Oversight and Evaluation of the Fiscal Year 2008 Payment Error Rate Measurement Program

Our review found that CMS could not be assured that the Payment Error Rate Measurement (PERM) program produced a reasonable estimate of improper payments. Specifically, State One did not maintain hospital information on a claim-by-claim basis, and we were not able to reconcile the State universes from four other States to their Forms CMS-64. The States' Medicaid fee-for-service and managed care universes for the FY 2008 PERM program were or may have been incomplete or inaccurate. Federal law 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. In addition, for any program or activity with estimated improper payments exceeding $10 million, the agency must report to Congress the actions to reduce those payments. CMS developed the PERM program to comply with Federal requirements for measuring improper Medicaid and Children's Health Insurance Program payments.

We recommended that CMS (1) require State One to maintain hospital payment information on a claim-by-claim basis for use in future PERM reviews and (2) continue to work with the States, CMS Regional Offices, and statistical contractors on reconciling the PERM universes to State financial reports. CMS agreed with our recommendations and discussed the corrective actions it had taken or plans to take in response.