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June 19, 2018

HHS made $90.1B in improper payments last year

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    HHS made an estimated $90.1 billion in improper Medicare and Medicaid payments in fiscal year (FY) 2017, according to a recent Government Accountability Office (GAO) report.

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    GAO examines improper payments in four HHS programs

    In the first report, GAO reviewed improper payments for four programs under HHS that the Office of Management and Budget (OMB) had designated as high-priority:  

    • Medicaid;
    • Medicare Advantage;
    • Medicare fee-for-service (FFS); and
    • Medicare Part D.

    GAO also evaluated the processes HHS used to estimate improper payments for the programs in FY 2017. GAO examined whether differences in processes for estimating improper payments affected the estimates' utility. GAO reviewed relevant laws, guidance, policies, and procedures, and interviewed staff at HHS and OMB.


    Overall, GAO found HHS made an estimated $90.1 billion in improper Medicare and Medicaid payments for FY 2017. In particular, GAO estimated that, in FY 2017, HHS made a total of:

    • $36.73 billion in improper payments for Medicaid;
    • $36.20 billion in improper payments for Medicare FFS;
    • $14.35 billion in improper payments for Medicare Advantage;
    • $1.29 billion in improper payments for Medicare Part D;and
    • $1.23 billion in improper payments for CHIP.

    To monitor payments, GAO noted that HHS uses internal payment evaluation methods that, in some cases, are not able to detect the complete risk factors for improper or under-documented payment claims. According to GAO, HHS—like other departments—does not review improper payments by using a baseline statistical annual analysis. Instead, HHS in certain cases uses OMB-approved adjusted methods, GAO said, such as using a three-year cycle to review payments made to state Medicaid programs.

    GAO recommended that OMB develop guidance and a risk-based methodology to help HHS and other federal departments and agencies identify improper payments. GAO said, "Without such assessments and guidance, there is increased risk that agencies' processes may not address key risks of improper payments in their programs, calling into question the improper payment estimates for such programs and their usefulness for developing effective corrective actions."

    OMB said it partially concurred with GAO's recommendations. However, OMB said it "should not have to develop more specific guidance as each program and activity has its own risks." OMB said each federal department's or agency's inspector general should address concerns about improper payments.

    GAO examines improper payments in Medicaid managed care programs

    In a separate report, GAO examined HHS' Payment Error Rate Measurement (PERM) for Medicaid managed care. GAO evaluated the extent to which PERM takes into account program integrity risks in Medicaid managed care, including risks related to the oversight from CMS and states.

    GAO identified and examined reports on program integrity risks in 27 federal and state audits and investigations conducted from January 2012 through September 2017. GAO also contacted CMS officials, program integrity experts, and program integrity officials in 16 states with the majority of Medicaid spending for managed care in 2016 and reviewed federal regulations and guidance on PERM and CMS' Focused Program Integrity Reviews.

    GAO recommended that CMS take steps to reduce programs risks—such as overpayments and unallowable costs—that are not measured through PERM. To do so, GAO said CMS could revise its PERM methodology or focus additional audit resources toward Medicaid managed care.


    Overall, GAO found that Medicaid in FY 2017 paid half of its total federal expenditures—or $171 billion—to managed care organizations, and CMS estimated that Medicaid paid about $500 million in improper payments to Medicaid managed care organizations, determining that the improper payment rate for Medicaid manage care in FY 2017 was 0.3%. "This is a small portion of overall estimated Medicaid improper payments, which CMS estimated at about $37 billion, or 10.1% of $364 billion in federal spending on Medicaid in FY 2017," GAO said.

    GAO wrote in the report, "At the same time, however, the FFS estimated improper payment rate was 12.9% or about $25 billion in federal expenditures. Due, in part, to this disparity in the estimated improper payment rates, [GAO has] questioned whether the managed care estimate fully reflects the program integrity risks that exist in Medicaid managed care."

    GAO said CMS' estimates for improper payments in Medicaid managed care has limitations that might affect the appearance of program risks. Specifically, GAO said, "To the extent that overpayments and unallowable costs are unidentified and not removed from the cost data used to set capitation rates, they may allow inflated MCO payments and minimize the appearance of program risks in Medicaid managed care."

    According to GAO, "Without addressing key risks, such as the extent of overpayments and unallowable costs, CMS cannot be certain that its estimated improper payment rate for managed care (0.3% compared with 12.9% in Medicaid [FFS]) accurately reflects program risks."

    HHS concurred with GAO's recommendation.

    House Energy and Commerce Committee Chair Greg Walden (R-Ore.) in a statement said, "These are important programs with limited resources, and it is imperative they are maximizing every dollar. Updating their error measurement tracking will be an important tool in reducing the amount of improper payments in the Medicaid program, allowing CMS to focus on their beneficiaries and the care they need" (Beaton, HealthPayerIntelligence, 6/4; Jones Sanborn, Healthcare Finance News, 6/7; Stankiewicz, FierceHealthcare, 6/7).

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