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CMS Releases the Final Rule for Civil Monetary Penalties

October 11, 2023 · Medicare Insights Team

On October 10, 2023, CMS finalized its Civil Monetary Penalty (CMP) rule for imposing penalties against Responsible Reporting Entities (RREs), which includes Group Health Plans (GHPs) and Non-Group Health Plans (NGHPs). The rule was posted to https://www.federalregister.gov/documents/2023/10/11/2023-22282/medicare-program-medicare-secondary-payer-and-certain-civil-money-penalties, on October 11, 2023.

When does the CMP Rule go into effect?

The CMP Rule is effective December 11, 2023, which is 60 days after publication.

What will CMS issue CMPs for?

The Rule indicates the only basis for a CMP will be untimely reporting of required information. This means that an entity is required to report claim information for Medicare beneficiaries within one year of the last acceptable reporting date or the Medicare beneficiary’s entitlement date, whichever is later. In the NGHP context, timeliness is defined as reporting to CMS within one year of date of settlement, judgment, award or other payment determination was made (or funding of settlement, judgment, award, or other payment, if delayed) or the date when ORM became effective.

Is this the same as the proposed rule?

No! CMS originally proposed three different categories of CMPs, but the Final Rule scrapped two of those categories. The proposed rule included CMPs for exceeding an error tolerance threshold in the reporting as well as CMPs on providing contradictory information. CMS ultimately took a simpler approach, focusing on timeliness of reporting as the only infraction that incurs a CMP.

How much are the penalties?

Penalties for GHPs are $1,000 per calendar day. Penalties for NGHPs involve a tiered approach that can range from $250 per day to $1,000 per day. Although the statute does not permit flexibility to take a tiered approach with GHPs, it does allow for flexibility with NGHP CMPs.

NGHP Penalties

RREs may be penalized starting on the day after one year (365 days) from the first instance of noncompliance. The penalty tiers are as follows:

Tier 1: $250 per day where the claim was reported more than one year, but less than two years after the required reporting date.

Tier 2: $500 per day where the claim was reported more than two years, but less than three years after the required reporting date.

Tier 3: $1,000 per day where the claim was reported more than three years after the required reporting date.

The penalty calculation is the number of days in excess of 365 times the penalty amount. These penalties are subject to annual adjustments under 45 CFR part 102 (currently $1,325 as of June 8, 2023; see 87 FR 15101)

Is there a maximum penalty?

Yes. CMS has indicated the penalty will be capped at $365,000 for noncompliance associated with any one individual for which the required information should have been submitted. This cap is also subject to annual adjustments.

Are CMPs prospective or retrospective?

The CMPs are prospective only, meaning that RREs will not be punished for any late reported claims prior to the rule’s effective date of December 11, 2023.

When will CMPs start being issued?

CMS indicated that no CMP will be imposed until at least one year (365 days) after the later of: (1) the applicability date of this final rule (one year later being October 11, 2024); or (2) the coverage effective date, or settlement date, an RRE is required to report.

What is the volume of CMPs CMS will be issuing?

CMS indicated that it anticipates auditing 1,000 claims across all RREs per year, or 250 per quarter. This audit will combine GHP and NGHP on a pro-rata basis For example, if 60% of the claims being reported are from NGHP, then that percentage of the 1,000 claims would be audited as NGHP claims. Previously, CMS had not provided insight into how many claims it would be subjected to CMPs. This insight makes the scope of CMPs appear to be relatively small. Consequently, smaller RREs would likely see fewer audits than larger RREs since the audit basis is extrapolated across all RREs, some of which report many more claims than others.

Are there exceptions to the late reporting rule?

The rule indicates that there will be no penalty if:

The RRE, having made a good faith effort, cannot obtain the required information.
A NGHP applicable plan complies with any reporting thresholds or any other reporting exclusions.
An incident associated with a reporting policy or procedural change by CMS has been in effect for less than six months (or 12 months if CMS cannot provide six months’ notice prior to implementation).

What is the good faith effort safe harbor?

Due to the contentious nature of some NGHP claims, the RRE may not be able to obtain all information necessary to report the claim to CMS. In order to run a query on an individual’s Medicare beneficiary status, RREs need a minimum amount of information, commonly known as the “Big 5”, which includes:

Social Security Number (SSN) [at least the last 5 digits] or the Medicare Beneficiary Identifier (MBI)
First name
Last name
Gender
Date of birth

The rule acknowledges that RREs may be unable to obtain this information and set forth a safe harbor, which states that no CMP will be imposed if:

The RRE has communicated the need for this information to the individual and his/her attorney, or representative, if applicable, or both.
The RRE has requested the information at least three times. The three attempts must include:
1. Once in writing (including email)
2. Once more by mail
3. Once by phone or other means of contact in the absence of a response to the mailings.
The RRE either:
1. Has not received a written response from the individual indicating that individual refuses to provide the needed information; or
2. The individual or their attorney or representative provides a written unambiguous response declining or refusing to provide any portion of the information specified. In this case, no further communication with the individual or the attorney is required to satisfy the safe harbor.
The RRE has documented its efforts to obtain the MBI or SSN, including any written rejection correspondence. This documentation must be retained for five years.

Is there a statute of limitations?

Yes. The statute of limitations is that CMS may only impose a CMP within five years from the date when the noncompliance occurred. This item is unchanged from the proposed rule.

Will there be an appeal process?

CMS indicated the following insight into how appeals will be handled:

While ultimately the responsibility of the RRE, CMS is not unsympathetic to RREs in regard to those situations where a particular late submission was the result of a rare situation, system glitch, defect, or other problem that was unanticipated or out of the immediate control of the RRE. For this reason, an informal notice process will be implemented so that any RRE that receives notice that a CMP is pending against them will have an opportunity to examine their records and alert CMS to any discrepancies or mistakes that could mitigate or eliminate the potential penalty. This process is described in full detail later in this document.

CMPs imposed in accordance with this final rule will be subject to the formal appeals process as prescribed by 42 CFR 402.19 and set forth under 42 CFR part 1005. In broad terms, parties subject to CMPs will receive formal written notice at the time penalty is proposed. The recipient will 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.

We intend to communicate with the entity informally before issuing formal notice regarding a CMP. The informal (that is, prior to formal enforcement actions) written ‘pre-notice’ process will allow the RRE the opportunity to present mitigating evidence for CMS review prior to the imposition of a CMP. The RRE will have 30 calendar days to respond with mitigating information before the issuance of a formal written notice in accordance with 42 CFR 402.7.

Common to all such instances where informal notice will be given is the intention to give the RRE an opportunity to clarify, mitigate, or explain any errors that were the result of a technical issue or due to an error or system issue caused by CMS or its contractors. It would be impractical and counter to the spirit of the informal notice process to regulate or enumerate all circumstances in which mitigating information could be provided or what that information should convey. As such, any mitigating factors or circumstances are welcomed, and a dialogue is encouraged in an attempt to find solutions that are short of imposing a CMP. We believe it is in the best interests of all RREs to leave the informal notice process open to any reasonable submission of mitigating factors so that we are free to entertain all such documentation without strict limits on what is, or is not, acceptable.

Once we determine that a CMP will be imposed (after the informal notice period) we will provide formal notice to the entity in writing in accordance with 42 CFR 402.7, which will contain information on the event that has triggered the proposed imposition of a CMP, the amount of the proposed CMP, and next steps for the entity, including a right to a hearing in accordance with 42 CFR 402.19 and part 1005.”

While the “pre-notice” informal notice period resembles how CMS handles other appeals, it remains to be seen how this process works in practice. CMS has indicated it will consider reasons why a claim is reported late. In any event, RREs should react quickly to any notices from CMS regarding CMPs. Unlike conditional payments, which afford ample time at the CRC/BCRC level to dispute or appeal conditional payments, RREs have only 30 days to respond to the “pre-notice” inquiry from CMS and 60 days to request an ALJ hearing after the CMP is imposed. Any missed deadline could cause RREs to miss out on opportunities to present mitigating factors to CMS or a right to a hearing.

Optum can help you prepare for CMPs and appeal CMPs

Optum is fully committed to working with you to address your MSP compliance needs, including claim reporting and can help you navigate the evolving CMS requirements. We have been the trusted Section 111 reporting agent for many companies for years and our experts in Section 111 reporting will help you meet your compliance needs..

Further, our specialists can help you analyze, appeal or otherwise resolve CMPs. We have been working with RREs and their TPAs for years to resolve conditional payments, Treasury debts and coordinating with CMS on various Section 111 inquiries.

For more information on how Optum can help with your Section 111 reporting, Civil Monetary Penalty or other Medicare Secondary Payer compliance needs, please contact Optum MSP Compliance Counsel, Michael Flower at Michael.flower@optum.com (p) 813-627-2406