SECTION III: OTHER INFORMATION (Sections 1-10)

FY 2016 HHS Agency Financial Report

Topics in this Section: Other Financial Information | Freeze the Footprint | Civil Monetary Penalty Adjustment for Inflation | Improper Payments Information Act Report (Section 1-10 | 11 | 12-16) | Summary of Financial Statement Audit and Management Assurances | FY 2016 Top Management and Performance Challenges Identified by the Office of Inspector General | Department’s Response to the Office of Inspector General Top Management Challenges

Improper Payments Information Act Report

1.0 Overview

HHS’s FY 2016 Improper Payments Information Act Report includes a discussion of the following information, as required by the Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments Elimination and Recovery Improvement Act of 2012 (IPERIA); Office of Management and Budget (OMB) Circular A-136; and Appendix C of OMB Circular A-123:

1.10 Program Descriptions

The following is a brief description of the risk-susceptible programs discussed in this report. For the Superstorm Sandy risk-susceptible programs, the only programs included in the list below are those that are measuring and reporting improper payment estimates for FY 2016.

OMB-Determined Risk-Susceptible Programs:

Medicare FFS - A federal health insurance program for people age 65 or older, people younger than age 65 with certain disabilities, and people of all ages with End-Stage Renal Disease.
Medicare Part C - A federal health insurance program that allows beneficiaries to receive their Medicare benefits through a private health plan.
Medicare Part D - A federal prescription drug benefit program for Medicare beneficiaries.
Medicaid - A joint federal/state program, administered by the states, that provides health insurance to certain low income individuals.
CHIP - A joint federal/state program, administered by the states, that provides health insurance for qualifying children.
TANF - A joint federal/state program, administered by the states, that provides time-limited cash assistance as well as job preparation, work support, and other services to needy families with children to promote work, responsibility, and self-sufficiency.
Foster Care - A joint federal/state program, administered by the states, for children who need placement outside their homes in a foster family home or a child care facility.
CCDF - A joint federal/state program, administered by the states, that provides child care financial assistance to low-income working families.

Superstorm Sandy Risk-Susceptible Programs:

Head Start -A federal program that provides comprehensive developmental services for America’s low-income children from birth to five years of age, and their families.
SSBG - A joint federal/state program, administered by the states, which supports programs that allow communities to achieve or maintain economic self-sufficiency to prevent, reduce or eliminate dependency on social services.
ASPR Research - A federal initiative to build a strong scientific research dataset and to support research that will aid in the response to, and recovery from, Superstorm Sandy.
SAMHSA -A joint federal/state initiative to provide continued and enhanced mental health and substance abuse treatment to affected parties.
NIH Research -A federal initiativeto restore investment in biomedical research and infrastructure that was severely damaged or destroyed by Superstorm Sandy.

2.0 Risk Assessments

In addition to the programs deemed by OMB to be susceptible to significant improper payments and those required to be measured under the Superstorm Sandy Disaster Relief Appropriations Act of 2013 (Disaster Relief Act), HHS also reviews other programs and payment streams to determine if they are susceptible to significant improper payments. Per Appendix C of OMB Circular A-123, Part I.A.9.Step1.b, the HHS IPERIA Risk Assessment Template contains nine factors that are reviewed:

Whether the program is new to the agency;
The complexity of the program, particularly determining correct payment amounts;
The volume of payments made annually;
Whether payments or payment eligibility decisions are made outside of the agency;
Recent major changes in program funding, authorities, practices, or procedures;
The level, experience, and quality of training for personnel responsible for making program eligibility determinations or certifying that payments are accurate;
Inherent risks of improper payments due to the nature of agency programs or operations;
Significant deficiencies in agency audit reports including, but not limited to, HHS Inspector General or Government Accountability Office (GAO) findings, or other relevant management findings; and
Results from prior improper payment work.

In addition to these risk factors, the HHS IPERIA Risk Assessment Template includes information on specific risks identified by the program that may lead to improper payments, as well as controls that may help mitigate those risks. By continuing to examine both the required risk factors and additional internal control information, the risk assessment tool provides a comprehensive review and analysis of selected programs’ operations to determine if a payment risk exists and the nature and extent of the risks identified.

In FY 2016, HHS strengthened its risk assessment process and reporting activities with added policies and procedures. For example, the Department made minor refinements to the HHS IPERIA Risk Assessment Template to incorporate lessons learned from the previous year’s risk assessments and incorporated best practices from the revised version of GAO’s Standards for Internal Control in the Federal Government. Furthermore, the Department increased the number of programs conducting improper payment risk assessments from 9 programs in FY 2015 to 22 programs in FY 2016. For a complete list of programs HHS reviewed under its risk assessment approach, see Figure 2.0.

Figure 2.0: FY 2016 Risk Assessments

Operating or Staff Division	Program Name
Administration for Children and Families (ACF)	Head Start
	Low Income Home Energy Assistance Program
	TANF
Administration for Community Living (ACL)	Home and Community Based Supportive Services
Administration for Community Living (ACL)	State Councils on Developmental Disabilities
Agency for Healthcare Research and Quality (AHRQ)	Health Costs, Quality, and Outcomes Program
Agency for Healthcare Research and Quality (AHRQ)	Medical Expenditure Panel Survey
Assistant Secretary for Preparedness and Response	Ebola Supplemental Patient Care Reimbursement Program
Centers for Disease Control and Prevention	Vaccine for Children
Centers for Disease Control and Prevention	National Center for Chronic Disease Prevention and Health Promotion
Food and Drug Administration (FDA)	Vendor Payments
Health Resources and Services Administration (HRSA)	Health Service Corps Loan Repayment and Scholarship Programs
Health Resources and Services Administration (HRSA)	Maternal and Child Health Block Grant
Indian Health Service (IHS)	Grants Management
Indian Health Service (IHS)	Health Information Technology
National Institutes of Health	Student Loan Repayment Program
National Institutes of Health	Extramural Loan Repayment Programs
Office of the Assistant Secretary for Health (OASH)	Title X Family Planning Grant Program
Office of the Assistant Secretary for Health (OASH)	Teen Pregnancy Prevention Program
Office of the National Coordinator for Health IT (ONC)	Regional Extension Center Program
Substance Abuse and Mental Health Services Administration	Addiction Technology Transfer Center Grants
Substance Abuse and Mental Health Services Administration	Residential Treatment for Pregnant and Postpartum Women

HHS determined that none of the programs that were risk assessed in FY 2016 were at-risk for significant improper payments.

In FY 2016, HHS also met IPERIA’s requirement to assess the risk of charge cards and employee pay by leveraging existing Departmental activities and implementing a new risk assessment approach. For charge card payments, which includes both purchase and travel cards, HHS developed a new, qualitative risk assessment tool—similar to the risk assessment tool used to assess programs’ susceptibility to significant improper payments. The new risk assessment tool uses data generated through existing evaluations such as those mandated by legislative and administrative processes in addition to the findings of continuous monitoring activities and OMB’s nine required risk factors that are listed earlier in this section. One Staff Division (Program Support Center) and three Operating Divisions (FDA, NIH, and CDC), historically representing the majority of charge card expenditures, completed the charge card risk assessment process and were determined not to be at-risk for significant improper payments. For employee pay, the Department primarily utilized control testing performed during the OMB Circular A-123, Appendix A process, and findings from internal reviews and external audits, to perform the improper payment risk assessment. Based on these processes, the Department concluded that employee payments were not at-risk for significant improper payments.

2.10 Affordable Care Act Risk Assessment

HHS and the Department of the Treasury (Treasury) each have responsibilities for ensuring payment accuracy in Marketplace programs created under the Affordable Care Act. Performing program-specific comprehensive risk assessments provides reasonable assurance of whether improper payments could exceed statutory thresholds, and remains critical to evaluating and improving payment accuracy. HHS has conducted risk assessments to determine areas that might affect Advance Premium Tax Credit (APTC), Cost-Sharing Reduction (CSR), and other programs’ payment accuracy; and Treasury has conducted a risk assessment to determine areas that might affect Premium Tax Credit (PTC) payment accuracy. The Department leveraged the same Federally Funded Research and Development Center to facilitate interagency coordination, information exchange, and risk analysis during the APTC and PTC program risk assessments.

Qualitative risk assessments of the Marketplace programs, administered by the Department, were conducted using the HHS IPERIA Risk Assessment Template, which provides guidance and criteria in assessing the risk factors listed in Appendix C of OMB Circular A-123, Part I.A.9.Step1.b (See Section 2.0 for a list of those factors). The risk assessments also identified and evaluated potential improper payment risks. A complete list of Marketplace and related programs that HHS risk assessed is included below in Figure 2.1.

Figure 2.1: FY 2016 Affordable Care Act Risk Assessments

Operating Division	Program Name
Centers for Medicare & Medicaid Services	APTC
Centers for Medicare & Medicaid Services	CSR
Centers for Medicare & Medicaid Services	Basic Health Program (BHP)
Centers for Medicare & Medicaid Services	Consumer Operated and Oriented Plan
Centers for Medicare & Medicaid Services	Navigator Grants
Centers for Medicare & Medicaid Services	Risk Adjustment
Centers for Medicare & Medicaid Services	Risk Corridors
Centers for Medicare & Medicaid Services	Transitional Reinsurance
Centers for Medicare & Medicaid Services	Small Business Health Options
Centers for Medicare & Medicaid Services	State Marketplace Establishment Grants
Centers for Medicare & Medicaid Services	Women’s Preventative Services Exception

HHS concluded that the APTC and CSR programs are susceptible to significant improper payments (See Figure 2.1.1). HHS is deferring a final risk assessment conclusion for the BHP to allow the program to become more fully established. HHS determined that the remaining programs were not susceptible to significant improper payments. HHS will begin piloting improper payment measurement methodologies in FY 2017 for those programs deemed susceptible to significant improper payments, which will be used to develop annual estimates, report improper payments, and facilitate corrective actions. The BHP risk assessment conclusion and updates on the APTC and CSR improper payment measurement methodology development will be provided in the FY 2017 Agency Financial Report (AFR).

Figure 2.1.1: FY 2016 Affordable Care Act Programs Susceptible to Significant Improper Payments

	FY 2016 Risk Assessment Results
	Below Statutory Thresholds	Susceptible to Significant Improper Payments (IPs)	Year Rate and Amount will be reported
APTC	No	Yes	To Be Determined*
CSR	No	Yes	To Be Determined*

*Note: Currently, HHS is unable to specify the year the rate and amount will be reported due to the complexity and timing of the error rate measurement methodology development process, which involves conducting pilot testing, using those pilots to refine the methodology, and then undergoing the rule making process before implementing the methodology.

Treasury has completed the risk assessment for the PTC program. Treasury’s risk assessment determination and a detailed discussion are reported in the appropriate sections of the FY 2016 Treasury AFR. In addition to the work on the improper payment risk assessments, both Departments have established internal controls to provide for effective program operations, reliable financial reporting, and compliance with laws and regulations.

3.0 Statistical Sampling Process

Each program’s statistical sampling process is discussed in Section 11.0: Program-Specific Reporting Information or Section 13.0: Superstorm Sandy Reporting Information. Unless otherwise stated in either section, all programs that reported an error rate estimate complied with the requirement that all estimates be based on the equivalent of a statistically valid random sample of sufficient size to yield an estimate with a 90 percent confidence interval of plus or minus 2.5 percentage points of the total amount of all program payments around the estimate of the dollars of erroneous payments. In addition, seven of the eight programs that OMB determined susceptible to significant improper payments are reporting error estimates calculated by a statistical contractor.

3.10 Error Rate Presentation

OMB Circular A-136 allows agencies to report net error rates in addition to the required gross error rates. Tables 1A and 1B in Section 9.0: Improper Payment Reduction Outlook FY 2015 through FY 2019 present each high-risk or Superstorm Sandy program’s gross and net error rates.

The gross error rate is the official program error rate; it is calculated by adding the sample’s overpayments and underpayments and dividing by the total dollar value of the sample. The net error rate reflects the overall estimated monetary loss to the program; it is calculated by subtracting the sample’s underpayments from overpayments and dividing by the total dollar value of the sample.

4.0 Corrective Action Plans

Each program’s CAP for reducing the estimated rate of improper payments can be found in Section 11.0: Program-Specific Reporting Information or Section 13.0: Superstorm Sandy Reporting Information. CAPs are used to set aggressive, realistic targets and outline a timetable to achieve scheduled targets. OMB approves all CAPs and reduction targets published in the AFR. The Department reviews CAPsannually to ensure plans focus on the root causes of the errors, thus making it more likely that targets are met. If targets are not met, HHS will develop new strategies, adjust staffing and other resources, and possibly revise targets.

Many successful corrective actions were listed as best practices in previous AFRs. Beginning with the FY 2016 improper payments reporting section, HHS will no longer include these best practices in its AFR. However, information on these best practices can be found at HHS/About HHS/Budget & Performance/Agency Financial Reports.

4.10 Corrective Actions for High-Priority Programs

Under Executive Order (EO) 13520 – “Reducing Improper Payments and Eliminating Waste in Federal Programs” - and its implementing guidance, OMB identifies programs that have more than $750 million in annual estimated improper payments and that contribute substantially to the governmentwide improper payment estimate. These programs, known as high-priority programs, are required to perform certain activities, including: appointing Accountable Officials to oversee the agency’s improper payment efforts; posting improper payment information to PaymentAccuracy.gov; and developing and reporting supplemental measures in addition to reporting the annual error rates.

HHS has five programs that OMB deemed high-priority programs: Medicare FFS, Medicare Part C, Medicare Part D, Medicaid, and CHIP. Accordingly, additional information on HHS’s efforts can be found on PaymentAccuracy.gov. In addition, while the root causes of errors in the Department’s programs can fluctuate from year to year, HHS remains focused on reducing the annual error rates for its high-priority programs and is taking many actions to prevent and reduce improper payments (see Section 11.0 for more information on HHS’s corrective actions, and Section 12.0 for information on HHS’s supplemental measures).

5.0 Accountability in Reducing and Recovering Improper Payments

Strengthening program integrity throughout the organization is a top Departmental priority, extending to HHS senior executives and program officials at each of our agencies and programs. As evidence of this focus, beginning with senior leadership and cascading down, performance plans contain strategic goals that are related to strengthening program integrity, protecting taxpayer resources, and reducing improper payments. Senior executives and program officials are evaluated as part of their semi-annual and annual performance evaluations on their progress toward achieving these goals.

6.0 Information Systems and Other Infrastructure

Section 11.0: Program-Specific Reporting Information details each program’s information systems and other infrastructure.

7.0 Mitigation Efforts Related to Statutory or Regulatory Barriers

Section 11.0: Program-Specific Reporting Information reports each program’s statutory or regulatory barriers, if any, to reduce improper payments.

8.0 FY 2016 Achievements

In FY 2016, HHS strengthened its efforts to reduce and recover improper payments in its programs. While a few of these efforts are highlighted below, more detailed information on the programs’ performance and corrective actions can be found in Section 11.0: Program-Specific Reporting Information.

Head Start

As of FY 2013, Head Start no longer reports annual improper payment estimates due to the strong internal controls, monitoring systems, and low reported error rates from FY 2009 through FY 2012. In lieu of an annual error rate measurement, HHS provides oversight through Head Start’s existing internal controls and monitoring systems, and annually reports to OMB on its internal controls. Overall, FY 2016 monitoring results indicate the number of grantees with erroneous payments related to eligibility remained consistently low, indicating that the Department’s control and monitoring systems are working as intended.

Centers for Medicare & Medicaid Services (CMS) Program Integrity Board

As part of HHS’s efforts to reduce improper payments, CMS established an agency-wide Program Integrity (PI) Board to identify and prioritize improper, wasteful, abusive, and potentially fraudulent payment vulnerabilities in its programs. The PI Board is comprised of CMS executive leaders, all of whom share the mutual objective to identify and prevent improper and fraudulent payments. After identifying high-priority vulnerabilities, the PI Board directs corrective actions and tracks issues to resolution. Specifically, the PI Board established an Improper Payment Action Plan workgroup to periodically collect data from improper payment reports and formulate action plans for review by the PI Board. In FY 2016, the workgroup focused on vulnerabilities identified in the Medicare FFS, Medicare Parts C and D, and Medicaid and CHIP improper payment measurements. The PI Board also established smaller working groups—referred to as Integrated Project Teams (IPTs)—to focus on specific projects to address the identified vulnerabilities. For example, in FY 2015, the PI Board approved the Therapy Services IPT, Home Health IPT, and Medicare FFS Integrity Continuum IPT. In FY 2016, the PI Board approved the Marketplace IPT and Documentation Improvement IPT. Each IPT works independently under the directive of the PI Board and provides regular updates. Major initiatives include: launching the Pre-Claim Review Demonstration for Home Health Services in August 2016; releasing Skilled Nursing Facility (SNF) provider utilization and payment data in March 2016 that brought national attention to potential billing irregularities for therapy services; and launching the Provider Billing Review Evaluation in one Medicare Administrative Contractor (MAC) jurisdiction to help Medicare Part B providers analyze their coding and billing practices for specific procedures and services.

Affordable Care Act Provider Enrollment Moratorium

Section 6401 of the Affordable Care Act added Section 1866(j)(7) to the Social Security Act that provides HHS the authority to impose a temporary moratorium on the enrollment of new providers and suppliers as a tool to prevent or combat fraud, waste, or abuse in Medicare, Medicaid, or CHIP. Establishing a moratorium in certain geographic areas provides HHS the opportunity to analyze and monitor the existing provider and supplier base, and to focus on additional fraud prevention and detection tools in the areas. On July 30, 2013, HHS launched the first temporary (6-month) enrollment moratorium pursuant to this authority for Miami-area and Chicago-area home health agencies (HHAs) and ground ambulance suppliers (emergency and non-emergency) in the Houston-area for Medicare, Medicaid, and CHIP. On January 30, 2014, HHS extended the original moratoria for these locations by 6 months and expanded the temporary enrollment moratoria to include HHAs in the Fort Lauderdale, Detroit, Dallas, and Houston areas. HHS also expanded the moratoria for ground ambulance suppliers into the Philadelphia area and surrounding New Jersey counties. Since the initial expansion, moratoria for all areas were continued until July 2016.

Most recently, on July 29, 2016, HHS announced:

The moratoria were expanded state-wide for HHAs in Florida, Illinois, Michigan, and Texas and for new Medicare Part B, Medicaid, and CHIP non-emergency ambulance suppliers in New Jersey, Pennsylvania, and Texas;
HHS concurrently lifted the temporary moratoria on all Medicare Part B, Medicaid, and CHIP emergency ground ambulance suppliers; and
HHS launched the Provider Enrollment Moratoria Access Waiver Demonstration, which grants waivers to the state-wide enrollment moratoria on a case-by-case basis in response to access to care issues in certain geographic areas and requires heightened initial review and ongoing oversight of new providers and suppliers.

The focus of these efforts is to prevent and deter fraud, waste, and abuse in high-risk services and areas across the country through the use of heightened screening for new providers and suppliers in the moratoria areas while ensuring beneficiary access to care.

Fraud Prevention System

HHS launched the Fraud Prevention System (FPS) on June 30, 2011, as required by the Small Business Jobs Act of 2010. The FPS analyzes all Medicare FFS claims using risk-based algorithms developed by HHS and its contractors. HHS uses the FPS to target investigative resources, generating alerts for suspect claims or providers and suppliers in priority order, to investigate the most egregious, suspect, or aberrant activity. HHS and its program integrity contractors use the FPS information to prevent and identify improper payments using a variety of administrative tools and actions, including claim denials, payment suspensions, revocation of Medicare billing privileges, and referrals to law enforcement.

During FY 2015, HHS took administrative action against 943 providers and suppliers, resulting in an estimated $604.75 million in identified savings. These savings led to an $11 to $1 return on investment for FY 2015. Simultaneously, the FPS also generated leads for 492 new investigations and augmented information for 226 ongoing investigations. HHS is developing the next generation of predictive analytics with a new FPS system design that further improves its usability and efficiency. Through the award of the FPS 2.0 contract on April 1, 2016, HHS, in collaboration with its contractor, will modernize the FPS system to improve model performance measurement, optimize model development time to production, and aggressively expand program integrity capabilities.

National Benefit Integrity Medicare Drug Integrity Contractor

The National Benefit Integrity (NBI) Medicare Drug Integrity Contractor (MEDIC) performs data analysis to fight fraud, waste, and abuse in Medicare Part C and D. The NBI MEDIC identifies improper payments through data analysis and notifies plan sponsors to recover the corresponding overpayments. As a result of the NBI MEDIC’s data analysis projects, HHS recovered $78.53 million in FY 2016 from Part D sponsors. In addition, HHS utilizes the NBI MEDIC’s data analysis to select Part D plan sponsors and drugs for review through self-audits conducted by Part D plan sponsors. HHS recovered $6.25 million as a result of Part D plan sponsor self-audits in FY 2016. Lastly, the NBI MEDIC also refers some information to law enforcement organizations. According to notifications received from law enforcement for the first half of FY 2016, NBI MEDIC referrals to law enforcement resulted in recoveries of $3.12 million for Part C and $71.42 million for Part D. The majority of these savings were from sentences ordering restitution.

Medicaid Integrity Program

Under the authority of Section 1936 of the Social Security Act, as amended by the Deficit Reduction Act of 2005 (DRA), HHS’s Medicaid Integrity Program has two broad responsibilities:

To hire contractors to review Medicaid provider activities, audit claims, identify overpayments, and educate providers and others on Medicaid program integrity issues.
To provide effective support and assistance to states in their efforts to combat Medicaid provider fraud, waste, and abuse.

Increased Medicaid recoveries, since the enactment of the DRA, demonstrate the increased focus on Medicaid integrity. For example, the Medicaid Integrity Program has provided the assistance of federal staff specializing in program integrity and contractor support to bolster state activities. Based on states’ quarterly reports to HHS, this assistance contributed to $784.50 million in total collections in FY 2016. The Medicaid Integrity Program works in coordination with the Medicaid program integrity activities funded by the Health Care Fraud and Abuse Control program. The DRA also required HHS to establish a Comprehensive Medicaid Integrity Plan to guide the Medicaid Integrity Program’s development and operations. HHS's most recent Comprehensive Medicaid Integrity Plan for FYs 2014 to 2018 is available at CMS's website. During FY 2016, HHS significantly expanded its efforts to assist states with meeting Medicaid screening and enrollment requirements through enhanced sharing of Medicare enrollment and screening data with states, providing a new data compare service to help states identify providers for which the state is able to rely on Medicare’s screening, and providing technical assistance to states through site visits and publishing guidance in the Medicaid Provider Enrollment Compendium.

Public Assistance Reporting Information System

The Public Assistance Reporting Information System (PARIS) is a federal/state partnership with all 50 states, the District of Columbia, and Puerto Rico that provides state public assistance agencies detailed information and data to detect and deter improper payments in TANF, Medicaid, Workers’ Compensation, Child Care, and the Supplemental Nutrition Assistance Program.

HHS, the Department of Veterans Affairs (VA), and the Department of Defense (DOD) have partnered to advance the PARIS project at no cost to states. The DOD’s Defense Manpower Data Center provides computer resources to produce a match file, using social security numbers submitted by the states, VA, and DOD as the key match indicator. States verify the matched individual’s eligibility and take any necessary action. HHS contributes to this effort by executing Computer Matching Agreements and coordinating the quarterly matches. Since its establishment, PARIS has strengthened program administration among its programs and state public assistance agencies. For instance, New York State closed 10,337 cases for cost avoidance of $59.51 million during their most recent full state fiscal year (April 2015 to March 2016). More information on PARIS can be found at ACF's website.

9.0 Improper Payment Reduction Outlook FY 2015 through FY 2019

The following tables (Table 1A, Table 1B, and Table 1C) display HHS’s improper payment results for the current year (CY) FY 2016, the prior year (PY) FY 2015, and targets for FYs 2017 through 2019. The tables include the following information by year and program, as applicable: FY outlays, the error rate or future reduction target (IP%), and dollars paid or projected to be paid improperly (IP$). In addition, for the CY, HHS includes: the amount of overpayments (CY Overpayments), the amount of underpayments (CY Underpayments), and the net error rate (CY Net IP%) and the corresponding overpayments (CY net IP$), when available.

Table 1A includes improper payment information for HHS’s OMB-determined risk-susceptible programs. Table 1B includes the FY 2016 improper payment results for the programs that received Disaster Relief Act funding and does not include current year estimates or out-year reduction targets for programs where all of the funds have been expended. Table 1C presents the Department’s aggregate improper payment information.

Table 1A
Improper Payment Reporting for OMB-Determined Risk-Susceptible Programs
FY 2015 - FY 2019 (in Millions)

Program or Activity	PY Outlays $	PY IP %	PY IP $	CY Outlays $	CY IP %	CY IP $	CY Over payment $	CY Under payment $	CY Net IP %	CY Net IP $
Medicare FFS	358,348.60 Note (a)	12.09	43,325,61	373,650.45 Note (b)	11.00 Note (1)	41,084.65	39,844.92	1,239.72	10.33	38,605.20
Medicare Part C	148,593.71 Note (d)	9.50	14,117.00	161,944.04 Note (e)	9.99	16,182.66	11,484.39	4,698.27	4.19	6,786.12
Medicare Part D	62,003.91 Note (g)	3.60	2,234.25	70,235.94 Note (h)	3.41	2,393.94	1,660.84	733.09	1.32	927.75
Medicaid	297,672.02 Note (j)	9.78	29,124.61	345,973.72 Note (k)	10.48 Note (3)	36,253.25	35,750.72	502.53	10.19	35,248.19
CHIP	9,293.91 Note (l)	6.80	632.11	9,233.06 Note (m)	7.99 Note (5)	737.59	732.07	5.52	7.87	726.55
TANF	16,215.32 Note (n)	N/A	N/A	15,496.33 Note (o)	N/A Note (6)	N/A	N/A	N/A	N/A	N/A
Foster Care	841.01 Note (p)	3.65	30.68	692.00 Note (q)	6.89	47.68	46.50	1.18	6.55	45.32
Child Care	5,420.32 Note (r)	5.74	311.13	5,547.09 Note (s)	4.34 Note (7)	240.74	225.21	15.53	3.78	209.68
SUB-TOTAL Note (t)	882,173.48	10.18	89,775.39	967,276.30	10.02	96,940.51	89,744.65	7,195.84	8.53	82,548.81

Program or Activity	CY+1 Est.Outlays $	CY+1 IP %	CY+1 IP $	CY+2 Est.Outlays $	CY+2 IP %	CY+2 IP $	CY+3 Est.Outlays $	CY+3 IP %	CY+3 IP $
Medicare FFS	403,555.00 Note (c)	10.40	41,969.72	426,865.00	9.40	40,125.31	450,505.00 Note (c)	9.30	41,896.97
Medicare Part C	201,283.00 Note (f)	9.50	19,121.89	200,296.00 Note (f)	9.10 Note (2)	18,226.94	235,803.00 Note (f)	9.10 Note (2)	21,458.07
Medicare Part D	98,322.00 Note (i)	3.30 Note (3)	3,244.63	97,366.00 Note (i)	3.20 Note (2)	3,115.71	113,152.00 Note (i)	3.20 Note (2)	3,620.86
Medicaid	364,710.61 Note (k)	9.57	34,902.81	371,939.82 Note (k)	6.68	24,845.58	396,104.79 Note (k)	5.51	21,825.37
CHIP	15,077.44 Note (m)	7.38	1,107.55	16,015.86 Note (m)	7.06	1,130.72	12,414.94 Note (m)	6.24	774.69
TANF	17,042.12 Note (o)	N/A	N/A	16,528.39 Note (o)	N/A	N/A	16,593.63	N/A	N/A
Foster Care	771.00 Note (q)	6.60	50.89	837.00 Note (q)	6.30	52.73	897.00 Note (q)	6.00	53.82
Child Care	5,919.10 Note (s)	8.00 Note (7)	473.53	5,691.71 Note (s)	8.00 Note (7)	455.34	5,687.48 Note (s)	7.50 Note (7)	426.56
SUB-TOTAL Note (t)	1,089,568.15	9.26	100,871.02	1,119,011.39	7.86	87,952.33	1,214,564.21	7.41	90,056.34

Note: The Current Year (CY) CY+1, CY+2 and CY+3 estimated dollars paid improperly (IP$) is calculated based on the target error rate and estimated outlays for each year, respectively. However, it is important to note that the measurement periods for each program vary. Therefore, the future outlay estimates presented may not be the actual amounts against which the error rates will be applied to compute the dollars paid improperly in future years.

9.10 Accompanying Improper Payment Reporting for OMB Determined Risk-Susceptible Programs Notes

Medicare FFS PY outlays are from the FY 2015 Medicare FFS Improper Payments Report (based on claims from July 2013 – June 2014).
Medicare FFS CY outlays are from the FY 2016 Medicare FFS Improper Payments Report (based on claims from July 2014 – June 2015).
Medicare FFS CY+1, CY+2, CY+3 outlays are based on the FY 2017 Midsession Review (Medicare Benefit Outlays current law (CL)).
Medicare Part C PY outlays reflect 2013 Part C payments, as reported in the FY 2015 Medicare Part C Payment Error Final Report.
Medicare Part C CY outlays reflect 2014 Part C payments, as reported in the FY 2016 Medicare Part C Payment Error Final Report.
Medicare Part C CY+1, CY+2, CY+3 outlays are based on the FY 2017 Midsession Review (Medicare Benefit Outlays (CL)).
Medicare Part D PY outlays reflect 2013 Part D payments, as reported in the FY 2015 Medicare Part D Payment Error Final Report.
Medicare Part D CY outlays reflect 2014 Part D payments, as reported in the FY 2016 Medicare Part D Payment Error Final Report.
Medicare Part D CY+1, CY+2, CY+3 outlays are based on the FY 2017 Midsession Review (Medicare Benefit Outlays (CL)).
Medicaid PY outlays (based on FY 2014 expenditures) are based on the FY 2016 Midsession Review and exclude CDC Vaccine for Children program funding.
Medicaid CY (based on FY 2015 expenditures) and CY+1, CY+2, CY+3 outlays (Medicaid - Outlays (CL) exclude CDC Vaccine for Children program funding), are based on the FY 2017 Midsession Review.
CHIP PY outlays (based on FY 2014 expenditures) are based on the FY 2016 Midsession Review.
CHIP CY (based on FY 2015 expenditures) and CY+1, CY+2, CY+3 outlays (CHIP Total Benefit Outlays with Children’s Health Insurance Program Reauthorization Act Bonus and Health Care Quality Provisions (CL)), are based on the FY 2017 Midsession Review.
TANF PY outlays are based on the FY 2016 Midsession Review.
TANF CY, and CY+1, CY+2, CY+3 outlays are based on the FY 2017 Midsession Review (TANF total outlays including the Healthy Marriage Promotion and Responsible Fatherhood Grants programs, and excluding the TANF Contingency Fund).
Foster Care PY outlays are based on the FY 2016 Midsession Review, and reflect the federal share of maintenance payments.
Foster Care CY, and CY+1, CY+2, CY+3 outlays are based on the FY 2017 Midsession Review, and reflect the federal share of maintenance payments.
Child Care PY outlays are based on the FY 2016 Midsession Review.
Child Care CY, and CY+1, CY +2, CY+3 outlays are based on the FY 2017 Midsession Review.
The “Total” does not represent a true statistical estimate for the agency, and does not include information for TANF.

Beginning in FY 2012, in consultation with OMB, HHS refined the improper payment methodology to account for the impact of rebilling denied Part A inpatient hospital claims for allowable Part B services when a Part A inpatient hospital claim is denied because the services (i.e., improper payments due to inpatient status reviews) should have been provided as outpatient services. HHS continued this methodology from FY 2013 through FY 2016. This approach is consistent with: (1) Administrative Law Judge and Departmental Appeals Board decisions that directed HHS to pay hospitals under Part B for all of the services provided if the Part A inpatient claim was denied, and (2) recent Medicare policy changes that allow rebilling of denied Part A claims under Part B.

HHS calculated an adjustment factor based on a statistical subset of inpatient claims that were in error because the services should have been provided as outpatient. This adjustment factor reflects the difference between what was paid for the inpatient hospital claims under Medicare Part A and what would have been paid had the hospital claim been properly submitted as an outpatient claim under Medicare Part B. Application of the adjustment factor decreased the overall improper payment rate by 0.19 percentage points to 11.00 percent or $41.08 billion in projected improper payments. Additional information regarding the adjustment factor can be found on pages 166 – 167 of HHS's FY 2012 AFR.
The Medicare Part C and D targets for CY+2 and CY+3 are held constant based on the uncertainty of out-year trends. The targets for CY+3 will be re-evaluated after the FY 2017 reporting period.
The Medicare Part D targets for CY+1 and CY+2 were established and published in the FY 2015 AFR. In FY 2016, HHS revised the Medicare Part D methodology as described in Section 11.31, but HHS retained the program’s previously established reduction targets.
HHS calculated and is reporting the national Medicaid improper payment rate based on measurements that were conducted in FYs 2014, 2015, and 2016. The national Medicaid component improper payment rates are: Medicaid FFS: 12.42 percent and Medicaid managed care: 0.25 percent. The Medicaid eligibility component improper payment rate is held constant at the FY 2014 reported rate of 3.11 percent as described in Section 11.40.
HHS calculated and is reporting the national CHIP improper payment rate based on measurements that were conducted in FYs 2014, 2015, and 2016. The national CHIP component improper payment rates are: CHIP FFS: 10.15 percent and CHIP managed care: 1.01 percent. The CHIP eligibility component improper payment rate is held constant at the FY 2014 reported rate of 4.22 percent as described in Section 11.50.
The TANF program is not reporting an error rate for FY 2016. Statutory limitations prohibit HHS from requiring states to participate in a TANF improper payment measurement. Please see Section 11.60 for additional information on statutory limitations to establishing a TANF improper payment measurement.
The Child Care and Development Block Grant Act of 2014 (CCDBG) reauthorized the Child Care and Development Fund program for the first time since 1996. HHS measures one-third of the Child Care grantees each year, which is called a reporting cohort. In FY 2016, HHS established a slight increase in the improper payment target rates to accommodate all reporting cohorts’ implementation of the sweeping policy and procedure changes under the new CCDBG statute. While the FY 2016 improper payment rate declined from FY 2015, HHS anticipates increases in errors as states implement new policies. Fewer reporting states implemented new policy and procedure changes than anticipated for the FY 2016 report. Many states also requested and received waiver extensions for requirements under the CCDBG statute. HHS granted these requests for all but the health and safety requirements. New CCDF regulations released in September 2016 will have a great impact on states as they promulgate and implement new policies and procedures. Future targets have been reduced slightly from earlier projections, but still allow for an increase over the next three years as additional federal regulations are developed and implemented along with the CCDBG’s requirements. Future targets may be adjusted as well, depending on future performance.

Table 1B
Improper Payment Reporting for Superstorm Sandy Programs
FY 2014 - FY 2018 (in Millions)

Program or OpDiv	PY Outlays $	PY IP %	PY IP $	CY Outlays $	CY IP %	CY IP $	CY Over payment $	CY Under payment $	CY Net IP %	CY Net IP $
ACF Head Start	16.38	0.38	0.0616	71.78	0	0	0	0	0	0
ACF Social Services Block Grant	209.14	0.22	0.464	198.33	0.68	1.35	1.35	0.00001	0.68	1.35
ACF Family Violence Prevention and Services Act	0.893	0.89	0.00794	N/A	N/A	N/A	N/A	N/A	N/A	N/A
ASPR Research	1.55	0	0	3.055	0	0	0	0	0	0
CDC Research	4.6	0	0	N/A	N/A	N/A	N/A	N/A	N/A	N/A
SAMHSA	1.32	1.38	0.0182	1.279	0.047	0.0006	0.0006	0	0.05	0.0006
NIH Research	38.60	2.29	0.885	12.35	0	0	0	0	0	0
Sub-Total Note (4)	272.483	0.53	1.437	286.79	0.47	1.35	1.35	0.00001	0.47	1.35

Program or OpDiv	CY+1 Est. Outlays $	CY+1 IP %	CY+1 IP $	CY+2 Est. Outlays $	CY+2 IP %	CY+2 IP $	CY+3 Est. Outlays $	CY+3 IP %	CY+3 IP $
ACF Head Start	2.91	0.38 Note (2)	0.011	N/A	N/A	N/A	N/A	N/A	N/A
ACF Social Services Block Grant	60.56 Note (3)	0.67	0.41	N/A	N/A	N/A	N/A	N/A	N/A
ACF Family Violence Prevention and Services Act	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
ASPR Research	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
CDC Research	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
SAMHSA	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
NIH Research	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Sub-Total Note (4)	63.47	0.66	0.42	N/A	N/A	N/A	N/A	N/A	N/A

9.20 Accompanying Improper Payment Reporting for Superstorm Sandy Programs Notes

Table 1B does not include current or future information for programs where all of the funds were expended or will be expended, and are noted by a “N/A” in the relevant cells.
ACF Head Start improper payments during previous years resulted from unintentional human error in recipient record-keeping, some level of which may continue in the future. Therefore, HHS anticipates that it will not continue to report a 0 percent error rate in the future, and has set a reduction target of 0.38 percent, which is the highest previously reported rate for the program.
ACF Social Services Block Grant CY+1 outlays are based on the remaining grant award amounts (minus drawdowns) as of June 30, 2016, and grants will end on September 20, 2017.
The “Total” does not represent a true statistical estimate for the agency.

Table 1C
Improper Payment Reporting for All Programs
FY 2014 - FY 2018 (in Millions)

Name	PY Outlays $	PY IP %	PY IP $	CY Outlays $	CY IP %	CY IP $	CY Over payment $	CY Under payment $	CY Net IP %	CY Net IP $
Sub-Total of OMB Determined Risk-Susceptible Programs from Table 1A	882,173.48	10.18	89,775.39	967,276.30	10.02	96,940.51	89,744.65	7,195.84	8.53	82,548.81
Sub-Total of Superstorm Sandy Programs from Table 1B	272.483	0.53	1.437	286.79	0.47	1.35	1.35	0.00001	0.47	1.35
TOTAL ALL PROGRAMS Note (12)	882,445.963	10.17	89,776.827	967,563.09	10.02	96,941.86	89,746.00	7,195.84	8.53	82,550.16

Name	CY+1 Est. Outlays $	CY+1 IP %	CY+1 IP $	CY+2 Est. Outlays $	CY+2 IP %	CY+2 IP $	CY+3 Est. Outlays $	CY+3 IP %	CY+3 IP $
Sub-Total of OMB Determined Risk-Susceptible Programs from Table 1A	1,089,568.15	9.26	100,871.02	1,119,011.39	7.86	87,952.33	1,214,564.21	7.41	90,056.34
Sub-Total of Superstorm Sandy Programs from Table 1B	63.47	0.66	0.42	N/A	N/A	N/A	N/A	N/A	N/A
TOTAL ALL PROGRAMS Note (1)	1,089,631.62	9.26	100,871.44	1,119,011.39	7.86	87,952.33	1,214,564.21	7.41	90,056.34

9.30 Accompanying Improper Payment Reporting for All Programs Notes

The “Total” does not represent a true statistical estimate for the agency.

10.0 Improper Payment Root Cause Categories

Appendix C to OMB Circular A-123 requires the reporting of improper payment root causes by agencies with high-risk programs. The following tables (2A and 2B) display HHS’s improper payment root causes for FY 2016 for each high-risk program. There is a separate column for each program. The tables include categories of improper payments and the amount of overpayment or underpayment associated with each improper payment category. Additional information on the root causes and corrective actions, for each high-risk program can be found in each program-specific reporting section.

Table 2A.1
Improper Payment Root Cause Category Matrix for OMB-Determined Risk-Susceptible Programs
Medicare Improper Payment Root Cause Category Matrix
FY 2016 (in Millions)

Reason for Improper Payment		Medicare FFS		Medicare Part C		Medicare Part D
Reason for Improper Payment		Overpayments	Underpayments	Overpayments	Underpayments	Overpayments	Underpayments
Program Design or Structural Issue
Inability to Authenticate Eligibility
Failure to Verify:	Death Data
	Financial Data
	Excluded Party Data
	Prisoner Data
	Other Eligibility Data (explain)
Administrative or Process Error Made by:	Federal Agency
	State or Local Agency
	Other Party (e.g., participating lender, health care provider, or any other organization administering Federal dollars)	$4,405.18	$1,234.55		$4,698.27		$733.09
Medical Necessity		$8,131.99	$5.17
Insufficient Documentation to Determine		$27,307.75		$11,484.39		$1,660.84
Other
TOTAL		$39,844.92	$1,239.72	$11,484.39	$4,698.27	$1,660.84	$733.09

Table 2A.2
Improper Payment Root Cause Category Matrix for OMB-Determined Risk-Susceptible Programs
Medicaid and CHIP Improper Payment Root Cause Category Matrix
FY 2016 (in Millions) Note 3

Reason for Improper Payment		Medicaid		CHIP
Reason for Improper Payment		Overpayments	Underpayments	Overpayments	Underpayments
Program Design or Structural Issue
Inability to Authenticate Eligibility		$10,184.45	$286.99	$363.09	$4.03
Failure to Verify:	Death Data	$109.68		$2.66
	Financial Data
	Excluded Party Data	$21.87		$0.37
	Prisoner Data
	Other Eligibility Data (explain)
Administrative or Process< Error Made by:	Federal Agency
	State or Local Agency	$22,686.77	$244.47	$310.80	$1.64
	Other Party (e.g., participating lender, health care provider, or any other organization administering Federal dollars)	$338.48		$2.70	$0.07
Medical Necessity		$0.23		$0.08
Insufficient Documentation to Determine		$2,409.24		$52.37
Other
TOTAL		$35,750.72	$531.46 Note (1)	$732.07	$5.74 Note (1)

Table 2A.3
Improper Payment Root Cause Category Matrix for OMB-Determined Risk-Susceptible Programs
Foster Care and Child Care Improper Payment Root Cause Category Matrix
FY 2016 (in Millions)

Reason for Improper Payment		Foster Care		Child Care
Reason for Improper Payment		Overpayments	Underpayments	Overpayments	Underpayments
Program Design or Structural Issue
Inability to Authenticate Eligibility
Failure to Verify:	Death Data
	Financial Data
	Excluded Party Data
	Prisoner Data
	Other Eligibility Data (explain)
Administrative or Process Error Made by:	Federal Agency
	State or Local Agency	$46.50	$1.18	$92.69	$15.53
	Other Party (e.g., participating lender, health care provider, or any other organization administering Federal dollars)
Medical Necessity
Insufficient Documentation to Determine				$132.52
Other
TOTAL		$46.50	$1.18	$225.21	$15.53

10.10 Accompanying Improper Payment Root Cause for OMB-Determined Risk-Susceptible Programs Notes

The total Medicaid and CHIP underpayments in Table 2A are greater than the underpayment totals displayed in Table 1A, which excludes underpayments that may have also been counted as overpayments.

Table 2B.1
Improper Payment Root Cause Category Matrix for Superstorm Sandy Programs
ACF Superstorm Sandy Improper Payment Root Cause Category Matrix
FY 2016 (in Millions)

Reason for Improper Payment		ACF Head Start		ACF Social Services Block Grant
Reason for Improper Payment		Overpayments	Underpayments	Overpayments	Underpayments
Program Design or Structural Issue
Inability to Authenticate Eligibility
Failure to Verify:	Death Data
	Financial Data
	Excluded Party Data
	Prisoner Data
	Other Eligibility Data (explain)
Administrative or Process Error Made by:	Federal Agency
	State or Local Agency			$0.00001	$0.00001
	Other Party (e.g., participating lender, health care provider, or any other organization administering Federal dollars)			$0.28
Medical Necessity
Insufficient Documentation to Determine				$1.07
Other
TOTAL		$0.0	$0.0	$1.35	$0.00001

Table 2B.2
Improper Payment Root Cause Category Matrix for Superstorm Sandy Programs
ASPR, SAMHSA, and NIH Superstorm Sandy Improper Payment Root Cause Category Matrix
FY 2016 (in Millions)

Reason for Improper Payment		ASPR Research		SAMHSA		NIH Research
Reason for Improper Payment		Over- payments	Under- payments	Over- payments	Under- payments	Over- payments	Under- payments
Program Design or Structural Issue
Inability to Authenticate Eligibility
Failure to Verify:	Death Data
	Financial Data
	Excluded Party Data
	Prisoner Data
	Other Eligibility Data (explain)
Administrative or Process Error Made by:	Federal Agency
	State or Local Agency			$0.006
	Other Party (e.g., participating lender, health care provider, or any other organization administering Federal dollars)
Medical Necessity
Insufficient Documentation to Determine
Other
TOTAL		$0.00	$0.00	$0.0006	$0.00	$0.00	$0.00

Also see these sections of the Agency Financial Report:

Section I: Management, Discussion and Analysis
Section II: Financial Section
Section III: Other Information - Subsection 1
Section III: Other Information - Subsection 2
Section III: Other Information - Subsection 4
Section III: Other Information - Subsection 5
Appendices

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Content created by Office of Finance (OF)
Content last reviewed on November 30, 2016