription drug plan (PDP) application. The regulations provide that both CMS and the MAO should conduct audits to identify potential violations.

The identification of violations takes on new meaning because the regulations contain the significant enforcement threat of fines of up to $25,000 per marketing violation and per beneficiary affected by the MA organization's conduct. Such fines were previously assessed per marketing violation per contract.

A particular challenge is the new regulatory scheme for external agent and broker compensation, which has undergone several iterations of clarification in the past couple of months. MIPPA section 103(b)(1)(D) granted CMS the authority to regulate such compensation in order to "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 healthcare needs."

This new law and the subsequent regulation were developed in response to reports of brokers churning patients from plan to plan or even from product to product in order to obtain higher first-year commission amounts. In brief, regulation requires that beginning in 2009, MA organizations establish a six-year compensation cycle for brokers having a first-year initial payment and subsequent renewal year payments that are 50% of the first-year payment for enrollees who are new to Medicare and enrollees who are making an enrollment change to a different Medicare plan type. Brokers who facilitate an enrollment change to the same Medicare plan type are compensated at the renewal rate only.

MA organizations submitted their compensation schedules and are awaiting approval by CMS. The regulation provides that future increases in compensation can be no greater than the established Medicare inflationary rate. Compensation does not vest until the enrollee has remained enrolled with the MA organization for three months. Any payments made to broker by an MA organization must be recouped if a disenrollment occurs.

Ensuring the adequate administration, enforcement and auditing around the new broker compensation schedules likely will prove logistically difficult for some MA organizations and will be a source of ongoing confusion.

Nevertheless, MA organizations, which are accountable for the actions of both plan employees as well as downstream entities like brokers and agents, must implement adequate compliance and monitoring systems given the likelihood of increased enforcement by CMS as well as the potential enforcement by other agencies under false claims and other theories.

This column is written for informational purposes only and should not be construed as legal advice.

John Eriksen is a senior associate at Epstein, Becker and Green, P.C. in its Health Care and Life Sciences practice group and focuses primarily on health regulatory, compliance, managed care and transactional matters.