For more than a decade, the liability insurance market has struggled to comply with mandatory Medicare reporting laws, commonly referred to as Section 111, with trepidation as to when the agency responsible for enforcing Section 111, the Centers for Medicare and Medicaid Services (CMS), would begin imposing monetary penalties contained within the regulations. We now know that insurers can expect to see fines beginning in 2025 for reports submitted or which should have been submitted by October 11, 2024. CMS also clarified the basis upon which such fines will be imposed.
CMS published its long-awaited final rule governing enforcement of the Medicare reporting obligations pursuant to Section 111 of the Medicare and Medicaid SCHIP Extension Act of 2007, codified at 42 C.F.R. § 402.1 (“Basis and scope”) and § 402.105 (“Amount of penalty”) in October 2023. Perhaps the most important aspect of the final rule is its clarification on the basis for imposing civil money penalties on insurers. The rule provides that CMS will assess civil money penalties only on the basis of untimely reporting.
Pursuant to 42 C.F.R. § 402.1(22)(i), CMS may impose penalties where an insurer “[f]ails to report any beneficiary record within 1 year from the date of the settlement, judgment, award, or other payment[.]” In its Notice of Proposed Rulemaking (published in the Federal Register on February 18, 2020), CMS had suggested other bases for penalties, such as inaccurate and contradictory reports. However, under the final regulations, insurers will only be assessed a penalty if they do not report timely (or do not report at all). For the aviation insurance market, untimely reporting primarily means failure to submit a Section 111 report within one year of a settlement or judgment with a Medicare beneficiary. CMS will calculate penalties based upon a tiered structure, such that the longer the delay in successfully submitting a Section 111 report, the higher the penalty amount, ranging from $250 to $1,0001 per day of noncompliance.
The regulations became “effective” on December 11, 2023 and are “applicable” as of October 11, 2024. In other words, although insurers are currently expected to be in compliance with the Section 111 reporting requirements, they are not subject to civil money penalties until October 11, 2024. CMS will begin assessing fines after it has conducted its first quarterly audit in April 2025, discussed below. Keep in mind, however, that penalties assessed for untimely reports beginning October 11, 2024 will necessarily arise out of settlements executed prior to that date, as far back as one year prior to October 11, 2023.
CMS will determine penalties by auditing at random 250 Section 111 reports out of all reports submitted by Responsible Reporting Entities during the prior year. CMS will undertake the audit process each quarter.
Prior to formally imposing a civil money penalty, CMS will send an e-mail to the insurer’s Authorized Representative and Account Manager seeking any information that would suggest the failure to timely report was beyond the insurer’s control, for example if the Medicare beneficiary refused to cooperate. The final rule provides a safe harbor provision, pursuant to which an insurer is not responsible for failure to comply with Section 111 if the cause for noncompliance is the Medicare beneficiary’s refusal to cooperate. The insurer must make at least three attempts to obtain the necessary information: once in writing (including e-mail); once by mail; and once by telephone or other means of contact. However, if the beneficiary has unambiguously refused in writing to provide the information, no further attempt is necessary.
Finally, the statute of limitations for Section 111 noncompliance is 5 years from the date the report is submitted or from when CMS discovers the noncompliance.
CMS has advised that in due course it will publish further guidance interpreting the new regulations in an updated User Guide. As with many aspects of Section 111 compliance, the manner in which CMS enforces Section 111 by way of civil money penalties will undoubtedly evolve once the practice is underway. As always, we will keep the aviation insurance market closely advised of new developments regarding Section 111 reporting.
Disclaimer: This publication is made available for educational purposes only and is not intended as legal advice. If you have questions about any matters in this publication, please contact the authors directly. General inquiries may be directed to info@nullcondonlaw.com.
1 The civil money penalty amounts are adjusted for inflation annually. For example, a $1,000 fine is $1,428 based on 2024 inflation-adjusted rates.