Medicare Program Integrity: Activities to Protect Medicare from Payment Errors, Fraud, and Abuse

Cliff Binder
Analyst in Health Care Financing

Since 1990, the Government Accountability Office (GAO) has identified the Medicare program as at risk for improper payments and fraud, and, since 2004, has issued 12 products documenting various program vulnerabilities. As noted by GAO and other public and private analysts, Medicare’s vulnerability to fraud and abuse arises from the program’s size, complexity, decentralization, and administrative requirements. Although a good estimate of the dollar amount lost to Medicare fraud and abuse is open to discussion, analysts agree that billions of dollars are lost. Administering the volume of claims (more than 4.5 million per work day) from Medicare’s many providers and suppliers (over 1 million) is a daunting task. Requirements to process and pay provider reimbursement claims quickly, have set up a “pay and chase” approach that complicates program integrity efforts.

In general, initiatives designed to fight fraud and abuse are considered program integrity activities. These include processes directed at reducing payment errors as well as activities to prevent, detect, investigate, and ultimately prosecute health care fraud. The Centers for Medicare & Medicaid Services (CMS), the Agency within the Department of Health and Human Services (HHS) responsible for Medicare administration and program integrity, oversees private contractors that perform activities such as provider audits, reviewing claims for medical necessity, and conducting investigations. These contractors develop and refer suspected fraud cases to the HHS Office of the Inspector General (HHS/OIG) and the Department of Justice (DOJ) for further investigation and prosecution.

CMS has made considerable progress in improving program integrity oversight as well as in reporting on Medicare program integrity. With increased mandatory and discretionary funding, CMS’s ability to wage a consistent, coordinated program integrity campaign has improved. Nonetheless, some issues remain, including the need to further improve the identification, monitoring, and reporting of fraud and abuse, and to provide more information on program integrity resource allocation decisions and results.

Medicare program integrity activities are funded in statute, largely through the Health Care Fraud and Abuse Control (HCFAC) and Medicare Integrity Programs (MIP), which were both established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA, P.L. 104-191). HIPAA provided CMS and federal law enforcement agencies with dedicated funds to coordinate federal, state, and local activities to fight health care fraud. Beginning in FY2009, Congress approved additional discretionary funds to enhance these efforts. Further HCFAC funding was provided under health care reform—the Patient Protection and Affordable Care Act (PPACA, P.L. 111-148 as amended). PPACA increased HCFAC mandatory funding by $350 million over the period from FY2011 to FY2020. PPACA also strengthened and added a number of new tools for CMS to help bolster Medicare’s program integrity activities.

This report provides an overview of Medicare program integrity. A description of key program integrity activities is presented as well as a discussion of the role that private contractors and law enforcement agencies play in maintaining Medicare’s integrity. Detailed information on federal funding for program integrity efforts also is presented. The report concludes with a summary and analysis of Medicare’s program integrity oversight and a discussion of recent initiatives, including program integrity provisions being considered by each chamber under different versions of the Budget Control Act of 2011.


Date of Report: July 29, 2011
Number of Pages: 42
Order Number: RL34217
Price: $29.95

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