CMS Civil Monetary Penalties Rules Revealed: Time to Prepare (and to Wait)

3.11.2020 Blog

The Centers for Medicare and Medicaid Services (CMS) recently released its long-awaited proposed rule for imposition of mandatory civil penalties to enforce the Mandatory Insurer Reporting program commonly known as “Section 111 Reporting.” The comment period for the proposed rule runs until April 20, 2020, and we encourage all stakeholders to review the rule and make comments. The full text of the proposed rule can be found here. The next step after the comments are reviewed would be the publication of the final rule, which is expected to occur before the end of the year. What does the proposed rule say, who is impacted, and how will it affect the insurance defense industry? The short answer is that there is time for the insurance defense industry to review and update its compliance program, but for a portion of the proposed rule, CMS still needs to define some terms and this means there will be additional delays even after this rule is final.

Background: The new rule would add provisions related to Mandatory Insurer Reporting. The Mandatory Insurer Reporting statute, commonly called “Section 111 Reporting,” originated in Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007. Section 111 mandates that insurers or self-insured entities, and sometimes third-party administrators, (referred to collectively as “responsible reporting entities,” or RREs) report to Medicare when the entity learns a claimant is a Medicare beneficiary. Section 111 applies not only to standard health insurance, but also to “non-group health plans,” or NGHPs, which are defined as workers’ compensation, liability, and no-fault coverage plans. For NGHPs, any claim with a total payment obligation to the claimant (TPOC) value over $750 is subject to Section 111 reporting. The purpose of the reporting is to provide CMS with the information it needs to avoid spending money on covered treatment where a primary insurance plan should be responsible. In 2013, the SMART Act added a $1,000 per day civil monetary penalty for NGHP non-compliance with Section 111, and it also required CMS to make rules regarding enforcement. After seven years, the proposed rule is now here. The rule essentially modifies 42 CFR Sections 402.1, 402.105, and 102.3. These sections currently cover the reasons why CMS would seek civil monetary penalties, as well as the amounts of the penalties for each occurrence.

Proposed Changes: The new rule creates three proposed types of civil monetary penalties for non-compliance with Section 111 reporting. New proposed Section 402.1(c)(22) will subject a NGHP RRE to penalties if: (i) the RRE does not report a beneficiary within one year of the date of claim settlement, judgement, award or other payment; (ii) the RRE contradicts its reporting in response to CMS recovery efforts; or (iii) the RRE exceeds any “error tolerance threshold” established by CMS in any 4 of 8 consecutive quarterly reporting periods. This rule has an exception if the RRE can show its failure to report stems from the NGHP’s inability to obtain the beneficiary’s information following a good faith effort. New proposed Section 402.105(b)(3) sets the amount of the penalty as follows: (i) for failure to report: up to $1,000 per day per beneficiary/claimant up to a maximum penalty of $365,000; (ii) for a response to CMS recovery that contradicts the RRE’s reporting: up to $1,000 per calendar day of non-compliance up to a maximum of $365,000; and (iii) for exceeding the error tolerance: an initial penalty of 25% of the maximum penalty per beneficiary per calendar day of non-compliance, increasing by an additional 25% each subsequent reporting period up to a maximum of $1,000 per day. If the RRE subsequently remains below the error tolerance, then the potential penalty for the next eligible file decreases 25% each quarter of compliance until it reaches the original 25% amount. The new proposed Section 102.3 will increase the maximum daily penalty from $1,000 per day to $1,211 per day for 2019 and $1,232 per day for 2020. In addition to these changes, CMS will not assess penalties for a minimum of two reporting periods after any CMS policy or procedural changes. Also, CMS stated in its own comments that it will apply the five-year statute of limitations under 28 USC 2462 from the date when the non-compliance was identified by CMS.

Impact of Proposed Rule: The immediate impact of the proposed rule is that there is going to be a further period of waiting until the rule goes into effect. With regard to the late reporting penalty and the penalty for contradictory recovery responses, we can expect CMS to start enforcement approximately six months after the rule becomes final. CMS has also indicated it will handle enforcement on a gradual basis by providing notice to the RREs and giving an opportunity to comply before imposing penalties. However, this will be discretionary, and CMS can always enforce the rule as written.

The penalties for exceeding the error tolerance threshold are still somewhat uncertain. First, we do not yet know what “errors” will be penalized. In the proposed rule, CMS states it will publish the definition of “errors” a minimum of six months after the rule is effective. Second, CMS stated the initial tolerance threshold will be 20% per “file submission,” but this term is also undefined. It appears to mean 20% of the aggregate cases reported by an RRE in a given quarterly reporting period. Third, the initial threshold of 20% is itself subject to change. In other words, the industry will not know for another year or so the actual definition of the “error tolerance threshold.” According to the CMS comments, this definition will represent a policy change by CMS, so there would be two subsequent quarterly reporting periods before imposition of any non-compliance penalties. That should give the industry a chance to prepare for the upcoming changes. In the end, it will likely take as long as another two to three years before we have any sense of certainty about this aspect of civil monetary penalties.

For now, all RREs have time to check and improve their current reporting programs to ensure no reportable claims slip through the cracks, and to make sure there is a system in place to document good faith efforts to obtain information from claimants to determine their Medicare beneficiary status. A careful strategy should also be in place to make sure Section 111 reporting is consistent with later attempts to mitigate Medicare conditional payments reimbursement claims.

For addition information and assistance developing a strategic Section 111 compliance program, please contact our Medicare Secondary Payer professionals at NBKL.


The NBKL blog is provided for informational purposes; we are not giving legal advice or creating an attorney/client relationship by providing this information.  Before relying on any legal information of a general nature, you may consider consulting legal counsel as to your particular facts and applications of the law.