Medicare Fee-for-Service Improper Payments Drop By Over $7B

November 19, 2019 - CMS recently announced that the Medicare fee-for-service (FFS) improper rate declined further from fiscal years (FY) 2017 to 2019, reaching the lowest level since FY 2010.

The FY 2019 Medicare FFS improper payment rate is approximately 7.25 percent, CMS reported in HHS’ annual Agency Financial Report. CMS paid approximately $28.9 billion in Medicare FFS improper payments in FY 2019 compared to the FY 2018 Medicare FFS improper payment rate of 8.12 percent, which represented $31.62 billion in improper payments.

Since FY 2017, the amount of Medicare FFS improper payments declined by more than $7 billion, the agency highlighted

“At a time when Medicare’s ballooning costs are threating the long-term sustainability of the program, President Trump is taking action to protect the program,” CMS Administrator Seema Verma stated in the announcement. “Every dollar spent inappropriately is one that should have been used to benefit patients. Under President Trump’s leadership CMS is pulling every lever at its disposal to safeguard precious resources and direct them to those who truly need them – both today and in the future.”

Decreases in improper payment rates for home health, certain Part B services, and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) claims drove the recent reduction in Medicare FFS improper payments, the report showed.

Specifically, improper payments declined by $5.32 billion for home health from 2016 to 2019, $1.82 billion for “other” Medicare Part B services from 2018 to 2019, and $1.29 billion for DMEPOS claims from 2016 to 2019.

The report also revealed that CMS reduced the improper payment rate for Medicare Advantage to 7.87 percent in FY 2019 from 8.10 percent in FY 2018, representing a decrease to $16.73 billion from $15.55 billion. The improper payment rate for Medicare Part D also fell to 0.75 percent in FY 2019 from 1.66 percent in FY 2018.

However, the improper payment rates for Medicaid and CHIP increased from FY 2018 to FY 2019, reaching a rate of 14.90 percent by the end of the period, which represented $57.36 billion in improper payments. However, CMS noted that the “results are not comparable as the measurement has changed dramatically.”

CMS credited the general reduction in improper payments to “aggressive program integrity measures.” President Trump, for example, signed an executive order in October of this year directing CMS to focus efforts on identifying and preventing Medicare fraud, waste, and abuse, as well as increase its efforts to improve program integrity.

Since then, the agency developed a five-pillar program integrity strategy intended to modernize its approach to addressing healthcare fraud, reducing improper payment rates, and sustaining federal healthcare programs for future generations. The five pillars include:

• Stopping bad actors
• Preventing fraud
• Mitigating emerging programmatic risks
• Reducing provider burden
• Leveraging new technology

The new five-pillar approach emphasizes the agency’s new focus on prevention. Prior to the five-pillar strategy, CMS largely relied on a “pay and chase” model in which the agency would reimburse providers and retrospectively identify and recoup improper payments.

The agency also highlighted its new Payment Error Rate Measurement (PERM) eligibility component. In FY 2019, the Trump administration relaunched PERM eligibility reviews after the previous administration halted them as states implemented new rules under the Affordable Care Act.

CMS explained that Medicaid and CHIP improper payment rates have increased under the PERM program because of “high levels of observed eligibility errors,” including “states maintaining insufficient documentation to substantiate that income and other information was appropriately verified, failures to conduct timely and appropriate annual redeterminations, and claiming beneficiaries under incorrect eligibility categories that provide a higher federal matching rate than was appropriate.”

Through the revived PERM eligibility reviews, CMS reintegrated the measurement of the eligibility component of Medicaid and CHIP improper payment rates in the PERM program. The agency intends for the reviews to reduce improper payments in Medicaid and CHIP by identifying individuals who were allowed to remain enrolled in the programs during times when they did not qualify.

CMS plans to enact further Medicaid eligibility reform, as well as tighter healthcare fraud prevention efforts, to further reduce improper payments.

“Our progress on improper payments is historic, but there’s more work to be done,” Verma stated in the announcement. “CMS has taken a multifaceted approach that includes provider enrollment and screening standards to keep bad actors out of the program, enforcement against bad actors, provider education on our rules and requirements, and advanced data analytics to stop improper payments before they happen. These initiatives strike an important balance between preventing improper payments and reducing the administrative burden on legitimate providers and suppliers.”