Fact Sheets

2019 Estimated Improper Payment Rates for Centers for Medicare & Medicaid Services (CMS) Programs

2019 Estimated Improper Payment Rates for Centers for Medicare & Medicaid Services (CMS) Programs

The Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments Elimination and Recovery Act of 2010 and the Improper Payments Elimination and Recovery Improvement Act of 2012, requires CMS to periodically review programs it administers, identify programs that may be susceptible to significant improper payments, estimate the amount of improper payments, and report on the improper payment estimates and the Agency’s actions to reduce improper payments in the Department of Health & Human Services (HHS) annual Agency Financial Report (AFR).

The Office of Management and Budget (OMB) has identified Medicare Fee-For-Service (FFS), Medicare Part C, and Medicare Part D; Medicaid; and the Children’s Health Insurance Program (CHIP) as at-risk for significant improper payments. CMS implemented improper payment measurement programs for these programs and continues to address the drivers of improper payment rates through aggressive corrective action plans.

It is important to note that improper payment rates are not necessarily indicative of or are measures of fraud. Instead, improper payments are payments that did not meet statutory, regulatory, administrative, or other legally applicable requirements and may be overpayments or underpayments. Additionally, improper payments do not necessarily represent expenses that should not have occurred. For example, current OMB guidance states that when an agency’s review is unable to discern whether a payment was proper as a result of insufficient or missing documentation, this payment should be considered an improper payment. A significant amount of improper payments is due to instances where a lack of documentation or errors in the documentation limits CMS’s ability to verify the payment was paid correctly. However, if the documentation had been submitted or properly maintained, then the payments may have been determined to be proper. A smaller proportion of improper payments are payments that should not have been made or should have been made in different amounts and are considered a monetary loss to the government (e.g., medical necessity, incorrect coding, beneficiary ineligible for program or service, and other errors).

FY 2019 Estimated Improper Payment Rates and Improper Payments (Billions)

Medicare Fee-for-Service Estimated Improper Payments (in Billions) 2017-2019

Medicare FFS (Part A and Part B)

CMS estimates the Medicare FFS improper payment rate through the Comprehensive Error Rate Testing (CERT) program. Each year, the CERT program reviews a statistically valid stratified random sample of Medicare FFS claims to determine if they were paid properly under Medicare coverage, coding, and payment rules. The reporting period for the Fiscal Year (FY) 2019 Medicare FFS improper payment rate included claims submitted during the 12-month period from July 1, 2017 through June 30, 2018.

The FY 2019 Medicare FFS estimated improper payment rate is 7.25 percent, representing $28.91 billion in improper payments, compared to the FY 2018 estimated improper payment rate of 8.12 percent, representing $31.62 billion in improper payments. This decrease was driven by reductions in the improper payment rates for home health, other Part B services, and Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) claims as a result of provider burden and policy clarification initiatives. Specifically,

• Home Health- $5.32 billion decrease in estimated improper payments (2016 to 2019) due to corrective actions such as policy clarification and Targeted Probe and Educate for home health agencies.
• Other Medicare Part B services- $1.82 billion decrease in estimated improper payments (2018 to 2019) due to clarification and simplification of documentation requirements under the Patients Over Paperwork initiative.
• DMEPOS- $1.29 billion decrease in estimated improper payments (2016 to 2019) due to various corrective actions.

Medicare Part C (Medicare Advantage)

The Part C improper payment estimate measures improper payments resulting from errors in beneficiary risk scores. The primary component of most beneficiary risk scores is based on clinical diagnoses submitted by plans for risk adjusted payment. If medical records do not support the diagnoses submitted to CMS, the risk scores may be inaccurate and result in payment errors. The Part C estimate is based on medical record reviews conducted annually, where CMS identifies unsupported diagnoses and calculates corrected risk scores.

For FY 2019, the Part C improper payment estimate is 7.87 percent, representing $16.73 billion in improper payments. This represents a decrease from the FY 2018 rate of 8.10 percent, representing $15.55 billion in improper payments, and was driven primarily by Medicare Advantage organizations submitting a greater number of accurate medical records validating the diagnoses for which they were paid.

Medicare Part D (Prescription Drug Benefit)

The Medicare Part D improper payment estimate measures the payment error related to inaccurately submitted prescription drug event (PDE) data, where the majority of errors for the program exists. CMS measures the inconsistencies between the information reported on PDEs and the supporting documentation submitted by Part D sponsors including prescription record hardcopies (or medication orders, as appropriate), and detailed claims information.

For FY 2019, the Part D improper payment estimate is 0.75 percent, or $610 million in improper payments. This represents a decrease from the FY 2018 estimate of 1.66 percent, or $1.32 billion in improper payments, and was driven primarily by errors being smaller in magnitude than in the previous years.

Medicaid and CHIP

CMS estimates Medicaid and CHIP improper payments through the Payment Error Rate Measurement (PERM) program. The improper payment rates are based on reviews of the FFS, managed care, and eligibility components of Medicaid and CHIP in the year under review. The PERM program uses a 17-state rotational approach to measure the 50 states and the District of Columbia over a three-year period. By this approach, CMS measures each state once every three years and national improper payment rates include findings from the most recent three year cycle measurements. Each time a cycle of states is measured, CMS utilizes the new findings and removes the respective cycle’s previous findings.

The FY 2019 national Medicaid improper payment rate estimate is 14.90 percent, representing $57.36 billion in improper payments. The FY 2019 national CHIP improper payment rate estimate is 15.83 percent, totaling $2.74 billion in improper payments.  While the Medicaid and CHIP improper payment rates increased between FY 2018 and FY 2019,[1] these results are not comparable as the measurement has changed dramatically, as described below.  Factors that led to an increase in the improper payment rates include:

• The reintegration of the PERM eligibility component for the first cycle of 17 states (CMS will complete the review of the remaining 33 states and the District of Columbia under the new eligibility requirements over the next two years and establish a baseline in FY 2021 once all states are measured under the new requirements);
  • Medicaid and CHIP eligibility improper payments are mostly due to insufficient documentation to verify eligibility, related primarily to income or resource verification for both situations where the required verification was not done at all and where there is indication the verification was initiated but there was no documentation to validate the verification process was completed, and non-compliance with eligibility redetermination requirements.
  • The CHIP improper payment rate was also driven by claims where the beneficiary was incorrectly determined to be eligible for CHIP, but upon review was determined eligible for Medicaid, mostly related to beneficiary income calculation.
• Non-compliance with newer requirements for provider revalidation of enrollment and rescreening.
• Continued non-compliance with provider enrollment, screening, and National Provider Identifier requirements.

Supplemental information related to the FY 2019 Medicaid and CHIP improper payment results will be published on CMS’s website – www.cms.gov/PERM - in early FY 2020. 

Exchange Improper Payment Measurement

In FY 2016, CMS conducted improper payment risk assessments for the Health Insurance Exchange programs, and concluded that the Advance Payments of the Premium Tax Credit (APTC) program is susceptible to significant improper payments. Between FY 2017 and FY 2019, CMS conducted development and piloting activities for the APTC improper payment measurement program, and will continue these activities in FY 2020. CMS is committed to implementing an improper payment measurement program as required by the IPIA, as amended. As with similar CMS programs, it takes several years to develop an effective and efficient improper payment measurement program. A successful measurement program requires developing measurement policies, procedures, and tools, and extensive pilot testing to ensure an accurate improper payment estimate. CMS will continue to monitor and assess the program for any changes and adapt accordingly. HHS will continue to update its annual AFRs on the status of the APTC improper payment measurement program development until the improper payment estimate is reported.

CMS Actions

CMS is committed to reducing improper payments in the Medicare FFS, Medicare Part C and D, and Medicaid and CHIP programs. While we have made some progress on reducing the improper payment rates in Medicare, we are not satisfied and more work needs to be done to achieve increased and consistent reductions in the future by expanding existing initiatives as well as innovative new processes. CMS’s program integrity strategy relies on a multifaceted approach that includes provider enrollment and screening standards, enforcement authorities, and advanced data analytics such as predictive modeling. This strikes an important balance by preventing improper payments while reducing the administrative burden on legitimate providers and suppliers. For additional information on the improper payment rate estimates and/or the Agency’s actions to mitigate improper payments, please visit https://www.hhs.gov/about/agencies/asfr/finance/financial-policy-library/agency-financial-reports/index.html

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