[Federal Register: November 14, 2008 (Volume 73, Number 221)]
[Rules and Regulations]               
[Page 67406-67414]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14no08-20]                         

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4138-IFC2]
RIN 0938-AP52

 
Medicare Program; Revisions to the Medicare Advantage and 
Prescription Drug Benefit Programs: Clarification of Compensation Plans

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period (IFC) revises the 
regulations governing the Medicare Advantage (MA) program (Part C), and 
prescription drug benefit program (Part D). This IFC sets forth new 
requirements governing the marketing of Part C and Part D plans which 
by statute must be in place at a date specified by the Secretary, but 
no later than November 15, 2008. The new marketing requirements, which 
set forth new limits on the compensation that can be paid to agents or 
brokers with respect to Part C and Part D plans, are based on authority 
under provisions in the Medicare Improvements for Patients and 
Providers Act (MIPPA) that became law on July 15, 2008.

DATES: Effective date: These regulations are effective on November 10, 
2008.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on December 15, 2008.

ADDRESSES: In commenting, please refer to file code CMS-4138-IFC2. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed)
    1. Electronically. You may submit electronic comments on specific 
issues in this regulation to http://www.regulations.gov. Follow the 
instructions for ``Comment or Submission'' and enter the filecode to 
find the document accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-4138-IFC2, P.O. Box 8016, Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address only: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-4138-IFC2, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201;
    (Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Camille Brown, 410-786-0274, or 
Chevell Thomas, 410-786-1387.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the

[[Page 67407]]

comment period on the following Web site as soon as possible after they 
have been received: http://regulations.gov. Follow the search 
instructions on that Web site to view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

A. Overview of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003

    The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) (Pub. L. 108-173) was enacted on December 8, 2003. The 
MMA established the Medicare prescription drug benefit program (Part D) 
and made revisions to the provisions in Medicare Part C, governing what 
is now called the Medicare Advantage (MA) program (formerly 
Medicare+Choice). The MMA directed that important aspects of the new 
Medicare prescription drug benefit program under Part D be similar to, 
and coordinated with, regulations for the MA program.
    The MMA also directed implementation of the prescription drug 
benefit and revised MA program provisions by January 1, 2006. The final 
rules for the MA and Part D prescription drug programs appeared in the 
Federal Register on January 28, 2005 (70 FR 4588 and 70 FR 4194, 
respectively). Many of the provisions relating to applications, 
marketing, contracts, and the new bidding process, for the MA program, 
became effective on March 22, 2005, 60 days after publication of the 
rule, so that the requirements for both programs could be implemented 
by January 1, 2006. All of the provisions regarding the new Part D 
prescription drug program became effective on March 22, 2005.
    As we gained more experience with the MA program and the 
prescription drug benefit program, we proposed to revise areas of both 
programs and issued a proposed rule on May 16, 2008 (73 FR 28556) that 
would have clarified existing policies or codified current guidance for 
both programs. Several of these proposed regulatory revisions were 
overtaken by statutory provisions enacted in the Medicare Improvements 
for Patients and Providers Act (MIPPA) (Pub. L. 110-275), enacted on 
July 15, 2008. These MIPPA provisions directly address in statute 
several issues we proposed to address through rulemaking, and thus 
superseded our rulemaking in these areas.

B. Relevant Legislative History and Overview

    The Balanced Budget Act of 1997 (BBA) (Pub. L. 105-33) established 
a new ``Part C'' in the Medicare statute (sections 1851 through 1859 of 
the Social Security Act (the Act)) which provided for a Medicare+Choice 
(M+C) program. Under section 1851(a)(1) of the Act, every individual 
entitled to Medicare Part A and enrolled under Medicare Part B, except 
for most individuals with end-stage renal disease (ESRD), could elect 
to receive benefits either through the original Medicare program or an 
M+C plan, if one was offered where he or she lived.
    The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 
1999 (BBRA), Public Law 106-111, amended the M+C provisions of the BBA. 
Further amendments were made to the M+C program by the Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 
(BIPA) (Pub. L. 106-554), enacted December 21, 2000.
    As noted above, the MMA was enacted on December 8, 2003. Title I of 
the MMA added a new ``Part D'' to the Medicare statute (sections 1860D-
1 through 1860D-42) creating the Medicare Prescription Drug Benefit 
Program, the most significant change to the Medicare program since its 
inception in 1965.
    Sections 201 through 241 of title II of the MMA made significant 
changes to the Part C program. Title II of the MMA renamed the M+C 
program the MA program and included new payment and bidding provisions, 
new regional MA plans and special needs plans, reestablished authority 
for medical savings account (MSA) plans that had been provided in the 
BBA on a temporary basis, and made other changes. Title I of the MMA 
created prescription drug benefits under Medicare Part D, and a new 
retiree drug subsidy program.
    Both the MA and prescription drug benefit regulations were 
published separately, as proposed and final rules, though their 
development and publication were closely coordinated. On August 3, 
2004, we published in the Federal Register proposed rules for the MA 
program (69 FR 46866) and the prescription drug benefit program (69 FR 
46632). In response to public comments on the proposed rules, we made 
several revisions to the proposed policies for both programs. For 
further discussion of these revisions, see the respective final rules 
(70 FR 4588) and (70 FR 4194).
    As noted above, on July 15, 2008, the Medicare Improvements for 
Patients and Providers Act became law, making several significant new 
revisions to the MA and Part D prescription drug benefit programs.
    On September 18, 2008, we published an interim final rule with 
comment period, Revisions to the Medicare Advantage and Prescription 
Drug Benefit Programs (73 FR 54226), that revised the regulations 
governing the MA program, prescription drug benefit program, and 
section 1876 cost plans to reflect new statutory requirements enacted 
in MIPPA. This included new requirements governing the marketing of 
Part C and Part D plans. Specifically, among other things, the 
September 18, 2008 regulations established requirements governing MA 
plan and prescription drug plan (PDP) compensation structures designed 
to ensure that agents and brokers enroll individuals in the MA plan or 
PDP that best meets their health care needs. The provisions regarding 
compensation structures in the September 18, 2008 rule were effective 
upon publication, and public comments are being accepted until November 
17, 2008.

II. Provisions of the Interim Final Rule

    In the section that follows, we discuss the revisions made in this 
interim final rule with comment period to the regulations in 42 CFR 
parts 422 and 423 governing, respectively, the MA and prescription drug 
benefit programs.

Medicare Advantage and Prescription Drug Program Marketing Requirements 
(Subparts V)--Broker and Agent compensation (Sec.  422.2274 and Sec.  
423.2274)

    Section 103(b)(1)(B) of MIPPA charged the Secretary with 
establishing guidelines to ``ensure that the use of compensation 
creates incentives for agents and brokers to enroll individuals in the 
Medicare Advantage plan that is intended to best meet their health care 
needs.'' Section 103(b)(2) of MIPPA applies these same guidelines to 
PDP sponsors.
    On September 18, 2008 we published the new Medicare regulations, 
Medicare Advantage and Prescription Drug Benefit Programs; Final 
Marketing Provisions (73 FR 54208) and Revisions to the Medicare 
Advantage and Prescription Drug Benefit Programs (73 FR 54226), and a 
guidance document to

[[Page 67408]]

assist plans in implementing these new regulations. Among other things, 
these new rules were intended to implement the MIPAA requirement to 
ensure that agents or brokers enroll beneficiaries based on the plan 
that ``best meet[s]their health care needs'' by imposing requirements 
pertaining to agent and broker compensation designed to reduce existing 
financial incentives to enroll a beneficiary in a new plan based on the 
agent or broker's financial interests rather than the beneficiary's 
health care needs. These rules provided that, after a beneficiary is 
enrolled in an MA plan or PDP by an agent or broker, a renewal 
compensation would be paid for five years after the initial 
compensation, and that if any agent or broker enrolls the beneficiary 
in a different plan of a ``like plan type'' during this five-year 
period, renewal compensation would be paid. A ``like plan type'' refers 
to PDP, MA or MA-PD, or cost plan (as defined in 422.2274(a)(3)(i) and 
423.2274(a)(3)(i)). This renewal compensation will apply whether or not 
the new enrollment is in the same or a new (receiving) organization. 
The renewal compensation will be paid by the organization offering the 
plan into which the enrollment occurs, and the amount of the renewal 
compensation will be based on that organization's compensation 
structure. That organization will pay renewal compensation for the 
remainder of the cycle provided that the enrollment remains with that 
organization. Thus, the agent or broker will receive compensation at 
the renewal rate, as described above, whether the enrollee stays in the 
same plan, or moves to a different plan of a like type, regardless of 
whether the move is within the existing organization or to a different 
organization. However, if an enrollee moves to a plan of a different 
plan type (as defined in 422.2274(a)(3)(ii) and 423.2274(a)(3)(ii)) 
within the existing organization, the agent or broker may receive 
compensation at the initial rate. This is designed to ensure that 
recommendations will be based on the best interests of the beneficiary 
as MIPPA required.
    Under the September 18th regulations, compensation in the initial 
year in this six-year cycle could not exceed 200 percent of the amount 
paid for renewal years. We released additional guidance on October 8 
and 17, 2008 to further clarify the marketing requirements contained in 
these new rules. On October 24, 2008, we rescinded the October 8, 2008 
guidance memorandum in light of concerns about how the compensation 
guidance was being interpreted. Based on comments and complaints about 
how the September 18, 2008 regulations were being implemented, we 
became concerned that MA and Part D plans were misinterpreting our 
intent in the compensation structure requirements in Sec.  422.2274(a) 
and Sec.  423.2274(a) by proposing structures under which compensation 
in the initial year in the cycle was less than the renewal years and 
renewal compensation varied from year to year.
    First, in limiting the amount by which the initial year 
compensation can exceed the compensation paid for the five renewal 
years in the six-year cycle, the regulations clearly contemplated that 
the initial year compensation would be higher than the renewal 
compensation level. The very purpose of the regulatory scheme, ensuring 
that an entity does not get the benefit of a initial year level of 
compensation for moving a member to another plan after the first year, 
is clearly premised on this assumption.
    In addition, we believed that the words of the regulation text made 
clear that, once a plan chooses an appropriate renewal amount, this 
fixed renewal amount would be paid for all five renewal years of the 
six-year cycle in question. Sections 422.2274(a)(1) and 423.2274(a)(1) 
refer to the ``first year compensation'' amount being ``no more than 
200 percent of the compensation paid for selling or servicing the 
enrollee in each individual subsequent renewal year * * *.'' (Emphasis 
added). Thus, we believed that the current regulations made clear that 
the renewal ``compensation paid'' for a renewal year, whatever that 
amount is, be paid for ``each'' of the five ``individual'' renewal 
years of the six-year cycle.
    Because, as noted, we have received reports of compensation 
structures that are inconsistent with the intent of the September 18 
interim final rule with comment period, we are revising the regulations 
to expressly specify in Sec. Sec.  422.2274(a)(1) and 423.2274(a)(1) 
that the aggregate (commissions, bonuses, etc.) of the compensation 
amount paid for selling or servicing an enrollee during each of the 5 
individual renewal years of a six-year cycle must be fair-market value 
for the work performed and no more, and no less, than 50 percent of the 
aggregate (commissions, bonuses, etc.) of the compensation amount paid 
for that beneficiary in the initial year of the six-year cycle. These 
new regulations are necessary to achieve the original intent of the 
September 18, 2008 regulations. We recognize this is a significant 
change in approach to a compensation structure from September 18, 2008, 
interim final rule with comment period, where the first year in the 
six-year cycle could not exceed 200 percent of the amount paid for 
renewal years, which was modeled after the National Association of 
Insurance Commissioner's compensation requirements for Medicare 
supplemental policies. We are making this change, however, to modify 
the difference between initial year compensation rates and renewal 
rates to better ensure that agents and brokers enroll beneficiaries in 
a plan that is intended to best meet the beneficiaries' health care 
needs.
    We do not currently have the administrative capability to 
communicate to plans as part of our enrollment acceptance process 
whether an individual enrolling in a plan in 2009 is a new enrollee to 
Part C or Part D, or an individual who, under the compensation 
structure provided for in this interim final rule, is subject to the 
renewal compensation level rather than the initial compensation level. 
Thus, we are in this interim final rule, for 2009 only, initially 
deeming all individuals enrolling in a plan to be in the first year of 
the five renewal years in the six-year cycle provided for under these 
regulations.
    This means that for enrollments with effective dates in 2009, the 
MA or PDP plan initially pays the renewal compensation amount to the 
broker or agent enrolling an individual. Several times in 2009, we will 
run a report identifying those beneficiaries enrolled in an MA plan or 
PDP who were newly entitled or enrolled from original Medicare. We will 
sort the report by plan and send each organization the list of 
enrollees in a plan offered by that organization, for which, if an 
agent or broker wrote the policy, that agent or broker would be 
entitled to an initial compensation amount. Organizations can use the 
report to identify the agents or brokers who are entitled to an initial 
compensation amount.
    Under this interim final rule, organizations will be required to 
adjust the compensation from renewal compensation in these cases only 
to the amount that would have been paid in compensation for an initial 
enrollment under the six year cycle in question. For the remainder of 
2009, this interim final rule requires that organizations pay agents 
and brokers an initial compensation when a beneficiary enrolls in an MA 
plan during the beneficiary's Initial Coverage Election Period (ICEP) 
or in a PDP during the Initial Enrollment Period (IEP). This approach 
enables organizations to compensate agents and brokers for the

[[Page 67409]]

additional work involved in explaining all of the attributes of an MA 
plan (and the Part C program generally) or a PDP (and the Part D 
program generally) to a beneficiary who has had no prior experience 
with Part C or Part D, while at the same time reducing the financial 
incentive for moving a beneficiary who is in a renewal cycle (and is 
thus already familiar with these types of products) to a new plan that 
may be contrary to his or her health care needs.
    In addition to the above changes to the September 18, 2008 
regulations, we are also in this interim final rule addressing the 
amount paid in agent and broker compensation for 2009 and beyond. We 
have received information that some organizations are proposing to 
offer extremely generous compensation in 2009 far in excess of amounts 
paid for the previous three years by the organization in question, or 
substantially in excess of the amounts paid generally in the area for 
the plan type involved. We are concerned about the financial incentive 
to enroll beneficiaries in a new plan that is created by the potential 
for an agent or broker to receive such a substantial increase in 
compensation relative to the amount he or she would be paid for a 
renewal in the beneficiary's current plan. We also believe that these 
excessive compensation structures are detrimental to sustaining an 
enrollee's long term relationship with the plan in which he or she is 
enrolled.
    In order to protect against the incentive that such a substantially 
higher compensation level may create to enroll beneficiaries in a 
different plan even when doing so might not be in their best interest, 
and to ensure that beneficiaries' long term relationships with their 
plans are preserved for as long as they are in the beneficiary's 
interest, we are also in this interim final rule establishing a 
requirement that compensation levels under the new regulatory scheme 
must satisfy one of two regulatory standards. For an organization that 
offered plans in 2006, and used agents and brokers to sell its Medicare 
products, the MA organization or PDP sponsor offering the plan can 
comply with our new rules if the ``initial year'' compensation under 
the six-year cycle provided for under this rule is the same, adjusted 
for inflation, that was paid for the same plan type in the same area by 
the MA or PDP organization, as applicable, in 2006, and the MA or PDP 
organization certifies to that effect. The inflation adjustment will be 
based on the average change in MA plan growth rates for MA 
organizations and Part D growth rates for Part D organizations, as 
published in the MA and Part D rate announcements published on the 
first Monday in April. Because 2009 is initially deemed to be the first 
renewal year in the six-year cycle, this means that the organization 
will initially pay 50 percent of the inflation adjusted amount of the 
initial enrollment compensation it paid in 2006 for the plan type in 
question. Unless the 2009 compensation amount is adjusted to be changed 
to an initial enrollment compensation amount as discussed above, this 
renewal amount will also be paid by the current organization for the 
remainder of the renewal years in the six-year cycle (for example, 2010 
through 2013), assuming that the enrollee remained enrolled in the 
current organization in the same plan type. If an agent or broker moves 
the enrollee to a like-plan type in a different organization, the new 
organization will pay renewal compensation for the remainder of the 
cycle at the new (receiving) organization's renewal compensation 
amount.
    Organizations that offered plans in an area in 2006 will also have 
another option, which will be the only option for organizations that 
did not offer a plan of the type in question in the area involved in 
2006 or did offer a plan of the type in question in 2006, but did not 
use agents and brokers to sell that product. Under this alternate test, 
renewal compensation initially paid in 2009 must be 50 percent of an 
initial rate that was determined, based on market analysis to be 
commensurate with the ``market'' rates paid by all organizations in the 
geographic area for an initial enrollment in the plan type in question 
during 2006 and 2007, also adjusted for inflation based on changes in 
MA and Part D growth rates. Essentially, any rates in excess of what 
was paid by organizations in the area must be justified. We will 
reserve the right to determine, based on data we receive from MA and 
Part D contractors, whether the compensation amount proposed meets this 
test. See the chart below for a reference regarding the required six-
year compensation cycle. We note that for purposes of both of the 
foregoing tests, the ``area'' in which the plan is offered corresponds 
to the area the organization uses to determine any geographic 
adjustments to the amount of compensation paid. If the organization 
pays the same amount in each county, or MSA, or Statewide, that would 
be the area in question.
    For 2010 and subsequent years, the compensation amount paid to an 
agent or broker for an initial enrollment of a Medicare beneficiary 
into an MA or PDP plan is the prior year's compensation adjusted by the 
change in MA rates for MA plans as published in the MA rate 
announcement and the change in the Part D rates for PDP plans as 
published in the Part D rate announcement. CMS releases annually the 
rate announcements for MA and Part D to publish on the first Monday in 
April.
    We have removed and reserved Sec.  422.2274(a)(2) and Sec.  
423.2274(a)(2) as it is redundant to Sec.  422.2274(a)(1)(iii) and 
Sec.  423.2274(a)(1)(iii) in this rule.
    We invite comment on the extent to which the compensation 
structure, or some alternative compensation structure, will promote 
long-term relationships (that are based on the beneficiaries' 
interests) between beneficiaries and the plans in which they are 
enrolled. We are particularly interested in comments on whether this 
goal would be served (1) by providing for higher levels of compensation 
for an initial enrollment in Part C or Part D (given the added costs of 
explaining how the programs work) than for a change in enrollment from 
one Part C plan or Part D plan to another, (2) by establishing a flat 
fee schedule, or (3) by providing for lower payments in early years and 
higher payments in the renewal years, or in later renewal years, to 
incentivize agents or brokers to keep enrollees in the same plan rather 
than giving them an incentive to move enrollees.
    We note that, to the extent that the high levels of agent or broker 
compensation that have been reported are already in place for 2008, and 
were not included in bids for 2008, we intend to ensure in our review 
of bids for 2010 that these additional uncovered costs are not included 
in 2010 bid amounts. Similarly, if the compensation paid for 2009, even 
under this new interim final rule, exceeds the amount assumed in the 
bids submitted this spring for 2009, we will similarly ensure in our 
bid review that these 2009 costs are not built into bids for 2010.
    These new requirements will apply to the compensation paid to the 
agent or broker who actually enrolls the beneficiary, whether that 
agent or broker is paid directly by the MA organization or PDP sponsor, 
or by an intermediate entity, such as a ``Field Marketing 
Organization'' (FMO) or similar type entity that has been retained to 
sell a plan's Medicare products on its behalf.
    We are also concerned about amounts paid to FMOs or other similar 
type entities for their services that do not necessarily flow down to 
the agent or broker who deals with the beneficiary. Examples of such 
services are training, material development, customer service, direct 
mail, and agent recruitment.

[[Page 67410]]

Specifically, we are concerned that these FMOs or other similar 
entities could engage in a ``bidding war'' with respect to payments 
they retain, agree to contract to recruit agents, or perform other 
services only for MA and PDP organizations that are the ``highest 
bidders'' for their services. Thus, in this interim final rule, in 
addition to limiting the compensation that is ultimately paid to agents 
or brokers as set forth above, we are requiring that, for organizations 
that contract with FMOs or pay other similar type entities, any amount 
paid to such a third party must be fair-market value and may not exceed 
an amount that is commensurate with the amount that organization paid 
to a third party for similar services in each of the prior two years.
    Finally, we have learned that some organizations did not post their 
compensation structures by October 15, 2008, but instead posted them 
after they had the opportunity to review competitors' compensation 
structure postings. In fact, it appears that some organizations have 
yet to post their compensation levels. In light of the new requirements 
set forth in this interim final rule with comment period, MA and PDP 
organizations must submit compensation structures paid for the 3 
previous years, and the compensation structures for the upcoming plan 
year in accordance with our instructions. This information must be 
submitted to the following mailbox: MA_
PDPSalesCompensation@cms.hhs.gov (there is an underscore between ``MA--
PDP'') no later than the date we specify. For MA and PDP organizations 
that did not sell products through agents and brokers in any of these 
years, they would not be required to provide information for those 
years. Nevertheless, all MA and PDP organizations must respond to the 
data requests in accordance with our instructions. In addition, if the 
MA and PDP organization contracts with an FMO or other third party, the 
compensation structure paid to each third party in each of the past 
three years, and the compensation structure for 2009, should be 
reported.
    We will consider an organization that does not submit compensation 
structure information for the appropriate years to us by the date 
indicated to be out of compliance with our marketing requirements and 
the organization will face potential sanctions and/or other penalties. 
An organization's submission must include a signed certification from 
its CEO or CFO (or other authorized senior official). MA and PDP 
organizations must distribute their rates by November 15, 2008 to 
agents, brokers, and other third parties under contract to sell 
Medicare Advantage and Part D plans. Once plans distribute their 2009 
compensation rates and submit that information to CMS, they cannot 
change the rate without prior CMS approval.
    Based on public comments and discussions with the industry, we 
realize that while our current compensation regulations are relevant to 
the way independent agents and brokers are compensated, the 
relationship and compensation arrangements between MA and Part D 
organizations and employed agents is very different. As a result, the 
new compensation requirements in this interim final rule will not apply 
to employed agents. CMS considers agents employed if the employed agent 
sells exclusively for one organization and receives a set salary in 
addition to any compensation tied to volume of sales. We are interested 
in receiving public comments on what, if any, compensation requirements 
should apply to employed agents.
    In accordance with the above new requirements, we will investigate 
outliers whose current compensation is not reasonable in light of the 
compensation paid during the previous three years and compensation paid 
in that geographic area by similar plan types to ensure that 
organizations are in compliance with our requirements and take 
enforcement action as appropriate, including requiring organizations to 
be prepared to adjust the compensation rates submitted to CMS, or to 
take other steps to ensure that beneficiaries' interests are not harmed 
by the excessive compensation paid. In addition, as noted in the 
preamble to the September 18, 2008 interim final rule (73 FR 54239), 
all parties should be mindful that their compensation arrangements 
including arrangements with FMOs and other similar type entities must 
comply with the fraud and abuse laws, including the anti-kickback 
statute.

                                                          Required Six-Year Compensation Cycle
--------------------------------------------------------------------------------------------------------------------------------------------------------
       Year 1--``Initial year           Year 2--``Renewal       Year 3--``Renewal      Year 4--``Renewal      Year 5--``Renewal      Year 6--``Renewal
           compensation''             compensation'' (2009)      compensation ''        compensation ''        compensation ''        compensation ''
--------------------------------------------------------------------------------------------------------------------------------------------------------
While not initially applicable for   This amount must be no  Same amount as year 2.  Same amount as year 2  Same amount as year 2  Same amount as year
 2009, the first year compensation    more and no less than                                                                         2.
 assumed as part of the six-year      half the assumed
 cycle will either be the amount      initial amount under
 paid by the MA organization or PDP   the six-year cycle.
 sponsor for the plan type in
 question in the area for 2006, or
 an amount commensurate with the
 market rate in the area for the
 plan type in 2006 and 2007,
 adjusted for inflation. This rate
 will apply in 2009 if an
 adjustment is required in the case
 of a beneficiary new to Part C or
 Part D.
--------------------------------------------------------------------------------------------------------------------------------------------------------

III. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

IV. Waiver of Proposed Rulemaking, Full 60-Day Comment Period, and 
Delay in Effective Date

A. Waiver of Proposed Rulemaking and Full 60-Day Comment Period

    We ordinarily publish a notice of proposed rulemaking in the 
Federal

[[Page 67411]]

Register and allow a 60-day public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and 
substances of the proposed rule or a description of the subjects and 
issues involved. This procedure can be waived, however, if an agency 
finds good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. In 
addition, under section 1871(b)(1)(B) of the Act, prior notice and 
comment are not required when ``a statute establishes a specific 
deadline for the implementation of a provision and the deadline is less 
than 150 days after the date of the enactment'' of the statute in which 
the deadline is contained. The MIPPA was enacted on July 15, 2008. The 
deadline for issuing the compensation rules included in this interim 
final rule with comment period are required by MIPPA to be in effect on 
a date specified by the Secretary, but no later than November 15, 2008, 
which is less than 150 days after enactment of MIPPA. For this reason, 
we find good cause to waive the proposed rulemaking requirement and to 
shorten the customary 60-day comment period to 30 days.

B. Waiver of Delay of Effective Date

    In addition, since the provision discussed above which is required 
by statute to be in effect by a date specified by the Secretary, but in 
no case later than November 15, 2008, we find good cause to waive the 
30-day delay in effective date that would otherwise apply under section 
1871(e)(1)(B)(i) of the Act and section 553(d) of the Administrative 
Procedure Act (APA).
    Section 553(d) of the APA and section 1871(e)(1)(B)(i) of the Act 
ordinarily require that a regulation be effective no earlier than 30 
days after publication. Under section 553(d)(3) this requirement can be 
waived for good cause, and under section 1871(e)(1)(B)(ii) this 
requirement can be waived if necessary to comply with statutory 
requirements, or if a delay is contrary to the public interest.
    As noted above, Congress enacted MIPPA on July 15, 2008 and 
directed that many of the marketing provisions including the provision 
related to agent/broker compensation in this rule be effective on a 
date specified by the Secretary, but in no event later than November 
15, 2008, so that they could be implemented in time for this fall's 
marketing for the 2009 plan year. As a result, we find good cause to 
waive the APA delay of effective date, and find that a delay under 
section 1871 is contrary to the public interest.
    In addition, 5 U.S.C. section 801 generally requires that agencies 
submit major rules to the Congress 60 days before the rules are 
scheduled to become effective. This delay does not apply, however, when 
there has been a finding of good cause for waiver of prior notice and 
comment as set forth above.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs).

A. ICRs Regarding Broker and Agent Compensation and Training of Sales 
Agents (Sec.  422.2274)

    Section 422.2274(d) states that upon CMS' request, the organization 
must provide to CMS the information necessary for it to conduct 
oversight of marketing activities. Specifically, we are requiring all 
Medicare Advantage plans to post revised compensation structures to 
brokers or agents that conform precisely to our regulations and 
guidance (for 2009, these rates must be posted by November 15, 2008). 
We are further requiring organizations to submit their compensation 
structures for the previous years plus the current year to CMS (for 
example, 2009 plans must submit 2006 through 2009). In addition to the 
compensation structures, every complete submission must include a 
signed certification from the organization's CEO or CFO (or other 
authorized senior official). The burden associated with this 
requirement is the time and effort put forth by the organization to 
post the compensation structures and to provide the structures and 
certification to CMS.
    We anticipate it would take 1 organization 56 hours to fulfill this 
requirement. We estimate 670 MA organizations would be affected 
annually by this requirement. Therefore, the total annual burden 
associated with this requirement is 37,520 hours.
    In this interim final rule with comment period, we are collecting 
additional information to implement Sec.  422.2274(d). We submitted a 
revision of the currently approved information collection request 
assigned to OMB control number 0938-0753. The information collection 
requirements contained in Sec.  422.2274(d) will be included in the 
revised information collection request.

B. ICRs Regarding Broker and Agent Compensation and Training of Sales 
Agents (Sec.  423.2274)

    Section 423.2274(d) states that the Part D sponsor provide 
information for it to conduct oversight of marketing activities upon 
CMS' request. Specifically, we are requiring all Medicare Prescription 
Drug Plans to post revised compensation structures to brokers or agents 
that conform precisely to our regulations and guidance (for 2009, these 
rates must be posted by November 15, 2008). We are further requiring 
organizations to submit their compensation structures for the 3 
previous years plus the current year to CMS (for example, 2009 plans 
must submit 2006 through 2009). In addition to the compensation 
structures, every complete submission must include a signed 
certification from the organization's CEO or CFO (or other authorized 
senior official). The burden associated with this requirement is the 
time and effort put forth by the organization to post the compensation 
structures and to provide the structures and certification to CMS.
    We anticipate it would take 1 Part D sponsor 49 hours to fulfill 
this requirement. We estimate 87 Part D sponsors would be affected 
annually by this requirement. Therefore, the total annual burden 
associated with this requirement is 4,263 hours.
    The information collection requirements contained in Sec.  423.2274 
were submitted to OMB for approval as part of an emergency revision of 
the currently approved information collection request assigned to OMB 
Control Number 0938-0964.
    As reflected in the table that follows, the aggregate annual burden 
associated

[[Page 67412]]

with the collection of information section for this rule totals 41,783 
hours.

                                        Table 2--Aggregate Annual Burden
----------------------------------------------------------------------------------------------------------------
                                                                                    Burden per     Total annual
                 OMB control No.                   Requirements      Number of       response         burden
                                                                    respondents       (hours)         (hours)
----------------------------------------------------------------------------------------------------------------
0938-0753.......................................     422.2274(d)             670              56          37,520
0938-0964.......................................     423.2274(d)              87              49           4,263
                                                 ---------------------------------------------------------------
    Total.......................................  ..............  ..............  ..............          41,783
----------------------------------------------------------------------------------------------------------------

    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this rule; or
    2. Mail copies to the address specified in the ADDRESSES section of 
this rule and to the Office of Information and Regulatory Affairs, 
Office of Management and Budget, Room 10235, New Executive Office 
Building, Washington, DC 20503, Attn: CMS Desk Officer, CMS-4138-IFC2, 
Fax (202) 395-6974.

VI. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4), Executive Order 13132 on Federalism (August 4, 1999), and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as amended by Executive Order 13258) directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). A regulatory impact analysis (RIA) must be prepared for 
major rules with economically significant effects ($100 million or more 
in any 1 year). As a result of our analysis, this interim final rule 
does not meet the threshold of being economically significant and is 
consequently not a major rule.

B. Regulatory Flexibility Analysis

    The RFA requires agencies to analyze options for regulatory relief 
of small businesses, if a rule has significant impact on a substantial 
number of small entities. Under the RFA, we are not required to conduct 
an initial regulatory flexibility analysis for interim final rules. 
However, it is our longstanding policy to provide an analysis when we 
believe it would aid understanding of the effects of the interim final 
rule. We are providing a summary of the minimal costs associated with 
this interim final rule. Costs for preparing and reporting compensation 
structures to CMS are as follows: MA program $54.98 x 37,520 hours = 
$2,062,849. Costs for the PDP program are $54.98 x 4,263 hours = 
$234,379. The aggregate new burden costs are estimated to be 
$2,297,228.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a final rule that includes any 
Federal mandate that may result in expenditure in any one year by 
State, local, or tribal governments, in the aggregate, or by the 
private sector, of $110 million. That threshold level is currently 
approximately $130 million. We anticipate that this interim final rule 
would not impose costs above the $130 million UMRA threshold on State, 
local, tribal governments, in the aggregate or by the private sector.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a final rule that imposes substantial 
direct requirement costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. The changes and 
additions contained in this interim final rule do not impose new costs 
on states or local governments. Thus, there are no anticipated 
Federalism implications.

C. Conclusion

    Given that we expect the cost of implementing this provision to be 
minimal and under the $100 million threshold; we did not conduct a full 
economic impact analysis with regard to those entities potentially 
impacted by these provisions, as outlined by the regulatory flexibility 
analysis or Section 1102(b) of the Act.
    In accordance with the provisions of Executive Order 12866, this 
final rule was reviewed by the Office of Management and Budget.

List of Subjects

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health 
maintenance organizations (HMO), Medicare, Penalties, Privacy, 
Reporting and recordkeeping requirements.

42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations (HMO), Medicare, 
Penalties, Privacy, Reporting and recordkeeping.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 422--MEDICARE ADVANTAGE PROGRAM

0
1. The authority citation for part 422 continues to read as follows:

    Authority: Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart V--Medicare Advantage Marketing Requirements

0
2. Section 422.2274 is amended by--
0
A. Revising the introductory paragraph.
0
B. Revising paragraph (a)(1).
0
C. Removing and reserving paragraph (a)(2).
    The revisions read as follows:


Sec.  422.2274  Broker and agent requirements.

    For purposes of this section ``compensation'' includes pecuniary or 
non-pecuniary remuneration of any kind relating to the sale or renewal 
of a policy including, but not limited to, commissions, bonuses, gifts, 
prizes,

[[Page 67413]]

awards and finders fees. ``Compensation'' does not include the payment 
of fees to comply with State appointment laws, training, certification, 
and testing costs; reimbursement for mileage to, and from, appointments 
with beneficiaries; or reimbursement for actual costs associated with 
beneficiary sales appointments such as venue rent, snacks, and 
materials. If a Medicare Advantage organization markets through 
independent (i.e., non-employee) brokers or agents, the following 
requirements must be met:
    (a) * * *
    (1) An MA organization (or other entity on its behalf) may provide 
compensation to a broker or agent for the sale of an MA product if the 
following requirements are met:
    (i) The compensation amount paid to the broker or agent for an 
initial enrollment of a Medicare beneficiary into an MA plan in 2009 is 
one of the following:
    (A) The compensation paid by the MA organization in the geographic 
area for initial enrollment for the plan type in question in 2006, 
adjusted by the average change in MA rates as published by CMS in the 
MA rate announcement; or
    (B) A compensation amount commensurate with the market rate for 
initial enrollments paid by (or on behalf of) MA organizations offering 
plans in the geographic area for the plan type in question during 2006 
and 2007, adjusted by the average change in MA rates as published by 
CMS in the MA rate announcement.
    (ii) For 2010 and subsequent years, the compensation amount paid to 
an agent or broker for enrollment of a Medicare beneficiary into an MA 
plan is:
    (A) For an initial enrollment, the prior year's initial 
compensation adjusted by the change in MA rates that CMS announces each 
year.
    (B) For renewals, an amount equal to 50 percent of the initial 
compensation in (A) above.
    (iii) The broker or agent is paid a renewal compensation for each 
of the next 5 years the enrollee remains in the plan in an amount equal 
to 50 percent of the initial year compensation amount (creating a 6-
year compensation cycle). For purposes of paragraph (a)(1)(i), 
individuals enrolling in an MA plan in 2009 are initially deemed to be 
in the first renewal year (the second year) in the 6-year cycle. With 
respect to an individual identified by the MA organization as in an 
Initial Coverage Election Period (ICEP) or subsequently identified by 
CMS as in an ICEP or new to the MA program, the individual is 
considered to be in the initial year of the 6-year cycle. The MA 
organization must adjust the compensation paid for these new enrollees 
from renewal compensation to the amount that would have been paid for 
an initial enrollment under the 6-year compensation structure initiated 
in the year the enrollment occurred.
    (iv) If the MA organization contracts with a third party entity 
such as a Field Marketing Organization or similar type entity to sell 
its insurance products, or perform services (for example, training, 
customer service, or agent recruitment), the amount paid to the third 
party must be fair-market value and must not exceed an amount that is 
commensurate with the amounts paid by the MA organization to a third 
party for similar services during each of the previous 2 years.
    (2) Reserved
* * * * *

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

0
3. The authority citation for part 423 continues to read as follows:

    Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the 
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, 
and 1395hh).

Subpart V--Part D Marketing Requirements

0
4. Section 423.2274 is amended by--
0
A. Revising the introductory paragraph.
0
B. Revising paragraph (a)(1).
0
C. Removing and reserving (a)(2).
    The revisions read as follows:


Sec.  423.2274  Broker and agent requirements.

    For purposes of this section ``compensation'' includes pecuniary or 
non-pecuniary remuneration of any kind relating to the sale or renewal 
of a policy including, but not limited to, commissions, bonuses, gifts, 
prizes, awards and finders fees. ``Compensation'' does not include the 
payment of fees to comply with State appointment laws, training, 
certification, and testing costs; reimbursement for mileage to, and 
from, appointments with beneficiaries; or reimbursement for actual 
costs associated with beneficiary sales appointments such as venue 
rent, snacks, and materials. If a Part D sponsor markets through 
independent (i.e., non-employee) brokers or agents, the following 
requirements must be met:
    (a) * * *
    (1) A Part D sponsor (or other entity on its behalf) may provide 
compensation to a broker or agent for the sale of a Part D plan only if 
the following requirements are met:
    (i) The compensation amount paid to the broker or agent for an 
initial enrollment of a Medicare beneficiary into a PDP in 2009 is 
either one of the following:
    (A) The compensation paid by the Part D sponsor in the area for an 
initial enrollment for the plan type in question in 2006, adjusted by 
the average change in Part D rates as published by CMS in the Part D 
rate announcement; or
    (B) A compensation amount commensurate with the market rate for 
initial enrollments paid by (or on behalf of) Part D sponsors offering 
plans in the geographic area for the plan type in question during 2006 
and 2007, adjusted by the average change in Part D rates as published 
in the Part D rate announcement by CMS.
    (ii) For 2010 and subsequent years, the compensation amount paid to 
an agent or broker for enrollment of a Medicare beneficiary into PDP 
is:
    (A) For an initial enrollment, the prior year's initial 
compensation adjusted by the change in Part D rates that CMS announces 
each year.
    (B) For renewals, an amount equal to 50 percent of the initial 
compensation in (A) above.
    (iii) The broker or agent is paid a renewal compensation for each 
of the next 5 years the enrollee remains in the plan in an amount equal 
to 50 percent of the initial year compensation paid (creating a 6-year 
compensation cycle). For purposes of paragraph (a)(1)(i), individuals 
enrolling in a PDP in 2009 are initially deemed to be in the first 
renewal year (the second year) in the 6-year cycle. With respect to an 
individual identified by the PDP sponsor as in an Initial Enrollment 
Period (IEP) or subsequently identified by CMS as in an IEP or new to 
the Part D program, the individual is considered to be in the initial 
year of the 6-year cycle. The PDP Sponsor must adjust the compensation 
paid for these new enrollees from renewal compensation to the amount 
that would have been paid for an initial enrollment under the 6-year 
compensation structure initiated in the year the enrollment occurred.
    (iv) If the Part D sponsor contracts with a third party entity such 
as a Field Management Organization or similar type entity to sell its 
insurance products or perform services (for example, training, customer 
service, or agent recruitment), the amount paid to the third party must 
be fair-market value and must not exceed an amount that is commensurate 
with the amounts paid by the PDP organization to a third party

[[Page 67414]]

for similar services during each of the previous 2 years.
    (2) Reserved.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: October 31, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Approved: November 7, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. E8-27041 Filed 11-10-08; 12:55 pm]

BILLING CODE 4120-01-P