Department of Health and Human Services

Office of Inspector General -- AUDIT

"Improper Fiscal Year 2002 Medicare Fee-for-Service Payments," (A-17-02-02202)

January 8, 2003

Complete Text of Report is available in PDF format (398 kb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


This final report presents the results of our review of fiscal year (FY) 2002 Medicare fee-for-service claims.  The objective of this review was to estimate the extent of fee-for-service payments that did not comply with Medicare laws and regulations.  This is the seventh year that the Office of Inspector General (OIG) has estimated these improper payments.  As part of our analysis, we have profiled the last 7 years' results and identified specific trends where appropriate.  Based on our statistical sample, we estimate that improper Medicare benefit payments made during FY 2002 totaled $13.3 billion, or about 6.3 percent of the $212.7 billion in processed fee-for-service payments reported by the Centers for Medicare and Medicaid Services (CMS).  These improper payments, as in past years, could range from reimbursement for services provided but inadequately documented to inadvertent mistakes to outright fraud and abuse.  The FY 2002 estimate of improper payments is significantly less than the $23.2 billion that we first estimated for FY 1996.  As a rate of error, the current 6.3-percent estimate is the same as last year’s rate—which was the lowest to date—and less than half of the 13.8 percent reported for FY 1996.

Since we developed the first error rate for FY 1996, CMS has demonstrated continued vigilance in monitoring the error rate and developing appropriate corrective action plans.  For example, CMS has worked with provider groups, such as the American Medical Association and the American Hospital Association, to clarify reimbursement rules and to impress upon health care providers the importance of fully documenting services.  Such efforts have contributed to the large reduction in the rate.  In addition, due to efforts by CMS and the provider community, the overwhelming majority of health care providers follow Medicare reimbursement rules and bill correctly.  In this regard, since FY 1998, over 92 percent of Medicare fee-for-service payments have contained no errors.  Lastly, fraud and abuse initiatives on the part of CMS, the Congress, the Department of Justice (DOJ), and OIG have had a significant impact.  However, continued vigilance is needed to ensure that providers maintain adequate documentation supporting billed services, bill only for services that are medically necessary, and properly code claims.