The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Medicare Making Improper Payments to Prisoners

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Centers for Medicare and Medicaid Services (CMS) Office of the Inspector General (OIG) recently exposed vulnerabilities that end up costing taxpayers hundreds of billions in wasteful spending due to erroneous and sloppy billing, and outright fraud.

The OIG's October 7, 2016 report documented that even though The Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act of 2015 (MACRA) directs CMS to “establish policies and implement claims edits to ensure that payments are not made for Medicare services rendered to incarcerated beneficiaries,” OIG identified 11,786 beneficiaries who were incarcerated during 2013 and 2014 and received $34.6 million in improper payments. 

The OIG stated that CMS’s policies and procedures generally did not allow CMS to detect and recoup improper payments on a post-payment basis because “CMS turned off its post-payment claims edit.”  In other words, CMS simply flipped a switch and stopped even looking for improper claims paid to ineligible incarcerated people. 

In addition, as is often the case when improper payments are being made to those who are incarcerated (or dead), the bureaucratic hiccup often occurs because agencies must rely on the Social Security Administration’s error-ridden databases.  And even though CMS responded to the OIG with a promise to try to recoup the improper payments from prisoners, the OIG noted that “because the data that CMS plans on using will be incomplete, these recoupment efforts will not identify all improper payments.”   

The Government Accountability Office has documented that, government-wide, taxpayers wave bye-bye to $137 billion annually because of improper payments....in other words, wasteful spending.  And those numbers are conservative, since several of the largest federal government programs either cannot or will not measure the losses, despite a statutory requirement to do so.

Not surprisingly, the country’s two biggest drivers of improper payments turn out to be its largest entitlement programs, Medicare and Medicaid, which account for 65 percent of that of that number.  Worse yet, overall losses are rising at an alarming rate. 

Oversight officials at CMS often hype their commitment to cracking down on improper overpayments and outright fraud, and point to improved data-crunching capabilities and innovative new technologies being implemented to help identify areas vulnerable to fraud and claims manipulation. 

But virtually all of these efforts occur after the faulty reimbursements have been paid.  Even though Congress authorized CMS to create a pre-payment auditing model that would stop improper payments at the door, CMS has barely budged on enabling these demonstration projects.  The agency is mired in the wasteful and ineffective “pay and chase” billing model.

In 2011, Congress enabled CMS to roll out a new tool, the recovery audit contacting (RAC) program to begin identifying and recouping billions in overpayments on behalf of the taxpayers and the Medicare Trust Fund.  These private-sector recovery auditors are paid on a contingency basis only after they successfully identify improper under and over payments and they are strictly monitored by CMS officials to ensure that they properly enforce agency reimbursement rules when reviewing claims.  And the program was working.  The RAC program was not only helping CMS identify troubles spots where claims were being improperly filed, it was recouping $1 billion per quarter to replenish the financially troubled Medicare Trust Fund.  To date, the RAC program has returned more than $10 billion to Trust Fund.

Unfortunately, the RAC program is currently in limbo.  CMS, with the complicity of many members of Congress on both sides of the aisle, has effectively sidelined this highly effective waste-fighting tool under pressure from provider groups, particualry for-profit hospitals, who generate the most Part A and B claims.  Medicare's improper payment rate has risen from 8.5 percent in fiscal year 2012, when RACs were operational, to 12.7 percent in fiscal year 2014.         

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