The Centers for Medicare & Medicaid Services (CMS) recently reported that $28.8 billion in Medicare fee-for-service payments were classified as improper in 2025, representing 6.6% of total Medicare spending.

While the number is significant, most improper payments were not caused by fraud or intentional billing errors. Instead, the majority resulted from documentation gaps, medical necessity issues, or incorrect coding.

For physician practices, the report highlights an important reality: even small documentation or coding issues can create significant reimbursement risk.

Key Takeaways for Physician Practices

• $28.8 billion in Medicare payments were classified as improper in 2025, representing 6.6% of Medicare fee-for-service spending.
• Most improper payments stem from documentation deficiencies, medical necessity errors, or incorrect coding.
• Insufficient documentation accounts for the majority of improper payments, making it the largest driver of claim errors.
• In some cases, documentation supported a lower level of service than what was billed, which can lead to downcoding or payment adjustments during audits.
• Physician practices should prioritize strong documentation, coding accuracy, and revenue cycle monitoring to reduce payment risk.

Source: Centers for Medicare & Medicaid Services (CMS) Improper Payments reporting.

What Is a Medicare Improper Payment?

An improper payment does not necessarily mean fraud or abuse.

CMS defines an improper payment as a claim that was paid:

• Incorrectly
• Without sufficient documentation
• For services that did not meet medical necessity requirements
• Under incorrect coding or billing rules

In many cases, the service was provided appropriately, but the documentation did not fully support the claim during review or audit.

The Most Common Causes of Improper Payments

CMS analysis shows several primary drivers of improper payments in Medicare.

1. Insufficient Documentation

This is the largest contributor to improper payments.

Examples include:

• Missing clinical notes
• Incomplete medical records
• Documentation that does not support the billed level of service

Even when care was appropriate, insufficient documentation can result in payment reversals during audits.

2. Medical Necessity Errors

Claims may be flagged when documentation does not clearly demonstrate that the service was medically necessary according to Medicare coverage guidelines.

This can occur with:

• Evaluation and management visits
• Diagnostic testing
• Certain procedures and therapies

3. Coding Errors and Downcoding Risk

Incorrect CPT or ICD-10 coding can lead to:

• Overpayments
• Underpayments
• Claim denials or payer audits

CMS review data also shows instances where documentation supported a lower level of service than the level billed, particularly for evaluation and management visits. When this occurs, payers or auditors may downcode the claim or adjust the payment to a lower level of service.

Why This Matters for Physician Practices

Improper payment reporting often leads to increased payer scrutiny and audit activity.

When error rates increase, practices may experience:

• More claim reviews
• Increased documentation requests
• Expanded payer audits
• Payment adjustments or recoupments

Because many issues originate in documentation and coding workflows, proactive revenue cycle oversight becomes increasingly important.

How Practices Can Reduce Improper Payment Risk

Physician practices can reduce exposure by focusing on several operational areas.

Strengthen documentation practices

Ensure clinical documentation clearly supports the level of service and medical necessity.

Monitor coding accuracy

Regular coding reviews and certified coder oversight can help identify patterns that may trigger audits or downcoding adjustments.

Track revenue cycle performance

To help identify revenue risks early, track key performance indicators such as:

• Denial rates
• Clean claim rates
• Days in accounts receivable

Review payer feedback

Denial trends and payer edits often provide early warning signs of documentation or coding issues.

The Bottom Line

CMS improper payment reports highlight how documentation, coding accuracy, and revenue cycle management directly affect reimbursement outcomes.

For physician practices, strengthening these processes can help reduce audit exposure, prevent payment adjustments, and protect practice revenue.

Often, small improvements in documentation and coding workflows can make a meaningful difference in reimbursement accuracy.

Frequently Asked Questions

What is a Medicare improper payment?

A Medicare improper payment is a claim that was paid incorrectly, lacked sufficient documentation, or did not meet Medicare coverage requirements. Improper payments do not necessarily indicate fraud, but they may trigger audits or payment reviews.

How much did Medicare report in improper payments?

CMS reported $28.8 billion in improper Medicare payments in 2025, representing 6.6% of total Medicare fee-for-service spending.

What is the most common cause of improper payments?

According to CMS reporting, insufficient documentation is the largest contributor to improper payments, accounting for the majority of claim errors reviewed.

Can documentation issues lead to downcoding?

Yes. If documentation supports a lower level of service than what was billed, auditors or payers may downcode the claim or adjust the payment to reflect the supported level of care.

How Peregrine Healthcare Helps

Protecting reimbursement often starts with identifying small issues before they become larger revenue losses.

Peregrine Healthcare works with physician practices to strengthen:

• Revenue cycle management
• Certified coding review and documentation support
• Denial management and A/R follow-up
• Credentialing and payer enrollment
• KPI-based reporting and revenue visibility

Learn how Peregrine Healthcare helps practices protect their revenue and strengthen financial performance.

 Explore our Revenue Cycle Services

Sources

Centers for Medicare & Medicaid Services (CMS)
Improper Payments Information Act Reporting
https://www.cms.gov