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Proposed Rule for Section 111 Penalties Just Released!

CMS has now released a Proposed Rule on Civil Monetary Penalties for non-compliance with Section 111 reporting obligations. The Proposed Rule is scheduled to be published in the Federal Register on February 18, 2020. The Proposed Rule is available at:

Under the Proposed Rule, Civil Monetary Penalties would be imposed against Non-Group Health Plan RREs in the following situations:

  • The RRE “fails to report any beneficiary record within 1 year from the date of the settlement, judgment, award, or other payment.”

  • The RRE “[c]ontradicts its reporting under section 1862(b)(8) of the Act in response to CMS recovery efforts.”

  • The RRE “[h]as reported, and exceeds any error tolerance(s) threshold established by the Secretary (not to exceed 20 percent) in any 4 out of 8 (or less) consecutive reporting periods.”

The Proposed Rule provides that penalties would not be imposed against NGHP RREs in the following situations:

  • The RRE fails to report required information because the RRE is unable to obtain an individual’s first name, last name, date of birth, gender, Medicare number, Social Security Number, or the last 5 digits of the SSN and the RRE has made a good faith effort to obtain this information by meeting all of the requirements below.

1. The RRE has communicated “the need for this information to the individual and his or her attorney or other representative.”

2. The RRE has 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.”

3. The RRE “[h]as not received a response or has received a response in writing that the individual refuses to provide his or her MBI or SSN or a truncated form of the MBI or SSN.”

4. The RRE “[h]as documented its efforts to obtain the MBI or SSN (or the last 5 digits of the SSN).”

  • The RRE “complies with any reporting thresholds or any other reporting exclusions.”

  • A penalty “associated with a specific policy or procedural change is not imposed for a minimum of two reporting periods following the implementation of that policy or procedural change.”

Under the SMART Act, there is a potential penalty of up to $1,000.00 per day per claimant for non-compliance with Section 111 reporting obligations. The Proposed Rule indicates that the maximum penalty of $1,000.00 per day per claimant would be adjusted annually under 45 CFR Part 102, which provides for the annual adjustment of Civil Monetary Penalties imposed by the Department for Health and Human Services due to inflation. For 2020, the maximum potential penalty would be $1,232.00 per day per claimant.

As noted above, the Proposed Rule provides that penalties may be imposed if the RRE contradicts information that it has reported under Section 111 when the RRE submits a dispute or appeal. If a penalty is imposed in this situation, the penalty would be calculated “based on the number of calendar days that the entity failed to appropriately report updates to beneficiary records, as required for accurate and timely reporting.”

The Proposed Rule provides for a tiered approach for penalties that may be imposed if an RRE exceeds the 20 percent error threshold in 4 out of 8 consecutive reporting periods. The initial penalty would be 25 percent of the maximum penalty per beneficiary per calendar day of non-compliance after the last calendar day of the RRE’s quarterly reporting period, based on the number of beneficiaries whose records exceeded the 20 percent error threshold. For each subsequent penalty, the penalty would be increased by 25 percent of the maximum penalty. If the applicable plan reports after penalties are assessed and does not exceed the 20 percent error threshold, the next potential penalty would be reduced by 25 percent of the maximum penalty.

According to CMS, any potential penalties will only be enforced prospectively. Compliance would be evaluated “based only upon files submitted by the RRE on or after the effective date of any final rule.”

CMS stated that they will apply a 5 year statute of limitations to the imposition of Civil Monetary Penalties under 28 U.S.C. § 2462. The statute of limitations would start to run when the non-compliance is identified by CMS. For penalties that are imposed due to responses to recovery efforts that contradict information that is reported under Section 111, the statute of limitations would start to run when CMS receives the response to the recovery effort.

CMS also stated that they plan to use informal communications to notify an RRE about a potential penalty before the penalty is imposed. If a penalty would be imposed for failure to timely report, the RRE would have 30 days to respond with mitigating information before the penalty is imposed. Once CMS determines that a penalty would be imposed, they will provide formal written notice to the RRE, which would include information on appeal rights. CMS provided the following information about the appeals process for challenging Civil Monetary Penalties:

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[.]

CMS stated that they currently do not anticipate collecting $100 million or more in penalties in any given year.

We believe that CMS significantly has underestimated the impact of the Proposed Rule on RREs. CMS stated that they anticipate that reviewing the rule would only cost RREs an average of $328.08 each.

CMS is soliciting comments on the Proposed Rule and any final rule is subject to change after CMS reviews comments that are submitted. Comments must be submitted within 60 days of publication in the Federal Register in order to receive consideration. Please let us know if you would like to discuss any comments to submit to CMS.

Now that CMS has issued the Proposed Rule and is closer to assessing penalties, it is absolutely critical for RREs to ensure that information is reported to CMS accurately and in a timely manner. RREs should review their reporting procedures and data reported to identify and correct any errors. If you are interested in an audit of your Section 111 reporting process, please let us know and we will be glad to help.


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