CMS Publishes Section 111 Civil Money Penalties Notice of Proposed Rulemaking

The Centers for Medicare and Medicaid Services (CMS) has published a Notice of Proposed Rulemaking (NPRM) as to the regulations that will govern enforcement of the Medicare reporting obligations pursuant to Section 111 of the Medicare and Medicaid SCHIP Extension Act of 2007.  The Proposed Rule was published in the Federal Register on February 18, 2020 (the NPRM was expected to be published in October 2019) and is subject to public comment.  To be assured consideration, any comment to the Proposed Rule must be submitted no later than April 20, 2020.

Section 111 originally carried the threat that noncompliant entities “shall be subject to a civil money penalty of $1,000 for each day of noncompliance with respect to each claimant.”  Following concern as to the severity of such sanctions, the penalty provision was modified with a discretionary element replacing “shall be subject” with the language “may be subject to a civil money penalty up to $1,000 for each day of noncompliance with respect to each claimant.”  Unfortunately, the civil money penalties set forth in the Proposed Rule are as severe as the industry originally feared.

Some background as to Section 111 Reporting is necessary to understanding the nature and extent of the proposed civil money penalties.  Section 111 mandates that liability insurers and self-insured companies (including self-insurance up to a deductible or self-insured retention) are responsible for reporting to CMS any payment made to a Medicare beneficiary.  Section 111 defines insurers and self-insured companies as “Responsible Reporting Entities” or “RREs.”  The purpose of the Section 111 Report is to facilitate CMS’s right to recoup from the liability payment any amount that it has already paid for treatment for the subject injury.  Reporting is conducted quarterly through an electronic file submission process that may vary depending on the volume of “beneficiary records” being reported or updated.  The Section 111 Report is comprised of uniquely identifying information to confirm the individual’s Medicare beneficiary status, information regarding the alleged injury, and information pertaining to the insurance coverage, such as policy type (liability, self-insurance, workers’ compensation, etc.), policy limits and settlement amounts.

The NPRM provides three scenarios of noncompliance that will trigger imposition of civil money penalties:

  • A RRE totally fails to report payment to a Medicare beneficiary of a settlement or judgment within one year of that payment. The proposed penalty is up to $1,000 per day1 for each unreported payment, beginning with the day after submission of the quarterly report in which the payment should have been included – up to a maximum penalty of $365,000 per beneficiary per year.
  • A RRE response to CMS recovery efforts contradicts the information provided in its Section 111 Report. For example, the RRE provides a Section 111 Report advising that it has undertaken ongoing responsibility for medical expenses related to the injury incurred as a result of the incident but fails to notify the CMS when that responsibility ceases.  When CMS seeks to recover payments it has made relating to that injury and the RRE responds that it ceased voluntarily assumed payments for medical treatment, CMS considers the RRE to have provided information that contradicts its Section 111 Report.  The proposed penalty is up to $1,000 per day of noncompliance for each beneficiary from the time when the information should have been accurately reported – up to a maximum penalty of $365,000 per beneficiary per year.
  • A RRE exceeds a 20% error rate in 4 out of 8 consecutive quarterly reports. In this instance, civil money penalties are assessed on a tiered basis: $250 per day of noncompliance per beneficiary (the daily rate begins to run from the day after the fourth quarterly report exceeding error tolerances); increased to $500 per day of noncompliance following the next quarterly submission that exceeds error tolerances; and continuing to increase up to the maximum $1,000 per day of noncompliance per beneficiary – again, up to a maximum penalty of $365,000 per beneficiary per year.  CMS will only consider “significant errors,” such as inaccuracies to a Medicare beneficiary’s last name or date of birth, in the calculation of a RRE’s error rate.

The Proposed Rule also offers some safe harbors.  An entity will not be responsible for failing to report payment to a Medicare beneficiary where the entity is unable, after well-documented good faith efforts as defined by the Rule, to obtain the necessary information from the beneficiary.  Additionally, noncompliance associated with a specific policy or procedural change will not trigger civil money penalties until two reporting quarters following the change.

Penalties will be prospective: only noncompliance following the effective date of any final rule will trigger civil money penalties.  Further, penalties for noncompliance will be subject to a five-year statute of limitations, from the date the noncompliance was identified by CMS.  Also, assessment of civil money penalties will be subject to the administrative appeals process currently applicable to CMS under the Code of Federal Regulations.

As previously reported, CMS intends to begin enforcing Section 111 with civil money penalties.  It is imperative that the industry review and audit its Medicare compliance program to avoid the substantial fines on the horizon associated with noncompliance.

1 The penalty amounts are adjusted annually for inflation pursuant to 45 C.F.R. Part 102.

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