Despite years of progress in lowering error rates, traditional Medicare still made more than $28.8 billion in improper payments in the 2025 reporting period. HHS points to documentation failures as the primary driver, while rising error rates in skilled nursing care and durable medical equipment are prompting renewed scrutiny and targeted audits from regulators.
CMS’s Comprehensive Error Rate Testing (CERT) program reviews a random sample of Medicare Fee-for-Service (FFS) claims to assess whether they were paid in accordance with Medicare’s coverage, coding, and payment rules. Although the overall improper payment rate declined significantly — from 8.12% in 2018 to 6.55% in 2025 — the total dollar amount of improper payments has remained high.
In the 2025 reporting period, approximately 53.0% of improper payments were attributed to insufficient documentation, followed by medical necessity (15.3%) and no documentation (12.0%), according to the annual Medicare FFS Supplemental Improper Payment Data report. The 2025 reporting period covers claims submitted between July 1, 2023, and June 30, 2024.
Insufficient documentation has consistently been the leading cause of improper payments, accounting for 58.0% in 2018, according to CareSet’s analysis of CERT reports. While “no documentation” ranked as the third leading cause in 2025, it increased sharply from just 2.6% in 2018 to 12.0% in 2025.
Hospital outpatient services and skilled nursing facility (SNF) inpatient services have long been the primary sources of insufficient documentation errors, with projected improper payments of $3.46 billion and $2.31 billion, respectively, in 2025.
Improper payment amounts also varied widely across states in the 2025 reporting period. California ranked highest, with an estimated $4.13 billion in improper payments, followed by Texas and Florida. In terms of improper payment rates, Wyoming, South Carolina, Maryland, Kentucky, and Puerto Rico all reported double-digit rates, with Wyoming leading at 18.5%.
CareSet’s analysis further found that, among all 50 states and Washington, D.C., Kentucky recorded improper payment rates above 10.0% in six years between 2018 and 2025. Ohio and New Mexico each reported four years with double-digit rates, while Puerto Rico has exceeded 10.0% every year since 2018.
SNFs, Outpatient Care Anchor Improper Payment Problem
SNFs, hospital outpatient, inpatient rehabilitation facilities, and hospice were the primary drivers of improper payments during the 2025 reporting period, CERT report shows.
SNFs accounted for the largest share, with an improper payment rate of 11.8%, resulting in an estimated $4.3 billion in improper payments. The SNF improper payment rate increased substantially from 6.5% in 2018, peaking at 17.2% in 2024. In response, CMS directed Medicare Administrative Contractors (MACs) to audit five Medicare claims from each SNF in 2023 as part of efforts to reduce the rate.
Hospital outpatient services ranked second, with an estimated $3.7 billion in improper payments in 2025. Inpatient rehabilitation facility services accounted for $1.6 billion in projected improper payments, but their improper payment rate reached 21.5%, with most errors attributed to documentation that does not substantiate the need for intensive rehabilitation, need for close supervision by a rehabilitation physician, or sufficient stability to actively engage in intensive rehabilitation.
Medicare Flags Surge in Equipment Errors
The CERT program reviews four types of claims: Part A hospital Inpatient Prospective Payment System (IPPS) claims; Part A claims excluding IPPS (including, but not limited to, home health, inpatient rehabilitation facilities, SNF, and hospice); Part B claims; and durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS).
In 2025, Part A accounted for 58.7% of total improper payments, followed by Part B at 33.4% and DMEPOS at 7.9%.
Notably, DMEPOS improper payments increased for the first time since 2020, reaching a rate of 24.1%, a 2.7 percentage point rise year over year. Urological supplies experienced a particularly sharp rise, with an improper payment rate of 74.1%, resulting in $885.8 million in improper payments in 2025 alone. In response, the DME MACs for Jurisdictions B and C announced in February that they will conduct widespread pre-payment reviews of urological supply claims submitted by new suppliers.
Within Part A hospital IPPS claims, percutaneous intracardiac procedures and major hip and knee joint replacement had improper payment rates of 37.8% and 34.5% in 2025, resulting in estimated improper payments of $708.2 million and $474.2 million, respectively.
Among Part B claims, non–Medicare fee schedule laboratory tests reported an improper payment rate of 27.9%, totaling $1.36 billion in improper payments. This category has consistently ranked among the highest in total improper payments in recent years.According to HHS, a range of strategies and actions have been implemented to reduce and prevent improper payments in Medicare FFS, including provider education, automated system edits, enhanced prior authorization, medical reviews, targeted audits, and predictive data analytics.
Medicare Faces $56B in Improper Payments
With more than 68 million beneficiaries and accounting for 15% of all federal spending in 2024, Medicare continues to face scrutiny over improper payments, fraud, and abuse.
According to the HHS Agency Financial Report, total improper payments in the Medicare program were $56.7 billion in 2025, a slight increase from $54.3 billion in 2024.
The Medicare Advantage improper payment rate rose to 6.09% in 2025 (or $23.67 billion), up from 5.61% ($19.07 billion) in 2024. The Medicare Part D improper payment rate also increased, reaching 4.00% ($4.23 billion) in 2025, compared to 3.70% ($3.58 billion) in 2024.
Improper payments in Medicare, both overpayments and underpayments, can stem from fraud, waste, and abuse, as well as unintentional errors. While all fraudulent payments are classified as improper, not all improper payments are the result of fraud.
