Flagship Services Group Blog

Chicken Soup for Section 111: Boiling Down the Public Comments on Proposed Civil Money Penalties

Jun 1, 2020 3:39:52 PM / by Robert J. Finley

On May 11, 2020, the 47 public comments were published regarding CMS’ proposed rule under MSP for imposing Certain Civil Money Penalties. The comments were submitted by a variety of entities with diverse perspectives from across the country including corporations, underwriters, state insurance funds, third party administrators, health insurance companies, workers compensation insurers, property and casualty associations, responsible reporting entities (RREs), MSP vendors, law offices, risk management organizations, defense attorney organizations, corporate counsel organizations, health and wellness organizations, and integrated delivery and financing systems (IDFS). Many submissions raised similar concerns, so we tapered down those raised by the commentators into 12 major themes and provide key discussion points underscoring each. CMS is expected to assess and reply to these comments as part of its ongoing ruling making process.

These topics and issues are sure to frame the discussion and any debate over Section 111 reporting CMPs into the near future. Plant the seeds. Be proactive. Create winning compliance strategies in line with best claims handling procedures and business judgment rule.

Constitutionality and Proportionality of Penalties

  • Must follow 8th Amendment and Excessive Fines Clause in U.S. Constitution. Economic impact on defendant should be considered given significant penalties which may result in insolvency.
  • Proposing penalty regardless whether or not Medicare recovers the overpayment.
  • Fines levied pursuant to Section 111 should be reasonably related to a specified harm incurred by CMS.
  • Penalties should not be assessed in cases when Medicare has not made any conditional payments, particularly in cases when no injury has been alleged.
  • Amount of penalty in any case should not be greater than conditional payment claim(s).
  • Penalties should be narrowly tailored to cover true malfeasance or reckless disregard.
  • Could yield hundreds of thousands of dollars in penalties for which there may be very little owed to the Agency, or few if any Medicare payments were ever avoided.
  • Use of calendar days-bases is punitive since RREs are unable to correct submissions until the subsequent quarter. CMS should use a more appropriate business day standard. If use of calendar day remains, then CMS should permit a minimum of one amended submission to enable plans to correct quarterly submissions.

Standards for GHP compared to NGHP

  • Appears to establish two different standards for imposing CMPs on GHPs and NGHPs for error tolerances.
  • There is a discrepancy between the maximum penalty proposed to be imposed on NGHPs for contradicting their reporting and the maximum penalty proposed to be imposed on GHPs for the same reason.
  • CMS should align standards for NGHPs with those for GHPs or provide policy reason(s) for the different standard

Identifying Entities subject to Penalties

  • The Final Rule should include a definition and/or better guidance of Responsible Reporting Entity in the circumstances of complicated insurance products including vertical insurance policies and following coinsurers. CMS is responsible for issuing reasonable, unambiguous regulations to clear up confusion and bridge any regulatory gap especially if imposing substantial civil money penalties on insurers.
  • The Proposed Rule is unclear whether CMPs apply on a per RRE basis (using the Taxpayer Identification Number), or on a per RRE Identification number basis (using the number assigned to each RRE) (“RRE ID”).
  • Penalties should not be imposed on RRE for good faith interpretation of unclear Section 111 reporting requirements.
  • Add the following exemption to entities that are not subject to CMPs: It is associated with data provided to a Federal Employees Health Benefits Plan entity from a participating employer, the federal retirement system administered by the U.S. Office of Personnel Management, or the federal workers compensation system administered by the U.S. Department of Labor’s Office of Workers Compensation Programs.
  • CMS should incentivize RREs positively to be good actors by providing credits for compliant Section 111 reports which may be debited for those quarters when the good actors may simply have a bad day.
  • Clarify whether Medicare Advantage Organizations (MAOs) have any rights under Section 111.

Proper Error Tolerance Threshold

  • CMS should not consider more than one error per beneficiary record.
  • Proposed threshold (20%/4 of 8 reporting quarters) allows CMS to assess penalties on compliant claims reporting, rather than only on individual claims’ merit.
  • More transparency on which errors are included in the threshold count.
  • Limit to significant errors or significant data (e.g. ID number, birth date, name, gender)
  • Add a minimum claim threshold because 20% threshold requirement could catch low v volume reporting plans and could implicate certain “erroneous” ICD-10 codes routinely rejected by CMS that the plan believes are accurately coded.
  • While CMS provides an error tolerance threshold for the submission of beneficiary records, no such threshold is provided for failure to report or delayed reporting over 1 year.
  • If the Proposed Rule intentionally seeks to impose a greater duty on NGHPs (than GHPs), then CMS should outline the policy reasons for doing so.

Clarifying where Data Contradicts Recovery

  • CMS should share current Section 111 plan data housed in the BCRC system. This allows for equal footing between RREs and CMS. Plans can ensure their system data matches what is currently on file with the BCRC and increase probability for both sides to move forward together with reliable and correct data reporting.
  • Extremely vague and unclear proposal about what is a “contradiction”. Many reasons to explain why or how an insurer’s response to CMS recovery efforts might not match up exactly with information reporting under Section 111. Must clearly define “contradictory information” (and eliminate simple errors) so that insurers understand what behavior may fall into this category.
  • Correcting claims data should not be penalized as a contradiction.
  • Fails to address where recovery efforts led to uncovering inaccuracies in the Section 111 claim data.
  • Sliding scale factors should be applied for proportionality because retroactive ORM termination/administrative closure purposes would result in more than $1,000,000 penalty.

Applying Mitigation Factors and Safe Harbors

  • Where CMS applies its discretion under SMART Act for “up to” $1,000/day, CMS should specify the criteria for how the penalty is determined (e.g. $1/day, $500/day or $1,000/day).
  • Does not explicitly incorporate the mitigating factors found in existing regulation.
  • CMS must acknowledge that errors will occur from time to time. RREs with a history of compliance and cooperation with CMS, particularly those that self-identify errors, should not be subjected to civil monetary penalties. For example, RRE compliance SOPs, and the application of SOPs, as well as advancing the purpose of Section 111 (i.e. helping Medicare remain secondary payer).
  • RREs that internally audit should realize a reduction in overall CMPs.
  • Do not assess penalties where conditional payment resolved.
  • Eliminate mandatory minimum number of communications with beneficiaries for data collection. Some people want to keep private their personal data. Some insurance customers could be annoyed by multiple requests. Require RRE make good faith efforts under the circumstances to try secure needed reporting information. CMS can explain preferred actions as a helpful guide on safe harbors.
  • Add other safe harbors or mitigation factors like inaccurate information provided by beneficiary and failure to timely report due to clerical/technical errors preventing CMS for accepting the report.
  • Safe harbor provisions cannot be accomplished where a beneficiary is represented by an attorney.
  • Safe harbor provisions fail to consider the implications Section 111 reporting requirements for resolving mass torts.
  • Create safe harbor for RRE GHP that fail to report complete or accurate information where a good faith effort is made to obtain because RRE GHP have different relationship to beneficiary compared with NGHP.

Penalties imposed on Good Faith Participants vs. Bad Actors

  • Focused on technical reporting accuracy, rather than good faith efforts to comply with the reporting requirements.
  • Too focused on penalizing entities that are reporting, rather than those who refuse to report.
  • Inappropriately penalize companies that have invested significant sums of money, time, and effort to attempt to comply with Medicare’s expansive and detailed reporting requirements.
  • Should only penalize systemic non-reporting and flagrant noncompliance.
  • Propose a penalty rule that focuses on how Medicare will catch and penalize those ignoring the law, rather than companies who are trying their best to comply.
  • CMS has no reliable information on RREs that have failed to register and report, so he analysis of the costs and benefits of this rule are not ready. Hence, final rule should not be implemented.

Terminating Ongoing Responsibility for Medical (ORM)

  • Simplify the reporting system so that NGHPs can accurately report with the information normally collected.
  • Withdrawal of penalties for Retroactive Termination of ORM Reporting. ORM policies have never been fair or workable. CMS has been advised, yet has not updated its ORM termination policies.
  • Issue expanded, sensible ORM termination criteria allowing for ORM termination when practical considerations indicate case closure.

Benefits of Informal Notice Procedure

  • Expressly incorporate CMS’ consideration of mitigating circumstances during pre-notice process.
  • Compliance will be more difficult if CMS’ final rule fails to reconcile where the Preamble to the Proposed Rule contains a lengthy discussion of the informal notice process that CMS expects to follow before sending formal notice of imposition of CMPs; however, the actual proposed regulatory text does not contain the informal notice provisions.
  • Extend the response time period to 120 days for RRE to provide mitigating information.
  • CMS should clarify, perhaps in updated instructions, whether RREs could send ad hoc files off the regular reporting schedule.
  • CMS should clarify what entity will be issuing the informal notices (perhaps the EDI representative)

Selecting the Statute of Limitations

  • The applicable statute of limitations, should be three (3) years, pursuant to the SMART Act. 42 U.S.C. § 1395y(b)(2)(B)(3).
  • Express reference should be in final regulatory text to proposed 5-year statute of limitations required by 28 U.S.C. §2462, as well as examples similar to how the Department of Labor and the Internal Revenue Service which will assist RREs in understanding how the statute of limitations applies in particular circumstances rather than referring back to the Proposed Rule.
  • CMS wants statute to begin running when they learn about the reporting failure, not “when the claim—i.e. reporting failure—first accrued” pursuant to 28 U.S.C. §2462.

Prospective Application

  • The final rule should only be enforced based on reporting files an RRE submits after the final rule’s effective date.
  • CMS should clarify whether penalties may arise where injuries/illness, settlements or reports arise after final publication.
  • Suspend enforcement for two (2) reporting periods after any change in CMS’s reporting policy or procedural change.
  • The proposed rule does not address how the penalty would be calculated for claims reported one (1) or more years after the applicable TPOC date.

ALJ and Departmental Backlogs

  • CMS must not primarily rely upon CMPs to support Medicare Trust Funds.
  • Contradicts the Administration’s commitment to reducing regulation and putting people over paperwork.
  • In the Preamble to the Proposed Rule, CMS indicates that the rule would comport with the appeals process prescribed by 42 CFR §402.19 and set forth under 42 CFR Part 1005. Final regulation should contain text referencing these regulations.
  • HHS reports that OMHA receives more than a year’s worth of appeals every 18 weeks, and in FY 2015, the workload at OMHA exceeded 880,000 appeals while the annual adjudication capacity was approximately 75,000 appeals. The proposed rule will only add to this backlog.
  • As a result of COVID-19, RREs have diverted staff away from Section 111 reporting to more critical and immediate needs, furloughed or laid off staff. With projected recovery period for both private and public entities through the balance of 2020, no final rule should be implemented until at least 1/1/2021.


Disclaimer: This publication is provided for informational purposes only.  It is not intended to constitute, and shall not be construed as, the rendering of legal, accounting, or business advice or opinion or professional services of any type.  Nothing herein constitutes the views of the firm or its clients or the endorsement of any particular case, principle, or proposition.  The contents of this publication should not be viewed as a substitute for the guidance, advice, or recommendations of a retained professional


Flagship Services Group is the premier Medicare and Medicaid compliance services provider to the property & casualty insurance industry. Our focus and expertise have been the Medicare and Medicaid compliance needs of P&C self-insureds, insurance companies, and third-party administrators. We specialize in P&C mandatory reporting, conditional payment resolution, and set aside allocations. Whether auto, liability, no-fault, or work comp claims, we have assembled the expertise, experience and resources to deliver unparalleled MSP compliance and cost savings results to the P&C industry. To find out more about Flagship, our team, and our customized solutions, please visit us at www.flagshipservicesgroup.com. To speak with us about any of our P&C MSP compliance products and services, you may also contact us at 888.444.4125 or info@flagshipsgi.com.

Tags: MSA, civil monetary penalties, Robert Finley, Flagship Services, CMP, MSP, Medicare, Medicare Second Payers, section 111

Robert J. Finley

Written by Robert J. Finley

Robert J. Finley, a partner with Hinshaw & Culbertson LLP, has litigation and trial practice experience focused in tort, employment and healthcare. He also counsels firm clients under health plans, auto, property/casualty, no-fault, and workers compensation policies on Medicare repayment and Medicaid reimbursement compliance. Robert advises Flagship Services Group on high value matters, in administrative hearings, and with educational solutions involving Medicare Secondary Payer issues. For more information, visit: https://www.hinshawlaw.com