The long-awaited proposed rule on Section 111 civil money penalties was unveiled in the Federal Register for public inspection. The draft of the proposed rule can be found here. Under the proposal, CMS seeks to impose civil money penalties in a variety of situations, and affords a number of safe harbors and get out of jail free cards for responsible reporting entities. Interestingly, the proposal aims to use the conditional payment dispute and appeals process as a launching pad for possible civil money penalties.

Proposed Penalty Structure

At a high level, the proposed rules would impose civil money penalties in three basic scenarios:

• Outright Failure – RREs that outright fail to register to report, or simply fail to report a settlement, judgment, award, or other payment with one year are subject to the penalty.
• Contradiction – RREs that, when faced with a recovery demand, provide information within the dispute or appeal to contradict information previously reported via Section 111 could be subject to a civil money penalty.
• Poor quality – RREs that exceed a 20% error threshold in four out of eight consecutive quarters could be subject to a sliding scale of civil money penalties.

The notice provides details about the methodology, manner, and substance of possible penalties. In this summary, we describe situations that could give rise to penalties; second, what situations Medicare anticipates that it will not penalize; and finally we outline Medicare’s analysis of the “good faith efforts” absolution that it must provide pursuant to the SMART Act.

When Penalties May Be Imposed: Outright Failure

Of the three categories of penalties identified above, by far the simplest and most obvious is when an RRE fails outright to report a claim or claims. When an RRE fails to report a claim within one year of the settlement (a/k/a TPOC date), Medicare may impose an inflation adjusted penalty of up to $1,000 per day per claim, with an annual maximum penalty of $365,000 (although nothing within the proposal limits CMS to issuing only one year’s worth of penalties). It may seem obvious that failure to even register to report would subject an RRE to civil money penalties, but the supporting statement indicates that CMS does not have a particularly sophisticated program to identify those non-compliant RREs, indicating that “the reporting program has not yet reached a level of maturity where we have definitively identified any additional RREs that have failed to register and report as required.”

When Penalties May Be Imposed: Contradiction

In what may be the most controversial aspect to the proposal, CMS proposes to issue penalties where an RRE’s conditional payment dispute or appeal contradicts previously reported information. In an example cited in the notice, an RRE may indicate with a dispute or appeal that ongoing responsibility for medical benefits (ORM) was actually terminated two years prior to the issuance of a demand. In that situation, where the RRE failed to file a timely ORM termination, CMS proposed to issue an inflation adjusted penalty of up to $1,000 per day for each day “of noncompliance for each individual for which the required information should have been submitted.” Contradictory information penalties are likely to generate significant response. RREs may be reluctant to file appeals if they believe a far-more-onerous civil money penalty may generate, forcing them into the choice to either pay the demand or risk a CMP for what may have been a careless error.

When Penalties May Be Imposed: Quality

CMS also proposes that it issue penalties when an RRE’s reporting is of consistently poor quality. Penalties would be available to CMS if an RRE reports with greater than 20% substantive errors in four out of eight consecutive quarters. If a poor quality threshold is met, then CMS could issue penalties at a graduated scale of between 25% the possible penalty value for the first possible penalty quarter, up to 100% of the possible penalty. The scale could decrease when an RRE is able to report successfully with less than 20% errors. The notice goes into great detail to illustrate just how and when these quality penalties could be imposed, but it is important to note 20% is a familiar figure for Section 111 reporting veterans. CMS already imposes a 20% threshold to allow a claim file to process and the vast majority of RREs easily meet this goal.

CMS Supporting Summary on Penalties

In its supporting summary, CMS takes care to outline that these penalties would be imposed within the existing CMP five year statutes of limitations. That limitations period is triggered when the agency identifies the non-compliant action. In addition, the supporting statement indicates that penalties will be assessed prospectively and not retroactively.

When CMS Would Not Seek to Impose Penalties

CMS would not impose a civil money penalty:

• When an RRE properly reports a settlement (TPOC) within one year of the settlement.
• If an RRE does not report a claim, but only because the RRE is adhering to CMS-published reporting thresholds (e.g. a medical-only workers’ compensation claim with less than $750 in medical spent).
• Comprehensive penalties would not be imposed if less than 20% errors were reported in five out of eight consecutive quarters.
• If an RRE fails to identify a Medicare beneficiary but was unable to do so despite good faith efforts to obtain key identifying information from that individual.

The SMART Act requires CMS to exempt RREs from civil money penalties when they deploy good faith efforts to identify a Medicare beneficiary. The proposed rule exempts an RRE that has attempted to obtain necessary “Big 5” reporting data (i.e., name, date of birth, SSN or Medicare beneficiary identifier) from a Medicare beneficiary and documented its efforts as follows:

• The RRE communicated the need for the Big 5 data to the beneficiary or attorney at least two times in writing and once via telephone or email;
• The RRE certifies that it has not received a response or, if it has received one, the response indicated that the claimant would not provide his or her MBI, SSN or the last five digits of the SSN; and
• The RRE has documented its efforts to obtain the information and the reason for the failure to collect it.

Under the proposed rule, RREs would be expected to maintain records documenting the effort to obtain the information for a period of at least five years.

Context, Analysis, and Potential Impact

We anticipate the proposed rule will be published in the Federal Register on February 18th and that public comment period will go through mid-April with comments due around April 20th. We anticipate significant comment regarding the proposal, particularly surrounding the potential for CMS to impose penalties where contradictory information is presented. It is clear however that regardless of the ultimate outcome, the best way to avoid penalties is to report in a timely fashion, accurately, and to deploy clear and unambiguous procedures for claims staff to follow regarding the procurement of key reporting information.

While the rule will not be final for several more months, the proposed rule provides a road map of sorts to allow RREs to assess not only their potential exposure, but also the opportunity to reassess their Section 111 reporting program as a whole. Section 111 reporting is and always has been the straw that stirs the drink on Medicare Secondary Payer compliance. It’s important to get it right the first time and it requires continued and ongoing commitment to technology, training, and oversight.

ExamWorks Clinical Solutions will comment on these proposals. Over the next several months, we are certain that some voices will argue that these proposals are scare tactics warning that they are a catastrophic and existential threat. Avoiding penalties is important, but the fundamental requirements have not changed, namely to: identify Medicare beneficiaries, report the necessary claims data accurately and in a timely fashion, and deploy a program that involves strong internal and external oversight. These penalties don’t change the basic requirements, they simply highlight the risk of getting it wrong.

ExamWorks Clinical Solutions will continue to closely monitor these regulations. For further information or if you have any questions, contact ExamWorks Vice President of Medicare Compliance Marty Cassavoy at marty.cassavoy@examworks-cs.com or 781-517-8085.