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Medicare slams ‘referral fees’

By Carol Gentry
3/24/2009 © Florida Health News

Federal authorities have ordered private Medicare plans to stop paying hundreds of dollars in “referral fees” to sales agents who steer a beneficiary to a company for enrollment. The practice came to light in a Florida Health News article on Feb. 6.

The referral fees – as high as $500 in the case of CarePlus, a Humana subsidiary -- had an odd result: Brokers could earn more for referring a customer to a company for enrollment than they could for doing the enrollment paperwork for the customer themselves.

These “extravagant” fees appear to be an attempt to evade caps on commissions imposed by the Centers for Medicare and Medicaid Services in December, a CMS memo says. It ordered all Medicare health and drug plans to “cease this practice immediately.” 

The memo from Louis Polise, acting director of CMS’ Medicare Drug and Health Plan Contract Administration Group, was dated Feb. 24. However, not all companies complied immediately.

Humana halted its payments last Saturday (March 21), according to an e-mail sent to the sales community on Friday from the company’s headquarters in Louisville. It is not clear why it took that long; a Humana spokesman said he would look into it.

Humana’s e-mail said it was taking the action “pending further clarification from” CMS, and only reluctantly. “We value your partnership and hope to be able to offer a referral fee program sometime in the future,” the e-mail said.

The delay enabled Humana, Florida’s largest Medicare managed-care company, to continue high referral payments for nearly four weeks of the crucial open-enrollment period for Medicare Advantage plans. Sign-up for 2009 ends March 31.

A spokeswoman for Coventry Health Care, which was offering $300 for referrals at the time of the Florida Health News article, could not be reached this morning for comment.

The pay-for-referrals came in response to the new CMS rules that set a cap on sales commissions of $400 for a first-time enrollee in a Medicare Advantage plan (one that replaces both the hospital and doctor part of Medicare, both parts A and B).

An even lower cap, $200 in the year of enrollment, was imposed for signing up a Medicare beneficiary who wanted to switch from one health plan to another. Most enrollments fall into the latter category. The agent who signed up the customer could get an extra $200 each subsequent year that the beneficiary remained in that plan.

The new caps were intended to reduce agents’ incentive to “churn” beneficiaries from one plan to another to rack up extra commissions – a problem exposed in Congressional hearings in past years.

Some agents complained that the new caps offer an incentive to do the opposite – leave Medicare patients in a plan that no longer meets their needs. Plans can change their coverage policies and drug lists from year to year. 

--Contact Carol Gentry by e-mail or at 727-410-3266.