Estimate of National Medicaid Improper Payments Did Not Consider Revised Individual State Error Rates

CMS’s PERM methodology for reporting a national Medicaid program  improper payment estimate is statistically sound and meets OMB  requirements. Procedures Used in National Error Rate Calculation Did Not Consider Updates to State- Level Rates

Although the CMS PERM methodology is statistically sound, CMS did not  have procedures for considering the impact of any revisions to state-level  error rates in calculating the national error rate after the cutoff date for  each of the 3 measurement years. OMB has identified as a best practice that agencies  should establish a policy for handling unscheduled corrections to data,  such as including threshold criteria identifying conditions under which  data will be corrected and redisseminated. Because the national error rate is based on 3 years of data and  corrections to the 2 years of older data after the cutoff date are not  officially recognized by CMS, the entire 3-year cycle could be affected. Deficiencies in CMS’s Guidance and Monitoring Impair Efficient and Effective Medicaid Program Improper Payments Reductions

CMS and state agencies developed CAPs that were generally responsive  to identified payment errors. Nonpayment Errors Not Addressed in All State CAPs

State CAPs did not always address errors identified during PERM reviews  that did not have a payment error amount associated with them. Therefore, it did not result in a dollar difference but  could have under other circumstances. Although these nonpayment errors did not result in improper payment  amounts, they represent internal control deficiencies that could have  prevented eligible beneficiaries from receiving Medicaid benefits or may  result in improper payments in future years if not addressed. Clear,  consistent written guidance and instructions on all required elements for  CAPs would assist the states in submitting complete CAPs, and increase  the likelihood that CMS has the information necessary for analyzing the  progress and effectiveness of state CAPs. Oversight through continuous monitoring helps ensure that actions are  taken to effectively work toward reducing improper payments. Given the importance of providing HHS management, OMB,  and the Congress with accurate information on the extent of improper  payments in federal programs, it is imperative that CMS ensure that its  reported estimates of Medicaid improper payments are reliable. Further, ensuring  that states have clear written guidance for developing corrective action  plans is key to CMS’s ability to oversee states’ corrective action  processes. Recommendations for Executive Action

In order to ensure the accuracy of reported improper payment estimates  for the Medicaid program, we recommend that the Secretary of HHS  direct the CMS Administrator to take the following action:
Update PERM Medicaid improper payment reporting procedures to  provide for considering any corrections to state-level improper  payment error data subsequent to the cutoff date that would have a  significant impact on any of the 3 years used to develop the rolling  average for the reported national Medicaid improper payment  estimate. To help ensure that corrective action strategies effectively address  identified types of improper payments and reduce Medicaid improper  payments in a cost-effective manner, we recommend that the Secretary  of HHS direct the CMS Administrator to take the following three actions:
Revise the PERM Manual to provide that states (1) analyze all  deficiencies, negative case errors, technical errors, and minimal dollar  errors identified in PERM reviews to determine if any corrective  actions, if cost effective, are needed to prevent such errors in the  future and (2) document the results of their analysis. Finalize draft policies and procedures to clarify specific CMS officials’  roles and responsibilities for monitoring states’ corrective actions to  ensure, at a minimum, that (1) the CAPs contain all of the required  elements and completely address errors identified in the PERM  reviews and (2) states are making progress on implementing  corrective actions. HHS cited a number of actions  already taken and other initiatives planned or under way related to our  recommendations. Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to determine the extent to which (1) the  Centers for Medicare & Medicaid Services’ (CMS) methodology for  estimating Medicaid improper payments follows Office of Management  and Budget (OMB) guidance and produces reasonable national and  state-level estimates and (2) corrective action plans (CAP) have been  developed to reduce Medicaid payment error rates and whether these  plans addressed the types of payment errors identified. To further determine the extent to which CMS’s methodology for  estimating Medicaid improper payments follows OMB guidance and  produces reasonable national and state-level estimates, we compared the  following components of CMS’s methodology for estimating the fiscal year  2011 payment error rate with related OMB guidance: (1) sampling  methods, including the sample size, sample selection, sample  representation, and precision of the estimates, and (2) statistical methods  used to estimate the error rates and precision. Appendix III: State Error Rates for the Department of Health and Human Services’ Fiscal Year 2011 Reporting of Medicaid Improper Payments

According to the Centers for Medicare & Medicaid Services (CMS),  states’ Medicaid improper payment error rates identified through the  Payment Error Rate Measurement (PERM) program may vary because of  multiple factors related to differences in how states implement and  administer their programs and should be considered in the context of  these differences and operational realities.
Why GAO Did This Study

Medicaid has the second-highest estimated improper payments of any federal program that reported such data for fiscal year 2011. Also, the Congress has raised questions about reporting and corrective actions related to the Medicaid program's improper payments. The objectives of this report were to determine the extent to which (1) CMS's methodology for estimating Medicaid improper payments follows OMB guidance and produces reasonable national and state-level estimates and (2) corrective action plans have been developed to reduce Medicaid payment error rates and whether these plans address the types of payment errors identified. To address these objectives, GAO analyzed CMS's policies and procedures against federal guidance and standards for estimating improper payments and developing related corrective actions to address errors. GAO also reviewed the results of all state-level reviews and conducted site visits at selected states that either received relatively large amounts of Medicaid payments or had varying rates of estimated improper payments, including states with possible best practices. GAO also met with cognizant CMS officials and contractors.

What GAO Found

The Centers for Medicare & Medicaid Services' (CMS) methodology for estimating a national improper payment rate for the Medicaid program is statistically sound. However, CMS's procedures did not provide for updating state data used in its methodology to recognize significant corrections or adjustments after the cutoff date. The Office of Management and Budget (OMB) requires that federal agencies establish a statistically valid methodology for estimating the annual amount of improper payments in programs and activities susceptible to significant improper payments. CMS developed the Payment Error Rate Measurement (PERM) program in order to comply with improper payment estimation and reporting requirements for the Medicaid program. Under the PERM methodology, CMS places states in one of three cycles, and each year one of the cycles reports new state-level data based on the previous year's samples. CMS then calculates the national Medicaid program improper payment estimate using these new data for one-third of the states and older data for the other two-thirds of the states. CMS's estimated national improper payment error rate for fiscal year 2011 for the Medicaid program was 8.1 percent, or $21.9 billion. However, CMS's procedures did not provide for considering revisions to state-level Medicaid program error rates used in the CMS methodology for calculating its national Medicaid program error rate. Because corrections to the 2 years of older data after the cutoff date are not officially recognized by CMS, the entire 3-year cycle could be affected. OMB has identified as a best practice that agencies should establish a policy for handling unscheduled corrections to data. Until CMS establishes procedures for considering changes to initially reported state-level error rates that would be significant to the national error rate, CMS is impaired in its ability to ensure that its reported estimate of the extent of national Medicaid improper payments is reliable.
CMS and state agencies developed corrective action plans (CAP) related to identified PERM payment errors. However, GAO identified the following areas where improvements were needed in CMS's written guidance to states on CAPs to ensure efficient and effective actions to reduce improper payments.
CMS's PERM Manual did not clearly identify the circumstances under which states should consider, and if cost effective include, nonpayment errors (such as certain coding errors that could have but did not result in a payment error) and minimal dollar errors in their CAPs.
The PERM Manual and the associated website did not provide complete and consistent information on the required elements to include in a state CAP.
CMS guidance did not clearly delineate CMS officials' roles and responsibilities for conducting oversight of (1) state CAP submissions to ensure that they contained all of the required elements and adequately addressed errors identified in the PERM reviews and (2) states' progress in implementing CAP corrective actions.
Although the nonpayment errors identified in PERM reviews did not result in improper payments, the underlying issues may result in improper payments in future years if not addressed. Also, complete information in state CAPs is necessary for CMS to analyze the progress and effectiveness of the CAPs. Further, clear accountability for continuous monitoring helps ensure that actions are taken to effectively reduce Medicaid improper payments.

What GAO Recommends

GAO is making four recommendations to help improve CMS's reporting of estimated Medicaid improper payments and its related corrective action process. The Department of Health and Human Services concurred with GAO's recommendations and cited a number of actions under way and planned.