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What is the Rate of Improper Payments in Medicaid & CHIP?

These data show improper payment rates for Medicaid and the Children’s Health Insurance Program (CHIP) reported in the federal fiscal year (FFY) 2020 Department of Health and Human Services Agency Financial Report. These data show the overall improper payment rates and the rates for the three Payment Error Rate Measurement (PERM) components:

  • Fee-for-service (FFS)
  • Managed care
  • Eligibility

The Payment Integrity Information Act (PIIA) of 2019 requires the heads of Federal agencies to annually review programs they administer and identify those that may be susceptible to significant improper payments, to estimate the amount of improper payments, to submit those estimates to Congress, and to submit a report on actions the agency is taking to reduce the improper payments. The Office of Management and Budget (OMB) has identified Medicaid and CHIP as programs at risk for significant improper payments. As a result, the Centers for Medicare & Medicaid Services (CMS) developed the PERM program to comply with the PIIA and related guidance issued by OMB.

It is important to note the improper payment rate is not a “fraud rate” but simply a measurement of payments made that did not meet statutory, regulatory, or administrative requirements. FFY 2008 was the first year in which CMS reported improper payment rates for each component of the PERM program. CMS estimates three components of Medicaid and CHIP improper payments on an annual basis: FFS, managed care, and eligibility. CMS’s PERM program uses a 17-states-per-year, 3-year rotation for measuring Medicaid and CHIP improper payments.

The improper payment rate is also not a “Monetary Loss rate”. A majority of Medicaid improper payments are due to instances where information or documentation required for payment is missing, an eligibility determination is missing from the state system, states did not follow the appropriate process for enrolling providers, and/or states did not follow the appropriate process for determining beneficiary eligibility. However, these improper payments do not necessarily represent payments to illegitimate providers or on behalf of ineligible beneficiaries. If the missing information had been on the claim and/or the state had complied with the enrollment or redetermination requirements, then the claims may have been payable. Conversely, if the missing documentation had been available, it could have affirmatively indicated whether a provider or beneficiary was ineligible for Medicaid reimbursement and, therefore, improper.

The figure below provides a breakdown of improper payments for Medicaid and CHIP. The improper payments include:

  • Monetary loss improper payments – Those where sufficient documentation is provided to determine the payment as improper (e.g., provider not enrolled, beneficiary ineligible for program or service, incorrect coding, and other errors like claims processing errors, duplicate claims, or pricing mistakes).
  • Unknown improper payments – Those where there is insufficient documentation to discern whether a payment was proper or improper (e.g., information was missing or states did not follow appropriate processes).
  • Underpayments – Those where sufficient documentation is provided to determine that the federal funds distributed were less than the allowable amount (e.g., coding or pricing error when the state pays less than the amount the provider was entitled to receive).

Additionally, please note that, due to the impact of the Public Health Emergency (PHE) for the COVID-19 pandemic, CMS exercised its enforcement discretion and implemented a temporary policy to suspend all improper payment related engagement/communications and data requests to providers and state agencies from CMS and its contractors between March 2020 and August 2020. In order to complete reviews for FY 2020 national reporting and maintain a consistent review of all states, CMS only reviewed claims that had fully completed review before implementation of the COVID-19 response measures and that CMS could complete without additional outreach to states or providers. CMS incorporated documentation voluntarily submitted by states and/or providers during the period of enforcement discretion into the reviews.

It should be noted that all claims reviewed for this reporting period are dated prior to the COVID-19 PHE and that CMS still complied with PIIA and OMB requirements for meeting national-level precision requirements that the rates are +/- 3 percentage points at a 95 percent confidence interval despite the COVID-19 response adjustments.

Major drivers of the PERM 2020 national improper payment rates include:

  • The reintegration of the PERM eligibility component for the first two cycles of 17 states. CMS will complete the review of the remaining 16 states and the District of Columbia under the new eligibility requirements and establish a baseline in 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, 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 due to the beneficiary income, third party insurance, or household composition/tax filer status.
  • Non-compliance with newer requirements for provider revalidation of enrollment and rescreening.
  • Continued non-compliance with provider enrollment, screening, and National Provider Identifier requirements.