Medicaid Improper Payment Rates Don’t Signal Fraud or Abuse | Center on Budget and Policy Priorities

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CBPP wants you to think the massive fraud, waste and abuse in Medicaid compared to other health insurance programs is all just “paperwork” errors.



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The Centers for Medicare & Medicaid Services (CMS) has released its 2020 Estimated Payment Error Rate Measurement (PERM) rate — which measures “improper” payments in Medicaid and the Children’s Health Insurance Program (CHIP) — but policymakers shouldn’t use it to justify imposing additional, burdensome verification and paperwork requirements or to distract from the larger problem of eligible people losing coverage and access to care. That’s because, despite how some program critics have represented them, these rates measure state procedural mistakes; they don’t necessarily mean a beneficiary did anything wrong or was ineligible for Medicaid.

The data that CMS released are based on audits of whether states are implementing their Medicaid and CHIP programs in accordance with federal and state policies. The PERM program estimates payment error rates in three areas: fee-for-service payments, managed care payments, and eligibility.

The overall PERM rate this year was 21.36 percent. While it’s higher than last year’s 14.9 percent, that’s mostly because CMS measured eligibility payment errors for more states, not because errors increased.

Neither the increase in, nor the level of, the PERM rate means that large numbers of ineligible people are getting coverage through Medicaid.

A finding of an improper payment doesn’t mean the payment was made to an ineligible person or for a service that shouldn’t have been provided. While PERM audits may find some incorrect eligibility determinations, most eligibility errors reflect paperwork problems or other procedural mistakes that can easily occur when eligible people enroll. In fact, the CMS report notes, “Medicaid and CHIP eligibility improper payments are mostly due to insufficient documentation to affirmatively verify eligibility or non-compliance with eligibility redetermination requirements,” rather than a finding of ineligibility. Many Medicaid errors also occur when states enroll providers — or providers bill for services — without following all relevant federal and state procedures.

For example, all of the following procedural mistakes would count toward the error rate, even though they wouldn’t result in ineligible people getting coverage:

  • Incorrect coding. A state inadvertently assigns the parent eligibility code to an eligible child. This is a clerical error but would count as an improper payment.
  • Incorrect federal match. A state claims the enhanced federal match rate available only for those enrolled through the Affordable Care Act (ACA) Medicaid expansion for a parent who would have been eligible for Medicaid even before expansion.
  • Insufficient documentation in a beneficiary’s case file. When conducting eligibility determinations, states can use electronic sources to verify the information on a Medicaid or CHIP application. An improper payment would occur if an eligibility worker fails to document the verification sources they used when they processed an application or the eligibility system fails to retain a proper record of the verification. According to CMS, state failure to document verification sources is one of the biggest drivers of an increase in improper payment rates.
  • Incorrect assignment to managed care. States are expanding the use of managed care in their programs by enrolling groups of people who previously received benefits through the state’s fee-for-service program, such as people with disabilities. A state incorrectly enrolling a beneficiary in managed care when they should’ve remained in fee-for-service — a mistake likely to occur when a state is transitioning thousands of beneficiaries to managed care — would count as an improper payment.
  • Incorrect health insurance program assignment. A state incorrectly determines a beneficiary eligible for CHIP when they should have been determined eligible for Medicaid. CMS cited this as a driving factor behind an increase in the CHIP improper payment rate.

States can also be found in error when their actions are based on a misunderstanding of policy, or even when CMS changes its interpretation of federal policy. That happened last year in Idaho. Based on past CMS guidance, Idaho automatically renewed beneficiaries who had previously attested that they had no income and for whom electronic data sources also show no income. But during last year’s PERM audit, CMS informed Idaho that its process didn’t comply with federal requirements and that all such renewals would count toward its PERM rate.

Idaho’s experience also illustrates the harm when states are pushed to impose new and burdensome verification requirements. Because of CMS’ feedback, Idaho has changed its verification process, requiring additional documentation from beneficiaries before renewing their coverage. These changes have caused beneficiaries, including eligible children with complex health care needs, to lose coverage and forgo needed medical care while trying to re-enroll in Medicaid.

Before COVID-19, Medicaid enrollment had been declining, and uninsurance had risen for both children and adults — trends the Trump Administration helped drive with its push to increase verification and paperwork requirements. Instead of maintaining this harmful approach, the Biden Administration should recognize that program integrity also requires making sure that eligible people can get and stay covered and should work with states to streamline eligibility and enrollment processes while maintaining accuracy.