CMS issues final rule for payment error rates measurement program

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In order to curb improper payments in the Medicare and Children’s Health Insurance Program (CHIP), the Centers for Medicare & Medicaid Services (CMS) has released the final rules of its Payment Error Rate Measurement (PERM) program, which aims to make the current process more transparent.

The PERM program creates national-level error rates for the CHIP and Medicare programs, said CMS. These two programs, Medicare and CHIP, were chosen because they were deemed as being “at risk for significant erroneous payments,” wrote CMS. Under PERM, reviews will be conducted to determine whether certain cases meet the eligibility requirements for Medicare, CHIP fee-for-service or managed care programs.

On Aug. 27, 2004, CMS published a proposed rule in the Federal Register, recommending that all states would be required to estimate annual improper payment rates for their Medicare and CHIP programs in order to report state-specific error rates. In the Oct. 5, 2005 Federal Register the interim final rule was opened for a period of public comment.

Currently, the PERM program is conducted in 17 states annually, with the average state participating in the program once every three years.

The final rule permits fiscal year 2007 and fiscal year 2008 states to accept or reject their CHIP error rates from the fiscal year 2007 and fiscal year 2008 cycles.

Additionally, under the rule, beginning in fiscal year 2011, state-specific sample size measurements will be based on the previous year’s component-level error rates, the agency said. Previously, the policy calculated the same sample size for each state for the individual components of the measurements. According to CMS, the numbers will be calculated by CMS’ statistical contractor.

The current rule also maxes out the sample size at 1,000 claims for each measurement component. Previously the program did not set a maximum sample size. “Because reviewing claims requires both staff and monetary resources, a maximum sample size puts a limit on expenditures,” said the agency.

CMS’ final rule also makes the distinction between state and provider errors, unlike the previous rule. “Data processing errors and eligibility review errors are categorized as state errors and medical review errors as provider errors,” CMS wrote.

Additionally, the new rule extends the review process-claim documentation by 15 days—from 60 days to 75 days—and states can now appeal for all errors, including those below $100.

CMS also has implemented an appeals process into its final rule that CMS will help facilitate, including:

  • Making state findings available to each state’s Medicaid and CHIP agency;
  • Facilitating documentation exchange between state Medicaid or CHIP agencies and the agency conducting the PERM review; and
  • Addressing appeals if those involved engage federal policy.

Lastly, under the final rule, states will be required to submit and implement corrective action within 90 days of the date the state’s payment error rates are posted to CMS’ website.

Under this action, states will be responsible for conducting and submitting reports of a data analysis, reviewing program analysis, and determining corrective action strategies. Additionally, states must report the implementation of corrective action and must evaluate the effectiveness of these actions.

According to CMS, the agency will conduct educational sessions with individual state oversight staff to educate them on the new rules in hopes these actions will lead to further reduced payment errors.

A copy of CMS' final rule may be viewed here.