The Medicare FFS improper payment rate was first measured in 1996. The Department of Health and Human Services (HHS) Office of Inspector General (OIG) was responsible for estimating the national Medicare FFS improper payment rate from 1996 through 2002. The OIG designed its sampling method to estimate a national Medicare FFS paid claims improper payment rate only. Due to the OIG’s small sample size of approximately 6,000 claims, the OIG was unable to produce improper payment rates by contractor, contractor type, service type, or provider type. Following recommendations from the OIG, the sample size was increased when CMS began producing the Medicare FFS improper payment rate in 2003.
The CMS implemented the Comprehensive Error Rate Testing (CERT) program to measure improper payments in the Medicare Fee-for-Service (FFS) program. CERT is designed to comply with the Payment Integrity Information Act of 2019 (PIIA).
CERT selects a stratified random sample of approximately 50,000 claims submitted to Part A/B Medicare Administrative Contractors (MACs) and Durable Medical Equipment MACs (DMACs) during each reporting period. This sample size allows CMS to calculate a national improper payment rate and contractor- and service-specific improper payment rates. The CERT program ensures a statistically valid random sample; therefore, the improper payment rate calculated from this sample is considered to reflect all claims processed by the Medicare FFS program during the report period.
The sample of Medicare FFS claims is reviewed by an independent medical review contractor to determine if they were paid properly under Medicare coverage, coding, and billing rules. If these criteria are not met or the provider fails to submit medical records to support the claim billed, the claim is counted as either a total or partial improper payment and the improper payment may be recouped (for overpayments) or reimbursed (for underpayments). The last step in the process is the calculation of the annual Medicare FFS improper payment rate, which is published in the Health and Human Services (HHS) Agency Financial Report (AFR).
It is important to note that the improper payment rate is not a “fraud rate,” but is a measurement of payments that did not meet Medicare requirements.