Federal Improper Payments Reach All-Time High

The federal government defines an improper payment as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements. Improper payments include overpayments or underpayments that are made to eligible recipients, payments made to ineligible recipients, payments made for ineligible goods or services, and payments for goods or services not received.

Total improper payments and payment rates declined from FY 2008 to FY 2013, but have risen steadily each year since.

The increase in FY 2016 improper payments was mostly attributable to improper payments in the Medicaid program which grew from $29.1 billion in FY 2015 to $36.3 billion in FY 2016, equating to an error rate rise of 9.8% to 10.5% of program outlays.  The Affordable Care Act has added millions of additional Medicaid beneficiaries and raised total program outlays from $298 billion in FY 2015 to $346 billion in FY 2016. 

Distribution of improper payments by agency is charted below:

HHS continues to show the highest improper payment rates at 10% of total program outlays for FY 2016, equating to $96.9 billion.

According to GAO’s annual report of federal consolidated financial statements, the Medicare Fee-for-Service (FFS) program continues to account for the largest portion of the government-wide improper payments total, equating to $41.1 billion in FY 2016.  However, the program is showing progress increasing program integrity and reducing improper payments.  The Medicare FFS program has shown continued declines in improper payment amounts and error rates since in FY 2014, dropping $4.7 billion from FY 2014 and lowering error rates from 12.7% to 11.0%. 

Main causes for improper payments for FY 2016 are shown below:

Most improper payments are due to administrative or process errors made by the federal agency, state or local agency, or other party.  These types of errors are caused by incorrect data entry, classifying, or processing of applications or payments. The second most frequent cause of improper payments is insufficient documentation to determine if the payment is actually improper.  This occurs when there is a lack of supporting documentation necessary to verify the accuracy of a payment identified in the improper payment testing sample. For example, a program does not have documentation to support a beneficiary's eligibility for a benefit.

Although improper payment amounts have risen over the last three years, on the positive side, agencies continue to increase recovery amounts. The federal government recaptured $26.7 billion in FY 2016 up from $20 billion in FY 2015. 

Deltek believes the Trump administration will make combating waste, fraud and abuse in federal programs a high priority.  The new administration and federal agencies will continue to explore new and innovative ways to address the problem, leading to contractor opportunities in the areas of prescreening, big data, analytics, recapture audits, ID authentication, data warehousing, data authentication, predictive modeling, forensic accounting, and fraud case management.