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This is less than half the 13.8 percent estimated in 1996, the first year HHS' Office of Inspector General (OIG) calculated the rate.

"We are continuing to make significant improvements to assure that payments for Medicare services are accurate and correctly documented," said HHS Secretary Tommy G. Thompson. "We are also working to make our procedures and rules more understandable through our regulatory reform efforts, which will help physicians and other providers avoid unintended errors."

For fiscal year 2001, medical reviewers examined the medical records behind 6,594 claims filed on behalf of 600 beneficiaries nationwide. These were selected randomly by OIG from the total 34 million beneficiaries enrolled in fee-for-service Medicare. About 931 million fee-for-service Medicare claims were filed in 2001.

Improper payments include:

• "Medically unnecessary" services -- Usually cases in which medical reviewers determined that the beneficiary's condition did not warrant inpatient hospital care, but did warrant a lower level of care (43.2 percent of improper payments in 2001);
• Documentation deficiencies -- Instances where medical records were insufficient to support the claims, or nonexistent (42.9 percent); or
• Miscoding -- Services found to be coded for a higher level of care than was supported by the medical records (17 percent).

The claims involve fee-for-service payments to physicians, hospitals and other health care providers. The Centers for Medicare & Medicaid Services (CMS), which administers the Medicare program, takes steps to recover all improper payments identified by the OIG review -- many have already been recovered, the OIG report said.

By projecting the findings of the review, the fiscal year 2001 rate would represent an estimated $12.1 billion in improper payments out of the total $191.8 billion in fee-for-service Medicare payments -- compared with $11.9 billion in fiscal year 2000, out of the total $173.6 billion in payments that year.

The improper payment rate does not measure fraud, although some overpayments could be the result of fraud. The audit process does not attempt to determine the exact cause of the error.

"There is still important work to be done," said CMS Administrator Tom Scully. "At Secretary Thompson's direction, we are developing a financial system that will enable us to better manage our programs. Providers are getting more accurate, and as a result taxpayer dollars are more focused on good patient care."

"CMS has shown continued vigilance in the actions it has taken to lower the rate of improper payments in Medicare," said HHS Inspector General Janet Rehnquist. "Now it's imperative to continue helping providers to understand and comply with the rules and procedures that are in place to ensure that Medicare's dollars are spent correctly."

The sustained improvement in the error rate over the past six years reflects CMS efforts to target vulnerabilities in the program, expand outreach and education, strengthen provider enrollment activities, work effectively with law enforcement partners, and improve overall customer service. CMS is also working to simplify requirements and modernize its systems to further reduce payment errors.

The OIG Improper Fiscal Year 2001 Medicare Fee-for-Service Payments report is available at oig.hhs.gov/oas/reports/cms/a0102002.htm.

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