CMS Proposes Penalty Rules for Group Health Plan Reporting of Medicare Secondary Payer (MSP) Requirements | Practical Law

CMS Proposes Penalty Rules for Group Health Plan Reporting of Medicare Secondary Payer (MSP) Requirements | Practical Law

The Centers for Medicare and Medicaid Services (CMS) issued proposed regulations that would impose civil money penalties when health insurers and third-party administrators (TPAs), on behalf of group health plans, fail to satisfy reporting requirements involving the Medicare Secondary Payer (MSP) rules. The proposed regulations identify situations in which penalties would be imposed and how penalties would be calculated.

CMS Proposes Penalty Rules for Group Health Plan Reporting of Medicare Secondary Payer (MSP) Requirements

by Practical Law Employee Benefits & Executive Compensation
Published on 18 Feb 2020 • USA (National/Federal)
The Centers for Medicare and Medicaid Services (CMS) issued proposed regulations that would impose civil money penalties when health insurers and third-party administrators (TPAs), on behalf of group health plans, fail to satisfy reporting requirements involving the Medicare Secondary Payer (MSP) rules. The proposed regulations identify situations in which penalties would be imposed and how penalties would be calculated.
On February 13, 2020, the Centers for Medicare and Medicaid Services (CMS) issued proposed regulations and a related fact sheet addressing civil money penalties for group health plans (GHPs) and other entities that fail to satisfy reporting requirements related to the Medicare Secondary Payer rules (see Group Health Plans Toolkit). The proposed regulations identify situations in which penalties would be imposed and how penalties would be calculated.

MSP Reporting Requirements for Group Health Plans

As background, federal law identifies situations in which Medicare is the secondary payer relative to certain "primary" plans, which may include group health plans. This means that another entity (for example, the group health plan) is responsible for paying for medical care before Medicare (see Standard Clause, SPD Language, Coordination of Benefits: Medicare Secondary Payer Rules). These rules, which are known as the Medicare Secondary Payer (MSP) requirements, generally prohibit Medicare from paying if payment is made by the primary plan. (A non-group health plan arrangement, such as workers' compensation or no-fault insurance, also may be required to pay primary to Medicare.)
Section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA) imposed mandatory reporting requirements regarding Medicare beneficiaries who have coverage under group health plans or certain non-group health plan arrangements (Pub. L. No. 110-173). As to group health plans, these reporting requirements are imposed on group health insurers and third-party administrators (TPAs) (for self-funded health plans), which are collectively known as "responsible reporting entities" (RREs).
RREs must submit coverage information for Medicare beneficiaries each quarter using an electronic file submission process that may vary depending upon the number of beneficiary records being reported or updated. The coverage information consists of information:
  • Sufficient to uniquely identify a Medicare beneficiary (and confirm the individual's status).
  • About the nature of the coverage (for example, if it is group health plan coverage, coverage effective dates, and applicable policy limits).
Medicare may impose civil money penalties on entities that fail to satisfy the Section 111 reporting requirements. Group health plans that fail to comply with the reporting requirements are subject to penalties of up to $1,000 (as adjusted for inflation) per day of noncompliance.
In 2013, CMS issued an advance notice of proposed rulemaking that sought public comment on several MSP penalty-related topics, including which situations warrant penalties and how penalty amounts should be determined (78 Fed. Reg. 75304 (Dec. 11, 2013)).

When Penalties Would Be Imposed

Under the February 2020 proposed regulations, civil money penalties would be imposed with respect to RREs for group health plans in the following three situations:
  • An RRE fails to register and report as required under the MSP reporting rules.
  • The RRE reports as required, but the information reported exceeds certain error tolerances established by HHS in any four out of eight consecutive reporting periods (see Permitted Error Tolerance Thresholds).
  • The RRE contradicts information it previously reported, in response to CMS efforts to recover payments from the RRE.
Regarding the third situation, a contradiction could occur if a group health plan RRE:
  • Reported and repeatedly affirmed ongoing primary payment responsibility for a particular Medicare beneficiary.
  • Subsequently responded to CMS payment recovery efforts by asserting that coverage for the beneficiary actually ended two years before CMS issued its recovery demand letter.
In this case, penalties would be calculated based on how many calendar days that the plan's RRE failed to correctly report updates to beneficiary records. The penalty would be $1,000 (as adjusted for inflation) for each calendar day of noncompliance for each individual for whom the required information should have been reported (see Calculating Penalty Amounts for Group Health Plans).

Permitted Error Tolerance Thresholds

The proposed regulations would use an error tolerance system under which:
  • Submissions containing certain types of errors or mistakes would be violations.
  • An RRE's performance relative to the permitted tolerances would be measured over time so that a few poor submissions would not result in penalties being imposed.
As proposed, the initial and maximum error tolerance threshold would be 20% (that is, errors preventing 20% or more of the beneficiary records from being processed). The tolerance would be applied as an absolute percentage of records submitted in a reporting cycle. If an RRE exceeded the error tolerance level, the noncompliance would occur at the end of the fourth consecutive reporting period that is over a 20% threshold (out of eight consecutive reporting periods). A chart in material accompanying the proposed regulations includes examples of how the "four-out-of-eight" consecutive reporting periods trigger would work.

Potentially Sizeable Penalties

An RRE would be considered to be out of compliance for the entire reporting period (calendar quarter) in which it exceeded the error tolerance threshold. As a result, the penalty for a noncompliant plan would be $90,000 (as adjusted for inflation; currently $141,210):
  • For each individual for whom the required information should have been submitted.
  • Per reporting period for which penalties may be imposed.

Appeal Procedures, Statute of Limitations, and Prospective Applicability

Regarding process, RREs subject to penalties would generally receive formal written notice when a penalty is proposed. In preamble material accompanying its proposals, CMS offered additional views on how these procedures would operate. For example, CMS would use an informal, written (pre-notice) procedure under which an RRE could provide mitigating evidence before penalties are imposed. CMS would also use procedures outlined in existing MMSEA Section 111 User Guides for group health plans. CMS would revise other procedures for situations where – as part of CMS payment recovery efforts – an RRE contradicts its own previously reported information. In addition, special penalty suspension rules would apply where changes to MSP mandatory reporting procedures require modifications to an RRE's systems for reporting Medicare beneficiaries.
The proposed regulations would impose a five-year statute of limitations under which CMS could only impose penalties within five years from the date when it identified noncompliance with the Section 111 reporting requirements. Noncompliance would occur on every day of non-reporting after the required reporting timeframe elapsed. For example, if an RRE did not report a beneficiary record as required beginning in 2023, and CMS identified this non-compliance in 2024 but took no action until 2030, then no penalties would be imposed.
In response to comments on the December 2013 advance notice of proposed rulemaking, the proposed regulations provide that if a plan's failure to comply with the reporting requirement relates to a policy or procedural change, penalties would not be imposed for at least two reporting periods.
The proposed regulations would apply prospectively only.

Calculating Penalty Amounts for Group Health Plans

The proposed regulations would establish the penalty amounts that would be imposed on group health plan RREs. In general, CMS would impose penalties if an RRE failed to report any group health plan beneficiary record by the required deadline – that is, no more than one calendar year after the later of the plan's coverage effective date or the Medicare beneficiary's entitlement date. This penalty would be calculated on a daily basis, based on the actual number of individual beneficiaries' records that the RRE failed to timely submit. A plan's RRE would be subject to penalties of $1,000 (as adjusted for inflation; $1,569 as of January 17, 2020) for each calendar day of noncompliance for each individual for whom required information should have been reported. This period would be counted from the day after the last day of the RRE's assigned reporting window where the information should have been submitted through the day that CMS received the information, up to a maximum penalty of $365,000 (as adjusted for inflation; currently $572,685) per individual per year.

Practical Impact

CMS has requested comments from stakeholders on the proposed violations for which penalties would be imposed, including the proposed error tolerance threshold. But even if the proposals are finalized with certain changes, it seems likely that CMS will direct greater enforcement efforts to Section 111 reporting compliance once its penalty regulations are finalized. In comments accompanying these proposals, CMS indicated that it would increase its monitoring of:
  • Payment recovery process disputes and appeals that contradict reported data.
  • Reported data and performance over time, so that CMS can identify reporting that exceeds the permitted error thresholds.
In the group health plans context, this increased enforcement will be directed at health insurers and TPAs, as RREs.