Analysis and Highlights: CMS’ Civil Money Penalties Final Rule

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by B. Smith

After much anticipation, the Centers for Medicare & Medicaid Services (CMS) has finalized its rule on how and when Civil Money Penalties (CMPs) will be imposed and calculated. The final rule will become effective on December 11, 2023, but will not be implemented until October 11, 2024, giving Responsible Reporting Entities (RREs) the opportunity to work on any deficiencies in their reporting process now.

The rule outlines penalties for failing to properly report for Group Health Plans (GHPs) as well as Non-Group Health Plans (NGHPs). Below is a breakdown of the rule and its various highlights related to NGHPs, which include workers’ compensation, liability, no-fault insurers, and self-insured entities (Responsible Reporting Entities).

Penalties Based on Untimely ORM Acceptance and TPOC Reporting

In the final rule, CMS focuses solely on timeliness in reporting both Ongoing Responsibility for Medical (ORM) acceptance and Total Payment Obligation to Claimant (TPOC). This is a paired down version of the proposed rule that also included potential penalties for exceeding error tolerances and contradictory reporting. There is no indication at this time, and the comments specifically exclude, penalties for untimely reporting of ORM Termination.

CMS may impose a penalty when the RRE:

 “[f]ails to report any beneficiary record within 1 year from the date of the settlement, judgment, award, or other payment, or the effective date where on-going payment responsibility for medical care has been assumed by the entity.

Determination of Timeliness

For CMS purposes, timeliness is determined by comparing the date the record is submitted and accepted by CMS against the date CMS should have received the record. The date CMS should receive the record is determined by the effective date of coverage (ORM assumption) or the date of settlement (TPOC or TPOC funding date if the TPOC is delayed) plus 1 year (365 days). No penalty will be imposed until at least 1 year after the later of: (1) the applicability date of this final rule; or (2) the coverage effective date, or settlement date, an RRE is required to report.

Tiered Approach to Calculate Penalties

Because of the Strengthening Medicare and Repaying Taxpayers Act of 2012 (SMART Act), NGHPs are not subject to the harsh enforcement of a mandatory penalty amounts of $1,000 per day or more for non-compliance. Instead, pursuant to the revisions imposed by the Act, NGHPs “may” be subject to a civil money penalty of up to $1,000 per day for non-compliance. With this flexibility in mind, CMS will use a tiered approach to implementing penalty amounts as follows:

      • $250, as adjusted annually under 45 CFR part 102, for each calendar day of noncompliance, where the record was reported 1 year or more, but less than 2 years after, the required reporting date
      • $500, as adjusted annually under 45 CFR part 102, for each calendar day of noncompliance, where the record was reported 2 years or more, but less than 3 years after, the required reporting date
      • $1,000, as adjusted annually under 45 CFR part 102, for each calendar day of noncompliance, where the record was reported 3 years or more after the required reporting date

Audit Method

To determine which RREs are reporting ORM acceptance and TPOC in an untimely fashion, CMS will utilize an audit system. Specifically, CMS will audit a maximum of 1,000 cases per year, or 250 per quarter, across both GHP and NGHPs. The audit will also look at the proportion of GHP versus NGHP reports filed for that quarter. For example, if 60 percent of the claims for a quarter are GHP claims and 40 are NGHP claims, CMS will audit 150 GHP claims and 100 NGHP claims.

Appeal Process

Prior to issuing a formal notice regarding a CMP, CMS will provide a “pre-notice” which will give RREs the opportunity to present “mitigating evidence” prior to the imposition of penalties. The RRE will have 30 calendar days to respond with this information before the issuance of a written notice.

CMS states, in broad terms, if a formal written notice is issued, it will include what triggered the notice, the amount of the proposed CMP, and the next steps in the appeal process. CMS notes recipients will have the right to request a hearing with an Administrative Law Judge (ALJ) within 60 calendar days of receipt of the notice, and any party can appeal the ALJ’s decision to the Departmental Appeal Board (DAB) within 60 calendar days. The DAB’s decision becomes binding 60 calendar days following service of the DAB’s decision, absent petition for judicial review.

Safe Harbors

CMS has included two potential safe harbors from penalties, but also notes that other situations may exist where penalties would not be appropriate.

The first safe harbor is related to technical or system issues that are outside the scope of the RRE, or the result of an error caused by CMS or its contractors.

Second, is untimely reporting due to a lack of cooperation by the beneficiary to obtain needed reporting information. CMS requires documentation for this second safe harbor as follows:

      • The NGHP must make a total of three attempts to obtain the required information from the beneficiary or their counsel.
      • At least two attempts to obtain the information must be by mail or electronic mail and the third attempt can be via telephone, electronic mail, or other reasonable method.
      • This documentation must be maintained for a minimum of five years.

Statute of Limitations

CMS has imposed a five-year statute of limitations for failure to report the date of settlement or the effective date of coverage. Below is an example provided to illustrate this calculation:

[I]f the date of settlement is January 1, 2025, then the RRE will have 1 year from that date to report the coverage before being potentially subject 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.

Rule is Prospective

Compliance will be evaluated only on those files submitted after the effective date of the rule. CMS further states that the one-year period to report the information would begin on the latter of the rule effective date or the settlement (or coverage dates) which an RRE is required to report.

Final Thoughts

The final rule is in many ways a win for RREs as CMS did not include contradictory reporting and technical errors as part of the penalty assessment. However, CMS states that the RRE has to report the information in a timely manner and CMS has to accept the information, which leaves room for a potential penalty situation if technical errors prevent CMS from reviewing the record. In addition, the auditing approach is extremely limited in scope and CMS expanded the safe harbor provision in the proposed rule.

Although a tiered approach for penalties is being utilized, the failure to timely report may still bring steep fines. In addition, failing to properly report proper ICD codes, ORM termination dates, and correct TPOC dates can impact conditional payment recovery even though penalties will not be imposed in these situations (at this point).

Best Practices

The best way to prevent potential penalties, or other cost shifting due to improper reporting, is to have insight into your reporting program now. Who is reporting for you is equally as important as what information is being reported on your behalf. Do you know:

      • Are they monitoring CMS response files to check for issues and helping you address these issues?
      • Are you feeding the information to the reporting provider and do the people entering this information understand Section 111 Reporting?

A data dump of information, without review and oversight, and without a reporting partner to help address these challenges is possibly an RREs greatest area of weakness when is comes to reporting. Auditing your current reporting process is one way we help you identify these issues in a timely and effective manner.

For more information on our comprehensive approach to reporting services, or for information about our Section 111 auditing services, please contact IMPAXX’s Settlement Consulting team at [email protected].