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News Release

MEDICARE IMPROPER PAYMENTS RATE REMAINS STABLE
AS HHS MOVES TO NEW PHASE OF PAYMENT MEASUREMENT

The Department of Health and Human Services today reported that the rate of improper Medicare payments remained stable for the past two years. The improper payment rate, which estimates the portion of Medicare fee-for-service payments that do not comply with all Medicare laws and regulations, was 6.3 percent in both fiscal years 2001 and 2002.

This rate is less than half the 13.8 percent estimated in fiscal year 1996, the first year HHS' Office of Inspector General (OIG) calculated the rate. In 2000, the rate was 6.8 percent.

"These results mark the conclusion of a successful first phase in improving the accuracy of Medicare payments," said HHS Secretary Tommy G. Thompson. "In the next phase, we will move to new and much more powerful measurement tools to better understand payment performance and better ensure payment accuracy."

The sample used by OIG to estimate the improper payments rate from 1996 to 2002 has been based on a small but statistically valid number of Medicare beneficiaries and claims. In 2002, OIG examined 4,985 claims filed on behalf of 610 beneficiaries nationwide.

Beginning in fiscal year 2003, however, the error rate will be calculated based on some 120,000 claims nationwide. HHS' Centers for Medicare & Medicaid Services (CMS) is deploying the Comprehensive Error Rate Testing (CERT) program to calculate improper Medicare payments. In all, almost 1 billion Medicare claims are filed each year. The program covers 40 million beneficiaries.

Unlike the present improper payment calculation, the CERT program will allow CMS to estimate specific error rates for individual contractors, providers and benefits. The new information will continue to be aggregated to produce national level estimates like those calculated by the OIG, but with much greater precision, since so many more claims will be reviewed.

"With the Inspector General's help, Medicare and its contractors have made great improvements in payment accuracy, but we need to take the next step," said CMS Administrator Tom Scully. "The CERT system will examine 24 times more claims than the current process has been able to review. This will give us more and greater ability to assess how well the Medicare contractors are performing and allow us to pinpoint problems, fix them and ensure that all our rules are being followed."

"Improving contractor oversight is key in how the Medicare funds are managed," Scully said. "CERT and the improper payment rate will be even more important tools once Congress gives us authority to strengthen our existing oversight of the Medicare claims payment contractors."

In determining the rate of improper payments, OIG looked at medical records behind the 4,985 claims examined. Payments deemed to be improper include:

• "Medically unnecessary" services -- Usually cases in which medical reviewers determined that the beneficiary's condition did not warrant inpatient hospital care, but rather a lower level of care (57.1 percent of improper payments in 2002);
• Documentation deficiencies -- Instances where medical records were insufficient to support the claims, or nonexistent (28.6 percent); or
• Miscoding -- Services usually found to be coded for a higher level of care than was supported by the medical records (14.3 percent).

The claims involve Medicare fee-for-service payments to physicians, hospitals and other health care providers. CMS takes steps to recover the improper payments identified by the OIG review -- many have already been recovered, the OIG report said.

OIG's projected 6.3 percent rate represents an estimated $13.3 billion in improper payments out of the total $212.7 billion in fee-for-service Medicare benefit payments -- compared with $12.1 billion in fiscal year 2001, out of the total $191.8 billion in payments that year.

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

"CMS has shown continued vigilance in the actions it has taken to lower the rate of improper payments in Medicare, and the Office of Inspector General has been pleased to develop a reliable base of information over the past seven years," said HHS Inspector General Janet Rehnquist. "Now, as has been planned for four years, we are turning over this responsibility to CMS. We worked with CMS to refine the CERT methodology and are confident that it will lead to important management improvements in the future."

The improvement in the error rate reflects CMS efforts to target vulnerabilities in the program and expand outreach and education. Specific CMS activities include:

• education for providers at the local and national level to ensure that Medicare payment rules are clear and that the providers, suppliers and physicians who provide services to Medicare beneficiaries understand the rules and get answers to any questions they have;
• improved management of the contractors and systems that operate the program. This includes implementation of a new accounting system to better manage Medicare financial systems;
• improved error measurement, through CERT, to direct targeted corrective actions. For example, the greater precision of CERT error measurement will enable CMS to pinpoint particular benefits, provider types or individual contractors that may be having the greatest impact on the error rate;
• continued focus on eliminating fraud from the system. This is being done through the implementation of the Program Safeguard Contractor program, where all the fraud and abuse functions currently performed by carriers and intermediaries are being competed among a group of private sector firms that focus exclusively on anti-fraud work; and
• working with the American Medical Association and other provider groups to ensure that documentation requirements are workable and correctly reflect the work performed by physicians.

The OIG Improper Fiscal Year 2002 Medicare Fee-for-Service Payments report is available at http://oig.hhs.gov/oas/oas/cms.html.

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Note: All HHS press releases, fact sheets and other press materials are available at http://www.hhs.gov/news.

Last Revised: January 24, 2003