The U.S. Department of Health and Human Services (HHS) estimated that in 2013 it improperly spent about $65 billion in taxpayer funds through waste, errors, and fraud, a figure that was primarily fueled by an estimated $60 billion in overpayments to Medicare and Medicaid.

According to the HHS FY 2013 financial report releasedin mid-December, last year HHS improperly spent a total of $65.3 billion under all its programs, an increase from the $64.8 billion misspent in 2012.

Erroneous payments by Medicare increased by almost 12 percent, from around $44.3 billion in 2012 to almost $49.9 billion in 2013. That means that last year, nearly $1 out of every $10 spent on Medicare beneficiaries was doled out by mistake. 

Conversely, Medicaid saw a substantial decrease in payment errors of about 25 percent, down from about $19.2 billion in 2012 to $14.4 billion in 2013.

HHS made an estimated $64.3 billion in erroneous payments last year under Medicare and Medicaid combined, an increase from the $63.5 billion in 2012. 

The majority of improper or mistaken payments in 2013 came in the form of overpayments. Improper payments were broken down by overpayments and underpayments in the HHS financial document.  

All in all, in 2013 HHS overpaid a total of $60.6 billion; that is more than 90 percent of the $65.3 billion in improperly spent taxpayer funds for last year. 

Of the $64.3 billion in improper payments just accounting for Medicare and Medicaid last year, $59.6 billion were overpayments, including $45.7 billion spent by Medicare and $13.9 billion by Medicaid.

To put it in perspective, the estimated $60 billion in Medicare and Medicaid overpayments made in 2013 are about three times the expected $20 billion in deficit reduction under the budget deal struck by House Budget Committee Chairman Paul Ryan (R-WI) and his Senate counterpart Sen. Patty Murray (D-WA). 

Medicare fee-for-service (FFS) and Medicare Part D were the only HHS programs that saw an increase in improper payments last year. Payments by Medicare FFS considered improper grew by about 20 percent to an estimated $36 billion in 2013 from $29.5 billion the previous year. HHS improper payments made through Medicare Part D saw an increase of about $500 million from $1.6 billion in 2012 to $2.1 billion the following year.

Those increases exceeded the cuts in improper payment that all other programs made in 2013.

The estimated 20 percent increase in Medicare funds improperly paid to providers came after years of decline. The Medicare FFS improper payment rate went from 10.8 percent of all payments in FY 2009 to 8.5 percent in FY 2012. In 2013, it went back up to 10.1 percent.   

All of the 2013 improper payments by HHS included Medicare FFS ($36 billion), Medicare Part C ($11.8 billion), Medicare Part D ($2.1 billion), Medicaid ($14.4 billion), Children’s Health Insurance Program ($646 million), the Child Care program ($306 million), and the Foster Care program ($70 million).

Improper payments reported by HHS are only estimates. 

In explaining the cause of improper Medicare payments, HHS primarily blamed “administrative and documentation errors.”  

“Medically unnecessary services” and diagnosis coding errors by physicians and hospitals were also to blame, the HHS report revealed.  

According to the American Health Information Management Association, diagnosis coding refers to coded descriptions of diseases, illnesses, injuries, and medical procedures. In this case, they are used by health providers for service claims. 

As far as Medicaid is concerned, the report stated, “Overall, the largest cause of the FY 2013 improper payments (by dollar amount) was verification errors (46 percent), which were mostly caused by cases reviewed for eligibility that were either not eligible or their eligibility status could not be determined, and system pricing errors.” 

“The second largest cause of improper payments was administrative and documentation errors (35 percent), which were mostly due to insufficient documentation,” added the report. “The remaining improper payments were attributed to authentication and medical necessity errors (19 percent), and were mostly due to diagnosis coding errors.”