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Cost of Non-Compliance

By July 17, 2017August 2nd, 2018CMPs, CMS, Medicare, Part C, Part D

Did you know…
Forty-six percent of sponsors subject to a 2016 Program Audit received a Civil Money Penalty (CMP) for violations of Medicare Parts C and D requirements found by CMS during the audit. Penalty amounts relating to program audits ranged from $28,975 – $2,498,850. What’s more, the total number of sponsors that received a CMP related to program audits increased by 50 percent between 2015 and 2016. CMS also imposed four penalties relating to other program noncompliance issues, ranging from $3,325 – $106,095.

In addition, in 2016, four sponsors were under intermediate sanctions that CMS imposed for failures discovered during the 2015 audit season. These intermediate marketing and enrollment sanctions suspended each sponsor’s ability to market to and enroll new members. Three of the sponsors were later released from the sanctions, and one of the sponsors requested to unilaterally terminate its contract with CMS.

Notwithstanding hefty fines, the cost of noncompliance is far-reaching. There are indirect and seeming intangible costs which can quickly accumulate to have a large impact on a sponsor’s bottom line and its culture, reputation and employee morale. Ultimately, the indirect costs of noncompliance can exceed the face value of a CMP many times over.

CMS has a variety of compliance and enforcement actions at its disposal to address, correct or penalize a sponsor’s actions. These different actions can be used alone or in various combinations to properly enforce Medicare program requirements. Regardless of how the actions are imposed, these fall along an escalated continuum which coincides with the severity of the behavior to which CMS’ actions are responding.

Know the Facts:
1. Compliance Action

What is it? A warning letter, a notice of noncompliance, or a Corrective Action Plan (CAP) request.

Who Does It Come From? Typically issued by a compliance lead or a division director in the Medicare Drug Benefit and C and D Data Group (MDBG), the Medicare Drug and Health Plan Contract Administration Group (MCAG), or by a sponsor’s Regional Office Account Manager.

Why? Program noncompliance, such as low Star Ratings, failure to comply with bid submission requirements, inaccurate Annual Notice of Change (ANOC)/Evidence of Coverage (EOC) documents.

Where are the Actions Shared with the Public? CMS releases a monthly Ad-Hoc CAP report on its website which identifies sponsors in receipt of an Ad-Hoc CAP request, as well as the basis for the letter. CMS also publishes its Past Performance Review and outlier (poor performer) report on its website. Sponsors that receive a Compliance Action are on notice that they have violated a program requirement and need to remedy their operations, because CMS is watching.

How do I Fix it, and What Will It Cost Me?
The Fix: A Compliance Action may or may not require a formal response from the sponsor (e.g., a CAP request), but it does require action. If they haven’t already, sponsors should perform a root cause analysis of the noncompliance and initiate steps to remedy the problem. Expect at least one conversation with a CMS Regional Office Account Manager about the notice on a regular or ad-hoc call. If the issue isn’t fixed, or it results in more problems, the sponsor should prepare for additional action from CMS.

The Cost [1]:

2. Enforcement Action

Direct Labor
Reputation Indirect

What is it? Intermediate sanctions (e.g. suspension of marketing and/or enrollment activities) or CMPs.

Who Does It Come From? Medicare Parts C & D Oversight and Enforcement Group (MOEG) [2]

Why? Medicare Part C and Part D Program noncompliance, including but not limited to: Violations Related to Part C and Part D Organization/Coverage Determinations, Appeals and Grievances; Violations Related to Formulary and Benefit Administration; and Violations Related to Disclosure and Information Dissemination Requirements. The bases for which intermediate sanctions or CMPs may be imposed are found at 42 CFR §§ 422.752 and 423.752. Intermediate sanctions may be imposed on an immediate basis if CMS determines that a sponsor’s conduct poses a serious threat to enrollees’ health and safety, warranting the immediate action.

What is the Difference Between Intermediate Sanctions and a CMP?

  • Intermediate Sanctions – CMS may impose intermediate sanctions and keep them in place until the agency is satisfied that the deficiencies that are the basis for the sanction(s) determination have been corrected and are not likely to recur. Intermediate sanction(s) put a sponsor in “time out,” so they can remediate their deficiencies and ensure they are unlikely to recur. Sanctions include:
    • i. Suspension of a sponsor’s enrollment of Medicare beneficiaries (including auto-facilitated Low Income Subsidy (LIS) beneficiaries)
    • ii. Suspension of all marketing activities to Medicare beneficiaries by a sponsor, and/or
    • iii. Suspension of all payments to a sponsor for Medicare beneficiaries enrolled after notification of intermediate sanctions
  • CMPs –Where sanctions act as a “time out” to stop a bad behavior, a CMP might be imposed after the noncompliance has been discovered and corrected. A CMP is a “slap on the wrist,” or a fine, and does not require any evidence of remediation or correction to be provided to CMS; however, if additional noncompliance is discovered, or the issue recurs, additional or heightened penalties may be imposed, or CMS may consider further enforcement actions.

Per-Enrollee vs. Per-Determination? CMS imposes CMPs on a “per-enrollee” or on a “per-determination” basis. Per enrollee deficiencies have a quantifiable number of beneficiaries that have been adversely affected (or have the substantial likelihood of being adversely affected), while per determination deficiencies do not [3]. During 2016, CMS imposed 21 CMPs for 62 violations (for audit deficiencies and other program noncompliance). Fifty-nine of the 62 penalty amounts were calculated on a per-enrollee basis ($7,497,880 in penalties or 95 percent of the total 2016 CMP amount), while only three were computed on a per-determination basis ($15,000 in penalties 5 percent of the total 2016 CMP amount)[4].

Where are the Actions Shared with the Public? All enforcement actions imposed by CMS are listed on the enforcement action website [5] with a copy of the final notice letter that was issued to the noncompliant sponsor. Sponsors who are placed under sanctions may be required by CMS to notify their current enrollees about the imposition of the sanctions. State Health Insurance Assistance Program (SHIP) counselors and news outlets may also become informed of the sanctions. In addition, information about the sponsor and its benefit offerings will be suppressed or flagged as “sanctioned” on the Medicare Plan Finder site [5]. Often, enforcement activity by CMS, due to its rare occurrence, is picked up by media outlets, locally and nationally. Once a sponsor has remedied the deficiencies, which were the cause of the intermediate sanctions, and CMS is satisfied that they are unlikely to recur, the release will be noted on CMS’ enforcement website, as well.

How do I Fix it, and What Will It Cost Me?

Intermediate Sanctions – the Fix:

Sponsors placed under intermediate sanctions must:

  • work to correct all identified issues, and
  • establish for CMS that the deficiencies, upon which the determination to impose the sanctions was based, have been corrected and are not likely to recur.

The duration of the sanctions is unspecified and can last many months or longer, causing a sponsor to miss an Annual Election Period with associated marketing season. Historically, sanctioned sponsors have seen a decline in membership immediately upon imposition of the sanctions and again at the beginning of the next contract year.

Sponsors will be assigned an enforcement lead from CMS and may be subject to heightened monitoring and scrutiny due to their program noncompliance. In addition to day-to-day, business-as-usual operations, a sanctioned sponsor will have added responsibilities and work to perform related to its sanctioned status. Sponsors under sanctions should evaluate their staffing models and consider engaging consultants, such as BluePeak Advisors, to supplement the additional tasks and resource strain. A thorough review of the sponsor’s compliance program is also advisable to help ensure that the noncompliance is unlikely to recur.

Intermediate Sanctions – the Cost:

Direct Labor
Reputation Indirect

CMPs – the Fix:
Sponsors that receive a notice from CMS imposing a CMP have 60 days to request a hearing in front of an Administrative Law Judge, identifying sponsors should perform a root cause analysis of the noncompliance and initiate steps to remedy the problem. If the issue is not fixed, or it results in more problems, the sponsor should prepare for additional action(s) from CMS.

CMPs – the Cost:

Direct Labor
Reputation Indirect

CMS is subject to statutory and regulatory limits per CMP [7]. The amounts adjust each year according inflation. Based on these restrictions, the agency has recently released a methodology upon which it bases its penalty computations. Penalties can be increased due to aggravating factors. Examples of aggravating factors would include inappropriately delayed or denied drugs or services, untimely adjudication of expedited coverage determinations, common audit findings, and a prior history of noncompliance. In contrast, penalties may be mitigated, or decreased, for various factors, including enrollment-based caps and same day resolution of point-of-sale rejections [8].

Common Audit Conditions and CMPs: Each year, CMS releases a list of the most common conditions for each Medicare Part C and D area that is subject to a program audit. The agency expects sponsors to pay close attention to the common conditions to prevent similar weaknesses in their own operations. Common audit conditions may be subject to heightened penalty amounts [9].

3 . Contract Action
What is it? Non-renewal of a sponsor’s contract or termination of a sponsor’s contract. Either a sponsor or CMS may decide to non-renew a sponsor’s contract.

Who Does It Come From? MOEG has the authority to terminate a sponsor for cause.

Why? CMS may terminate a sponsor’s contract for a number of reasons (as found at 42 CFR §§ 422.510(a) and 423.509(a)), including failing to carry out the sponsor’s contract with CMS. A contract may be terminated on an immediate basis for multiple reasons, including if CMS determines that the noncompliance poses imminent and serious risk to the health and safety of enrollees, or if there are financial difficulties on the part of the sponsor so severe that its ability to provide services to enrollees risks their health and safety, etc.

  • For more information, see 42 CFR §§ 422.510(b)(2) and 423.509(b)(2)

CMS may non-renew a sponsor’s contract for various reasons (as found at 42 CFR § 422.506(b) and 42 CFR § 423.507(b)), including:

  • Any reason for which intermediate sanctions or a CMP may be imposed
    Any reason that would permit CMS to terminate the contract
    An individual MA plan or PDP plan does not have enough enrollees

How do I Fix it and What Will It Cost Me?

Direct Labor
Reputation Indirect

If CMS decides to terminate a sponsor’s contract and notifies the sponsor of that decision, the agency is also responsible for notifying the public about the termination through a press release to media outlets in the sponsor’s service area. The press statement will also be prominently displayed on the sponsor’s website. This can have an immediate impact on the reputation of the sponsor [10]. Of course, beneficiaries will be relocated from the affected contract(s) to another plan(s) in the service area. In addition, in the event of an immediate termination effectuated in the middle of a month, CMS may recover the prorated share of the capitation payments made to the sponsor for the portion of the month after the termination [11].

Before CMS can terminate a contract, the sponsor must be informed of their deficiencies and given at least 30 calendar days (i.e., reasonable opportunity) to develop and implement a corrective action plan to remediate the noncompliance. The sponsor is responsible for this corrective action and must demonstrate to CMS that the noncompliance has been remediated in the identified time to avoid a termination [12].

If CMS does terminate a sponsor for cause, the cost of that noncompliance is long-reaching. Should the sponsor or certain owners (or “covered persons”) of the sponsor re-apply to enter the Medicare program over the following 38 months, CMS has the authority to deny the application for failure to meet program requirements because of the termination, regardless of whether the applicant is in compliance with Medicare requirements at the time of application [13]. The owners who might be precluded from re-entering the program for 38 months include owners (not including shareholders) with more than a 5 percent interest or a member of the board of directors or board of trustees if the sponsor is organized as a corporation [14].

What Can I Do?
Don’t wait until it’s too late. Let BluePeak be your constant in the ever-changing world of healthcare. CMS is regularly stressing to sponsors the importance of conducting mock audits in advance of a real program audit. As recently as May 11, 2017, at the CMS 2017 Medicare Advantage and Prescription Drug Plan Audit & Enforcement Conference & Webcast, Vikki Ahern, MOEG Director, reminded sponsors to “utilize the various tools available to help [them] monitor and improve [their processes]” [15]. Similarly, throughout the “2016 Part C and Part D Program Audit and Enforcement Report,” released on May 8, 2017, CMS urges sponsors several times to conduct mock audits and pay attention to common conditions that CMS has identified[16]. Some benefits of a mock audit include opportunities to:

  • Practice pulling accurate and timely universes
    Improve operations by identifying problematic or non-compliant operational areas
    Establish essential oversight of first tier, downstream, and related entities (FDRs) as audit procedures are put into practice and tested
    Avoid Immediate Corrective Action Required (ICAR), Corrective Action Required (CAR) and audit observations by remedying operational weaknesses in advance of an actual audit by using CMS’ list of common conditions
    Protect Star Ratings
    Develop, implement and demonstrate robust auditing and monitoring processes as part of an effective compliance program (a requirement for any Part C or D Medicare sponsor).

BluePeak Advisors is a company of pharmacy and healthcare experts focused on helping you navigate and manage your Medicare programs and strategies. With over 90 mock audits and onsite CMS audit support projects under our belt – and counting –, BluePeak’s expert consultants can help your team prepare for a CMS 2017 CMS Program Audit or provide behind-the-scenes help during an actual audit. BluePeak’s experience isn’t limited to mock audits and audit support. We’ve also conducted CMS and mock validation audits, worked with clients to get CMS intermediate sanctions lifted, helped with corrective action remediation, and more.

[1] CMS has announced that it will be revising the way that Star Ratings are impacted by sanctions, CMPs, and compliance actions. The impact that enforcement and compliance actions have on Star Ratings will change between 2018 and 2019 so the Star Rating “Cost” is not considered in this paper. See Centers for Medicare and Medicaid Services. Note to: Medicare Advantage Organizations, Prescription Drug Plan Sponsors, and Other Interested Parties: CY 2018 Call Letter. April 3, 2017. available at:
[2] MOEG is comprised of 3 divisions: the Division of Audit Operations (DAO) – responsibilities include performing the Medicare Part C & D Program Audits; the Division of Compliance Enforcement (DCE) – responsibilities include developing and effectuating enforcement and contract actions based on program noncompliance; and the Division of Analysis, Policy and Strategy (DAPS) – responsibilities include the development, maintenance, and oversight of compliance program policy and guidance for sponsors.
[3] See Centers for Medicare and Medicaid Services/Medicare Parts C and D Oversight and Enforcement Group. Civil Money Penalty Methodology. December 15, 2016. available at:
[4] For more information, see Centers for Medicare and Medicaid Services/Medicare Parts C and D Oversight and Enforcement Group. 2016 Part C and Part D Program Audit and Enforcement Report. May 8, 2017; See also Footnote 3.
[5] See
[6] Centers for Medicare and Medicaid Services. CMS Fall Conference: Options for Adjusting Star Ratings for Audits and Enforcement Actions: Listening Session, September 8, 2016. available at:
[7] 42 CFR §§ 422.760 and 423.760.
[8] See Footnote 4.
[9] See Footnote 4.
[10] 42 CFR §§ 422.510(b) and 423.509(b).
[11] See Footnote 9.
[12] 42 CFR §§ 422.510(c) and 423.509(c).
[13] 42 CFR §§ 422.502(b)(3) and 423.503(b)(3).
[14] See 42 CFR §§ 422.502(b)(4) and 423.503(b)(4) for a full list of covered persons.
[15] Centers for Medicare and Medicaid Services. 2017 Medicare Advantage and Prescription Drug Plan Audit & Enforcement Conference & Webcast. May 11, 2017. available at:
[16] Centers for Medicare and Medicaid Services/Medicare Parts C and D Oversight and Enforcement Group. 2016 Part C and Part D Program Audit and Enforcement Report. May 8, 2017, pp. 12, 14, 30.
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