Medicaid Managed Care: Improper Payment Estimate

What GAO Found

State Medicaid programs predominantly rely on managed care to provide coverage. In 2022, just over 75 percent of Medicaid beneficiaries (about 74 million beneficiaries) received coverage through managed care. Under Medicaid managed care, states contract with managed care plans and generally pay them a fixed monthly amount per beneficiary (i.e., a capitation payment) to provide a set of covered services.

The Centers for Medicare & Medicaid Services (CMS), the federal agency that oversees Medicaid, develops an improper payment estimate for Medicaid. This estimate consists of three components: managed care, fee-for-service, and eligibility. For the managed care component, CMS reviews a sample of the payments that states made to their Medicaid managed care plans. CMS checks to see if those payments were made correctly based on the information in the state’s Medicaid information system and managed care plan contract. In recent years, including 2024, the improper payment estimate for Medicaid managed care has been at or near 0 percent. This means CMS found few to no errors in states’ payments to their Medicaid managed care plans.

Components of the Improper Payment Estimate for Medicaid and Estimates Reported in 2024

Note: These components are part of the Payment Error Rate Measurement program, which identifies improper payments in Medicaid. For more information, see figure 2 in GAO-25-107770.

CMS’s estimate of improper payments in Medicaid managed care does not include a review of payments from managed care plans to providers. GAO and others, including the Department of Health and Human Services’ Office of Inspector General (HHS-OIG) and some state auditors, have identified program integrity risks related to Medicaid managed care payments that are not accounted for in the improper payment estimate. These include, for example, payments from managed care plans to providers for services that were not delivered or lacked necessary documentation, and capitation payments made by the state for the same beneficiary with multiple identification numbers.

CMS conducts audits related to managed care, which can identify program integrity risks not captured in the improper payment estimate. For example, CMS audits can determine if managed care plans paid providers for services that were not delivered. CMS increased the number of audits it conducts, in part, in response to a GAO recommendation. As a result, between October 2021 and February 2025, CMS completed 899 audits of managed care providers and opened 155 managed care plan audits. Through these audits, CMS has identified over $33 million in overpayments; nearly $23 million of these overpayments are the federal share, which the agency is working to recover.

Why GAO Did This Study

Improper payments are payments that should not have been made, that were made in an incorrect amount, or whose appropriateness cannot be determined due to lacking or insufficient documentation. They have been a long-standing and significant problem in the federal government. Consistent with the Payment Integrity Information Act of 2019, CMS develops an improper payment estimate for Medicaid, a federal-state health financing program for certain low-income and medically needy individuals.

House Report 117-389, which accompanied the Legislative Branch Appropriations Act, 2023, includes a provision for GAO to provide quarterly reports on improper payments.

In this 10th quarterly report, GAO describes how CMS develops the improper payment estimate for Medicaid managed care and its other oversight efforts to identify program integrity risks related to managed care. GAO reviewed relevant federal statutes and regulations, as well as documentation of CMS’s methodology for the improper payment estimate. In addition, GAO reviewed reports by the HHS-OIG and state auditors in five states selected for variation in geographic location and size of the Medicaid managed care population. GAO also interviewed officials from CMS, the HHS-OIG, and an organization that represents state auditors.