How Some Pretty Wild Medicare Fraud Sabotages ACOs and Also Independent Practices and Could Cost Plan Sponsors Such as Self-insured Employers a Lot of Zeros Downstream, With Brian Machut

Here is what hackers are doing with stolen medical data: billing CMS for urinary catheters at $8,000–$9,000 each — items costing $10–$50 that were never sent to the seniors billed for them. In 2023 this totaled $3.5 billion. Dr. Tara Lagu's mother had two catheters billed in her name — $18,000 — that she never received. By 2025, one DME supplier that had never billed Medicare before January 1st was on pace to hit $1 billion alone.

In this episode, Stacey Richter speaks with Brian Machut, a value-based actuary at Alliant Health who helps ACOs and provider organizations navigate value-based contracts, about how this fraud undermines shared savings programs — and why the damage flows downstream to self-insured employers.

WHAT YOU'LL LEARN

✅ How the catheter fraud works: Eastern European bad actors used stolen Medicare data to bill codes A4352 and A4353 at $8,000–$9,000 per unit, running up $3.5 billion in 2023 claims — discovered by ACOs digging into claim-level data files and spotting codes that had rarely appeared before suddenly generating millions in attributed patient spend

✅ How fraud wipes out ACO shared savings: ACOs are measured against a benchmark cost per attributed patient; when a patient's record is used to bill $100,000 in phantom catheters, those costs count against ACO performance — erasing shared savings that physicians earned through real care management

✅ The unintended benchmarking twist: CMS's SAHS (Significant, Anomalous, and Highly Suspect) framework can paradoxically hurt ACOs whose patients were not targeted — removing fraudulent costs from the national trend lowers the benchmark those ACOs must beat

✅ Why skin substitutes are a bigger problem: projected at $13–$15 billion in 2025, skin substitute spending now rivals all of Medicare home healthcare as a share of fee-for-service cost — and CMS did not classify 2024 skin substitute costs as SAHS, leaving billions counting against ACO shared savings

✅ The "double trouble" problem: when CMS projects trend at 5% but actual costs come in at 8–9% partly due to fraud, ACOs face a benchmark set too low and actual costs above it — taking on policy and pricing risk that has nothing to do with the clinical decisions they can control

✅ Why self-insured employers are affected: health systems with commercial leverage negotiate higher commercial rates when ACOs miss shared savings targets; and the Medicare hospital insurance trust fund — currently projected insolvent by 2033 — is accelerated toward that point by $4+ billion annually in highly suspect spending

WHY THIS MATTERS

MSSP and ACO REACH programs exist partly to give independent practices the value-based revenue to transform their practice patterns and stay independent. When fraud eats those shared savings — and when CMS trend projections miss by 3–4 points annually — the policy and pricing risk starts to outweigh the medical risk these programs were designed to manage. That is exactly the wrong environment in which to ask providers to take on downside risk.

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00:00 One way hackers are using medical data to commit Medicare fraud.

01:49 What today's conversation with Brian Machut entails.

02:16 The downstream impact that this Medicare fraud can have.

03:30 A brief outline of how plan sponsors can be affected by this Medicare fraud.

06:38 What does a value-based actuary do?

08:04 The conversation with Brian Machut: What caused his team to look into DME costs and uncover Medicare fraud?

08:46 How much did this fraud scheme cost organizations in 2023?

09:57 How this data was tracked down and uncovered.

11:13 How fee-for-service ACOs work, and why this Medicare fraud affected the ACOs' shared savings.

12:46 The two codes that were the target of this fraud.

15:13 Across the U.S., how much money in 2023 did this fraud, waste, and abuse cost, and what was done about it?

16:14 The framework that was created to combat this fraud spend.

17:49 Why the CMS decision to pull those expenditures negatively affected some ACOs.

20:17 Where things stand now with this catheter fraud.

21:33 Why this fraud is still able to happen.

22:19 Is this a use case for prior authorizations?

23:49 How this Medicare fraud affects self-insured employers and what they should keep in mind.

25:12 What is the correlation to employee affordability?

27:08 A cost that dwarfs the catheter Medicare fraud.

28:21 A brief summary of skin substitutes.

29:32 What SAHS means, and how CMS uses it to calculate an ACO's shared savings.

31:21 Why CMS chose not to classify skin substitutes as SAHS.

33:26 Why this fraud affects ACOs' prospective trend pricing risk.

36:40 Why these fraud cases make participating in ACO programs less appealing to provider organizations.

38:28 Medicare Advantage Advance Notice for 2027.