Making good on its promises to enhance oversight of Medicare Advantage (MA) and Medicare Part D plans, the Centers for Medicare and Medicaid Services (CMS) has submitted for public inspection its Contract Year 2025 Final Rule. The final rule, published in the Federal Register on April 23 and taking effect on June 3, 2024, codifies existing MA and Part D sub-regulatory guidance, adds a number of new policies for Contract Year 2025 and implements provisions of the Bipartisan Budget Act of 2018 (BBA) and the Consolidated Appropriations Act, 2023 (CAA 2023).

The rule contains many substantive changes to current MA and Part D requirements. The most impactful sections of the rule include: (1) changes to the Part D formulary, including substitutions of biosimilar biological products; (2) modification of agent and broker compensation requirements for MA plans; (3) codification of consent requirements within the MA regulations for the sharing of personal beneficiary data between third party marketing organizations (TPMOs); (4) standardization of the MA Risk Adjustment Data Validation Appeals Process; (5) changes to the Part D medication therapy management program eligibility criteria; (6) changes to contracting standards and limitations on dual-eligible special needs plans; and (7) changes to the network adequacy standards within MA to add a new facility-specialty type called “Outpatient Behavioral Health”.

Also notable is what CMS does not address in the rule – CMS declined to establish what qualifies as an identification of an overpayment that needs to be returned to avoid False Claims Act violations. That potential standard has been in the works since the Contract Year 2023 rule, but stakeholders have to keep waiting as CMS notes that it may be the subject of a future rulemaking.

We summarize the rule’s key components below:

Formulary Changes for Part D

In the rule, CMS finalizes a change to Medicare Part D formulary rules that was originally made in the proposed Contract Year 2024 rule that was released in December 2022 but was not included in the final 2024 rule that was issued in April 2023. Continuing the effort CMS started last year of codifying its long-standing view that the Medicare program coverage and payment rules apply to managed care organizations implementing MA and Part D plans, the change permits the immediate substitution by such plans of generic equivalent drugs for brand name drugs before providing notice to beneficiaries, a practice that is already permitted under the Part D regulations.

Under the new final rule, Part D plan sponsors also will be permitted to substitute either an interchangeable biological product for its reference product, or a new unbranded biological product for its corresponding name brand biological product. The rule also permits a Part D sponsor to substitute any biosimilar biological product for its reference product given 30 days’ notice to beneficiaries.

Agent/Broker Compensation Restrictions

CMS again expresses concern that MA plan sponsors and third-party entities such as Field Marketing Organizations have found ways to structure payments to agents and brokers to circumvent existing regulatory caps on agent and broker compensation. In response, CMS finalized the following new rules beginning with contract year 2025, with an applicability date of October 1, 2024:  

• Limitation on contract terms: MA plans must ensure that contracts with their agents, brokers, or other TPMOs do not have a “direct or indirect effect of creating an incentive that would reasonably be expected to inhibit an agent or broker’s ability to objectively assess and recommend which plan best fits the health care needs of a beneficiary. CMS notes that it expects to review contracts as a routine part of its monitoring efforts, and may pursue additional data collection as part of its established Part C reporting requirements process in the future.
• Compensation rates: The rule seeks to stop the secondary administrative payment practice by setting a single, increased compensation rate cap for agents and brokers, revising the scope of services that can be compensated, and eliminating the regulations that currently allow for the administrative payments to agents and brokers.

Third Party Marketing Organization Consent Requirements

CMS indicates that, despite its recent efforts to augment oversight of Third Party Marketing Organizations (TPMOs), it has received complaints from beneficiaries that they have received repeated calls, texts and emails from TPMOs trying to sell MA and Part D plans.

According to CMS, this is a result of TPMOs transferring beneficiary information to another TPMO after a beneficiary has consented to contact from one TPMO, so that the second TPMO can contact the beneficiary, as a way to skirt restrictions in the regulations on “cold-calling” beneficiaries. In response, CMS finalized a rule to restrict the transfer of beneficiary information between TPMOs without the express written consent from the beneficiary, including explicit written consent for every transfer to each additional TPMO. This new rule becomes enforceable as of October 1, 2024 to coincide with the beginning of marketing and enrollment activities for the 2025 contract year.

Standardizing the Risk Adjustment Data Validation Appeals Process

Under the Risk Adjustment Data Validation Process (RADV), CMS audits diagnosis data from a selection of MA organizations for specific payment years to ensure that the diagnoses they submitted are supported by their enrollees’ medical records. After the medical record review is complete, CMS then calculates any overpayment amounts and submits an audit report to the MA plan.

To appeal this audit in the past, an MA plan had to appeal both the medical record review findings and the overpayment calculation simultaneously if they intend to challenge both sides of the review. However, that could result in inconsistent appeals results for either side of the equation.

So, under the new rule, CMS requires that an MA plan must first exhaust its full administrative appeal process with regard to the medical record review. Then, with that final appeal decision in hand, the MA plan can challenge the overpayment calculation. Alternatively, the MA plan can challenge only the overpayment calculation. However, CMS has made clear that any MA plan that seeks to first challenge the overpayment calculation and not exhaust its full appeals process with regard to the medical review findings of the audit report will waive its ability to appeal the medical record review findings.

Part D medication therapy management program eligibility

Under Medicare Part D, all plan sponsors must have a medication therapy management (MTM) program through which they identify Part D enrollees who have multiple chronic diseases, are taking multiple Part D drugs and reach a cost threshold established by CMS.

Under this rule, CMS codifies a list of 10 chronic diseases that were previously set forth in sub-regulatory guidance as targeted diseases for the purposes of determining eligibility for the MTM program. Part D plan sponsors are permitted to include additional chronic diseases in their criteria as long as they also include this base group. The final rule maintains the maximum number of drugs that a Plan D sponsor may require (eight) for targeting an enrollee and requires sponsors to include at least all Part D maintenance drugs within their targeting criteria.

Dual Eligible Special Needs Plans

The final rule makes changes to the regulations governing dually eligible individuals including expanded access to integrated materials, a unified appeals process across Medicare and Medicaid, and continued Medicare services during an appeal.

The rule also finalizes a limitation on out-of-network cost sharing for Dual Eligible Special Needs Plan (D-SNP) preferred provider organizations, and seeks to further restrict the existence of D-SNP lookalike plans (i.e., those plans are MA plans that do not meet the requirements for a SNP but that have dual eligible enrollees account for 80% or more of total enrollment). In the final rule, CMS reduces that threshold to 70% for contract year 2025 and 60% for 2026 and subsequent years. According to CMS, this threshold reduction will result in fewer of these plans being offered, which will then mean that more dual eligible enrollees will actually find their way into qualified D-SNPs.

Outpatient Behavioral Health Facility Type

The final rule also builds on CMS and HHS efforts to broaden access to mental health and substance use treatment, adding a new facility-specialty type of “Outpatient Behavioral Health” to the existing network adequacy standards. This new facility type can include Marriage and Family Therapists, Mental Health Counselors, Opioid Treatment Program providers, Community Mental Health Centers and other providers who furnish addiction medicine and behavioral health counseling or therapy services.

To ensure such providers can provide adequate network coverage, MA organizations must independently verify that the provider has furnished or will furnish such services to 20 patients within a recent 12-month period using reliable information about services furnished by the provider such as the MA organization’s claims data, prescription drug claims data, electronic health records, or similar data.

Last Thoughts

The final rule reflects yet another effort by CMS to enhance its oversight of managed care delivery to federal program beneficiaries and, no doubt, more is coming.

Reed Smith will continue to monitor this rule and future efforts by CMS to regulate MA plans and Part D plans. If you have any questions about these provisions or regulations governing MA and Part D plans, please do not hesitate to reach out to the health care lawyers at Reed Smith.