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CMS’s Section 111 penalty proposals are here

By Mark Popolizio  |  February 18, 2020

The Centers for Medicare and Medicaid Services (CMS) has released its long-awaited Section 111 civil money penalty (CMPs) proposals for non-group health plans (NGHP), as well as group health plans (GHP). CMS’s proposals can be found at 85 Fed. Reg. 8793 (February 18, 2020). For purposes of this article, the proposed CMPs are analyzed in relation to NGHP reporting.

The article provides a general overview of this issue and CMS’s proposals as it relates to NGHP reporting as follows:

CMS’s authority to impose CMPs

CMS’s right to impose CMPs stems from 42 U.S.C. § 1395y(b)(8)(E)(i) which states as follows:

An applicable plan[1] that fails to comply with the [Section 111 reporting] requirements … may be subject to a civil money penalty of up to $1,000 for each day of noncompliance with respect to each claimant … A civil money penalty under this clause shall be in addition to any other penalties prescribed by law and in addition to any Medicare secondary payer claim under this subchapter with respect to an individual. (Emphasis Added)[2]

To effectuate this provision, CMS is tasked with “specifying practices for which sanctions will and will not be imposed under subparagraph (E), including not imposing sanctions for good faith efforts to identify a beneficiary pursuant to this paragraph under an applicable entity responsible for reporting information.”[3]  

It is from these provisions upon which CMS’ CMP proposals are based. The CMP provisions will be contained as part of 42 C.F.R. § 402 and 42 C.F.R. § 102, which are existing regulations related to CMPs in general.

Intent and application

In assessing CMPs, CMS states that it will not rely on the intent of the RRE; rather, the penalties will be based on the number of times RRE fails to report or fails to report timely. CMS’s CMP implementation will be prospective in nature – with CMS indicating that its evaluation of potential CMPs will be based upon files submitted by the RRE on or after the effective date of any final rule. Of note, the “up to $1,000” penalty amount will be adjusted annually for inflation under 45 CFR part 102.[4]  Further, CMS intends to apply a five-year statute of limitations pursuant 42 USC § 2462 to CMPs stating that “we may only impose a CMP within 5 years from the date when the non-compliance was identified by CMS.”   

CMS estimates the total cost impact to all 20,855 currently registered RREs[5] to be $6,842,437 (or $328.08 per entity). In calculating these figures, CMS estimates that it would take staff (using “average reading” speed) approximately 3 hours to review the proposals at an estimated cost of $109.36 per hour using U.S. Department of Labor statistics (3 hours X $109.36). From there, CMS estimates the total cost of reviewing the proposals to equal $6,842,437 ($328.08 X 20,855 RREs). Further, under applicable regulatory assessment guidelines, CMS has determined that the proposed rules would not have a significant economic impact on a substantial number of small entities. Overall, CMS does not expect to collect CMPs totaling $100 million or more in any given year. As such, the proposals are not considered “major” under the Congressional Review Act (CRA) used to measure regulatory impact. CMS expects to have more robust data to provide a better detailed cost/benefit analysis when the final rules are developed.

Notice & Appeal Rights

CMS expects to communicate informally with the RRE before issuing formal notice regarding a CMP, to include, in general, a written “pre-notice” process that would allow the RRE to present mitigating evidence within 30 days before CMS would impose a CMP. Once CMS determines that a CMP will be imposed, it will then provide “formal notice” in writing per 42 CFR § 402.7 containing information on the reason for the CMP, the amount of the CMP, and next steps, including the RRE’s right to appeal.

In terms of appeals, CMS states that parties will be able to appeal using the appeals process currently outlined in 42 CFR § 402.19 and 42 CFR part 1005, which includes appeal before an Administrative Law Judge and the Departmental Appeals Board (DAB). CMS notes that DAB decisions become binding 60 calendar days following service of the DAB’s decision – absent petition for judicial review.

When CMPs Would be Imposed

CMS proposes the following areas where CMPs could be imposed:

  1. RRE fails to report any NGHP beneficiary record w/in the required timeframe (no more than 1 year after TPOC).

In terms of assessing the penalty, CMS indicates it will be calculated daily based on the actual number of individual beneficiaries’ records that the entity submitted untimely (that is, in excess of the required timeframe after TPOC date). The penalty would be up to a $1,000 (adjusted annually per 45 CFR  § 102) for each calendar day of non-compliance for each individual for which the required information should have been submitted, as counted from the day after the last day of the RRE’s assigned reporting window where the information should have been submitted through the day that CMS received the information, up to a maximum penalty of $365,000 (as adjusted annually under 42 CFR part 102) per individual per year.

  1. RREs response to CMS recovery efforts contradicts the RRE’s Section 111 reporting.

In this instance, the penalty would be calculated based on the number of calendar days that the entity failed to appropriately report updates to the beneficiary records as required for accurate and timely reporting. The penalty would be up to $1,000 (adjusted annually per 45 CFR 102) per calendar day of non-compliance for each individual, for a maximum annual penalty of $365,000 (adjusted annually per 45 CFR § 102) for each individual for which the required information should have been submitted. CMS states that it does not have systems in place, at this time, to monitor when entities contradict their reported data – although CMS indicates that it is currently implementing monitoring systems that will allow it to better model future reporting violations and CMP imposition.

  1. RRE has reported and exceeds any error tolerance(s) threshold established by the Secretary in any 4 out of 8 consecutive reporting periods.

CMS proposes that the “initial and maximum” error tolerance threshold would be 20% (representing errors that prevent 20% or more of the beneficiary records from being processed). CMS states that it would only consider those “significant” errors which prevent a file or individual beneficiary from processing, such as failure to provide an individual’s last name or valid date of birth, or failure to provide a matching Tax Identification Number. In addition, CMS indicates that in evaluating its error tolerance thresholds it would only include those errors and condition flags that are within the RREs direct control and cause CMS to be unable to process the individual beneficiary records or entire file submissions.

Under CMS’s proposals, the RRE would be considered out of compliance for the entire reporting period when the error tolerance is exceeded (reporting period defined as one quarter, standardized to 90 calendar days). CMS proposes to apply the penalty as an absolute percentage of the records submitted in a given reporting cycle. CMS is seeking feedback on its proposed methodology and threshold. In addition, CMS indicates that the errors that would be used to determine whether the tolerance is met will be defined a minimum six months in advance of any CMP (after publication of the final rule) in the NGHP User Guide and will be subject to notice and comment.

In terms of calculating the penalty, CMS proposes to employ tiered approach if the RRE exceeded the error tolerance(s) in the RRE’s fourth tolerance submission. The penalty would be applied using a “sliding scale” of 25% - 100% based on the number of calendar days that the applicable plan exceeded the error tolerance(s) in the entity's fourth above tolerance submission. CMS provides examples of how this would work, along with the potential penalty amounts, at 85 Fed. Reg. 8798-8799 and 8802 (February 18, 2020).

When CMPs Would NOT be Imposed

CMS also proposes certain instances when CMPs would not be imposed where all of the applicable conditions are met:

  1. RRE reports any NGHP beneficiary record that is submitted within the required timeframe (not to exceed one year after the TPOC date).
  2. RRE complies with any TPOC reporting thresholds or any other reporting exclusions published in the NGHP User Guide, or otherwise granted by CMS.
  3. RRE does not exceed any error tolerance(s) in any of 4 out of 8 consecutive reporting periods.
  4. Despite good faith efforts, the RRE is unable to report.

CMS describes this item to be situations when the RRE fails to report because it was unable to obtain necessary info to report, including name, DOB, gender, MBI, SSN, or last 5 of the SSN, and the entity has made and maintained records of its good faith effort to obtain this info by taking ALL of the following steps:

a. Communicated the need for info to individual and his/her attorney or other representative at least twice by mail and at least once by phone or other means of contact (such as electronic mail in the absence of a response to mailings);

b. RRE certifies that it has not received a response in writing; or has received a response in writing that the individual will not provide MBI, SSN, or last 5 of SSN;

c. RRE has documented in its records to show its efforts to get the MBI, SSN, or last 5 of SSN and the reason for the failure to collect this info;

d.RRE should maintain records of these good faith efforts (such as dates and types of communications with the individual) in order to be produced as mitigating evidence should CMS contemplate CMP imposition; and

e. Records should be maintained for a period of 5 years

  1. Programmatic changes: CMS proposes that CMP imposition will be suspended where programmatic changes are required

Regarding this item, CMS expects to continue to provide at least 6 months’ (180 calendar days) notice regarding any changes in policy or procedure to allow RREs adequate time to react. Accordingly, CMS indicates that any CMPs associated with a specific policy or procedural change will NOT be imposed for a minimum of two reporting periods following the implementation of that policy or procedural change.

Comments can be submitted to CMS (Due April 20, 2020)

In keeping with standard rule making process, CMS has opened a limited period for the public to submit comments. All comments must be received by CMS no later than 5 p.m. on April 20, 2020 following CMS’s specific instructions as outlined in its proposals. See, 85 Fed. Reg. at p. 8794 (February 18, 2020). CMS is seeking comments on its proposed approaches to imposing CMPs, including the proposed methods of calculating CMP amounts, and the proposed error tolerance rates. From there, CMS will review all comments received and following that will take next steps toward publishing its “final rules” regarding Section 111 CMPs at some future point. In this regard, it will be interesting to see of CMS’s final rules will be similar to it current proposals, or whether the agency will make modifications based on the received industry comments.  

ISO Claims Partners is analyzing these proposals in terms of overall impact on Section 111 reporting requirements and will provide further updates as warranted. In the meantime, feel free to contact the author directly if you have any questions or would like to discuss the CMP proposals in further detail.


[1] Applicable plans include liability (including self-insurance), no-fault insurance, and workers’ compensation laws or plans. 42 U.S.C. § 1395y (b)(8)(F). As part of CMS’ implementation of Section 111, the agency refers to the party obligated to report as the Responsible Reporting Entity (RRE). Under Section 111, applicable plans are required to report certain claims and settlements involving Medicare beneficiaries to CMS in accordance with CMS’s Section 111 reporting directives.

[2] It is noted that the original Section 111 penalty provision stated that an applicable plan shall be subject to a civil money penalty of $1,000 for each day of noncompliance with respect to each claimant.” The phrase “shall be subject” in the original statute raised concerns that a strict interpretation of this provision could result in the penalty being automatically assessed, without consideration of legitimate defenses or disputes an applicable plan may have; or without regard to the plan’s inability to comply with Section 111 despite due diligence and good faith efforts. Given these concerns, steps were taken to modify the penalty provision as part of the SMART Act reform bill signed into law by President Obama in January 2013. The SMART Act changed the penalty provision by adding a discretionary element to the penalty’s application and amount. Specifically, Section 203 struck the “shall be subject” language and replaced it with the phrase “may be subject to a civil money penalty up to $1,000 for each day of noncompliance with respect to each claimant.”

[3] 42 U.S.C. § 1395y(b)(8)(I).

[4] Please note that in his prior article, the author noted, incorrectly, that the current adjusted penalty rate for NGHP reporting was currently $1,569.00 for 2020. However, this figure actually relates to GHP. The author apologizes for any inconvenience or confusion.

[5] CMS proposes this figure consists of 1,039 GHP RREs plus 19,816 NGHP RREs.  


Mark Popolizio, J.D., is vice president of MSP compliance and policy at ISO Claims Partners, a Verisk business. You can contact Mark at mpopolizio@verisk.com.