Oversight and Evaluation of the Fiscal Year 2007 Payment Error Rate Measurement Program

The Improper Payments Information Act of 2002 requires the head of a Federal agency with any program or activity that may be susceptible to significant improper payments to report to Congress the agency's estimates of the improper payments. CMS developed the Payment Error Rate Measurement (PERM) program to comply with requirements for measuring improper Medicaid program and State Children's Health Insurance Program (SCHIP, now known as CHIP) payments. The PERM program measures improper payments made in the fee-for-service, managed care, and eligibility components of Medicaid and SCHIP in fiscal year 2007 and future years.

We were unable to determine whether the PERM program produced a reasonable estimate of improper fiscal year 2007 fee-for-service and managed care payments for both Medicaid and SCHIP for the following reasons: (1) the statistical contractor sampled payments from State universes that were or may have been incomplete or inaccurate, (2) the estimate of improper payments for SCHIP did not meet the required precision levels, and (3) CMS did not review States' repricing actions.

We recommended that CMS (1) continue to work with the States, CMS Regional Offices, and the statistical contractor on reconciling the PERM universes to State financial reports; (2) work with the Office of Management and Budget to establish new precision-level requirements for PERM; (3) request the States to verify the accuracy of all repriced claims and submit documentation supporting the repricing; and (4) test repriced claims for accuracy. CMS agreed with our findings and proposed corrective actions.