“Observers often cite fraud as an important contributor to high health care spending, particularly in federal programs. This report describes how CBO estimates the budgetary effects of legislative proposals to reduce fraud in Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP), and how those estimates are used in the Congressional budget process. What Is Fraud? For the purposes of this report, fraud is considered to be any deliberate attempt to use deception to receive a service or payment from Medicare, Medicaid, or the Children’s Health Insurance Program when the individual or entity in question has no right to that service or payment under the program’s statutes and rules. Importantly, whether fraud has been committed is a legal determination and cannot be definitively known unless there has been some sort of adjudication (for example, a trial verdict or a settlement agreement). Fraud falls within the broader category of improper payments, which are any payments in an incorrect amount (whether an overpayment or an underpayment) or to the wrong person. Not all improper payments are fraudulent, however; some improper payments are the result of human error, mistakes in documentation, waste, or abuse. How Much Fraud Occurs in Federal Health Care Programs? Measuring fraud is not simple, in part because fraud can be determined with certainty only after the fact. Fraud also requires that someone act with intent to commit a crime, and determining intent can be challenging. Moreover, although fraud that has been successfully prosecuted can be quantified, there is no reliable method to estimate the amount of fraud that goes undetected, especially because at first glance successful fraud can look very much like appropriate payment for health care services. The Government Accountability Office (GAO) has concluded that “there currently is no reliable baseline estimate of the amount of health care fraud in the United States,” and CBO has not estimated the amount of fraud—either detected or undetected—in Medicare, Medicaid, and CHIP. The Centers for Medicare & Medicaid Services (CMS), which has primary responsibility for federal oversight of all three programs, is developing an estimate of the incidence of fraud for some Medicare services; that estimate is expected to be available soon.”