CMS Publishes Final Rule on Civil Monetary Penalties for Section 111 Reporting

By Barrye Miyagi and Shannon Shelton

The Centers for Medicare and Medicaid Services (CMS) has finalized and published the rule specifying how and when it will calculate and impose civil monetary penalties (CMPs) when Group Health Plan (GHP) and Non-Group Health Plan (NGHP) Responsible Reporting Entities (RREs) fail to meet their Medicare Secondary Payer (MSP) reporting obligations.  The text of the Final Rule, as published at 42 C.F.R. 402, can be found here.

For a general summary of Section 111 reporting see our prior article.

The Final Rule will become effective on December 11, 2023.  The Final Rule becomes applicable on October 11, 2024. RREs who are not compliant with Section 111 reporting requirements by the effective date are at risk for CMPs.

Basis for CMPs: Untimely reporting is the sole basis for imposition of CMPs. Contradictory reporting and reporting errors were included as grounds for CMPs in the proposed rule, published in the Federal Register in February 2020, but are not included in the Final Rule.

• GHPs: Timeliness is defined as reporting to CMS within one year of the date GHP coverage became effective.
• NGHPs: Timeliness is defined as reporting to CMS within one year of the date a settlement, judgment, award, or other payment determination was made (or the funding of a settlement, judgment, award, or other payment, if delayed), or the date when an entity’s Ongoing Responsibility for Medicals (ORM) became effective. 

Failure to timely report prevents CMS from promptly and accurately determining the proper primary payer and taking the appropriate actions. CMPs are designed to address this issue.

Procedure for imposing CMPs: CMS will not monitor all RRE submissions as contemplated in the proposed rule.  Instead, CMS has developed an audit process to identify noncompliance.

• CMS will audit a randomized sample of recently added beneficiary records. CMS has determined that it will be possible to audit a total of 1,000 records per calendar year across all RRE submissions, divided equally among each calendar quarter (250 individual beneficiary records per quarter).
• A proportionate number of GHP and NGHP records, based upon the pro-rata count of recently added records, will be evaluated.  For example, if CMS received 600,000 GHP records and 400,000 NGHP records (for a total of 1,000,000 recently added beneficiary records) over the calendar quarter being evaluated, then 60 percent of the 250 records audited for that quarter would be GPH records and 40 percent would be NGHP records.
• At the end of each calendar quarter, CMS will randomly select the indicated number of records and analyze each record for compliance.

Penalties: CMS does not have statutory authority to adjust the amount of penalties imposed on GHPs. Therefore, the penalties for GHPs and NGHPs will be calculated differently.

• GHPs: For any GHP selected record that is more than one year (365 calendar days) late, a penalty of $1,000 per day (as adjusted) will be imposed.
• NGHPs: A tiered approach to penalties will be implemented for any selected NGHP record determined to be noncompliant.

To calculate the penalty imposed against an RRE, CMS will multiply the number of audited records found to be noncompliant by the number of days each record was late (in excess of 365 days).  The product will then be multiplied by the appropriate penalty amount.

NGHP Tiered Penalty Approach:

For any record selected via the random audit process where the NGHP RRE submitted the information more than one year after the date of settlement, judgment, award, or other payment (including assumption of ORM for medical care), the daily penalty will be:

• $250.00 for each calendar day of noncompliance where the record was reported more than one year but less than two years after the required reporting date.
• $500.00 for each calendar day of noncompliance where the record was reported more than two years but less than three years after the required reporting date.
• $1,000 for each calendar day of noncompliance where the record was reported three years or more after the required reporting date.
• Penalties are adjusted annually for inflation pursuant to 45 C.F.R. pt. 102.

Safe Harbors

No penalty will be imposed if any of the following apply.

NGHP RRE Good Faith Efforts to Obtain Identifying Information

The NGHP RRE must document its good faith efforts to obtain the beneficiary’s name, date of birth, gender, Medicare Beneficiary Identifier (MBI), Social Security Number (or last 5 digits) to avoid the imposition of CMPs.  The NGHP RRE must perform the following action.

1. The NGPH RRE must communicate the need for the information to the individual and his/her attorney or other representative, if applicable, or both.
2. The NGHP RRE must request the information from the individual and his/her attorney or other representative (if applicable) at least three times.
   • Once in writing (including electronic mail);
   • Once more by mail; and
   • Once more by phone or other means of contact if the absence of a response.
3. If the NGHP RRE receives a written response from the individual or their attorney or representative that clearly and unambiguously declines or refuses to provide any portion of the required information, no additional communication is required.
4. The documented refusal must be maintained for at least five years. 

Technical or System Issues Outside of the NGHP/GHP RRE’s Control

CMPs will not be imposed if the untimely reporting is the result of a technical or system issue outside the control of the RRE or an error caused by CMS or one of its contractors.

Recent Policy or Procedural Change

The NGHP/GHP RRE is exempt from CMPs if the noncompliance is due to a CMS policy or procedural change that has been effective for less than six months following the implementation of that policy or procedural change (or for one year if CMS failed to provide at least six months’ notice before implementing the change).

Compliance with Reporting Thresholds or Reporting Exclusions

CMPs will not be imposed in instances where the NGHP/GHP RRE complies with any reporting thresholds or other reporting exclusions.

Observations and Additional Information:

Prospective Application:  CMS will evaluate compliance based only upon files submitted by the RRE on or after the effective date (December 11, 2023) of the Final Rule.  CMPs will only be imposed in instances of noncompliance based upon settlement dates, coverage effective dates or other operative dates that occur after the effective date of the Final Rule. CMS specifically states there will be no inadvertent or de facto retroactivity of CMPs.

Statute of Limitations: CMS must enforce CMPs within five years from discovering the noncompliance.

Appeals: CMS will follow the formal appeals process set forth in 42 C.F.R. 402.19 and 42 C.F.R. pt. 1005.  An informal notice (described as a written pre-notice) will precede the formal  notice of the CMP.  The RRE will have 30 days to respond with mitigating factors before issuance of the formal written notice. CMS encourages RREs to submit all mitigating factors, and there are no strict limits on acceptable documentation.

Total Annual CMPs: CMS calculated penalties based on the methodology set forth above for the 2022 calendar year.  Based on that information, the maximum penalties imposed would have totaled $128.85 million ($86.4 million for GHPs and $42.4 million for NGHPs), which is below the $200 million threshold to be considered an economically significant rule. Based on this information, GHPs appear to currently have double the risk for CMPs.

Double damages and interest for failure to reimburse Medicare: The penalties addressed in the Final Rule pertain to Section 111 reporting. The Medicare Secondary Payer Act provisions have not been revised, and the potential for double damages and interest for failure to properly and timely reimburse Medicare remains in place.

• Termination of ORM:  There are no penalties for failure to terminate ORM.
• MSP Termination Date for GHPs:  The Final Rule does not appear to impose penalties for failure to enter an MSP Termination Date. Additional clarification from CMS will be obtained.

Future Developments

CMS will develop and publish additional guidance related to CMPs.  Questions should be directed to the CMS Section 111 CMP mailbox at Sec111CMP@cms.hhs.gov.  CMS has indicated submitters may not receive direct responses.  CMS will use questions and comments for outreach and educational materials and will post guidance and updates, including information about webinars, on the CMS.gov website.

For advice on Section 111 compliance, please contact Barrye Miyagi or Shannon Shelton.

About the Authors

Barrye Miyagi is Partner at Taylor Porter and the Practice Group Leader for Taylor Porter’s Medicare Secondary Payer (MSP) Compliance Group.  Barrye  is certified by the Louisiana Association of Self Insured Employers (LASIE) as a MSP-Fellow and has worked in the MSP Compliance arena for over 15 years.  She has extensive experience in defending and resolving complex toxic tort claims. As a result of her background, she brings a unique perspective to MSP compliance.  Barrye enjoys providing tailored MSP solutions to her clients and solving complex MSP problems.   

Shannon A. Shelton is Special Counsel at Taylor Porter and practices in the MSP Compliance Group. Shannon’s primary practice focus is complex litigation involving MSP compliance.  Shannon has represented and defended Fortune 10 global energy companies in class action and mass joinder cases involving toxic tort exposure and personal injury from Naturally Occurring Radioactive Material (NORM). Shannon is also certified by LASIE as a Certified Medicare Secondary Payer (CMSP) Professional and has worked in the MSP Compliance arena for over 10 years.

Taylor Porter’s MSP Compliance Group counsels businesses and lawyers on MSP Best Practices. Their work includes drafting best practices and related documents, identifying and resolving the interests of Medicare and Medicare Advantage Plans in settlements and judgments, global lien resolution in complex, multi-plaintiff cases, Medicare Set Asides, Section 111 reporting, and Section 111 audits.

Barrye and Shannon also provide strategic advice on MSP compliance during all phases of litigation and settlement. If you have questions about MSP compliance, please contact Barrye and/or Shannon.

Please note this information is accurate as of the October 11, 2023 publication of this article.