December 07, 2021

HHS Releases its FY 2021 Financial Report – Insights on Improper Payments

3 min

On November 12, 2021, The U.S. Department of Health and Human Services (HHS) released the agency's Financial Report (the Financial Report) for FY 2021. HHS's financial position and activities are significant to the overall financial position of the federal government. In FY 2020, HHS's net operating cost was 19% of the federal government's total costs, larger than any single agency across the entire federal government. With $2.8 trillion in budgetary resources, HHS oversees the largest healthcare payment programs by expenditure, including Medicare and Medicaid.

Safeguarding the HHS budget is critical to the agency's financial integrity. The Financial Report reveals that $153.87 billion in estimated improper payments occurred in FY 2021, approximately 13% of all HHS payments from federal healthcare programs.

HHS has continued its enforcement efforts to reduce improper payments and has met with success in certain programs.

According to HHS, an "improper payment" is any payment that does not meet statutory, contractual, administrative, or other legally applicable requirements, and that may be an overpayment or an underpayment. Federal healthcare programs accounted for 65%, or $134.2 billion, of all government-wide estimated improper payments reported in FY 2020. Although HHS estimates an increase in improper payments for FY 2021 compared with FY 2020, the vast majority of these improper payments are a result of insufficient documentation and administrative errors, rather than fraud and abuse.

HHS has continued to pursue enforcement to recover improper payments. The Financial Report finds some positive results in the reduction of improper payments from these enforcement efforts in FY 2021, most notably in the Medicare fee-for-service (FFS) program.

In FY 2021, the Medicare FFS program issued $25.03 billion in improper payments, equivalent to 6.2% of all Medical FFS reimbursements. This estimate reflects a reduction in improper payments from $25.74 billion, 6.27% of all Medical FFS reimbursements in FY 2020. The Centers for Medicare and Medicaid Services (CMS) estimate a reduction of $20.72 billion in improper Medicare FFS payments over the past seven years, bringing the estimated FY 2021 improper payments rate to a historic low of 6.2%. According to CMS, the trend of falling rates of improper Medical FFS payments are attributable to several factors, including an expansion of CMS-required prior authorizations, provider consolidation, and investment in technology.

Financial integrity is a top management and performance challenge for HHS in FY21.

The HHS Office of Inspector General (OIG) identified the financial integrity of HHS programs as a top priority for HHS, following only safeguarding public health amid COVID-19 and the opioid epidemic.

OIG made the following recommendations to HHS on how it could improve performance in ensuring the agency's financial integrity:

  1. Controlling costs by ensuring prudent payments for goods and services;
  2. Preventing and reducing improper payments;
  3. Combating fraud, waste, and abuse in HHS programs; and
  4. Monitoring and reporting on the integrity of HHS programs.

The Financial Report made makes two things clear for federal healthcare program providers and suppliers. First, while there is a marked reduction in improper payments from prior years in certain programs, HHS, CMS, and OIG will continue to implement existing and new safeguards designed to reduce those improper payments as much as possible. Second, the bucket of money that represents improper payments is significant; however, HHS has acknowledged that the amount of those payments that were actually paid as a result of fraud and abuse is a very small fraction of the whole.

If you have further questions about the overpayment estimates and conclusions in the Financial Report or need assistance interpreting HHS regulations regarding overpayments, please feel free to contact the authors of this alert or your Venable relationship attorney.

* The authors of this article thank Giselle Lai, a law clerk, for her assistance in its preparation.