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CMS Issues Final Rule on Section 111 Penalties


On October 10, 2023, CMS released the Final Rule on Section 111 Penalties. CMS explained in an Alert issued the same day that “this rule is effective as of 60 days following the date of publication (December 11, 2023), but is only applicable one year after publication (October 10, 2024). RREs are expected to be compliant with their Section 111 Mandatory Insurer Reporting requirements no later than October 10, 2024, or they may be eligible for a [Civil Monetary Penalty].”


CMS previously issued proposed regulations providing for potential penalties in several situations. The Final Rule, however, only provides for penalties for late reporting of TPOC or assumption of ORM (there is currently no penalty for late reporting of ORM termination) and creates a tiered approach for the imposition of penalties. Penalties would only be applied if TPOC or assumption of ORM is reported more than one year after the required reporting date.

  • For claims where TPOC or ORM assumption is reported more than 1 year but less than 2 years late, the penalty would be $250 per day per beneficiary.

  • If TPOC or ORM assumption is reported more than 2 years but less than 3 years late, the penalty would be $500 per day per beneficiary.

  • If TPOC or ORM assumption is reported more than 3 years late, the penalty is $1,000 per day per beneficiary.

It is important to keep in mind that the penalty amount is adjusted each year for inflation. The maximum penalty that may be imposed for noncompliance associated with any beneficiary is $365,000 (plus the annual adjustment for inflation). Currently, the $1,000 penalty adjusted for inflation would be $1,325.


CMS explained the calculation of the number of days of noncompliance as follows:


For failure to initially report the date of settlement or effective date of coverage timely (where applicable), noncompliance occurs on every day of non-reporting after the required timeframe for reporting has elapsed. For example, if the date of settlement is January 1, 2025, then the RRE will have 1 year from that date to report the coverage before being potentiallysubject to a CMP (that is, January 1, 2026). If the settlement date was January 1, 2025, but the RRE did not report it to CMS until October 15, 2026, the RRE will be considered noncompliant for the period of January 2, 2026, through October 15, 2026. If CMS does not act until after October 15, 2031, then the statute of limitations has elapsed and no CMP may be imposed.


Fortunately for RREs, CMS will not be reviewing every record submitted. Instead CMS is supposed to audit a random sample of 1,000 records per year (250 per quarter) for all RREs, including Group Health Plans, so the number of records reviewed for all Non-Group Health Plan RREs will be less than 1,000. The number of records reviewed for Non-Group Health Plans will be determined based on the percentage of NGHP records submitted compared to all records submitted for the quarter under evaluation. The Final Rule explains:


CMS is adopting an audit approach in this final rule whereby we will audit a randomized sample of new beneficiary records received each quarter, rather than undertaking an automated review of all records submitted, as proposed. By using this random auditing approach, CMS will be better able to monitor trends in reporting, via manual review of said records, rather than a mass, computer-based algorithm, which will allow us to discover areas that appear to be more of a challenge for RREs without resorting to penalties that may be disproportionate to the level of noncompliance exhibited or have the effect of penalizing an entity for an honest mistake or system error. RREs will also be able to avail themselves of the informal notice and dispute process to alert CMS to their “good faith efforts” to report any records that CMS has identified as being out of compliance.


CMS is supposed to informally communicate with an RRE before issuing formal notice of any penalties and the RRE will have 30 days to respond with mitigating evidence. There is a formal appeals process to appeal the imposition of any penalties involving an ALJ hearing and review by the Departmental Appeals Board, after which judicial review may be sought. The Final Rule also explains there is a 5 year statute for the imposition of any penalties from the date when the noncompliance occurred.


Because the Final Rule does not provide for the imposition of penalties until October 11, 2024, RREs should be certain to report any claims that have not already been reported as soon as possible. RREs should also ensure that claims are reported timely and follow the steps above for showing good faith efforts to obtain the information to verify an individual’s Medicare status.


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