The Centers for Medicare and Medicaid Services (CMS) estimates that federal healthcare fraud can lead to billions of dollars in waste, with significant implications for beneficiaries, providers, and taxpayers. As a recent example, fraudulent billing of urinary catheters has cost Medicare a staggering $2.1 billion. Seven medical suppliers are under regulatory scrutiny, having inappropriately billed 450,000 Medicare beneficiaries in 2023 (up from 50,000 the previous year). As fraud, waste, and abuse (FWA) has risen across the industry, the market has responded with various analytics and payment integrity solutions designed to detect anomalous trends and prevent improper claim payments. Despite these innovations, Accountable Care Organizations (ACOs) still face challenges when it comes to preventing FWA at scale.
ACOs such as Pearl Health are groups of healthcare providers who deliver coordinated, high-quality care for patients with Medicare. By participating in value-based care programs through CMS, ACOs and their participant providers are financially responsible for the total medical expenditures (i.e., paid medical claims) of their patients. In most value-based care programs, quality and efficiency of care both directly impact compensation for providers and ACOs, so fraudulent or anomalous claims can be seriously harmful to practices — not to mention they can put beneficiaries’ health and well-being at risk.
ACOs have become increasingly efficient at rapidly and accurately identifying FWA. Urinary catheters, wound care cellular tissue products, and excessive Covid tests are all recent examples of trends surfaced and curtailed by ACOs after closely monitoring irregularities in the monthly encounter data shared by CMS. However, even armed with this information, the status quo presents a difficult situation for ACOs for several reasons:
ACOs are not claims processing entities: CMS relies on a network of Medicare Administrative Contractors (MACs) to process medical claims on their behalf. MACs have struggled to establish response systems that rapidly detect and prevent FWA – each MAC covers a geographic catchment area and has different systems and processes. While ACOs do not play a role in the claims adjudication or approval process, they are often the first to detect anomalous claims; too often, this occurs after the claims have already been adjudicated and the costs incurred.
Government investigations can take a long time: As CMS often has a long investigation-resolution cycle, ACOs are typically held responsible for fraudulent spending in a given financial reconciliation period and may only later see restitution. Absent nearer-term intervention from CMS, ACOs (especially smaller ones) may struggle with the time lapse between initial detection of fraudulent activity and being made whole on their payments.
Private reinsurers are not covering high-cost claimants: Like ACOs, reinsurers are becoming increasingly adept at proactively identifying fraud hotspots. Unlike ACOs, when reinsurers identify fraud hotspots, they are currently able to exclude costs that are believed to be fraudulent. As a result, ACOs become exposed to high-cost claims often correlated with fraud and are placed in a precarious position, unable to adequately protect themselves — the primary reason to have coverage from reinsurance.
Pearl believes there are a number of ways that CMS can address these pain points, improve the operations of its ACO programs, and proactively address FWA. We recommend the below levers, which we hope will spark collaboration among other stakeholders in ACOs and policy makers:
Implement more systematic processes for ACOs to surface anomalous billing trends for remediation to CMS: Several advocacy groups (e.g. the National Association of ACOs (NAACOS) and the American Physicians Group (APG)) have informal forums for discussing FWA among ACOs and organizing policy engagement on these issues. However, disintermediating these processes and enabling ACOs to directly engage with CMS on these issues would go a long way for early detection and swift action. We encourage CMS to create more structured forums and pathways for ACOs to learn of new trends impacting the industry, submit suspect trends observed in our own populations, and collaborate with other ACOs on best practices for detection and prevention.
Provide a swifter path to resolution of large-scale FWA trends: Provisionally reducing or even zeroing out TME that ACOs submit as warranting FWA scrutiny until the governing authorities assess the underlying claims would encourage ACOs to proactively report potentially dubious billing and enhance the effectiveness of ACO models. The heart of the ACO model is to avoid unnecessary and low-value care; with such a policy change, CMS would pursue that objective by both targeting FWA and creating a better ACO operating environment. CMS has indicated in a recent Proposed Rule their intent to remove urinary catheter spend from PY2023 expenditures and PY2024-2025 benchmarks. We encourage CMS to continue to review and address large-scale FWA trends through similar paths of remediation.
Require reinsurers to pay out on reinsurance policies despite fraudulent activity: Another policy change to contemplate, although one that might require legislation to implement, would be requiring reinsurers to pay out on reinsurance policies even in cases where patients are anomalously high cost or otherwise show evidence of having potentially fraudulent billing associated with them. Given the inherent volatility of medical expenditures, reinsurance is often necessary to protect organizations in at-risk VBC models; allowing reinsurers to remove this crucial safety net seriously harms existing ACO participants, disrupts the efficacy of ACO programs, and discourages financially sophisticated organizations from pursuing these VBC models.
We believe that, with appropriate implementation, investing additional resources into the early detection, monitoring, and resolution of FWA claims will protect patients, providers, and stakeholders across healthcare from long-lasting harm. We recommend that CMS build on their existing approach to facilitate earlier detection and we look forward to collaborating with peer organizations in our efforts to remove FWA through a warning system that catches one case before it balloons into billions of dollars in waste.
