Federal Improper Payments Increased to Over $206 Billion in FY 2020

Improper payments (IP) are defined as payments made by the government to the wrong person, in the wrong amount, or for the wrong reason. Improper payments include both overpayments and underpayments. Although improper payments do not directly translate to fraud or monetary loss, they need to be addressed and reduced to protect the integrity of taxpayer and federal funds.

In an effort to reduce IP in federal programs, Congress has passed several pieces of legislation since 2002.  The Improper Payments Elimination and Recovery Act of 2010 (IPERA) expanded core principles of the 2002 Improper Payments Act in the areas of agency IP identification, compliance and reporting requirements. 

Unfortunately, total improper payments and payment rates have been increasing since FY 2017.

The increase in FY 2020 improper payments is mostly attributable to the Medicaid program where improper payments jumped from $57.4 billion in FY 2019 to $86.5 billion in FY 2020, equating to an improper payment rate increase of 14.9% to 21.4% of program outlays.  Total program outlays also increased from $385 billion to $405 billion in the same time period.

Distribution of improper payments by agency is charted below:

HHS continues to show the highest amount of improper payments at $134.7 billion, equating to 11.6% of total program outlays for FY 2020.

In FY 2020, Medicaid outpaced the Medicare FFS program for the largest improper payment totals at $86.5 billion and a rate of 21.4% of total program outlays. The Medicare FFS program shows the second-largest improper payment amount at $25.7 billion with a 6.3% improper payment rate. However, the Medicare FFS program has shown progress in increasing program integrity and reducing improper payments since FY 2014 with a $20 billion drop in improper payments and a 6.4% decrease in improper payment rates since that year. 

The main causes of improper payments for FY 2020 are shown below:

Most improper payments are due to 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.

The second most frequent cause of improper payments is 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.

Although improper payment amounts rose from FY 2019 to FY 2020, if Medicaid is eliminated from FY 2019 and FY 2020 improper payment amounts, total IP would have been $117.4 billion in FY 2019 and $119.9 billion in FY 2020, which is essentially flat. Targeted action to reduce improper payments in the Medicaid program would likely reduce the government-wide improper payment totals and rates.  Medicaid remains on GAO’s high-risk list and the subject of numerous GAO reports advising better oversight of payments and increased program integrity.

The Biden administration will likely work to continue to eliminate waste, fraud and abuse in federal government operations. During the Obama administration, then-Vice President Biden, led efforts to carry out a “Campaign to Cut Waste,” which sought to “hunt down misspent tax dollars in every agency and department…” Efforts to curb waste and IP could lead to contracting opportunities for forensic accounting, investigators, claims analysts and IT products and services, such as analytics, AI, and blockchain solutions.