Press release



The Centers for Medicare & Medicaid Services (CMS) announced today that aggressive oversight efforts have resulted in a further reduction of the number of improper Medicare claims payments, which declined from 14.2 percent in 1996, to 4.4 percent in 2006, to 3.9 percent in 2007. This solid improvement is a result of continued efforts initiated by CMS and its contractors to use detailed data analysis in targeting areas where erroneous claims processing, inaccurate billing and provider error result in waste, fraud and abuse.

The decline in improper payments reflects our emphasis on identifying and eliminating waste, fraud and abuse in all CMS programs. It is critical that we ensure every dollar is spent wisely so that the program is affordable for taxpayers and future generations of beneficiaries, said CMS Acting Administrator Kerry Weems. The Medicare fee-for-service (FFS) error rate has declined from 14.2 percent in 1996, when the Medicare improper payment rate was first reported, to the current 3.9 percent in 2007. During the past three years, recent error rate reductions have led to approximately $11 billion less in improper payments. CMS pays more than 1 billion fee-for-service claims each year.

CMS conducted detailed reviews of randomly sampled Medicare FFS claims submitted between April 1, 2006 and March 31, 2007. Approximately 140,000 claims spanning all types of Medicare FFS payments were included in the Medicare error rate testing program. By providing accurate statistical information to its personnel and contractors, CMS can identify where problems exist and target improvement efforts to address the problems.

This year's results show the commitment to use more detailed data and analysis to identify and eliminate improper payments is working. Protecting the integrity and ensuring the accountability of CMS programs is one of our fundamental responsibilities, and we're pleased with the improvement to the program, said Weems.

CMS has worked with its contractors to apply the data collected to improve claims processing system edits to ensure accurate billing, update coverage policies, and direct efforts to educate providers on how to avoid errors in areas with high improper payment rates. In addition, CMS has developed national and state-specific models for predicting inpatient-hospital payment errors in order to study the areas prone to payment error. These tools generate state-specific hospital billing reports that are used to target efforts to reduce payment errors.

CMS reports its Medicare FFS improper payment findings in an annual report released every November. The complete report contains additional error rate information along with more specific improper payment estimates. Once completed, the report will be posted at

In addition to the Medicare error rate announcement, CMS also announced the preliminary results of the Payment Error Rate Measurement (PERM) program developed for the Medicaid program. This is the first year any component of Medicaid improper payments has been measured. The PERM review included in today's report was limited to only one of three Medicaid payment areas (Fee-For Service), 17 states, and the PERM reflects only the first two quarters of Fiscal Year 2006. Based on the limited data and the limited time period, CMS calculated that the preliminary Medicaid FFS component error rate was 18.5 percent.

As with the early experiences with the Medicare error rate beginning in 1997, the majority of this preliminary Medicaid FFS error rate is a result of insufficient documentation errors, meaning that all of the supporting documentation necessary to verify the accuracy of the claim was not provided. If all the supporting documentation had been received, the contractor could have determined whether the payment was appropriate or made in error.

For example, in Medicare, CMS worked to get to the root cause of insufficient documentation errors, resulting in insufficient documentation errors decreasing from 4.1 percent of the error rate in 2004 to 0.4 percent in 2007. The overall error rate was reduced by 61 percent during the same period of time.

CMS intends to work closely with the states to follow a similar approach with the Medicaid error rate measurement. CMS looks forward to continuing its partnership with the states on which there are Fiscal Year 2006 data to publish a full-year error rate in November 2008, working with them again in FY 2009 when CMS will measure improper payments in Medicaid and SCHIP fee for service, managed care, and eligibility.