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. (EP502)

Why $3.5 Billion in Fake Catheters and an Even Bigger Skin Substitute Grift End Up Costing Self-Insured Employers Too. Episode 502.

Hackers are using stolen medical data to bill CMS for catheters and other durable medical equipment that patients never actually received—and that's just one piece of a fraud scheme that adds up to 4% of the entire CMS budget. Stacey Richter talks with Brian Machut, a value-based actuary at Alliant Health, about how this fraud quietly sabotages ACO shared savings, squeezes independent physicians out of business, and cost-shifts downstream onto self-insured employers and other plan sponsors.

WHAT YOU'LL LEARN

✅ How hackers use stolen medical data to bill CMS for catheters and other DME that was never sent to patients, adding up to 4% of the entire CMS budget in a single year

✅ Why ACOs in MSSP and REACH shared-savings programs get hit twice: once when a fraudulently billed patient's costs spike, and again through distorted trend pricing in future years

✅ How lost shared savings squeezes independent PCPs and other practices, often pushing them into consolidation with local health systems

✅ Why skin substitute fraud dwarfs the catheter scheme in dollar terms, and how CMS's SAHS classification decision affects whether that spending counts against an ACO's benchmark

✅ How this fraud ultimately cost-shifts onto self-insured employers, both through the loss of independent-practice competition and through health systems' higher commercial rates

✅ What a value-based actuary actually does all day, and how Brian Machut's team first uncovered this fraud pattern in DME billing data

WHY THIS MATTERS Fraud, waste, and abuse in Medicare isn't just a government problem—it ripples straight into the commercial market. When hackers use stolen data to bill CMS for catheters and skin substitutes that patients never received, ACOs in MSSP and REACH programs can lose their shared savings simply because a fraudulently billed patient's costs spiked. That squeezes independent physicians and practices, often pushing them into consolidation with health systems that then have the leverage to raise commercial rates. As Brian Machut lays out, self-insured employers end up paying for this fraud twice: once as taxpayers, and again as plan sponsors absorbing the downstream cost-shift.

MENTIONED IN THIS EPISODE

Medicare Advantage Advance Notice for 2027: CMS fact sheet

=== LINKS ===

🔗 Show Notes with all mentioned links: Show Notes

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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.