Fiscal Year 2023 Improper Payments Fact Sheet

The Centers for Medicare & Medicaid Services (CMS) is committed to being a responsible steward of public funds and to promoting the sustainability of its programs for future generations. While CMS’ improper payments reporting programs are designed to protect the integrity of CMS programs, not all improper payments are fraud or abuse. It is important to understand that improper payments are payments that do not meet CMS program requirements. They can be overpayments or, underpayments, or payments where insufficient information was provided to determine whether a payment was proper. Most improper payments involve a situation when a state, contractor, or provider misses an administrative step. CMS is committed to ensuring the programmatic and fiscal integrity of its programs.

Here are the improper payment rates for CMS’ programs in Fiscal Year 2023: 

• The Medicare Fee-for-Service (FFS) estimated improper payment rate was 7.38%, or $31.2 billion, marking the seventh consecutive year this figure has been below the 10% threshold for compliance established by improper payment statutory requirements.^[1] The 2023 rate is not statistically different from the 2022 Medicare FFS estimated improper payment rate of 7.46%.
• The Medicare Part C estimated improper payment rate was 6.01%, or $16.6 billion. CMS made significant methodology changes during the past two years’ reporting cycles (FY 2021 and FY 2022), and FY 2023 establishes a baseline; however, it is not statistically different from the 2022 estimated improper payment rate. 
• The Medicare Part D estimated improper payment rate was 3.72%, or $3.4 billion. This estimated improper payment rate incorporates various methodology refinements. These comprehensive changes contributed to an increase in the FY 2023 estimated improper payment rate, and the rates for FY 2023 are not comparable to previous years. 
• The Medicaid improper payment rate (comprised of reviews in 2021, 2022, and 2023) was 8.58%, or $50.3 billion, a significant decrease from the 2022 reported rate of 15.62%. Of the 2023 Medicaid improper payments, 82% were the result of insufficient documentation. These payments typically involve situations where a state or provider missed an administrative step and do not necessarily indicate fraud or abuse.
• The Children’s Health Insurance Program (CHIP) improper payment rate (comprised of reviews in 2021, 2022, and 2023) was 12.81%, or $2.1 billion, a substantial decrease from the 2022 rate of 26.75%. Of the 2023 CHIP improper payments, 68% were the result of insufficient documentation, which is generally not indicative of fraud or abuse.
• The improved performance in the national Medicaid and CHIP improper payment estimates reflect 1) reviews that accounted for certain flexibilities afforded to states during COVID-19, such as suspended eligibility determinations and reduced requirements around provider enrollment and revalidations, which were typically included in the PERM reviews prior to the COVID-19 PHE; and 2) improved state compliance with other program requirements. While it is unclear how much the decrease is attributable to the PHE flexibilities versus improved state compliance, it appears that the PHE flexibilities had an impact on lowering the rate. Please note that the data does not capture any effects of the PHE unwinding, as these will be included in future report periods.
• The 2023 improper payment rate for the Advance payment of the Premium Tax Credit (APTC) program for the Federally Facilitated Exchange (FFE) for Benefit Year 2021 (January 1 to December 31, 2021) was 0.58% or $272 million. CMS found that the FFE properly paid an estimated 99.42% of total outlays, or $46 billion, in Benefit Year 2021.

What You Need to Know:

• The Payment Integrity Information Act of 2019 defines significant improper payments as either: 

(i) improper payments greater than $10 million and over 1.5% of all payments made under that program, or 

(ii) improper payments greater than $100 million.

• The 2023 HHS Agency Financial Report provides the improper payment rates for the Medicare Fee-for-Service (FFS), Medicare Part C, Medicare Part D, Medicaid, Children’s Health Insurance Program (CHIP), and Affordable Care Act Health Insurance Exchange Advance payment of the Premium Tax Credit (APTC) programs.
  1. Insufficient documentation
  2. The documentation provided for the items or services billed did not sufficiently demonstrate medical necessity.
• The vast majority of improper payments occurred in situations where there was an unintentional payment error or a reviewer could not determine if a payment was proper because of insufficient payment documentation from a state, provider, or the FFE. 
• While fraud and abuse are one cause of improper payments, not all improper payments represent fraud or abuse. Improper payment estimates are not fraud rate estimates.
• Improper payments can result from a variety of circumstances, including: 
  • Items or services with no documentation. 
  • Items or services with insufficient documentation.
  • Or, with respect to Medicaid, CHIP, and the FFE, no record of the required verification of an individual’s eligibility, such as income.
• Proper payments occur when there is sufficient documentation to support payment in accordance with the program payment requirements. Two examples of proper payments include:
  • Payments where CMS or the state appropriately maintained documentation of an eligibility verification requirement and appropriately determined eligibility based on program eligibility and payment requirements.
• Payments where sufficient documentation was provided to support medical necessity in accordance with program payment requirements.

Improper Payment Measurements:

Medicare Fee-for-Service

• CMS developed the Comprehensive Error Rate Testing (CERT) program to estimate the Medicare Fee-for-Service (FFS) program improper payment rate. 
  • The CERT program reviews a statistically valid stratified random sample of Medicare FFS claims to determine if they were paid properly under Medicare coverage, coding, and billing rules. If these criteria are not met, the claim is counted as an improper payment.
• The majority of Medicare FFS improper payments fall into two categories: 

1. Insufficient documentation
2. The documentation provided for the items or services billed did not sufficiently demonstrate medical necessity.

Medicare Part C

• CMS estimates the Part C Medicare Advantage (MA) improper payments using the Part C Improper Payment Measure (IPM) methodology.
  • CMS calculates an annual capitated payment for each Medicare beneficiary enrolled in an MA Organization (MAO) based on diagnosis data previously submitted to CMS by the MAO. The diagnosis data are used to determine risk scores and calculate risk-adjusted payments to MAOs for their enrollees. Inaccurate or incomplete diagnosis data may result in improper payments made to MAOs.
  • CMS conducts the annual Part C IPM activity to estimate the improper payments for the Medicare Part C program due to unsubstantiated risk adjustment data.
  • Part C IPM reviews the medical record documentation for a statistically valid stratified random sample of Medicare Part C enrollees to ensure the diagnosis data used to determine payment to the MAO are present and in accordance with CMS rules and regulations.
• The majority of Part C improper payments fall into three categories: 

1. The MAO’s supporting documentation fails to substantiate the beneficiary diagnosis data submitted for payment.   
2. Invalid documentation, such as illegible documentation. 
3. Missing documentation.

Medicare Part D

• CMS estimates the Part D Prescription Drug Benefit improper payments using the Part D IPM methodology.
  • The Medicare Part D IPM primarily focuses on analyzing Prescription Drug Events (PDEs). Each PDE record includes details about a specific prescription transaction, such as the drug prescribed, the quantity, and the associated costs. The PDE data are not the same as individual drug claim transactions but are summary extracts using CMS-defined standard fields.
• CMS conducts the annual Part D IPM activity to identify improper payments caused by invalid and/or inaccurate drug claims. These errors could lead to adjustments in beneficiaries’ benefit phases, reinsurance subsidy payments, and CMS payments. Drug claims selected for audit are evaluated using prescription record data and supporting documentation provided by the Part D Plan Sponsors.
• The Part D IPM reviews a statistically valid stratified random sample of PDEs to ensure the supporting documentation validates payment attributes and processing was in accordance with CMS rules and regulations. 
• Part D improper payments fall into three major categories:

1. Missing or invalid documentation, such as missing authorization.
2. Drug discrepancies, such as the drug dispensed contains a different active ingredient than the drug prescribed.
3. Drug pricing discrepancies.

Medicaid & Children’s Health Insurance Program (CHIP)

• CMS estimates Medicaid and CHIP improper payments using the Payment Error Rate Measurement (PERM) program. 
  • The PERM program uses a three-year, 17-state rotation, meaning each state is reviewed once every three years, and each cycle measurement includes one-third of all states. The most recent three cycles (for 2023, that is, 2023, 2022, and 2021) are combined to form each year’s overall national rate. 
  • PERM ensures a statistically valid random sample representative of all Medicaid and CHIP payments matched with federal funds.
  • Medicaid and CHIP improper payment data released by CMS are based on reviews of whether states are implementing their Medicaid program and CHIP in accordance with federal and state payment and eligibility policies.
  • The national Medicaid and CHIP improper payment rates are based on reviews of the FFS, managed care, and eligibility components of a state’s Medicaid and CHIP program in the year under review. 
• In addition, the PERM program combines individual state component estimates to calculate the national component estimates. National component rates and the Medicaid and CHIP rates are weighted by state size, such that a state with a $10 billion program is weighted more in the national rate than a state with a $1 billion program. 
• The majority of Medicaid and CHIP improper payment findings are the result of insufficient or missing documentation.

ACA Exchange Advance Payment of the Premium Tax Credit

• CMS estimates Advance payment of the Premium Tax Credit (APTC) improper payments using the Exchange Improper Payment Measurement (EIPM) program.
  • The EIPM program currently measures improper payments for the Federally Facilitated Exchange (FFE). The improper payment measurement methodology for State-based Exchanges is under development.
  • The EIPM program measures improper payments based on a statistically valid random sample representative of all health insurance applications with APTC payments processed by the FFE. 
  • APTC improper payment estimates are based on reviews of the FFE compliance with requirements surrounding payment and eligibility determinations.
• The majority of APTC improper payments are tied to manual eligibility verifications.
• This year is the second year the EIPM program is reporting APTC improper payment information. CMS is reporting improper payment information for calendar year 2021 in the fiscal year 2023 HHS Agency Financial Report.
• The APTC program represents the first of two potential^[2] payment streams for the overall Premium Tax Credit program. The second payment stream relates to additional Premium Tax Credit amounts claimed by taxpayers at the time of their tax filings, referred to as “Net Premium Tax Credits” (hereafter, “Net PTC”). That is, total Premium Tax Credit outlays (or credits) are equal to APTC payments plus Net PTC claims. The Internal Revenue Service (IRS) measures improper payments associated with Net PTC claims, and for Calendar Year 2021 reported^[3] Net PTC claims of $1.97 billion, improper payments of $512.71 million, and an improper payment rate of 26.04%. The combined APTC and Net PTC improper payment estimate is $784.46 million out of $48.47 billion total Premium Tax Credit outlays/claims, or 1.62%. Treasury and HHS are reporting this combined error rate for the Premium Tax Credit program as a whole in both departments’ Agency Financial Reports.
  • State Medicaid Provider Screening and Enrollment Data and Tools: CMS shares Medicare data to assist states with meeting Medicaid screening and enrollment requirements. For instance, CMS shares the Medicare provider enrollment record via the Medicare Provider Enrollment, Chain, and Ownership System (PECOS) and offers a data compare service allowing states and territories to rely on Medicare’s provider screening in lieu of conducting a separate state screening, which is particularly helpful to states when conducting revalidation.
  • Enhanced Assistance on State Medicaid Provider Screening and Enrollment: CMS provides ongoing guidance, education, and outreach to states on federal requirements for Medicaid provider screening and enrollment. CMS also assesses provider screening and enrollment compliance, provides technical assistance, and offers states the opportunity to leverage Medicare screening and enrollment activities.

CMS/State Collaboration on Improper Payments:

• CMS collaborates with states in many ways to share information and help to ensure they maintain the proper documentation to demonstrate that payments are being made correctly. Examples include:
  • Medicaid Eligibility Quality Control (MEQC) Program: Under MEQC, states design and conduct pilots to evaluate the processes that determine an individual’s eligibility for Medicaid and CHIP benefits. States have flexibility in designing pilots to focus on vulnerable or error-prone areas as identified by the PERM program and state. The MEQC program also reviews eligibility determinations that are not reviewed under the PERM program, such as denials and terminations.
• Medicaid Integrity Institute (MII): CMS offers training, technical assistance, and support to state Medicaid program integrity officials through the MII. More information is located at the Medicaid Integrity Institute website.

More information on CMS’ Improper Payments Measurement Programs can be found at https://www.cms.gov/ImproperPayments.

To view the HHS Agency Financial Report, visit: www.hhs.gov/afr.

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