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For 2009, CMS improved how it reviews Medicare claims for inpatient hospital services and eliminated the use of past billing records as part of a complex medical review.  As a result of this heightened scrutiny and more complete accounting of Medicare FFS claims, CMS is reporting a 2009 FFS error rate of 7.8 percent, or $24.1 billion, compared to 3.6 percent in 2008.  In addition, for 2009:

• The baseline composite Medicare Advantage, or Part C, error rate, based on payment year 2007, is 15.4 percent, or $12.0 billion.
• The Medicare Part D composite error rate is under development, and three components are being reported this year: the payment system error of 0.59 percent, the low-income subsidy payment error of 0.25 percent, and payment error related to Medicaid status for dual eligible Part D enrollees 1.06 percent.
• The composite Medicaid error rate is 8.7 percent, compared to 10.5 percent for states measured in 2007.

Based on recommendations from the HHS Office of the Inspector General (OIG), Members of Congress and CMS clinical experts, the Agency modified the FFS medical review process used to identify improper payments this year.  In addition, CMS is taking further steps to ensure:

• providers are submitting all required clinical and medical documents to support a claim,
• providers’ signatures on medical documents are legible,
• a provider’s claims history can no longer be used to fill in missing treatment documentation, and
• a requirement that medical information from a health care provider be included to support durable medical equipment claims, in addition to the records from suppliers.

In addition to more complete accounting in the FFS rate, fiscal year 2009 is the baseline year for reporting the Part C composite error estimate because, by law, calendar year 2007 was the first year in which payments to MA plans were 100 percent risk-adjusted. In prior years, MA payments were a blend of risk-adjusted and demographic-only payments.

The Part C composite payment error rate combines two component error rates into a single composite measure for total Part C payments: (1) the Medicare Advantage and Prescription Drug System (MARx) payment error (MPE) rate for Part C; and (2) the Part C risk adjustment error (RAE) rate.

The Part C payment error rate primarily reflects health plan errors in documenting members’ diagnoses.  Improper payments due to incorrect calculations in the Medicare Advantage payment system are routinely resolved and payment adjustments are made.  Program experience indicates that documentation will improve over time.

CMS has also made significant strides in developing an error rate measurement program for the Part D Prescription Drug program.  For 2009, CMS is reporting three components of calendar year 2007 payment error: (1) a Part D payment system error (0.59 percent); (2) a low-income subsidy payment error (0.25 percent); and (3) payment error related to Medicaid status for dual eligible Part D enrollees (1.06 percent).

For the Payment Error Rate Measure (PERM) program, fiscal year 2008 is the second year that CMS has calculated an error rate for all components of Medicaid (fee-for-service, managed care, and eligibility).  The Medicaid composite error rate is 8.7 percent.  CMS uses a 17–state sample to calculate the national PERM error rate.  Each state is reviewed once every three years.

Improper payment rates in Medicaid include those payments that may have been paid incorrectly and, as in Medicare, do not necessarily reflect fraud.   The vast majority of Medicaid errors are due to inadequate documentation, for example, providers either not submitting information to support their FFS or managed care claims or not submitting additional data when requested.  Other errors are due to services provided under Medicaid to beneficiaries who were not eligible for Medicaid coverage or for the services received.

CMS continues to work with states to ensure that payments for treating Medicaid beneficiaries are accurate and reflect updated policies.  In addition, CMS continues to work with states to educate and inform providers about how to avoid errors in areas with high improper payment rates.

Finally, the reporting of a CHIP error rate has been temporarily suspended while CMS develops a new final rule for the PERM program, as required by the Children’s Health Insurance Program Reauthorization Act of 2009.