Medicaid, Medicare Made $23 Billion in Improper Payments

July 7, 2008 - 8:24 PM

(CNSNews.com) - Medicaid and Medicare combined made an estimated $23.7 billion in "improper payments" last year, according to government audits.

These included $12.9 billion in improper payments by Medicaid and $10.8 billion in improper payments by Medicare.

The estimate for improper payments in Medicare included only those improper payments in the Medicare fee-for-service program. The government did not estimate the improper payments made in fiscal 2007 in the Medicare Advantage program, which spent $75.1 billion last year, or in the Medicare prescription drug program, which spent the $49.3 billion, according to the GAO.

Total federal spending for Medicaid was $190.6 billion in 2007, according to the Office Management and Budget, and $370.7 billion for Medicare.

Federal agencies are required to conduct audits to identify improper payments under the Improper Payments Information Act of 2002. Medicare began estimating improper payments in 2004. Fiscal 2007 was the first year Medicaid submitted an estimate of its improper payments.

Medicare is a federally run health insurance program for elderly people. It is partially funded by a 2.9 percent payroll tax that is paid half by the employer and half by the employee. Medicaid is a federal program providing health coverage to low-income people. It is funded by both the federal and state governments and is managed by the states following federal guidelines.

In total, federal agencies reported improper payments of $55 billion in FY 2007, an increase from $41 billion in 2006, the GAO said. Much of this increase was attributed to the fact that this was the first year in which Medicaid reported its improper payments.

The Senate Committee on Appropriations released a budget markup on Thursday that included $198 million for Health Care Fraud and Abuse activities at the Center for Medicare and Medicaid Services (CMS), the federal agency that oversees Medicare and Medicaid. There were no discretionary funds provided for this activity in fiscal 2008.

Medicaid and Medicare follow protocols to recoup payments from the provider or the states when improper payments are identified, Director of the Program Integrity Group Kimberly Brandt wrote in an e-mail to Cybercast News Service. The group is within the CMS Office of Financial Management.

A cloture vote in the Senate on Thursday failed to force a vote on a bill that would have stopped a 10.6 percent cut to Medicare's physician payment rates. The cut is scheduled to take effect tomorrow, July 1.

Developing a system for measuring improper payments by government programs is difficult, Danny Werfel, deputy controller for the Office of Management and Budget (OMB), told Cybercast News Service. It is particularly difficult for Medicaid, since the program involves partners at the federal and state levels. Medicaid only recently developed a method to chart errors.

Medicare, however, has charted its error rate since 2004, and Werfel said it has greatly reduced its improper payments, down from $20 billion in 2004.

"The Medicare program is really one of our best practiced agencies, in terms of having a dedicated effort to measure the error, report on it and drive the error down," he said.

But there is still more work to be done to further reduce the error rate, Werfel said.

For Medicare and Medicaid "virtually eliminating all errors is not feasible under the current statutory and regulatory environment," Werfel said.

For example, Werfel said, one of the key sources of error in Medicare is "medical necessity," in which auditors assess whether the procedure performed was medically necessary. If not, it is tabulated as an error.

"The challenge there is that there isn't a third party data source," Werfel said said.

Medicare and Medicaid have long had problems with improper payments, said Robert Moffit, director of the Center for Health Policy Studies at the Heritage Foundation. "It's a big, big issue," Moffit told CNSNews.com.

The best way to lower the amount of error, he said, is to abandon the system of administrative payments.

"I think the only way to solve this problem is to basically restructure the financing of Medicare, and the best way to do that is to set up a financing system that looks much more like the federal employees health benefits program," Moffit said.

Werfel said eliminating improper payments is one of the top management priorities for the Bush administration.

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