Improper Payment Reporting Criteria

Improper Payment Reporting Criteria

  • The Payment Integrity Information Act of 2019 defines significant improper payments as either:

 (i) improper payments greater than $10 million and over 1.5 percent of all payments made under that program, or

(ii) improper payments greater than $100 million.

The Medicare Fee-For-Service (FFS), Medicare Part C, Medicare Part D, Medicaid, Children’s Health Insurance Program (CHIP), and Affordable Care Act Health Insurance Exchange Advance payment of the Premium Tax Credit (APTC) program are susceptible to significant improper payments.

What You Need to Know:

  • Improper payments represent payments that do not meet program requirements.
  • The vast majority of improper payments occur in situations where there was an unintentional payment error or a reviewer cannot determine if a payment was proper due to insufficient payment documentation from a state, provider, or the Exchange.
  • Improper payments do not necessarily represent expenditures that should not have occurred and can include both overpayments and underpayments where there is insufficient documentation to determine if a payment is proper in accordance with program payment requirements.
  • While fraud and abuse are improper payments, not all improper payments represent fraud. Improper payment estimates are not fraud rate estimates.

Improper Payment Measurements:

Medicare Fee-For-Service

  • CMS developed the Comprehensive Error Rate Testing (CERT) program to estimate the Medicare Fee-For-Service (FFS) program improper payment rate.
    • The CERT program cites improper payments in accordance with payment policies on any claim: 1) that was paid when it should have been denied or paid at another amount (including both overpayments and underpayments); and/or 2) for which documentation was insufficient to determine whether it was a proper or improper payment.
    • The CERT program reviews a statistically valid stratified random sample of Medicare FFS claims to determine if they were paid properly under Medicare coverage, coding, and billing rules. If these criteria are not met, the claim is counted as an improper payment.
  • The majority of Medicare FFS improper payments fall into two categories:
  1. Insufficient or missing documentation; and
  2. The documentation provided for the items or services billed did not sufficiently demonstrate medical necessity.

Medicare Part C

  • CMS estimates the Part C Medicare Advantage (MA) improper payments using the Part C Improper Payment Measure (IPM) methodology.
    • CMS calculates an annual capitated payment for each Medicare beneficiary enrolled in a MA Organization (MAO) based on diagnosis data previously submitted to CMS by the MAO. The diagnosis data are used to determine risk scores and calculate risk-adjusted payments to MAOs for their enrollees. Inaccurate or incomplete diagnosis data may result in improper payments made to MAOs.
    • CMS conducts the annual Part C IPM activity to estimate the improper payments for the Medicare Part C program due to unsubstantiated risk adjustment data.
    • CMS implemented policy and methodology refinements to improve the accuracy of the payment error estimate and reflect improper payment measurement policy over the past two years. Refinements with the most impact include a more accurate calculation of total outlays (i.e. the denominator), as well as policy clarifications on the treatment of additional CMS Hierarchical Condition Categories (CMS-HCCs).
  • The majority of Part C improper payments fall into three categories:
  1. Diagnosis not found or substantiated by the medical record
  2. Invalid documentation
  3. Missing documentation

Medicare Part D

  • CMS estimates the Part D Prescription Drug Benefit improper payments using the Part D IPM methodology.
    • Part D IPM measures error in payments due to invalid and/or inaccurate drug claims, which may result in adjustments to beneficiaries’ benefit phases and CMS payments. Drug claims selected for audit are evaluated using supporting documentation.
  • Part D improper payments fall into two major categories:
    1. Invalid or missing documentation
    2. Drug or drug pricing discrepancies

Medicaid & Children’s Health Insurance Program (CHIP)

  • The majority of Medicaid and CHIP improper payments are tied to insufficient or missing documentation.
  • CMS estimates Medicaid and CHIP improper payments using the Payment Error Rate Measurement (PERM) program.
    • The PERM program uses a three-year, 17 state rotation, meaning each state is reviewed once every three years and each cycle measurement includes one third of all states. The most recent three cycles (2022, 2021, and 2020) combine to form each year’s overall national rate.
    • PERM ensures a statistically valid random sample representative of all Medicaid and CHIP payments matched with federal funds meets a national precision requirement where CMS is 95 percent confident that the national Medicaid and CHIP improper payment rates are within +/- 3 percentage points.
    • Medicaid and CHIP improper payment data released by CMS are based on reviews of whether states are implementing their Medicaid program and CHIP in accordance with federal and state payment and eligibility policies.
    • The national Medicaid and CHIP improper payment rates are based on reviews of the FFS, managed care, and eligibility components of a state’s Medicaid program and CHIP in the year under review.
    • In addition, the PERM program combines individual state component estimates to calculate the national component estimates. National component rates and the Medicaid and CHIP rates are weighted by state size, such that a state with a $10 billion program is weighted more in the national rate than a state with a $1 billion program.

ACA Exchange Advance payment of the Premium Tax Credit

  • The majority of APTC improper payments are tied to manual eligibility verifications.
  • CMS estimates Advance payment of the Premium Tax Credit (APTC) improper payments using the Exchange Improper Payment Measurement (EIPM) program.
    • The EIPM program currently measures improper payments for the Federally-facilitated Exchange (FFE).  The improper payment measurement methodology for State Exchanges is under development. 
    • The EIPM program measures improper payments based on a statistically valid random sample representative of all APTC payments made by the FFE. The EIPM ensures a precision level where CMS is 95 percent confident that the true APTC improper payment rate is within +/- 3 percentage points of the estimated rate.
    • APTC improper payment estimates are based on reviews of the FFE compliance with requirements surrounding payment and eligibility determinations.
  • This year is the first year the EIPM program is reporting APTC improper payment information. CMS is reporting improper payment information for calendar year 2020 in the fiscal year 2022 HHS Agency Financial Report.
  • IRS and CMS are reporting a combined error rate for the Premium Tax Credit program as a whole in both agencies’ Agency Financial Reports. 

Improper Payments Do Not Necessarily Indicate Fraud:

  • Improper payment rates are not measures of fraud in CMS programs. Most improper payments are caused by improper or inadequate documentation.
  • Improper payments do not necessarily represent expenditures that should not have occurred.
    • For example, a majority of improper payments are due to instances where information required for payment was missing, documentation that an eligibility determination was made correctly was missing from the state system, states did not follow the appropriate process for enrolling providers, and/or states did not follow the appropriate process for determining beneficiary eligibility. However, these improper payments do not necessarily represent payments to illegitimate providers or on behalf of ineligible beneficiaries. Had the missing information been on the claim and/or had the state complied with the enrollment or redetermination requirements, then the claims may have been payable. A smaller proportion of improper payments are instances where there was sufficient documentation to determine that payments should not have been made or should have been made in different amounts, which are considered monetary losses to the Federal Government (e.g., medical necessity, incorrect coding, and other errors).
  • Improper payments can result from a variety of circumstances, including:

1) items or services provided with no documentation,

2) items or services provided with insufficient documentation, or

3) no record of the required verification of an individual’s eligibility, such as income, specifically for Medicaid, CHIP, and the Federally-facilitated Exchange.

  • Proper payments occur when there is sufficient documentation to support payment in accordance with the program payment requirements. Three examples of proper payments include:
    • Payments where CMS or the state appropriately reviewed and maintained documentation of an eligibility verification requirement and appropriately determined eligibility based on program eligibility and payment requirements.
    • Payments where sufficient documentation was provided to support medical necessity in accordance with program payment requirements.

CMS/State Collaboration on Improper Payments

  • CMS collaborates with states in many ways to share information and help to ensure they maintain the proper documentation to demonstrate that payments are being made correctly. Examples include:
    • Medicaid Eligibility Quality Control (MEQC) Program: Under the MEQC program, states design and conduct pilots to evaluate the processes that determine an individual’s eligibility for Medicaid and CHIP benefits. States have flexibility in designing pilots to focus on vulnerable or error-prone areas as identified by the PERM program and state. The MEQC program also reviews eligibility determinations that are not reviewed under the PERM program, such as denials and terminations.
    • State PERM Corrective Action Plan Oversight: CMS works with states to coordinate state development of corrective action plans to address each error and deficiency identified during the PERM cycle. After each state submits the corrective action plan, CMS monitors each state’s progress in implementing effective corrective actions. Throughout the process, CMS also provides training opportunities to ensure compliance with federal policies.
    • State Medicaid Provider Screening and Enrollment Data and Tools: CMS shares certain Medicare data to assist states with meeting Medicaid screening and enrollment requirements. For instance, CMS shares the Medicare provider enrollment record via the Medicare Provider Enrollment, Chain, and Ownership System (PECOS) and offers a data compare service allowing states and territories to rely on Medicare’s provider screening in lieu of conducting a separate state screening, this is particularly helpful during revalidation.
    • Enhanced Assistance on State Medicaid Provider Screening and Enrollment: CMS provides ongoing guidance, education, and outreach to states on federal requirements for Medicaid provider screening and enrollment. CMS also assesses provider screening and enrollment compliance, provides technical assistance, and offers states the opportunity to leverage Medicare screening and enrollment activities.
    • Medicaid Integrity Institute (MII): CMS offers training, technical assistance, and support to state Medicaid program integrity officials through the MII. More information is located at the Medicaid Integrity Institute website.

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