Hearing highlights staggering cost of improper Medicare payments

HHS officials defended their efforts. They point out, for example, that they've reduced the error rate for fee-for-service billing for physicians and hospitals, down to 10.5 percent of claims in 2010 from 12.4 percent in 2009.

The administration announced last year its intention to halve the error rate to 6.2 percent by next year, and HHS deputy chief operating officer Michelle Snyder testified Thursday that it "is making progress in meeting that goal."

The improper payment rate in the Part C Medicare Advantage program is even higher — 14.1 percent — while a composite error rate for the Part D prescription drug program is still being developed. Unlike the fee-for-service parts of the program, Medicare prospectively pays Part C and Part D plans a monthly capitated payment.

The GAO has identified Medicare as a high-risk program "because of its size, complexity and susceptibility to improper payments." Medicare receives about 4.8 million claims every day — some 1.2 billion this year — and its improper payments account for 38 percent of the federal government's estimated $125.4 billion in improper payments, according to GAO.

"Despite progress made by CMS," the GAO report concludes, "reducing improper payments in the program is a continuing challenge for CMS due to the size and scope of Medicare."