Many in the insurer community likely breathed a sigh of relief upon learning that the Centers for Medicare and Medicaid Services (CMS’s) recently announced it has extended the date to publish its Section 111 civil money penalties (CMPs) “final rule” until February 18, 2024. CMS cited, in main part, the need for additional time to further assess the potential “economic impact” of the final rule as the reason for this extension. The final rule will be the official regulations governing when CMS may penalize Non-Group Health Responsible Reporting Entities (hereinafter “NGHP RREs”). These provisions will be added to the already existing Codes of Federal Regulations sections governing CMPs, in general, as contained at 42 C.F.R. Part 402, et. seq. (Assessments, Civil Money Penalties, Exclusions) and 45 C.F.R. 102, et. seq. (Adjustment of Civil Money Penalties for Inflation).
While CMS’s extension grants NGHP RREs a reprieve (at least for now) from Section 111 penalties going live, this may be a good time for a CMPs level-set and for RREs to assess how their current practices measure up with CMS’s penalty proposals.
Toward these objectives, the author outlines the following:
When will CMS release its CMPs final rule?
As noted above, CMS has recently announced that it has extended the timeline for publication of the final rule until February 18, 2024 to provide more time for the agency to study the potential economic impact of the final rule. While CMS has extended the timeline to release the final rule until February 18, 2024, it is possible that the rule could be released prior to that date if the agency completes its additional data analysis earlier.
In support of this time extension, CMS states, in main part, as follows:
We are not able to meet the initial targeted 3-year timeline for publication due to delays related to the need for additional, time-consuming data analysis resulting from public inquiry. It was not possible to conclude this data analysis on the initial, targeted timeline for the proposed rule because public listening sessions raised additional concerns that CMS believed were important to properly and thoroughly research prior to publishing the final rule. We have decided that it is critical to conduct additional analysis about the economic impact of the rule. We are preparing additional data analysis and predictive modeling to better understand the economic impact of the proposed rule across different insurer types. This data analysis is designed to review the actual current reporting and model potential penalties that would be imposed were the final rule in place. Along with delays resulting from the agency's focus on the COVID 19 public health emergency, we determined that additional time is needed to address the complex policy and operational issues that were raised. We are extending the publication deadline so as to provide the most accurate, complete, and robust data possible to confirm the intent and economic impact of the final rule. This document extends the timeline for publication of the final rule for one year until February 18, 2024.
Outside of what is stated above, CMS has not provided any further information regarding any particular focus or interest areas subject to further evaluation.
To date, has CMS published any information on the potential “economic impact” impact of the final rule?
Yes. As part of the CMPs proposals released back in February 2020, CMS issued a required “regulatory impact statement” which contained information regarding the agency’s assessment of the final rule’s economic impact as of that time. While a detailed analysis into the various regulatory requirements is beyond this article’s scope, in general, it is noted that a detailed regulatory impact analysis must be prepared for “major rules” with “economically significant” effects defined, 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.” 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.”
As part of CMS’s prior economic impact analysis, the agency commented that “[e]stimating the economic [effects] of this rule presents a significant challenge under current circumstances.” After taking various factors into consideration, CMS ultimately concluded that its proposal was not a major rule stating: “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 Congressional Review Act].”
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. 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. Likewise, CMS concluded that its proposal “does not impose any costs on State or local governments” within the meaning of Executive Order 13132. 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.”
Going forward, it will be interesting to see how, if at all, CMS’s additional assessment regarding the potential economic impact of the final rule modifies its prior analysis and/or affects the agency’s ultimate efforts to implement the Section 111 CMP final rule.
When is CMS proposing to penalize NGHP RREs?
Turning to CMS’s current CMPs proposals, as outlined in the Federal Register, CMS is proposing to penalize NGHP RREs in the following three situations:
- The RRE fails to report any NGHP beneficiary record within the required timeframe (not more than one year after TPOC);
- The RRE’s response to CMS recovery efforts contradicts the RRE’s Section 111 reporting; and/or
- 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.
As part of its discussion of the above provisions, CMS outlines examples regarding how it would apply the actual monetary penalty amount regarding each of these provisions at 85 Fed. Reg., No. 32, 8797-8799. CMS also references situations when it would not impose CMPs outlined, in part, in the endnote to this sentence. Also, of note, 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.” See our prior article for a deeper analysis into each of the three CMPs proposals outlined above and other related information.
What is CMS’s “good faith” compliance safe harbor proposal?
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:
- 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:
- 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
- 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.
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.”
Will the Section 111 CMPs amount be adjusted for inflation?
Yes. The Section 111 CMPs amount will be adjusted annually for inflation per 45 CFR part 102. The current CMP amount adjusted for inflation is $1,325 (see, 45 C.F.R. § 102.3).
Do CMS’s proposals contain any information regarding “notice” or “appeal” rights?
Yes. While a complete examination into the issues of “notice” and “appeal” are beyond the scope of this article, it is noted that these issues are referenced as part of CMS’s CMPs proposals. With respect to notice, CMS references, very generally, that it will provide NGHP RREs with informal and formal notice before imposing a CMP. Regarding appeals, CMS states that they would “expect that this proposed rule, once finalized, would comport with the appeals process as prescribed by 42 C.F.R. 402.19 and set forth under 42 C.F.R. part 1005” to include the right to an administrative appeal. For more details regarding CMS’s statements regarding “notice” and “appeal,” see the information provided in the endnote to this sentence.
What will happen when CMS’s Section 111 CMPs “final rule” is released?
Once the CMS’s “final rule” is released, it would likely not become effective for at least 30 days after being published in the Federal Register. As noted above, the final rule provisions will be added to the already existing Codes of Federal Regulations sections governing CMPs in general as contained at 42 C.F.R. Part 402, et. seq. (Civil Money Penalties, Assessments, and Exclusions) and 45 C.F.R. 102, et. seq. (Adjustment of Civil Money Penalties for Inflation). It will be interesting to see if CMS’s “final rule” will be verbatim as outlined above, or whether they will be modified in any way.
How can Verisk help?
Please do not hesitate to contact the authors if you have any questions. In interim, keep in my mind that Verisk can you help you meet your Section 111 reporting obligations through our innovative and user-friendly MSP Navigator reporting tool. Also, we offer our very popular Section 111 audit/review service which can help you gauge the status of your current program and how you may be able to improve your Section 111 reporting practices. Please contact the authors if you would like to learn more about these services.
 CMS’s announcement is contained at 88 Fed. Reg. No. 35, 10868 (February 22, 2023). This notice states, in part: “As of February 22, 2023, the timeline for publication of the final rule to finalize the provisions of the proposed rule published on February 18, 2020 (85 FR 8793) is extended until February 18, 2024.”
 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
 85 Fed. Reg., No. 32, 8793-8803 (Feb. 18, 2020).
 88 Fed. Reg. No. 35, 1068, Vol. 88 (Feb. 22, 2023).
 CMS referenced the following authority on this point: Executive Order 12866 on Regulatory Planning and Review (September 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96– 354), section 1102(b) of the Social Security Act, section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104–4), Executive Order 13132 on Federalism (August 4, 1999), the Congressional Review Act (CRA) (5 U.S.C. 804(2)), and Executive Order 13771 on Reducing Regulation and Controlling Regulatory Costs (January 30, 2017). See, 85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).
 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:
- 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;
- Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
- Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
- 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
 85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).
 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).
 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.
 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.
 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.
 85 Fed. Reg., No. 32 at 8880 (Feb. 18, 2020).
 85 Fed. Reg., No. 32, 8797-8799, (Feb. 18, 2020). In addition to the three cited proposals as contained in the Federal Register, the OIRA in its August 2020 notice, as part of its general description regarding when CMPs may be imposed includes, in part, a reference to when RREs “fail to register and report” as required under Section 111. It is interesting to note that CMS’s CMP proposals as released in the Federal Register did not list this as a potential basis for potential CMPs. It remains to be seen if CMS’s final rule will also include penalty provisions regarding RREs who have failed to “register and report” as required under Section 111.
 In this regard, CMS discusses certain situations where it indicates that no CMPs would be imposed at 85 Fed. Reg., No. 32 at 8799-8800 as follows:
We would not impose a CMP in the following situations, where all of the applicable conditions are met:
- If a RRE reports any GHP beneficiary record that is reported on a quarterly submission timeframe within the require timeframe (not to exceed 1 year after the GHP effective date), or any NGHP beneficiary record that is submitted within the required timeframe (not to exceed 1 year after the TPOC date).
- If an RRE complies with any TPOC reporting thresholds or any other reporting exclusions published in CMS’s MMSEA Section 111 User Guides or otherwise granted by CMS. Note that these thresholds are not defined in the regulatory text as TPOC reporting thresholds are currently subject to change on an annual basis per 42 U.S.C. 1395(y)(b)(9)(i). CMS also elects to impose operational thresholds for reporting, such as the current $5,000 threshold for Health Reimbursement.
- If a GHP entity or NGHP entity does not exceed any error tolerance(s) in any four out of eight consecutive reporting periods.
CMS also indicates that it will not impose CMPs in situations where the RRE has met the criteria for its proposed “good faith” compliance safe harbor as discussed above in the body of this article. 85 Fed. Reg., No. 32 at 8800.
In addition, CMS indicates they would “suspend” CMP imposition in certain situations “where programmatic changes are required.” In this regard, CMS states as follows at 85 Fed. Reg., No. 32 at 8796:
Commenters suggested that CMS consider suspending the imposition of CMPs, where changes to mandatory reporting procedure require RREs to make significant revisions to the systems used to prepare the data for reporting. We would expect to continue to provide at least 6 months’ (180 calendar days) notice regarding any changes in policy or procedure associated with section 111 of MMSEA required reporting to allow reporting entities adequate time to react. We would not assess any CMPs associated with a specific policy or procedural change for a minimum of two reporting periods following the implementation of that policy or procedural change.
 See, 85 Fed. Reg., No. 32 at 8796. On this point, CMS states: “Rule is Prospective. Many commenters suggested that the rule should be enforced prospectively only. We agree and 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 at 8880 (Feb. 18, 2020).
 85 Fed. Reg., No. 32, at 8797 (Feb. 18, 2020).
 See, 85 Fed. Reg., No. 32 at 8796 (Feb. 18, 2020).
 See, 85 Fed. Reg., No. 32 at 8795-8796 (Feb. 18, 2020).
 As part of CMS’s CMP proposals, CMS states as follows regarding “notice” and “appeals:”
CMS states the following regarding “notice” as contained in the Federal Register (85 Fed. Reg., No. 32 at 8796):
Many commenters requested that CMS explain how it will provide notice to entities regarding pending or imposed CMPs and how much information will be included. We would expect to communicate with the entity informally before issuing formal notice regarding a CMP. Informal communications would depend upon the nature of the non-compliance. Regarding the potential imposition of CMPs on other grounds, CMS anticipates utilizing an informal (that is, prior to formal enforcement actions) written ‘‘pre-notice’’ process that would allow the RRE the opportunity to present mitigating evidence before the imposition of a CMP. Once we determine that a CMP will be imposed, we would provide formal notice to the entity in writing in accordance with 42 CFR 402.7, which would contain information on the reason for the assessment of a CMP, the amount of the CMP, and next steps for the entity, including appeal rights.
For example, we expect to continue to utilize the current messaging procedures around file errors described in the MMSEA Section 111 User Guides, which entail indicators on response files, emails, and phone calls depending upon the nature and severity of the error. RREs thus would remain informed about the performance of their quarterly file submissions. Upon the third submission out of seven consecutive reporting periods that exceeds error tolerances, the RRE would receive an ‘‘informal notice’’ that consists of a written warning letter (which requires no response, but is intended to warn the RRE that a subsequent submission that exceeds tolerances would result in potential CMP imposition). Upon the fourth submission out of eight consecutive reporting periods that exceeds error tolerances (and any additional triggering submissions), the RRE would receive another ‘‘informal’’ written notice of non-compliance indicating the nature of the non- compliance and the determination of the potential amount of the CMP, with 30 calendar days to respond with any mitigating information prior to the issuance of a notice of proposed determination in accordance with 42 CFR 402.7.
In the event that a CMP may be imposed for lack of timely reporting, CMS would issue an informal written notice of non-compliance, identifying the nature of the non-compliance and the determination of the potential amount of the CMP. The RRE would again have 30 calendar days to respond with mitigating information before the issuance of a written notice in accordance with 42 CFR 402.7.
Recovery demand letters would be revised to include information regarding the potential for CMPs should an RRE contradict its own reporting in the recovery process. If an RRE submits a dispute or redetermination request in response to the recovery process that appears to directly contradict its own reporting, an informal written notice of non-compliance identifying the nature of the non-compliance and the determination of the potential amount of the CMP would be issued to the RRE. The RRE would again have 30 calendar days to respond with mitigating information before the issuance of a written notice in accordance with 42 CFR 402.7.
CMS states the following regarding “appeals” in the Federal Register (85 Fed. Reg., No. 32 at 8795-8796):
A number of commenters suggested that CMS should develop a formal appeals process to provide entities with reporting obligations a formal structure in which to appeal any notice of a pending or imposed CMP. We would expect that this proposed rule, once finalized, would comport with the appeals process as prescribed by 42 CFR 402.19 and set forth under 42 CFR part 1005. In broad terms, parties subject to CMP would receive formal written notice at the time penalty is proposed. The recipient would have the right to request a hearing with an Administrative Law Judge (ALJ) within 60 calendar days of receipt. Any party may appeal the initial decision of the ALJ to the Departmental Appeals Board (DAB) within 30 calendar days. The DAB’s decision becomes binding 60 calendar days following service of the DAB’s decision, absent petition for judicial review.
 See generally, A Guide to the Rulemaking Process, see section entitled “When do final rules go into effect?“ This section further explains that sometimes an agency may attempt to make the Final Rule effective sooner but to do this it must cite “good cause” (persuasive reasons) as to why this would be in the public interest. In addition, this section notes that a 60-day effective date is required in situations where the proposed rule are considered either a “significant rule” as defined by Executive Order (EO) 12866 or a “major rule” under the Congressional Review Act (CRA) (5 U.S.C. § 804(2)) (which is also known as the Small Business Regulatory Enforcement Fairness Act). While a detailed analysis into the criteria of what constitutes a “significant” or “major” rule is outside the scope of this analysis, it is noted CMS has taken the position that the impact of its proposals does not meet the “significant rule” criteria under EO 12866 or the definition of a “major rule” under the CRA. 85 Fed. Reg., No. 32, 8800-8801 (Feb. 18, 2020).
 85 Fed. Reg., No. 32, 8793-8803 (Feb. 18, 2020).
 While a complete review into the nuances of the federal rulemaking process is outside this article’s scope, in general, CMS’s next steps include three possible scenarios as follows: CMS could simply decide to move ahead to the Final Rule using its current NPRM proposals “as is” or with minor modifications. Alternatively, CMS could decide to open a second comment period if it felt additional feedback was necessary, or to allow an opportunity for additional comments in the event it decided to substantially revise its proposals. Rounding it out, the third possibility involves CMS deciding to withdraw its current NPRM and issuing a new set of proposals. While the authors have no special insight or information regarding which path CMS may take, it seems to make the most sense for NGHP RREs to keep their guard up and assume CMS is positioning to proceed toward implementing its Final Rule. See generally, A Guide to the Rulemaking Process, see section entitled “How do public comments affect the final rule?” www.federalregister.gov. It is noted the Final Rule must not be arbitrary and capricious (i.e., fail to provide a rational basis for the decision). See, 5 U.S.C. § 706. A Final Rule must be within the scope and a “logical outgrowth” of the proposed rule. A Final Rule can be substantially different from the NRPM so long as the agency provided adequate notice to the public of the possibility for changes of the type that were adopted. The Reg Map, Informal Rulemaking; www.reginfo.gov/public/