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 over 50 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: Ellen Murray, Assistant Secretary for Financial Resources

Program Accountable Official: Shantanu Agrawal, M.D., Deputy Administrator for the Center for Program Integrity, Centers for Medicare & Medicaid Services

Total Payments
Improper Payments
Improper Payment Rate

Supplemental Measures

Current Measure: 9.97%

Target: 8.05%

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 2016

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.

For FYs 2015 to 2018, eligibility reviews are on hold while HHS develops a new eligibility review methodology. During this time, the FY 2014 national eligibility improper payment rate (3.11 percent) is used as a proxy in the overall improper payment rate calculation. In place of the FYs 2015 through 2018 PERM eligibility reviews, all states are required to conduct eligibility review pilots. The eligibility review pilots provide more targeted, detailed information on the accuracy of eligibility determinations. The pilots use targeted measurements 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.

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. In the FY 2016 AFR, HHS calculated and is reporting the national Medicaid improper payment rate that is based on measurements that were conducted in FYs 2014, 2015 and 2016. The national Medicaid improper payment rate is 10.48 percent or $36.25 billion. The national component improper payment rates are as follows: Medicaid FFS – 12.42 percent and Medicaid managed care – 0.25 percent. The Medicaid eligibility component improper payment rate is held constant at the FY 2014 reported rate of 3.11 percent.

The majority of the FY 2016 errors were a result of state difficulties coming into compliance with new requirements for: all referring or ordering providers to be enrolled in Medicaid; states to screen providers under a risk-based screening process prior to enrollment; and the inclusion of the National Provider Identifier (NPI) of the attending provider on all electronically filed institutional claims. While these requirements will strengthen the integrity of the program, they require systems changes that many states had not fully implemented during the period of measurement. The FY 2016 Medicaid improper payment rate would have been 4.87 percent if errors relating to these requirements did not occur. Improper payments related to non-compliance with these new requirements do not necessarily represent payments to illegitimate providers. Typically, improper payments are cited when information required for payment is missing from the claim or states do not follow appropriate processes for enrolling providers. If the information had been on the claim and/or had the state followed the correct enrollment process, then the claim may have been payable. Additionally, it is important to note that HHS reviews 17 states each year for Medicaid improper payments under the PERM program, meaning that it takes three years to measure all states. For FY 2014 reporting, HHS reviewed the first 17 states under these new requirements. The FY 2015 improper payment rate included the review of 34 states under these new requirements. All states have been reviewed under these new requirements for the FY 2016 improper payment rate and, therefore, the FY 2016 improper payment rate is the first baseline rate under these new requirements. Equating rate increases/decreases to improvement/regression before establishing a baseline can be misleading. 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.

While compliance with new requirements has been a driver of the rate increase, HHS reduced improper payments in Medicaid Home and Community Based Services (HCBS), a previous driver of the Medicaid improper payment rate. In FY 2012, HHS pulled an additional sample of 511 HCBS claims (30 extra claims from each of the 17 states in that cycle) as part of a supplemental measure to perform targeted analysis on this service type. The supplemental measure was an effort to obtain more detailed information on HCBS improper payments, identify the root cause of these improper payments, and address these root causes. The supplemental sample identified an HCBS improper payment rate of 5.8 percent. The main cause of error was insufficient documentation due to missing notes to verify the receipt of services, missing daily documentation of specific tasks, and missing or incorrectly documented number of units. Accordingly, states focused corrective actions to address these root causes, specifically focusing on provider education. As a result, the FY 2015 HCBS improper payment rate was reduced to 3.0 percent, showing a nearly 50 percent improvement as a result of the corrective action efforts implemented. In addition, as a result of the supplemental measure, HHS created HCBS toolkits and other informational resources that can be found online at: /Medicare-Medicaid-Coordination/Fraud-Prevention/Medicaid-Integrity-Education/HCBS.html in order to further reduce these improper payments.

Additional information on the program is also provided annually in the Department’s Agency Financial Report (