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SECTION III: OTHER INFORMATION (Section 11)

Topics In This SectionOther Financial Information | Improper Payments Information Act Report (Section 1-10 | 11 | 12-15) | Summary of Financial Statement Audit | Summary of Management Assurances | FY 2015 Top Management and Performance Challenges Identified by the Office of Inspector General (OIG)

11.0 Program-Specific Reporting Information

11.10 Medicare Fee-for-Service or FFS

11.11 Medicare FFS Statistical Sampling Process

Medicare FFS uses the Comprehensive Error Rate Testing (CERT) program to calculate the improper payment estimate.  The CERT program considers any claim paid when it should have been denied or was paid in the wrong amount (including both overpayments and underpayments) to be an improper payment.  To meet this objective, a stratified random sample of Medicare FFS claims is reviewed to determine if claims were paid properly under Medicare coverage, coding, and billing rules.  If these criteria are not met, the claim is counted as either a total or partial improper payment, depending on the error category.  Approximately 49,600 claims were sampled during the FY 2015 report period.  The CERT program ensures a statistically valid random sample; therefore, the improper payment rate calculated from this sample reflects all claims processed by the Medicare FFS program during the report period.  Additional information on the Medicare FFS improper payment methodology can be found on pages 166 – 167 of HHS’s FY 2012 AFR.

The Medicare FFS gross improper payment estimate for FY 2015 is 12.09 percent or $43.33 billion.  The FY 2015 net improper payment estimate is 11.39 percent or $40.81 billion.  The factors contributing to improper payments are complex and vary from year to year.

The primary causes of improper payments are insufficient documentation and medical necessity errors.  Insufficient documentation was particularly prevalent for home health claims.  The improper payment rate for home health claims increased from 51.38 percent in FY 2014 to 58.95 percent in FY 2015 due to the documentation requirements to support the medical necessity of the services.

Insufficient documentation was also common for Skilled Nursing Facility (SNF) claims.  The improper payment rate for SNF claims increased from 6.94 percent in FY 2014 to 11.04 percent in FY 2015.

11.12 Medicare FFS Corrective Action Plan

The primary cause of improper payments is lack of documentation to support the services or supplies billed to Medicare, or Insufficient Documentation to Determine errors (68.6 percent).  The other causes of improper payments are classified as Medical Necessity errors (17.3 percent) and Administrative or Process Errors Made by Other Party (14.1 percent), due to incorrect coding errors.  HHS is committed to reducing improper payments in the Medicare FFS program.  HHS uses data from the CERT program and other sources to reduce or eliminate improper payments through various corrective actions.  Each year, HHS outlines actions the agency will implement to prevent and reduce improper payments for all error categories.  While some corrective actions have been implemented, others are in the early stages of implementation.  HHS believes these focused corrective actions will have a larger impact over time as they become integrated into business operations.

Of particular importance are five corrective actions that HHS believes will have a considerable effect in preventing and reducing improper payments.

  • First, HHS continues to implement corrective actions to address program payment vulnerabilities related to home health services.
  • HHS issued a final rule, CMS-1611-F (79 FR 66031, November 6, 2014) to update Medicare's Home Health Prospective Payment System payment rates and wage index for calendar year 2015.  In this rule, HHS finalized changes to the face-to-face requirements for episodes beginning on or after January 1, 2015.  HHS believes clarifying the face-to-face requirements will lead to a decrease in these errors and improve provider compliance with regulatory requirements, while continuing to strengthen the integrity of the Medicare programs.  Specifically, HHS amended the HHA regulation to remove the requirement for the physician narrative as part of the certification of patient eligibility for the benefit, which was required to certify that the home health patient eligibility criteria have been met.  Now reviewers can consider all entries in the medical record as supporting documentation when determining medical necessity.
  • HHS created voluntary draft paper and electronic clinical templates for ordering physicians and ordering hospitals to serve as progress notes and discharge summaries.  These templates are currently in the clearance process.  The templates will help physicians and hospital staff capture the information needed to complete the face-to-face encounter documentation and will become part of the medical record upon completion.
  • On October 1, 2015, HHS’s Medicare Administrative Contractors (MACs) began pre-payment reviews of home health claims for episodes beginning on or after August 1, 2015, using a Probe and Educate strategy designed to help HHAs understand the new patient certification requirements.
  • Second, HHS proposed an update to the “Two Midnight” rule CMS-1633-P (70 FR Volume 80, Number 130, July 8, 2015) regarding when hospital admissions are appropriate for payment under Medicare Part A.  At the same time, HHS notified the public of the following two upcoming changes in education and enforcement strategies.
    • Beginning on October 1, 2015, the Quality Improvement Organizations (QIOs) assumed responsibility to conduct initial patient status review of providers to determine the appropriateness of Part A payment for short stay inpatient hospital claims.  From October 1, 2015 through December 31, 2015, short stay inpatient hospital reviews conducted by the QIOs will be based on Medicare’s current payment policies.
    • Beginning on January 1, 2016, QIOs and Recovery Audit Contractors (RACs) will conduct patient status reviews in accordance with policy changes finalized in the Hospital Outpatient Prospective Payment System rule (CMS-1613-P) and effective in calendar year 2016.  Effective January 1, 2016, RACs may conduct patient status reviews only for those providers that have been referred by the QIO as exhibiting persistent noncompliance with Medicare payment policies.
  • Third, HHS issued a proposed rule that would build on a successful demonstration program to establish a Master List of Durable Medical Equipment, Prosthetic, Orthotics and Supplies (DMEPOS) items that are frequently subject to unnecessary utilization and potentially could be subject to prior authorization, as well as a Required Prior Authorization List of certain DMEPOS items that would be subject to a prior authorization process. 
  • Fourth, HHS expanded the use of prior authorization in the Medicare FFS program.
    • On September 1, 2012, HHS instituted a prior authorization demonstration program in seven states with the expectation of reducing improper payments for power mobility devices (PMDs).  This demonstration project led to a decrease in the expenditures for PMDs in both the demonstration and non-demonstration states.  Specifically, based on claims submitted as of August 14, 2015, monthly expenditures for the PMD codes included in the demonstration project decreased from $10 million in September 2012 to $3 million in June 2015 in the non-demonstration states and from $22 million to $5 million in the demonstration states.  Prior authorization reviews are being performed timely and feedback from the industry and beneficiaries has been largely positive.  HHS leveraged this success by expanding the demonstration to an additional 12 states (Arizona, Georgia, Indiana, Kentucky, Louisiana, Maryland, Missouri, New Jersey, Ohio, Pennsylvania, Tennessee, and Washington) effective October 1, 2014, bringing the total number of states participating in the demonstration to 19.  HHS also extended the demonstration to August 31, 2018 in FY 2015.
  • Fifth, in FY 2015 HHS implemented two demonstration projects to test whether prior authorization in Medicare FFS reduces expenditures while maintaining or improving quality of care for certain non-emergent services.  These projects will also ensure services are provided in compliance with applicable Medicare coverage, coding, and payment rules before rendering services and paying claims.
  • In December 2014, HHS implemented a prior authorization demonstration program for repetitive, scheduled non-emergent ambulance transport occurring on or after December 15, 2014 in New Jersey, Pennsylvania, and South Carolina.  Section 515 of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) expands the prior authorization model for repetitive scheduled non-emergent ambulance transports effective no later than January 1, 2016 to five additional states (North Carolina, Virginia, West Virginia, Maryland, and Delaware) and the District of Columbia.
  • HHS implemented a prior authorization demonstration program for non-emergent hyperbaric oxygen therapy in Michigan, Illinois, and New Jersey.  Providers in Michigan could begin submitting prior authorization requests on March 1, 2015, and providers in Illinois and New Jersey could begin submitting prior authorization requests on July 14, 2015.

In addition to these five major efforts and the ongoing corrective actions reported on pages 165 - 167 of HHS’s FY 2013 AFR, HHS has implemented additional efforts in specific areas to reduce improper payments in the Medicare FFS program as outlined below.

Corrective Actions to Address Root Causes:
Root Cause: Administrative or Process Errors Made by Other Party

  • Due to the volume of claims processed by Medicare each day and the significant cost associated with conducting medical review of an individual claim, HHS relies on automated edits to identify many inappropriate claims.  HHS designed its systems to detect anomalies on the face of the claims, and through these efforts, HHS correctly pays submitted claims nearly 100 percent of the time.  For example, HHS uses the National Correct Coding Initiative (NCCI) to stop claims that never should be paid.  This program prevents payments for services such as a hysterectomy for a man or a prostate exam for a woman.  The use of the NCCI edits saved the Medicare program $681.9 million in FY 2014.
  • The Affordable Care Act required HHS to revalidate all existing Medicare providers and suppliers.  All Medicare providers and suppliers already enrolled prior to the new screening requirements becoming effective were sent revalidation notices by March 23, 2015.  HHS has requested the revalidation of all 1.6 million existing Medicare providers to ensure that only qualified and legitimate providers and suppliers can deliver health care items and services to Medicare beneficiaries.  These revalidation efforts alone resulted in the deactivation of more than 307,388 provider and supplier practice locations as well as the revocation of 17,655 providers’ and suppliers’ billing privileges.
  • HHS continues to build the Healthcare Fraud Prevention Partnership (HFPP), a public-private partnership to improve detection and prevention of health care fraud, waste, and abuse.  Public and private partners, including federal and state partners, private payers, associations, and law enforcement exchange data and anti-fraud practices within the HFPP, helping to prevent and detect fraud across sectors. 
  • HHS and its contractors develop medical review strategies using the improper payment data to ensure the areas of highest risk and exposure are targeted.  HHS requires its Medicare review contractors to focus on identifying and preventing improper payments due to documentation errors in certain error prone claim types, such as home health, hospital outpatient, and skilled nursing facility (SNF) claims. 

Root Cause: Medical Necessity and Insufficient Documentation to Determine 

  • HHS contracted with a Supplemental Medical Review/Specialty Contractor (SMRC) to perform medical reviews focused on vulnerabilities identified by HHS internal data analysis, the CERT program, professional organizations, and federal oversight agencies.  The contractor evaluates medical records and related documents to determine whether claims were billed in compliance with Medicare coverage, coding, payment, and billing rules.  In FY 2015 the SMRC performed post payment reviews on certain durable medical equipment items, such as continuous positive airway pressure devices, portable oxygen concentrators, and nebulizer medications and equipment.  The SMRC also reviewed high cost diagnostic imaging and blepharoplasty procedures.  The results of these reviews are used to improve billing accuracy.
  • HHS continues to allow review contractors to review more claim types than in previous years, while closely monitoring the decisions made by these contractors.  In February 2014, HHS announced a number of changes to the Medicare FFS RAC program that will take effect with the new contract awards as a result of stakeholder feedback.  HHS believes that these improvements will result in a more effective and efficient program, including improved accuracy, less provider burden, and more program transparency.  For further information on these changes, refer to CMS's website.
  • HHS issues Comparative Billing Reports (CBRs) to help non-hospital providers analyze their coding and billing practices for specific procedures or services.  CBRs are proactive statements that enable providers to examine their billing patterns compared to their peers in the state and across the nation. 
  • HHS published CMS-6010-F, “Medicare and Medicaid Programs:  Changes in Provider and Supplier Enrollment, Ordering and Referring, and Documentation Requirements and Changes in Provider Agreements” (77 FR 25283), on April 27, 2012.  Effective January 6, 2014, this rule requires physicians and other professionals who order and certify certain covered items and services for Medicare beneficiaries, including the following: home health, clinical laboratory, imaging and DMEPOS, to be a Medicare participating provider.  Finally, it establishes document retention and access to documentation requirements for providers and suppliers that order and certify certain items and services for Medicare beneficiaries. 

11.13 Medicare FFS Improper Payment Recovery

The actual overpayments identified by the CERT program during the FY 2015 report period were $39,710,413.13.  The identified overpayments are recovered by the MACs via standard payment recovery methods.  As of the report publication date, MACs reported collecting $30,684,727.80 or 77.27 percent of the actual overpayment dollars identified in the report.

11.14 Medicare FFS Information Systems and Other Infrastructure

HHS has the information systems and other infrastructure it needs to reduce improper Medicare FFS payments to the targeted levels.  HHS’s systems have the ability to identify developing and continuing aberrant billing patterns based upon a comparison of local payment rates with national rates.  The systems at both the Medicare contractor level and the HHS level are tied together by a high-speed secure network that allows rapid transmission of large data sets between systems.  In addition, HHS continuously reviews opportunities for centralizing the development and implementation of automated edits based on national coverage determinations, medically unlikely units billed, and other relevant parameters to prevent improper payments on a prepayment basis.  No other systems or infrastructure are needed at this time.

11.15 Medicare FFS Statutory or Regulatory Barriers That Could Limit Corrective Actions

Current law limits HHS’s authority to conduct prior authorization on services that account for a large portion of the overall Medicare FFS improper payments.  Section 1834(a)(15) of the Social Security Act authorizes the Secretary to develop and periodically update a list of DMEPOS determined, on the basis of prior payment experience, to be subject to unnecessary utilization and to develop a prior authorization process for these items.  However, current law does not allow for prior authorization of any other claim types or services.  As a result, the FY 2016 President’s Budget proposed amending Section 1893 of the Social Security Act to give the Secretary the discretion to select items or services for prior authorization without rulemaking where the items or services involve high cost, high utilization, patient risk, and/or high improper payment rates.

11.16 Medicare FFS Best Practices

HHS has incorporated the following best practices to ensure the highest degree of efficiency:

  • HHS made significant progress in driving innovation and improvement in reducing fraud and improper payments by holding collaborative sessions with multi-disciplinary teams to develop consistent approaches for investigation and action at the Program Integrity Command Center.
  • HHS works with state Medicaid data in the Medicare-Medicaid Data Match program (Medi-Medi program).  HHS designed the program to collaborate with participating state Medicaid agencies on billing trends across the Medicare and Medicaid programs.  HHS analyzes matched data to identify potential fraud, waste, and abuse patterns.  Analysis performed in the Medi-Medi program can reveal trends that are not evident in each program’s claims data alone, making the program an important tool in identifying and preventing fraud and improper payments. 
  • HHS conducts re-reviews of certain claims that have been medically reviewed by the MACs to ensure accurate decisions are made and that Medicare policies are applied consistently across the program. 
  • CERT contractors collaborate with other review contractor entities, such as the MACs and Medicare FFS RACs, to clarify unclear policies, in an effort to ensure review consistency.
  • HHS provides interim improper payment rate data to the MACs to help them focus on problematic areas and identify emerging vulnerabilities.

In addition, HHS continues to improve the Medicare FFS improper payment rate measurement program to ensure that providers and suppliers submit the required documentation.  Such improvements include:

  • HHS coordinates provider outreach and education task forces.  These task forces consist of Medicare Administrative Contractors (MAC) medical review professionals who meet regularly to develop provider education strategies and materials addressing areas prone to improper payments.  The task forces hold open door forums to discuss documentation requirements and answer provider and supplier questions, and distribute informational articles as needed to improve documentation and to educate providers on Medicare policies.  The articles are maintained online on the Medicare Learning Network (MLN) and can be accessed by the public at the MLN website .
  • HHS conducts ongoing education to inform providers and suppliers about the importance of submitting thorough and complete documentation.  This education involves national training sessions, individual meetings with providers or suppliers with high improper payment rates, presentations at industry association meetings, and the dissemination of educational materials. 
  • HHS revises medical record request letters, as needed, to clarify the components of the medical record required for CERT review.  The letter serves as a checklist for the provider or supplier to ensure their record submission is complete.  Follow-up medical record request letters have also been developed to explain what missing documentation needs to be submitted.
  • When a supplier is contacted for documentation, the CERT program notifies the ordering provider that they may be contacted by the supplier in order to provide supporting documentation.  In addition to this notification, the CERT program contacts third party providers to request documentation when the billing provider indicates that a portion of the medical record is possessed by a third party.  For example, a third party provider may be a hospital that possesses the record for professional services provided by a billing physician while the beneficiary was hospitalized. 

11.20 Medicare Advantage or Part C

11.21 Part C Medicare Advantage Statistical Sampling Process

The FY 2015 Medicare Part C gross improper payment estimate is 9.50 percent or $14.12 billion.  The FY 2015 net improper payment estimate is 4.32 percent or $6.41 billion.  The increase from the prior year’s reported error estimate was due to a reduction in the magnitude of risk adjusted diagnoses that were not submitted by Medicare Advantage (MA) Organizations for payment.

The Part C methodology estimates errors resulting from incorrect beneficiary risk scores.  The primary component of a beneficiary’s risk score is based on clinical diagnoses submitted by plans.  If the diagnoses submitted to HHS are not supported by medical records, the risk scores will be inaccurate and result in payment errors.  The Part C estimate is based on medical record reviews conducted under HHS’s annual Risk Adjustment Data Validation (RADV) process, where unsupported diagnoses are identified and corrected risk scores are calculated.

The FY 2015 methodology consists of the following steps:

  • Selection of a stratified random sample of beneficiaries for whom a risk adjusted payment was made in calendar year 2013, where the strata are high, medium, and low risk scores,
  • Medical record review of the diagnoses submitted by plans for the sampled beneficiaries,
  • Calculation of beneficiary-level payment error for the sample, and
  • Extrapolation of the sample payment error to the population subject to risk adjustment, resulting in a Part C gross payment error amount.

11.22 Medicare Advantage Corrective Action Plans

The root causes of FY 2015 Medicare Part C improper payments resulted from errors due to Insufficient Documentation to Determine (72.7 percent) and Administrative or Process Errors Made by Other Party (the Medicare Advantage (MA) organizations) (27.3 percent).

Corrective Actions to Address Root Causes:
Root Causes: Insufficient Documentation to Determine and Administrative or Process Errors Made by Other Party

HHS has implemented two key corrective actions to address the Part C improper payment rate: contract-level audits and new regulatory provisions.

  • Contract-Level Audits:  HHS is proceeding with the RADV contract-level audits to recover overpayments.  RADV verifies, through medical record review, the accuracy of enrollee diagnoses submitted by MA organizations for risk adjusted payment.  RADV audits are HHS’s primary corrective action to recoup improper payments.  HHS expects that payment recovery will have a sentinel effect on the quality of risk adjustment data submitted by plans for payment.  RADV audits of payment year 2011, which began in FY 2014, will be the first HHS reviews to recoup funds based on extrapolated estimates.  In addition, payment year 2012 audits were initiated in FY 2015, and plans have been selected for audit. 

New Regulatory Provisions:  In CMS-4159-F, “Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Program” (79 FR 100), HHS codified the Affordable Care Act requirement that MA organizations must report and return overpayments that they identify.  In CMS-1613-F, “The Calendar Year 2015 OPPS/ASC Rule” (79 FR 66769), HHS also established a payment recovery and appeal mechanism to be applied when HHS identifies erroneous payment data submitted by an MA organization.

11.23 Medicare Advantage Program Improper Payment Recovery

The Part C error estimate is based on a national sample of beneficiaries across all MA plans.  Since this type of sample design does not allow for collection at the MA plan level, no payment recovery had been initiated until FY 2012, when HHS recovered approximately $3.4 million for the first five plans involved in the 2007 RADV audits.  Payment recovery for the pilot audits has been completed and totaled $13.7 million ($5.4 million was recovered in FY 2014, $5.0 million in FY 2013, and $3.4 million in FY 2012).  Once the appeals process is complete, adjustments to the overpayment recoveries will be made.  In addition, in FY 2015, MA organizations have reported and returned approximately $650 million in overpayments, which appears to be the result of the sentinel effect of the RADV audits, as well as the ‘report and repay’ requirement, outlined above.

11.24 Medicare Advantage Information Systems and Other Infrastructure

HHS has the information systems and other infrastructure needed to reduce improper Medicare Part C payments.  HHS uses the following internal Medicare systems to make and validate the Medicare Part C payments:  the Medicare Beneficiary Database, the Risk Adjustment System, the Health Plan Management System, and the Medicare Advantage Prescription Drug (MARx) payment system.  No other systems or infrastructure are needed at this time.

11.25 Medicare Advantage Statutory or Regulatory Barriers that could limit Corrective Actions

No statutory or regulatory barriers that could limit corrective actions have been identified at this time.

11.26 Medicare Advantage Program Best Practices

HHS has taken several steps to ensure payment accuracy in the Part C program, including the corrective actions that were outlined earlier in Section 11.22

11.30 Medicare Prescription Drug Benefit or Part D

11.31 Medicare Prescription Drug Statistical Sampling Process

The Medicare Part D gross improper payment estimate for FY 2015 is 3.60 percent or $2.23 billion.  The FY 2015 net improper payment estimate is 2.29 percent or $1.42 billion.  The primary factor that drove the program’s increase from the prior year’s reported error estimate was an increase in the prescription drug event data validation component of the error rate.

The FY 2015 Part D Composite Payment Error Rate combines four component payment error measures:

  • Payment Error Related to Low Income Subsidy Status (PELS),
  • Payment Error Related to Medicaid Status (PEMS),
  • Payment Error Related to Prescription Drug Event Data Validation (PEPV), and
  • Payment Error Related to Direct and Indirect Remuneration (PEDIR). 

Combining these four component measures poses complex technical and statistical challenges in calculating a confidence interval for the composite rate.  As a result, HHS calculated the precision level for each component independently, and each component meets OMB precision requirements.

The FY 2015 national Part D improper payment rate for each component is:

  • PELS: 0.09 percent
  • PEMS: 0.22 percent
  • PEPV: 3.21 percent
  • PEDIR: 0.09 percent

The methodology for calculating the PELS, PEMS, PEPV, and PEDIR rates was not altered from previous years.  A description of the methodology is on pages 173 - 175 of HHS’s FY 2012 AFR.

11.32 Medicare Prescription Drug Corrective Action Plan

The root causes of the FY 2015 Part D improper payments are Insufficient Documentation to Determine (81.7 percent) and Administrative or Process Error made by Other Parties (18.3 percent).

Corrective Actions to Address Root Causes:
Root Causes: Insufficient Documentation to Determine and Administrative or Process Errors Made by Other Party

HHS conducted the following corrective actions to address errors:

  • Training: HHS will continue its national training sessions for Part D sponsors on Part D payment and data submission. 
  • Outreach: Formal outreach to plan sponsors will continue for invalid/incomplete documentation.
    • HHS distributed Plan Sponsor Summary Reports to all plans participating in the PEPV component of the national payment error estimate.  This report provided feedback on their submission and validation results against an aggregate of all other participating plan sponsors.
    • HHS distributed notices of non-compliance to plan sponsors who failed to provide documentation for the PEPV component of the national payment error estimate.
    • In December 2014, HHS conducted a listening session with several stakeholders from the Long Term Care and Long Term Care Pharmacy industry to get feedback on how to resolve a trend of missing or invalid signatures on Long Term Care medication orders selected for the PEPV audit.
  • New Regulatory Provisions:  HHS codified the Affordable Care Act requirement that Part D sponsors must report and return overpayments that they identify.  HHS also established a payment recovery and appeal mechanism to be applied when HHS identifies erroneous payment data submitted by a Part D sponsor (See Section 11.22 for more information on the rules).

11.33 Medicare Prescription Drug Benefit Improper Payment Recovery

HHS conducted the following improper payment recovery activities in FY 2015 for each error rate component: 

  • PELS Component:  Further investigation must be done to better determine how to conduct payment recovery.
  • PEMS Component:  Application of the national Medicaid active case eligibility error rate to Part D payments does not allow HHS to identify which dual eligible beneficiaries actually had incorrect Medicaid status.  Thus, it is not possible to identify beneficiary-level payments that HHS could recover.
  • PEPV Component:  The FY 2015 Prescription Drug Event (PDE) validation is based on a national sample of PDEs and the imputation of these results onto the Part D population; therefore, payment errors cannot be linked to specific beneficiaries for payment recovery purposes.
  • PEDIR Component:  The data used to develop the FY 2015 error rate were based on 2013 audits.  Plans submit updates to their reported direct and indirect remuneration amounts throughout the year.  HHS will, therefore, address payment recovery through the 2013 Part D reconciliation.
  • In addition, in FY 2015, approximately $11.6 million in overpayments have been reported and returned.  This recovery of Part D risk adjustment related overpayments appears to be the result of the ‘report and repay’ requirement described in the prior section.

11.34 Medicare Prescription Drug Benefit Information Systems and Other Infrastructure

HHS has the information systems and other infrastructure needed to reduce improper Medicare Part D payments.  HHS uses the following internal Medicare systems to make and validate the Part D payments: the Medicare Beneficiary Database, the Risk Adjustment System, the Health Plan Management System, the MARx payment system, and the Integrated Data Repository.  No other systems or infrastructure are needed at this time.

11.35 Medicare Prescription Drug Benefit Statutory or Regulatory Barriers that could limit Corrective Actions

No statutory or regulatory barriers that could limit corrective actions have been identified at this time.

11.36 Medicare Prescription Drug Benefit Program Best Practices

In addition to the corrective actions outlined in Section 11.32, HHS has taken steps to ensure payment accuracy in the Medicare Part D program, including: (1) contacting plans before and during the PEPV data collection and validation process, which provides an open forum for improving instructions for data submission, and (2) extending the data collection period, which increased response rates.

11.40 Medicaid

11.41 Medicaid Statistical Sampling Process

The national FY 2015 Medicaid improper payment rate is based on measurements conducted in FYs 2013, 2014, and 2015.  Medicaid improper payments are estimated on a federal fiscal year (FY) basis and measure three component error rates: FFS, managed care, and eligibility.  HHS, through its use of federal contractors, measures the FFS and managed care components.  The eligibility component measurement is currently on hold as described in the eligibility component section that follows.

The Payment Error Rate Measurement (PERM) program uses a 17 state three-year rotation for measuring Medicaid improper payments.  To see how HHS grouped states into three cycles, refer to pages 177 - 179 of HHS’s FY 2012 AFR.

FFS and Managed Care Component

States submit quarterly adjudicated claims data from which a randomly selected sample of FFS claims and managed care payments are drawn each quarter.  Each selected FFS claim is subjected to a medical and data processing review.  Managed care payments are subject only to a data processing review.  The FFS sample size was between 292 and 966 claims per state and the managed care sample size was between 230 and 280 payments per state.  The sample sizes were based on each state’s historical FFS and managed care improper payment rate data.  When a state’s FFS component or managed care component accounted for less than two percent of the state’s total Medicaid expenditures, the state’s FFS and managed care claims were combined into one component for sampling and measurement purposes.  This consolidation occurred in six states.

Eligibility Component

In light of changes to the way states adjudicate eligibility for Medicaid and CHIP under the Affordable Care Act, HHS will update the eligibility component measurement methodology and related PERM program regulation to reflect these changes.  In August 2013 and October 2015, HHS released guidance announcing temporary changes to PERM eligibility reviews.  For FYs 2015 through 2018, HHS will not conduct the eligibility measurement component of PERM.  During this time period, the national Medicaid eligibility improper payment rate will be held constant at the FY 2014 reported rate of 3.11 percent.

In place of the FYs 2015 through 2018 PERM eligibility reviews, all states are required to conduct eligibility review pilots.  The eligibility review pilots provide more targeted, detailed information on the accuracy of eligibility determinations.  The pilots use targeted measurements to:  provide state-by-state programmatic assessments of the performance of new processes and systems in adjudicating eligibility, identify strengths and weaknesses in operations and systems leading to errors, and test the effectiveness of corrections and improvements in reducing or eliminating those errors.

Calculations and Findings

The national Medicaid program improper payment rate represents the combination of each state’s Medicaid FFS, managed care, and eligibility improper payment rates.  In addition, individual state improper payment rate components are combined to calculate the national improper payment rates for each component.  National component improper payment rates and the Medicaid program improper payment rate are weighted by state size, so that a state with a $10 billion program “counts” 10 times more toward the national rate than a state with a $1 billion program.  A small correction factor ensures that Medicaid eligibility improper payments do not get “double counted.”  Additionally, HHS incorporates state-level error rate recalculations for the states measured in FY 2013 and FY 2014 into the national Medicaid improper payment rate.  Eight state-level FFS error rates were recalculated subsequent to FY 2014 reporting and are incorporated into FY 2015 improper payment rate reporting.

The national Medicaid gross improper payment estimate for FY 2015 is 9.78 percent or $29.12 billion.  The FY 2015 net improper payment estimate is 9.45 percent or $28.13 billion.  This rate increased from prior years due to an increase in the FFS component, as discussed in Section 11.42.

The FY 2015 national Medicaid improper payment rate for each component is:

  • Medicaid FFS: 10.59 percent
  • Medicaid managed care: 0.12 percent

The Medicaid eligibility component improper payment rate is held constant at the FY 2014 reported rate of 3.11 percent.

Eligibility Pilot Review Findings

The eligibility review pilots identified vulnerabilities in processes and systems that states took action to address, which is essential to preventing future improper payments.  The most common issues identified through the eligibility review pilots were instances where caseworkers or systems did not properly establish household composition or income level, although these issues did not necessarily lead to eligibility determination errors.  The pilots also provided states with essential feedback on their processes as states identified issues with improper requests for additional information from applicants, failure to send appropriate notices for denied cases, and failure to appropriately transfer denied cases to marketplaces.  States are implementing corrective action strategies such as caseworker training and systems fixes as the pilots continue.  More information on the pilots can be found on CMS's website.

11.42 Medicaid Corrective Action Plans

States reviewed for the FY 2015 AFR measurement were the same states reviewed in FY 2012.

The improper payment rate for these states increased from 5.79 percent in FY 2012 to 14.25 percent in FY 2015, causing an increase in the FY 2015 national Medicaid error rate.  The FFS component reported the greatest increase, rising from 3.34 percent to 18.63 percent.  However, the managed care component dropped from 0.26 percent to 0.08 percent.

Similar to FY 2014, the primary reason for the FY 2015 improper payments was errors related to state difficulties bringing systems into compliance with new requirements for:  (1) all referring or ordering providers to be enrolled in Medicaid, (2) states to screen providers under a risk-based screening process prior to enrollment, and (3) the inclusion of the attending provider National Provider Identifier (NPI) on all electronically filed institutional claims.  While these requirements will ultimately strengthen Medicaid’s integrity, it is not unusual to see increases in improper payment rates following the implementation of new requirements because it takes time for states to make systems changes required for compliance.

HHS works closely with all states to develop state-specific CAPs.  All states are responsible for implementing, monitoring, and evaluating the effectiveness of their CAPs, with assistance and oversight from HHS.  HHS received CAPs from all states with Medicaid programs that were previously measured, and all states measured in FY 2015 are developing CAPs for submission to HHS.  When developing the CAPs, states focus their efforts on the major causes of improper payments where the state can clearly identify patterns.  In addition, states also take steps to reduce errors identified during the measurement.  HHS is actively engaging with states to proactively address these root causes by conducting outreach during off-cycle PERM time frames to address issues identified in CAPs, facilitating national best practice calls to share ideas across states, offering ongoing technical assistance, and providing additional guidance as needed.

Corrective Actions to Address Root Causes: 
Root Causes:

  • Administrative or Process Errors Made by State or Local Agency

Administrative or Process Errors Made by State or Local Agency mainly consist of errors caused by state difficulties bringing systems into compliance with new requirements as described above.  Since the Medicaid improper payment rate was primarily driven by these errors, state CAPs will focus on systems changes to reduce these errors.  Methods will include implementing new claims processing edits, converting to a more sophisticated claims processing system, and implementing a new provider enrollment process to make it easier for referring providers to enroll in the program.

  • Administrative or Process Errors Made by Other Party

Administrative or Process Errors Made by Other Party mainly consist of provider billing and coding errors.  State CAPs also include provider education, training, communication, and outreach efforts to help reduce these errors.

  • Insufficient Documentation to Determine

Because insufficient documentation is another contributor to the Medicaid FFS improper payment rate, state CAPs have also focused on provider communication and education to reduce errors related to this category.  These methods included holding provider training sessions and meetings with provider associations; issuing provider notices, bulletins, newsletters, alerts, and surveys; implementing improvements and clarifications to written state policies emphasizing documentation requirements; and performing more provider audits to identify areas of vulnerability and target solutions.

In addition to the development, execution, and evaluation of the state-specific CAPs and the ongoing corrective actions reported on pages 177 – 178 of HHS’s FY 2014 AFR, HHS has implemented additional efforts to lower improper payments rates:

  • HHS completed a “mini-PERM audit” in one state and continued a mini-PERM audit in two states.  Mini-PERM audits are voluntary state-specific improper payment reviews, intended to assist states in identifying and eliminating improper payments during years states are not measured under PERM.  These reviews assist states in developing targeted CAPs to decrease Medicaid improper payments.
  • As of the end of FY 2015, 47 states and the District of Columbia had implemented Medicaid RAC programs to identify and recover overpayments and identify underpayments made for services in their Medicaid programs, but one of these states ended its RAC program when HHS approved an exception due to high managed care penetration.  Four states currently have HHS-approved exceptions to Medicaid RAC implementation due to small beneficiary populations or high managed care penetration.
  • HHS aligned state Program Integrity Reviews with off-cycle PERM reviews to maintain pressure on states to continuously correct errors.
  • HHS allows states to rely on Medicare’s enrollment screening of providers to help prevent PERM-related enrollment errors.  For example, state Medicaid agencies may rely on Medicare’s site visits, in specific circumstances where the provider is enrolled in Medicare and Medicaid.
  • HHS shares Medicare data to assist states with meeting Medicaid screening and enrollment requirements.
  • HHS provides ongoing education and outreach to states on federal requirements for Medicaid enrollment and screening.

11.43 Medicaid Program Improper Payment Recovery

Through the PERM program, HHS identified $152,967.74; $618,550.41; and $4,399,202.90 in Medicaid overpayments eligible for recovery for FYs 2013, 2014 and 2015, respectively.  In addition, the amount of Medicaid overpayments eligible for recovery for FYs 2013 and 2014 was amended from information previously reported in HHS’s FY 2014 AFR to reflect changes made during state-level error rate recalculations.

HHS works closely with states to recover overpayments identified from the FFS and managed care claims sampled and reviewed.  Recoveries of Medicaid improper payments are governed by Section 1903(d)(2) of the Social Security Act and related regulations at 42 CFR Part 433, Subpart F under which states must return the federal share of overpayments.  States reimburse HHS for the federal share of overpayments on the Medicaid CMS-64 expenditure report.  Section 6506 of the Affordable Care Act amended Section 1903(d)(2) to allow states up to one year from the date of discovery of an overpayment for Medicaid services to recover, or to attempt to recover, such overpayment before making an adjustment to refund the federal share of the overpayment.

11.44 Medicaid Information Systems and Other Infrastructure

Since Medicaid payments occur at the state level, information systems and other infrastructure needed to reduce Medicaid improper payments would need to be implemented at the state level.  In addition to errors caused by state systems non-compliance with new requirements, PERM faced many challenges with state payment systems that had paper only and aggregate claims, changes in information systems at the state level during the course of the measurement cycle, and a wide variation of system designs and capabilities.  HHS has encouraged and supported states in their efforts to modernize and improve state Medicaid Management Information Systems (MMIS), which will produce greater efficiencies in the PERM measurement and strengthen program integrity.  In addition, HHS has approved enhanced federal funding for nine states to implement predictive analytics technologies that are integrated with State MMIS.  The state systems workgroup (composed of HHS and state staff representatives) meets regularly to identify and discuss system vulnerabilities and the impact on the measurement of improper payments.

HHS developed a comprehensive plan to modernize the federal Medicaid and CHIP data systems. The primary goal of this plan is to leverage technologies to create an authoritative and comprehensive Medicaid and CHIP data structure so that HHS can provide more effective oversight of its programs.  The plan will also result in a reduction of state burden and the availability of more robust data for the PERM program.

HHS also developed the Transformed Medicaid Statistical Information System (T-MSIS).  T-MSIS will facilitate state submission of timely claims data to HHS, expand the MSIS dataset, and allow HHS to review the completeness and quality of state MSIS submittals in real-time.  HHS will use this data for the Medicaid improper payment measurement and to satisfy other HHS requirements.  Through the use of T-MSIS, HHS will not only acquire higher quality data, but will also reduce state data requests.

One state moved from MSIS to T-MSIS in FY 2015, and all remaining states will submit data in the T-MSIS file format in FY 2016.

11.45 Medicaid Statutory or Regulatory Barriers that could limit Corrective Actions

No statutory or regulatory barriers that could limit corrective actions have been identified at this time.

11.46 Medicaid Program Best Practices

Based on lessons learned through previous PERM cycles and in an effort to address challenges faced by the states, HHS continues the pre-cycle phase of the PERM measurement.  The pre-cycle phase occurs prior to a state’s first data submission, and allows HHS to disseminate information on changes in the program and to conduct individual orientation and education sessions with the states.

In addition to the ongoing measures reported on page 179 of HHS’s FY 2014 AFR.  HHS continues to offer training, technical assistance, and support to state Medicaid program integrity officials through the Medicaid Integrity Institute (MII).  Between FYs 2008 and 2015, the MII provided training to state employees and officials from 50 states, the District of Columbia, and Puerto Rico through 6,200 enrollments in 136 courses and nine workgroups at no cost to the states.

11.50 Children’s Health Insurance Program or CHIP

11.51 CHIP Statistical Sampling Process

The national FY 2015 CHIP improper payment rate is based on measurements conducted in FYs 2013, 2014, and 2015.  CHIP improper payments are estimated on a federal FY basis and measure three component error rates:  FFS, managed care, and eligibility.  HHS, through its use of federal contractors, measures the FFS and managed care components.  The eligibility component measurement is currently on hold as described in the eligibility component section below.

CHIP utilizes the same state sampling process as Medicaid.  HHS determined that CHIP can be measured in the same states selected for Medicaid review each FY with a high probability that the CHIP improper payment rate will meet the IPIA required confidence and precision levels.  Since CHIP and Medicaid will be measured in the same states each year, each state will be measured for CHIP once every three years.  For information on how HHS grouped states into three cycles, refer to page 183 of HHS’s FY 2012 AFR.

FFS and Managed Care Component

States submit quarterly adjudicated claims data from which a randomly selected sample of FFS claims and managed care payments are drawn each quarter.  Each selected FFS claim is subjected to a medical and data processing review.  Managed care payments are subject only to a data processing review.  The FFS sample size was between 299 and 959 claims per state and the managed care sample size was between 68 and 300 payments per state.  When a FFS component or managed care component for a state accounted for less than two percent of the state’s total CHIP expenditures, the state’s FFS and managed care claims were combined into one component for sampling and measurement purposes.  This consolidation occurred for claims in three states.

Eligibility Component

In light of changes to the way states adjudicate eligibility for Medicaid and CHIP under the Affordable Care Act, HHS will update the eligibility component measurement methodology and related PERM program regulation to reflect these changes.  In August 2013 and October 2015, HHS released guidance announcing temporary changes to PERM eligibility reviews.  For FYs 2015 through 2018, HHS will not conduct the eligibility measurement component of PERM.  During this time, the national CHIP improper payment rate will be held constant at the FY 2014 reported rate of 4.22 percent.

In place of FYs 2015 through 2018 PERM eligibility reviews, all states are required to conduct eligibility review pilots.  The eligibility review pilots provide more targeted, detailed information on the accuracy of eligibility determinations.  The pilots use targeted measurements to:  provide state-by-state programmatic assessments of the performance of new processes and systems in adjudicating eligibility, identify strengths and weaknesses in operations and systems leading to errors, and test the effectiveness of corrections and improvements in reducing or eliminating those errors.

Calculations and Findings

The national CHIP improper payment rate represents the combination of each state’s FFS, managed care, and eligibility improper payment rates.  In addition, individual state improper payment rate components are combined to calculate the national component improper payment rates.  National component improper payment rates and the CHIP improper payment rate are weighted by state size, so that a state with a $1 billion program “counts” 5 times more toward the national rate than a state with a $200 million program.  A small correction factor ensures that CHIP eligibility improper payments do not get “double counted.”  Additionally, HHS incorporates state-level error rate recalculations for the states measured in FY 2013 and FY 2014 into the national CHIP improper payment rate.  Seven state-level FFS error rates were recalculated subsequent to FY 2014 reporting and are incorporated into FY 2015 improper payment rate reporting.

The national CHIP gross improper payment estimate for FY 2015 is 6.80 percent or $632.11 million.  The FY 2015 net improper payment estimate is 6.68 percent or $620.43 million.  This rate increased from prior years due to an increase in the FFS component, as discussed in Section 11.52.

The FY 2015 national CHIP improper payment rate for each component is:

  • CHIP FFS – 7.33 percent
  • CHIP managed care – 0.37 percent

The CHIP eligibility component improper payment rate is held constant at the FY 2014 reported rate of 4.22 percent.

Eligibility Pilot Review Findings

The eligibility review pilots identified vulnerabilities in processes and systems that states took action to address, which is essential to preventing future improper payments.  The most common issues identified through the eligibility review pilots were instances where caseworkers or systems did not properly establish household composition or income level, although these issues did not necessarily lead to eligibility determination errors.  The pilots also provided states with essential feedback on their processes as states identified issues with improper requests for additional information from applicants, failure to send appropriate notices for denied cases, and failure to appropriately transfer denied cases to marketplaces.  States are implementing corrective action strategies such as caseworker training and systems fixes as the pilots continue.  More information on the pilots can be found on CMS's website.

11.52 CHIP Corrective Action Plans

States reviewed for the FY 2015 AFR measurement were the same states reviewed in FY 2012.  The improper payment rate for these states increased from 8.16 percent in FY 2012 to 9.03 percent in FY 2015, causing an increase in the FY 2015 national CHIP error rate.  The FFS component reported the greatest increase, rising from 6.93 percent to 13.13 percent.

Overall, the largest reason for the FY 2015 improper payments were errors related to state difficulties bringing systems into compliance with the new requirements described in the Medicaid section.  While these requirements will ultimately strengthen the integrity of the program, it is not unusual to see increases in improper payment rates following the implementation of new requirements because it takes time for states to make systems changes required for compliance.

HHS works closely with all states to develop state-specific CAPs.  All states are responsible for implementing, monitoring, and evaluating the effectiveness of their CAPs, with assistance and oversight from HHS.  HHS received CAPs from all states with CHIP programs that were previously measured, and all states measured in FY 2015 are developing CAPs for submission to HHS.  When developing the CAPs, states focus their efforts on the major causes of improper payments where the state can clearly identify patterns.  In addition, states also take steps to reduce errors identified during the measurement.  HHS is actively engaging with states to proactively address these root causes through activities like: conducting outreach to states during off-cycle PERM time frames to follow-up on the status of state corrective actions for improvement with requirements, and to offer additional guidance as needed.

Corrective Actions to Address Root Causes: 
Root Causes:

  • Administrative or Process Errors Made by State or Local Agency

Administrative or Process Errors Made by State or Local Agency mainly consist of errors caused by state difficulties bringing systems into compliance with new requirements as described above.  Since the CHIP improper payment rate was primarily driven by these errors, state CAPs will focus on systems changes to reduce these errors.  Methods include:  implementing new claims processing edits, converting to a more sophisticated claims processing system, and implementing a new provider enrollment process to make it easier for referring providers to enroll in the program.

  • Administrative or Process Errors Made by Other Party

Administrative or Process Errors Made by Other Party mainly consist of provider billing and coding errors.  State CAPs also include provider education, training, communication, and outreach efforts to help reduce these errors.

  • Insufficient Documentation to Determine

Because insufficient documentation is also a contributor to the CHIP improper payment rate, the state CAPs also focused on strengthening provider communication and education to reduce errors related to these categories.  These methods included enhancing provider training, presentations, newsletters, notices, bulletins, and provider broadcasts; conducting outreach to public providers; and performing more provider audits to identify areas of vulnerability and target solutions.

In addition to the development, execution, and evaluation of the state-specific CAPs and the ongoing corrective actions reported on page 181 of HHS’s FY 2014 AFR, HHS has implemented additional efforts to lower improper payment rates:

  • HHS completed a “mini-PERM audit” with three states.  Mini-PERM audits are voluntary, state-specific improper payment reviews, intended to assist states in identifying and eliminating improper payments during years states are not measured under PERM.  These reviews assist states in developing targeted CAPs to decrease CHIP improper payments.
  • HHS allows states to rely on Medicare’s enrollment screening of providers to help prevent PERM-related enrollment errors.
  • HHS shares Medicare data to assist states with meeting screening and enrollment requirements.
  • HHS provides ongoing education and outreach to states on federal requirements for enrollment and screening.

11.53 CHIP Program Improper Payment Recovery

HHS identified $161,763.63; $688,941.56; and $1,909,778.03 in CHIP overpayments eligible for recovery for FYs 2013, 2014, and 2015 respectively.  In addition, the amount of CHIP overpayments eligible for recovery for FYs 2013 and 2014 was amended from information previously reported in HHS’s FY 2014 AFR to reflect changes made during state-level error rate recalculations.

HHS works closely with states to recover overpayments identified from the FFS and managed care claims sampled and reviewed.  Recoveries of CHIP improper payments are governed by 2105(c)(6)(B) and Section 2105(e) of the Social Security Act and related regulations at 42 CFR Part 457, Subpart B under which states must return the federal share of overpayments.  States reimburse HHS for the federal share on the CHIP CMS-21 expenditure report.  Section 6506 of the Affordable Care Act amended Section 1903(d)(2) to allow states up to one year from the date of discovery of an overpayment for services to recover, or to attempt to recover, such overpayment before making an adjustment to refund the federal share of the overpayment.

11.54 CHIP Information Systems and Other Infrastructure

Since CHIP payments occur at the state level, information systems and other infrastructure needed to reduce CHIP improper payments would need to be implemented at the state level.  Please refer to Section 11.44:  Medicaid Information Systems and Other Infrastructure for information on HHS and state-led efforts to modernize information and data systems at the national and state level.

11.55 CHIP Statutory or Regulatory Barriers that Could Limit Corrective Actions

No statutory or regulatory barriers that could limit corrective actions have been identified at this time.

11.56 CHIP Best Practices

Based on lessons learned through previous PERM cycles and in an effort to address challenges faced by the states, HHS continues the pre-cycle phase of the PERM measurement.  The pre-cycle phase occurs prior to a state’s first data submission, and allows HHS to disseminate information on changes in the program and to conduct individual orientation and education sessions with the states.  In addition, other ongoing measures are reported on page 182 of HHS’s FY 2014 AFR.

11.60 Temporary Assistance for Needy Families or TANF

11.61 TANF Statistical Sampling Process

Statutory limitations prohibit HHS from requiring states to participate in a TANF improper payment measurement.  As a result, the TANF program is not reporting an error rate for FY 2015.  In the meantime, the Department is engaging with OMB to explore potential options to develop an alternative approach that could bring TANF into compliance with the law and reporting requirements.

11.62 TANF Corrective Action Plans

Due to TANF being a state-administered program, corrective actions that could help reduce improper payments would have to be implemented at the state level.  The TANF statute prohibits HHS from requiring state TANF agencies to implement and report on corrective actions.  Despite the limitations, HHS has taken the following actions to assist states in reducing improper payments:

  • HHS works with states to analyze Single Audit material non-compliance findings related to TANF and to implement corrective actions to address these findings. 
  • HHS performed a detailed risk assessment of the TANF program.  As part of this process, HHS identified potential programmatic risks at the federal level and is working to mitigate these programmatic risks. 
  • HHS monitors a TANF Program Integrity Innovation Grant funded from OMB’s Partnership Fund for Program Integrity Innovation.  The state human service agency grantee is conducting a pilot project designed to reduce improper payments and improve administrative efficiency in the state’s TANF program.  The grant is scheduled to end in November 2015 and the final report will be issued in early 2016.  This report will include lessons learned and valuable information for developing guidance that will improve TANF program integrity in other states.
  • HHS implemented revisions to the TANF financial reporting form in order to require states to provide more accurate information about how states are using TANF block grants and meeting their Maintenance-of-Effort obligations.  The changes took effect in FY 2015, and include a revised and expanded list of spending categories as well as a change to the accounting method to accurately track actual expenditures that occur in a FY. 
  • In February 2014, HHS published a Notice of Proposed Rulemaking regarding “State Reporting on Policies and Practices to Prevent the Use of TANF Funds in Electronic Benefit Transfer Transactions in Specified Locations.”  The proposed regulations would require states, subject to penalty, to maintain policies and practices that prevent TANF funded assistance from being used in any electronic benefit transfer transaction in specified locations.  The locations, specified in the Middle Class Tax Relief and Job Creation Act of 2012, are: liquor stores; any casino, gambling casino, or gaming establishment; and any retail establishment that provides adult-oriented entertainment in which performers disrobe or perform in an unclothed state for entertainment.  HHS anticipates that the final regulation will be published in the last quarter of calendar year 2015.

11.63 TANF Improper Payments Recovery

Statutory limitations prohibit HHS from requiring states to participate in a TANF improper payment measurement.  As a result, HHS is not reporting an error rate or any results from improper payment recoveries for FY 2015.

11.64 TANF Information Systems and Other Infrastructure

Information systems and other infrastructure needed to reduce TANF improper payments would need to be implemented at the state level.  States utilize PARIS, the National Directory of New Hires (NDNH), and the Income and Eligibility Verification System (IEVS) to minimize improper payments.  No other systems or infrastructure are needed at this time.

11.65 TANF Statutory or Regulatory Barriers

Statutory limitations prohibit HHS from requiring states to participate in a TANF improper payment measurement.

11.66 TANF Program Best Practices

HHS encourages states to stress the importance of payment accuracy for TANF cases and seriously consider measures that will reduce erroneous payments.  Those actions may include, but are not limited to:

  • Conduct local office quality control reviews for eligibility and payment processes at both the initial intake and redetermination stages of the case, and perform periodic “checks” of case records, paying particular attention to documentation such as a current application and facts supporting income, household composition, participation in work activities, and cooperation with child support enforcement.
  • Develop and maintain a reminder system for critical follow-up actions on cases such as responding to reports of non-cooperation with child support, IEVS “hits,” eligibility redeterminations, or failure to fulfill work requirements.
  • Remind TANF recipients periodically of their responsibility to accurately report income, resources, and other changes in family circumstances to the local TANF agency on a timely basis.
  • Use NDNH information to verify the eligibility of adult TANF recipients residing in the state; and to modify benefits or close the case if the individual is not eligible for assistance. 
  • Conduct training on investigative interviewing techniques for intake workers and case managers.
  • Establish and monitor internal procedures to ensure that TANF payments are adjusted on a timely basis when family circumstances change and affect case eligibility or the amount of payment, and establish a process for the collection of TANF overpayments from the applicable recipients.

11.70 Foster Care

11.71 Foster Care Statistical Sampling Process

There were no changes to the statistical sampling process for Title IV-EFoster Care in FY 2015, but as described below, there were changes to the number of states reviewed.  Because current regulations require that programs be reviewed every three years for compliance, this program has taken the review cycle already in place (in compliance with 45 CFR 1356.71, Foster Care Eligibility Reviews) and, with OMB approval, leveraged the existing review cycle to provide a rolling three-year average improper payment rate.  Under this approved approach, the Foster Care improper payment estimate is calculated each year using data collected in the most recent Foster Care Eligibility Review for each state.  A random sample is drawn from the state’s universe of cases having at least one Title IV-EFoster Care maintenance payment during the six-month period under review (PUR).  A review of the sample items identifies the number of error cases and amount of payment errors.  Since each state is reviewed every three years, each year’s data incorporates new review data for about one-third of the states.  For a more detailed description of the Foster Care improper payments statistical sampling and estimation methodology, refer to pages 189 - 190 of HHS’s FY 2012 AFR.

However, an increasing number of time-limited demonstration projects will temporarily reduce the number of jurisdictions subject to review and inclusion in the program error rate estimate for the duration of the demonstration projects.  These child welfare waiver demonstration projects, authorized by Section 1130 of the Social Security Act, waive many program eligibility requirements and allow flexible use of Title IV-E funds to encourage innovative practices and improved child and family outcomes, while ensuring federal cost-neutrality.  The authorizing law (section 1130(d)(2)) requires that all demonstration projects be completed by September 30, 2019.  Because the demonstration waiver terms and conditions explicitly permit states to use Title IV-E funds for purposes, populations, and activities not normally allowed to be claimed as Title IV-E Foster Care maintenance or administration, states with statewide demonstration waivers will not be subject to Title IV-E eligibility reviews for the duration of the implementation of their demonstration projects.  States with non-statewide demonstration projects will continue to undergo Title IV-E eligibility reviews; these reviews will examine data for that part of each state (i.e., geographic areas or populations) continuing to operate as a traditional IV-E program.  States not participating in waiver demonstrations will also continue to undergo Title IV-E eligibility reviews on the regular three-year cycle.

Given the temporary nature of the waiver demonstrations and in the interest of maintaining a program estimate that is consistent not only with previously reported improper payment estimates but also across statewide and non-statewide waivers, HHS will treat jurisdictions with operational waivers as it has in the past:

  • The program error rate estimate will include data from the most recent review for states with statewide waivers until the year when each state would normally have been reviewed again and when its data  would normally be replaced with data from a new review (i.e., within three years and three months).
  • The program error rate estimate will include data from the most recent review for states with non-statewide waivers, including subsequent reviews conducted on the non-waiver populations in those states following waiver implementation.  The state error rate is based on review data for a sample receiving traditional Title IV-E services, and the sample rate is applied to overall state payments for those traditional IV-E services (i.e., excluding payments for the counties or other populations participating in demonstration projects).

This approach, which was approved by OMB, maintains continuity in the error rate while permitting consistent treatment of states with statewide and non-statewide waivers.  Following this approach, the FY 2015 estimate is based on review data for 49 states operating traditional Title IV-E programs.

The Foster Care gross improper payment estimate for FY 2015 is 3.65 percent or $30.68 million.  The FY 2015 net improper payment rate is 3.06 percent or $25.72 million.  The primary factor that drove the program’s decrease from the prior year’s estimate was the improved performance of one very large state that was reviewed in this cycle.  This state lowered its state-level error rate from 22.15 percent, the highest rate of any state, to 3.43 percent.

11.72 Foster Care Corrective Action Plans

All payment errors (100 percent) in the Title IV-E Foster Care Program are Administrative or Process Errors due to incorrect case classification and payment processing by state agencies.  The Foster Care program designs CAPs to help states address these payment errors that contribute most to Title IV-E improper payments.

Corrective Actions to Address Root Cause:
Root Cause: Administrative or Process Error Made by State or Local Agency

Corrective actions have decreased the overall number of payment errors and altered the composition of identified payment errors.  For example, following years of work with State Court Improvement Programs and outreach to heighten judicial awareness, judiciary-related errors, once the most prevalent error type, are now among the least common.

HHS continues to monitor review results and analyze the types of payment errors in the Foster Care program to target corrective action planning.  In FY 2015, the most common payment errors included:

  • Underpayments (28 percent of errors),
  • Provider not licensed or approved (10 percent of errors),
  • No safety documentation for institutional caregiver staff (10 percent of errors),
  • Provider criminal records check not completed (9 percent of errors),
  • Family not eligible for the Aid to Families with Dependent Children program at time of removal (7 percent of errors), and
  • Reasonable efforts to finalize permanency plan not timely (6 percent of errors). 

Together these six items account for 70 percent of Foster Care payment errors.  Although underpayments represent just over one-quarter of all errors in terms of frequency, the dollar amount of the underpayments is quite small and, in fact, continued to decrease in 2015 as the underpayment rate improved from 0.31 percent in FY 2014 to 0.30 percent in FY 2015.

In FY 2015, HHS undertook the following key action to reduce improper payments:

  • Based on discussions with individual states on review preparation and compliance results, HHS worked with states to emphasize and develop strategies for continuous program improvement with an emphasis on:  viewing the quality assurance process as an ongoing, systematic process that is not limited to review preparations or results; and developing sound program improvements that support systemic change and sustain the improvement effort.

In addition, HHS continued the following ongoing corrective actions:

  • HHS conducts onsite and post-site review activities to validate the accuracy of state claims for reimbursement of payments made on behalf of children and their Foster Care providers.  Specific feedback is provided onsite to the state agency to positively affect proper and efficient program administration and implementation.  Furthermore, HHS issues a comprehensive final report that presents findings of the review to the state agency.  The final report serves as the basis for the development of a Program Improvement Plan (PIP) for states that exceed the error threshold.
  • HHS requires non-compliant states (those that exceed the error threshold) to develop and execute state-specific PIPs that link corrective actions to the root cause of payment errors.  The PIP identifies the specific action steps necessary to target and correct error root causes, and each action strategy is required to have a projected completion within one year from the date HHS approved the plan.  PIPs are an effective strategy, as reflected in the decrease of the national Title IV-E error rate by nearly two-thirds since FY 2004.
  • HHS provides training and technical assistance to states to develop and implement program improvement strategies, even when states are not required to develop a PIP.  This assistance helps states expand organizational capacity and promote more effective program operations.
  • HHS conducts secondary reviews, as applicable, and takes appropriate disallowances consistent with the review findings, including an extrapolated disallowance if the state is found not in substantial compliance.  These additional disallowances, in conjunction with the development and implementation of the PIP, serve as a strong incentive to states to improve compliance.

11.73 Foster Care Improper Payment Recovery

As a result of conducting Foster Care eligibility reviews in 12 states during the 12-month period between July 2014 and June 2015, HHS recovered nearly $1 million in Title IV-E improper payments.  The recovered funds are comprised of $569,458 in disallowed maintenance payments and $421,329 in disallowed administrative payments.

Improper payment recovery occurs through post-payment review, through both eligibility reviews as well as audit reviews.  The Foster Care program does not systematically track cost recovery through Office of Inspector General (OIG) reviews or Single Audit reports; rather, the program obtains this information from HHS reports generated as part of the audit clearance process.  Specifically, the program identifies and tabulates audit findings where the audit has been closed and a recommended cost recovery has been sustained for the Title IV-E Foster Care program.  These recovery amounts are in addition to the amounts identified through the eligibility reviews and are presumed to be recovered in the FY when the audit is closed.  Recoveries of improper payments through audits may include Title IV-E Foster Care maintenance assistance payments, administration, training, and automated systems development costs.  See Section 13.0 for further information on payment recovery.

11.74 Foster Care Information Systems and Other Infrastructure

HHS uses the Adoption and Foster Care Analysis and Reporting System to draw samples for the regulatory reviews.  Utilization of this system reduces the burden on states to draw their own samples, promotes uniformity in sample selection, and employs the database in a practical and beneficial manner.  Since Foster Care payments occur at the state level, information systems and other infrastructure needed to reduce Foster Care improper payments would need to be implemented at the state level.  No other systems or infrastructure are needed at this time.

11.75 Foster Care Statutory or Regulatory Barriers

No statutory or regulatory barriers that could limit corrective actions have been identified at this time.

11.76 Foster Care Best Practices

Since the inception of its improper payment reporting, HHS has maintained a diligent focus on improper payment identification and reduction efforts in the Foster Care program. Refinements to the error rate methodology have included steps to ensure systematic examination and consideration of underpayments in eligibility reviews and modifying data retention practices to permit shifting from case-based extrapolation to dollar-based extrapolation.

Concurrent with these efforts to continually refine its identification and reporting of improper payments, HHS works with state child welfare agencies to improve administrative procedures for tracking and documenting eligibility.  As a result, a number of states have developed knowledgeable and experienced eligibility teams that monitor foster care cases for changes in eligibility, work effectively with front-line staff, and identify emerging issues and trends to maintain strong performance.  HHS also works with the judiciary to support adherence to requirements for timely and thoroughly documented case hearings and court orders.  These efforts have yielded reductions in eligibility errors and improper payments, as well as the recovery of $20.35 million in improper payments for the FY 2004 through FY 2015 reporting periods.

11.80 Child Care or CCDF

11.81 Child Care Statistical Sampling Process

The methodology for measuring improper payments uses a case-record review process to determine if child care subsidies were properly paid for services provided to eligible families.  The methodology focuses on improper payments made, and enables states to determine the types of errors and their sources.  For the CCDF improper payments methodology, please see ACF's website.

The current methodology incorporates the following: (a) drawing a statistical sample from a universe of paid cases, (b) measuring improper payments, and (c) requiring states with error rates exceeding 10 percent to submit a CAP.  The error rate methodology and reporting requirements focus on administrative errors associated with client eligibility.  The CCDF gross improper payment estimate for FY 2015 is 5.74 percent or $311.13 million.  The FY 2015 net improper payment estimate is 4.77 percent or $258.65 million.  There were several contributing factors to the slight increase in the improper payment rate from 5.7 percent in FY 2014, which are more fully explained in the root causes section that follows.  The reporting cohort for FY 2015—referred to as Year Two States—also has historically higher error rates than the prior reporting cohort.  Since the methodology is a rolling three-year cycle, FY 2015 is only updating one-third of the data.

11.82 Child Care Corrective Action Plans

Administrative or process errors represent approximately 80.6 percent of errors found in the reviews.  These errors consist of the failure to apply policy correctly, including:

  • Income calculation (10 states),
  • Units of care authorized (4 states),
  • Parent fee calculation (4 states), and
  • Change reports (i.e., when eligibility staff update case records in response to family status changes) (4 states).

Insufficient Documentation errors account for an estimated 19.4 percent of errors identified in the CCDF improper payment review process. Errors were primarily due to missing or insufficient documentation in the case record. The most frequently cited errors due to missing or insufficient documentation include:

  • Paystubs or income verification (5 states),
  • Need for care (such as work or school schedules) (4 states),
  • Birth certificates or other documentation (3 states), and
  • Application or redetermination forms (3 states).

Corrective Actions to Address Root Causes:
Root Causes: Insufficient Documentation to Determine and Administrative or Process Errors Made by or Local Agency

HHS and states have established corrective actions targeting both error typesStates reporting in FY 2015 plan the following actions:

Year Two States, as described in Section 11.83, identified the following implementation actions to correct improper payment error causes:

  • Ongoing case reviews or audits,
  • Trainings with eligibility staff on CCDF policies and procedures,
  • Upgraded or enhanced information technology (IT) systems,
  • Changes or update to state eligibility policies and procedures,
  • Ongoing technical assistance to eligibility staff to address specific causes of errors, and
  • One-on-one trainings with eligibility staff in response to audit findings.

HHS’s corrective actions have been consistent over time and assist states in reducing error rates.  In addition to this ongoing work, the FY 2015 corrective actions include the following activities:

  • Conduct remote or onsite joint case reviews to ensure implementation of the HHS approved state review tools (6 states),
  • Conduct site visits with states needing assistance to address root causes of errors (3 states),
  • Provide technical assistance to states around policy and procedure changes to meet new requirements under the Child Care and Development Block Grant Act of 2014 (CCDBG Act) (all states),
  • Deliver technical assistance to states regarding updating or developing IT systems that will improve practices and reduce errors (10 states), and
  • Provide individual reporting cohort training on the methodology that allows states to learn best practices from each other as they conduct the reviews (34 states).

11.83 Child Care Program Improper Payment Recovery

Under the current methodology, grantees provide information on both the estimate they expect to recover from the current review and any funds recovered from prior reviews.  CCDF regulations only require states to recover misspent funds due to fraud.  States have discretion whether to recover misspent funds for other reasons.  All misspent funds are subject to disallowance.

The cumulative FY 2015 CCDF improper overpayment amount is $346,186.  The overall improper payment estimate is comprised of three review periods:  FYs 2013, 2014, and 2015.  The improper payments are as follows for each period:

  • Year One States (reported in FY 2014) - $50,736,
  • Year Two States (reported in FY 2015) - $93,153, and
  • Year Three States (reported in FY 2013) - $202,297.

The FY 2015 review cycle represents the third time that Year Two States have conducted the error rate measurement.  In FY 2012, the last time this cycle of states was measured, the states reported an improper over authorization amount of $146,914, and they anticipated and realized a recovery of approximately 18 percent, or $26,896, of this total.  Year Two States reported improper payments of $93,153 in FY 2015, and anticipate recovering 29 percent, or $27,144, of these payments.  Reports submitted in FY 2018 will address any amounts recovered based on the FY 2015 reviews.

11.84 Child Care Program Information Systems and Other Infrastructure

Since CCDF payments occur at the state level, information systems and other infrastructure needed to reduce CCDF improper payments would need to be implemented at the state level.  In addition to the efforts outlined in prior HHS AFRs, states reported a range of other improvements to information systems including steps to:

  • Increase access to client information: including data synced with other assistance programs, quality control case reviews or reports, and system flags and blocks to avoid duplication or errors.
  • Increase access to provider information: including automated billing reports, payment management tracking, provider licensing information, and automated payment rate determination.
  • Assist with eligibility determinations: including access to data in other assistance programs’ systems to obtain or confirm eligibility information, increased automation of eligibility processes, system flags, and blocks to avoid errors, automated copay calculation, and document storage.

11.85 Child Care Program Statutory or Regulatory Barriers

No statutory or regulatory barriers that would limit corrective actions have been identified at this time.

The CCDBG Act, signed into law in November 2014, reauthorized CCDF for the first time since 1996.  The statute improves the quality and access to care for children across the country by requiring states to change eligibility to a minimum of 12 months, revise redetermination policies, update provider payment rates and payment practices, and increase health and safety standards for providers.  States will be required to create new policies and procedures to enact the requirements of the law, which will likely increase errors as the changes are implemented.  The improper payment targets identified in Table 1A reflect the anticipated brief rise in errors while states adjust to the changes.

11.86 Child Care Program Best Practices

In addition to those best practices cited in prior reports, Year Two States also reported:

  • Trainings for review staff: trainings helped review staff to be well informed of CCDF policy and practices, error definitions, and the process for reviewing and documenting errors.
  • Coordination between review staff and child care policy staff: ongoing communication and coordination between reviewers and CCDF staff (sometimes located in different departments or agencies) was useful during this review cycle.
  • Timely review process: for example, starting early or conducting real time reviews.
  • Staffing changes: expanding the review team or reassigning personnel to certain tasks improved the review process.
  • Updated eligibility systems: new or upgraded IT systems made it easier to select cases and gather information for reviewers.
  • HHS webinars: attendance at HHS webinars helped states successfully complete the reviews and required submissions.

HHS best practices included:

  • Targeted technical assistance for methodology implementation.
  • Group and individual technical assistance for peer-to-peer sharing of review findings and best practices to improve the reviews.
  • Technical assistance to states around policy and procedure review and revision to address changes under the new CCDBG law.

 


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Content created by Office of Finance (OF)
Content last reviewed on November 24, 2015