Medicare Fee-for-Service

Department of Health and Human Services

Medicare fee-for-service (FFS) is a program that provides hospital insurance (Part A) and supplementary medical insurance (Part B) to eligible citizens. Part A is usually provided automatically to persons 65 and over who have worked long enough to qualify for Social Security benefits; it pays for hospital, skilled nursing facility, home health, and hospice care. Part B is voluntary coverage, which pays for physician, outpatient hospital, home health, laboratory tests, durable medical equipment, designated therapy, outpatient prescription drugs, and other services not covered by Part A. Medicare processes over one billion fee-for-service claims a year.

Agency Accountable Official: Ellen Murray, Assistant Secretary for Financial Resources

Program Accountable Official: Peter Budetti, Deputy Administrator for Program Integrity, Centers for Medicare and Medicaid Services

Measures

Current

$326.4B

Total Payments (Outlays)more info

$34.3B

Improper Paymentsmore info

10.5%

Improper Payment Ratemore info

2011

8.5% Improper Payment Rate Target more info

All amounts are in billions of dollars

Projections Historical

Fiscal Reporting Year

Rate

2010

10.5%

2011

8.5%

2012

6.2%

2013

5.8%

Tabular view for Projected improper payments Tabular View

Note: In 2009, HHS modified the review process for improper payments in the Medicare Fee-For-Service program based on recommendations from the Office of Inspector General and agency staff. The 2009 Agency Financial Report shows 7.8 percent or $24.1 billion in improper payments, which reflects the old review process used for most of the claims that year. This website reflects the error rate for claims reviewed under the newer, strictest and most thorough criteria, which is 12.4 percent, or $35.4 billion in improper payments. For purposes of setting an estimated baseline for future goals, HHS is using 12.4 percent as the 2009 improper payment rate.

Program Comments

The Department of Health and Human Services (HHS) is committed to reducing the percentage of improper payments made under the Medicare fee-for-service program. This was the first full year that HHS implemented a number of changes in the improper payment measurement methodology that impacted the error rate.

Based on both the recommendations contained in recent Office of Inspector General (OIG) audit reports and those of HHS’s advisory medical staff, HHS modified the medical review process late in FY 2009. Approximately 82,000 claims were reviewed for the 2010 reporting period. The error rate is 10.5% or $34.3 billion in estimated improper payments. The HHS did not meet its error rate target of 9.5% (gross) for 2010. The primary causes of improper payments were medically unnecessary services and insufficient documentation errors. Read More...

Claims are placed into the medically unnecessary category when claim review staff identifies enough documentation to make an informed decision that the services billed were not medically necessary based on Medicare coverage policies. An insufficient documentation error occurs when the provider does not submit sufficient documentation to determine whether the claim should have been paid. Changes in the review approach accounted for the majority of the increases in these error rates. Within the sampled claims, HHS has recovered the majority of the total actual overpayments identified over the last five years.

Given the changes in the methodology implemented late in the 2009 reporting period, HHS used the rates reported in 2009 to create an estimated baseline, and set future improper payment rate targets of not greater than 8.5 percent, 6.2 percent, and 5.8 percent, respectively, for 2011 through 2013.

The error rate testing program provides HHS with a rigorous set of data that HHS can use to manage Medicare contractors, identify and prevent errors, and educate providers that bill HHS programs. The HHS is continually working with the contractors that pay Medicare claims on aggressive efforts to lower the paid claims error rate, including:

Developing comparative billing reports to help Medicare contractors and providers analyze administrative claims data,
Increasing and refining one-on-one educational contacts with providers found to be billing in error,
Revising Medicare fee-for-service manuals to clarify requirements for medical reviews performed by Medicare contractors, and
Developing new data analysis to further prevent improper payments.

The HHS has directed contractors that pay Medicare claims to develop local efforts to lower the error rate through plans that address problems that result in payment errors. These plans must specify the steps being taken to fix identified problems, as well as other recommendations that will ultimately lower the error rate. Additional information on the program is also provided annually in the department’s Agency Financial Report.

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