Costly Medicaid errors spark state efforts to improve programs

Stateline Midwest ~ May 2012


According to data released by the U.S. Centers for Medicare and Medicaid Services, 8.1 percent of Medicaid payments were considered “improper” in fiscal year 2011.


And while this error rate has caused some concern about the program that covers more than 50 million people, it’s the fiscal tally that has turned heads: $21.9 billion.

The error rate isn’t necessarily an indicator of fraud. It measures any type of improper payment, including those due to fraud — but also those involving clerical error (such as improper coding), lack of proof of medical necessity, or incomplete documentation for participants who might actually qualify.


Under the 2002 Improper Payments Information Act, CMS conducts audits in 17 states each year (in a three-year process) to measure errors in three areas: fee-for-service payments, managed care and eligibility.


Typically, the national data are released to measure overall program performance; but in response to a congressional inquiry begun in January, the agency has for the first time made the state-by-state data widely available.


Nationwide, CMS research has found the lowest error rates in the managed-care sector, while the highest were reported in eligibility determinations. In the Midwest, total error rates ranged from 2.0 percent in Minnesota to 69.9 percent in Michigan.



So why do some states have drastically higher error rates than others? For starters, experts warn that the numbers can be misleading.



“Due to the variation in states’ sizes, overall program variations, and different ways that each state’s rate impacts the national rate,” the data should not be used to compare states’ Medicaid programs, the CMS cautions.



For example, some states have simplified eligibility processes to help ensure that those in need have access to care. This can result in improper or missing documentation for applicants, which counts as an error in the CMS review. But this does not necessarily mean these individuals were ineligible.



A National Association of State Medicaid Directors statement adds that “the composite and overall error rates are a poor measure of fraud, waste and abuse and the overall integrity of [state] Medicaid programs.”



Still, CMS is requiring that states use the data to design “corrective action plans” that address problem areas and prioritize cost-effective ways to improve performance.



These plans typically focus on error prevention. Ohio, for example, submitted a plan last year aimed at educating Medicaid providers on proper paperwork coding, documents needed to prove medical necessity, and procedures for issuing prescriptions. Michigan’s 2011 plan included efforts to better monitor providers’ questions and to educate providers through direct letters and a newsletter.


But some proponents of Medicaid reform say that simply avoiding more mistakes isn’t enough. They see the error rates — and the significant costs associated with them — as evidence that the program is in need of an overhaul.