Comprehensive Analysis of Healthcare Technology Solutions for CMS Improper Payments

Executive Summary

The Centers for Medicare & Medicaid Services (CMS) faces significant challenges with improper payments across its programs, totaling approximately $87.02 billion in fiscal year 2024. These payments, while not always indicative of fraud, underscore systemic inefficiencies in documentation, verification, and payment processes. Addressing these inefficiencies through technology presents an opportunity to safeguard public funds and improve healthcare program sustainability.

This paper analyzes the current landscape of CMS improper payments, identifies key pain points, and proposes comprehensive technological solutions. These solutions include an Intelligent Documentation Management Platform (IDMP), Advanced Risk Adjustment Validation System (ARAVS), Comprehensive Prescription Drug Event Management System (CPDEMS), and Automated Eligibility Verification and Monitoring System (AEVMS). Each model is designed to mitigate specific causes of improper payments, offering a roadmap for enhanced compliance, efficiency, and accuracy across CMS programs.

Introduction

Improper payments represent a significant challenge for CMS, impacting the integrity of Medicare and Medicaid programs. In FY 2024, CMS reported $87.02 billion in improper payments across its major programs, including Medicare Fee-for-Service (FFS), Medicare Part C, Medicare Part D, Medicaid, and CHIP. These payments often result from administrative oversights, insufficient documentation, or errors in eligibility determination .

Addressing these challenges is critical to maintaining public trust, ensuring program sustainability, and optimizing healthcare delivery. As technology continues to transform industries, CMS has an opportunity to leverage advanced tools such as AI, machine learning (ML), and data analytics to address the root causes of improper payments. This paper explores how these technologies can be deployed to improve documentation processes, validate payments, and streamline eligibility verification.

Current Situation Analysis

Medicare Fee-for-Service (FFS)

Medicare FFS reported a 7.66% improper payment rate, totaling $31.70 billion in FY 2024 . Although this figure remains below the 10% compliance threshold, persistent issues include:

• Insufficient documentation for billed services.

• Inadequate demonstration of medical necessity.

These challenges highlight the need for enhanced documentation tools and validation mechanisms to ensure compliance with CMS requirements.

Medicare Part C

Improper payments in Medicare Part C were estimated at $19.07 billion, with a 5.61% improper payment rate . Key challenges include:

• Unsubstantiated diagnosis data affecting risk score calculations.

• Missing or illegible medical documentation.

The risk-adjusted payment model of Medicare Part C underscores the critical need for accurate diagnosis submission and validation.

Medicare Part D

Medicare Part D reported $3.58 billion in improper payments, corresponding to a 3.70% improper payment rate . Major issues include:

• Drug pricing discrepancies.

• Missing or invalid prescription documentation.

• Dispensing inconsistencies between prescribed and dispensed medications.

Medicaid

Medicaid accounted for $31.10 billion in improper payments, reflecting a 5.09% error rate—a significant improvement from 8.58% in FY 2023 . However, 79.11% of these errors were attributed to insufficient documentation, indicating an ongoing need for process automation and compliance monitoring.

CHIP

Improper payments in CHIP decreased from 12.81% in 2023 to 6.11% in 2024, totaling $1.07 billion . Similar to Medicaid, insufficient documentation remains the primary driver, responsible for 61.56% of improper payments.

Detailed Technology Solutions and Business Opportunities

Intelligent Documentation Management Platform (IDMP)

Market Opportunity

Documentation errors account for the majority of CMS improper payments, particularly in Medicaid and Medicare. An IDMP could address approximately $68.8 billion in errors across these programs.

Solution Components

A. Smart Document Intake System

• AI-powered document classification and routing.

• Real-time OCR with medical terminology recognition.

• Automated completeness checks against CMS requirements.

• Seamless integration with EHR systems.

B. Documentation Validation Engine

• Automated verification of compliance with CMS standards.

• Algorithms to validate medical necessity.

• Continuous learning to adapt to regulatory updates.

C. Provider Workflow Management

• Real-time feedback during documentation submission.

• Automated alerts for missing or incomplete information.

• Integration with existing provider workflows.

Business Model

• SaaS-based subscriptions with tiered pricing.

• Success-based pricing tied to reduction in improper payments.

Impact Potential

• 50% reduction in Medicaid documentation errors, saving $12.3 billion annually.

• 40% reduction in Medicare FFS errors, saving $12.68 billion.