DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland 21244-1850 
 
 
SHO #06-004 
 
Dear State Health Official: 
 
CMS developed the Payment Error Rate Measurement (PERM) program to comply with the 
Improper Payments Information Act of 2002, under which the Office of Management and 
Budget requires us to estimate improper payments in Medicaid and the State Childrens Health 
Insurance Program (SCHIP).1  We began implementation of the PERM program last year to 
measure a component of the Medicaid program in seventeen States.  This year, CMS will use 
PERM to measure improper payments in SCHIP and has selected the States for review in Fiscal 
Year (FY) 2007 and beyond.  
 
As part of our national implementation strategy, we have selected States for the improper 
payment measurement in Medicaid by using a sampling methodology that ensures a State is 
selected for measurement once and only once every three years.  In selecting the States for the 
improper payment measurement in SCHIP, we determined that we can measure the same States 
that are measured for Medicaid each year and produce a SCHIP error rate that will meet IPIA 
requirements.  As with Medicaid, we will measure each States SCHIP program once and only 
once every three years.  We believe that reviewing a States Medicaid and SCHIP programs in 
the same year will reduce administrative complexities, costs and burdens since some States may 
be able to combine staff and resources for both reviews.  The SCHIP State selection for fiscal 
years (FY) 2007-2009 (which will rotate thereafter) is as follows: 
 
States Selected for SCHIP Improper Payment Measurements 
FY 2007  North Carolina, Georgia, California, Massachusetts, New Jersey, Tennessee, West Virginia, 
Kentucky, Maryland, Alabama, South Carolina, Colorado, Utah, Vermont, Nebraska, New 
Hampshire, Rhode Island 
FY 2008  New York, Florida, Texas, Louisiana, Indiana, Mississippi, Iowa, Maine, Oregon, Arizona, 
Washington, District of Columbia, Alaska, Hawaii, Montana, South Dakota, Nevada 
FY 2009  Pennsylvania, Ohio, Illinois, Michigan, Missouri, Minnesota, Arkansas, New Mexico, 
Connecticut, Virginia, Wisconsin, Oklahoma, North Dakota, Wyoming, Kansas, Idaho, 
Delaware 
 
The PERM measurement for both Medicaid and SCHIP beginning in FY 2007 will review the 
fee-for-service (FFS), managed care, and eligibility components of the program.  CMS has 
engaged Federal contractors to measure improper payments in the FFS and managed care 
components of Medicaid and SCHIP.  In the year a State is reviewed under PERM, the State 
itself will conduct the measurement for the eligibility components of Medicaid and SCHIP.  The  
 
                                                 
1 To obtain more information on the PERM program, we invite you to visit our website at 
http://www.cms.hhs.gov/MedicaidPERM.  
 
  Page 2  State Health Official 
 
States selected for review in FY 2007 will receive more detailed information regarding State 
responsibilities under PERM, including instructions for conducting the eligibility reviews and an 
invitation to participate in a kick-off teleconference.   
 
We appreciate the cooperation States have afforded us in measuring improper payments in FY 2006 
and we look forward to our continued partnership in the forthcoming years as we work to ensure the 
integrity of the Medicaid and SCHIP programs.       
 
 
 
Sincerely,  
 
/s/ 
 
Timothy B. Hill          Dennis G. Smith 
Director            Director 
Office of Financial Management      Center for Medicaid and State Operations 
 
cc: 
 
CMS Regional Administrators 
 
CMS Associate Regional Administrators 
    for Medicaid and State Operations 
 
Martha Roherty           
Director, Health Policy Unit 
American Public Human Services Association 
 
Joy Wilson 
Director, Health Committee 
National Conference of State Legislatures 
 
Matt Salo 
Director of Health Legislation 
National Governors Association 
 
Jacalyn Bryan Carden 
Director of Policy and Programs 
Association of State and Territorial Health Officials 
 
Christie Raniszewski Herrera 
Director, Health and Human Services Task Force 
American Legislative Exchange Council 
 
Lynne Flynn 
Director for Health Policy 
Council of State Governments