MEDICARE AND 

MEDICAID

Additional Actions Needed 

to Enhance Program 

Integrity and Save Billions

Statement of Gene L. Dodaro, 

Comptroller General of the United States

Testimony 

Before the Subcommittee on Oversight 

and Investigations, Energy and 

Commerce Committee, House of 

Representatives

For Release on Delivery 

Expected at 10:30 a.m. ET

Tuesday, April 16, 2024

GAO-24-107487

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-24-107487, a testimony 

before the Subcommittee on Oversight and 

Investigations, Energy and Commerce

Committee, House of Representatives

April 16, 2024

MEDICARE AND MEDICAID

Additional Actions Needed to Enhance Program 

Integrity and Save Billions

What GAO Found

The Department of Health and Human Services (HHS) estimated a combined 

total of over $100 billion in improper payments in the Medicare and Medicaid 

programs in fiscal year 2023. This represents 43 percent of the government-wide 

total of estimated improper payments that agencies reported for that year.

Improper Payments Estimates for Fiscal Year 2023

Note: Estimates also include payments whose propriety cannot be determined due to lacking or 

insufficient documentation.

The Centers for Medicare & Medicaid Services (CMS), within HHS, has taken 

several steps in response to GAO recommendations to help reduce improper 

payments in Medicare and Medicaid. These actions have resulted in billions of 

dollars in federal savings. For example:

• Improved fraud prevention in Medicare. CMS implemented capabilities 

that automatically stopped payments of certain improper and non-payable 

claims. These improvements generated an estimated almost $2 billion in 

savings over a 5-year period. 

• Improved Medicaid managed care oversight. CMS worked with states and 

audit contractors to improve oversight. This included an exponential increase

in investigations of managed care providers, from 16 in 2016 through 2018 to 

893 in 2019 through 2021. Preliminary results indicate that the audits are 

identifying overpayments.

In the current fiscal environment, addressing improper payments and providing 

sufficient oversight of program spending, more generally, is particularly 

important. Federal spending for Medicare and Medicaid has grown by almost 80 

percent over the past decade and growth in these and other health programs is 

projected to continue. View GAO-GAO-24-107487. For more 

information, contact Jessica Farb at (202) 512-

7114 or farbj@gao.gov.

Why GAO Did This Study

In 2023, the Medicare program spent 

an estimated $1.0 trillion to provide 

health care services for approximately 

66 million elderly and disabled 

individuals. This involved processing 

over a billion transactions. Medicaid is 

a joint federal-state program that 

finances health care for low-income 

and medically needy individuals. It is 

the second largest health care program 

by expenditures, with an estimated 

$849 billion in federal and state

spending for services provided to 

about 90 million individuals in 2023. 

Medicare and Medicaid are complex 

and large programs. They represented

26 percent of federal program 

spending in fiscal year 2023. The 

programs are susceptible to improper 

payments, as well as potential 

mismanagement and fraud, waste, and 

abuse. As a result, GAO added 

Medicare to its High-Risk list in 1990 

and Medicaid in 2003.

This testimony focuses on examples of 

steps taken by CMS to reduce 

improper payments in Medicare and

Medicaid, as well as actions still 

needed by CMS and Congress. It

draws on GAO’s reports issued and 

recommendations made from 2008 

through 2024 on the Medicare and 

Medicaid programs and known steps 

CMS has taken to address these

recommendations as of March 2024. 

What GAO Recommends

CMS has implemented dozens of GAO 

recommendations to improve Medicare 

and Medicaid. As of March 2024, over 

100 recommendations to CMS remain 

unimplemented, including 15 related to 

improper payments.
Page ii Highlights

Health Care and Other Government Program Spending, Actual and Projected

CMS and congressional action on GAO recommendations related to Medicare 

and Medicaid has resulted in over $200 billion in financial benefits since 2006. 

Action on recommendations that remain unimplemented would further enhance 

program integrity and save billions of dollars in Medicare and Medicaid spending.

• Provider screening and enrollment. GAO recommended CMS expand its 

review of states’ implementation of provider screening and enrollment 

requirements in Medicaid, and monitor progress when states are not fully 

compliant. For Medicare, GAO recommended that CMS implement a riskbased plan for revalidating enrollment for Medicare providers after pauses 

during the COVID-19 pandemic. 

• Prepayment claim reviews in Medicare. GAO recommended that CMS 

seek legislative authority to allow Recovery Auditors to conduct prepayment 

claim reviews, which are generally more cost effective than postpayment 

reviews in preventing improper payments.

• Equalizing certain Medicare payments. GAO recommended that Congress 

take action to address that Medicare pays more for certain services based on 

where they are provided. Congress has taken some actions. For example, 

this committee proposed and the House passed legislation to equalize 

payments for certain drug administration services. Taking additional steps to 

equalize payments has been estimated to save Medicare $141 billion over 10 

years.

• Telehealth. In response to the COVID-19 pandemic, HHS temporarily 

waived certain Medicare restrictions on telehealth and use increased 

dramatically. We recommended CMS comprehensively assess the quality of 

telehealth services in Medicare, which is needed to ensure those services 

are medically necessary, among other things.

• Medicaid demonstrations. In response to GAO recommendations, CMS 

has made changes to its policies for ensuring that demonstrations do not 

increase federal spending, reducing federal liabilities by over $120 billion. 

Additional action by CMS and Congress could result in further savings.

• State auditors. State auditors play an important role in Medicaid oversight 

and have identified improper payments and other deficiencies through their 

reviews. GAO recommended that CMS use trends in state auditor findings to 

inform its Medicaid oversight and share information on the status of actions 

to address findings with state auditors. 
Page 1 GAO-24-107487

441 G St. N.W.

Washington, DC 20548

Chairman Griffith, Ranking Member Castor, and Members of the 

Subcommittee:

Thank you for the opportunity today to discuss improper payments in the 

Medicare and Medicaid programs.1 Medicare and Medicaid are large and 

complex programs that are susceptible to improper payments, as well as 

potential mismanagement and fraud, waste, and abuse. As a result of 

these program integrity risks, we added Medicare to our High-Risk list in 

1990 and Medicaid in 2003.2 Similarly, as of fiscal year 2024, the Office of 

Management and Budget designated all parts of Medicare, as well as 

Medicaid, “high-priority” programs due to the programs’ estimated 

improper payments.3 Since adding Medicare and Medicaid to our HighRisk list, we have made hundreds of recommendations to CMS related to 

our High Risk areas. Implementing our recommendations has resulted in 

over $200 billion in financial benefits, including cost savings, since 2006.

In fiscal year 2023, Medicare and Medicaid grew to account for over 26 

percent of federal spending overall, 6.1 percent of the nation’s economy.4

Further, the programs accounted for an estimated 43 percent of 

government-wide improper payments.5 We and others expect spending 

1An improper payment is defined by law as 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. It 

includes any payment to an ineligible recipient, any payment for an ineligible good or 

service, any duplicate payment, any payment for a good or service not received (except 

for such payments where authorized by law), and any payment that does not account for 

credit for applicable discounts. 31 U.S.C. § 3351(4). Executive agency estimates of 

improper payments also treat as improper any payments whose propriety cannot be 

determined due to lacking or insufficient documentation. 31 U.S.C. § 3352(c)(2).

2We provided an update on these high-risk areas in April 2023. See GAO, High-Risk 

Series: Efforts Made to Achieve Progress Need to Be Maintained and Expanded to Fully 

Address All Areas, GAO-23-106203 (Washington, D.C.: Apr. 20, 2023).

3The Office of Management and Budget designates as high priority programs with annual 

reported estimated monetary loss from improper payments in excess of $100 million in a 

given fiscal year. 

4See Congressional Budget Office, The Budget and Economic Outlook: 2024 to 2034

(Washington, D.C.: Feb. 7, 2024).

5Medicare accounted for 22 percent of the government-wide total of estimated improper 

payments that agencies reported in 2023, while Medicaid accounted for 21 percent. See 

GAO, Improper Payments: Information on Agencies’ Fiscal Year 2023 Estimates, 

GAO-24-106927 (Washington, D.C.: Mar. 26, 2024).

Letter
Page 2 GAO-24-107487

for the Medicare and Medicaid programs will continue to grow.6 For 

example, the Congressional Budget Office projects that Medicare 

spending will double by 2034.7

In 2023, the Medicare program spent an estimated $1.0 trillion to provide 

health care services for approximately 66 million elderly and disabled 

individuals. The Medicare program is complex, with more than 1.4 million

providers, more than 20 different payment systems, and over one billion 

payment claims annually. Spending is expected to increase significantly 

over the next decade as the U.S. population ages and more individuals 

receive Medicare benefits.

After Medicare, the Medicaid program is the second largest health care 

program by expenditures, with an estimated total of $849 billion in 

spending, including $578 billion in federal spending and $271 billion in 

state spending in fiscal year 2023. Medicaid finances health care for lowincome and medically needy individuals. The program provided coverage 

for about 90 million individuals in 2023. The partnership between the 

federal government and states is a central tenet of the Medicaid program. 

Within broad federal requirements, states have significant flexibility to 

design and implement their programs based on their unique needs, 

resulting in 56 distinct Medicaid programs.8 The resulting variability of 

state Medicaid programs complicates federal efforts to oversee program 

payments and beneficiaries’ access to services.

The Centers for Medicare & Medicaid Services (CMS) is the Department 

of Health and Human Services (HHS) agency responsible for overseeing 

the Medicare and Medicaid programs at the federal level.9 It is critical that 

CMS and states leverage available resources to reduce improper 

payments. Dollars wasted detract from the programs’ ability to ensure that 

the individuals who rely on Medicare and Medicaid—including low-income 

6See GAO, The Nation’s Fiscal Health: Road Map Needed to Address Projected 

Unsustainable Debt Levels, GAO-24-106987 (Washington, D.C.: Feb. 15, 2024).

7See Congressional Budget Office, The Budget and Economic Outlook, 18.

8In addition to the 50 states and the District of Columbia, five territories of the United 

States participate in the Medicaid program: American Samoa, the Commonwealth of the 

Northern Mariana Islands, Guam, Puerto Rico, and the U.S. Virgin Islands. 

9Under Medicaid’s federal-state partnership, CMS provides oversight and technical 

assistance for the program, and states are responsible for administering their respective 

Medicaid programs’ day-to-day operations. 
Page 3 GAO-24-107487

children and individuals who are elderly or disabled—are provided 

adequate care.

Given the current fiscal environment, addressing improper payments in 

the Medicare and Medicaid programs—and providing sufficient oversight 

of program spending, more generally—is particularly important. Our most 

recent report on the nation’s fiscal health noted that the federal 

government faces an unsustainable long-term fiscal path. It also 

highlighted the importance of strengthening program integrity, including 

reducing improper payments, as a step to help to reduce the deficit.10 Our 

report also identified the need to review fiscal policies for the Medicare 

program. Ensuring Medicare payment integrity is also important to the 

longevity of the Medicare program given that the Medicare Hospital 

Insurance Trust Fund is projected to be depleted in 2031.11

My testimony today will cover

1. trends in improper payment rates in Medicare and Medicaid;

2. examples of CMS efforts to reduce improper payments in Medicare 

and Medicaid, and relevant GAO recommendations the agency has

not yet implemented; and

3. examples of GAO recommendations to CMS and Congress to 

improve oversight of Medicare and Medicaid spending.

My remarks are based on our large body of work examining the Medicare 

and Medicaid programs. This includes reports issued and 

recommendations made from 2008 through 2024, and known steps HHS, 

CMS, and Congress have taken to address these recommendations 

through March 2024. Those reports provide further details on our scope 

and methodology. (See a list of related GAO reports at the end of this 

statement.)

Since 2008, we have made over 200 recommendations to CMS related to 

our High-Risk areas, including Medicare and Medicaid program integrity. 

As of March 2024, 111 of these recommendations were open. This 

10See GAO-24-106987. 

11By 2031, the Medicare program’s revenue would only be sufficient to pay 89 percent of 

certain inpatient and related benefits, also known as Medicare Part A. See The Boards of 

Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust 

Funds, The 2023 Annual Report of the Boards of Trustees of the Federal Hospital 

Insurance and Federal Supplementary Medical Insurance Trust Funds (Washington, D.C.: 

Mar. 31, 2023).
Page 4 GAO-24-107487 

includes 15 recommendations related to improper payments in the 

Medicare and Medicaid programs.

We conducted all of the work on which this statement is based in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Medicare and Medicaid are among the fastest-growing programs and 

contribute to the federal deficit.12 Of note, federal spending for Medicare 

and Medicaid has grown by almost 80 percent between 2013 and 2022.13

(See fig. 1.) We have projected that federal spending on health care—

primarily through the Medicare and Medicaid programs—will further 

increase by 47 percent as a share of gross domestic product between 

2023 and 2052.14

12According to the Congressional Budget Office, federal costs per beneficiary for Medicare 

and Medicaid continue to rise faster than gross domestic product per person, placing 

upward pressure on mandatory spending. Without commensurate revenue increases or 

policy changes, this trend will drive larger budget deficits. See Congressional Budget 

Office, The Budget and Economic Outlook. 

13This is based on nominal spending figures. In real terms, federal spending has grown by 

approximately 45 percent over this time period.

14See GAO-24-106987. These projections focus on spending for mandatory health care 

programs, such as Medicare and Medicaid.

Background
Page 5 GAO-24-107487 

Figure 1: Federal Spending in the Medicare and Medicaid Programs, 2013—2022

Notes: This figure includes spending in nominal dollars. Adjusted for inflation, Medicare spending was 

about $759 billion in 2013 and $987 billion in 2022; federal Medicaid spending was about $331 billion 

in 2013 and $596 billion in 2022. GAO used the fiscal year 2023 gross domestic product price index 

to adjust for inflation. 

Medicare and Medicaid pay for services through different mechanisms, 

including fee-for-service, in which individual health care providers are 

paid for each service delivered.15 Medicare and Medicaid increasingly 

provide coverage through managed care. Private managed care plans 

receive a periodic payment per beneficiary to provide a specific set of 

covered services to beneficiaries, also known as capitation payments. In 

2021, 43 percent of Medicare beneficiaries and over 70 percent of 

Medicaid enrollees received coverage through managed care. Managed 

care represented 45 percent of Medicare spending and 58 percent of 

Medicaid spending in 2022.

15Under the Medicare program, fee-for-service is also known as Original Medicare and 

covers Parts A and B. Managed care is also known as Medicare Part C, or Medicare 

Advantage. Medicare Part D is a federal prescription drug benefit program for Medicare 

beneficiaries.
Page 6 GAO-24-107487

Improper payments are a significant risk to the Medicare and Medicaid 

programs. Improper payments generally include payments that are either 

made in an incorrect amount (overpayments and underpayments) or 

those that should not be made at all.16 In March 2020, the Payment 

Integrity Information Act of 2019 was enacted. The legislation and 

implementing guidance requires executive branch agencies to, among 

other things, (1) review periodically all programs and activities above $10 

million in annual outlays, and identify those that may be susceptible to 

significant improper payments (commonly referred to as a risk 

assessment); (2) develop improper payment estimates for those 

programs and activities that the agency risk assessments, the Office of 

Management and Budget, or statutes identify as being susceptible to 

significant improper payments; (3) analyze the root causes of improper 

payments and developing corrective actions to reduce them; and (4) 

report on the results of addressing the foregoing requirements.17

CMS estimates the rate of improper payments to better understand the 

causes and extent of program risks, develop strategies to protect program 

integrity, and measure progress toward reducing improper payments. 

CMS estimates improper payments in both Medicare and Medicaid.

• Medicare improper payment calculations. CMS annually computes 

improper payments for three components within Medicare: fee-forservice; Medicare Advantage; and Medicare Part D prescription drug 

coverage.18 (See table 1.) The fee-for-service estimate is developed 

under its own methodology through the Comprehensive Error Rate 

Testing program, which audits a random sample of claims to 

determine whether they met coverage, coding, and billing rules. For 

Medicare Advantage, CMS conducts audits of the beneficiary 

diagnoses that have been submitted by managed care plans and 

used to adjust payments based on clinical risks. Estimates for 

Medicare Part D prescription drug coverage are based on a random 

16Improper payments can also include payments made in the correct amount that lack 

sufficient documentation.

1731 U.S.C. § 3352 and OMB Circular A-123 Appendix C, Requirements for Payment 

Integrity Improvement, OMB Memorandum M-21-19 (2021). Under PIIA, improper 

payments are considered “significant” if in the preceding fiscal year they may have 

exceeded either (1) 1.5 percent of program outlays and $10 million or (2) $100 million 

(regardless of the improper payment rate).

18For the purposes of measuring improper payments, CMS treats the three components of 

Medicare as three separate programs. 
Page 7 GAO-24-107487 

sample of prescription transactions to ensure the supporting 

documentation is sufficient per program rules.

Table 1: Estimated Improper Payment Amounts and Rates for the Medicare Program, Fiscal Years 2018—2023

Amounts in billions (and rates)

2018 2019 2020 2021 2022 2023

Medicare fee-forservice$31.6 (8.1) $28.9 (7.3) $25.7 (6.3) $25.0 (6.3) $31.5 (7.5) $31.2 (7.4)

Medicare 

Advantage

$15.6 —a $16.7 —a $16.3 —a $23.2 —a $13.9 (5.4) $16.6 (6.0)

Prescription drug 

benefit (Part D)

$1.3 —b $0.6 —b $0.9 —b $1.4 —b $1.4 —b $3.4 (3.7)

Total $48.5 n/a $46.2 n/a $42.9 n/a $49.6 n/a $46.8 n/a $51.1 n/a

Source: Department of Health and Human Services (HHS) and Centers for Medicare & Medicaid Services (CMS) data. | GAO-24-107487

Note: These reflect point-in-time estimates of improper payments as originally reported by HHS and 

CMS for each fiscal year. 

a

According to CMS, the agency refined its Medicare Advantage improper payment rate methodology 

for fiscal year 2022, and, as a result, those data should not be compared with prior years. 

b

According to CMS, the agency refined its prescription drug benefit improper payment rate 

methodology for fiscal year 2023 and, as a result, those data should not be compared with prior 

years. 

• Medicaid improper payment calculation. CMS annually computes 

Medicaid improper payments as a weighted average of states’ 

improper payment estimates for three component parts: fee-forservice, managed care, and beneficiary eligibility determinations. (See 

table 2.) The improper payment estimate for each component is 

developed under its own methodology within CMS’s Payment Error 

Rate Measurement program, with each having different improper 

payment estimates and oversight concerns. The estimate of Medicaid 

fee-for-service improper payments includes a review of selected 

medical claims, while the managed care improper payment estimate 

calculated by CMS is focused on the monthly capitated payments that 

states make to plans. According to HHS, reviewing medical records 

associated with provider payments does not have a direct link to the 

established capitated payment sampled and, thus, is not included in 

the managed care component.19 As a result, the managed care 

estimate does not include erroneous payments Medicaid managed 

19Capitation payments in Medicaid are based on, for example, eligibility group and age. In 

contrast, capitation payments in Medicare Advantage are adjusted for clinical risk based 

on beneficiaries’ diagnoses. As such, CMS’s estimate of improper payments for Medicare 

Advantage includes audits of the beneficiary diagnoses that have been submitted by 

managed care plans.
Page 8 GAO-24-107487 

care plans make to their providers.20 CMS conducts the Payment 

Error Rate Measurement across all states on a 17-state, 3-year 

rotation cycle, and computes an annual rolling average of improper 

payment rates from the 3 years of data.

Table 2: Estimated Improper Payment Amounts and Rates for the Medicaid Program, Fiscal Years 2018—2023

Amounts in billions (and rates)

2018 2019 2020 2021 2022 2023

Fee-forservicen/aa (14.3) $27.2 (16.3) $30.4 (16.8) $27.6 (13.9) $21.8 (10.4) $16.4 (6.9)

Eligibility n/aa (3.1) $32.2 (8.4) $60.5 (14.9) $75.7 (16.6) $61.3 (11.9) $34.9 (6.0)

Managed 

care

n/aa (0.2) $0.3 (0.1) $0.1 (0.1) $0.1 (0.0) $0.1 (0.0) $0.0 (0.0)

Source: Department of Health and Human Services (HHS) and Centers for Medicare & Medicaid Services (CMS) data. | GAO-24-107487

Notes: These reflect point-in-time estimates of improper payments as originally reported by HHS and 

CMS for each fiscal year. Amounts reflect the federal share of estimated improper payments and do 

not include the nonfederal share. Estimates for the eligibility component may not be comparable 

across years due to methodological changes. CMS calculates a separate estimate for total amounts. 

Estimates were as follows: $57.4 billion in 2019, $86.5 billion in 2020, $98.7 billion in 2021, $80.6 

billion in 2022, and $50.3 billion in 2023. 

a

CMS did not publish improper payment estimates by program component for Medicaid for fiscal year 

2018. 

While improper payments can include, for example, overpayments made 

in error, they also include those resulting from fraud. Accordingly, all 

fraudulent payments are considered improper, but not all improper 

payments are the result of fraud.21 Generally, fraud involves obtaining a 

thing of value through willful misrepresentation.

The improper payment estimation process agencies use is not designed 

to detect or measure the amount of fraud that may exist. Further, 

estimates of improper payments cannot be used to determine the extent 

of fraud in a particular program. Federal programs that report improper 

payment data do not consistently assess what proportion of those 

payments were the result of fraud, and existing data on fraud make it 

difficult to produce reliable government-wide estimates.

20State Medicaid programs and managed care plans may engage in additional program 

integrity efforts, which could include comparing encounter data with a sample of provider 

medical records.

21See GAO, Improper Payments and Fraud: How They Are Related but Different,

GAO-24-106608 (Washington, D.C.: Dec. 7, 2023).

Relationship between 

Improper Payments and 

Fraud
Page 9 GAO-24-107487 

Fraud estimation provides agencies with opportunities to improve fraud 

risk management. For example, estimates can demonstrate the scope of 

the problem, improve oversight prioritization, and help determine the 

return on investment from fraud risk management activities. In 

furtherance of these goals, we will be issuing a report imminently that 

includes a first-of-its-kind governmentwide estimate of federal spending 

lost to fraud.

Legislation, guidance from the Office of Management and Budget, and 

standards for internal control in the federal government have increasingly 

focused on the need for program managers to strategically address 

improper payments and fraud. Understanding the relationships and 

distinctions between improper payments and fraud is important to more 

effectively target the associated root causes and mitigate the impacts of 

each.

To help federal program managers strategically manage their fraud risks, 

we published A Framework for Managing Fraud Risks in Federal 

Programs (Fraud Risk Framework) in July 2015.22 Federal agencies are 

required to follow the leading practices outlined in the Fraud Risk 

Framework.23 The Fraud Risk Framework describes leading practices in 

four components: commit, assess, design and implement, and evaluate 

and adapt.

HHS estimated a combined total of over $100 billion in improper 

payments in the Medicare and Medicaid programs in fiscal year 2023. 

The estimated rates of improper payments—in particular, 7.4 percent for 

Medicare fee-for service and 6.9 percent for Medicaid fee-for-service—

represent a decline from prior years. However, the recent reduction in the 

Medicaid improper payment rate was due, in part, to flexibilities granted to 

states during the COVID-19 public health emergency, which ended in 

May 2023.

22See GAO, A Framework for Managing Fraud Risks in Federal Programs, 

GAO-15-593SP (Washington, D.C.: July 28, 2015). 

23The Payment Integrity Information Act of 2019 requires the Office of Management and 

Budget (OMB) to maintain guidelines for agencies to establish financial and administrative 

controls to identify and assess fraud risks and that incorporate leading practices detailed 

in our Fraud Risk Framework. 31 U.S.C. § 3357(b). The Office of Management and 

Budget’s Management’s Responsibility for Enterprise Risk Management and Internal 

Control (OMB M-16-17) directs agencies to adhere to the Fraud Risk Framework’s leading 

practices as part of their efforts to effectively design, implement, and operate an internal 

control system that addresses financial and nonfinancial fraud risks. 

Trends in Medicare 

and Medicaid 

Improper Payment 

Rates
Page 10 GAO-24-107487 

Across all three Medicare components—fee-for-service, Medicare 

Advantage, and Part D prescription drug coverage—CMS estimates show 

that total improper payments decreased 15 percent from fiscal year 2014 

through fiscal year 2023. Those payments totaled almost $60 billion in 

fiscal year 2014 and were about $51 billion in fiscal year 2023. The 

estimated Medicare fee-for-service improper payment rate decreased 

over time, from 12.7 percent in 2014 to 7.4 percent in 2023. (See fig. 2.) 

As has been the case over the past decade, most Medicare improper 

payments were attributable to the program’s fee-for-service component, 

which comprised about $31 billion in fiscal year 2023.

Figure 2: Estimated Medicare Fee-for-Service Improper Payment Rates, Fiscal Years 

2014—2023

As figure 2 shows, CMS has made considerable progress in reducing 

Medicare fee-for-service improper payment rates. CMS has cited updates 

to documentation requirements for home health agency services that took 

effect in 2015 as a key change in helping reduce the Medicare fee-forservice improper payment rate. Specifically, CMS began allowing 

additional types of documentation, such as provider notes, to support the 

medical necessity of home health services. This reduced instances of 

Medicare Improper 

Payment Rates
Page 11 GAO-24-107487

payments being determined improper, according to CMS officials. HHS 

has also described steps the agency takes to mitigate improper payment 

risks, including system designs that detect anomalies and prevent 

payment for many erroneous claims. For example, automated claims 

edits can be put into place to deny payment for non-covered services or 

services submitted by ineligible providers.

The majority of fee-for-service improper payments in fiscal year 2023

were due to missing or insufficient documentation; for example, missing 

or insufficient documentation to support that skilled nursing facility 

services were necessary or that the facility met certification requirements. 

The next largest category was payment for medically unnecessary 

services. Services provided in a hospital that could have been provided in 

a lower-cost setting, such as a patient’s home, and unrelated screening 

tests or therapies for which the patient had no symptoms or diagnoses 

are examples of medically unnecessary services in Medicare.

Data on trends in estimated improper payment rates from 2014 through 

2023 are not depicted above for Medicare Advantage and Medicare Part 

D prescription drug coverage due to methodological changes in the 

estimates over time. In 2023, the estimated improper payment rate for 

Medicare Advantage was about 6 percent, or about $16.6 billion in 

improper payments. For Medicare Part D prescription drug coverage, the 

improper payment rate for 2023 was about 3.7 percent, or about $3.4 

billion in improper payments.

For fiscal year 2023, CMS estimated the national Medicaid improper 

payment rate to be 8.58 percent, or $50.3 billion.24 (See fig. 3.) This is a 

considerable decline from 2020 and 2021 when estimated improper 

payments reached an estimated $86.5 billion and $98.7 billion, 

respectively.25 HHS attributes the decline in fiscal year 2023, in part, to 

flexibilities granted to states during the COVID-19 public health 

emergency. For example, states had the option to reduce requirements 

for provider enrollment and revalidation. States were also required to 

keep people continuously enrolled in Medicaid regardless of whether their 

24CMS calculates the improper payment rate across all states on a 17-state, 3-year 

rotation cycle and computes an annual rolling average of improper payment rates from the 

3 years of data. In fiscal year 2023, the national rate included measurements from three 

fiscal years: 2021, 2022, and 2023.

25This peak, in part, reflects CMS’s resumption of measurement of the eligibility 

component of the rate, which had been frozen from fiscal years 2015 through 2018.

Medicaid Improper 

Payment Rates
Page 12 GAO-24-107487 

eligibility status changed.26 Thus, payments that would have previously 

been determined to be improper—for example payments to a provider 

that had not had their enrollment revalidated—would not be improper 

under the relaxed requirements. With states beginning to resume 

standard processes for provider screening and enrollment and eligibility 

redeterminations in early 2023, the improper payment rate is likely to 

increase.

Figure 3: Estimated Medicaid Fee-for-Service, Managed Care, and Eligibility 

Improper Payment Rates, Fiscal Years 2014—2023

Notes: CMS conducts the Payment Error Rate Measurement across all states on a 17-state, 3-year 

rotation cycle and computes an annual rolling average of improper payment rates from the 3 years of 

data. Eligibility rates for fiscal years 2015-2018 were frozen at the 2014 level; rates beginning 2021 

reflect new eligibility reviews for all states. Rates for fiscal years 2022 and 2023 used data from the 

time period when the COVID-19 public health emergency was under effect and certain requirements 

for provider screening and enrollment and eligibility redeterminations were suspended. 

26HHS also attributed the decline to improvements in state compliance with requirements. 

The department could not determine how much of the decline was due to flexibilities 

granted during the public health emergency versus improvements in state compliance.
Page 13 GAO-24-107487 

Most Medicaid improper payments in fiscal year 2023 (82 percent) were

associated with payments for services with missing or insufficient 

documentation, such as instances where states did not document 

beneficiary eligibility or the medical necessity of the claim.

As we have reported in prior work, Medicaid improper payment rates may 

be underestimated. CMS estimates managed care improper payment 

rates by reviewing the accuracy of capitation payments to managed care 

plans, but the rate does not account for all program risks. For example, 

federal and state audits of managed care plans identified overpayments 

and unallowable costs, such as services that were not medically 

necessary, or marketing costs that were not identified as part of CMS’s 

improper payment review.

CMS neither conducts medical reviews of services provided to 

beneficiaries, nor reviews managed care plans’ records or data in its 

review. To the extent that such payments and costs are not removed from 

the data used to set capitation rates, managed care plans can receive 

inflated payments. In May 2018, we recommended that CMS take steps 

to mitigate program risks that were not a part of the Medicaid managed 

care improper payment measurement, such as overpayments and 

unallowable costs. CMS agreed with our recommendation and has taken 

steps to focus additional audit resources on managed care, including by 

increasing the number of managed care related audits conducted.27

CMS has taken a number of actions consistent with our recommendations 

that have contributed to the decline in estimated Medicare improper 

payments over the past decade, including the following:

• Improved prepayment edits. Prepayment edits are programmed into 

claims processing systems to compare claims data to Medicare 

requirements, which allow the agency to approve or deny claims or 

flag them for further review. CMS centralized the development of 

27See GAO, Medicaid: CMS Should Take Steps to Mitigate Program Risks in Managed 

Care, GAO-18-291 (Washington, D.C.: May 7, 2018).

CMS Actions Have 

Contributed to 

Declines in Improper 

Payments in 

Medicare, but Some 

Relevant GAO 

Recommendations 

Remain Open
Page 14 GAO-24-107487

automated edits and created at least 90 edits to ensure Medicare only 

pays for covered services.28

• Improved fraud prevention. In October 2012, we recommended that 

CMS define quantifiable benefits of its fraud prevention system and 

complete plans to integrate the system with claims processing.29 In 

response, CMS defined actual amounts of claims payments denied 

and costs avoided, and implemented capabilities that automatically 

stopped payments of certain improper and non-payable claims. We 

estimated that these changes saved about $1.77 billion over a 5-year 

period and continues to save millions annually. In addition, to address 

fraud risks, CMS developed risk assessment processes for all 

components of Medicare.30

• Extended enhanced prior authorization for high-cost items. In 

response to our recommendation to evaluate and continue prior 

authorization efforts, CMS extended a demonstration program in eight 

states and the District of Columbia that required prior authorization for 

certain ambulance transports. 31 We estimated that this extension 

saved about $303 million over a 2-year period. As a result, CMS 

extended the demonstration nationwide in September 2020, which is 

likely to result in additional savings.

However, we have made a number of other recommendations to CMS 

that would also help address improper payment rates, but those 

recommendations have not yet been implemented. This adversely affects 

the agency’s ability to address Medicare program risks, and it reduces the 

efficiency and effectiveness of existing agency efforts. The 

recommendations include the following examples:

28For information on related recommendations, see GAO, Medicare Program Integrity: 

Greater Prepayment Control Efforts Could Increase Savings and Better Ensure Proper 

Payment, GAO-13-102 (Washington, D.C.: Nov. 13, 2012).

29See GAO, Medicare Fraud Prevention: CMS Has Implemented a Predictive Analytics 

System, but Needs to Define Measures to Determine Its Effectiveness, GAO-13-104

(Washington, D.C.: Oct. 15, 2012).

30The processes, for example, document vulnerabilities, risk levels, residual risks, and 

mitigation strategies and includes monitoring mitigation steps and regularly re-examining 

vulnerabilities based on risk and environmental factors. See GAO, Medicare and 

Medicaid: CMS Needs to Fully Align Its Antifraud Efforts with the Fraud Risk Framework, 

GAO-18-88 (Washington, D.C.: Dec. 5, 2017).

31See GAO, Medicare: CMS Should Take Actions to Continue Prior Authorization Efforts 

to Reduce Spending, GAO-18-341 (Washington, D.C.: Apr. 20, 2018).
Page 15 GAO-24-107487

Provider enrollment screening. During the COVID-19 public health 

emergency, CMS postponed provider enrollment revalidations for about 

237,000 providers. Revalidations are intended to ensure providers 

continued to comply with Medicare requirements and ensure that 

beneficiaries receive services from legitimate providers. In December 

2022, we recommended that CMS implement a plan for conducting 

provider enrollment revalidations, prioritizing moderate- and high-risk 

provider types.32 CMS agreed with this recommendation. As of February 

2024, the agency reported increasing the capacity to perform 

revalidations, and we are in the process of confirming what actions the 

agency has taken to ensure providers are revalidated.

Recovering Medicare Advantage improper payments. In April 2016, 

we reported years long delays in completing audits of Medicare 

Advantage contracts and other challenges, contributing to an inability to 

recover identified overpayments from Medicare Advantage 

organizations.33 We recommended that CMS take action to enhance the 

timeliness of the audits and improve the efficiency and effectiveness of 

reducing and recovering improper payments. HHS concurred with the 

recommendation.

As of February 2024, CMS had initiated automated reviews and was 

continuing to explore additional ways to enhance the timeliness of the risk 

adjustment data validation audit process, according to agency officials. 

Additionally, the agency’s 2024 budget justification described additional 

steps to improve the timeliness of the audit process. Until CMS completes 

these steps, it will miss opportunities to recover improper payments.

32We also reported that CMS waived fingerprint criminal background checks for high-risk 

providers during the COVID-19 public health emergency. Fingerprint-based criminal 

background checks are used to identify any criminal convictions for which the individual 

may or must be excluded from participation in Medicare. We recommended that CMS 

develop policies to postpone rather than waive fingerprint-based criminal background 

checks. In response to our recommendation, CMS issued regulations effective January 1, 

2024, that authorize the agency to postpone rather than waive fingerprint-based criminal 

background checks for providers that were in a high-risk category at the time of initial 

enrollment. The agency is also taking steps to perform the fingerprint-based criminal 

background checks during its provider revalidations. See GAO, Medicare: CMS Needs to 

Address Risks Posed by Provider Enrollment Waivers and Flexibilities, GAO-23-105494

(Washington, D.C.: Dec. 19, 2022).

33See GAO, Medicare Advantage: Fundamental Improvements Needed in CMS’s Effort to 

Recover Substantial Amounts of Improper Payments, GAO-16-76 (Washington, D.C.: Apr. 

8, 2016).
Page 16 GAO-24-107487

Prepayment Claim Reviews. In April 2016, we recommended that CMS 

request legislative authority to allow Recovery Auditors to conduct 

prepayment claim reviews.34 Prepayment reviews prevent improper 

payments from being made and are generally more cost-effective than 

postpayment reviews. Additionally, CMS conducted a demonstration from 

2012 through 2014 that allowed the Recovery Auditors to conduct 

prepayment claim reviews, and the agency considered the demonstration 

a success. HHS did not concur with our recommendation and has not 

taken any action to request such legislative authority. According to HHS, 

CMS has other program integrity activities to prevent improper payments. 

We maintain that allowing Recovery Auditors to conduct prepayment 

claim reviews will help prevent improper payments.

Assessing documentation requirements. Medicare and Medicaid may 

require different documentation to support payment for similar services. 

This may result in differing improper payment rates, complicating CMS’s 

efforts to identify and address program risks. In March 2019, we 

recommended that CMS take steps to routinely assess documentation 

requirements to ensure they are both necessary and effective.35 HHS 

agreed with the recommendation. As of February 2024, CMS stated that 

the agency was reviewing and assessing how to best implement the 

recommendation.

In addition, we previously reported in our 2023 biennial High-Risk report, 

that in its 2022 Agency Financial Report, HHS included targets for further 

reducing Medicare improper payments and highlighted corrective actions 

to address root causes of payment errors. However, as we indicated in 

the report, the action plan does not identify clear metrics to assess 

progress, resources needed to implement corrective actions, or time 

frames for completing these actions.36 We continue to discuss with HHS 

the need to address these concerns as part of our High-Risk work.

34See GAO, Medicare: Claim Review Programs Could Be Improved with Additional 

Prepayment Reviews and Better Data, GAO-16-394 (Washington, D.C.: Apr. 13, 2016).

35See GAO, Medicare and Medicaid: CMS Should Assess Documentation Necessary to 

Identify Improper Payments, GAO-19-277 (Washington, D.C.: Mar. 27, 2019).

36See GAO-23-106203. 
Page 17 GAO-24-107487 

CMS has taken steps consistent with GAO recommendations aimed at 

addressing improper payments in the Medicaid program. CMS’s steps 

include the following:

• Managed care oversight. In response to our recommendation that 

CMS remove impediments to collaborative audits, CMS worked with 

states and audit contractors to improve managed care oversight.37

Audit contractors investigated 893 managed care providers between 

fiscal years 2019 and 2021, an exponential increase from the 16 

investigations they conducted between fiscal years 2016 and 2018.

Preliminary results provided by CMS in 2022 indicated that these 

audits have identified overpayments made by managed care plans to 

providers.

• Assessment of program risks. In 2021 and 2022, CMS developed 

Risk Assessment Frameworks for Medicaid that outlined its approach 

for fraud risk assessments to document vulnerabilities, including risk 

levels and mitigation strategies.38 These actions were consistent with 

leading practices identified in GAO’s Fraud Risk Framework.

• Accuracy of provider enrollment. Nearly one quarter, or $17.8 

billion, of Medicaid improper payments in 2020 were related to states’ 

noncompliance with provider screening and enrollment requirements. 

In June 2021, CMS issued guidance outlining information states were 

to submit to demonstrate compliance with these requirements, which 

partially addressed our recommendation that CMS expand its review 

of states’ implementation of those requirements.39 However, CMS 

allowed states to waive these requirements during the COVID-19 

public health emergency, and all states opted to do so.

We have also made a number of recommendations for CMS to address 

improper payment rates in Medicaid that remain unimplemented. Without 

taking these additional actions, CMS is missing opportunities to reduce 

37See GAO, Medicaid Managed Care: Improvements Needed to Better Oversee Payment 

Risks, GAO-18-528 (Washington, D.C.: July 26, 2018). 

38For information on related recommendations, see GAO-18-88. In March 2022, CMS also 

outlined plans to use the fraud risk framework to prioritize risk assessments for program 

areas such as nonemergency medical transportation. See GAO, Medicaid: Efforts to 

Address Fraud in Nonemergency Medical Transportation, GAO-22-105447 (Washington, 

D.C.: Sept. 28, 2022).

39See GAO, Medicaid Providers: CMS Oversight Should Ensure State Implementation of 

Screening and Enrollment Requirements, GAO-20-8 (Washington, D.C.: Oct. 10, 2019). 

CMS Has Taken 

Steps to Address 

Medicaid Improper 

Payments, but 

Relevant GAO 

Recommendations 

Remain Open
Page 18 GAO-24-107487

improper payments and safeguard resources intended to provide care for 

Medicaid beneficiaries.

Recovering Medicaid improper payments. In June 2023, we 

recommended that CMS enhance the effectiveness of recovery audits, 

which involve postpayment reviews of claims for improper payments, by 

taking several actions including conducting a cost-effectiveness study to 

determine whether states should include payments to managed care 

organizations as part of the program.40 CMS disagreed with this 

recommendation. According to CMS, it is important that states be able to 

tailor recovery audit programs to their specific needs and environment 

and that states have other ways to monitor improper payments in 

managed care. We maintain that our recommendation for a costeffectiveness study is valid.

Collaboration with state auditors. State auditors play an important role 

in Medicaid oversight. In September 2023, we recommended that CMS 

leverage findings from and improve collaboration with state auditors. 

Specifically, CMS should use trends in state auditor findings to inform its 

oversight and share information on those trends and the status of actions 

to address findings with state auditors. Given their roles and 

responsibilities—which can include carrying out or overseeing their state’s 

single audits—state auditors are uniquely positioned to help CMS in its 

oversight of state Medicaid programs.41

Through their program integrity reviews, state auditors have identified 

improper payments in the Medicaid program and deficiencies in the 

processes used to identify them.42 For example:

• State auditors in Ohio found deficiencies in system controls and data 

accuracy that contributed to about $119 million in improper payments 

40See GAO, Medicaid: CMS Oversight and Guidance Could Improve Recovery Audit 

Contractor Program, GAO-23-106025 (Washington, D.C.: June 28, 2023). 

41Single audits are required annually by law when states and other entities expend 

$750,000 or more in a fiscal year in federal awards, and they are critical for helping ensure 

that federal funds are safeguarded and used effectively. A single audit is an audit of the 

entity’s financial statements and awards for the fiscal year. See 31 U.S.C. § 7502; 2 

C.F.R. § 200.501 (2024). 

42See GAO, Medicaid Program Integrity: Opportunities Exist for CMS to Strengthen Use of 

State Auditor Findings and Collaboration, GAO-23-105881 (Washington, D.C.: Sept. 21, 

2023). 
Page 19 GAO-24-107487

made to managed care plans over a 3-year period for individuals who 

were incarcerated, deceased, or had multiple identification numbers.

• In a 2020 audit, auditors in Wisconsin questioned over $428,000 in 

payments made to providers who had been terminated from 

participation in the program.

Provider enrollment. As previously noted, our October 2019 report 

found there was noncompliance with provider screening and enrollment 

requirements. We recommended that CMS expand its review of states’

implementation of provider screening and enrollment requirements and, 

for states not fully compliant with the requirements, annually monitor their 

implementation progress.43 CMS agreed with our recommendations. As of 

December 2023, CMS described technical assistance to states to 

enhance compliance with requirements. CMS needs to assess all states’

compliance with the requirements and assess annually areas of 

noncompliance to fully implement our recommendations.

In February 2023, states began resuming normal Medicaid operations 

that were suspended during the COVID-19 public health emergency, such 

as those related to beneficiary eligibility redeterminations and provider 

screening and enrollment. Those efforts were ongoing as of March 2024.

In January 2020, before the onset of the COVID-19 pandemic, we 

reported that state and federal audits across 21 states published between 

2014 and 2018 identified weaknesses in states’ Medicaid eligibility 

determinations, including that states did not complete redeterminations 

(10 states) or terminate coverage for ineligible individuals (nine states) in 

a timely manner.44 And, as previously mentioned, our October 2019 

report found substantial noncompliance with provider screening and 

enrollment requirements.45 These preexisting challenges underscore the 

importance of CMS and states continuing to work together now that the 

public health emergency has ended to ensure that eligibility 

determinations and provider screening and enrollment processes are 

conducted in a manner that ensures Medicaid program integrity.

As CMS and states resume normal operations across both Medicaid and 

Medicare, it may help to consider actions that other agencies have taken 

43See GAO-20-8.

44See GAO, Medicaid Eligibility: Accuracy of Determinations and Efforts to Recoup 

Federal Funds Due to Errors, GAO-20-157 (Washington, D.C.: Jan. 13, 2020). 

45See GAO-20-8. 
Page 20 GAO-24-107487 

in efforts to reduce improper payments. In a 2023 report, we identified 

common features in federal programs that have successfully reduced 

improper payments.46 The most common features in the eight federal 

agencies with reductions in estimated improper payment rates fell into

two broad categories:

• establishing accountability and facilitating internal collaboration; and

• providing technology, tools, and training targeted to root causes.

For example, one agency established a cross-agency corrective action 

planning group to track all improper payments through root-cause 

categories in order to take appropriate action on known issues.47

Agencies also provided training and technical assistance on topics such 

as addressing root causes and establishing corrective action plans. 

Considering these practices in Medicare and Medicaid more broadly 

could help CMS and states continue to make progress reducing improper 

payment rates, securing limited resources for the benefit of individuals 

who rely on these programs.

CMS’s and Congress’s actions in response to our recommendations have 

resulted in more accurate and efficient payments, as well as both financial 

and other benefits to Medicare and Medicaid and beneficiaries. 

Specifically, since 2006, these efforts have resulted in more than $200

billion in financial benefits, including cost savings, as well as over 300 

other program improvements.

However, we have made several recommendations to Congress and 

CMS that, if implemented, could further improve the efficiency of 

Medicare spending or the agency’s oversight of such spending.

Equalizing certain payments. In December 2015, we found that 

Medicare generally pays more for certain office visits that occur in 

hospital outpatient departments than those that occur in physician 

46See GAO, Improper Payments: Programs Reporting Reductions Had Taken Corrective 

Actions That Shared Common Features, GAO-23-106585 (Washington, D.C.: June 30, 

2023).

47We have previously reported that developing corrective action plans that respond to 

identified root causes of improper payments is a critical component in government-wide 

efforts to reduce improper payments. See GAO, Payment Integrity: Selected Agencies 

Should Improve Efforts to Evaluate Effectiveness of Corrective Actions to Reduce 

Improper Payments, GAO-20-336 (Washington, D.C.: Apr. 1, 2020). 

Implementing Other 

GAO 

Recommendations 

Could Help Improve 

Oversight of Medicare 

and Medicaid 

Program Spending
Page 21 GAO-24-107487

offices.48 In order to prevent increasing Medicare costs, we recommended 

that Congress direct HHS to equalize payment rates for those services. 

According to the Congressional Budget Office, this would save the 

Medicare program $141 billion over 10 years. The Bipartisan Budget Act 

of 2015 partially addresses this recommendation by limiting certain 

providers from billing at the higher, outpatient rates.49 However, this 

legislation excluded services furnished by off-campus outpatient 

departments; as of March 2024, this recommendation has not been fully 

implemented.50 In order to fully implement our recommendation, payment 

should be equalized, regardless of whether it is considered on- or offcampus.

Payments to cover uncompensated care. Medicare pays hospitals to 

help cover the costs of care provided to uninsured and other low-income 

individuals—known as uncompensated care. In June 2016, we found that 

Medicare’s payments for uncompensated care were not well aligned with 

the costs that hospitals incur for such care, because, in part, such 

payments did not account for hospitals’ Medicaid payments that offset 

uncompensated care costs.51 We recommended that CMS account for 

any payments that hospitals have received to cover the costs of 

uncompensated care under the Medicaid program. This would help 

ensure that billions of dollars of Medicare uncompensated care payments 

are based on accurate costs and better target payments to hospitals. 

While HHS concurred with our recommendation, as of February 2024, the 

agency was reconsidering its position and had not taken action to 

48See GAO, Medicare: Increasing Hospital-Physician Consolidation Highlights Need for 

Payment Reform, GAO-16-189 (Washington, D.C.: Dec. 18, 2015).

49Pub. L. No. 114-74, § 603, 129 Stat. 584, 597-598 (2015). See also 21st Century Cures 

Act, Pub. L. No. 114-255, § 16001, 130 Stat. 1033, 1324 (2016) (excluding services 

furnished by certain mid-build providers).

50This committee proposed and the House of Representatives passed the Lower Costs, 

More Transparency Act which would equalize payments for certain drug administration 

services at off-campus hospital outpatient departments if enacted, partially addressing 

GAO’s matter. H.R. 5378, 118th Cong. (2023). 

51See GAO, Hospital Uncompensated Care: Federal Action Needed to Better Align 

Payments with Costs, GAO-16-568 (Washington, D.C.: June 30, 2016).
Page 22 GAO-24-107487

implement it. We maintain that implementing our recommendation would 

better ensure payment accuracy and efficiency.52

Medicare Advantage encounter data. CMS collects Medicare 

Advantage encounter data—claims-like data collected from Medicare 

Advantage plans. In June 2022, we reported that CMS was using these 

data in its methodology for adjusting payments to Medicare Advantage 

plans, which totaled $350 billion in 2021.53 In July 2014, we 

recommended that CMS do more to validate Medicare Advantage 

encounter data, including by performing statistical analyses and reviewing 

medical records.54 HHS generally agreed with this recommendation, and 

CMS took some steps to implement it; for example, CMS conducted 

some analyses of completeness and accuracy for internal purposes. 

However, as of February 2024, CMS had not shared these analyses with 

us. Until CMS fully validates the completeness and accuracy of Medicare 

Advantage encounter data, the soundness of the adjustments to billions 

of dollars in payments to Medicare Advantage organizations remains 

unsubstantiated.

Medicare Advantage plan payment adjustments. CMS pays Medicare 

Advantage plans a predetermined amount per beneficiary that is adjusted 

for health status, based in part on coded diagnoses. In January 2012, we 

found that diagnostic coding differences existed between Medicare 

52Additionally, we have reported that state payments to Medicaid providers have resulted 

in surplus Medicaid payments, and may not align with patient volume or costs. 

Specifically, in February 2016, we reported that nine selected hospitals that received large 

supplemental payments received average surplus payments of about $39 million, and 

used revenues to fund hospital operations, maintenance, and capital purchases, such as a 

helicopter. We also found that hospitals with relatively low uncompensated care costs 

received large supplemental payments relative to those costs. We made two 

recommendations to promote consistency in the distribution of supplemental payments, 

both of which remain unimplemented. See Medicaid: Federal Guidance Needed to 

Address Concerns About Distribution of Supplemental Payments, GAO-16-108

(Washington, D.C.: Feb. 5, 2016).

53See GAO, Medicare Advantage: Continued Monitoring and Implementing GAO 

Recommendations Could Improve Oversight, GAO-22-106026 (Washington, D.C.: June 

28, 2022).

54See GAO, Medicare Advantage: CMS Should Fully Develop Plans for Encounter Data 

and Assess Data Quality before Use, GAO-14-571 (Washington, D.C.: July 31, 2014).
Page 23 GAO-24-107487

Advantage plans and Medicare fee-for-service equivalent to $3.9 billion to 

$5.8 billion in excess payments in 2010.55

We recommended that CMS improve the accuracy of its diagnostic 

coding adjustments to Medicare Advantage plan payments. The agency 

neither agreed nor disagreed with our recommendation, but made 

changes that have the potential to improve the accuracy of the diagnostic 

coding adjustments. For example, CMS began excluding diagnosis codes 

used for its health status adjustment that were not consistently reported 

across fee-for-service and Medicare Advantage; this may decrease the 

size of the adjustment needed to account for diagnostic coding 

differences between Medicare Advantage plans and Medicare fee-forservice.

However, a modified methodology for calculating diagnostic coding 

differences that incorporates, for example, more recent data, and 

incorporates the effect of coding difference trends would better ensure an 

accurate adjustment in the future. Until CMS analyzes the sufficiency of 

its adjustments, the agency may be making billions of excess payments 

to Medicare Advantage plans. As of February 2024, this recommendation 

remains open.

Telehealth. In response to the COVID-19 pandemic, HHS temporarily 

waived certain Medicare restrictions on telehealth and use increased 

dramatically. Both Congress and CMS have taken actions to make certain 

waiver provisions permanent. While likely benefitting beneficiaries and 

providers, these program flexibilities also increase certain risks. In 

September 2022, we found that CMS had not comprehensively assessed 

the quality of telehealth services, and we recommended they do so.56 In 

November 2022, CMS told us they disagreed with this recommendation 

and as of March 2024, had not taken action to implement it. We maintain 

the importance of comprehensively assessing the quality of telehealth 

services to ensure that services are medically necessary, equitable, and 

lead to improved health outcomes.

55See GAO, Medicare Advantage: CMS Should Improve the Accuracy of Risk Score 

Adjustments for Diagnostic Coding Practices, GAO-12-51 (Washington, D.C.: Jan. 12, 

2012).

56See GAO, Medicare Telehealth: Actions Needed to Strengthen Oversight and Help 

Providers Educate Patients on Privacy and Security Risks, GAO-22-104454 (Washington, 

D.C.: Sept. 26, 2022).
Page 24 GAO-24-107487

Similarly, additional actions by CMS in areas where we have made 

recommendations could further improve oversight of Medicaid program 

spending.

Supplemental payments. Supplemental payments—which totaled $56.2 

billion in 2022—are payments made to providers in addition to regular 

claims-based payments for specific services.57 The Consolidated 

Appropriations Act, 2021, required additional state reporting on 

supplemental payments made to eligible providers as we had 

recommended in November 2012.58 CMS subsequently issued guidance 

outlining the required elements of the reporting, and, according to CMS, 

states have begun reporting data.

However, this reporting does not include information on the sources of 

funds used to finance the nonfederal share, as we recommended in 

December 2020.59 Without that information, CMS cannot adequately 

determine whether payments are (1) consistent with statutory 

requirements for economy and efficiency, and (2) financed with 

permissible sources of funds. Having this additional information would 

better position CMS to effectively oversee states’ Medicaid programs and 

identify potentially impermissible financing and payment arrangements for 

additional review.

Demonstrations. Demonstrations—which made up about 52 percent of 

Medicaid spending in fiscal year 2019—allow states and CMS to test new 

coverage and service delivery options. However, our past work has 

identified concerns with CMS methods for ensuring that demonstrations 

57This included supplemental payments made to hospitals and nonhospital providers, 

such as mental health facilities, nursing homes, and physicians. See the Medicaid and 

CHIP Payment and Access Commission, “Exhibit 24. Medicaid Supplemental Payments to 

Hospital Providers by State,” accessed March 29, 2024, 

https://www.macpac.gov/publication/medicaid-supplemental-payments-to-hospitalproviders-by-state/; and Medicaid and CHIP Payment and Access Commission, “Exhibit 

25. Medicaid Supplemental Payments to Non-Hospital Providers by State,” accessed 

March 29, 2024, https://www.macpac.gov/publication/medicaid-supplemental-paymentsto-non-hospital-providers-by-state/.

58Pub. L. No. 116-260, div. CC, § 202, 134 Stat. 1182, 2977 (2020). See GAO, Medicaid: 

More Transparency of and Accountability for Supplemental Payments Are Needed, 

GAO-13-48 (Washington, D.C.: Nov. 26, 2012).

59CMS neither agreed nor disagreed with our recommendation but acknowledged the 

need for additional state Medicaid financing and payment data to oversee the Medicaid 

program. See GAO, Medicaid: CMS Needs More Information on States’ Financing and 

Payment Arrangements to Improve Oversight, GAO-21-98 (Washington, D.C.: Dec. 7, 

2020). 
Page 25 GAO-24-107487

meet the requirement that demonstrations be budget neutral—that is, 

they must not increase federal costs. For example, in January 2008, we 

recommended that Congress consider establishing statutory 

requirements for HHS to more clearly outline the methods used to 

demonstrate budget neutrality.60 In June 2013, we made a 

recommendation to CMS to ensure valid methods are used to set 

demonstration spending limits.61

Congress has not taken action to address our recommendation, but CMS 

has made some progress. In response to our recommendation, in 2016, 

CMS began implementing a series of policy changes to better ensure 

budget neutrality, which has resulted in significant reductions in federal 

liabilities. CMS’s first change limited the amount of accrued unspent funds 

states could carry over from one demonstration period to the next. This 

reduced demonstration spending limits by an estimated $210 billion from 

2016 through 2020, of which the federal share was more than $124 

billion. In 2021, CMS began implementing additional changes to ensure 

that appropriate base data were being used to set demonstration 

spending limits at renewal. CMS estimated that these changes would 

further reduce spending limits by about $106 billion in fiscal years 2023 

through 2027, of which we estimate the federal share would be more than 

$60 billion.62

Not all problems related to budget neutrality for demonstrations that we 

identified were addressed by CMS’s new policies. Congressional action to 

require HHS to improve the review process, and additional actions by 

CMS to ensure valid methods are used to set spending limits, could result 

in significant savings.

State directed payments. Using state directed payments, states can 

direct how managed care plans pay providers, including requiring 

payments in addition to negotiated base payments. Rapid growth in state 

directed payments reached at least $38.5 billion in 2022, the sixth year of 

state use. In a December 2023 report we found that CMS has insufficient 

60See GAO, Medicaid Demonstration Waivers: Recent HHS Approvals Continue to Raise 

Cost and Oversight Concerns, GAO-08-87 (Washington, D.C.: Jan. 31, 2008).

61HHS initially disagreed with our 2013 recommendation on spending limits. As of 

February 2024, the recommendation remained partially addressed. See GAO, Medicaid 

Demonstration Waivers: Approval Process Raises Cost Concerns and Lacks 

Transparency, GAO-13-384 (Washington, D.C.: June 25, 2013). 

62CMS’s estimates for the effects on spending limits were limited to three states. 

According to CMS, the agency has applied the policy for other states.
Page 26 GAO-24-107487 

fiscal guardrails for approving those payments and recommended that 

CMS enhance those guardrails.63 In May 2023, CMS issued proposed 

rules, in part, to enhance fiscal oversight of state directed payments. To 

address our recommendation, any final rules would need to establish 

standards for determining whether proposed payments are reasonable 

and appropriate, and require states to submit data on actual spending 

when seeking to renew payments.

Chairman Griffith, Ranking Member Castor, and Members of the 

Subcommittee, this concludes my statement. I would be pleased to 

respond to questions.

If you or your staff members have any questions concerning this 

testimony, please contact Jessica Farb at (202) 512-7114 or 

farbj@gao.gov. Contact points for our Office of Congressional Relations 

and Public Affairs may be found on the last page of this statement. GAO 

staff who made contributions to this testimony include Susan Barnidge 

and Shannon Legeer (Assistant Directors), Hannah Locke and Kate Nast 

Jones (Analysts-in-Charge), Drew Long, and Ethiene Salgado-Rodriguez. 

Other contributors included Dean Campbell, Kevin Dong, Gabrielle 

Fagan, Dan Flavin, Laura Tabellion, Matt Valenta, and Jennifer 

Whitworth.

63See GAO, Medicaid Managed Care: Rapid Spending Growth in State Directed 

Payments Needs Enhanced Oversight and Transparency, GAO-24-106202 (Washington, 

D.C.: Dec. 14, 2023). 

GAO Contact and 

Staff 

Acknowledgments
Page 27 GAO-24-107487 

Improper Payments: Information on Agencies’ Fiscal Year 2023 

Estimates. GAO-24-106927. Washington, D.C.: March 26, 2024.

The Nation’s Fiscal Health: Road Map Needed to Address Projected 

Unsustainable Debt Levels. GAO-24-106987. Washington, D.C.: 

February 15, 2024.

Medicaid Managed Care: Rapid Spending Growth in State Directed 

Payments Needs Enhanced Oversight and Transparency. 

GAO-24-106202. Washington, D.C.: December 14, 2023.

Improper Payments and Fraud: How They Are Related but Different. 

GAO-24-106608 Washington, D.C.: December 7, 2023.

Medicaid Program Integrity: Opportunities Exist for CMS to Strengthen 

Use of State Auditor Findings and Collaboration. GAO-23-105881. 

Washington, D.C.: September 21, 2023.

Improper Payments: Programs Reporting Reductions Had Taken 

Corrective Actions That Shared Common Features. GAO-23-106585. 

Washington, D.C.: June 30, 2023.

Medicaid: CMS Oversight and Guidance Could Improve Recovery Audit 

Contractor Program. GAO-23-106025. Washington, D.C.: June 28, 2023.

High-Risk Series: Efforts Made to Achieve Progress Need to Be 

Maintained and Expanded to Fully Address All Areas. GAO-23-106203. 

Washington, D.C.: April 20, 2023.

Improper Payments: Fiscal Year 2022 Estimates and Opportunities for 

Improvement. GAO-23-106285. Washington, D.C.: March 29, 2023.

Medicare: CMS Needs to Address Risks Posed by Provider Enrollment 

Waivers and Flexibilities. GAO-23-105494. Washington, D.C.: December 

19, 2022.

Medicaid: Efforts to Address Fraud in Nonemergency Medical 

Transportation. GAO-22-105447. Washington, D.C.: September 28, 2022.

Medicare Telehealth: Actions Needed to Strengthen Oversight and Help 

Providers Educate Patients on Privacy and Security Risks. 

GAO-22-104454. Washington, D.C.: September 26, 2022.

Related GAO 

Products
Page 28 GAO-24-107487

Medicare Advantage: Continued Monitoring and Implementing GAO 

Recommendations Could Improve Oversight. GAO-22-106026. 

Washington, D.C.: June 28, 2022.

High-Risk Series: Key Practices to Successfully Address High-Risk Areas 

and Remove Them from the List. GAO-22-105184. Washington, D.C.: 

March 3, 2022.

Medicaid: CMS Needs More Information on States’ Financing and 

Payment Arrangements to Improve Oversight. GAO-21-98. Washington, 

D.C.: December 7, 2020.

Payment Integrity: Selected Agencies Should Improve Efforts to Evaluate 

Effectiveness of Corrective Actions to Reduce Improper Payments. 

GAO-20-336. Washington, D.C.: April 1, 2020.

Medicaid Eligibility: Accuracy of Determinations and Efforts to Recoup 

Federal Funds Due to Errors. GAO-20-157. Washington, D.C.: January 

13, 2020.

Medicaid Providers: CMS Oversight Should Ensure State Implementation 

of Screening and Enrollment Requirements. GAO-20-8. Washington, 

D.C.: October 10, 2019.

Medicare and Medicaid: CMS Should Assess Documentation Necessary 

to Identify Improper Payments. GAO-19-277. Washington, D.C.: March 

27, 2019.

Medicaid Managed Care: Improvements Needed to Better Oversee 

Payment Risks. GAO-18-528. Washington, D.C.: July 26, 2018.

Medicaid: CMS Should Take Steps to Mitigate Program Risks in 

Managed Care. GAO-18-291. Washington, D.C.: May 7, 2018.

Medicare: CMS Should Take Actions to Continue Prior Authorization 

Efforts to Reduce Spending. GAO-18-341. Washington, D.C.: April 20, 

2018.

Medicare and Medicaid: CMS Needs to Fully Align Its Antifraud Efforts 

with the Fraud Risk Framework. GAO-18-88. Washington, D.C.: 

December 5, 2017.
Page 29 GAO-24-107487

Hospital Uncompensated Care: Federal Action Needed to Better Align 

Payments with Costs. GAO-16-568. Washington, D.C.: June 30, 2016.

Medicare: Claim Review Programs Could Be Improved with Additional 

Prepayment Reviews and Better Data. GAO-16-394. Washington, D.C.: 

April 13, 2016.

Medicare Advantage: Fundamental Improvements Needed in CMS’s 

Effort to Recover Substantial Amounts of Improper Payments. 

GAO-16-76. Washington, D.C.: April 8, 2016.

Medicaid: Federal Guidance Needed to Address Concerns About 

Distribution of Supplemental Payments. GAO-16-108. Washington, D.C.: 

February 5, 2016.

Medicare: Increasing Hospital-Physician Consolidation Highlights Need 

for Payment Reform. GAO-16-189. Washington, D.C.: December 18, 

2015.

A Framework for Managing Fraud Risks in Federal Programs. 

GAO-15-593SP. Washington, D.C.: July 28, 2015.

Medicare Advantage: CMS Should Fully Develop Plans for Encounter 

Data and Assess Data Quality before Use. GAO-14-571. Washington, 

D.C.: July 31, 2014.

Medicaid Demonstration Waivers: Approval Process Raises Cost 

Concerns and Lacks Transparency. GAO-13-384. Washington, D.C.: 

June 25, 2013.

Medicaid: More Transparency of and Accountability for Supplemental 

Payments Are Needed. GAO-13-48. Washington, D.C.: November 26, 

2012.

Medicare Program Integrity: Greater Prepayment Control Efforts Could 

Increase Savings and Better Ensure Proper Payment. GAO-13-102. 

Washington, D.C.: November 13, 2012.

Medicare Fraud Prevention: CMS Has Implemented a Predictive 

Analytics System, but Needs to Define Measures to Determine Its 

Effectiveness. GAO-13-104. Washington, D.C.: October 15, 2012.
Page 30 GAO-24-107487

Medicare Advantage: CMS Should Improve the Accuracy of Risk Score 

Adjustments for Diagnostic Coding Practices. GAO-12-51. Washington, 

D.C.: January 12, 2012.

Medicaid Demonstration Waivers: Recent HHS Approvals Continue to 

Raise Cost and Oversight Concerns. GAO-08-87. Washington, D.C.: 

January 31, 2008.
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