Progress cutting improper payments may be overstated

Erroneous payments by federal agencies decreased in 2005, largely because of reductions in mistaken Medicare payments. But that drop primarily reflects improvements in record-keeping, government auditors said at a Wednesday hearing.

A review of fiscal 2005 data reported to the Office of Management and Budget shows that agencies are making progress in identifying improper payments, defined as those made mistakenly to ineligible applicants, or as a result of fraud or other error.

The reported governmentwide reduction of almost $7 billion in improper payments -- a 16 percent drop over the previous year's level -- was driven mainly by a $9.6 billion decrease in the Medicare program, said McCoy Williams, director of financial management and assurance at GAO.

But Williams said a GAO review found that Medicare's improper payment rate change stemmed primarily from greater outreach to medical providers, urging them to provide documentation for Department of Health and Human Services statistical reviews.

HHS guidelines dictate that a lack of response or insufficient documentation from a medical provider causes a payment to be marked as erroneous. Improved provider education, as well as an extension in the amount of time that providers were given to respond to information requests, resulted in a decrease in the number of payments flagged during review, Williams told the House Government Reform Subcommittee on Government Management, Finance and Accountability.

"These changes primarily affected HHS' processes related to its efforts to perform detailed statistical reviews for the purposes of calculating an annual improper payment estimate," Williams said. "The reported reduction may not reflect improved accountability over program dollars."

Charles Johnson, HHS assistant secretary for budget, technology and finance, agreed that the change could be attributed to improvements in documentation rates. He said HHS also addressed some doctors' misplaced concern that disclosing payment data to government auditors might violate health privacy regulations. He also noted the need to evaluate potential improper payments in the Medicare Prescription Drug Benefit as the program grows.

In past hearings, HHS officials have characterized the 2005 reduction in the Medicare improper payment rate as addressing the "low-hanging fruit."

Williams focused on the net effect of the reported reduction on governmentwide error rates, concluding, "The federal government's progress in reducing improper payments may be exaggerated because the reported improper payments decrease in the Medicare program accounts for the bulk of the overall reduction."

GAO's review of data from 33 agencies also found that some weren't systematically reviewing all activities, had not identified all programs susceptible to payment errors, or had failed to meet their obligations to develop annual estimates under the 2002 Improper Payments Information Act.

Agency auditors at the Agriculture, Homeland Security and Justice departments each identified internal compliance problems, the review noted.

Williams, Johnson and subcommittee members also discussed the need to develop an estimate for the Medicaid program, which presents challenges because of state-to-state differences in program design but is one of the largest federal programs to be designated as susceptible to mistakes, with annual outlays of over $181 billion.