DEPARTMENT OF HEALTH AND HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, MD 21244-1850 
 
 
SHO# 15-004 
Affordable Care Act # 35 
 
RE:  Payment Error Rate Measurement (PERM) 
eligibility reviews, Medicaid Eligibility Quality 
Control (MEQC) Program, and extension of an 
interim approach for assessing payment error for 
eligibility 
 
October 7, 2015 
 
 
Dear State Health Official: 
Dear State Medicaid Director: 
 
This letter is one of a series intended to provide guidance on implementation of the Patient 
Protection and Affordable Care Act of 2010 (Pub. L. No. 111-148), as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. No. 111-152) (collectively referred to as 
the Affordable Care Act). The purpose of this letter is to provide guidance to states on eligibility 
reviews under the Payment Error Rate Measurement (PERM) and the Medicaid Eligibility 
Quality Control (MEQC) programs. This letter provides additional information to the guidance 
provided in SHO letter #13-005, Affordable Care Act #27, dated August 15, 2013, about the 
interim approach for eligibility reviews for the PERM and MEQC programs. In order to conduct 
additional testing of PERM eligibility review models and explore options to develop a robust 
PERM methodology, CMS will be extending the Medicaid and CHIP Eligibility Review Pilots to 
cover one additional fiscal year.  
 
Background on Medicaid and CHIP Eligibility Review Pilots substitution for PERM and MEQC        
 
The Affordable Care Act made significant changes to Medicaid and CHIP eligibility.  The 
changes required states to redesign many Medicaid business operations, systems, and 
interactions with other state and federal partners. Updates were needed to PERM eligibility 
review methodologies applied to measurement of eligibility accuracy in order to reflect these 
changes.   
 
SHO letter #13-005, Affordable Care Act #27, dated August 15, 2013, established a 50-state 
pilot program strategy with rapid feedback for improvement (known as the Medicaid and CHIP 
Eligibility Review Pilots), in place of the PERM and MEQC eligibility reviews for fiscal years 
(FYs) 2014 - 2016.  All states are required to participate in the Medicaid and CHIP Eligibility 
Review Pilots to provide more targeted, detailed information on the accuracy of eligibility 
determinations.  The Medicaid and CHIP Eligibility Review Pilots use targeted measurements to: 
(1) provide state-by-state programmatic assessments of the performance of new processes and 
systems in adjudicating eligibility; (2) identify strengths and weaknesses in operations and 
systems leading to errors; and (3) test the effectiveness of corrections and improvements in  Page 2 - State Health Official and State Medicaid Director 
 
reducing or eliminating those errors. States are required to conduct four rounds of pilot 
measurements over the three-year period. 
 
For FYs 2014 - 2016, the Medicaid and CHIP Eligibility Review Pilots take the place of the 
PERM state eligibility determination reviews; except for reporting comprehensive Medicaid and 
CHIP program error rates.  PERM managed care and fee-for-service payment reviews continue, 
and CMS will continue to report Medicaid and CHIP improper payment rates based on that data 
as well as a historical eligibility component rate based on each states eligibility error rate from 
the most recently completed PERM cycle. 
 
The pilots also provide a testing ground for different approaches and methodologies for 
producing reliable results and help inform CMSs approach to rulemaking prior to the 
resumption of the PERM eligibility measurement component previously scheduled for FY 2017. 
 
States are in various stages of developing and implementing new Medicaid and CHIP eligibility 
systems and operations designed to implement the provisions of the Affordable Care Act.  States 
have reported informative results for the first two rounds of eligibility review pilots.  The pilots 
have been useful in future planning for the new PERM regulations; however, CMS needs more 
feedback from piloting different approaches and methodologies.  An additional round of 
eligibility pilots, covering a review period of one year, will provide CMS with the information 
needed to develop a sound and accurate proposed rule.  
 
Extending Medicaid and CHIP Eligibility Review Pilots for one year and resuming PERM 
eligibility   
 
In light of the need to obtain more information as we continue to develop the framework for the 
new PERM regulations, CMS is extending the FY 2014-2016 Medicaid and CHIP Eligibility 
Review Pilots for one additional year.  All states will be required to participate in a fifth round of 
the Medicaid and CHIP Eligibility Review Pilots, which will take the place of the PERM and 
MEQC eligibility reviews for FY 2017.  Results for the fifth round of pilots should be reported to 
CMS by the last day of June 2017.  The PERM eligibility measurement component will resume 
following this one-year extension of the pilots. 
 
To maintain transparency regarding the accuracy of Medicaid and CHIP enrollment, CMS will 
continue to provide an overall analysis of the Medicaid and CHIP Eligibility Review Pilot results 
through the FY 2018 Agency Financial Report (AFR) and Medicaid and CHIP improper 
payments report that will be posted to the CMS PERM website.  Additionally, CMS will 
continue to report comprehensive Medicaid and CHIP program error rates in the FY 2018 AFR 
based on the FFS and managed care PERM reviews and a historical eligibility component rate 
based on each states eligibility error rate from the most recently completed PERM cycle.1 
 
Federal Eligibility Review Contractor (ERC) Conducting Eligibility Reviews for Round 5 Pilots 
in Cycle 3 states  
                                                           
1 CMS was already planning to report pilot results and a historical eligibility component rate in the FY 2015 to 2017 
AFRs and Medicaid and CHIP improper payments report, and given the one-year extension, will continue this 
practice through FY 2018.    Page 3 - State Health Official and State Medicaid Director 
 
 
To reduce the burden on the states and improve the consistency of the eligibility reviews, CMS 
anticipates implementing the use of a federal contractor to conduct PERM eligibility reviews 
upon resumption of the PERM eligibility measurement component.   
 
PERM cycle 3 states were originally scheduled to resume participation in the PERM eligibility 
component in FY 2017, which is now covered by a fifth round of the pilots.  In order to refine 
the federal Eligibility Review Contractor (ERC) process prior to calculating the next PERM 
eligibility error rate, a federal ERC will conduct the eligibility pilot reviews for the fifth round of 
the Medicaid and CHIP Eligibility Review Pilots in these 17 cycle 3 states.  Cycle 1 and cycle 2 
states will conduct their own reviews for the fifth round of eligibility pilots in accordance with 
CMS issued guidance.   
 
In general, states have been following and will continue to follow the schedule below for 
completing the Medicaid and CHIP eligibility review pilots and restarting PERM eligibility.  
 
Pilot 
Review Period  States Impacted  Reporting Due 
Round 
1  October 2013 - March 2014  All states  June 2014 
2  April 2014 - September 2014  All states   December 2014 
3  October 2014 - March 2015  All states  June 2015 
4  April 2015 - March 2016  All states  June 2016 
5  April 2016 - March 2017   PERM cycle 1 & 2 states  conduct  June 2017 
  pilots 
PERM cycle 3 states - ERC conducts 
reviews 
PERM  PERM eligibility component recommences with PERM cycle 1 states   CMS publishes 
ERC conducts eligibility reviews   Medicaid and 
CHIP error rates 
(including the 
revised eligibility 
component) in 
November 2019 
 
CMS will continue to work collaboratively with states to provide ongoing assistance and feedback on the 
pilots.  Detailed guidance on future pilot rounds will be distributed as in previous rounds.  For a list of 
states in each PERM cycle and more information on the eligibility pilot and PERM programs please visit 
www.cms.gov/perm. 
 
 
 
 
 
 
 
 
 
 
  Page 4 - State Health Official and State Medicaid Director 
 
We hope this guidance is helpful and if you have questions, please contact Stacey Krometis at (410) 786-
0241 or Judith Cash at (410) 786-4473.  
 
            Sincerely,  
 
                /s/ 
                 
 
 
Megan Worstell             Vikki Wachino 
Acting Director and Chief Financial Officer       Director 
               
 
 
cc:  
 
National Association of Medicaid Directors 
  
National Academy for State Health Policy  
 
American Public Human Services Association  
  
National Governors Association  
 
Council of State Governments  
 
Association of State and Territorial Health Officials