2011 Original Medicare Improper Payment Error Rate

The 2011 Original Medicare FFS program improper payment rate was 8.6 percent. While CMS continued to review claims according to a significantly revised and improved methodology as implemented in 2009 in consultation with the Health and Human Services Office of Inspector General (OIG), the methodology was further refined in 2011 to reflect the impact that late documentation and the results of appeals activities have on the improper payment rate. The unadjusted rate (before factoring in appeals and receipt of additional documentation) for 2011 was 9.9 percent. The adjusted error rate more accurately reflects the estimated improper payment rate for the Medicare FFS program.[1]

Error Rate and Projected Improper Payment by Claim Type:

Service Type

Nov 2011

Inpatient Hospitals






Non-inpatient hospital facilities





Original Medicare FFS 2011 Improper Payment Report Key Information:

The 2011 Medicare FFS program paid claims error rate was 8.6 percent. CMS included for the first time an estimate for activity related to the receipt of additional documentation and the outcome of appeals that routinely occur after the date of the published annual improper payment rate. To account for this activity, CMS refined the error rate methodology based on historical data for actual appeal results and the submission of late documentation received after the cutoff date for 2009 and 2010. Based on the actual impact of this activity on the 2009 and 2010 error rates, CMS developed an estimate modeled after the FY 2010 actual results. This is a more conservative approach for calculating the estimate than using a blended rate from 2009 and 2010 historical data.

For consistency and comparison purposes, CMS adjusted the 2009 and 2010 error rates. In 2009, the improper payment rate was reported as 12.4 percent[2]. The adjusted 2009 rate, taking appeals decisions and late documentation into account was 10.8 percent. In 2010, the improper payment rate was reported as 10.5 percent. The adjusted 2010 rate was 9.1 percent. When comparing the adjusted rates, the 8.6 percent error rate for 2011 represents a 0.5 percentage point reduction in the improper payment rate from 2010.

As reported in 2010, a large number of errors in 2011 occurred because claims were inappropriately billed as inpatient when they would have been payable in the outpatient setting.

Reducing the incidence of improper payments is a high priority for CMS. CMS is working on multiple fronts in order to meet our improper payment reduction goals, including increased prepayment medical review, enhanced analytics, expanded education and outreach to the provider and supplier communities, and expanded review of paid claims by the CMS Recovery Auditors. CMS will continue to assess error rate measurement procedures and will make improvements and modifications as necessary to ensure the most accurate accounting of improper payments. In addition, CMS will implement three new demonstration programs to test whether improper payments can be reduced further by:

  • Expanding the use of Medicare Recovery Auditor in the Medicare Fee for Service (FFS) program by encouraging these private companies to correct inaccurate claims before they are paid. In FY 2011, Recovery Auditors corrected $939.4 million. The Medicare program will now allow Recovery Auditors to review claims before they are paid which will subsequently reduce and eventually prevent improper payments from happening in the first place.
  • Allowing participating hospitals to rebill Medicare for inpatient claims for patients that would have been more appropriately treated in the outpatient settings. These errors account for over 20 percent of all Medicare improper payments. Allowing participating hospitals to rebill will reduce appeals so hospitals can be paid for services provided while protecting beneficiaries, and encouraging hospitals to make proper inpatient admission determinations.
  • Establishing a limited demonstration program in seven states to test whether a pre-payment review of claims followed later by a prior authorization program can reduce fraud and improper payments for power mobility devices.


Together, these efforts will result in more accurate claim payments and a reduction of waste and abuse in the Medicare FFS program. The overall goals of these efforts are to maintain the fiscal health of the Medicare Trust Funds and protect Medicare beneficiaries through the elimination of improper payments in the Medicare FFS program.


The Improper Payments Information Act (IPIA) of 2002, amended by the Improper Payments Elimination and Recovery Act (IPERA) of 2010, requires the heads of Federal agencies to annually review the programs it administers for improper payments. In compliance with the IPIA requirements for the identification and measurement of improper payments, CMS developed the Comprehensive Error Rate Testing (CERT) program to calculate the improper payment rate in the Medicare FFS program. The CERT program considers any claim that was paid when it should have been denied or that should have been paid at another amount (including both overpayments and underpayments) to be an improper payment.


To meet this objective, the CERT contractor evaluates a random sample of Medicare FFS claims to determine whether they were paid properly under Medicare coverage, coding, and billing rules. If these criteria are not met, then the claim is counted as being either a total or partial improper payment, depending on the category of error at issue. Because these claims are selected using methods to ensure a statistically valid random sample, the findings from this evaluation can be projected to the entire universe of Medicare FFS claims. Therefore, the improper payment rate calculated from this sample is considered to be reflective of all of the paid claims in the Medicare FFS program during the year under investigation.


As the IPIA requires the CERT program to use random claim selection, reviewers cannot develop provider billing patterns or trends that may indicate potential fraud. Therefore, the CERT program cannot label a claim fraudulent.


[1] In 2010, the President set an ambitious goal to avoid $50 billion in improper payments between FY 2010 and FY 2012. To calculate this amount, we consider FY 2009 to be the baseline year. We compare the improper payment rate in FY 2009 to the current improper payment rate in FY 2011, and calculate what the improper payments would have been if the FY 2011 improper payment rate had been the same as it was in FY 2009. Thus, this calculation may be different from figures that calculate the specific program error rates changes from one year to the next.

[2] The HHS 2009 Agency Financial Report (AFR) shows the Medicare FFS error rate as 7.8 percent; however this rate reflects a combination of two different review methodologies; 1) that included errors determined using the old review process (which most of the claims were reviewed) and 2) that included errors determined using the newer more stringent review process. After publication of the 2009 AFR, HHS decided to use the error rate using the newer more stringent review process as the 2009 rate.



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