Press Releases



The Centers for Medicare & Medicaid Services (CMS) today announced the national Medicare improper payments rate for 2003, based on a new and expanded program for measuring the rate and helping prevent future errors. The error rate for fiscal year 2003 was estimated at 5.8 percent, or $11.6 billion, when adjusted to reflect a high non-response rate experienced in the first year of the new program. This is about the same as last year's rate as measured by the HHS Office of Inspector General (OIG).

"The annual error rate gives us an estimate of how much billing mistakes cost the American taxpayer, and that number is always too high," said CMS Administrator Tom Scully. "The information we now have available will help us to better understand the problem, better manage the program, and better educate providers and contractors to prevent errors in payment. It also underscores the need for us to modernize Medicare by allowing us to make the contractors more accountable to CMS and the taxpayers."

Since 1996, HHS has annually determined the rate of improper payments for fee-for-service claims paid by Medicare contractors. The survey measures claims found to be medically unnecessary, inadequately documented or improperly coded. From 1996 until last year, the survey was conducted by the OIG based on a survey of some 6,000 claims. In those years, the rate declined from 13.8 percent in 1996 to 6.3 percent in 2001 and 2002.

This year CMS launched the expanded effort, reviewing approximately 128,000 Medicare claims to learn more precisely where errors are being made. The new effort provides CMS with contractor-specific error rates, error rates by provider type and error rates by service type. This information is critical for CMS to better identify where problems exist and target improvement efforts more precisely.

The national error rate helps CMS identify a problem, but does not provide sufficient information for the problem to be solved. For the first time CMS will have information at a sufficiently detailed level so that problems can be better assessed and corrected. The error rate may now be viewed at a contractor specific and a provider specific level, enhancing CMS's ability to oversee and manage Medicare payments.

CMS initially calculated the Medicare fee-for-service error rate and estimate of improper claim payments using a methodology approved by the OIG. The methodology includes randomly selecting a sample of claims submitted in 2002; requesting medical records from providers who submitted the claims; and reviewing the claims and medical records to see if the claims complied with the Medicare coverage, coding, and billing rules.

However, in this first year of the new program, CMS experienced a significant unexpected increase in the rate of non-responders to the survey. Counting all non-responders as errors, the initial CMS review found an error rate of 9.8 percent. More than half this rate was accountable to non-responders. In order to achieve a more reasonable estimate, CMS adjusted the non-response rate based on OIG's past experience with non-responders and other error categories. CMS' measurement of a 5.8 percent rate is based on OIG's experience-based ratio, with 82 percent of the rate due to errors other than lack of documentation and the remaining 18 percent due to non-responses to request for medical records. To improve the response rate in future years, CMS will make several improvements to its process, such as asking the OIG to send a follow-up letter to providers who don't respond.

"These results tell us that there is still much work to be done to identify and prevent payment errors," said Scully. "Now that CMS has detailed error rates, we can aggressively target our efforts by strengthening the management of our contractors and to concentrate on the problems indicated by the error rate. Our goal is to bring about a dramatic reduction in the Medicare payment errors in the next 24 months."

CMS will take significant steps to further reduce the error rate, using the far more detailed information as a guide. CMS' enhanced management of the Medicare contactors improves the contractors' accountability to CMS and the taxpayers. CMS's efforts will include incorporating the contractor specific error rates into the Contractor Performance Evaluation System, educating health care providers on the proper coding and documentation of medical procedures, and ensuring that Medicare rules are accessible and understandable. CMS will focus on contractors and providers with particularly high error rates.

As shown by the new detail in this year's report, the provider types that had the most errors nationally were chiropractors (11.3 percent), physical therapists (18.2 percent) and internists (13.5 percent). Providers with the lowest errors were ambulance services (4.7 percent), podiatrists (4 percent) and urologists (5.3 percent). The findings also indicate which contractors have a large number of providers that submit improper claims.

CMS is continuing to work with the contractors that pay Medicare claims and the quality improvement organizations on aggressive efforts to lower the error rate, including:

  • Improving education and outreach efforts to providers.
  • Making it easier for providers to submit documents.
  • Making it easier for providers to find Medicare rules by adding a section to the Medicare Coverage Database ( that contains coverage and coding information.
  • Developing a computerized tool that generates state-specific hospital billing reports to help quality improvement organizations analyze administrative claims data.
  • Developing projects with the quality improvement organizations addressing state-specific admissions necessity and coding concerns as well as monitoring inpatient payment error trends by error type.
  • Ensuring better understanding of the role of the CMS contractor, who estimates the error rates, including its role in requests for medical records and follow-up efforts to make sure providers are complying with those requests.

In addition, CMS has directed the Medicare contractors that pay Medicare claims to develop local efforts to lower the error rate by addressing the cause of the errors, the steps they are taking to fix the problems, and other recommendations that will ultimately lower the error rate.

"Over the past years, HHS and CMS have issued similar reviews on the quality of care provided in nursing homes and home health agencies," said Scully. "This information will provide us with the fundamental structure to hold the fee-for-service contractors accountable for the services they provide as we move to performance-based contracting from simply paying contractors to process Medicare claims."