GAO 

United States Government Accountability Office

Report to the Chairman, Subcommittee 

on Health, Committee on Ways and 

Means, House of Representatives 

MEDICARE 

ADVANTAGE 

CMS Assists 

Beneficiaries Affected 

by Inappropriate 

Marketing but Has 

Limited Data on Scope 

of Issue 

December 2009 

GAO-10-36 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

December 2009

MEDICARE ADVANTAGE

CMS Assists Beneficiaries Affected by Inappropriate 

Marketing but Has Limited Data on Scope of Issue 

Highlights of GAO-10-36, a report to the 

Chairman, Subcommittee on Health, 

Committee on Ways and Means, House of 

Representatives 

Members of Congress and state 

agencies have raised questions 

about complaints that some 

Medicare Advantage (MA) 

organizations and their agents 

inappropriately marketed their 

health plans to Medicare 

beneficiaries. Inappropriate 

marketing may include activities 

such as providing inaccurate 

information about covered benefits 

and conducting prohibited 

marketing practices. 

The Centers for Medicare & 

Medicaid Services (CMS) is 

responsible for oversight of MA 

organizations and their plans. GAO 

was asked to examine (1) the 

extent to which CMS has taken 

compliance and enforcement 

actions, (2) how CMS has helped 

beneficiaries affected by 

inappropriate marketing and the 

problems beneficiaries have 

encountered, and (3) information 

CMS has about the extent of 

inappropriate marketing. To do this 

work, GAO reviewed relevant laws 

and policies; analyzed Medicare 

data on beneficiary complaints, 

compliance actions and 

enforcement actions; and 

interviewed officials from CMS and 

selected state departments of 

insurance, state health insurance 

assistance programs, and MA 

organizations. 

What GAO Recommends

GAO recommends that CMS gather 

more information on the extent of 

inappropriate marketing. CMS 

concurred with GAO’s 

recommendation. 

CMS took compliance and enforcement actions for inappropriate marketing 

against at least 73 organizations that sponsored MA plans from January 2006 

through February 2009. While the number of MA organizations varied during 

that time period, 192 MA organizations offered MA plans as of March 2009. 

Actions taken ranged from initial notices of noncompliance and warning 

letters to more punitive measures, such as civil money penalties and 

suspensions of marketing and enrollment. Nineteen of the 73 MA 

organizations had multiple types of actions taken against them. 

CMS helped beneficiaries who experienced inappropriate marketing by 

providing special election periods (SEP) through which beneficiaries could 

disenroll from their MA plan and enroll in new coverage without waiting for 

the twice yearly regular enrollment periods. However, some beneficiaries 

experienced financial or access-to-care problems as a result of inappropriate 

marketing that could not be addressed by a SEP. Financial hardships 

occurred, for example, when beneficiaries disenrolled from their MA plans 

and the withholding of premiums from Social Security for their former MA 

plan was not stopped promptly. In other cases, beneficiaries did not realize 

they had been enrolled in an MA plan until they tried to access services. Some 

of these beneficiaries experienced disruption of their access to providers and 

medications because their providers did not participate in the MA plan. 

 

CMS has limited information about the number of beneficiaries who 

experienced inappropriate marketing. Some beneficiaries who experienced 

inappropriate marketing may have exercised their option to disenroll from 

their MA plans during regular enrollment periods and might not have notified 

CMS of the marketing problems they encountered. For example, about 

21 percent of beneficiaries disenrolled during the regular enrollment periods 

in 2007 from one type of MA plan that CMS officials acknowledged had a high 

incidence of inappropriate marketing. However, CMS discontinued a survey 

after 2005 that collected information on reasons for disenrollment and could 

have provided important information about the extent to which the 

disenrollments were the result of inappropriate marketing. CMS officials said 

that they plan to reinstitute a survey on disenrollment reasons in late summer 

2010. CMS also has limited information about the number of beneficiaries who 

experienced inappropriate marketing because it did not directly track the 

number of SEP disenrollments. CMS did estimate the number of SEPs it 

provided for inappropriate marketing, but its estimates were based on data 

that were unreliable. 

View GAO-10-36 or key components.

For more information, contact James C. 

Cosgrove at (202) 512-7114 or 

cosgrovej@gao.gov. 
Page i GAO-10-36 

Contents 

Letter 1

Background 7 

CMS Took Compliance and Enforcement Actions against at Least 

73 MA Organizations for Inappropriate Marketing 11 

CMS Helped Beneficiaries Who Experienced Inappropriate 

Marketing to Disenroll from Their MA Plans, but Some Faced 

Adverse Consequences 17 

CMS Has Limited Information on the Number of Beneficiaries 

Affected by Inappropriate Marketing 21 

Conclusions 25 

Recommendation for Executive Action 25 

Agency Comments and Our Evaluation 26 

Appendix I Scope and Methodology 28 

Appendix II Inappropriate Marketing Violations for Which 

CMS Sent Compliance Letters to MA Organizations, 

June 2008 34 

Appendix III CMS Criteria for Taking Compliance and 

Enforcement Actions 36 

Appendix IV Agency Comments 38 

Appendix V GAO Contact and Staff Acknowledgments 41 

Related GAO Products 42 

 Medicare Advantage Oversight 
Tables 

Table 1: CMS Compliance and Enforcement Actions Taken for 

Inappropriate Marketing, January 2006 through February 

2009 12 

Table 2: CMS Enforcement Actions Taken against MA 

Organizations for Inappropriate Marketing, January 2006 

through February 2009 16 

Table 3: Inappropriate Marketing Violations for Which CMS Sent 

Initial Notice of Noncompliance or Warning Letter, June 

2008 through February 2009 35 

Figure 

Figure 1: Average Time Frames of CAPs for Inappropriate 

Marketing, January 2006 through February 2009 14 

Page ii GAO-10-36 Medicare Advantage Oversight
Abbreviations 

BBA Balanced Budget Act of 1997 

CAP corrective action plan 

CMS Centers for Medicare & Medicaid Services 

DOI department of insurance 

FFS fee-for-service 

HHS Department of Health and Human Services 

MA Medicare Advantage 

MIPPA Medicare Improvements for Patients and Providers 

 Act of 2008 

MMA Medicare Prescription Drug Improvement and 

 Modernization Act of 2003 

MOU memorandum of understanding 

NAIC National Association of Insurance Commissioners 

OIG Office of Inspector General 

PFFS private fee-for-service 

SEP special election period 

SHIP state health insurance assistance program 

SOP standard operating procedure 

SSA Social Security Administration 

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Page iii GAO-10-36 Medicare Advantage Oversight
Page 1 GAO-10-36 

 

United States Government Accountability Office

Washington, DC 20548 

 

December 17, 2009 

The Honorable Pete Stark 

Chairman 

Subcommittee on Health 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman: 

Members of Congress and state agencies have raised questions about 

complaints that some Medicare Advantage (MA) organizations and their 

agents inappropriately marketed their health plans to Medicare 

beneficiaries.1,2

 Inappropriate marketing activities may include, for 

example, MA organizations and their agents misrepresenting plan benefits 

and conducting prohibited marketing practices, such as door-to-door 

marketing without appointments and providing potential beneficiaries 

with meals or gifts of more than a nominal value at marketing events to 

induce enrollment. In this report, the term inappropriate marketing also 

includes organizations’ noncompliance with MA marketing requirements 

1

MA is Medicare’s primary managed care program through which beneficiaries can join a 

private plan alternative to the original Medicare program, also known as Medicare fee-forservice (FFS). MA plans provide health insurance coverage for hospital, physician, and 

other services and are offered by private companies referred to as MA organizations. 

Generally, MA plans must offer the same benefits as Medicare FFS, but may offer 

additional benefits, reduced premiums, reduced cost-sharing, or a combination of the three. 

MA organizations may offer several plans with different combinations of benefits, costsharing, and premiums. Enrollment in Medicare’s managed care program has more than 

doubled since the enactment of the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003, Pub. L. No. 108-173, 117 Stat. 2067 (MMA), which established 

the MA program. MMA resulted in increased payments to private Medicare plans, which 

enabled them to enhance their benefit packages. 

2

In this report we use the term “agent” to refer to any person who markets a specific MA 

plan or limited number of MA plans and may receive compensation directly or indirectly 

from an MA organization for marketing activities. This includes independent agents, 

independent brokers, employees of businesses that have contracted with MA organizations 

to provide marketing services, and other similar types of marketing professionals. As of 

July 2008, about 21 percent or 9.7 million Medicare beneficiaries were enrolled in MA plans. 

 Medicare Advantage Oversight 
 

pertaining to proper training, compensation, and licensure of agents and 

registration of marketing events.3

Congress held several hearings on inappropriate marketing during 2007 

and 2008.4

 In some of these hearings, officials of state departments of 

insurance (DOI) and MA beneficiaries and their advocates testified that as 

a result of inappropriate marketing, some beneficiaries were enrolled in 

MA plans in which they had not intended to enroll or that did not address 

their health care needs as well as their prior coverage. In June 2007, in 

response to increasing concerns that MA organizations were not 

adequately overseeing their marketing activities and that this could 

negatively impact beneficiaries, the Centers for Medicare & Medicaid 

Services (CMS), the agency responsible for administering Medicare and 

contracting with MA organizations to provide Medicare-covered services, 

took the unprecedented step of negotiating voluntary suspensions of 

marketing and enrollment activities of seven MA organizations’ private feefor-service (PFFS) plans.5

 CMS officials and others have acknowledged 

that inappropriate marketing has been particularly problematic in PFFS 

plans, in part because the structure of PFFS plans differs from other types 

of MA plans. For example, while other types of MA plans have provider 

networks, most PFFS plans do not. Instead, providers can choose to 

accept or not accept a PFFS beneficiary on a service-by-service basis, 

which may be confusing to beneficiaries. 

 

3

For example, MA organizations may employ as marketing representatives only those 

individuals licensed by the state in which they are marketing plans and who have been 

appointed by the organization consistent with that state’s requirements. 42 C.F.R. 

§ 422.2272. 

4

See House Committee on Ways and Means, Subcommittee on Health, Hearing on 

Medicare Advantage Private-Fee-For-Service Plans, 110th Cong., 1st sess., 2007; Senate 

Special Committee on Aging, Medicare Advantage Marketing and Sales: Who Has the 

Advantage? 110th Cong., 1st sess., 2007; House Committee on Energy and Commerce, 

Subcommittee on Oversight and Investigations, Predatory Sales Practices in Medicare 

Advantage, 110th Cong., 1st sess., 2007; Senate Committee on Finance, Selling to Seniors: 

The Need for Accountability and Oversight of Marketing and Sales by Medicare Private 

Plans (Part 1), 110th Cong., 2nd sess., 2008; Senate Committee on Finance, Selling to 

Seniors: The Need for Accountability and Oversight of Marketing and Sales by Medicare 

Private Plans (Part 2). 110th Cong., 2nd sess., 2008; Senate Special Committee on 

Aging, What Seniors Don’t Know Before They Enroll:—Aggressive Sales of MA Plans in 

Missouri, 110th Cong., 2nd sess., 2008; House Committee on Ways and Means, 

Subcommittee on Health, Hearing on Medicare Advantage, 110th Cong., 2nd sess., 2008. 

5

PFFS plans are designed to offer an MA option that is more like Medicare FFS. Compared 

to other MA plans, PFFS plans generally offer a wider choice of providers and impose less 

plan management of health care services and providers. 

Page 2 GAO-10-36 Medicare Advantage Oversight
 

The federal government and states each have responsibilities regarding the 

conduct of MA organizations and their agents. CMS is responsible for 

enforcing MA organizations’ compliance with MA marketing requirements, 

including the requirements concerning agents acting on behalf of MA 

organizations.6

 Subject to certain exceptions, these requirements 

supersede state laws or regulations, and as a result, states generally do not 

have the authority to regulate MA organizations’ marketing.7

 MA 

marketing requirements generally impose obligations upon MA 

organizations and not directly upon their agents. States retain oversig

authority over the marketing activities of agents. According to state 

officials and the National Association of Insurance Commissio

(NAIC), holding MA organizations accountable for the actions of agents 

marketing their plans is an essential component of effective oversight of 

agents.

ht 

ners 

 discipline agents.9

 

8

 NAIC officials told us that placing responsibility for agent activity 

with MA organizations is important because organizations can implement 

systemic requirements, such as rigorous training programs, and can act 

faster than states to

Marketing requirements for MA organizations are based, in part, on 

provisions in the Balanced Budget Act of 1997 (BBA) and the Medicare 

Improvements for Patients and Providers Act of 2008 (MIPPA). Under the 

BBA, Congress required that private plans offered through Medicare 

conform to fair marketing standards that, among other requirements, 

prohibit organizations from providing monetary inducements to 

6

The Secretary of Health and Human Services (HHS) has delegated oversight of the MA 

program to CMS. 

7

MA organizations are required to be organized and licensed under state law as a riskbearing entity eligible to offer health insurance in each state in which they offer an MA 

plan. MA organizations also must appoint agents who are licensed under state law. States, 

however, have oversight authority over MA organizations with respect to state laws and 

regulations related to licensure, plan solvency, and appointment of agents. 42 U.S.C. 

§§ 1395w-21(h)(4), (h)(7), 1395w-25(a), 1395w-26(b). 

8

NAIC is the association for insurance regulators in the U.S. and its territories. NAIC 

provides support and guidance to its members on federal policy issues related to insurance 

regulation. 

9

State DOIs investigate allegations of inappropriate marketing to compile evidence of agent 

misconduct, which according to officials from one state, can take months. MA 

organizations conduct their own investigations and can discipline agents or terminate them 

with or without cause. 

Page 3 GAO-10-36 Medicare Advantage Oversight
 

beneficiaries for enrollment in a plan.10 In 1998, CMS published 

implementing regulations that elaborated upon the BBA requirements, 

including prohibiting MA organizations from engaging in door-to-door 

solicitations and in activities that could mislead or confuse beneficiaries 

or misrepresent the MA organization.11 CMS also provided guidelines to 

MA organizations on appropriate marketing practices, which organizations 

are required by regulation and under their contracts with CMS to follow.12

The guidelines, among other things, require MA organizations to use statelicensed agents for marketing activities and set restrictions on these 

activities, such as a maximum value for give-away promotional items. 

MIPPA and its implementing regulations codified some of the 

requirements already established under CMS’s marketing guidelines for 

MA organizations.13 MIPPA and its implementing regulations also clarified 

existing marketing-related requirements and created new requirements for 

MA organizations such as limiting agent commissions and requiring MA 

organizations to comply with any request by a state for information related 

to agent performance when the state is investigating the conduct of an 

agent.14

CMS uses compliance and enforcement actions to bring noncompliant MA 

organizations into conformity with MA marketing requirements. 

Compliance actions include requiring MA organizations to develop 

corrective action plans (CAP) that specify actions the organization will 

 

10Pub. L. No. 105-33, § 4001, 111 Stat. 251, 285-6 (1997) (codified, as amended, at 42 U.S.C. 

§ 1395w-21(h)). Under the BBA, Medicare’s private plan option was called 

Medicare+Choice. The program’s name was changed to Medicare Advantage under the 

MMA. Regulations implementing the MMA made many of the requirements implementing 

the Medicare+Choice program, including those related to marketing, applicable to MA 

organizations. See 70 Fed. Reg. 4588 (2005). 

11Medicare Program: Establishment of the Medicare+Choice Program, 63 Fed. Reg. 34,968 

(June 26, 1998). 

12Medicare Marketing Guidelines for: Medicare Advantage Plans, Medicare Advantage 

Prescription Drug Plans, Prescription Drug Plan, 1876 Cost Plans (published Aug. 15, 

2005, revised July 25, 2006). 

13MIPPA, Pub. L. No. 110-275, § 103, 122 Stat. 2494, 2498-2501 (2008) (codified at 42 U.S.C. 

§ 1395w-21(h)); Medicare Program; Revisions to the Medicare Advantage and 

Prescription Drug Benefit Programs; Final Rule, 73 Fed. Reg. 54,220, as amended at 

73 Fed. Reg. 54,250 (Sept. 18, 2008). 

14In this report, unless otherwise specified, the term inappropriate marketing refers to 

noncompliance by MA organizations through the actions of their agents with marketing 

requirements established under federal law, regulations, and guidance. 

Page 4 GAO-10-36 Medicare Advantage Oversight
 

take to address its noncompliance. Enforcement actions are more punitive 

than compliance actions and include imposition of civil money penalties, 

suspension of enrollment of Medicare beneficiaries, suspension of 

payment to an MA organization, suspension of marketing activities for an 

MA plan, and termination or non-renewal of the MA organizations’ 

contract.15 CMS has the authority to impose these sanctions for certain 

types of violations of marketing requirements by MA organizations, though 

the agency is not required to take such actions.16

Given concerns about inappropriate marketing and its effects on 

beneficiaries, you asked us to examine how CMS assists beneficiaries 

affected by inappropriate marketing, the extent of the noncompliance, and 

how CMS holds MA organizations accountable. Our report addresses the 

following questions: (1) To what extent has CMS taken compliance and 

enforcement actions against MA organizations for inappropriate 

marketing? (2) How has CMS helped MA beneficiaries affected by 

inappropriate marketing and what types of problems have they 

encountered? (3) What information does CMS have on the number of 

beneficiaries affected by inappropriate marketing? 

To determine the extent to which CMS has taken compliance and 

enforcement actions against MA organizations for inappropriate 

marketing, we analyzed CMS data on compliance and enforcement actions 

 

1542 U.S.C. § 1395w-27(g); 42 C.F.R. §§ 422.750-.764. Under federal law, HHS, through CMS 

and the Department of Health and Human Services’ Office of Inspector General (HHS OIG), 

has the authority to impose sanctions on MA organizations for certain types of misconduct. 

16CMS may suspend enrollment, payment, or marketing for specified categories of conduct 

by MA organizations, including (i) expelling or refusing to re-enroll a beneficiary who is 

eligible to enroll; (ii) conduct that may reasonably be expected to deny or discourage 

enrollment of individuals who may need future medical services; or (iii) misrepresenting or 

falsifying information provided to CMS, individuals or other entities. Separately, if CMS 

determines that an MA organization failed to substantially comply with the terms of its 

contract with CMS, which includes compliance with marketing requirements, CMS may 

terminate the contract and also suspend enrollment or suspend marketing. In addition to or 

in place of these sanctions, CMS may impose civil money penalties in certain instances. In 

order to impose civil money penalties, CMS must determine that the deficiency has directly 

adversely affected (or has the substantial likelihood of directly affecting) a Medicare 

beneficiary. 42 U.S.C. § 1395w-27(g); 42 C.F.R. § 422.752. The HHS OIG also has the 

authority to impose civil money penalties upon MA organizations. 

Page 5 GAO-10-36 Medicare Advantage Oversight
 

CMS took against MA organizations for inappropriate marketing for the 

period January 2006 through February 2009.17

To determine how CMS helped beneficiaries affected by inappropriate 

marketing and the types of problems beneficiaries encountered, we 

interviewed officials from CMS’s central office and all 10 regional offices, 

6 state DOIs, and 6 state health insurance assistance programs (SHIP) and 

reviewed relevant documentation.18 We also visited three CMS regional 

offices to conduct more detailed interviews.19 We chose one of the regional 

offices because it had conducted detailed compilations of complaint data; 

another regional office because it housed the division that coordinated 

regional office oversight and monitoring activities; and a third regional 

office because it had responsibilities for MA organizations with a high 

concentration of PFFS plans. We interviewed DOI officials and SHIP 

officials in the three states where we conducted site visits. In addition, we 

interviewed DOI and SHIP officials from another three states because in 

one of the states, the DOI took an enforcement action against an MA 

organization for inappropriate marketing and in the other two states, DOI 

officials testified before NAIC on inappropriate MA marketing and sales 

practices. 

To obtain information about the number of beneficiaries affected by 

inappropriate marketing, we used June 2007 through October 2008 data 

from CMS’s complaint tracking module on the number of beneficiaries 

who claimed they were affected by inappropriate marketing and requested 

CMS assistance to disenroll from their MA plan.20 We interviewed officials 

 

17According to CMS officials and our review, CAPs for inappropriate marketing related to 

agent misconduct violations were primarily included under the category: “The MA 

organization does not engage in activities which materially mislead, confuse, or 

misrepresent the MA organization.” This category can include deficiencies related to MA 

organizations’ internal operations related to agent oversight, such as agent training 

programs and processes for monitoring agent behavior, and deficiencies related to agentrelated noncompliance with marketing requirements. It is possible that some agent-related 

inappropriate marketing violations were included in other categories of the complaint 

tracking module; these complaints were not included in our analysis. 

18SHIP is a national, federally funded program that uses grants directed to states to provide 

counseling, educational presentations, and other services to Medicare beneficiaries and 

their families. We interviewed DOI and SHIP officials in Florida, Missouri, New York, Ohio, 

Oklahoma, and Texas. 

19We visited CMS regional offices in Missouri, New York, and Texas. 

20The complaint tracking module is CMS’s centralized database of complaints information. 

Page 6 GAO-10-36 Medicare Advantage Oversight
 

in CMS’s central office and all regional offices about their use of the 

complaint tracking module data. We also reviewed a February 2008 study 

conducted by one CMS regional office that analyzed CMS and MA 

organizations’ resolution of cases entered into the complaint tracking 

module. In addition, we interviewed officials from CMS’s central office 

about plans to collect information on beneficiaries’ reasons for 

disenrollment from their MA plan. 

To determine the reliability of the data we used, we reviewed 

documentation, examined the internal consistency and other aspects of 

the data, interviewed CMS officials about reliability issues, or some 

combination of the three. Based on our review, we determined that the 

CMS regional office study of complaint tracking and the compliance and 

enforcement data were sufficiently reliable for our purposes. We 

determined that the complaint tracking module data had significant 

limitations. As a result, we reported total complaints from the 

inappropriate marketing categories because this is an indicator that CMS 

uses, but did not include any additional analyses of the complaint tracking 

module data. Appendix I provides more detailed information on our 

methodology. We conducted this work from March 2008 through 

December 2009 in accordance with generally accepted government 

auditing standards. These standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

CMS monitoring and oversight activities of MA organizations’ compliance 

with marketing requirements, include maintaining regular communication 

with and providing technical assistance to MA organizations. In addition, 

CMS conducts surveillance activities and audits of MA organizations to 

collect information about potential problems and compliance with 

marketing requirements. 

Background 

CMS’s surveillance activities include tracking and analyzing complaint 

rates by MA organization and category of complaint. In 2007, CMS initiated 

a variety of new surveillance activities focused on monitoring MA 

organizations’ marketing of PFFS plans. Among other activities, CMS 

implemented a secret shopper program that had CMS representatives, with 

Page 7 GAO-10-36 Medicare Advantage Oversight
 

their identity concealed, attend PFFS marketing events and report on the 

accuracy of marketing presentations and agents’ compliance with 

marketing requirements.21 Other surveillance activities included monthly 

review of PFFS enrollment packages and review of agent training test 

results. CMS also tracks other indicators under certain circumstances, 

such as verifying that beneficiaries willingly and knowingly chose certain 

plans. For example, for 2008, CMS required MA organizations to call 

beneficiaries newly enrolled in PFFS plans to verify that beneficiaries 

wanted to enroll in the plan and understood plan features. CMS 

subsequently tracked the proportion of verified calls as one of its 

marketing performance indicators. 

In conducting audits of MA organizations, CMS assesses whether 

organizations’ operations are consistent with federal laws, regulations, and 

CMS policies and procedures in some or all of seven major categories, 

including marketing.22 Audits typically involve a combination of desk 

reviews of documents submitted by MA organizations, and, at CMS’s 

discretion, site visits. CMS uses a risk-based approach to identify MA 

organizations for audit.23 While CMS may choose to audit only certain 

categories in any given year, since at least 2006, CMS has included 

marketing operations, and specifically those related to misleading 

marketing, in its audits. CMS also conducts focused, or out-of-cycle, audits 

of MA organizations to ensure that MA organizations implemented new 

processes for previously identified areas of noncompliance and to 

investigate potential noncompliance issues that CMS identified outside of 

the audit cycle. 

In June 2008, CMS reorganized its internal structure for overseeing MA 

plans and established standard operating procedures (SOP) for the 

oversight of MA organizations. The 2008 SOPs outlined the agency’s 

oversight approach and clarified, among other things, what actions CMS 

may take when MA organizations were found to be out of compliance with 

marketing and other requirements. According to CMS officials, the SOPs 

 

21In 2008, CMS’s secret shopper program was expanded to include all plan types. 

22CMS considers for inclusion in its audits the following broad categories: enrollment and 

disenrollment; benefits and beneficiary protections; quality assurance; provider relations; 

contracts; claims, organizations’ determinations, appeals and grievances; and marketing. 

23According to CMS officials, they consider various factors when selecting MA 

organizations for audit, including performance, enrollment, date of last audit, contract 

effective date, and plan type. 

Page 8 GAO-10-36 Medicare Advantage Oversight
 

formalized many procedures that CMS was already using to oversee MA 

organizations and were intended to ensure that these procedures were 

being applied in a uniform manner nationwide. 

CMS’s SOPs state that CMS is to consider the nature of each violation in 

determining the appropriate compliance or enforcement action. The 2008 

SOPs include the following actions from least to most severe: 

• Informal contact: phone call, e-mail, or meetings with MA organization 

officials to provide technical assistance. 

• Compliance: initial notice of noncompliance—e-mail to the MA 

organization, usually through the MA organization’s compliance officer. An 

initial notice of noncompliance is generally issued at the first finding of 

relatively minor noncompliance with federal laws, regulations, or CMS 

guidance, such as a single instance of inappropriate marketing activities. 

The notice informs an MA organization that it is out of compliance and 

directs MA organizations to reply to the email to indicate how it will 

address the noncompliance. 

• Compliance: warning letter—formal letter to the MA organization’s 

compliance officer stating the concern or area of noncompliance that 

requires immediate remedy for a limited and quickly fixable situation. CMS 

also notifies MA organizations that continued noncompliance will lead to 

stricter actions by CMS, such as requiring the MA organization to develop 

a CAP. 

• Compliance: CAP request letter—formal letter to the MA organization’s 

chief executive officer stating the concern(s) and requiring the 

organization to develop and implement a CAP for the specific violation(s). 

CMS can require CAPs from MA organizations when the agency identifies 

noncompliance that generally affects multiple beneficiaries and represents 

an ongoing or systemic inability to adhere to Medicare requirements.24

CMS’s SOPs provide time frames for CMS and MA organizations to 

 

24The CAP details the steps agreed upon by CMS and the MA organization that the MA 

organization will take to address the concern(s) raised by CMS. CMS audit SOPs state that 

in order for CMS to accept the CAP, MA organizations should, among other things, address 

deficiencies identified by CMS; provide an attainable time frame for implementing 

corrective actions; and devise a process for the MA organization to validate that corrective 

actions were taken, including conducting ongoing monitoring to ensure the organization 

maintains compliance. CMS audit SOPs also include instructions and time frames for 

resubmitting CAPs if CMS officials determine that an MA organization’s first CAP is 

unacceptable. 

Page 9 GAO-10-36 Medicare Advantage Oversight
 

respond, accept, and implement CAPs. CAPs are reported publicly on the 

CMS Web site. 

• Enforcement: sanctions provided for under federal law that CMS may 

impose on MA organizations for what CMS considers egregious or 

sustained noncompliance and for specific violations, including 

misrepresenting or falsifying information to CMS, beneficiaries, or 

potential beneficiaries, or substantially failing to carry out the terms of 

their contracts with CMS.25 Sanctions may include civil money penalties; 

the suspension of plans’ marketing activities, enrollment, or Medicare 

payment; or termination or nonrenewal of organizations’ contracts with 

CMS.26 Suspensions of plans’ marketing activities, enrollment, or Medicare 

payment are to remain in place until CMS is satisfied that the 

noncompliance that served as the basis for the suspension has been 

corrected and is not likely to recur. 

For more serious violations, CMS may choose to forgo initial, less formal 

actions against an MA organization in favor of stricter actions, including 

later-stage compliance or enforcement actions. However, the SOPs 

indicate that compliance matters will generally escalate through the 

compliance process in a step-by-step manner, starting with the initial 

notice of noncompliance up through the CAP stage. CMS has also chosen 

to negotiate voluntary suspensions with MA organizations rather than go 

through formal processes to impose involuntary sanctions. According to 

CMS officials, voluntary suspensions can result in a faster intervention. If 

CMS makes the determination that the MA organization has engaged in 

certain fraudulent activity, the agency is to refer the violation to the 

Department of Health and Human Services Office of Inspector General 

(HHS OIG) for review.27

 

25As described earlier in this report, CMS has the authority to take enforcement actions as 

defined under federal law and regulations. 42 U.S.C. § 1395w-27(g); 42 C.F.R. § 422.752. 

26MA organizations in most instances must be provided the opportunity to develop a CAP to 

resolve issues before CMS terminates or does not renew contracts. 42 C.F.R. § 422.510(c). 

27Under federal regulations, if CMS determines that an MA organization has failed to 

comply with certain requirements, including misrepresenting or falsifying information to 

CMS, individuals or entities, CMS must notify HHS OIG, which may independently impose a 

civil money penalty upon the organization for this conduct. 42 C.F.R. § 422.756. 

Page 10 GAO-10-36 Medicare Advantage Oversight
 

From January 2006 through February 2009 CMS took a range of 

compliance and enforcement actions against at least 73 MA organizations 

for inappropriate marketing. While the number of MA organizations varied 

during the approximately 3-year period, 192 MA organizations offered MA 

plans as of March 2009. The exact number of MA organizations that were 

subject to an action could be higher. According to CMS, the agency did not 

begin tracking two types of action—initial notices of noncompliance and 

warning letters—until June 2008. From June 2008 through February 2009, 

CMS sent one initial notice of noncompliance and 76 warning letters to MA 

organizations.28 (See app. II for more information about the types of 

inappropriate marketing that resulted in initial notices of noncompliance 

and warning letters.) From January 2006 through February 2009, CMS 

required 37 CAPs from MA organizations and also took 5 enforcement 

actions for inappropriate marketing—3 marketing and enrollment 

suspensions and 2 civil money penalties. The 73 MA organizations against 

which CMS took compliance or enforcement actions enrolled 

approximately 7.4 million beneficiaries through February 2009. (See table 

1.) These beneficiaries represented about 71 percent of all MA 

beneficiaries.29 CMS also negotiated voluntary suspensions of marketing 

and enrollment activities for PFFS plans with seven of these MA 

organizations effective June 2007.30

CMS Took 

Compliance and 

Enforcement Actions 

against at Least 73 MA 

Organizations for 

Inappropriate 

Marketing 

 

28From June 2008 through February 2009, CMS issued “outlier letters” to some MA 

organizations that the agency deemed to be outliers in complaint rates identified through 

agency surveillance activities. We included outlier letters in our count of warning letters. 

29CMS’s enrollment data do not include enrollment for contracts that had fewer than 10 

beneficiaries, and thus beneficiaries enrolled under these contracts are not included in our 

total of beneficiaries enrolled in MA organizations subject to at least one compliance action 

or in the total number of beneficiaries enrolled in the MA program. 

30According to CMS officials, the agency negotiated the voluntary suspension based on 

findings from its secret shopper activities and on general concerns of inappropriate 

marketing practices by agents selling PFFS plans. CMS officials told us that by asking the 

MA organizations to voluntarily suspend their marketing and enrollment activities, the 

agency was able to avoid some of the procedural requirements that are part of the process 

of imposing sanctions, such as undergoing a 15-day waiting period during which MA 

organizations have the opportunity to provide evidence that they did not commit the 

violation they were being sanctioned for and providing the MA organizations the 

opportunity to appeal. 

Page 11 GAO-10-36 Medicare Advantage Oversight
 

Table 1: CMS Compliance and Enforcement Actions Taken for Inappropriate 

Marketing, January 2006 through February 2009 

Number of 

actionsa

Number of MA 

organizationsa

Number of MA 

beneficiaries 

enrolled 

(in millions)b

Compliance action 

Initial notices of noncompliancec 1 1 0.3

Warning lettersc76 57 7.1

Corrective action plans (CAP) 37d32 4.9

Subtotale114 72e7.4

Enforcement action 

Civil money penalties 2 2 1.9

Suspensions of marketing and 

enrollment 3 3 0.3

Contract terminations 0 0 0

Subtotale 5 5e 2.2

Total, all actions 119 73e7.4 

Source: GAO analysis of CMS data. 

Note: Inappropriate marketing includes misrepresenting plan benefits and conducting prohibited 

marketing practices, such as door-to-door marketing without appointments or providing potential 

enrollees with gifts of more than a nominal value as an inducement for beneficiaries to enroll. 

Inappropriate marketing also includes organizations’ noncompliance with federal marketing 

requirements pertaining to proper training, compensation, and licensure of MA agents and registration 

of marketing events. 

a

The total number of compliance and enforcement actions exceeds the total number of MA 

organizations because CMS took more than one action against some MA organizations. For example, 

between January 2006 and February 2009, CMS required one MA organization to submit two CAPs 

and the agency suspended the MA organization’s marketing and enrollment. 

b

MA enrollment data exclude MA organizations’ contracts with fewer than 10 beneficiaries. MA 

enrollment data are current as of March 2009. Some MA organizations that received compliance and 

enforcement actions no longer offered MA plans as of March 2009; enrollment for these MA 

organizations was zero. 

c

The count of initial notices of noncompliance and warning letters includes only those notices and 

letters sent from June 2008 through February 2009. CMS did not track the number of initial notices of 

noncompliance and warning letters in a central location prior to June 2008. 

d

When MA organizations requested CAPs from multiple contracts under the same audit ID, we 

counted these as one CAP. Similarly, when there were multiple audits for the same parent 

organization that had the same date for the CAP request, we counted these as one CAP. 

e

The number of MA organizations with specific actions does not always equal the subtotal or total 

because CMS took more than one action against some MA organizations. 

Page 12 GAO-10-36 Medicare Advantage Oversight
 

In some cases, during the period from January 2006 through February 

2009, CMS took multiple types of actions against the same MA 

organizations because it determined that these organizations had more 

than one inappropriate marketing violation. (See app. III for information 

about the criteria CMS uses to make compliance and enforcement 

decisions.) Nineteen of the 73 MA organizations subject to compliance or 

enforcement actions had multiple types of actions taken against them. 

Fifteen of the 19 organizations received at least one warning letter or 

notice of noncompliance and a CAP. Two MA organizations received at 

least one warning letter or notice of noncompliance, were required to 

submit at least one CAP, and were subject to an enforcement action. One 

organization received at least one warning letter or notice of 

noncompliance and was subject to an enforcement action and another was 

required to submit at least one CAP and was subject to an enforcement 

action. 

The time it took for MA plans to implement CAPs varied widely and 

changed over time. In May 2008, CMS revised its audit SOPs to generally 

require MA organizations to fully implement CAPs within 90 days from 

CMS’s acceptance.31 Consequently, the average time from when CAPs 

were requested to when corrective actions were fully implemented 

decreased for CAPs accepted after May 2008. Specifically, corrective 

actions for inappropriate marketing deficiencies were fully implemented 

an average of 218 days after CAPs were requested for the 22 CAPs 

accepted from January 2006 through April 2008 and an average of 174 d

for the 13 CAPs accepted from May 2008 through February 2009. The 

period of time from when CMS requested the CAP to when CMS acce

the CAP increased, on average, from 90 days for CAPs accepted prior to 

May 2008 to 145 days for CAPs accepted May 2008 through February 2009. 

However, the average time from CMS acceptance of the CAP to when 

corrective actions were fully implemented decreased from 128 days

CAPs accepted from January 2006 through April 2008 to 29 days for C

ays 

pted 

 for 

APs 

 

31CMS’s audit SOPs state that the agency has discretion to extend the time frame for full 

implementation of a CAP beyond 90 days if the MA organization provides a credible 

explanation as to why it can not implement a CAP within 90 days. Prior to the May 2008 

revision, CMS’s audit procedures stated that the agency should provide an attainable 

timetable for CAP implementation but which generally should not exceed 6 months. In 

addition, CMS officials told us that prior to May 2008, the agency would keep some CAPs 

open after they had been fully implemented in order to monitor the MA organization’s 

performance to ensure that the corrective actions had the desired effect. After May 2008, 

agency officials said they closed CAPs once the corrective action was implemented but 

might continue to monitor performance if necessary. 

Page 13 GAO-10-36 Medicare Advantage Oversight
 

accepted from May 2008 through February 2009. (See fig. 1.) Overall, the 

period of time from when CMS requested CAPs to when MA organizations 

fully implemented them varied widely for CAPs accepted both for the 

period from January 2006 through April 2008 (from 61 to 410 days) and 

from May 2008 through February 2009 (from 68 to 345 days). 

Figure 1: Average Time Frames of CAPs for Inappropriate Marketing, January 2006 

through February 2009 

CAPs accepted from January 2006 through April 2008:

CAPs accepted from May 2008 through February 2009:

CAP

requested

CAP

requested

CAP

accepted

CAP

accepted

CAP fully

implemented

CAP fully

implemented

218 days

174 days

90 days

145 days

128 days

29 days

Source: GAO analysis of CMS data.

Notes: CMS requests CAPs from MA organizations when the agency identifies noncompliance 

related to inappropriate marketing that generally affects multiple beneficiaries and represents an 

ongoing or systemic inability to adhere to Medicare requirements. In response, the MA organization is 

required to develop a plan on how it will correct the identified deficiencies. When CMS agrees with 

the MA organization’s proposed corrective actions, the agency accepts the CAP. CMS then monitors 

the MA organization’s progress in implementing the agreed upon corrective actions. We considered a 

CAP to be fully implemented when CMS determined that the agreed upon corrective actions to 

address the noncompliance related to inappropriate marketing had been taken. 

Inappropriate marketing includes misrepresenting plan benefits and conducting prohibited marketing 

practices, such as door-to-door marketing without appointments or providing potential enrollees with 

gifts of more than a nominal value as an inducement for beneficiaries to enroll. Inappropriate 

marketing also includes organizations’ noncompliance with federal marketing requirements pertaining 

to proper training, compensation, and licensure of MA agents and registration of marketing events. 

While CMS required 37 CAPs for inappropriate marketing from January 2006 through February 2009, 

this figure contains averages that reflect CAPs that were fully implemented as of July 2009. Of the 37 

CAPs, 35 were implemented as of July 2009—22 from January 2006 through April 2008 and 13 from 

May 2008 through February 2009. 

Page 14 GAO-10-36 Medicare Advantage Oversight
 

For enforcement actions, the implementation time periods varied widely 

as well—from approximately 2 weeks to 2 years before CMS took an 

enforcement action after first identifying what it considered to be 

inappropriate marketing. For example, CMS suspended the marketing and 

enrollment activities of one MA organization based on results of CMS’s 

secret shopper activities that showed what CMS considered egregious 

inappropriate marketing approximately 2 weeks after the MA organization 

began marketing its MA plans.32 In contrast, in February 2009, CMS 

suspended the marketing and enrollment activities for another MA 

organization after 2 years of sustained noncompliance with marketing 

requirements. During the 2-year period, CMS determined that this MA 

organization employed agents who had engaged in activities that misled, 

confused, or misrepresented the organization or its MA plans to 

beneficiaries during three audits conducted between March 2007 and July 

2008, for which CMS required CAPs. In addition, in July 2008, CMS sent the 

MA organization a notice of noncompliance based on beneficiary 

allegations of inappropriate marketing by agents selling its MA plans. (See 

table 2 for a summary of the five cases for which CMS took enforcement 

actions.) 

 

32CMS withdrew the formal suspension in favor of a voluntary suspension agreed to by the 

MA organization. 

Page 15 GAO-10-36 Medicare Advantage Oversight
 

Table 2: CMS Enforcement Actions Taken against MA Organizations for Inappropriate Marketing, January 2006 through 

February 2009 

Date action taken Basis for enforcement action Enforcement action 

09/18/2007 Based on the results of an MA organization’s investigation into agent marketing 

violations in spring 2007, CMS determined that agents employed by the MA 

organization had engaged in activities that misled and confused beneficiaries, 

which ultimately resulted in 352 beneficiaries requesting disenrollment from the 

PFFS plan. A majority of these individuals said they did not fully understand 

aspects of the plan and/or the provider would not accept the plan at the time of 

their visit. 

$264,000 civil money penaltya 

09/18/2007 CMS discovered that the MA organization employed more than 60 unlicensed 

agents, based on the results of a September 2006 state market conduct 

examination provided to the agency. CMS determined that because the agents 

were unlicensed they did not meet minimum Medicare requirements for agent 

training to market MA plans responsibly. In addition, CMS determined that 

agents marketed and sold inappropriate MA plans to some beneficiaries who 

then faced increased out-of-pocket costs and disruptions in access to health 

care. 

$75,000 civil money penalty 

10/19/2007 During its fall 2007 Secret Shopper program, CMS found that agents selling the 

organization’s MA plans made a large number of inaccurate statements about 

plan benefits and coverage to potential beneficiaries. 

Suspension of marketing and 

enrollmentb 

9/15/2008 CMS received complaints in June 2008 that the MA organization was not paying 

provider claims in a timely manner. CMS conducted an audit in June 2008 and 

found that the MA organization had failed to meet requirements in a number of 

areas, including marketing. Specifically, CMS determined that the MA 

organization failed to ensure that its agents met state licensure and 

appointment requirements. In addition, CMS was notified by a DOI in August 

2008 that the MA organization failed to meet that state’s financial solvency 

standards. 

Suspension of marketing and 

enrollment 

02/19/2009 Based on long-standing and persistent noncompliance with CMS requirements 

identified during surveillance and audit activities conducted in 2007 and 2008, 

CMS determined that the MA organization and agents employed by the 

organization had engaged in sustained noncompliance and in activities that 

misled and confused beneficiaries and misrepresented the organization, 

engaged in unauthorized door-to-door solicitations, and failed to establish a 

system for confirming that beneficiaries had enrolled in one of the organization’s 

plans and understood applicable plan rules. 

Suspension of marketing and 

enrollment 

Source: GAO analysis of CMS data. 

Note: Inappropriate marketing includes misrepresenting plan benefits and conducting prohibited 

marketing practices, such as door-to-door marketing without appointments or providing potential 

enrollees with gifts of more than a nominal value as an inducement for beneficiaries to enroll. 

Inappropriate marketing also includes organizations’ noncompliance with federal marketing 

requirements pertaining to proper training, compensation, and licensure of MA agents and registration 

of marketing events. 

a

CMS and the MA organization settled the penalty for $190,000. 

b

CMS lifted the sanction in favor of a voluntary suspension of marketing and enrollment activities 

agreed to by the MA organization. However, according to agency officials, CMS includes the 

suspension on its list of enforcement actions because the agency had begun the process to formally 

sanction the MA organization at the time that it agreed to voluntarily suspend its marketing activities. 

Page 16 GAO-10-36 Medicare Advantage Oversight
 

CMS assisted beneficiaries who experienced inappropriate marketing by 

helping them restore their previous health insurance coverage or enrolling 

them in another option. Some beneficiaries experienced financial liability 

or access-to-care problems as a result of being enrolled in an MA plan or 

stemming from their disenrollment and enrollment in prior or different 

coverage. 

CMS Helped 

Beneficiaries Who 

Experienced 

Inappropriate 

Marketing to 

Disenroll from Their 

MA Plans, but Some 

Faced Adverse 

Consequences 

CMS Uses Special Election 

Periods to Help 

Beneficiaries Who 

Experienced Inappropriate 

Marketing 

CMS assisted MA beneficiaries who experienced inappropriate marketing 

by MA organizations by providing special election periods (SEP), which 

enable beneficiaries to disenroll from their MA plan outside of the regular 

enrollment periods and to enroll in prior coverage or another option, such 

as another MA plan, Medicare FFS, or a stand-alone Medicare prescription 

drug plan.33 CMS announced that it had established a special SEP for 

inappropriate marketing in a July 2007 memo to MA organizations.34,35 CMS 

officials described these SEPs as their primary attempt to make 

beneficiaries who experienced inappropriate marketing “whole.” 

 

33The annual coordinated election period runs from November 15th through December 

31st. During this time, beneficiaries may change MA plans, change prescription drug plans, 

return to Medicare FFS, or enroll in an MA plan for the first time. The open enrollment 

period runs from January 1st through March 31st and provides beneficiaries with one 

opportunity to enroll in, disenroll from, or change an MA plan. MA organizations are not 

required to open their MA plans for enrollment during the open enrollment period, but all 

MA organizations are required to provide disenrollments during this period. 

34Under federal law, CMS has the authority to specify conditions for SEPs, including if the 

beneficiary meets exceptional conditions as defined by CMS. 42 U.S.C. § 1395w-21(e)(4). 

CMS uses these exceptional conditions SEPs for beneficiaries who had enrolled in MA 

plans based on alleged misleading or incorrect information by plan employees or agents. In 

this report, we refer to these exceptional condition SEPs as inappropriate marketing SEPs. 

35While CMS officials confirmed that the inappropriate marketing SEP officially went into 

effect in July 2007, the agency established SOPs for processing the SEPs in June 2007, and 

CMS data show that some beneficiaries were provided an inappropriate marketing SEP in 

June 2007. 

Page 17 GAO-10-36 Medicare Advantage Oversight
 

According to CMS’s SOPs, MA beneficiaries qualify for the SEP if they call 

1-800-Medicare or contact a CMS regional office and give reasonable 

assurance that they were subject to inappropriate marketing; CMS does 

not require the beneficiaries to provide evidence. According to CMS 

officials, they decide whether to provide SEPs before investigations into 

inappropriate marketing allegations are complete to ensure that 

beneficiaries who did experience misleading marketing can disenroll from 

the MA plan and enroll in other health coverage as quickly as possible. 

Consequently, some of the beneficiaries who were provided a SEP might 

not have been subject to inappropriate marketing. 

CMS offered MA beneficiaries either a prospective or retroactive SEP. 

Under a prospective SEP, beneficiaries could disenroll from the MA plan 

and return to their previous coverage or enroll in another option effective 

the first day of the next month. CMS officials told us that the customer 

service representatives at 1-800-Medicare generally processed prospective 

disenrollments and enrollment in other MA plans or Medicare FFS. Under 

the retroactive SEP, beneficiaries could disenroll from the MA plan and 

return to their previous coverage or enroll in other coverage effective as 

early as the date of their enrollment in the MA plan. Retroactive SEPs are 

more complicated because they require payment adjustments for any 

premiums paid and medical services received while the beneficiary was 

enrolled in the plan. Retroactive SEPs are processed by regional office 

staff. 

According to CMS’s SEP SOPs, 1-800-Medicare customer service 

representatives should ask beneficiaries who provide reasonable 

assurance that they were subject to inappropriate marketing whether they 

would like to prospectively disenroll from their plan and enroll in new 

coverage. If the beneficiary agrees, the disenrollment from the MA plan 

and enrollment in new coverage is handled by the customer service 

representative. If the beneficiary requests a retroactive SEP, the case is 

forwarded to a regional office. CMS’s SEP SOPs state that regional office 

officials are required to explain the consequences of a retroactive 

disenrollment or enrollment to the beneficiary before such a disenrollment 

is processed. If a beneficiary directly contacts a regional office with a 

complaint of inappropriate marketing, officials should offer beneficiaries a 

prospective SEP, although they may offer a retroactive SEP if the 

beneficiary insists. While CMS’s SOPs indicate a preference for offering 

beneficiaries a prospective SEP, CMS officials we interviewed said that 

whether CMS offers a prospective or retroactive SEP to a beneficiary 

depends on what would be in the beneficiary’s best interest. 

Page 18 GAO-10-36 Medicare Advantage Oversight
 

The most suitable SEP for a MA beneficiary depended on the beneficiary’s 

circumstances. For example, if beneficiaries used services while enrolled 

in an MA plan, they could benefit from a prospective SEP if their cost 

sharing—the amount they paid out-of-pocket for a covered service—under 

the MA plan was lower than it would be under their restored or other 

coverage. If these beneficiaries chose a retroactive SEP, they would have 

to make up the difference between the lower cost sharing amount under 

the MA plan and the higher amount under their restored or other coverage. 

Conversely, beneficiaries who chose restored or other coverage with cost 

sharing that was lower than the MA plan could benefit from disenrolling 

retroactively because they would be reimbursed for the difference 

between the out-of-pocket costs they incurred for services received under 

the MA plan and the lower costs under the restored or other coverage. 

Some Beneficiaries 

Experienced Problems 

Associated with 

Retroactive 

Disenrollments, While 

Others Experienced 

Problems That Could Not 

be Fixed by a SEP 

Some DOI and SHIP officials we interviewed told us that MA 

disenrollments and enrollments resulting from inappropriate marketing 

generally appeared to go smoothly, but that some beneficiaries 

experienced problems.36 Officials from some DOIs and a SHIP we 

interviewed said some beneficiaries’ retroactive disenrollments took 

several months to process. Officials from one DOI said that some 

beneficiaries received bills from collection agencies because provider 

reimbursements associated with retroactive disenrollments were not 

timely. An official from another DOI said that it could take from 10 to 

30 days to receive enrollment material, including a plan identification card, 

and this could cause access-to-care problems if beneficiaries needed 

health care services before the material arrived. To help mitigate any 

access-to-care problems, CMS officials said that they instructed 1-800-

Medicare customer service representatives to give beneficiaries their MA 

plans’ contact information when they enrolled so that beneficiaries could 

contact the plans directly for information about accessing services. 

Additionally, CMS officials stated that CMS regional office employees 

routinely worked with MA organizations to ensure that beneficiaries who 

received a retroactive SEP could access services prior to receiving plan 

identification cards. 

 

36We did not ask the DOI and SHIP officials whether these problems—or the specific cases 

they cited to illustrate them—involved use of the inappropriate marketing SEP because 

CMS, not state officials, administers it. 

Page 19 GAO-10-36 Medicare Advantage Oversight
 

CMS officials told us that some of the problems encountered by MA 

beneficiaries receiving a retroactive inappropriate marketing SEP were 

unavoidable and inherent to the processing of a retroactive disenrollment. 

They noted that under a retroactive SEP, different premium amounts 

needed to be collected, provider bills and payments might need to be 

retracted and reprocessed by the new insurer, and different cost-sharing 

amounts applied. Therefore, a SEP could take time to be fully processed. 

These officials stated that the administrative actions and associated 

problems that beneficiaries may experience are preferable to keeping 

beneficiaries in an MA plan after they have stated that they experienced 

inappropriate marketing. 

Beneficiaries who stated they experienced inappropriate marketing may 

also have experienced problems that the SEP could not address. For 

example, these beneficiaries could have experienced financial or accessto-care issues prior to receiving the SEP. CMS, DOI, and SHIP officials 

described cases in which beneficiaries did not realize they had been 

switched to an MA plan until they tried to access services. These officials 

said some of the beneficiaries experienced disruption of their access to 

providers and medications because their providers did not participate in 

the MA plan. DOIs and SHIPs also cited several other problems the 

inappropriate marketing SEP could not resolve because the problems 

were associated with private or state employee insurance plan provisions 

or involved other government agencies, and hence were outside CMS’s 

jurisdiction. DOIs and SHIPs provided information about specific types of 

cases that a SEP could not resolve: 

• A beneficiary had to pay higher premiums to obtain the same Medigap 

polices that she had dropped when she was enrolled in a MA plan.37

• Beneficiaries could not have coverage restored by their prior employer’s 

retiree health plan. DOI and SHIP officials said that employer retiree 

health plans are generally not required to restore coverage to MA 

beneficiaries who stated they experienced inappropriate marketing. CMS 

officials said that they were able to get retiree health coverage restored for 

some beneficiaries, but not for others. 

 

37Medigap refers to individually purchased private insurance policies that provide 

additional supplemental coverage to help fill Medicare FFS’s coverage gaps and pay some 

out-of-pocket expenses. 

Page 20 GAO-10-36 Medicare Advantage Oversight
 

• Beneficiaries who had premiums withheld from their Social Security 

checks experienced delays in ending the withholding after they were 

disenrolled from their MA plan, which could have caused financial 

hardships.38

The information CMS has on the number of beneficiaries affected by 

inappropriate marketing is limited for two reasons. First, some 

beneficiaries who experienced inappropriate marketing may have 

exercised their option—available during certain times of the year—to 

disenroll from their MA plan and might not have notified CMS of the 

marketing problems they encountered. Second, CMS did not directly track 

the number of beneficiaries who contacted the agency and were provided 

a SEP. CMS did estimate the number of SEPs it provided for inappropriate 

marketing, but its estimates were based on data that were unreliable. 

CMS Has Limited 

Information on the 

Number of 

Beneficiaries Affected 

by Inappropriate 

Marketing 

All MA beneficiaries, including those who had been affected by 

inappropriate marketing, may have elected to change their health plans 

during the annual coordinated election period or the annual open 

enrollment period. CMS had the information to determine the number of 

beneficiaries who disenrolled during these regular enrollment periods, but 

during the time of our study, the agency did not collect information that 

would have allowed it to determine the extent to which beneficiaries 

disenrolled from health plans as a result of inappropriate marketing. 

Disenrollment rates varied considerably among plans and types of plans. 

For example, we previously reported on disenrollment rates in PFFS plans 

occurring during the regular enrollment periods for 2007.39 PFFS plans 

were considered by CMS and others to have high rates of inappropriate 

 

38MA beneficiaries have the option of having their MA premiums withheld from their Social 

Security payments. We recently reported that schedule and timing issues have complicated 

this process for some MA beneficiaries. Among the issues cited in the report was that 

beneficiaries could request changes to their premium withholding early in a month and SSA 

would not be able to process that change in time for the next month’s payment. As a result, 

premium withholding would not be accurate for at least 1 month, and once processed, 

retroactive adjustments would be required for the months when the withholding was not 

accurate. In some cases, beneficiaries did not receive refunds for overpayments of 

premiums paid in 2006 until July 2007 or later. See GAO, Schedule and Timing Issues 

Complicate Withholding Premiums for Medicare Parts C and D from Social Security 

Payments, GAO-08-816R (Washington, D.C.: July 15, 2008). 

39See GAO, Medicare Advantage: Characteristics, Financial Risks, and Disenrollment 

Rates of Beneficiaries in Private Fee-for-Service Plans, GAO-09-25 (Washington, D.C.: 

Dec. 15, 2008). 

Page 21 GAO-10-36 Medicare Advantage Oversight
 

marketing. From January through April 2007, when the disenrollments 

took effect, about 169,000 beneficiaries in PFFS plans, or 21 percent of the 

total number of PFFS beneficiaries, disenrolled from the plan that they 

were enrolled in. This 4-month total was more than double the 

disenrollments from other plan types during that same time period. 

However, the number of these beneficiaries who changed plans because 

they were affected by inappropriate marketing was unknown because 

CMS did not have data on why these beneficiaries disenrolled. 

After 2005, CMS discontinued a survey on disenrollment reasons that 

provided information on the frequency of certain problems leading to 

disenrollment. From 2000 to 2005, CMS conducted an annual survey 

asking MA beneficiaries who disenrolled why they left their plan. Among 

the disenrollment reasons that beneficiaries could have chosen was: 

“Given incorrect or incomplete information at the time you joined the 

plan.” A 2005 analysis prepared by CMS contractors of survey results from 

2000 through 2003 found that over this time period, the percent of 

beneficiaries who said they disenrolled because they were given incorrect 

or incomplete information at the time they joined their plan ranged from 

about 9 to about 11 percent. However, in each of the 3 years, less than one 

percent of beneficiaries who responded to the survey stated that this was 

the most important reason for their disenrollment. The survey did not 

collect information on the problems beneficiaries experienced as a result 

of the reasons that led to their disenrollment or the disenrollment itself. 

The analysis prepared by CMS contractors noted that the survey’s primary 

goals were to enhance CMS’s ability to monitor MA plan performance and 

assist plans in identifying areas where they might focus their quality 

improvement efforts. 

CMS officials said that they plan to reinstitute a survey on disenrollment 

reasons in late summer 2010. CMS officials plan to collect data over a 9- to 

12-month period, so final results should be available sometime in 2011. 

After the survey ends and results are analyzed, CMS will determine 

whether to conduct additional surveys on disenrollment reasons. 

CMS did not directly track the number of SEPs it provided, but instead 

estimated the number based on information collected in its complaint 

tracking module. Complaints from beneficiaries who stated they 

experienced inappropriate marketing and wanted to disenroll from their 

MA plans were classified into one of two categories in CMS’s complaint 

Page 22 GAO-10-36 Medicare Advantage Oversight
 

tracking module.40 One category was for inappropriate marketing cases 

that required regional office action to complete beneficiaries’ 

disenrollment and enrollment in another plan. According to complaint 

tracking module data provided by CMS, during the 17-month period from 

June 2007 through October 2008, CMS received 18,331 such complaints. 

CMS officials said that most of these cases were retroactive SEP 

requests.41 The second category was for inappropriate marketing cases 

that did not require regional office action to complete beneficiar

disenrollment and enrollment in another plan. During the 7-month period 

from April 2008 through October 2008, CMS received 1,689 inappropriate 

marketing complaints that the agency determined did not need regional 

office action. According to CMS officials, cases included in the second 

category were primarily prospective SEP requests. CMS officials told us 

that most of the complaints in these two categories resulted in an 

inappropriate marketing SEP but that the total included some 

beneficiaries who made such statements but did not disenroll.

ies’ 

 

42

However, the complaint data were not a reliable source of information on 

the number of beneficiaries who received the SEP. A study conducted by a 

CMS regional office of a sample of about 170 complaints lodged between 

August 2007 and January 2008 highlighted inaccurate and incomplete 

documentation as well as a portion of inappropriate marketing complaints 

that had been miscategorized: 

• About 33 percent of cases were resolved or closed inappropriately or 

involved duplicate cases. For example, some cases were closed prior to 

final resolution. In one of these cases, the MA organization indicated in 

40The inappropriate marketing complaint categories in the complaint tracking module, 

which CMS calls misleading marketing complaint categories, include agent-related 

complaints as well as complaints pertaining to the accuracy of marketing materials 

distributed to beneficiaries. 

41There are some cases that a 1-800-Medicare customer service representative would 

forward to a regional office for a retroactive SEP, but after regional office officials consult 

with the beneficiary, a prospective SEP is provided instead. Also, 1-800-Medicare customer 

service representatives may send a complaint to a regional office for a secondary review, at 

which point a prospective SEP is provided. Both situations would result in the complaints 

being filed in the category requiring regional office action even though a prospective SEP 

was provided. 

42The CMS officials also said that the total includes beneficiaries enrolled in stand-alone 

prescription drug plans, which provide only prescription drug coverage and are not 

considered MA plans. The officials stated that the number of these beneficiaries is likely 

very low. 

Page 23 GAO-10-36 Medicare Advantage Oversight
 

case notes that a beneficiary was experiencing a problem with 

reimbursement and that it was doing additional research on the issue.43

However, the MA organization closed the case prior to completing its 

research on whether the beneficiary was due reimbursement and, if so, 

whether the beneficiary received it. Four of the 54 cases in this category 

were for instances in which multiple cases were open for the same 

member and issue. 

• About 28 percent of case resolutions were poorly documented. Most 

frequently these cases contained notes in the complaint tracking module 

that did not indicate when disenrollments took effect or addressed part of 

the complaint but notes did not reflect that all aspects of the complaint 

had been resolved. 

• About 20 percent of cases were incorrectly categorized. The majority of 

miscategorized cases were inappropriate marketing complaints that were 

coded in categories other than inappropriate marketing. 

• About 12 percent of cases lacked specific information about at least one 

issue involved in the complaint, such as details about refunds or payments 

owed to the beneficiary. 

Officials from another CMS regional office conducted a more informal 

examination of complaint tracking module cases in 2008 and found similar 

problems. The officials told us that the regional office did a spot check of 

50 inappropriate MA marketing complaints by calling the beneficiaries and 

determined that the notes in the complaint tracking module often did not 

match the description of the complaint that the beneficiary provided 

during the follow-up call. The officials also said that CMS staff examined 

complaints against one MA organization and found cases of alleged 

inappropriate marketing that were not categorized as such. The officials 

from this regional office estimated that they had recategorized 60 percent 

of all complaint tracking module cases within this region. However, other 

CMS regional offices said the percentage of cases that needed to be 

recategorized was small. The reason for this disparity is unclear, but it may 

be due to how regional offices determined whether cases needed to be 

recategorized. 

 

43MA organizations generally have access to the complaint tracking module so that they can 

investigate complaints and coordinate with CMS on addressing problems. 

Page 24 GAO-10-36 Medicare Advantage Oversight
 

CMS officials told us that they used the results of internal studies of the 

complaint tracking module to improve their ability to categorize 

complaints. However, it was beyond the scope of our study to determine 

the effectiveness of these changes.44

Inappropriate marketing can adversely affect MA beneficiaries, causing 

financial hardship and difficulty in accessing needed care. While CMS has 

used SEPs to assist beneficiaries, the agency was unable to prevent some 

of them from experiencing negative consequences. Currently, CMS has 

limited information on the extent of inappropriate marketing and the 

number of beneficiaries affected. The agency intends to conduct a survey 

of beneficiaries who disenrolled from MA plans and ask about their 

reasons for disenrollment. Depending on the specific questions included, 

such a survey could provide information about the number of beneficiaries 

who experience inappropriate marketing and identify plans, plan types, 

and geographic locations where inappropriate marketing problems are 

most prevalent. CMS’s information about the extent of inappropriate 

marketing is also limited because the agency has not gathered reliable 

information about the number of prospective and retroactive SEPs 

provided for this reason. Without an investigation into individual cases, 

CMS cannot determine whether all of the problems reported by 

beneficiaries represent inappropriate marketing. Nonetheless, gathering 

information on the reasons beneficiaries disenroll from their MA plans and 

tracking the number of the SEPs that the agency provides would enable 

the construction of useful indicators of the potential scope and location of 

the marketing problems. Because of the potentially serious implications 

for beneficiaries as a result of inappropriate marketing, it is important for 

CMS to have information that can inform the agency’s oversight efforts 

and help it to appropriately target interventions when necessary. 

To improve CMS’s oversight of MA organizations and its ability to 

appropriately target interventions, we recommend that the Administrator 

of CMS gather more information on the extent of inappropriate marketing 

and the types of problems beneficiaries experienced as a result of 

Conclusions 

Recommendation for 

Executive Action 

 

44We examined aspects of the complaint tracking module in our 2008 report, GAO, 

Medicare Part D: Complaint Rates Are Declining, but Operational and Oversight 

Challenges Remain. GAO-08-719 (Washington, D.C.: June 27, 2008). 

Page 25 GAO-10-36 Medicare Advantage Oversight
 

inappropriate marketing. As part of this effort, CMS should directly track 

retroactive and prospective SEPs provided for inappropriate marketing. 

We provided a draft of this report for comment to HHS, the department 

under which CMS resides. Responding for HHS, CMS stated that it 

concurred with our recommendation and that it would assess the costs 

and benefits of alternative systems that could be used to collect 

information on the extent of inappropriate marketing and the types of 

problems beneficiaries experience as a result. CMS also stated that while it 

did not directly track the number of retroactive and prospective SEPs 

provided for inappropriate marketing, it used data from its complaint 

tracking module and considered that data a reasonable proxy of the total 

number of SEPs requested for inappropriate marketing. As our report 

notes, findings from a formal and informal study conducted by two CMS 

regional offices demonstrated that data from the complaint tracking 

module were not a reliable source of information on the number of 

beneficiaries who received a SEP. However, CMS officials told us in an 

interview that they used the results of these studies to improve their ability 

to categorize complaints. It was beyond the scope of our study to 

determine the effectiveness of these changes. CMS also stated in its 

comments that it had taken additional steps in 2009 to protect 

beneficiaries from deceptive marketing practices conducted by agents, 

including establishing stronger rules for governing the commissions that 

can be paid to independent sales agents, disseminating new marketing 

guidelines about how MA plans identify themselves to beneficiaries, and 

expanding its secret shopper program. (CMS’s comments are reprinted in 

app. IV.) CMS provided technical comments, which we incorporated as 

appropriate. 

Agency Comments 

and Our Evaluation 

As agreed with your office, unless you publicly announce the contents 

earlier, we plan no further distribution of this report until 30 days after its 

issuance date. At that time, we will send copies to the Administrator and 

interested congressional committees. We will also make copies available 

at no charge on GAO’s Web site at http://www.gao.gov. 

Page 26 GAO-10-36 Medicare Advantage Oversight
 

If you or your staff have any questions about this report, please contact me 

at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report are listed in appendix V. 

Sincerely yours, 

Director, Health Care 

James Cosgrove 

Page 27 GAO-10-36 Medicare Advantage Oversight
Appendix I: Scope and Methodology 

Page 28 GAO-10-36 

Appendix I: Scope and Methodology 

This appendix describes in detail the scope and methodology we used 

to address the report objectives. We briefly summarize the methodologies 

by objective and then discuss for all objectives (1) our review of 

relevant federal laws, regulations, and guidance from the Centers for 

Medicare & Medicaid Services (CMS), including policies and procedures; 

(2) interviews with CMS officials and other stakeholders; and (3) CMS 

data. 

To determine the extent to which CMS has taken compliance and 

enforcement actions against Medicare Advantage (MA) organizations for 

inappropriate marketing, we analyzed CMS data on the number and types 

of corrective and enforcement actions taken against MA organizations for 

inappropriate marketing. We conducted an analysis of noncompliance and 

warning letters from CMS notifying MA organizations about marketing 

violations, such as providing inappropriate information to beneficiaries at 

marketing events, or agent-related operational violations, such as those 

related to agent compensation. We excluded from our analysis letters for 

non-agent-related violations such as incorrect information on an MA 

organization’s Web site. We analyzed corrective action plans (CAP) that 

CMS required if the agency determined that the MA organization had 

engaged in activities that materially misled, confused, or misrepresented 

the MA organization to beneficiaries. 

Methodology by 

Objective 

To determine how CMS helped MA beneficiaries affected by inappropriate 

marketing and the types of problems beneficiaries encountered, we 

reviewed relevant agency documentation for the period January 2006 

through February 2009 and interviewed officials at CMS’s central office 

and all 10 regional offices, 6 state departments of insurance (DOI), and 6 

state health insurance assistance programs (SHIP).1

 We also conducted 

site visits at the Dallas, Kansas City, and New York City CMS regional 

offices to interview officials from these regions more extensively. 

To determine what information CMS had on the number of beneficiaries 

affected by inappropriate marketing, we analyzed CMS’s complaint data to 

quantify the number of beneficiaries who complained about inappropriate 

marketing and requested to disenroll from their plan outside of the annual 

 

1

SHIP is a national, federally-funded program that uses grants directed to states to provide 

counseling, educational presentations, and other services to Medicare beneficiaries and 

their families. 

 Medicare Advantage Oversight 
Appendix I: Scope and Methodology 

coordinated election and open enrollment periods, when beneficiaries can 

join, switch, or drop MA plans.2

 We reviewed one CMS regional office’s 

study of CMS’s complaint tracking module conducted in February 2008. 

We also interviewed CMS officials about the agency’s plan to obtain 

information about reasons for disenrollment during the annual 

coordinated election and open enrollment periods. Unless otherwise 

noted, we limited our analysis of inappropriate marketing in this report to 

instances of agent-related noncompliance with marketing requirements. 

We reviewed relevant federal laws, regulations, and CMS guidance for the 

provisions related to inappropriate marketing, compliance and 

enforcement actions, and the time frames for which the provisions were in 

effect. We interviewed CMS officials about agency guidance related to 

oversight of the MA program, including policies and procedures, for the 

period of January 2006 through February 2009. 

We interviewed officials from CMS, state DOIs, SHIPs, and MA 

organizations and reviewed any documentation referenced during our 

interviews. In our interviews with state DOIs and SHIPs, we asked both 

specific and open-ended questions about the problems beneficiaries 

encountered and, on some occasions, interviewed officials from a state’s 

DOI and SHIP concurrently. Because of this, the frequency of our 

interviewees’ responses is not comparable. Therefore, we report these 

responses without reporting the total number of state DOIs or SHIPs 

associated with each response. In addition, state DOIs, SHIPs, and MA 

organizations we interviewed may not be representative of all state DOIs, 

SHIPs, and MA organizations, and thus the information is not generalizable 

to these entities. 

Review of Relevant 

Federal Laws, 

Regulations, and CMS 

Guidance 

Interviews with CMS 

Officials and Other 

Stakeholders 

 

2

The annual coordinated election period runs from November 15th through December 31st. 

During this time, beneficiaries may change MA plans, change Medicare prescription drug 

plans, return to Medicare FFS, or enroll in an MA plan for the first time. The open 

enrollment period runs from January 1st through March 31st and provides beneficiaries 

with one opportunity to enroll in, disenroll from, or change an MA plan. MA organizations 

are not required to open their MA plans for enrollment during the open enrollment period, 

but all MA organizations are required to grant disenrollments during this period. 

Page 29 GAO-10-36 Medicare Advantage Oversight
Appendix I: Scope and Methodology 

We interviewed officials from CMS’s central office and its 10 regional 

offices. For three regional offices (Dallas, Kansas City, New York City), we 

conducted our interviews during site visits. We chose the Dallas regional 

office because it has a high concentration of enrollment in private fee-forservice plans, a type of MA plan for which there has been a high 

percentage of allegations of inappropriate marketing. We chose the Kansas 

City regional office because it conducts detailed analyses of complaint 

data for the other regional offices. We chose the New York City regional 

office because it houses the division that coordinates CMS’s regional office 

MA monitoring and oversight activities. 

CMS 

State DOIs We interviewed officials from six state DOIs. We chose the Texas, 

Missouri, and New York DOIs because they were located in the states 

where we conducted site visits to CMS regional offices. We chose the 

Oklahoma DOI because it took enforcement action against at least one MA 

organization that was related to inappropriate marketing by agents. In 

addition, we interviewed officials from the Florida and Ohio DOIs because 

officials from these DOIs have testified before the National Association of 

Insurance Commissioners (NAIC) on inappropriate MA marketing and 

sales practices. 

SHIPs We interviewed officials from 6 SHIPs, which we chose because they were 

located in the same states as the DOIs whose officials we interviewed. 

MA Organizations We interviewed officials from five MA organizations that CMS regional 

officials we spoke with identified as having had major performance 

problems and that had been subject to one or more CMS compliance and 

enforcement actions, or that had voluntarily suspended marketing and 

enrollment for inappropriate marketing and noncompliance with agentrelated marketing requirements. The five MA organizations varied in 

enrollment size, ranging from fewer than 230,000 beneficiaries to more 

than 1 million beneficiaries.3

 As of March 1, 2009, these MA organizations 

provided Medicare coverage for approximately 26 percent of all MA 

beneficiaries. 

 

3

One of the MA organizations we interviewed no longer offered MA plans as of March 1, 

2009. Enrollment for this MA organization was zero as of March 1, 2009, and was not 

included in our range. 

Page 30 GAO-10-36 Medicare Advantage Oversight
Appendix I: Scope and Methodology 

We reported on results from a February 2008 study performed by one CMS 

regional office and analyzed data from CMS’s complaint tracking module 

and on the compliance and enforcement actions taken by the agency. 

CMS Data 

CMS Regional Office Study 

of Complaint Tracking 

We reviewed a study conducted in February 2008 by one CMS regional 

office that examined how complaint cases entered into the complaint 

tracking module were resolved by current staff in the regional office and 

MA organizations, and whether staff followed agency guidelines when 

resolving cases. The study findings were based on a content analysis 

performed by CMS officials of about 170 randomly selected cases that 

were closed in the region between August 2007 and January 2008. Because 

the study only reviewed complaints received by the one regional office, 

the results of this study are not generalizable to other CMS regional 

offices. In addition, we did not independently assess the accuracy of study 

results. Based on our review of the study’s methodology, we concluded 

that the study results were sufficiently reliable for our purposes. 

Complaint Data We reviewed data from the complaint tracking module that serves as 

CMS’s best estimate of the number of beneficiaries who received a SEP. 

The SEP estimates come from two categories in the complaint tracking 

module: inappropriate marketing complaints that required regional office 

action and inappropriate marketing complaints that did not require 

regional office action. We analyzed data on complaints that required 

regional office action from June 2007 through October 2008 and 

complaints that did not require regional office action from April 2008 

through October 2008.4

 During our interviews with CMS officials, we 

identified several limitations associated with the complaint tracking 

module data. While CMS officials told us that the agency had made 

improvements to its complaint tracking module, it was beyond the scope 

of our report to evaluate the effectiveness of these changes. On the basis 

of our review of the data and interviews with CMS officials, we determined 

that the complaint tracking module data had significant limitations. As a 

result, we include totals for the two complaint categories in our finding, 

but do not provide any additional analyses of the data. We also include a 

discussion of the data limitations in our finding. 

 

4

CMS has assisted beneficiaries who allege they have been affected by inappropriate 

marketing, including agent misconduct, by providing SEPs, through which CMS disenrolls 

them from their MA plan and attempts to restore their previous coverage. 

Page 31 GAO-10-36 Medicare Advantage Oversight
Appendix I: Scope and Methodology 

We analyzed data for the number and type of compliance and enforcement 

actions that CMS took against MA organizations from January 2006 

through February 2009 for violations related to inappropriate marketing. 

CMS provided us with marketing-related notices of noncompliance and 

warning letters issued during the agency’s review of compliance letters 

issued from June 2008 through February 2009.5

 We conducted a content 

analysis of CMS’s marketing-related compliance letters to identify those 

related to inappropriate marketing and noncompliance with agent-related 

marketing requirements. We included in our count letters that CMS sent to 

MA organizations for agents providing inappropriate information to 

beneficiaries at marketing events, engaging in prohibited activities such as 

providing meals to beneficiaries, and for high rates of beneficiary 

complaints of inappropriate marketing for which CMS considered the 

organizations to be outliers. We also included compliance letters for 

operational violations that are related to agent oversight. We excluded 

compliance letters for operational violations that were not agent-related 

such as incorrect information on MA organizations’ web sites, security 

breaches, and failure to issue beneficiary notices about plan changes in 

a timely manner. 

Compliance and 

Enforcement Action Data 

For our CAP analysis, we included those CAPs that CMS required if the 

agency determined that the MA organization engaged in activities that 

materially misled, confused, or misrepresented the MA organization to 

beneficiaries. We confirmed with CMS officials that violations in this 

category were related to inappropriate marketing by agents and that most 

deficiencies associated with inappropriate marketing that CMS identified 

fell under this audit category. This category can include deficiencies 

related to MA organizations’ internal operations related to agent oversight, 

such as agent training programs and processes for monitoring agent 

behavior, and deficiencies related to agent-related noncompliance with 

marketing requirements. However, it is possible that some instances of 

inappropriate marketing may have been included in violations identified in 

other categories. We note this limitation in the report. When MA 

organizations requested CAPs from multiple contracts under the same 

audit ID, we counted these as one CAP. Similarly, when there were 

multiple audits for the same parent organization that had the same date for 

the CAP request, we counted these as one CAP. In calculating the length of 

 

5

Prior to June 2008, CMS did not track the number of noncompliance and warning letters it 

issued in a centralized location; as a result, any letter sent prior to June 2008 was not 

included in our analysis. 

Page 32 GAO-10-36 Medicare Advantage Oversight
Appendix I: Scope and Methodology 

time CAPs remained open, we used the dates for when CMS accepted and 

closed the corrective action element for the specific inappropriate 

marketing deficiency, rather than the dates for which the entire CAP was 

accepted and closed. CMS requests CAPs to address multiple violations of 

agency requirements in addition to marketing; CMS may accept and close 

individual corrective actions for specific deficiencies under a CAP at 

different times. 

We identified enforcement actions related to inappropriate marketing and 

noncompliance with agent-related marketing requirements by performing 

a content analysis of the enforcement actions listed on CMS’s Web site. We 

reviewed the sanction letters CMS sent to these organizations or 

interviewed agency officials to determine that the enforcement actions we 

had identified were related to inappropriate marketing. Based on our 

review of the data and interviews with CMS officials, we concluded that 

the compliance and enforcement action data were sufficiently reliable for 

our purposes. 

Page 33 GAO-10-36 Medicare Advantage Oversight
Appendix II: Inappropriate Marketing 

Violations for Which CMS Sent Compliance Appendix II: Inappropriate Marketing Letters to MA Organizations, June 2008 

Violations for Which CMS Sent Compliance 

Letters to MA Organizations, June 2008 

In June 2008 CMS began tracking the number of compliance letters—

initial notices of noncompliance and warning letters sent to MA 

organizations. For the period of study, CMS issued one initial notice of 

noncompliance and 76 warning letters for various instances or areas of 

noncompliance. (See table 3.) During the 2008 annual election period, CMS 

conducted multiple surveillance activities: analyzing rates of beneficiary 

allegations of agent-related noncompliance in the agency’s complaint 

tracking module, and secret shopping of MA organizations marketing 

events and customer call centers. CMS also reviewed MA organizations’ 

compliance with required agent commission limits. CMS then sent the 

letters as a result of its findings from its surveillance activities and its 

review of compliance with required agent commission limits. 

Page 34 GAO-10-36 Medicare Advantage Oversight 
Appendix II: Inappropriate Marketing 

Violations for Which CMS Sent Compliance 

Letters to MA Organizations, June 2008 

Table 3: Inappropriate Marketing Violations for Which CMS Sent Initial Notice of Noncompliance or Warning Letter, June 2008

through February 2009 

Specific area of noncompliance 

Number of MA 

organizations

MA organization developed and distributed unapproved marketing materials that included persuasive language 

and incomplete information 1

MA organization distributed unapproved and misleading marketing materials 1

CMS received reports from SHIPs of aggressive PFFS marketing to dual-eligibles 1

MA organization was outlier in observations of violations in secret shopping of MA call centers 14

MA organization was outlier in marketing complaint rates received by CMS 12

MA organization was out of compliance with agent commission rates established by CMS regulation 37

MA organization failed to submit a unique record identification for each agent commission schedule to CMS 7

MA organization failed to report advertised marketing events to CMS 1

Secret shopper violations 

Presenter provided meals to enrollees 2

Presenter did not read PFFS disclaimer 6

Presenter required signatures on forms other than enrollment forms 1

Presenter did not provide information on where to find drugs in plan formulary 2

Presenter provided gifts without appropriate disclaimer 1

Presenter misrepresented plan 2

Presenter did not tell attendees that sign-in sheet authorized contact with enrollee 1

Presenter misrepresented CMS requirements for enrollment 1

Presenter provided limited information in order to schedule home appointment 2

Presenter provided gifts only to enrollees who filled out scope of appointment forms 3

MA organization did not respond to CMS request for investigation into secret shopper violation 2

Presenter conducted marketing presentation at plan district manager’s office with no other attendees present 1

Presenter provided limited information to get enrollee to sign scope of appointment form 1

Marketing materials lacked appropriate CMS-required disclaimers 1

Presenter gave prizes without providing disclaimer that attendees were not obligated to enroll in plan 2

Presenter compared plan to other health plans using information not created by CMS 2

Source: GAO analysis of CMS data. 

Note: The number of violations exceeds the number of notices of noncompliance and warning letters 

CMS sent to plans because the agency sent notices and warning letters to some MA organizations 

that contained more than one violation. For example, CMS sent some MA organizations warning 

letters to notify them that the agency had observed violations at secret shopping events and that the 

MA organization was an outlier in complaint rates. 

Page 35 GAO-10-36 Medicare Advantage Oversight
Appendix III: CMS Criteria for Taking Appendix III: CMS Criteria for Taking Compliance and Enforcement Actions 

Compliance and Enforcement Actions 

CMS’s MA organization account management SOPs provide general 

guidelines for when a compliance action may be appropriate: 

• the MA organization has engaged in an activity that is egregious in nature, 

• the MA organization has demonstrated sustained poor performance over a 

period of time, 

• the issue involves a large number of MA beneficiaries, or 

• the issue raises significant compliance concerns, such as the MA 

organization not meeting certain contractual requirements. 

CMS has implemented its general guidelines for compliance actions such 

that the agency has taken such actions based on specific oversight 

activities for which it has explicit criteria. Specifically, the agency issued 

the majority of notices of noncompliance and warning letters based on MA 

organizations’ noncompliance with required agent commission limits or 

the results of surveillance activities (such as analysis of inappropriate 

marketing complaints and secret shopper activities). CMS required the 

majority of CAPs based on the results of audits of MA organizations. 

Required agent commission limits, surveillance activities, and audits all 

have explicit criteria for assessing compliance with agency requirements. 

For example, of the 76 warning letters CMS sent to MA organizations for 

inappropriate marketing practices, 44 were based on noncompliance with 

required agent commission limits and 30 were based on the results of 

surveillance activities. CMS regulations published in September 2008 

require MA organizations to establish reasonable agent commission limits; 

CMS sent warning letters to those MA organizations that had commission 

limits that the agency determined were unreasonable. As part of the 

surveillance activities, during the 2008 annual election period, CMS 

analyzed the rates of inappropriate marketing complaints and sent 

warning letters to those MA organizations that met the criteria of having 

more than 15 complaints per 1,000 beneficiaries. During the same period, 

CMS sent warning letters to those MA organizations that met the criteria of 

committing one or more violations at secret shopper events, based on 

specific marketing guidelines that the agency developed. Similarly, 36 of 

37 CAPs for deficiencies associated with inappropriate marketing were 

required by CMS based on audit findings. For its audit activities, CMS’s 

audit SOPs contain specific criteria for assessing compliance with 

requirements in defined areas that trigger the agency to require MA 

organizations to develop and implement CAPs for identified deficiencies. 

Page 36 GAO-10-36 Medicare Advantage Oversight 
Appendix III: CMS Criteria for Taking 

Compliance and Enforcement Actions 

CMS’s MA organization account management SOPs and its audit SOPs 

provide guidelines for when an enforcement action may be appropriate: 

• all compliance actions have been exhausted, 

• the MA organization has a repeat deficiency,1

• an area of noncompliance could result in harm to one or more Medicare 

beneficiaries, or 

• an area of noncompliance is deemed as a “substantial failure” of Medicare 

requirements. 

Unlike compliance actions, criteria for enforcement actions are derived 

from federal statute and regulations. Enforcement actions are expressly 

provided for in federal statute as a remedy for certain violations. CMS 

officials told us that the agency initiates enforcement decisions when 

particular instances of non-compliance or failures to correct deficiencies 

warrant a higher level of intervention. According to CMS officials, they 

review various sources of evidence in determining whether to initiate an 

enforcement action, including: beneficiary complaints; results of 

surveillance activities, such as secret shopper observations; problems selfreported by the MA organization; data from audits; reporting requirements; 

and information from DOIs and SHIPs. In addition, when making 

enforcement decisions, CMS officials said that they consider the nature, 

scope, and severity of the particular non-compliance, how many 

beneficiaries have been or potentially could be adversely affected by the 

noncompliance, whether the MA organization has failed to address a 

serious compliance deficiency for which it has received prior notice and 

opportunity to correct, whether the compliance deficiency has been 

previously corrected but recurred, and CMS precedent in taking 

enforcement actions in similar circumstances. However, CMS officials said 

they prefer to resolve cases through lower levels of intervention given the 

resources required to investigate cases and the potential disruption to 

beneficiaries. 

 

1

According to CMS’s audit procedures, when the same deficiency is identified in two 

consecutive audits, it is considered a repeat deficiency. CMS’s guidance on repeat 

deficiencies was in place as of January 1, 2006, the beginning of our study period. 

Page 37 GAO-10-36 Medicare Advantage Oversight
Appendix IV: Agency Comments Appendix IV: Agency Comments 

Page 38 GAO-10-36 Medicare Advantage Oversight 
Appendix IV: Agency Comments 

Page 39 GAO-10-36 Medicare Advantage Oversight
Appendix IV: Agency Comments 

Page 40 GAO-10-36 Medicare Advantage Oversight
Appendix V: 

A

GAO Contact and Staff 

cknowledgments 

Page 41 GAO-10-36 

Appendix V: GAO Contact and Staff 

Acknowledgments 

GAO Contact James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov 

Other contributors to this report include Christine Brudevold, 

Assistant Director; Shana Deitch; Gregory Giusto; Kevin Milne; 

Elizabeth T. Morrison; Michael Rose; and Hemi Tewarson. 

Staff 

Acknowledgments 

 Medicare Advantage Oversight 
Related GAO Products Related GAO Products 

Medicare: Callers Can Access 1-800-Medicare Services, but 

Responsibility within CMS for Limited English Proficiency Plan 

Unclear. GAO-09-104. Washington, D.C.: December 29, 2008. 

Medicare: HCFA Needs to Take Stronger Actions Against HMOs 

Violating Federal Standards. GAO/HRD-92-11. Washington, D.C.: 

November 12, 1991. 

Medicare: Increased HMO Oversight Could Improve Quality and Access 

to Care. GAO/HEHS-95-155. Washington, D.C.: August 3, 1995. 

Medicare: Experience Shows Ways to Improve Oversight of Health 

Maintenance Organizations. GAO/HRD-88-73. Washington, D.C: August 

17, 1988. 

Medicare Advantage: Characteristics, Financial Risks, and 

Disenrollment Rates of Beneficiaries in Private Fee-for-Service Plans. 

GAO-09-25. Washington, D.C.: December 15, 2008. 

Medicare Advantage: Increased Spending Relative to Medicare Feefor-Service May Not Always Reduce Beneficiary Out-of-Pocket Costs. 

GAO-08-359. Washington, D.C.: February 22, 2008. 

Medicare Advantage Organizations: Actual Expenses and Profits 

Compared to Projections for 2006. GAO-09-132R. Washington, D.C.: 

December 8, 2008. 

Medicare Advantage Organizations: Actual Expenses and Profits 

Compared to Projections for 2005. GAO-08-827R. Washington, D.C.: 

June 24, 2008. 

Medicare Part D: Complaint Rates Are Declining, but Operational and 

Oversight Challenges Remain. GAO-08-719. Washington, D.C.: June 27, 

2008. 

Medicare Part D: Some Plan Sponsors Have Not Completely Implemented 

Fraud and Abuse Programs, and CMS Oversight Has Been Limited. 

GAO-08-760. Washington, D.C.: July 21, 2008. 

Schedule and Timing Issues Complicate Withholding Premiums for 

Medicare Parts C and D from Social Security Payments. GAO-08-816R. 

Washington, D.C.: July 15, 2008. 

(290681) Page 42 GAO-10-36 Medicare Advantage Oversight
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