Title 42—Public Health--Volume 1
PART 431—STATE ORGANIZATION AND GENERAL ADMINISTRATION
§ 431.950   Purpose.
This subpart requires States and providers to submit information and provide support to Federal contractors as necessary to enable the Secretary to produce national improper payment estimates for Medicaid and the Children's Health Insurance Program (CHIP).
§ 431.954   Basis and scope.
(a) Basis. The statutory bases for this subpart are as follows:
(1) Sections 1102, 1902(a)(6), and 2107(b)(1) of the Act, which contain the Secretary's general rulemaking authority and obligate States to provide information, as the Secretary may require, to monitor program performance.
(2) The Payment Integrity Information Act (PIIA) of 2019 (Pub. L. 116-117), which requires Federal agencies to review and identify annually those programs and activities that may be susceptible to significant erroneous payments, estimate the amount of improper payments, report such estimates to the Congress, and submit a report on actions the agency is taking to reduce erroneous payments.
(3) Section 1902(a)(27)(B) of the Act requires States to require providers to agree to furnish the State Medicaid agencies and the Secretary with information regarding payments claimed by Medicaid providers for furnishing Medicaid services.
(4) Section 601 of the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA) (Pub. L. 111-3) which requires that the new PERM regulations include the following: Clearly defined criteria for errors for both States and providers; Clearly defined processes for appealing error determinations; clearly defined responsibilities and deadlines for States in implementing any corrective action plans; requirements for State verification of an applicant's self-declaration or self-certification of eligibility for, and correct amount of, medical assistance under Medicaid or child health assistance under CHIP; and State-specific sample sizes for application of the PERM requirements.
(b) Scope. (1) This subpart requires States under the statutory provisions cited in paragraph (a) of this section to submit information as set forth in § 431.970 for, among other purposes, estimating improper payments in the fee-for-service (FFS) and managed care components of the Medicaid and CHIP programs and to determine whether eligibility was correctly determined. This subpart also requires providers to submit to the Secretary any medical records and other information necessary to disclose the extent of services provided to individuals receiving assistance, and to furnish information regarding any payments claimed by the provider for furnishing such services, as requested by the Secretary.
(2) All information must be furnished in accordance with section 1902(a)(7)(A) of the Act, regarding confidentiality.
(3) This subpart does not apply with respect to Guam, the Virgin Islands, the Northern Mariana Islands or American Samoa.
§ 431.958   Definitions and use of terms.
Adjudication date means either the date on which money was obligated to pay a claim or the date the decision was made to deny a claim.
Annual sample size means the number of fee-for-service claims, managed care payments, or eligibility cases that will be sampled for review in a given PERM cycle.
Appeals means a process that allows the State to dispute the PERM Review Contractor and Eligibility Review Contractor findings with CMS after the difference resolution process has been exhausted.
Beneficiary means an applicant for, or beneficiary of, Medicaid or CHIP program benefits.
Children's Health Insurance Program (CHIP) means the program authorized and funded under Title XXI of the Act.
Corrective action means actions to be taken by the State to reduce errors or other vulnerabilities for the purpose of reducing improper payments in Medicaid and CHIP.
Deficiency means a finding in which a claim or payment had a medical, data processing, and/or eligibility error that did not result in federal and/or state improper payment.
Difference resolution means a process that allows the State to dispute the PERM Review Contractor and Eligibility Review Contractor findings directly with the contractor.
Disallowance means the percentage of Federal medical assistance funds the State is required to return to CMS in accordance with section 1903(u) of the Act.
Eligibility means meeting the State's categorical and financial criteria for receipt of benefits under the Medicaid or CHIP programs.
Eligibility Review Contractor (ERC) means the CMS contractor responsible for conducting state eligibility reviews for the PERM Program.
Federal contractor means the ERC, RC, or SC which support CMS in executing the requirements of the PERM program.
Federally Facilitated Exchange (FFE) means the health insurance exchange established by the Federal government with responsibilities that include making Medicaid and CHIP determinations for states that delegate authority to the FFE.
Federally Facilitated Exchange—Determination (FFE-D) means cases determined by the FFE in states that have delegated the authority to make Medicaid/CHIP eligibility determinations to the FFE.
Federal financial participation means the Federal Government's share of the State's expenditures under the Medicaid program and CHIP.
Finding means errors and/or deficiencies identified through the medical, data processing, and eligibility reviews.
Improper payment means any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements; and includes any payment to an ineligible beneficiary, any duplicate payment, any payment for services not received, any payment incorrectly denied, and any payment that does not account for credits or applicable discounts.
Improper payment rate means an annual estimate of improper payments made under Medicaid and CHIP equal to the sum of the overpayments and underpayments in the sample, that is, the absolute value of such payments, expressed as a percentage of total payments made in the sample.
Lower limit means the lower bound of the 95-percent confidence interval for the State's eligibility improper payment rate.
Medicaid means the joint Federal and State program, authorized and funded under Title XIX of the Act, that provides medical care to people with low incomes and limited resources.
Payment means any payment to a provider, insurer, or managed care organization for a Medicaid or CHIP beneficiary for which there is Medicaid or CHIP Federal financial participation. It may also mean a direct payment to a Medicaid or CHIP beneficiary in limited circumstances permitted by CMS regulation or policy.
Payment error means any claim or payment where federal and/or state dollars were paid improperly based on medical, data processing, and/or eligibility reviews.
PERM means the Payment Error Rate Measurement process to measure improper payment in Medicaid and CHIP.
PERM review period means the timeframe in which claims and eligibility are reviewed for national annual improper payment rate calculation purposes, July through June.
Provider means any qualified provider recognized under Medicaid and CHIP statute and regulations.
Provider error includes, but is not limited to, medical review errors as described in § 431.960(c) of this subpart, as determined in accordance with documented State or Federal policies or both.
Recoveries mean those monies for which the State is responsible to pay back to CMS based on the identification of Federal improper payments.
Review Contractor (RC) means the CMS contractor responsible for conducting state data processing and medical record reviews for the PERM Program.
Review year means the year being analyzed for improper payments under the PERM Program.
State eligibility system means any system, within the State or with a state-delegated contractor, that is used by the state to determine Medicaid and/or CHIP eligibility and/or that maintains documentation related to Medicaid and/or CHIP eligibility determinations.
State error includes, but is not limited to, data

processing errors and eligibility errors as described in § 431.960(b) and (d), as determined in accordance with documented State and Federal policies. State errors do not include the errors described in paragraph § 431.960(e)(2).
State payment system means any system within the State or with a state-delegated contractor that is used to adjudicate and pay Medicaid and/or CHIP FFS claims and/or managed care payments.
State-specific sample size means the sample size determined by CMS that is required from each individual State to support national improper payment rate precision requirements.
Statistical Contractor (SC) means the contractor responsible for collecting and sampling fee-for-service claims and managed care capitation payment data, as well as calculating Medicaid and CHIP state and national improper payment rates.
States means the 50 States and the District of Columbia.
§ 431.960   Types of payment errors.
(a) General rule. Errors identified for the Medicaid and CHIP improper payments measurement under the PIIA must affect payment under applicable Federal or State policy, or both.
(b) Data processing errors. (1) A data processing error is an error resulting in an overpayment or underpayment that is determined from a review of the claim and other information available in the State's Medicaid Management Information System, related systems, or outside sources of provider verification resulting in Federal and/or State improper payments.
(2) The difference in payment between what the State paid (as adjusted within improper payment measurement guidelines) and what the State should have paid, in accordance with federal and state documented policies, is the dollar measure of the payment error.
(3) Data processing errors include, but are not limited to, the following:
(i) Payment for duplicate items.
(ii) Payment for non-covered services.
(iii) Payment for fee-for-service claims for managed care services.
(iv) Payment for services that should have been paid by a third party but were inappropriately paid by Medicaid or CHIP.
(v) Pricing errors.
(vi) Logic edit errors.
(vii) Data entry errors.
(viii) Managed care rate cell errors.
(ix) Managed care payment errors.
(c) Medical review errors. (1) A medical review error is an error resulting in an overpayment or underpayment that is determined from a review of the provider's medical record or other documentation supporting the service(s) claimed, Code of Federal Regulations that are applicable to conditions of payment, the State's written policies, and a comparison between the documentation and written policies and the information presented on the claim resulting in Federal and/or State improper payments.
(2) The difference in payment between what the State paid (as adjusted within improper payment measurement guidelines) and what the State should have paid, in accordance with the applicable conditions of payment per 42 CFR parts 440 through 484, this part (431), and in accordance with the State's documented policies, is the dollar measure of the payment error.
(3) Medical review errors include, but are not limited to, the following:
(i) Lack of documentation.
(ii) Insufficient documentation.
(iii) Procedure coding errors.
(iv) Diagnosis coding errors.
(v) Unbundling.
(vi) Number of unit errors.
(vii) Medically unnecessary services.
(viii) Policy violations.
(ix) Administrative errors.
(d) Eligibility errors. (1) An eligibility error is an error resulting in an overpayment or underpayment that is determined from a review of a beneficiary's eligibility determination, in comparison to the documentation used to establish a beneficiary's eligibility and applicable federal and state regulations and policies, resulting in Federal and/or State improper payments.
(2) Eligibility errors include, but are not limited to, the following:
(i) Ineligible individual, but authorized as eligible when he or she received services.
(ii) Eligible individual for the program, but was ineligible for certain services he or she received.
(iii) Lacked or had insufficient documentation in his or her case record, in accordance with the State's documented policies and procedures, to make a definitive review decision of eligibility or ineligibility.
(iv) Was ineligible for managed care but enrolled in managed care.
(3) The dollars paid in error due to an eligibility error is the measure of the payment error.
(4) A State eligibility error does not result from the State's verification of an applicant's self-declaration or self-certification of eligibility for, and the correct amount of, medical assistance or child health assistance, if the State process for verifying an applicant's self-declaration or self-certification satisfies the requirements in Federal law or guidance, or, if applicable, has the Secretary's approval.
(e) Errors for purposes of determining the national improper payment rates. (1) The Medicaid and CHIP national improper payment rates include, but are not limited to, the errors described in paragraphs (b) through (d) of this section.
(2) Eligibility errors resulting solely from determinations of Medicaid or CHIP eligibility delegated to, and made by, the Federally Facilitated Exchange will be included in the national improper payment rate.
(f) Errors for purposes of determining the State improper payment rates. The Medicaid and CHIP State improper payment rates include, but are not limited to, the errors described in paragraphs (b) through (d) of this section, and do not include the errors described in paragraph (e)(2) of this section.
(g) Error codes. CMS will define different types of errors within the above categories for analysis and reporting purposes. Only Federal and/or State dollars in error will factor into the State's PERM improper payment rate.
§ 431.970   Information submission and systems access requirements.
(a) The State must submit information to the Secretary for, among other purposes, estimating improper payments in Medicaid and CHIP, that include, but are not limited to—
(1) Adjudicated fee-for-service or managed care claims information, or both, on a quarterly basis, from the review year;
(2) Upon request from CMS, provider contact information that has been verified by the State as current;
(3) All medical, eligibility, and other related policies in effect, and any quarterly policy updates;
(4) Current managed care contracts, rate information, and any quarterly updates applicable to the review year;
(5) Data processing systems manuals;
(6) Repricing information for claims that are determined during the review to have been improperly paid;
(7) Information on claims that were selected as part of the sample, but changed in substance after selection, for example, successful provider appeals;
(8) Adjustments made within 60 days of the adjudication dates for the original claims or line items, with sufficient information to indicate the nature of the adjustments and to match the adjustments to the original claims or line items;
(9) Case documentation to support the eligibility review, as requested by CMS;
(10) A corrective action plan for purposes of reducing erroneous payments in FFS, managed care, and eligibility; and
(11) Other information that the Secretary determines is necessary for, among other purposes, estimating improper payments and determining improper payment rates in Medicaid and CHIP.
(b) Providers must submit information to the Secretary for, among other purposes, estimating improper payments in Medicaid and CHIP, which include but are not limited to Medicaid and CHIP beneficiary medical records, within 75 calendar days of the date the request is made by CMS. If CMS determines that the documentation is insufficient, providers must respond to the request for additional documentation within 14 calendar days of the date the request is made by CMS.
(c) The State must provide the Federal contractor(s) with access to all payment system(s) necessary to conduct the medical and data processing review, including the Medicaid Management Information System (MMIS), any systems that include beneficiary demographic and/or provider enrollment information, and any document imaging systems that store paper claims.
(d) The State must provide the Federal contractor(s) with access to all eligibility system(s) necessary to conduct the eligibility review, including any eligibility systems of record, any electronic document management system(s) that house case file information, and systems that house the results of third party data matches.
§ 431.972   Claims sampling procedures.
(a) General requirements. The State will submit quarterly FFS claims and managed care payments, as identified in § 431.970(a), to allow federal contractors to conduct data processing, medical record, and eligibility reviews to meet the requirements of the PERM measurement.
(b) Claims universe. (1) The PERM claims universe includes payments that were originally paid (paid claims) and for which payment was requested but denied (denied claims) during the PERM review period, and for which there is FFP (or would have been if the claim had not been denied) through Title XIX (Medicaid) or Title XXI (CHIP).
(2) The State must establish controls to ensure FFS and managed care universes are accurate and complete, including comparing the FFS and managed care universes to the Form CMS-64 and Form CMS-21 as appropriate.
(c) Sample size. CMS estimates each State's annual sample size for the PERM review at the beginning of the PERM cycle.
(1) Precision and confidence levels. The national annual sample size will be estimated to achieve at least a minimum National-level improper payment rate with a 90 percent confidence interval of plus or minus 2.5 percent of the total amount of all payments for Medicaid and CHIP.
(2) State-specific sample sizes. CMS will develop State-specific sample sizes for each State. CMS may take into consideration the following factors in determining each State's annual state-specific sample size for the current PERM cycle:
(i) State-level precision goals for the current PERM cycle;
(ii) The improper payment rate and precision of that improper payment rate from the State's previous PERM cycle;
(iii) The State's overall Medicaid and CHIP expenditures; and
(iv) Other relevant factors as determined by CMS.
§ 431.992   Corrective action plan.
(a) The State must develop a separate corrective action plan for Medicaid and CHIP for each improper payment rate measurement, designed to reduce improper payments in each program based on its analysis of the improper payment causes in the FFS, managed care, and eligibility components.
(1) The corrective action plan must address all errors that are included in the State improper payment rate defined at § 431.960(f)(1) and all deficiencies.
(2) For eligibility, the corrective action plan must include an evaluation of whether actions the State takes to reduce eligibility errors will also avoid increases in improper denials.
(b) In developing a corrective action plan, the State must take the following actions:
(1) Error analysis. The State must conduct analysis such as reviewing causes, characteristics, and frequency of errors that are associated with improper payments. The State must review the findings of the analysis to determine specific programmatic causes to which errors are attributed (for example, provider lack of understanding of the requirement to provide documentation), if any, and to identify root improper payment causes.
(2) Corrective action planning. The State must determine the corrective actions to be implemented that address the root improper payment causes and prevent that same improper payment from occurring again.
(3) Implementation and monitoring. (i) The State must develop an implementation schedule for each corrective action and implement those actions in accordance with the schedule.
(ii) The implementation schedule must identify all of the following for each action:
(A) The specific corrective action.
(B) Status.
(C) Scheduled or actual implementation date.
(D) Key personnel responsible for each activity.
(E) A monitoring plan for monitoring the effectiveness of the action.
(4) Evaluation. The State must submit an evaluation of the corrective action plan from the previous measurement. The State must evaluate the effectiveness of the corrective action(s) by assessing all of the following:
(i) Improvements in operations.
(ii) Efficiencies.
(iii) Number of errors.
(iv) Improper payments.
(v) Ability to meet the PERM improper payment rate targets assigned by CMS.
(c) The State must submit to CMS and implement the corrective action plan for the fiscal year it was reviewed no later than 90 calendar days after the date on which the State's Medicaid or CHIP improper payment rates are posted on the CMS contractor's Web site.
(d) The State must provide updates on corrective action plan implementation progress annually and upon request by CMS.
(e) In addition to paragraphs (a) through (d) of this section, each State that has an eligibility improper payment rates over the allowable threshold of 3 percent for consecutive PERM years, must submit updates on the status of corrective action implementation to CMS every other month. Status updates must include, but are not limited to the following:
(1) Details on any setbacks along with an alternate corrective action or workaround.
(2) Actual examples of how the corrective actions have led to improvements in operations, and explanations for how the improvements will lead to a reduction in the number of errors, as well as the State's next PERM eligibility improper payment rate.
(3) An overall summary on the status of corrective actions, planning, and implementation, which demonstrates how the corrective actions will provide the State with the ability to meet the 3 percent threshold.
§ 431.998   Difference resolution and appeal process.
(a) The State may file, in writing, a request with the relevant Federal contractor to resolve differences in the Federal contractor's findings based on medical, data processing, or eligibility reviews in Medicaid or CHIP.
(b) The State must file requests to resolve differences based on the medical, data processing, or eligibility reviews within 25 business days after the report of review findings is shared with the State.
(c) To file a difference resolution request, the State must be able to demonstrate all of the following:
(1) Have a factual basis for filing the request.
(2) Provide the appropriate Federal contractor with valid evidence directly related to the finding(s) to support the State's position.
(d) For a finding in which the State and the Federal contractor cannot resolve the difference in findings, the State may appeal to CMS for final resolution by filing an appeal within 15 business days from the date the relevant Federal contractor's finding as a result of the difference resolution is shared with the State. There is no minimum dollar threshold required to appeal a difference in findings.
(e) To file an appeal request, the State must be able to demonstrate all of the following:
(1) Have a factual basis for filing the request.
(2) Provide CMS with valid evidence directly related to the finding(s) to support the State's position.
(f) All differences, including those pending in CMS for final decision that are not overturned in time for improper payment rate calculation, will be considered as errors in the improper payment rate calculation in order to meet the reporting requirements of the PIIA.
§ 431.1002   Recoveries.
(a) Medicaid. States must return to CMS the Federal share of overpayments based on medical and processing errors in accordance with section 1903(d)(2) of the Act and related regulations at part 433, subpart F of this chapter. Payments based on erroneous Medicaid eligibility determinations are addressed under section 1903(u) of the Act and related regulations at part 431, subpart P of this chapter.
(b) CHIP. Quarterly Federal payments to the States under Title XXI of the Act must be reduced in accordance with section 2105(e) of the Act and related regulations at part 457, subpart B of this chapter.
§ 431.1010   Disallowance of Federal financial participation for erroneous State payments (for PERM review years ending after July 1, 2020).
(a) Purpose. (1) This section establishes rules and procedures for disallowing Federal financial participation (FFP) in erroneous medical assistance payments due to eligibility improper payment errors, as detected through the PERM program required under this subpart, in effect on and after July 1, 2020.
(2) After the State's eligibility improper rate has been established for each PERM review period, CMS will compute the amount of the disallowance, removing any underpayments due to eligibility errors, and adjust the FFP payable to each State. The disallowance or withholding is only applicable to the State's PERM year.
(3) CMS will compute the amount to be withheld or disallowed as follows:
(i) Subtract the 3 percent allowable threshold from the lower limit of the State's eligibility improper payment rate percentage excluding underpayments.
(ii) If the difference is greater than zero, the Federal medical assistance funds for the period, are multiplied by that percentage. This product is the amount of the disallowance or withholding.
(b) Notice to States and showing of good faith. (1) If CMS is satisfied that the State did not meet the 3 percent allowable threshold despite a good faith effort, CMS will reduce the funds being disallowed in whole.
(2) CMS may find that a State did not meet the 3 percent allowable threshold despite a good faith effort if the State has taken the action it believed was needed to meet the threshold, but the threshold was not met. CMS will grant a good faith waiver only if the State both:
(i) Participates in the MEQC pilot program in accordance with §§ 431.800 through 431.820, and
(ii) Implements PERM CAPs in accordance with § 431.992.
(3) Each State that has an eligibility improper payment rate above the allowable threshold will be notified by CMS of the amount of the disallowance.
(c) Disallowance subject to appeal. If the State does not agree with a disallowance imposed under paragraph (e) of this section, it may appeal to the Departmental Appeals Board within 30 days from the date of the final disallowance notice from CMS. The regular procedures for an appeal of a disallowance will apply, including review by the Appeals Board under 45 CFR part 16.