With little fanfare, CMS earlier this month released a Fact Sheet on improper payments in Medicare, Medicaid, CHIP, and the Marketplaces in 2025. With even less fanfare, CMS this week posted Medicaid improper payment rates for 17 states, including Minnesota. To its credit, CMS did not conflate Medicaid improper payments with fraud against Medicaid. In the past, others have not been quite so proper. Given the Trump Administration’s recent emphasis on fraud against Medicaid in Minnesota, it is important to explain (again) why improper payments in Medicaid are not the same as fraud against Medicaid and how Minnesota’s very low improper payment rates raise even more questions about unprecedented action that CMS has recently taken against the state that upends the long-standing federal-state partnership in curbing fraud against Medicaid. (On January 6, CMS Administrator Mehmet Oz notified Governor Tim Walz that he would be withholding $515 million in federal matching funds from the state each quarter until the state, in his view, complies with federal requirements).
Let’s start with the CMS Fact Sheet:
The Centers for Medicare & Medicaid Services (CMS) is committed to being a responsible steward of public funds and to promoting the sustainability of its programs for future generations. While CMS’ improper payment reporting programs are designed to protect the integrity of CMS programs, improper payment measurement is not a measure of fraud, and not all improper payments are attributable to fraud or abuse.
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The Medicaid estimated improper payment rate (comprised of the past three cycles of approximately 17 states per cycle from reviews in 2023, 2024, and 2025) was 6.12%, or $37.39 billion, compared to the FY 2024 reported rate of 5.09%, or $31.10 billion. Of the FY 2025 Medicaid improper payments, 77.17% were the result of insufficient documentation, which is generally not indicative of fraud or abuse.
So if improper payments do not measure fraud against Medicaid, what are they? The long story is here and here. The short story follows.
Since 2009, CMS has been measuring payment errors in Medicaid. The purpose of this payment error rate measurement (PERM) program is to assist states in identifying and correcting problems that lead to incorrect payments. Each year, CMS contractors review a sample of claims paid by each of 17 states to identify improper payments—i.e., payments that do not meet CMS program requirements, including proper documentation. The reviews focus on three areas: eligibility determinations, fee-for-service payments, and payments to managed care plans. If a claim doesn’t fully comply with the federal and state rules, it is considered improper. Improper payments include those for which documentation is insufficient (the large majority) as well as those that should not have been made.
Based on the results from the sample, the contractors extrapolate error rates to each state for that year. They also construct a national rate that combines the rates for each cycle of 17 states (one of the cycles includes DC) into a 3-year average across all three cycles. The national rate is updated every year to reflect the results from the most recent 17-state cycle; hence the term “rolling national rate.” Over the past five years, the national rolling improper payment rates have dropped from 21.69% in reporting year 2021 to 6.12% in reporting year 2025.
Within these national rates is considerable variation from state to state (state-specific rates have been publicly available only since 2022). In light of recent actions by the CMS Administrator, the example of Minnesota is particularly instructive.
In reporting year 2022, Minnesota’s overall Medicaid improper payment rate was 2.2%, the lowest rate among the 17 cycle 1 states that year. (Wyoming’s rate, at 20.7 percent, was the highest). The national rolling rate that year was 15.62%.
Fast forward three years to reporting year 2025. Minnesota maintained its low overall improper payment rate of 2.2%. While this was no longer the lowest rate among the states in the cycle, it is still well below the national rolling rate of 6.12%.
Minnesota Medicaid Improper Payment Rates, Reporting Years 2022 and 2025
| Reporting Year | National Rolling Average | MN Overall IP Rate | MN FFS IP Rate | MN Eligibility IP Rate | MN Managed Care IP Rate |
| 2022 | 15.62% | 2.2% | 3.0% | 0.7% | 0.0% |
| 2025 | 6.12% | 2.2% | 1.3% | 1.5% | 0.0% |
CMS cautions that, for a number of reasons, it is “impossible to accurately compare state-specific PERM rates between states.” Nonetheless, it is indisputable that Minnesota’s rate of improper payments stayed constant at 2.2.% from reporting year 2022 to reporting year 2025, placing it well below the national rolling rate in each of those reporting years. It is also safely below the national threshold of 3.0% that, under the new requirements in H.R. 1, will apply to all states for purposes of imposing financial sanctions starting in FY 2030.
Similarly, Minnesota’s fee-for-service improper payment rate declined from 3.0% to 1.3% from reporting year 2022 to reporting year 2025. Many if not all of the 14 services identified by the Minnesota Medicaid agency as being at high risk were likely delivered on a fee-for-service basis.
It is understandable why CMS Administrator Oz did not cite these data in support of his recent finding that Minnesota’s Medicaid program is “in substantial noncompliance with federal requirements…generally requiring the State to ensure sufficient controls to prevent, detect, and address fraud, waste, and abuse.” That is because they do not support his finding. Instead, the PERM audit results say that 97.8 percent of the Medicaid payments Minnesota made in the most recent reporting year (2025) were proper, as were 98.7% of the fee-for-service payments. That is a high degree of accuracy in a program as complicated as Medicaid.
The state has the right to a hearing and has requested one. This will give Administrator Oz the opportunity to explain how Minnesota’s very low Medicaid improper payment rates—based on PERM audits published by his own agency—are consistent with his determination that the state is in “substantial noncompliance” with basic program integrity requirements. It’s certainly not obvious.
What is obvious is that the recent CMS action against Minnesota is partisan. And that is really unfortunate, because reducing fraud against Medicaid—in any state—requires state and federal agencies to work together. The collaboration necessary to get results is very difficult if not impossible to achieve in the midst of a partisan attack—a reality that no amount of political rhetoric can change.