Legal Alert

Don’t Get Caught Off Guard: Section 111 Audit Readiness

October 1, 2025

After a year lead time, audits of Section 111 reporting compliance will begin starting October 11, 2025 for the prior reporting year. Parties/providers settling claims with Medicare beneficiaries (called Responsible Reporting Entities — RREs) must be prepared, because organizations that fail to meet their reporting obligations can now face Civil Money Penalties (CMPs).

The Medicare Secondary Payor Act (the MSP) was intended to reduce Medicare costs by ensuring that Medicare doesn’t pay for claims when another payor is responsible. Medicare is a secondary payer to liability insurance. In 2007, Congress expanded MSP enforcement through Section 111 of the Medicare, Medicaid, and SCHIP Extension Act (MMSEA) by requiring certain insurers and self-insured entities to report settlement, judgments, awards, or other payments to Medicare beneficiaries that cover medical costs. Section 111 reporting can be complicated and situations may be very fact-specific. CMS’s manuals include detailed guidance on different reporting scenarios. For example, when a party has “reduced its charges, written off some portion of a charge or provided other property of value to a Medicare beneficiary” as a risk management tool when there is a reasonable expectation that the individual may seek and/or is releasing medical treatment as a consequence of the underlying incident, the party shall report the reduction, write-off or property if it meets the minimum reporting threshold.

Though CMS had issued various alerts on CMPs, it had not put them into practice. In 2023, CMS published re-focused regulations imposing CMPs for noncompliance with the reporting process. As has always been the case, CMPs for noncompliance can be substantial, running up to $1,000 per day, capped at $365,000 per record. But, in the 2023 publication, CMS finally built a plan and protocol for audits to identify non-compliance. The regulations became applicable October 11, 2024, and will be enforced through audits starting October 11, 2025. RREs must be ready for compliance audits of the reporting process tied to CMP enforcement.

Starting October 11, 2025, CMS will audit a subset of randomly selected records to identify potential instances of noncompliance, such as where an RRE fails to report, submits inaccurate or incomplete information, or does not report timely. CMS will notify the RRE via letter if it identifies noncompliance.

According to the current guidance, CMS will go through several steps before providing notice of the final CMP. CMS will first issue an informal notice of an intention to impose a CMP, which is intended to provide the RRE an opportunity to investigate the record and submit mitigating information. If the RRE does not submit mitigating information or the evidence is not sufficient, CMS will issue a Notice of Proposed Determination as the first step in the formal process for CMPs. The Notice of Proposed Determination will include the amount of the CMP and further rights to appeal. The timeline for appeal is short and the requirements are detailed. Ultimately, CMS will issue a Notice of Final Determination to Impose a CMP, including specifications for payment.

In light of these upcoming audits, RREs should consider reviewing their current settlement process and the provisions they make for MSP applicability as part of resolution, tracking the applicable deadlines, and maintaining detailed records regarding settlements and reporting. RREs may also take the opportunity to provide additional trainings to staff on Section 111 reporting requirements and audit their internal reporting process prior to the October 11th deadline.

Reporting requirements vary depending on the specific settlement situation. If an RRE is unsure whether a certain settlement is reportable or how to report, RREs should contact counsel.