Medicare Improper Payment Rates Increase to Alarming Levels

In fiscal year 2025, the improper payment rate for suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) reached an alarming 24.2%, according to the Medicare Payment Advisory Commission (MedPAC). This figure greatly exceeds the overall Medicare fee-for-service (FFS) improper payment rate of 6.6%. DMEPOS suppliers reported the highest error rate across various Medicare provider categories, overshadowing Part B providers at 8.4% and inpatient hospital providers at 3.2%.

Documentation failures were identified as the leading factor in improper payments, responsible for 68% of these errors across the Medicare FFS program. The Centers for Medicare & Medicaid Services (CMS) has proactively addressed these compliance challenges through enhanced oversight, involving a total of $28.8 billion in improper payments for the fiscal year. Efforts include implementing AI-driven prior authorization requirements for DMEPOS items prone to unnecessary utilization, ensuring regulatory compliance.

Moreover, CMS employs a Fraud Prevention System that leverages predictive analytics to detect irregular billing patterns and facilitate preemptive claim screening. Comprehensive Error Rate Testing evaluates approximately 37,500 randomly selected Medicare FFS claims to ascertain their legitimacy, focusing on medical necessity and billing accuracy. Despite a notable reduction from a high of 12.7% in fiscal 2012, the total amount of improper payments has risen due to increased Medicare spending. This issue also affects Medicare Advantage (MA), where CMS identified a 6.1% error rate, leading to $23.7 billion in improper payments for payment year 2023.

Altogether, MedPAC estimates Medicare-related improper payments for fiscal year 2025 amounted to $56.7 billion, encompassing both FFS and MA programs. These figures underscore the ongoing challenges in maintaining regulatory compliance and effective risk management within the Medicare framework.