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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) 2019 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.

Major drivers of the PERM 2019 national 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 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 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.