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We Can’t Wait: Agencies Cut Nearly $18 Billion in Improper Payments, Announce New Steps for Stopping Government Waste

The Office of Management and Budget (OMB) today announced that the Administration cut wasteful improper payments by $17.6 billion dollars in 2011 as part of the Obama Administration’s Campaign to Cut Waste, fueled by decreases in payment errors in Medicare, Medicaid, Pell Grants, and Food Stamps.  Combined with the improper payment cuts in 2010, agencies have avoided making over $20 billion in improper payments in the two years since President Obama issued an Executive Order initiating an aggressive campaign against wasteful payment errors.

“When the President and I launched the Campaign to Cut Waste we knew success would be measured by results, not rhetoric,” said Vice President Biden. “The sharp reduction in payment errors announced today demonstrates this Administration is serious about cutting waste,” he added.

“Because of the sustained commitment from the President, the Vice President, and leaders across the Administration – and the effective use of technology – we are seeing real progress cracking down on this waste of taxpayer dollars that has persisted for far too long,” said OMB Director Jack Lew. “Through aggressive and innovative solutions being deployed by Federal agencies, we are on track to meet the President’s bold directive to prevent $50 billion in payment errors by the end of 2012. This is a good step, but not the end. We will continue to work day and night to prevent taxpayer dollars from being wasted in payments to the wrong people or in the wrong amount.”

Lower Rate of Improper Payments Prevents $17.6 Billion in Waste and Error 
In 2010, the President announced that by the end of 2012, the Administration would avoid $50 billion in improper payments, cut Medicare fee-for-service errors in half, and recapture $2 billion in overpayments to contractors.  Thanks to the Campaign to Cut Waste, the Administration is on track to meet or exceed these goals.  Specifically, the Administration:

• Cut the 2011 government-wide error rate to 4.7 percent, a sharp decrease from the 2010 error rate of 5.3 percent and the 2009 error rate of 5.42 percent.
• Prevented $17.6 billion in wasteful improper payments as a result of the declining error rate.  When combined with results from last year, the total amount of error avoided since 2009 totals over $20 billion.  Also, for the first time in six years, the total amount of improper payments reported declined from the previous year.   
• Recaptured over $1.2 billion in overpayments from government contractors last year.  When combined with the roughly $700 million in overpayments recaptured in the previous year, the government is very near to achieving the President’s $2 billion mandate.

These results were driven by successes in specific programs where results are improving because Federal agencies are increasing scrutiny of payments by initiating more robust audits, leveraging new technologies, or building partnerships with States focused on improved program integrity.   For example:

1) Medicare and Medicaid. The Medicare fee-for-service error rate fell from 9.1 percent in 2010 to 8.6 percent in 2011.  Since 2009, the error rate has fallen more than 2 percentage points. The overall error rate for Medicare programs fell from 10.2 percent in 2010 to 8.6 percent in 2011.  Since 2009, the error rate has fallen nearly 3.2 percentage points. 
• Medicare fee-for-service avoided about $7 billion in payment errors.
• Medicare Part C avoided about $5 billion in payment errors.
 Medicare Part D reported a composite error rate for the first time, with an error rate of 3.2 percent, well below the government average.
• In addition, the error rate for Medicaid fell to 8.1 percent in 2011 from 9.4 percent in 2010, avoiding about $4 billion in payment errors since 2009.

2) Supplemental Nutrition Assistance Program (SNAP – Formerly Food Stamps). The error rate for the SNAP program reached an all-time low, falling to 3.8 percent this year, avoiding a projected $800 million in payment errors compared to before the President issued his directive.  The program has decreased its error rate every year of the Obama Administration. USDA also reduced the prevalence of trafficking to 1 percent.  This decline can be attributed to USDA’s work with States reducing fraud and holding bad actors accountable. Using the latest technology to identify suspicious activity and putting boots on the ground to investigate it, USDA has permanently disqualified more than 8,300 retail stores over the last ten years. In fiscal year 2011, USDA conducted nearly 5,000 undercover investigations to counter fraud. In fiscal year 2010 alone, States conducted 847,000 fraud investigations, disqualified 44,000 individuals, and recovered $287 million in recipient claims. 

3) Pell Grants.  The error rate for Pell Grants went down to 2.7 percent (2011), avoiding roughly $300 million in payment errors compared to prior to the President’s directive. In 2010, the Department of Education implemented a process to allow Federal Student Aid applicants filling out online applications to go to the Internal Revenue Service (IRS) website to retrieve their income information and transfer it directly to their application. This process helps prevent improper payments in the Pell Grant Program by making it easier for students and parents to enter the correct tax return information and receive the correct amount of student aid.  This reform simplified the aid application process and will continue to reduce improper payments further as more students use the system in future years. 

Other major programs contributing to error rate reductions with improved results this year include the Earned Income Tax Credit (Treasury), Supplemental Security Income (Social Security Administration), and Rental Housing Assistance Programs (Housing and Urban Development). 

New Steps to Catch More Waste and Fraud
The results announced today demonstrate that the government is on track to meet the President’s directive to prevent $50 billion in error by 2012 and the Administration will continue to ramp up efforts.  Nine months ago, the President proposed in his 2012 Budget even more aggressive tools that will help drive down this waste. If Congress passes these proposals, they will result in more than $160 billion in savings to the Federal Government over the next decade. As part of a series of executive actions announced this fall because we can’t wait for Congressional Republicans to act, the Administration is launching new pilot programs to further the progress being made cutting waste and fraud in Medicare and Medicaid and stepping up efforts to bar bad actors who put taxpayer dollars at risk for waste and fraud from doing business with the Federal government.

“Today we have shown real progress in cutting waste, fraud and abuse, but we still need Congress to act on the President’s proposal,” said Secretary Sebelius. “Until Congress acts, we will continue doing everything in our power to save money on behalf of the American people.”

Secretary Sebelius announced that the Department of Health and Human Services will launch four additional pilots to reduce the error rate and cut Medicare and Medicaid waste and fraud:

• Let private inspectors catch wasteful spending before it happens by expanding the use of Recovery Audit Contractors.  At HHS and other agencies, private recovery audit contractors normally review payments and identify errors after the payments are made.  Then, the agency must track down and recover the improper payments.  Last year, private companies recovered hundreds of millions of taxpayer dollars by finding improper payments that have already been paid out.  The agency will now allow private companies to screen certain hospital payments before they are made, which will prevent improper Medicare payments from happening in the first place.
• Test changes to outdated hospital billing system to help prevent over-billing.  Hospitals sometimes perform services as inpatient that Medicare requires to be outpatient.  Right now, when those hospitals bill Medicare, HHS does not allow them to re-bill as outpatient.  Under this pilot, HHS will allow some claims that are incorrectly made under the inpatient program to be resubmitted under the outpatient program.  This mistake—incorrect billing of services—is a leading cause of error in the Medicare program and wastes time and money in appeals.
• Change its process for approving payments for medical equipment with high error rates.  One contributor to the Medicare improper payment rate is incorrect reimbursement for medical equipment that is not medically necessary.  This change will allow HHS to pilot a new process for reviewing these medical equipment claims before they are made, thus helping to reduce Medicare improper payments.
 Work with States to improve fraud detection.  HHS is initiating a pilot project under the Partnership Fund for Program Integrity Innovation to test an automated tool to screen providers for the risk of fraud.  Currently, HHS and States lack standardized Medicaid provider data, which hampers detection of potential fraud.  If successful, this tool will not only help prevent improper payments by weeding out fraudulent providers, but it will help States focus their resources where fraud is most likely to occur.

Additionally, OMB Director Jack Lew issued a memo to agencies today directing them to step up their oversight of contractors and grant recipients in order to eliminate unnecessary risk of waste, fraud and abuse. Specifically, the guidance directs agencies to strengthen their suspension and debarment procedures – tools that allow the Federal government to stop doing business with bad actors who put taxpayer dollars at risk.

Agency improper payment data is being updated Tuesday afternoon at

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