Medicare Fee-For-Service Department of Health and Human Services

Medicare Fee-for-Service (FFS) is a program that provides hospital insurance (Part A) and supplementary medical insurance (Part B) to eligible citizens. Part A is provided to persons 65 and over who qualify for Social Security benefits and pays for hospital, skilled nursing facility, home health, and hospice care. Part B is optional coverage that pays for physician, outpatient hospital, home health, laboratory tests, durable medical equipment, designated therapy, outpatient prescription drugs, and other services not covered by Part A. Medicare processes over one billion FFS claims per year.

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: 42.01%

Target: 37.70%

Description: A main driver of the Medicare FFS improper payment rate is insufficient documentation errors for home health claims, and some of HHS’ corrective actions are discussed in the Program Comments section below. This measure reflects the percentage of improper Medicare FFS payments made for home health claims. In order to calculate this improper payment rate (specifically for these requirements), the program employs a similar methodology to its overall improper payment rate calculation, by taking the projected dollar amount of improper payments for home health claims and dividing it by the total program expenditures (therefore, the equation is improper payment dollars for home health claims / total Medicare FFS expenditures).

Update Frequency: Annually

Data Current as of: November 2016

Program Comments

The Department of Health and Human Services (HHS) is committed to reducing the incidence of improper payments made by the Medicare FFS program. In order to reduce these improper payments, it is essential to accurately account for where, how, and why these improper payments occur. The Medicare FFS improper payment rate decreased from 12.09 percent in Fiscal Year (FY) 2015 to 11.00 percent in FY 2016, meeting and exceeding the FY 2016 improper payment rate target of 11.50 percent. This decrease was driven by a reduction in improper payments for inpatient hospital claims. HHS’ “Two Midnight” rule and corresponding educational efforts led to a reduction in improper inpatient hospitals claims, reducing the improper payment rate from 9.23 percent in 2014 to 6.18 percent in 2015 to 3.85 percent in 2016.

In FY 2016, the primary causes of improper payments continue to be insufficient documentation and medical necessity errors. Insufficient documentation errors were prevalent for home health claims, despite the improper payment rate decrease from 58.95 percent in FY 2015 to 42.01 percent in FY 2016. Medical necessity was the major error reason for Inpatient Rehabilitation Facility (IRF) claims. The improper payment rate for IRF claims increased from 45.50 percent in FY 2015 to 62.39 percent in FY 2016.

HHS is committed to reducing improper payments in its programs.  HHS uses data from the Comprehensive Error Rate Testing (CERT) program and other sources of information to address improper payments in the Medicare FFS program through various corrective actions.  While some corrective actions have been implemented, others are in the early stages of implementation.  These focused corrective actions will have a larger impact over time as they become integrated into business operations.

To reduce improper payments within Medicare FFS, HHS is implementing a number of measures that focus on prevention. HHS’s corrective actions include policy clarifications and simplifications, when appropriate, and more individualized education through smaller probe reviews, followed by specific education based on the findings of these reviews (generally referred to as Probe and Educate reviews). HHS is also committed to exploring opportunities to implement prior authorization and pre-claim review programs. In addition to helping educate providers and suppliers and decrease the number of appeals, prior authorization and pre-claim review programs also help reduce improper payments.

Of particular importance are corrective actions that focus on specific service areas with high error rates such as home health and IRF claims. HHS believes implementing targeted corrective actions in these areas will have a considerable effect in preventing and reducing improper payments.

HHS continues to implement corrective actions to address program payment vulnerabilities related to home health services, including errors resulting from insufficient or missing documentation to support the beneficiary’s eligibility for home health services and/or for skilled services. Home health corrective actions include: policy revisions; a pre-claim review demonstration; Probe and Educate reviews; and establishing a home health recovery auditor contractor.
HHS issued a final rule, CMS-1611-F (79 FR 66032, November 6, 2014) to update Medicare's Home Health Prospective Payment System payment rates and wage index for calendar year 2015. In this rule, HHS finalized changes to the face-to-face encounter requirements for home health episodes beginning on or after January 1, 2015. Specifically, HHS amended the home health regulation to remove the requirement for documentation of a face-to-face visit to be provided in a prescribed encounter narrative. However, HHS maintained the requirement for a face-to-face visit to have occurred as part of the certification of patient eligibility for the benefit. Now reviewers should consider documentation in the certifying physician’s medical records and/or the acute/post-acute care facility’s medical records (if the patient was directly admitted to home health) to determine patient eligibility for the home health service.
To assist with documenting the home health face-to-face encounter, HHS completed, as part of the Paperwork Reduction Act, the required public comment periods in FY 2016 for a voluntary paper and electronic clinical template for ordering physicians (80 FR 80771, December 28, 2015). The template will help physicians capture the information needed to complete the face-to-face encounter documentation. This template is in the form of a progress note and will become part of the medical record.
In FY 2016, HHS began implementing a three-year Pre-Claim Review Demonstration for Home Health Services. Implementation began August 3, 2016, in Illinois. Based on early information from Illinois, HHS believes additional education efforts would be helpful before expanding the demonstration to other states. The start dates for Florida, Texas, Michigan, and Massachusetts have not been announced; however, HHS will provide at least 30 days’ notice on its website prior to beginning this demonstration in any state. The demonstration tests whether: 1) pre-claim review improves methods for the identification and investigation of Medicare fraud occurring among HHAs, and 2) the demonstration helps reduce expenditures while maintaining or improving quality of care.
On October 1, 2015, HHS’s Medicare Administrative Contractors (MACs) began pre-payment reviews of home health claims for episodes beginning on or after August 1, 2015 that are designed to help home health agencies understand the new patient certification requirements. Specifically, HHS’s MACs use a Probe and Educate strategy to review five home health claims for every home health agency and provide education and/or training if needed.
During FY 2016, HHS continued the procurement for a new Medicare FFS Recovery Audit Contractor (RAC) to identify and correct improper payments for home health claims. HHS expects to award the new Home Health RAC contract in early FY 2017.
Additionally, HHS focuses on addressing IRF payment errors resulting from missing or insufficient medical record documentation to support medical necessity for therapy programs, as well as addressing therapy services provided in other settings.
HHS issued a final IRF Prospective Payment System (PPS) rule, CMS-1608-F (79 FR 4587, August 6, 2014), which required IRFs to record and report to HHS how much and what type of therapy (that is, Individual, Concurrent, Group, and Co-Treatment) patients receive in each therapy discipline in the IRF setting. HHS will utilize this data for potentially informing future IRF rulemaking.
There are annual dollar limits to the outpatient therapy services (known as therapy caps) that a Medicare beneficiary can receive each year, though there are exceptions to the therapy cap for reasonable and necessary therapy services. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) extended the therapy cap exception process through December 31, 2017. MACRA also eliminated the requirement for manual medical review of all claims over the $3,700 thresholds and instead allows a targeted review process for services.
In FY 2016, HHS tasked the Supplemental Medical Review Contractor (SMRC) with performing medical review on a post-payment basis for IRF services and other therapy services provided in various settings. The SMRC selects these other therapy claims for review based on:
Providers with a high percentage of patients receiving therapy beyond the threshold as compared to their peers during the first year of MACRA; and
Therapy provided in SNFs; therapists in private practice; and outpatient physical therapy, speech-language pathology providers, or other rehabilitation providers. Of particular interest in this medical review process will be the evaluation of the number of units or hours of therapy provided in a day.

In FY 2016, the Medicare FFS improper payment rate decreased due to the successes of the corrective actions to address improper payments for inpatient hospital services outlined below. As a result, the improper payment rate for inpatient hospital claims decreased from 6.18 percent in FY 2015 to 3.85 percent in FY 2016.

HHS finalized updates to the Hospital Outpatient Prospective Payment System (“Two Midnight”) rule (CMS-1633-FC, 80 FR 70298, November 13, 2015) regarding when hospital admissions are appropriate for payment under Medicare Part A. At the same time, HHS notified the public of two upcoming changes in education and enforcement strategies.
Beginning on October 1, 2015, the Quality Improvement Organizations (QIOs) assumed responsibility to conduct initial patient status reviews to determine the appropriateness of Part A payments for short stay hospital claims. From October 1, 2015 through December 31, 2015, short stay hospital reviews conducted by the QIOs were based on Medicare’s payment policies in effect at the time.
Beginning on January 1, 2016, QIOs began conducting patient status reviews in accordance with policy changes finalized in the Hospital Outpatient Prospective Payment System rule (CMS-1633-FC, 80 FR 70298, November 13, 2015) that were effective for calendar year 2016.

HHS also leverages prior corrective action successes in other service areas such as inpatient hospital services; Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS); and certain non-emergent services by educating providers on policies and exploring opportunities to implement prior authorization models.

During FY 2016, HHS continued the procurement for a new Medicare FFS RAC to identify and correct improper payments for claims for DMEPOS and Hospice Services. The RAC will review all applicable claims types through the appropriate review methods and work with HHS and the MACs to adjust claims to recoup overpayments and correct underpayments. HHS expects to award the new RAC contract in early FY 2017.
Building on the success of the Power Mobility Device (PMD) prior authorization demonstration, HHS issued a DMEPOS prior authorization final rule in FY 2016 (CMS–6050–F, 80 FR 81674, December 30, 2015) that establishes a prior authorization program for certain DMEPOS items that are frequently subject to unnecessary utilization. The rule defines unnecessary utilization and establishes a list of DMEPOS items that could be subject to prior authorization before payment is made. HHS expects to begin implementation in FY 2017.
HHS continues to expand the use of prior authorization in the Medicare FFS program.
On September 1, 2012, HHS instituted a prior authorization demonstration program in seven states for PMDs. Prior authorization reviews were performed timely and feedback from the industry and beneficiaries has been largely positive. HHS expanded the demonstration to an additional 12 states (Arizona, Georgia, Indiana, Kentucky, Louisiana, Maryland, Missouri, New Jersey, Ohio, Pennsylvania, Tennessee, and Washington) effective October 1, 2014, bringing the total number of states participating in the demonstration to 19. In FY 2015, HHS also extended the demonstration to August 31, 2018. This demonstration project appears to have led to a decrease in the expenditures for PMDs in both the demonstration and non-demonstration states. Based on claims processed as of December 31, 2015, monthly expenditures for the PMD codes included in the demonstration project decreased from $12 million in September 2012 to $3 million in December 2015 in the original seven demonstration states, $10 million in September 2012 to $3 million in December 2015 in the 12 additional expansion states, and $10 million in September 2012 to $3 million in December 2015 in the non-demonstration states.
In December 2014, HHS implemented a prior authorization model for repetitive, scheduled non-emergent ambulance transport occurring on or after December 15, 2014 in New Jersey, Pennsylvania, and South Carolina. On January 1, 2016, in accordance with Section 515 of MACRA, HHS expanded the prior authorization model for repetitive scheduled non-emergent ambulance transports to five additional states (North Carolina, Virginia, West Virginia, Maryland, and Delaware) and the District of Columbia. Prior to implementing the model, spending on repetitive, scheduled non-emergent ambulance transports in the model states averaged $18.9 million per month. Based on data from the program’s first year, spending decreased in the initial states to an average of $5.4 million per month.
In April 2015, HHS implemented a prior authorization model for non-emergent hyperbaric oxygen therapy in Michigan, Illinois, and New Jersey to test whether prior authorization reduces expenditures while maintaining or improving quality of care for certain non-emergent services. In FY 2016, HHS continued this prior authorization model for non-emergent hyperbaric oxygen therapy in these three states. This project will also help ensure services are provided in compliance with applicable Medicare coverage, coding, and payment rules before rendering services and paying claims.

Additional information on the program and additional ongoing corrective actions is also provided annually in the Department’s Agency Financial Report (available at