CMS Issues Final Rule Implementing Changes to the PERM and MEQC Programs.

Date posted: August 1, 2017

The Centers for Medicare & Medicaid Services (CMS) recently issued a final rule to implement changes to the Payment Error Rate Measurement (PERM) and Medicaid Eligibility Quality Control (MEQC) programs.  The PERM program measures improper payments in the Medicaid and CHIP programs.  The improper payment rates are based on reviews of the fee-for-service (FFS), managed care, and eligibility components of Medicaid and CHIP.  The MEQC program is a separate eligibility review program set forth in section 1903(u) of the Social Security Act (the ”Act”). This program requires states to report to the Secretary the ratio of States’ erroneous excess payments for medical assistance under the state plan to total expenditures for medical assistance. States review Medicaid cases to determine whether the sampled cases meet applicable Medicaid eligibility requirements. The final rule, published on July 5, 2017, reflects changes to the state’s adjudication process for Medicaid and Children’s Health Insurance Program (CHIP) eligibility as required by law. In general, the final rule aims to reduce state burden, improve program integrity, and promote state accountability through policy and operational improvements to the PERM and MEQC programs.

Key provisions regarding changes to the PERM program include the following:

  • The review period for state Medicaid and CHIP payments is now July through June of a given year rather than a review of payments made in a Federal FY.
  • Federal contractors will conduct the PERM eligibility reviews, aided by each state. This is a departure from previous regulations requiring that states conduct the reviews and report results to CMS.
  • The PERM program will conduct eligibility reviews on FFS and managed care payments sampled for the PERM program. The eligibility review will be conducted on the beneficiary associated with the sampled claim.
  • Regardless of whether the total computable amount is correct, improper payments will be cited when the federal share amount is erroneous. Previous regulations stated that improper payments were only cited on the total computable amount.
  • A national sample size will be calculated to match national Medicaid and CHIP improper payment rate precision requirements. Then, the national sample size will be distributed across states to maximize precision at the state level, and state-specific sample sizes will be based on factors such as each state’s expenditures and previous improper payment rates.
  • States will continue to implement Corrective Action Plans (CAPs) for all errors and deficiencies. Stricter requirements, however, will be imposed on states that have consecutive PERM eligibility improper payment rates over the three percent threshold established under section 1903(u) of the Act.
  • Potential payment reductions under section 1903(u) of the Act will be applicable for eligibility reviews conducted during PERM years in cases where a state’s eligibility improper payment rate exceeds the three percent threshold. CMS will only pursue disallowances if a state does not demonstrate a good faith effort to meet the threshold.

Key provisions regarding changes to the MEQC program include the following:

  • Through this final rule, CMS has restructured the MEQC program into a tool that will help states lower their eligibility improper payment rates.
  • The MEQC program is now a pilot program that states will conduct during their off-years from the PERM program.
  • States have the flexibility to design their MEQC active case pilots to best match each state’s unique needs. Each state should, however, have consecutive PERM eligibility improper payment rates over the three percent threshold under section 1903(u) of the Act.  CMS will provide direction for active case reviews.
  • States are required to review a number of items not fully reviewed through the PERM program (e.g., negative cases).
  • States must submit corrective actions for identified errors.

The final rule is available at:

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