Fact Sheets

Changes to the Payment Error Rate Measurement and Medicaid Eligibility Quality Control Programs (CMS-6068-F)

Changes to the Payment Error Rate Measurement and Medicaid Eligibility Quality Control Programs (CMS-6068-F)

Today, June 29, 2017 the Centers for Medicare & Medicaid Services (CMS) posted a final rule that will publish on July 5, 2017 to implement changes to the Payment Error Rate Measurement (PERM) and Medicaid Eligibility Quality Control (MEQC) programs to reflect changes to the way states adjudicate eligibility for Medicaid and the Children’s Health Insurance Program (CHIP) required by law, as well as to implement other changes to the PERM and MEQC programs.


The final rule implements policy and operational improvements to the PERM and MEQC programs that will reduce state burden, improve program integrity, and promote state accountability.

Changes to the PERM Program

The PERM program measures improper payments in the Medicaid program and CHIP. The improper payment rates are based on reviews of the fee-for-service (FFS), managed care, and eligibility components of Medicaid and CHIP. In light of changes to the way states adjudicate eligibility for applicants for Medicaid and CHIP under current law, CMS did not conduct the eligibility measurement component of the PERM program for Fiscal Years (FYs) 2015 through 2018 in order to update the eligibility component measurement methodology and related PERM program regulation. During this time, the 2014 national eligibility improper payment rate was used as a proxy rate, and all states conducted a pilot program with rapid feedback for improvement (known as the Medicaid and CHIP Eligibility Review Pilots) to maintain oversight of state eligibility determinations. CMS made changes to the eligibility measurement component of the PERM program in this final rule, and the eligibility measurement component will resume as of the effective date of the final rule for reporting in 2019.

Changes to the PERM program in the final rule include:

  • Review Period: The PERM program will review Medicaid and CHIP payments made by states July through June of a given year. Under previous regulations, the PERM program reviewed payments made in a Federal FY (October through September).

  • Eligibility Review Responsibility: A federal contractor will conduct PERM eligibility reviews with support from each state. Under previous regulations, states were required to conduct eligibility reviews and report the results to CMS. This will help reduce state burden.

  • Eligibility Universe: The PERM program will conduct eligibility reviews (in addition to medical and data processing reviews) on FFS and managed care payments sampled for the PERM program. The eligibility review will be conducted on the beneficiary associated with the sampled claim. Under previous regulations, states created separate universes of eligible individuals that were sampled for eligibility review.
    • Federal Improper Payments: Improper payments will be cited if the federal share amount is incorrect (even if the total computable amount is correct). Under previous regulations, improper payments were only cited on the total computable amount (i.e., federal share + state share).

    • Sample Sizes: A national sample size will be calculated to meet national Medicaid and CHIP improper payment rate precision requirements. The national sample size will then be distributed across states to maximize precision at the state level, and state-specific sample sizes will be based on factors such as each state’s expenditures and previous improper payment rate. Under the previous rule, state-specific sample sizes were calculated based on the state’s previous improper payment rate and state level precision and combined to total the national sample size.
    • Corrective Action:
    • Payment Reductions/Disallowances: Potential payment reductions/disallowances under section 1903(u) of the Act will be applicable for eligibility reviews conducted during PERM years in cases where a state’s eligibility improper payment rate exceeds the 3% threshold. CMS will only pursue disallowances if a state does not demonstrate a good faith effort to meet the threshold, which is defined as meeting PERM CAP and MEQC pilot requirements.

    Changes to the MEQC Program

    The MEQC program is a separate eligibility review program set forth in section 1903(u) of the Social Security Act (the Act) and requires states to report to the Secretary the ratio of States’ erroneous excess payments for medical assistance under the state plan to total expenditures for medical assistance. States review Medicaid cases to determine whether the sampled cases meet applicable Medicaid eligibility requirements. Section 1903(u) of the Act also sets a 3% threshold for eligibility-related improper payments in any fiscal year and generally requires the Secretary to withhold payments to states with respect to the amount of improper payments that exceed the threshold. Similar to the PERM program, states did not operate the MEQC program for FYs 2015 through 2018 so that CMS could update the MEQC methodology and related regulation. Through this final rule, CMS has restructured the MEQC program into a tool that more effectively compliments the PERM program and will help states lower their eligibility improper payment rates. The MEQC program will resume as of the effective date of the final rule. 

    Changes to the MEQC program include:

    • States have flexibility to design their MEQC active case pilots to best meet each state’s unique needs. However, should a state have consecutive PERM eligibility improper payment rates over the 3% threshold under section 1903(u) of the Act, CMS will provide direction for active case reviews.
    • States are required to review a number of items not fully reviewed through the PERM program (e.g., negative cases).
    • States must submit corrective actions for identified errors.