The Coming Storm: CMS Moves Forward with Hefty Civil Monetary Penalties for Noncompliance

Primary workers’ compensation, general liability, and no-fault claims payers should be on alert for civil monetary penalties of up to $1000 per day/per claim which will be issued against noncompliant claims payers in the Spring of 2023. On February 18, 2020, the Centers for Medicare & Medicaid Services (CMS) issued a Notice of Proposed Rulemaking (NPRM) regarding scenarios in which Civil Monetary Penalties (CMPs) for noncompliance with MMSEA Section 111 reporting could be issued against Non-Group Health Plans (“NGHPs” to include workers’ compensation, general liability, and no-fault payers/plans, including self-insurance). The comment period closed in April of 2020, and comments submitted in response to the Proposed Rule are currently being reviewed by CMS.

The Office of Management and Budget (OMB) website indicates that the rule will be finalized by February 18, 2023, as MMA sec. 902 requires Medicare to publish final rules within 3 years of a proposed or interim final rule. The Final Rule will likely not become effective until at least 30 days after it is published in the Federal Register. Thus, one can speculate that the property & casualty industry is about (1) year out from a Final Rule on CMPs, and once the Final Rule is published, CMS may/will begin penalizing noncompliant workers’ compensation, general liability, and no-fault Responsible Reporting Entities (RREs).

The description of the proposed Final Rule now states the following, which is insightful into the areas of Section 111 compliance that CMS will seemingly focus on when determining whether to issue a CMP against an RRE:

“This final rule specifies how and when CMS must calculate and impose civil monetary penalties (CMPs) when group health plan (GHP) and non-group health plan (NGHP) responsible reporting entities (RREs) fail to meet their Medicare Secondary Payer obligations in any or more of the following ways: when RREs fail to register and report as required by MSP reporting requirements; when RREs report as required, but report in a manner that exceeds error tolerances established by the Secretary of the Department of Health & Human Services (the Secretary); when RREs contradict the information the RREs have reported when CMS attempts to recover its payments from those RREs. This rule also establishes CMP amounts and circumstances under which CMPS would and would not be imposed.”

Thus, clearly, areas of focus for CMS on penalizing insurers are those entities that have failed to register and report, where the RRE is exceeding error tolerances/not correcting errors, and where the Section 111 reporting contradicts what the RRE might argue on a Medicare conditional payment appeal as far as responsibility for payment.

It is notably apparent from the Proposed Rule that CMS is examining is to determine the extent an RRE is unable to obtain an injured individual’s Social Security Number (SSN), that the documentation of those “good faith efforts” to obtain the SSN is highly critical to defend against CMPs. In its Proposed Rule, CMS proposed that the RRE must make at least 3 attempts, both by phone and email/mail, to obtain the SSN so that the RRE can properly report. This is a high standard for CMS to set, thus RREs should be prepared if this standard remains in the Final published Rule. This certainly impacts liability payers more than workers’ compensation payers, which more readily have access to an injured individual’s SSN.

Although the Proposed Rule has stated that any CMPs issued would be prospective in nature, the Final Rule will be the final say as to whether CMS intends to apply CMPs to RREs on a retroactive basis. Further, as CMS has proposed having a 5- year statute of limitations in which to issue a CMP against an RRE, the time is NOW for RREs to ensure that its current and historical reporting of claims follow MMSEA Section 111 obligations.

Practical implications and suggestions for claims payers to guard against civil monetary penalties would be, from a simplistic standpoint: 1) Register as an RRE and submit timely reports; 2) Do not report Section 111 data which might conflict with Medicare conditional payment disputes/recovery processes; 3) Ensure your organization is correcting errors and not exceeding error tolerance thresholds; 4) RREs should make good faith efforts to obtain the necessary information to report. Where an RRE cannot obtain the data required, the RRE should exercise due diligence to document those good faith efforts to report.

There are numerous challenges for an insurance carrier, self-insured entity, or a third-party administrator (TPA) which need to be overcome to ensure compliance and avoid CMPs. Compliance standards are difficult as primary payers need to account for not just what is already known but for what CMS will introduce in the future. The $1,000 per day per claim has been a sword hanging over the head of the industry for 10+ years now.

The first and foremost challenge is the nature of the claims the industry handles. Workers’ compensation and no-fault are at their core medical claims where you normally “accept” an injury before payment is made. General liability claims are predominately settled with a release that specifically states that the settling entity is not admitting liability and by default not “accepting” the injury. The next challenge is that depending on the size of the claim operation the adjusting staff handling anyone of these types of claims is different from the others.

As CMS marches forward in the next few months with their Final Rule on CMPs, now is the time for primary payers to clean up their data to avoid $1,000 per day/per claim penalties. A proactive approach prior to the Final Rule being released is highly recommended.

Jonathan Gerdes, CPCU, SCLA, AIC is the Chief Claims Officer for Frank Winston Crum Insurance and can be reached at JonathanG@fwcrum.com. Heather Sanderson, Esq. is President of Sanderson Firm PLLC and can be reached at heather@sandersoncomp.com.  

By: Jonathan Gerdes, CPCU, SCLA, AIC, Chief Claims Officer, Frank Winston Crum Insurance & Heather Sanderson, Esq., President, Sanderson Firm PLLC

Published in the January/February 2023 Edition of CLM Magazine