Improper Payments a Billion Dollar a Day Problem !

Updated: Jun 9, 2018

The problem

The United States currently spends $3.35 trillion on healthcare; that works out to $10,345 per person annually.  According to The Centers for Medicare & Medicaid (CMS) the system only pays approximately 90% of these dollars accurately—leaving nearly 10% improperly paid. That’s $335 billion a year or $1 billion per day in waste, fraud or abuse. 

To put these figures into perspective, consider that there has been so much public outrage about healthcare exchange subsidies which are estimated at $31 billion, less than 10% of improperly paid payments. The problem is massive, but it is solvable and employers are working to reclaim control by retroactively recovering improper payments and addressing root causes to prospectively reduce error rates.

Addressing the problem

The Improper Payments Elimination and Recovery Act of 2010 or IPERA (Pub. L. No. 111-204) was enacted to eradicate payment errors, fraud, waste and abuse. With this legislation, government agencies receiving federal funding faced the new requirement of measuring accuracy of payments annually and initiating program improvements.

Growth in the number of new players

Hoping to benefit from the new legislation, a number of solution providers entered the market, offering payment integrity platforms and cost containment solutions. Money to solve the problem poured into the industry through the unprecedented numbers of mergers and acquisitions, totaling over $5.7 billion between 2010 and 2017. Following is a list of high-profile mergers and acquisitions focused on payment integrity:

  • 2011: HMS Federal Solutions – A CMS Recovery Audit Contractor acquired HealthDataInsights, Inc. (HDI) for $400 million. (NASDAQ: HMSY)

  • 2012: Veritas Capital acquired Thomson Reuters Healthcare Business forming Truven Health Analytics for $1.25 billion

  • 2014: Cotiviti – A CMS Recovery Audit Contractor was formed when Connolly acquired IHealth for $ $1.2 billion. (NYSE: COTV)

  • 2015: Performant – A CMS Recovery Audit Contractor, previously Diversified Collection Services acquired Premier Health Exchange (PHX) for $130 million.


  • 2016: Watson/IBM – A CMS Vendor acquired Truven Health Analytics for $2.6 billion. (NYSE:IBM)

  • 2017: HMS Federal Solutions (a wholly owned subsidiary of HMS Holdings Corporation) and – A CMS Recovery Audit Contractor acquired ELIZA for $170 million

The situation has not improved

The chart below illustrates the total amount of improper payments by year. In 2010, the improper payment rate was 10.5% and reached a high of 12.4% in 2014. In other words, payments were paid properly 87.6% of the time. Since the implementation of the IPERA, we have seen a marginal reduction of less than one percentage point between 2010 at 10.5% and 2017 at 9.5%. In fact, the improper payment rate was actually at its lowest prior to the introduction of IPERA. One possible

explanation to consider: there were more improper payments as a result of the proliferation of unscrupulous actors within the industry who were made aware of the potential for additional ways to game the system.

The problem isn’t limited to Medicare and Medicaid

The magnitude of the problem is often defined by studying Medicare and Medicaid improper payment rates and extrapolating those rates to other payers. You may wonder if that’s a sound methodology given there are other insurers involved. However, the same insurers and third parties responsible for administrating medical claims that provide coverage to millions of Americans through employer group health plans are the same companies that are used by Centers for Medicare and

Medicaid Services (CMS).

Meaning, the improper payment rate, totaling over $329 billion (see chart above), reflects poorly on the efficiency of medical claims processing administered by the nation’s largest insurers. In fact, the 36 independent and locally operated Blue Cross Blue Shield (BCBS) companies deliver health insurance coverage to one in three Americans across all 50 states, the District of Columbia and Puerto Rico. In addition, the BCBS Federal Employee Program® insures over five million federal employees, retirees and their families.

A Medicare Administrative Contractor (MAC) is a private health care insurer that has been awarded a geographic jurisdiction to process Medicare Part A and Part B (A/B) medical claims or Durable Medical Equipment (DME) claims for Medicare Fee-For-Service (FFS) beneficiaries.

A partial list of MACs follows:

  • Novitas TPA: subsidiary of BCBS Florida. Active in three states

  • National Government Services: subsidiary of Anthem. Active in five states

  • Palmetto GBA: subsidiary of BCBS South Carolina. Active in 11 states

  • Noridian: subsidiary of BCBS North Dakota. Active 10 states

  • Trailblazers Health: subsidiary of BCBS South Carolina. Active in four states

What employers can do

With such large dollar amounts at stake, employers should actively engage in the healthcare payment process, especially if they are assigned fiduciary responsibility under ERISA. Employers should request from their plan’s administrator monthly reports identifying adjustments for denials as well as debits and credits to determine if the administrator has strong pre-payment program and post-payment review processes.

If the administrator performs post-payment reviews, ask what percentage of claims have been reviewed and determine the amount returned to your plan.

By understanding performance on the back-end, employers will learn whether or not an administrator has a strong payment integrity program.

SAAS products that edit claims upfront and “set it and forget it” auto-adjudication systems are no longer enough. Employers need more from their administrators.

Most importantly, ensure that your health plan is audited annually. Don’t just hire any firm to solve your problems. Retain an experienced audit firm with a seasoned team of experts that will review 100% of all claims transactions to determine efficacy of existing cost containment programs, identify system issues in processing improper payments and show you where you can save money and potentially improve quality. Keep in mind, improper payments impact the cost share portion of plan enrollees. And more than likely, no one is looking to recover improper payments on behalf of patients/members.


The cost of healthcare prevents people from seeking treatment. Improper healthcare payments affect each one of us. Turning a blind eye only perpetuates a flawed system and adds to the burden of cost, beyond what is paid out in premiums. Whether you represent an employer, health plan, national carrier, third partyadministrator, or a company that provides payment integrity services, we all share the responsibility of solving this national problem.

About Author

Dawn Cornelis is co-founder of ClaimInformatics, providing a new disruptive solution to fix improper payments of healthcare claims. As a pioneer in audit and recovery for the past 25 years, Dawn has been on a mission to bring payment integrity, transparency and value to the industry, employers and consumers.