Medicaid Department of Health and Human Services

Medicaid is administered by the Department of Health and Human Services (HHS) in partnership with the states and is the primary source of health coverage for about 72 million Americans. Enacted in 1965 as Title XIX of the Social Security Act, Medicaid provides coverage to lower-income individuals, children, and families who often do not have access to other sources of health insurance. The Medicaid program also provides long-term care services and support to seniors and individuals of all ages with disabilities.

Agency Accountable Official: Jen Moughalian, Acting Assistant Secretary for Financial Resources

Program Accountable Official: Kimberly Brandt, Principal Deputy Administrator for Operations, Centers for Medicare & Medicaid Services

Total Payments
$363.8B
Improper Payments
$36.7B
Improper Payment Rate
10.1%

Supplemental Measures

Current Measure: 9.27%

Target: 5.08%

Description: State non-compliance with new provider information, enrollment, and screening requirements has been a major driver of Medicaid improper payments in recent years. This annual supplemental measure shows the Medicaid FFS improper payment rate for these errors.

Update Frequency: Annually

Data Current as of: November 2017


Program Comments

Because Medicaid payments are susceptible to improper payments, the federal government and states have a strong financial interest in ensuring that claims are paid accurately. HHS has developed a multi-faceted strategy to measure the national improper payment rate for Medicaid, through the Payment Error Rate Measurement (PERM) program. Medicaid’s Fee-For-Service (FFS) and managed care components are measured by federal contractors. In the past, states led the effort in measuring errors in eligibility. The program is measured using a 17-state, 3-year rotation to produce and report national program improper payment rates. All improper payment rate calculations for Medicaid are based on the ratio of estimated dollars of improper payments to the estimated dollars of total payments. The national Medicaid program improper payment rate represents the combination of each state’s Medicaid FFS, managed care, and eligibility improper payment rates. In addition, individual state component improper payment rates are combined to calculate the national component improper payment rates.

In light of changes to the way states adjudicate beneficiary eligibility for Medicaid under current law, in August 2013 and October 2015, HHS released guidance announcing temporary changes to PERM eligibility reviews. For FYs 2015 through 2018, HHS will not conduct the eligibility measurement component of PERM. In place of these PERM eligibility reviews, all states are required to conduct eligibility review pilots that provide more targeted, detailed information on the accuracy of eligibility determinations to: provide state-by-state programmatic assessments of the performance of new processes and systems in adjudicating eligibility; identify strengths and weaknesses in operations and systems leading to errors; and test the effectiveness of corrections and improvements in reducing or eliminating those errors. During this time, for the purpose of computing the overall national improper payment rate, the Medicaid eligibility component improper payment rate is held constant at the FY 2014 national rate of 3.11 percent.

HHS used the eligibility review pilots to test updated PERM eligibility processes and prepare states for the resumption of the PERM eligibility component measurement. Based on the pilots, HHS updated the eligibility component measurement methodology and published a final rule (82 FR 31158, July 5, 2017) to update the methodology for the PERM eligibility component. HHS will resume the eligibility component measurement under this final rule and report an updated national eligibility improper payment rate in FY 2019.

The national Medicaid improper payment rate is a rolling improper payment rate that includes findings from the most recent three measurements. Each time a group of 17 states is measured under PERM, the previous findings for that group of states are dropped from the calculation and the newest findings are added in. The national rate is calculated by multiplying each state’s most recently observed improper payment rate by that state’s expenditures and dividing by total expenditures. HHS also incorporates state-level improper payment rate recalculations for the oldest two years of states measured into national improper payment rates. For the most recently measured group of states, these recalculations occur after the rate is published. The FY 2017 national Medicaid improper payment rate is based on measurements that were conducted in FYs 2015, 2016 and 2017. The national Medicaid improper payment rate is 10.10 percent or $36.73 billion. The national component improper payment rates are as follows: Medicaid FFS – 12.87 percent and Medicaid managed care – 0.30 percent. The Medicaid eligibility component improper payment rate is held constant at the FY 2014 reported rate of 3.11 percent.

Since FY 2014, the Medicaid improper payment rate has been driven by errors due to state non-compliance with provider screening, enrollment, and National Provider Identifier (NPI) requirements. First, all referring/ordering providers are required to be enrolled in Medicaid or CHIP and claims must contain the referring/ordering provider NPI. Second, states are required to screen providers under a risk-based screening process prior to enrollment. Finally, the attending provider NPI is required to be submitted on all electronically filed institutional claims. HHS began reviewing against these requirements for FY 2014 improper payment reporting. Therefore, in FY 2014, HHS saw the first ever increase in the Medicaid improper payment rate when the first cycle of states was reviewed against the new requirements. The Medicaid rate saw another increase in FY 2015 when the second cycle of states was reviewed against the new requirements. FY 2016 represented the first “baseline” improper payment rate reflecting the new requirements because all 50 states and DC were measured under the same requirements. FY 2017 represents the first cycle of states that has been measured a second time.

Compliance with provider screening, enrollment, and NPI requirements for the 17 states measured in FY 2017 improved and HHS saw a decrease in improper payments related to non-compliance. The Medicaid FFS improper payment rate for non-compliance with these requirements decreased for these states from 5.74 percent in FY 2014 to 4.03 percent in FY 2017. Although the 17 states reviewed this year had better compliance results compared to their previously measured cycle, non-compliance with the provider screening, enrollment, and NPI requirements is still a major contributor to the improper payment rate. Additionally, improper payments due to no or insufficient medical documentation increased in FY 2017.

Improper payments do not necessarily represent expenses that should not have occurred. Instances where there is no or insufficient documentation to support the payment as proper are cited as improper payments. A majority of Medicaid improper payments were due to instances where information required for payment was missing from the claim and/or states did not follow the appropriate process for enrolling providers. However, these improper payments do not necessarily represent payments to illegitimate providers and, if the missing information had been on the claim and/or had the state complied with the enrollment requirements, then the claims may have been payable. A smaller proportion of improper payments are claims where HHS determines that the Medicaid payment should not have been made or should have been made in a different amount and are considered a known monetary loss to the program.

The table below provides information on Medicaid improper payments that are a known monetary loss to the program (i.e., provider not enrolled, incorrect coding, and other errors). In the table, “Unknown” represents payments where there was no or insufficient documentation to support the payment as proper or a known monetary loss. For example, it represents claims where information was missing from the claim or states did not follow appropriate processes. These are payments where more information is needed to determine if the claims were payable or if they should be considered monetary losses to the program.

 

Type of Improper Payment Cause of Improper Payment Improper Payments (in billions) Percentage of Improper Payments
Monetary Loss Provider Not Enrolled $2.66 7%
Other Monetary Loss $1.12 3%
Unknown No or Insufficient Medical Documentation $3.16 9%
Non-Compliance with Provider Screening and NPI Requirements $17.13 47%
Other Unknown $1.22 3%
Proxy Eligibility Estimate $11.43 31%

 

States are taking steps to reduce errors identified during the measurement. HHS works closely with all states to develop state-specific corrective action plans in response to PERM results. States are also updating and upgrading systems to be in compliance with requirements. Additional information on the program is also provided annually in the Department’s Agency Financial Report (www.hhs.gov/afr).