CMS Penalties and Fines: The Real Cost of Non-Compliance
Medicare compliance isn't optional—it's existential. CMS (Centers for Medicare & Medicaid Services) has the authority to impose civil monetary penalties, suspend marketing activities, terminate agent contracts, and even refer cases for criminal prosecution. Yet many agencies treat compliance as a checkbox exercise, underestimating the financial and operational devastation that a single enforcement action can cause. This guide breaks down exactly what CMS can do when it catches violations, real examples of agencies that learned the hard way, and the concrete steps you need to take to stay on the right side of the regulations.
CMS Enforcement Actions: What's in Their Toolbox
CMS doesn't have just one lever to pull—they have a graduated enforcement framework that ranges from warning letters to criminal referrals. Understanding the full spectrum of enforcement tools helps you appreciate why compliance investment is always cheaper than the alternative. For a comprehensive overview of Medicare compliance fundamentals, see our Medicare compliance guide.
The first response for minor or first-time violations. CMS or the plan sponsor issues a formal notice requiring the agency to correct the issue within a specified timeframe (typically 30 days). While not a financial penalty, failure to comply escalates to harsher actions.
CMS can order a plan sponsor to suspend all marketing and enrollment activities—and that suspension flows down to every agent and agency working under that plan. A marketing suspension during AEP can destroy an entire enrollment season's revenue. Agencies have no recourse except to wait for the suspension to be lifted.
CMS can impose fines of up to $112,002 per violation (2026 adjusted amount) for organizations that fail to comply with Medicare Advantage and Part D requirements. For per-beneficiary violations—like misleading marketing to individual enrollees—penalties can be assessed for each affected beneficiary, compounding rapidly.
For severe or repeated violations, CMS can terminate the plan sponsor's contract entirely and exclude agents or agencies from participating in any Medicare program. Exclusion effectively ends an agency's ability to sell Medicare products—a business death sentence for agencies that depend on Medicare revenue.
Civil Monetary Penalties: The Numbers That Matter
Civil monetary penalties (CMPs) are CMS's primary financial enforcement tool. They're assessed against plan sponsors, but plan sponsors routinely pass the financial and legal consequences down to the agents and agencies responsible for the violation. Understanding the penalty structure helps you calculate the real risk of cutting compliance corners.
CMP Penalty Amounts (2026)
Maximum per-determination penalty for each violation involving misrepresentation or fraud
Per-beneficiary penalty for marketing violations that affect individual enrollees
False Claims Act penalties can reach three times the amount of false claims submitted
Total penalties have no cap—multiply per-beneficiary amounts by every affected enrollee
Most Common Violations That Trigger CMS Action
Not all compliance failures carry equal risk. Some violations are more likely to attract CMS attention because they directly harm beneficiaries or undermine the integrity of the Medicare program. Here are the violations that most frequently lead to enforcement actions:
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Misleading marketing materials
Overstating benefits, omitting limitations, using unapproved materials, or making claims about plan features that aren't accurate. Every piece of marketing must be CMS-approved before use.
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Scope of Appointment violations
Discussing products not listed on the signed SOA, failing to obtain an SOA before the appointment, or altering the SOA after it's signed. See our detailed guide on Scope of Appointment rules.
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Unsolicited contact and cold calling
Contacting beneficiaries who haven't requested information, door-to-door solicitation, or calling from purchased lead lists without proper consent documentation.
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Inappropriate enrollment practices
Enrolling beneficiaries without their knowledge, switching plans without consent, cherry-picking healthy enrollees, or failing to verify eligibility before completing enrollment.
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Failure to maintain call recordings
CMS requires that all Medicare sales calls be recorded and retained for 10 years. Agencies that can't produce recordings when audited face immediate compliance failures.
Real Examples: When CMS Takes Action
CMS enforcement isn't theoretical—actions are taken regularly against plan sponsors, agencies, and individual agents. Here are representative examples that illustrate the range and severity of CMS enforcement:
Plan Sponsor Marketing Suspension
A regional MA plan sponsor received a CMS-imposed marketing and enrollment suspension after agents were found using unapproved comparison materials that misrepresented competitor plans. The suspension lasted through the remainder of AEP, costing the plan an estimated 12,000 potential enrollments. Every downstream agency lost their ability to sell that plan's products during the highest-volume period of the year.
Agency SOA Compliance Failure
An FMO-affiliated agency was found to have systematically failed to collect Scope of Appointment forms before conducting sales presentations. CMS required the plan sponsor to audit all of the agency's enrollments from the prior year. Over 800 enrollments were flagged, resulting in $2.4 million in civil monetary penalties to the plan sponsor—which then terminated its contract with the agency and pursued indemnification.
Agent Exclusion for Enrollment Manipulation
An individual agent was found enrolling beneficiaries into plans without their informed consent, using pre-filled applications and forged signatures. CMS excluded the agent from all federal healthcare programs for 5 years and referred the case for criminal prosecution. The employing agency faced a $500,000 CMP and was required to implement a comprehensive compliance monitoring program at its own expense.
How to Prevent CMS Violations
Prevention is always cheaper than penalties. Building a compliance-first culture requires investment in training, technology, and processes—but the cost is a fraction of what a single enforcement action would impose. For a detailed audit preparation walkthrough, see our CMS audit readiness checklist.
Compliance Prevention Framework
- Record every sales call — Use a platform that automatically records, stores, and indexes every call with CMS-compliant retention (10 years). Manual recording processes are prone to gaps that auditors will find.
- Automate SOA collection — Implement digital SOA workflows that collect, timestamp, and archive Scope of Appointment forms before any sales discussion begins. Never rely on agents to remember to collect SOAs manually.
- Use only approved marketing materials — Maintain a centralized library of CMS-approved materials and lock down agents' ability to create or modify marketing content. Unapproved materials are the most common trigger for marketing suspensions.
- Implement real-time call monitoring — AI-powered compliance monitoring can flag potential violations during live calls, giving supervisors the opportunity to intervene before a violation is completed rather than discovering it weeks later in a review.
- Conduct regular internal audits — Don't wait for CMS to audit you. Review a random sample of calls, SOAs, and enrollment applications monthly. Document your findings and remediation steps—this audit trail demonstrates good faith if CMS does investigate.
- Train continuously, not annually — Annual compliance training isn't enough. Use ongoing micro-training, weekly compliance tips, and real-time coaching to keep compliance top of mind every day—not just during certification season.
The Math: Compliance Investment vs. Non-Compliance Cost
Agencies often hesitate to invest in compliance technology and processes because of the upfront cost. But the math is overwhelmingly clear: compliance investment pays for itself thousands of times over compared to the cost of a single enforcement action.
The Bottom Line
A comprehensive compliance program costs roughly $15,000–25,000 per year for a mid-size agency. A single CMS enforcement action can cost $500,000 to several million dollars in penalties, legal fees, lost revenue from marketing suspensions, and reputational damage. The ROI on compliance investment isn't 2x or 5x—it's 20x to 100x.
What Triggers a CMS Audit
Understanding what draws CMS's attention helps you prioritize your compliance efforts. Audits can be routine (scheduled as part of CMS's oversight program) or triggered by specific events:
Beneficiary Complaints
The #1 audit trigger. Beneficiaries who feel misled, pressured, or enrolled without consent file complaints through 1-800-MEDICARE. A spike in complaints about a specific plan or agency triggers immediate investigation.
Abnormal Disenrollment Rates
If beneficiaries enrolled by your agency disenroll at rates significantly higher than average, CMS suspects the enrollments were improper—either beneficiaries were misled about plan features or enrolled without informed consent.
Whistleblower Reports
Current or former employees who report compliance violations to CMS or the OIG (Office of Inspector General). The False Claims Act incentivizes whistleblowers with a share of any recovered penalties—up to 30% of the total amount.
Routine Program Audits
CMS conducts routine audits of plan sponsors as part of its regular oversight program. These audits can cascade to agencies when auditors examine agent-level compliance. Being "randomly selected" is always a possibility—preparation should be ongoing.
Conclusion: Compliance Isn't a Cost Center—It's Insurance
The irony for insurance agencies is that compliance is itself a form of insurance—protection against the catastrophic financial and operational damage that CMS enforcement actions inflict. The agencies that invest in compliance infrastructure, training, and technology aren't spending money—they're preventing losses orders of magnitude larger.
Every dollar spent on call recording, SOA automation, AI compliance monitoring, and agent training is a dollar that shields you from six-figure penalties, marketing suspensions, contract terminations, and the reputational damage that makes carriers reluctant to work with you.
Don't wait for a CMS letter to take compliance seriously. Build the infrastructure now, audit yourself regularly, and make compliance a daily practice—not an annual checkbox. The agencies that thrive in this regulatory environment are the ones that view compliance as a competitive advantage, not a burden.
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Try AgentTech Dialer NowReferences & Authoritative Sources
The information on this page is supported by the following official and authoritative sources.
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Medicare.gov Medicare.gov
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False Claims Act DOJ
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