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. In general, Part A (hospital insurance) covers inpatient hospital care, skilled nursing facility, hospice, lab tests, surgery, and home health care. Part B (medical insurance) covers services including physician and other health care providers' services, outpatient care, durable medical equipment, and some preventive services. Medicare processes over one billion FFS claims per year.

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

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

Total Payments
$380.8B
Improper Payments
$36.2B
Improper Payment Rate
9.51%

Supplemental Measures

Current Measure: 32.28%

Target: 29.13%

Description: In Fiscal Year (FY) 2017, the home health improper payment rate was 32.28 percent, meeting the FY 2017 supplemental measure target of 37.70 percent. Although the home health improper payment rate decreased from FY 2016 to FY 2017, improper payments for home health were one of the major contributing factors to the FY 2017 Medicare FFS improper payment rate. Insufficient documentation errors for home health claims continues to be prevalent, and some of HHS’ corrective actions are discussed in the Program Comments section below. This supplemental 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 service requirements, the program divides the projected dollar amount of improper payments for home health claims by the total program expenditures (therefore, the equation is improper payment dollars for home health claims/total Medicare FFS expenditure). The program employs a similar methodology to its overall improper payment rate calculation.

Update Frequency: Annually

Data Current as of: November 2017


Program Comments

The Department of Health and Human Services (HHS) is committed to reducing the incidence of improper payments made by the Medicare Fee-For-Service (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 11.00 percent in FY 2016 to 9.51 percent in FY 2017, representing a $4.87 billion decrease in estimated improper payments.  The FY 2017 Medicare FFS improper payment rate is below the statutory threshold of 10 percent. The decrease from the FY 2016 improper payment rate was driven by a reduction in improper payments for home health and Inpatient Rehabilitation Facility (IRF) claims.  Although the improper payment rate for these services and the overall Medicare FFS improper payment rate decreased, improper payments for home health, Skilled Nursing Facility (SNF), and IRF claims were the major contributing factors to the FY 2017 Medicare FFS improper payment rate.  While the factors contributing to improper payments are complex and vary from year to year, the primary causes of improper payments continue to be insufficient documentation and medical necessity errors.  

  • Insufficient documentation errors continues to be prevalent for home health claims, despite the improper payment rate decrease from 42.01 percent in FY 2016 to 32.28 percent in FY 2017. The primary reason for these errors was that the documentation to support the certification of home health eligibility requirements was missing or insufficient. Medicare coverage of home health services requires physician certification of the beneficiary’s eligibility for the home health benefit (42 CFR 424.22).
  • Insufficient documentation was the major error reason for SNF claims.  The improper payment rate for SNF claims increased from 7.76 percent in FY 2016 to 9.33 percent in FY 2017. The primary reason for these errors was that the certification/recertification statement was missing or insufficient (e.g., one required element was missing).  Medicare coverage of SNF services requires certification and recertification for these services (42 CFR 424.20).
  • Medical necessity (i.e., the services billed were not medically necessary) continues to be the major error reason for IRF claims, despite the improper payment rate decrease from 62.39 percent in FY 2016 to 39.74 percent in FY 2017.  The primary reason for these errors was that the IRF coverage criteria for medical necessity were not met. Medicare coverage of IRF services requires that there must be a reasonable expectation that the patient meets all of the coverage criteria at the time of admission to the IRF (42 CFR 412.622(a)(3)).

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.  The majority of Medicare FFS improper payments are due to documentation errors where HHS could not determine whether the billed services were actually provided, were provided at the level billed, and/or were medically necessary. A smaller proportion of improper payments are claims where HHS has determined that the Medicare FFS payment should not have been made or should have been made in a different amount, representing a known monetary loss to the program.

The table below provides information on Medicare FFS improper payments that are a known “monetary loss” to the program (i.e. medical necessity, incorrect coding, and other errors). The estimated known “monetary loss” improper payment rate is 3.0 percent, representing an estimated known monetary loss of $11.25 billion out of the total estimated improper payments of $36.21 billion.  In the table, “unknown” represents payments where there was no or insufficient documentation to support the payment as proper or a known “monetary loss.” In other words, when payments lack the appropriate supporting documentation, their validity cannot be determined.  These are payments where more documentation 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 Payment

(in billions)

Percentage of Improper Payments
Monetary Loss Medical Necessity $6.33 18%
Incorrect Coding $3.69 10%
Other $1.23 3%
Unknown Insufficient Documentation $23.22 64%
No Documentation $0.61 2%

 

HHS uses data from the Comprehensive Error Rate Testing program and other sources of information to address improper payments in Medicare FFS through various corrective actions. HHS has developed a number of preventative and detective measures for specific service areas with high improper payment rates such as home health, SNF, and IRF claims.  HHS believes implementing targeted corrective actions will continue to prevent and reduce improper payments in these areas and reduce the overall improper payment rate.

1 Does not include underpayments representing $1.13 billion and 3 percent of improper payments.

HHS continues to implement corrective actions 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.  Key home health corrective actions include:

  • Probe and Educate of Home Health Agencies:  During FY 2016, HHS’s Medicare Administrative Contractors (MACs) continued pre-payment reviews of home health claims for episodes beginning on or after August 1, 2015. These reviews are designed to improve home health agencies’ understanding of beneficiary home health eligibility certification requirements.  Specifically, the MACs use a Probe and Educate strategy to review a small sample of home health claims for every home health agency and provide education and/or training as needed.  Round 1 results showed a high denial rate and many providers required a second round of Probe and Educate reviews, which were conducted throughout FY 2017.  The errors identified in Round 1 were primarily insufficient documentation errors and HHS believes these errors can be corrected with additional provider education in Round 2.
  • Pre-Claim Review Demonstrations:  A Pre-Claim Review Demonstration for home health services was operational in Illinois from August 2016 until March 2017, when it was paused by the Department. Under the Demonstration, HHS reviewed pre-claim requests and provisionally affirmed them as meeting Medicare rules and requirements prior to claim submission.  Taking into account stakeholder feedback on this Demonstration, HHS is considering a number of structural improvements.
  • Home Health Recovery Audit Contractors (RAC):  On October 31, 2016, HHS awarded a new Medicare FFS RAC contract to identify and correct improper payments for home health claims.  The RAC will review all applicable claims types and work with HHS and the MACs to recoup overpayments and correct underpayments.  The use of recovery audit contractors is one of the tools HHS uses to enforce Medicare requirements.  HHS believes the use of recovery audit contractors help reduce improper payments and help educate providers on Medicare policies.  HHS also believes there is a sentinel effect in the provider community with more providers billing accurately because of the possibility of a RAC audit in the future.   
  • Home Health Plan of Care/Certification Template:  In FY 2017, HHS released draft electronic and paper home health plan of care/certification templates. These voluntary templates will support home health agencies and assist with improving physician documentation. In FY 2018, CMS will: (1) host special open-door forums to obtain industry feedback on improving the templates and, (2) complete the Paperwork Reduction Act’s approval process to finalize these forms as Office of Management and Budget-approved collection instruments.

 

HHS has implemented corrective actions for payment errors related to SNF services resulting from missing or insufficient medical record documentation. Key SNF corrective actions include:

  • Supplemental Medical Review Contractor (SMRC) SNF Review Projects:  During FY 2017, HHS tasked the SMRC with performing medical reviews on a post-payment basis for SNF services nationwide.
  • RACs:  On October 31, 2016, HHS awarded new Medicare FFS RAC contracts to identify and correct improper payments, which includes potential review of SNF claims.  The RAC will review all applicable claims types and work with HHS and the MACs to recoup overpayments and correct underpayments.    The use of recovery audit contractors is one of the tools HHS uses to enforce Medicare requirements.  HHS believes the use of recovery audit contractors help reduce improper payments and help educate providers on Medicare policies.  HHS also believes there is a sentinel effect in the provider community with more providers billing accurately because of the possibility of a RAC audit in the future.   
  • Medicare Learning Network (MLN) Article:  An MLN article provided targeted education to physicians, non-physician practitioners, and providers who bill for SNF services.

CMS also continues focusing on addressing IRF payment errors, including errors resulting from medical necessity, as well as addressing therapy services provided in other settings.  Key IRF corrective actions include:  

  • Inpatient Rehabilitation Facility Prospective Payment System:  HHS issued an IRF Prospective Payment System (PPS) final rule, CMS-1608-F (79 FR 45872, August 6, 2014), which required IRFs to record and report to CMS how much and what type of therapy (e.g., Individual, Concurrent, Group, and Co-Treatment) patients receive in each therapy discipline in the IRF setting.  Data are still being collected as of August 2017. CMS will utilize these data for potentially informing future IRF rulemaking.
  • SMRC IRF Review Projects:  In FY 2017, the SMRC continued performing targeted medical review on a post-payment basis for IRF services and other therapy services provided in various settings.  
  • IRF Industry Meetings:  HHS held meetings with IRF industry representatives to provide education and clarification on IRF policy requirements.

 

Additional information on the program and additional ongoing corrective actions is also provided annually in the Department’s Agency Financial Report (available at https://www.hhs.gov/about/agencies/asfr/finance/financial-policy-library/agency-financial-reports/index.html).