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OIRA issues new notice regarding Section 111 civil money penalties - notice addresses the proposed rule’s economic impact designation

As many will recall, earlier this year the Centers for Medicare and Medicaid Services (CMS) extended the timeline to release its Section 111 civil money penalties (CMP) “Final Rule” until February 18, 2024, to allow the agency additional time to further assess the potential economic impact of the Final Rule. Specifically, as explained below,  when CMS released its Section 111 CMPs in February 2020, the agency concluded that its proposals were not “economically significant” as that term is defined within the context of regulatory rulemaking.   However, as noted above, CMS in February 2023 announced that it was delaying release of the Final Rule to allow it additional time to reassess its proposed economic impact on industry stakeholders.   

Now, in a new development, the Office of Information and Regulatory Affairs (OIRA), which is part of the Office of Management and Budget (OMB),[1] has released a new notice, indicating that it has completed its review of CMS’s proposed CMPs and, based on this review, it still designates CMS’s proposals as not economically significant.  Of note, however, OIRA’s new notice indicates that it reviewed CMS’s proposals as received on “March 1, 2022.” In this regard, what remains unclear is whether OIRA’s new notice and conclusion simply relates to their review of CMS’s proposals and economic analysis as has existed over the past few years (in their current state as received by them on March 1, 2022), or if this notice is somehow indicating that CMS has since completed its additional economic analysis, concluded that its proposals are still not economically significant, and now OIRA has agreed with this analysis, and thus, potentially paving the way for the Final Rule to be posted at some point.

Notwithstanding, going forward, we will continue to closely monitor events on this front, as we have been doing, to see what may develop next regarding CMS’s CMP proposals and continuing efforts towards implementing its Final Rule regarding Section 111 penalties.

For those interested in more in-depth overview, the following is presented:

Background

As outlined more fully in our prior article, as part of the regulatory rulemaking process a detailed regulatory impact analysis must be prepared for “major rules” with “economically significant” effects defined, at that time, in part, as rules ”[having] an annual effect on the economy of $100 million or more, or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”[2]  In addition, major rules require, in part,  the issuing agency “to provide an explanation of the need for the regulatory action and an assessment of potential costs and benefits.”[3]

CMS, as part of its Section 111 CMPs proposals released in February 2020,[4] concluded that its proposals were not “economically significant” concluding that “it [did] not expect to collect CMPs totaling $100 million or more in any given year, nor do we expect this rule to have any other economic effects that meet or exceed that threshold. Therefore, this rule is not considered a major rule [under the Congressional Review Act].”[5]

Against this backdrop, CMS in February 2023 announced  that it was pushing back the targeted release of the Final Rule until February 18, 2024, noting, in part, that it was unable to meet the initial targeted three-year release deadline (February 18, 2023) “due to delays related to the need for additional, time-consuming data analysis resulting from public inquiry” regarding the economic impact of the Final Rule.[6] CMS further commented that additional time was necessary as it is “preparing additional data analysis and predictive modeling to better understand the economic impact of the proposed rule across different insurer types” and that “[t]his data analysis is designed to review the actual current reporting and model potential penalties that would be imposed were the Final Rule in place.”[7] 

OIRA’s new notice

Thus, since February 2023, the industry has been waiting to see what may happen next regarding CMS’s Section 111 CMPs Final Rule -- we now have a new update on this front.   Specifically, as noted above, OIRA has released a new notice dated September 11, 2023 indicating that it has completed its review of CMS’s proposed CMPs Final Rule and, based on this review, still designates CMS’s proposals as not economically significant. As noted above, in this regard, what remains unclear is whether OIRA’s new notice and conclusion simply relates to their review of CMS’s proposals and economic analysis as has existed over the past few years (in their current state as received by them on March 1, 2022), or if this notice is somehow indicating that CMS has since completed its additional economic analysis, concluded that its proposals are still not economically significant, and now OIRA has agreed with this analysis, and thus, potentially paving the way for the Final Rule to be posted at some point. On these points, going forward it will be important to continue to monitor activity on this front to see what may develop.

Questions?

Verisk will continue to monitor events and provide updates as warranted.  In the meantime, please do not hesitate to contact the author if you have any questions.


[1] By way of brief background, OIRA is part of the Office of Management and Budget (OMB) within the Executive Office of the President.  OIRA’s website describes its function and role, in part, as follows:

OIRA is the United States Government’s central authority for the review of Executive Branch regulations, approval of Government information collections, establishment of Government statistical practices, and coordination of Federal privacy policy. The office is comprised of six subject matter branches and is led by the OIRA Administrator, who is appointed by the President and confirmed by the United States Senate. In addition to reviewing drafts of proposed and final regulations under a variety of statutory and Executive Order authorities, OIRA also coordinates a retrospective review of regulation under Executive Order 13610, reviews and approves Government collections of information from the public under the Paperwork Reduction Act and oversees the implementation of Government-wide policies in the areas of information policy, privacy, and statistical policy. OIRA also coordinates agency implementation of the Information Quality Act, including the peer-review practices of agencies, and participates in the implementation of the Small Business Regulatory Enforcement and Fairness Act (SBREFA). Finally, OIRA coordinates the Administration’s efforts to improve regulatory cooperation with our key trading partners, including Canada and Mexico.

[2]  85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).  In addition, the following description s contained as part of Reginfo.gov under the “FAQs/Resources” tab:  https://www.reginfo.gov/public/jsp/Utilities/faq.myjsp

Q. What does it mean when a regulatory action is determined to be "significant?"

A. Under Executive Order 12866, OIRA is responsible for determining which agency regulatory actions are "significant" and, in turn, subject to interagency review. Significant regulatory actions are defined in the Executive Order as those that:

  1. Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
  2. Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
  3. Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
  4. Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive order.

The Executive Order requires that significant regulatory actions be reviewed by OIRA before they are published in the Federal Register or otherwise issued to the public. The Executive Order also requires agencies to provide an explanation of the need for the regulatory action and an assessment of potential costs and benefits. OIRA generally designates between 500-700 regulatory actions as significant each year.

Of note, the threshold amount to determine whether a proposed rule is economically significant has since been raised from $100 million to $200 million.  See,  the following notice from the Office of Information and Regulatory Affairs https://www.reginfo.gov/public/do/eoDetails?rrid=229611  which states, in pertinent part, as follows

Following the issuance of E.O. 14094 on April 6, 2023, which amended Section 3(f)(1) of E.O. 12866, OIRA has designated regulatory actions as "Section 3(f)(1) Significant" if under that newly amended section of E.O. 12866 they are likely to result in a rule that may have an annual effect on the economy of $200 million or more (adjusted every 3 years by the Administrator of OIRA for changes in gross domestic product); or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, territorial, or tribal governments or communities. After April 6, 2023, OIRA no longer designated regulatory actions as "Economically Significant."

Between September 30, 1993, when E.O. 12866 was issued, and April 6, 2023, when E.O. 14094 was issued, OIRA designated regulatory actions as "Economically Significant" if under Section 3(f)(1) of E.O. 12866 they were likely to result in a rule that may have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.

[3] Id.

[4] Of note, CMS’s Section 111 CMPs proposals related to both Non-Group Health Plans (NGHPs) and Group Health Plans (GHPs).  This article focuses on CMS’s Section 111 CMPs proposals only from the perspective of NGHPs.  In general, CMS is proposing to penalize NGHP RREs in the following three situations: (i) the RRE fails to report any NGHP beneficiary record within the required timeframe (not more than one year after TPOC); (ii) the RRE’s response to CMS recovery efforts contradicts the RRE’s Section 111 reporting; and/or (iii) the RRE has reported and exceeds any error tolerance(s) threshold (currently proposed at 20%) established by CMS in any four out of eight consecutive reporting periods.  85 Fed. Reg., No. 32, 8797-8799, (Feb. 18, 2020). CMS indicates that the CMPs will be “prospective” in nature stating that “[w]e … would evaluate compliance based only upon files submitted by the RRE on or after the effective date of any Final Rule.” 85 Fed. Reg., No. 32, 8796.

In addition, CMS is proposing a Section 111 compliance safe harbor in situations where the NGHP RRE is unable to report because it is unable to obtain the necessary data elements to determine a claimant’s Medicare beneficiary status despite a “good faith” effort to do so as follows:

If an NGHP RRE fails to report required information because it was unable to obtain information necessary for reporting from the reportable individual, including his/her last name, first name, date of birth, gender, MBI, or SSN (or the last 5 digits of the SSN), and the NGHP RRE has made and maintained records of its good faith effort to obtain this information by taking all the following steps:

  1. The NGHP RRE has communicated the need for this information to the individual and his or her attorney or other representative and requested the information from the individual and his or 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 the mailings:
  2. The NGHP RRE certifies that it has not received a response in writing, or has received a response in writing that the individual will not provide his or her MBI or SSN (or last 5 digits of his or her SSN); and
  3. The NGHP RRE has documented its records to reflect its efforts to obtain the MBI or SSN (or the last 5 digits of the SSN) and the reason for the failure to collect this information. 85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).

CMS states further that “the NGHP entity 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 the imposition of a CMP. Such records must be maintained for a period of 5 years.”  Id.

[4] Responsible Reporting Entities (RREs) are the parties who are obligated to report under Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) (P.L. 110-173).  While Section 111 applies to both group health plans (GHP) and non-group health plans (NGHP) (i.e., workers’ compensation, liability, self-insurance, and no-fault insurance), references to Section 111 in this article relate to Section 111 reporting in the NGHP context as codified at 42 § U.S.C. 1395y(b)(8). In general, RREs are insurers and self-insurers, but could involve other entities such as self-insurance pools or assigned claims funds depending on the facts. (See generally, CMS’s Section 111 NGHP User Guide, Chapter III (Version 6.9, October 3, 2022), Chapter 6.  Expanding on this concept further, 42 U.S.C.  § 1395y(b)(8) provides that the “applicable plan” is the RRE and defines the term “applicable plan” to include liability insurance (including self-insurance), no-fault insurance, and workers’ compensation laws or plans.)  However, claimants and their lawyers are not RREs and do not have reporting responsibilities under Section 111. Id

[5] 85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020). On this point, CMS stated more fully as follows:

Estimating the economic effects of this rule presents a significant challenge under current circumstances. At this point in time, the reporting program has not yet reached a level of maturity where we have definitively identified any additional RREs that have failed to register and report as required. We have purposely selected an error tolerance threshold (20 percent) that is achievable for all current RREs based on recent performance, and thus would not impose any CMPs based on current performance. However, we do not yet have eight consecutive reporting periods of data, and, as such, we are not able to currently model the potential imposition of CMPs on this basis at this time. We also do not have the systems in place at this time to monitor when entities contradict their reported data in response to CMS MSP recovery efforts. At this point in time, we do not expect to collect CMPs totaling $100 million or more in any given year, nor do we expect this rule to have any other economic effects that meet or exceed that threshold. Therefore, this rule is not considered a major rule under the CRA. We note that we are currently implementing monitoring systems that will allow us to better model future reporting violations and CMP imposition. Therefore, when we are ready to develop the Final Rule we expect to have available a significantly increased array of relevant data. As a result, we commit to providing a detailed analysis of the costs and benefits of this rule at that time. We also invite feedback from the public that would assist us in determining the quantifiable costs and benefits of this proposed rule. 85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).

See also, https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202004&RIN=0938-AT86

In addition, CMS concluded that its CMPs proposals would not have a significant economic impact on a substantial number of “small entities” as defined under the Regulatory Flexibility Act (RFA).  85 Fed. Reg., No. 32 at 8801 (Feb. 18, 2020).  In this regard, CMS stated as follows:

The RFA requires agencies to analyze options for regulatory relief of small entities. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, either by nonprofit status or by having revenues of $7.0 million to $35.5 million in any 1 year. Individuals and States are not included in the definition of a small entity. We consider a rule to have a significant impact on a substantial number of small entities if it has at least a 3-percent impact of revenue on at least 5 percent of small entities. Affected entities with reporting responsibilities have been required to comply with sections 1862(b)(7) and (b)(8) of the Act since these provisions were added to the Act in 2007. This proposed rule is intended to define how CMPs would be compliance with these statutory obligations, and thus does not present any additional burden beyond the review of the rule. As discussed later in this section, the total cost impact of reviewing this rule by all 20,855 currently registered RREs, regardless of size, is estimated to be $6,842,437, or $328 per entity. This falls below the standard definition of ‘‘significance’’ of 3 or more of small entity revenue. As a result, we have determined, and the Secretary certifies, that this proposed rule would not have a significant economic impact on a substantial number of small entities.

CMS also concluded that its CMPs proposal would have “no consequential effect on state, local, or tribal governments or on the private sector” since its estimated economic impact would not meet the $154 million threshold figure under the Unfunded Mandates Reform Act of 1995.  85 Fed. Reg., No. 32 at 8801 (Feb. 18, 2020).  On this point, CMS states: “Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2019, that threshold is approximately $154 million. This proposed rule has no consequential effect on state, local, or tribal governments or on the private sector.”  Id.

Likewise, CMS concluded that its proposal “does not impose any costs on State or local governments” within the meaning of Executive Order 13132.  85 Fed. Reg., No. 32 at 8801 (Feb. 18, 2020).  CMS stated: “Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent Final Rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has federalism implications. Since this regulation does not impose any costs on State or local governments, the requirements of Executive Order 13132 are not applicable.” Id.

Further, as part of its prior analysis, CMS stated that: “We note that we are currently implementing monitoring systems that will allow us to better model future reporting violations and CMP imposition. Therefore, when we are ready to develop the Final Rule we expect to have available a significantly increased array of relevant data.  As a result, we commit to providing a detailed analysis of the costs and benefits of this rule at that time.”  85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).

[6] 88 Fed. Reg. No. 35, Vol. 88 (February 22, 2023).

[7]  88 Fed. Reg. No. 35, Vol. 88 (February 22, 2023).


Mark Popolizio, J.D.

Mark Popolizio, J.D., is vice president of MSP compliance, Casualty Solutions at Verisk. You can contact Mark at mpopolizio@verisk.com.


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