Improper payments by the U.S. government to people, firms and contractors rose sharply to $98 billion in fiscal 2009 and President Barack Obama plans new rules to clamp down, the White House said Tuesday.

Over half the mistakes were made in the Medicare and Medicaid programs, and although some of the deterioration reflected stricter measurement, it also showed the need for healthcare reform, Office of Management and Budget Director Peter Orszag told reporters.

Improper payments in the Medicare and Medicaid programs totaled $55 billion in fiscal 2009, according to documents provided by OMB.
Medicare covers healthcare for the elderly and some disabled, while Medicaid does the same for the poor.

Orszag said the error rate for payments under Medicare Advantage, where private insurers offer coverage to Medicare beneficiaries, jumped to 15 percent, or to $12 billion, in fiscal 2009. The error rate was 10 percent in fiscal 2008.

"This was not the result of methodological changes. This is one of the reasons why, as part of health reform, we believe there are crucial changes necessary to the Medicare Advantage program," he said on a telephone conference call.

Obama has made overhaul of the $2.5 trillion U.S. healthcare industry his top domestic policy goal, pledging to expand medical coverage to millions of the uninsured and make healthcare more affordable.

Orszag stressed that tougher measurement, as well as higher government spending due to the recession, explained a big part of the jump in government waste.

The government made improper payments of $72 billion in the 2008 financial year. Fraud may also be partly to blame.

But Orszag stressed that the lack of tools to identify how much fell into this category made it impossible to estimate the size of the problem.

One exception to this rule was fraud connected with improper payments under unemployment insurance, which OMB said added up to around one-fifth of the $12 billion in improper payments in that program.

Obama will sign a new executive order within a week to improve transparency and to encourage people to play straight, Orszag said.

Part of this effort will aim to explore imposing penalties on anyone who knowingly gets an improper payment — for instance if they get paid twice for the same thing.

At the moment, all recipients have to do is return the money.

"It goes without saying that these results would be completely unacceptable in the private sector, as they should be in government, especially at a time of record deficits," said Democratic Senator Tom Carper, chairman of the Senate subcommittee on federal financial management.

"Unfortunately, these numbers may still be just the tip of the iceberg since they don't even include estimates for several major programs, including the Medicare prescription drug plan," Carper said in a statement.