New FAQ on CMS Section 111 Penalties Released

By Mark Popolizio, J.D., Jeremy Farquhar

November 7, 2023 / 15 min read

As many are likely aware, the Centers for Medicare and Medicaid Services (CMS) recently released its Section 111 civil money penalties (CMPs) final rule. The final rule outlines the official regulations to enforce Section 111’s “up to a $1,000 per day, per claim” penalty provisions under the Medicare Secondary Payer (MSP) statute. The final rule applies to both group health plans (GHPs) and non-group health plans (NGHPs). This article addresses the CMPs from the NGHP perspective.

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As discussed in our recent webinar, we had been aware that certain industry participants had questions regarding provisions of the rule. To clarify certain questions, CMS has now released a new Alert entitled CMS’s Medicare Secondary Payer and Certain Civil Money Penalties: Frequently Asked Questions.

CMS’s new FAQ resource addresses several issues related to civil money penalties (CMPs) including such topics as when CMS plans to start imposing CMPs against NGHP Responsible Reporting Entities (RREs), when a CMP may be imposed, additional information regarding its plans for random file audits, and other areas of likely interest to RREs. Overall, from the authors’ view, some of the information contained in the FAQ resource clarifies certain points related to the CMPs, while in other areas the FAQ resource raises additional questions. In addition, as part of this FAQ resource CMS indicates that the agency will be hosting webinars in January 2024 “to begin to share additional information about CMPs.”

The below provides a general overview of CMS’s new CMPs FAQ release, along with the authors’ commentary, as follows:

1. Impact on reporting obligations

As part of the FAQs, CMS notes that the final rule does not change Section 111 reporting requirements “in any way” stating as follows:

Q. How does this rule affect my Section 111 reporting obligations?

A. This rule does not alter the Section 111 reporting requirements in any way, and RREs should report as required. For example, a Total Payment Obligation to Claimant (TPOC) must be reported only if it is related to an incident that occurred on or after December 5, 1980, and releases medicals, and meets any other specifications outlined in the User Guide (e.g., TPOC amount thresholds). Please review the Section 111 User Guides if you are uncertain whether a record should be reported. [CMS emphasis].

Authors’ comments: As CMS notes in the above excerpt, the final rule makes no reference to any changes to the Section 111 reporting requirements. That said, as discussed below, it is noted the final rule does indicate, in part, that timeliness of ORM reporting is to be calculated based on the date of ORM assumption and that is not a date that is presently collected via the Section 111 reporting process. Rather, CMS only collects the Date of Incident at present. That being the case, while CMS states that the final rule did not make any changes to Section 111 reporting requirements, a legitimate question many may have is how CMS plans to assess timeliness of ORM reporting without making changes to the Section 111 reporting process in order to collect the date of ORM assumption?

2. Final Rule – key dates

The FAQ resource also contains information regarding important dates related to the final rule stated by CMS as follows:

Q: What are the key dates associated with this rule?

A: As noted in the published rule, the key dates are: October 11, 2023- Publication of the rule in the Federal Register. December 11, 2023- The rule is effective and integrated into the Code of Federal Regulations. October 11, 2024- The rule is applicable. From this date forward, Responsible Reporting Entities (RREs) will be held accountable for ensuring that all records are reported timely.

Authors’ comments: These key dates were outlined in the final rule. However, what may be helpful here, from the authors’ perspective, is that CMS reiterates/reinforces the fact that RREs will have until October 11, 2024 to ensure their data has been successfully reported before they will be at risk of being assessed CMPs.

3. CMPs – first issuance

In conjunction with the information provided by CMS regarding the rule’s effective and application dates as outlined above, CMS through the FAQ resource clarifies that the “earliest a CMP may be imposed is October 2025” stating as follows:

Q. When will CMS issue the first penalties under this rule?

A. The earliest a CMP may be imposed is October 2025. The 1-year period to report the required information before CMPs would potentially be imposed would begin on the latter of the rule effective date or the settlement or coverage effective dates which an RRE is required to report in accordance with sections 1862(b)(7) and (b)(8) of the Act. There will be no “look back” period and all penalties will be prospective in nature.

Authors’ comments: While the above FAQ is helpful in that CMS has clarified that the earliest a CMP may be imposed is October 2025, from the authors’ perspective, CMS could have more clearly outlined exactly which coverages will be in scope for penalties. As currently outlined by CMS, this may still be a bit confusing with respect to whether scenarios where settlement or coverage effective dates which occur prior to the effective date of the rule (12/11/23) are in scope for penalties. This was one particularly gray area within the final rule as there had been multiple language excerpts, which given a careful read, may have seemed to be somewhat contradictory on this point.

For example, compare the following two excerpts from the final rule publication:

The final rule in one area states: “CMPs will only be imposed on instances of noncompliance based on those settlement dates, coverage effective dates, or other operative dates that occur after the effective date of this regulation and as such, there will be no instances of inadvertent or de facto retroactivity of CMPs. [authors’ emphasis].^[1]”

Compare the above passage with the following verbiage stated in other part of the final rule: “The 1-year period to report the required information before CMPs would potentially be imposed would begin on the latter of the rule effective date or the settlement or coverage effective dates which an RRE is required to report in accordance with sections 1862(b)(7) and (b)(8) of the Act.” [authors’ emphasis].^[2]

Looking at the first passage above, this verbiage would seem to indicate that any coverages for which settlement or coverage effective dates occur prior to the 12/11/23 effective date of the rule would not be in scope for penalties. However, within the second excerpt they indicate that the 1-year timely reporting window would be calculated based on the latter of the rule effective date or settlement or coverage effective dates. This could be interpreted to imply that settlement or coverage effective dates occurring prior to the rule effective date are in scope for assessment of penalties but that the clock doesn’t begin ticking in terms of timely reporting of those coverages until the rule effective date. Here, it is notable that CMS’s language within the FAQ alert mirrors the language from within the second final rule excerpt copied above.

While further clarification from CMS may still seem appropriate here, one possible interpretation could be the following: Coverage effective or TPOC dates prior to 12/11/23 are in scope for penalties but calculation of timeliness does not begin until the 12/11/23 effective date of the rule. In other words, the clock does not begin ticking until 12/11/23 in terms of potential assessment of penalties. Furthermore, RREs have until the 10/11/24 applicability date of the rule to successfully report their data to CMS before they may be considered subject to potential assessment of a CMP. Then, finally, as of 10/11/25, CMS may begin assessing penalties and anything determined to be late that was not successfully reported prior to 10/11/24 could be assessed a penalty. The penalty amount assessed would be calculated based upon the latter of the effective date of the rule (12/11/23) vs the settlement or coverage effective date. Ultimately, as noted above further clarification from CMS in this area would be helpful.

4. When a CMP may be imposed

As a refresher, under the final rule, CMS may impose a CMP in situations where the RRE “[f]ails to report any beneficiary record within 1 year from the date of the settlement, judgment, award, or other payment, or the effective date where on-going payment responsibility for medical care has been assumed by the entity.” See, 42 C.F.R. 402.1(22)(i).

Through the new FAQ resource, CMS has provided additional information regarding what would constitute a successful coverage report and whether a submission rejected with errors would qualify as such stating as follows:

Q. What is subject to a penalty?

A. A CMP may be imposed when CMS identifies an instance where a TPOC or Ongoing Responsibility for Medicals (ORM) or coverage under a GHP has not been reported timely, as defined in the rule. The record must be accepted by CMS, and not rejected due to error, to be considered successfully reported. As a reminder, CMS considers ORM and TPOCs to be separate reporting obligations, and CMS will evaluate the timeliness of the ORM and TPOC reporting separately for the purposes of determining compliance.

Authors’ comments: While this is in line with the authors’ understanding of what constitutes a successful report it is a question that has come up on numerous occasions and so this should provide helpful clarity for many who may have wondered if an attempt to report, despite a rejection due to errors, could qualify as having submitted the coverage in a timely fashion.

5. Identifying non-compliance

CMS’s FAQ on this point contains similar information as contained in the Federal Register. On this point, CMS reiterates that it will audit a random sample of 250 records per quarter from both GHP and NGHP records and relayed information regarding this process as follows:

Q. How will CMS identify instances of non-compliance?

A. CMS will audit a random sample of 250 records that were added on a quarterly basis from across all reported records for a total of 1,000 records to be reviewed annually. This sample will reflect a proportionate number of GHP and NGHP records and may shift each quarter as GHP and NGHP record volumes vary. When a sampled record is from a source other than Section 111 reporting, CMS will identify and review the associated Section 111 record for compliance. If the Section 111 record has not been successfully reported at the time of review, noncompliance will be determined based on the information supplied in the other record (e.g., the date of settlement).

Authors’ comments: Overall, while this FAQ addresses how CMS may identify scenarios where an RRE may have failed to report altogether, in the authors’ view this may raise additional questions and concerns. Specifically, CMS makes no reference in the final rule of utilizing coverage information received via alternate non-Section 111 sources to determine an RRE’s failure to report. Absent any specific reference to third party data sources within the final rule, one might have reasonably assumed that CMS’s review of coverage records would be limited to those records submitted via the Section 111 process. However, per the above CMS seems to be indicating otherwise.

If true, this would likely raise concerns and arguably create significantly more questions than it answers. Specifically, the following are some examples of questions for consideration: If CMS is reviewing records from sources other than Section 111 RREs, can the accuracy and validity of the information received via these other sources be confirmed? How would CMS know that the information being used from other sources is accurate? On this point, CMS will take a self-report of coverage information from a variety of sources even though some of these sources may not have appropriate understanding of necessary guidelines and processes to truly provide reliably accurate information. Other times, these sources could potentially report claims that have been fully denied by the insurer or could simply contain other forms of inaccurate information. This, in turn, could create scenarios where CMS relies on other less reliable sources versus the RRE. Further, how would CMS expect to reconcile discrepancies where there may be conflicting information coming from those different sources? Is this something that CMS would expect to be able to sort out via the informal notice process?

Additional questions include: If data is received via a source other than the Section 111 RRE, how will CMS clearly and accurately identify the RRE to which the supposed missing report should have been connected? Sometimes insurer names provided by an alternate source such as a beneficiary may be slightly, or even significantly, different than that which is actually utilized by the RRE via their Section 111 reporting. Many RREs also have numerous RRE IDs so how would CMS make a connection to the appropriate RRE ID? Further, if a self-report has been made prior to settlement occurring, which is common to obtain a conditional payment amount, could the record created via the self-report be used as a means to attempt to penalize an RRE for a failure to report if a TPOC is not subsequently submitted via the Section 111 process? If so, that is not necessarily a reliable way to identify a failure to report as situations will occur where a potential settlement may be pending, for which a conditional payment amount could legitimately be sought, where the settlement agreement may ultimately fail to be reached. Scenarios involving settlement/TPOC reporting could be particularly tricky here. Going forward, we will need to monitor if CMS releases additional information and guidance to supplement this FAQ.

6. Random file selection for CMPs auditing

With respect to CMS’s plans to conduct random auditing, as part of its FAQ the agency indicates that “it is possible that one RRE could have multiple records selected for review in any quarter” stating as follows:

Q. Will there be any limits on how many records could be audited for a particular RRE?

A. Because the sampling process will be entirely random, it is possible that one RRE could have multiple records selected for review in any quarter. To ensure the sample is truly random, there will be no limits to which RREs are selected, or how many times an individual RRE’s records may be selected.

Author comments: While this offers some additional clarity, many RREs may still have more specific questions about exactly how CMS may intend to randomly select coverage records for review. More specific details regarding that process would likely be appreciated by most RREs. However, whether CMS will ultimately provide more granular detail regarding their exact methodology and process remains to be seen.

7. Claimant becomes entitled to Medicare after ORM assumed

Under CMS’s final rule, one potential basis for a CMP is untimely reporting of ORM which CMS defines as situations where the RRE “[f]ails to report any beneficiary record within 1 year from… the effective date where [ORM] been assumed by the entity.” See, 42 C.F.R. 402.1(22)(i). CMS states further that it will compare the date of the RRE’s file submission with the date upon which the RRE assumed ORM.

As noted above, it is interesting to note that while CMS indicates that it will assess timeliness from when the RRE “assumes” ORM, it does not currently collect the date of ORM assumption via the Section 111 reporting process ---- rather, CMS only collects the Date of Incident (DOI) and there may often be a delay between the DOI and the time ORM is established. Unfortunately, CMS’s FAQ release does not contain any information regarding how the agency plans to assess potential CMPs based off the RRE’s assumption of ORM.

However, the FAQ does contain information regarding situations where the claimant becomes entitled to Medicare after ORM is assumed stating as follows on this point:

Q. What if the individual became entitled to Medicare after ORM was assumed or GHP coverage became effective?

A. In these circumstances, the timeliness of reporting is based on the individual’s eligibility for or entitlement to Medicare.

Authors’ comments: From the authors’ perspective, this appears logical and is what would have been expected. As far as NGHP reporting is concerned, what CMS is indicating here is that, in scenarios where the date of ORM assumption predates the beneficiary’s Medicare entitlement date, the entitlement date will be used as the starting point from which timely reporting is assessed.

8. TPOC date and funding delayed beyond TPOC date

CMS’s FAQ document includes similar information as that contained in the final rule regarding the TPOC date and situations where the “funding delayed beyond TPOC date” field may be applicable stating as follows:

Q. What if settlement occurs, but the specific TPOC amount is determined later?

A.CMS will use the “TPOC Date” to determine reporting timeliness, unless the “Funding Delayed Beyond TPOC Date” on the record is populated. In those situations, the “Funding Delayed Beyond TPOC Date” will be used.

Authors’ comments: This aligns with the authors’ prior analysis in their recent article, but it is noted that the specific reference to the Funding Delayed Beyond TPOC Start Date above may provide helpful clarification for many RREs as CMS did not directly reference the specific field utilized for reporting a delay in funding within their final rule publication.

9. RRE questions

As part of the alert, CMS states that RREs can submit questions to their EDI representative stating as follows: “RREs that have additional questions about the reporting process should contact their EDI representative. If you have questions or comments specific to CMPs, please send them to the Section 111 CMP mailbox at Sec111CMP@cms.hhs.gov.”

10. CMS Webinars

As part of the FAQ, CMS indicates that it is planning webinars in January 2024 regarding CMPs. On this point, the FAQ states: “CMS will also be hosting webinars in January 2024 to begin to share additional information about CMPs.”

Questions?

Please do not hesitate to contact the authors if you have any questions, or to learn how Verisk can help you address your Section 111 reporting obligations.

[1] Fed. Reg. Vol. 88, No. 195, at 70368 (October 11, 2023).

[2] Fed. Reg. Vol. 88, No. 195, at 70368 (October 11, 2023).

CMS releases new Section 111 penalties FAQ resource