Episode 502 Kickoff: The Medicare Fraud That’s Warping Value-Based Care
[00:00:00] Stacey Richter: Episode 502. "How Some Pretty Wild Medicare Fraud Sabotages ACOs, Accountable Care Organizations, and Also Independent Practices and Could Cost Plan Sponsors Such As Self-insured Employers a Lot of Zeros Downstream” With Brian Machut
How Stolen Medical Data Becomes $3.5B in Phantom Catheter Claims
[00:00:33] Stacey Richter: You know, I always kind of wondered what the hackers were doing with all of the medical data that they've managed to get their mitts on over the past, I don't know, however many years.
Now, I know at least one thing. If you're a hacker, you can use your stolen medical data to not actually send wildly overpriced catheters to seniors across the country. But then you bill CMS anyway.
Fast forward, CMS pays 3.5 billion in one year for all of this DME, durable medical equipment, that didn't actually get sent.
If you add wound care stuff like skin substitutes into this fraudulent mix, the cost of all of this very suspicious activity adds up to 4% of the CMS budget.
4% of the budget. I was gonna say something about the inches are all around us, but in these past few shows, we've got inches that have like so many zeros. 4% of the CMS budget, by the way, is more than like all of home care or something like this.
So as just one consequence for all of us, enjoy your personal and or corporate tax dollars, going to buy some Eastern European hacker a yacht or something like that.
But that's not really what I wanted to talk about today in my conversation with Brian Machut. What I wanted to talk about today with Brian, who is an actuary from Alliant Health by the way, what I wanted to do, first of all is just a little level setting where mostly Brian blows my mind with just the wildly adventurous level of grift that seems fairly glaring here, but what do I know?
Why ACOs and Shared Savings Get Blindsided (and Employers Pay Too)
[00:02:06] Stacey Richter: What I wanted to mostly talk about after that though, is how all of this impacts shared savings, potentially if you're an ACO, accountable care organization. And then from there, why that actually has downstream impact for plan sponsors such as self-insured employers, and it does actually have a downstream impact in multiple ways.
Here's a big honkin' spoiler alert. This fraud, the 4% of the budget, it can and some of it is getting passed on in the form of higher expenses for attributed patients in ACOs with shared Savings, MSSP, and REACH programs.
Because these ACOs who might do the most amazing job helping Medicare help patients not cost as much. And then they get walloped in the back of the head if one of these skin substitute companies gets ahold of one of their attributed patients, covers their entire body or whatever in skin substitutes that they're charging for by the centimeter, and then the cost of that attributed patient gets high, and then the ACO misses their shared savings mark.
There's another implication for ACOs that has to do with trend. Bottom line, there are several different ways that the fraud can be a detriment to providers, including independent providers who are in these ACO programs, meaning they make less money than they thought they were gonna make. And look, if you're a provider on the clinical side of the house, this obviously is a problem.
But it also for sure impacts plan sponsors in several different ways. Let me briefly outline a few, but definitely listen to the conversation for the deep dive here. First, you want PCPs, especially independent PCPs and other practices to stay in business, right? Especially as a self-insured employer. We have talked about this in multiple shows [EP391 (Scott Conard, MD); EP413 (Will Shrank, MD); EP437 (Brian Klepper, PhD); EP445 (Tom X. Lee, MD); EP467 (Stacey); EP483 (Jonathan Baran)].
Well, to do that, you gotta have some value-based care going on. It is super hard these days for a PCP, especially an independent practice to survive on fee-for-service alone, let alone rejigger their practice patterns to incorporate the data and the processes to level up outcomes and the value of care delivered.
Most PCPs need a variety of value-based contracts that kind of all add up to a critical mass of dollars, a critical mass of their patients having some sort of value-based coverage so that they can transform their practice in necessary ways to manage to stay afloat.
MSSP, REACH programs, is a big one of these ways to get a critical mass of additional dollars to supplement fee-for-service.
You take away shared savings that was expected and it's harder. It's harder for these independent practices to stay in business then they go over or get bought by the local health system. And then rates go up and referrals go up. You get my drift. This is not good if you're a self-insured employer or a plan sponsor.
But also, and Brian says this very eloquently in the conversation that follows, so stay tuned for the better way to put this. But let's say that we're talking about a health system, ACO now who has leverage with payers. They now have a budget shortfall because dollars they were expecting to come in from their ACO did not materialize.
Oh, right. Guess who gets to enjoy cost shifted expenses in the form of higher commercial rates. Yes, my plan sponsor friends, step up to the plate.
Meet Brian Machut: What a Value-Based Actuary Actually Does
[00:06:32] Stacey Richter: My guest today, as I mentioned, is Brian Machut from Alliant Health. He is a value-based actuary. And if you're wondering what a value-based actuary does all day, what he does is help providers, physicians, health systems, succeed in value-based care. This means performing projections about how well they will perform, why they may be performing the way that they are, what types of risks are being taken, what are good decisions, what are the types of contracts, value-based contracts, and other types of downside risk that they might wanna be getting themselves into. Contract negotiations, stuff like that.
So basically helping providers ensure they are getting a fair and equitable approach to their value-based contracts. I asked Brian about this in case you're wondering, I was very curious what a value-based actuary does all day.
I also wanna thank Dr. Tara Lagu, also from Alliant Health, who added some color and context because her mother, who has no need for a catheter, but had not one, but two catheters ordered for her by a company she'd never heard of and CMS paid $18,000 for these two catheters, which by the way, Dr. Lagu's mother never received. We talk about this as well. Thank you very much too, Dr. Lagu, for sharing that story with me.
This episode is sponsored by Aventria Health Group as usual, but I did wanna thank Alliant Health, who really kindly offered up some financial support today to help out around here with our expenses. Thank you so much to Alliant Health.
And with that, here's my conversation with Brian Machut.
Brian Machut, welcome to Relentless Health Value.
[00:07:59] Brian Machut: Thank you. Great to be here, Stacey.
[00:08:01] Stacey Richter: Well, it is a pleasure to have you here today.
Going Full Detective Mode: Finding the Catheter Fraud in ACO Claims Data
[00:08:02] Stacey Richter: Why don't we start here? What led your team to go full on detective mode when it came to DME, durable medical equipment?
[00:08:14] Brian Machut: Great question. So that's the, the million or, or several billion dollar question. In my mind, this started back in 2023 us along with many Medicare ACOs in the country in analyzing 2023 data as it's coming in, and, and many of our clients and other ACOs who may have been crushing it in the past, in 2021, 2022.
You know, 2023 hits and we're seeing elevated expenditures that are, are resulting in, fewer shared savings, expected to go back to the ACOs. Again, this is back in 2023.
So at that time, what we and and other ACOs were the first to uncover really, and bring forth to CMS is what appeared to be this sort of widespread fraud scheme, fraud, waste, and abuse scheme on urinary catheters that ended up totaling in excess of three and a half billion dollars in 2023.
[00:09:07] Stacey Richter: So what it sounds like is you were faced with this conundrum, right? Like you had groups, and this is not a, in so many different directions, a victimless situation here. Like you had doctors who were working their hearts out, organizations who spent their own money, created all kinds of processes, working really hard to serve patients and succeed in a value-based care arrangement.
They do so, 2021, 2022, they're doing great. They think they're doing wonderful in 2023, and maybe they even can see the results.
[00:09:39] Brian Machut: That's right. Yep.
[00:09:40] Stacey Richter: And you're like, wait a second. If I'm looking at all these numbers here, your costs are really high. And they're like, what? Is that kind of how the conversation went?
[00:09:51] Brian Machut: Yeah, I would say so. And to me too, it was the inequity that was seen across ACOs. So nationally you had a huge increase in spend 5,000 plus percent increase in the cost of these urinary catheters.
[00:10:07] Stacey Richter: How did you track that down?
[00:10:08] Brian Machut: It's really the ACOs that are the ones looking at this data. So they'll get data files, claim level files from the government as participants in these ACO programs. And it really, again, was the ACOs doing the investigative work to look into those claim level details and observe the fact that, “Hey, in 2023 we're starting to see two CPT codes that had really rarely been billed before or if they were, it was, you know, small amounts of dollars.”
And then all of a sudden it turns in 2023 into these are millions and millions of dollars accruing against an ACO's spend. So that, that's directly impacting what the physicians that are participating in these programs get to take home in the form of shared savings for all the work, good work that they've been doing.
[00:10:56] Stacey Richter: Right. And just reminding everybody, one way ACOs are compensated is with MSSP, which stands for Medicare Shared Savings Program. So you're not gonna have a whole lot of shared savings if all of a sudden your expenses are through the roof. There's no savings.
[00:11:12] Brian Machut: That's exactly right. Yep. And so the way that, again, these ACO programs work, this is again in in traditional Medicare fee-for-service, you have a collective group of physicians. It could be independent physicians, health systems that have formed together to say, we are going to take accountability for the cost and quality of the patients that we are treating.
And so CMS has an algorithm. They'll say, okay, ACO A is treating 10,000 patients based on where those patients receive their primary care. So they'll say, okay, now those 10 patients are your responsibility, the ACO's responsibility to manage the cost. And they'll set what's called a benchmark that says, okay, in 2025, for example, we CMS expect those 10,000 patients to cost $12,000 per person per year.
And if the ACO can manage those total Part A and Part B expenditures underneath that $12,000 benchmark, then the ACO gets to share in a portion of those savings with CMS.
On the flip side, if they come in above the benchmark or the cost target, depending on the type of program they're in. The ACO is in, they may actually be liable to share a portion of those losses and actually write a check back to CMS.
[00:12:29] Stacey Richter: Got it. So like if someone's in downside as well as upside risk, then if the price is in your example, greater than 12 grand per person per year, PPPY, then now all of a sudden you've got a clinical organization who's funding that.
The Smoking Gun Codes: $10 Catheters Billed at $9,000
[00:12:46] Stacey Richter: You said that what they started to notice as the anomaly was there's two codes that were weird codes, so maybe they just caught someone's eye when they're looking at the spreadsheet, like, what is this? What were those codes?
[00:12:58] Brian Machut: Yeah, so it's A4352 and A4353 that are the two main culprits. Those are both for intermittent urinary catheter codes. And again, these are, it's DME durable medical equipment. The average unit cost for these types of things is 10 to to $50, you know, per catheter. And we're seeing in the claims as they come through billings for $8,000, $9,000 per catheter.
[00:13:23] Stacey Richter: Whoa, whoa, wait. So they normally cost, and by the way, one of my very first jobs was doing labels for urinary catheter filters. So feel very much like we've come full circle here.
But what you're saying is that, you know, across the country, you can go out and get yourself a urinary catheter for 10 to $50, and we're seeing $9,000 charges for not some gold plated one, but just like a regular old...
[00:13:50] Brian Machut: Yep. It's that, and it's the patients receiving these have no knowledge of ever needing a urinary catheter.
Their physicians certainly aren't ordering them, you know, so it's, it's a complete surprise to many of the Medicare beneficiaries themselves that they see on a explanation of benefit record that, Hey, there was a hundred thousand dollars worth of urinary catheters, for example, and obviously none of that was, in most cases, needed, warranted, or ordered to the beneficiary's knowledge or their primary care physician's knowledge.
[00:14:20] Stacey Richter: I was speaking with someone on your team, Dr. Tara Lagu, and she was telling me that her mother actually.
[00:14:26] Brian Machut: Mm-hmm.
[00:14:26] Stacey Richter: What, just looking through charges, there was two urinary catheters that she had no knowledge of and did not receive. But CMS paid $18,000.
[00:14:38] Brian Machut: Yep.
[00:14:39] Stacey Richter: And then she called CMS and she's like, this did not happen. And they're like, Oh, we already paid the bill.
[00:14:44] Brian Machut: Pretty much. Yeah. That's exactly what's been, you know, and it hits home close to our team with obviously Tara's, you know, mother being an actual recipient, let's call it, or on the side of this fraud, waste and abuse actually happening. But that's how widespread it is, is for those catheters to rack up again in the billions of dollars of spend, it's impacting many thousands of Medicare beneficiaries.
[00:15:07] Stacey Richter: I'm sure, you guys are actuaries, so now you've realized this is afoot, I'm sure you dug in. You alluded to, this is nationwide, maybe in an unevenly distributed way, but if we're looking across the whole United States, like how much are we talking about here?
[00:15:24] Brian Machut: In the case of 2023, it was about three and a half billion dollars worth of catheter, you know, fraud, waste, and abuse.
CMS Response: “SAHS Highly Suspect Billing” and Holding ACOs Harmless
[00:15:32] Brian Machut: And what ended up happening is the ACOs collectively, the ACO community went to CMS and they said, Hey, we should not be on the hook for these costs because our physicians, the good people participating in these programs, really had no control, knowledge, anything of these types of fraud mechanisms happening.
And so again, a case was brought forth to CMS to say, Hey, can we pull those costs out of the Medicare Shared Savings Program, out of the ACO REACH program? And CMS said, yeah, they listened, they did establish a new mechanism. We refer to it in the industry as the SAHS definition that stands for significant, anomalous, and highly suspect billing.
So what CMS basically said is, we're gonna establish a framework going forward that says if we identify cases of significant anomalous and highly suspect billing patterns, we are setting up a process to be able to remove those costs from the ACO's spend. So it would hold harmless, the ACOs from being negatively impacted by the catheter fraud in this case.
[00:16:38] Stacey Richter: I mean, it kind of seems fair because this is obviously who's doing, like let's just pause for one second and take a dip back. If Tara's mom is any indication, she didn't even get the catheter. So this suddenly isn't some kind of like everybody needs a urinary catheter for some reason, right?
Like this is clearly fraudulent. Where, did just like everybody get the same idea at the same time? Or like what happened here?
[00:17:01] Brian Machut: Yeah, so I, you know, I think again the ACO community first sort of discovered this and we went and others to various advocacy groups with CMS and that started the really the criminal investigation into some of this fraud that was happening.
And so that, that runs in sort of a, a separate track with OIG and was later found out and reported that a lot of this fraud was initiated from bad actors, potentially in eastern European countries.
[00:17:29] Stacey Richter: So this is what they're doing with the hacked medical data.
[00:17:32] Brian Machut: Exactly. Yep.
[00:17:33] Stacey Richter: Okay.
[00:17:33] Brian Machut: You got it.
[00:17:34] Stacey Richter: All right. I always wondered what, what they were doing with the hacked medical data. Apparently it's selling urinary catheters for $9,000. Okay.
So back to 2023. We got $3.5 billion in revenue getting sent to Eastern Europe.
[00:17:49] Brian Machut: Again, back to the ACOs. So CMS decided to pull those expenditures out of the the ACOs spend.
[00:17:55] Stacey Richter: Because they're highly suspect.
[00:17:57] Brian Machut: Correct.
Benchmarking Twist: Why Removing Fraud Can Hurt Some ACOs
[00:17:57] Brian Machut: And believe it or not, that actually it doesn't automatically benefit all ACOs. So there were some ACOs that said, Hey, our patients have not been targeted for the DME fraud. So their spend in those categories was relatively low. And the way the the benchmarking works, in those programs meant that CMS removing those catheter codes actually resulted in a negative impact to some ACOs who were disproportionately not impacted by the catheter fraud.
So we actually saw advocacy from some groups to say, Hey, you know, we wanna keep these in.
[00:18:35] Stacey Richter: Whoa, wait, I don't, I don't understand that. Like, why would removing expenses ever negatively impact someone?
[00:18:42] Brian Machut: If you think about how the benchmarks are set in MSSP in particular, part of how the target price is set is CMS will say, OK, the total national trend in let's say 22 to 23 was 5%. With the urinary catheters, let's say it jumps up to 6% because those urinary catheters account for 1% of all costs.
So the benchmark for all MSSP ACOs will go up 1% if those urinary catheters are in there. But a lot of ACOs, they may have had their expenditures impacted by 5% or 7%. So they're taking on a whole bunch of the expenditures and not really getting it back in the benchmark.
Whereas other ACOs, if they weren't impacted at all their patients by the fraud, they're not seeing any of it in their expenditures, but they're getting a lower benchmark if CMS removes those costs from the formula.
[00:19:42] Stacey Richter: Got it. Okay. So I understand now if it's this universal expenditure that somebody else is paying, then the benchmark can go up that I have to meet.
[00:19:51] Brian Machut: Correct.
[00:19:51] Stacey Richter: But I'm not dealing with the issue, so therefore I benefit. Yeah.
[00:19:58] Brian Machut: Exactly.
[00:19:58] Stacey Richter: All right.
[00:19:59] Brian Machut: So I think in principle, right, it's a good idea to remove these expenditures if we're gonna talk about fairness of the program, because it could be for that ACO that wasn't impacted in 23, they might be on the flip side of that in 2025, right?
And they'll be wishing those expenditures are removed from the program.
[00:20:17] Stacey Richter: Where do we stand now? Are we removing it or is it there? Like what's going on?
[00:20:21] Brian Machut: Yeah, great question.
2025 Update: Fraud Still Surging + One New Supplier Hits $1B
[00:20:22] Brian Machut: So fast forward right to 2025 and the catheter fraud is still alive and well unfortunately. So we can see with our access to a hundred percent of Medicare, traditional Medicare fee-for-service claims, that 2025 is on pace to be about another three to three and a half billion of the urinary catheter fraud, as well as some other orthotic products and alginate products and so forth.
And one of the interesting things that our team found this year, and as you mentioned, Dr. Tara Lagu on our team leads this effort, is that over a billion of that spend in 2025 is being rendered by a single DME supplier that never billed Medicare for anything prior to January 1, 2025.
So here comes this new group that's never billed anything in Medicare before, prior to 2025. And they're racking up, you know, over a billion dollars themselves, one supplier you know, of costs in in 2025.
[00:21:24] Stacey Richter: Why is this so intractable? How are they still like, one time I was trying to become a government contractor and let me tell you, it was daunting and did not happen.
How did they get to be a contractor able to bill Medicare and everybody sees what's going on here and they're still doing this?
Why Medicare FFS Keeps Paying: Auto-Adjudication, Prior Auth, and MA Contrast
[00:21:41] Brian Machut: That's a question I don't have a great answer for. I think part of the issue is that the way that traditional Medicare fee-for-service reimburses claims is a lot of it happens quickly. Auto adjudication, things are, sort of automatically paid by the Medicare administrative contractors that exist regionally around the country.
And so you don't see these types of things in Medicare Advantage, for example. We're not seeing these types of things with the MA payers because they're just simply not, they're not gonna pay it, right. They're not gonna accept it. They won't cover it.
So it's really largely has been a Medicare fee-for-service issue.
[00:22:19] Stacey Richter: Is this possibly one of the use cases for prior auths.
[00:22:26] Brian Machut: Certainly for more restrictive coverage policies or bodies within the government, more closely monitoring how claims are adjudicated and paid would be warranted here.
That doesn't necessarily mean it has to be through a prior auth. I think the payers would argue they do it better through various algorithms that they have to look at these types of claims, to ensure, right, that someone is not getting billed for 10 catheters in a month. Those types of things.
[00:22:56] Stacey Richter: Yeah. So let, let me ask you that a different way. There has been a lot of rightfully so, don't get me wrong here, pushback on algorithms and prior auths for traditional Medicare. Is this potentially one half-decent use case?
[00:23:16] Brian Machut: I think so, certainly to me it would be, and this one is less about, right, we're talking about DME, which I think is less contentious than say, a prior auth algorithm for someone who is trying to get some surgery done or some other procedure.
[00:23:32] Stacey Richter: Or like a nursing home stay or, yeah.
[00:23:34] Brian Machut: Yeah, exactly. As opposed to various orthotics.
[00:23:38] Stacey Richter: What seems to be a little bit more cut and dry. Like you, you kind of need a urinary catheter or you don't. I don't know. Maybe it's more, maybe it's more complicated than I think it is.
What Self-Insured Employers Should Care About: Taxes, Cost Shift, Affordability
[00:23:49] Stacey Richter: We have a lot of self-insured employers that listen who might be thinking to themselves, Oh, well this is Medicare and sure, I'm a taxpayer. So personally this matters, but if I'm thinking about my business, maybe not so much spillover. What would you say to a self-insured employer who's listening who may be thinking this way?
[00:24:10] Brian Machut: Yeah, I think that's a great, great question. So the first thing I would go back to is you are a taxpayer. All of us are taxpayers. We pay Medicare taxes. Employers, right, split the cost of Medicare taxes, so they are also paying these.
And it's fairly well known that the hospital insurance portion of the Medicare trust fund is not in the best position. It's expected to be financially, insolvent by 2033. And so this absolutely, these types of things that contribute to high Medicare cost trends year over year, directly eat into that trust fund and could end up increasing taxes that all of us would feel at some point.
[00:24:52] Stacey Richter: I heard someone put it this way, every dollar lost to a strip mall in Tennessee billing for services never provided is a dollar taken from the actual care of the population. Which I think is another point there, like taxes go up, but also it's a zero sum game here. Like you've only got so many dollars, so remove a dollar from the pot then there's some senior who's not getting care.
[00:25:12] Brian Machut: Exactly.
[00:25:12] Stacey Richter: Anything about employee affordability? Is there any correlation there?
[00:25:15] Brian Machut: There is some correlation potentially to employee affordability. Oftentimes these health systems rely on shared savings and these various programs to make them whole for what they believe may be too low of rates that they are being paid by Medicare.
So oftentimes what happens, right, is if the health system isn't receiving enough money from Medicare itself, that will result in negotiations with the commercial plans for an offset to higher, you know, commercial rates.
And so again, there is some correlation potentially there where these types of things eat into other sources of revenue for the providers that they were banking on and thought they would receive and they may not. And then that may result in commercial costs going up to, to offset some of that loss revenue.
[00:26:05] Stacey Richter: Irrespective of whether there's a NASHP argument against it, if that's what people are doing, that's what people are doing, and therefore employee affordability could be impacted.
Here's another impact that I could see happening as well. They say that, you know, for primary care physician, for example, you cannot stay in business on FFS. You have to do value-based care. And you have to have enough value-based care that it makes sense to change your practice patterns.
So MSSP is one of the biggest value-based programs in the country. You take the money out of that, what you also could wind up doing is creating a situation where it's even harder. It's hard now. It's even harder for an independent primary care practice to manage to get enough money out of the value-based care that they can stay in business, and do it in such a way where patient outcomes are legitimately improved because they're using value-based care practice patterns.
The Bigger Bomb: Skin Substitutes Headed to $15B and Still Count Against ACOs
[00:27:07] Brian Machut: Yeah, it's a great point and something that we haven't gotten to yet is that we talk about skin substitutes. In my mind, the skin substitutes dwarfs the catheter fraud in a lot of ways. So...
[00:27:19] Stacey Richter: Okay, it's, I, there's 3.5 billion, so I'm interested in how, what the dwarfing looks like.
[00:27:25] Brian Machut: In 2025, you know, we're projecting around 13 to 15 billion of skin substitute products being used. So for context or reference that now is 3 to 4% of all Medicare fee-for-service costs are being spent on wound care. And for additional context, when I, when I think about, you know, if I break down Medicare fee-for-service spend by claim type, there's inpatient, outpatient physician, home health, DME, hospice and skilled nursing.
So we think of groups like Home Health and Hospice Care, those two each represent about 4% of all Medicare fee-for-service costs. So now we're talking about skin substitutes in '25 being an equal contributor as all of home healthcare expenses or all of hospice care that's been rendered in the Medicare fee for service world, which is just crazy.
[[00:28:21] Stacey Richter: 15 billion in skin substitutes in 2025. Okay. In the interest of time, we are not gonna get into the backstory on the skin substitute stuff, but suffice to say, there are some strip malls in Tennessee with Ferrari parked at back. 15 billion in 2025, comeback for the Summer Short on this pretty untoward and very profitable racket.
Nutshell version is that a senior winds up in the hands of some kind of medical personnel who unnecessarily, and I say unnecessarily because this is highly suspect of being fraud covers this Medicare recipient's like entire body with the most expensive skin substitute money can buy and then charges by the centimeter.
This is a $15 billion gambit that again happens outside of the purview of the ACO care team, but then somehow the ACO Care team gets their shared savings dinged because these skin substitute folks found the ACOs attributed patient and billed Medicare, a whole lot of shekel for what they were doing.
One final point to remember here that that matters for the conversation coming up. How CMS decides what to keep in as an expense against the shared savings calculation versus what they exclude is they will determine if the expense is significant, anomalous, and highly suspect.
And if it's significant, anomalous and highly suspect, which there's an acronym, it's SAHS, SAHS. If it's significant, anomalous and highly suspect, then they will cross it off and not count it against shared savings.
So again, if the expense meets this criteria, then it's excluded from ACO shared savings, meaning MSSP, and REACH.
Good news, I guess. The DME catheter fraud codes were removed ultimately in 2023 and 2024, so that did not impact shared savings ultimately. But CMS has not yet indicated whether they will do the same for 2025. Signs look good that they will, but it has not been decided yet.
Also, there's been a crop of new codes lately that previously haven't been an issue, so complications. But also skin substitutes are still in the mix. Skin substitutes are still being subtracted from MSSP savings. And yeah, there's wheels turning here and it was a kind of a soap opera because they were in, they were out.
But at this exact moment, those billions of dollars of skin substitutes in '23, '24 and now 2025, where they're up to 15 billion are still counted in the MSSP programs.
Now irrespective of what's going on with MSSP and whether this fraud is in or out, it's still being paid for by CMS. Let's just keep that in mind.
Also, interestingly, the purveyors of these skin substitutes are not European hackers in this case, but they are some people in this country.]]
[00:31:21] Brian Machut: CMS made the decision in these ACO programs in 2024 to not classify the $8 billion of skin substitutes as significant, anomalous, and highly suspect. So, if you go back to that definition, they made the conscious decision, which everyone knew about these costs at the time, to leave them in the program. To not remove them.
And so, that decision, which we will, it's TBD, on what will happen in 2025 will directly impact the amount of money that ACOs earn and take home and form, you know, the form of shared savings.
[00:31:58] Stacey Richter: Alright, let's talk about that for a sec. If I'm thinking about this like CMS and I'm worried about my trust fund, if I classify them as highly suspicious, I'm paying a higher rate back. Like I'm paying higher bonuses.
[00:32:11] Brian Machut: Correct.
[00:32:11] Stacey Richter: Do you think that factors in at all, or are they not? I help me out here.
[00:32:15] Brian Machut: I do. So if I think about what is the definition of significant anomalous and highly suspect mean, it's clearly significant, right? It's 4% of all Medicare fee-for-service costs and the billing patterns are clearly, highly suspect.
So to your point, I do think it is a decision on CMS's part to say, Look, those dollars are already gone, they're out the door. We've paid them. So they have a decision of do we try to claw a bunch of that money back?
And then if we take those costs out of the ACO programs, well now we have to pay the MSSP ACOs and REACH ACOs more money on average. And so I do think that's weighing into some of the decision making here is to say CMS already having paid these fraudulent claims and wanting to avoid paying out higher bonuses, shared savings to the ACOs in this case.
So I do think that that's happening.
[00:33:10] Stacey Richter: So to a certain extent, they're mitigating a piece of their loss because ACOs are paying for it.
[00:33:20] Brian Machut: I believe so again, I don't see how it can't meet the definition of their definition of SAHS.
Policy & Pricing Risk vs Medical Risk: Trend Misses and ‘Double Trouble’
[00:33:26] Brian Machut: And so the other thing that we haven't really talked about here either with relation to the ACOs, is that part of the ACOs benchmark is determined on prospectively set expectations of medical trend in the US.
So if CMS says, “Hey, we think the trend from '24 to 2025, we think costs are gonna increase by 5%.” And in actuality, in '24 to '25, they're coming in at 9%. And that 9% right is partially driven by the skin substitutes proliferating in cost, you know, as much as they have.
That delta between the 5% prospective trend versus 9% actual is pricing risk that ACOs are directly sort of taking the brunt of in these programs.
And so that risk, I would argue, is not risk that ACOs should be held to if it is not risk that they can directly control, which you know, has been the case with the skin substitutes.
[00:34:26] Stacey Richter: We talked about this slightly before, where you've got your benchmark and the benchmark is based on some kind of algorithm.
And if the skin substitutes aren't part of the algorithm, then you're going to come up with a benchmark that doesn't include wild escalations. Because of some of these apparently not suspicious and anomalous, but the algorithm doesn't include them, so then therefore, I think you had called it double trouble.
I think I had heard you say that at some juncture where the ACOs are kind of getting it coming and going because the benchmark is artificially low and they also somehow are on the hook for this excess spend.
[00:35:04] Brian Machut: Exactly what you said. Again, part of the ACOs benchmark is based on a forecast of the CMS actuaries. They say, okay, we think trend's gonna be 5%, so we're gonna update your benchmark, your revenue by 5%. Well, hey, now actual costs are coming in at 9%.
And so ACOs, again are on the hook for some of that delta that is in some parts being driven by, you know, again, the fraud, waste and abuse.
So there's a lot of advocacy going on right now to say, “Hey, if we're gonna set prospective trends in the ACO programs, we can't be in an environment where we are missing so bad on the projected trend to actual, and that's exactly the environment we're in the last several years.”
Where CMS has said, okay, we think trend is gonna be four or 5%. In actuality, it's come in at 8% last year. 9% this year, who knows for 2026. And that type of pricing risk is hitting, you know, these ACO programs directly.
[00:36:05] Stacey Richter: Yeah. Look, we can say a lot about a lot, right? But at the end of the day, if we want to have clinical organizations and doctors and nurses and other clinicians trying to figure out how to do the right thing. And we set up these programs to that end, but then we've got brutal, anomalous, and suspicious behavior. Just wild fraud, right, that is undermining their ability to do so. It's just like It is hard enough. It's hard enough for potentially legitimate reasons, and then you throw this on top.
[00:36:40] Brian Machut: Yeah. It makes it harder for well-intentioned provider organizations to want to participate in these programs when there is oftentimes more policy and pricing risk than there is medical risk.
And so that's the issue I see, particularly as we head into the new LEAD program that's been recently announced by CMMI, is an uncertainty as to if I'm a provider organization, do I want to get into this program knowing that the last several years, you know, CMS has missed wildly on trend projections and, and those directly impact the program.
You know, I'm not sure, and I think that's where a lot of provider organizations sit right now is CMS wants them to participate in these and they're evaluating, is this a risk given the current environment that we are willing to take.
[00:37:30] Stacey Richter: I love how you put that. Is the policy and pricing risk greater than we even equal to medical risk?
It just, it now of a sudden that the calculus gets probably not as intended.
[00:37:42] Brian Machut: Correct.
[00:37:43] Stacey Richter: That shouldn't be part of the equation here as, as clinicians and and organizations try to figure out what they're trying to do.
[00:37:50] Brian Machut: Exactly.
Wrap-Up: Where to Learn More (Alliant Resources)
[00:37:50] Stacey Richter: Brian Machut, is there anything I neglected to ask you that you wanna mention here?
[00:37:53] Brian Machut: Well, we could go on for, I'm sure a lot longer on some of the skin sub stuff, but this probably is good for the, the conversation today, and again, appreciate you having me on.
[00:38:02] Stacey Richter: Brian Machut, if anyone is interested in more information about anything that we talked about today, where would you direct them?
[00:38:09] Brian Machut: Yeah, so our, you know, Alliant value-based healthcare page on LinkedIn is a source that you can go to. We're regularly posting various white papers, advocacy papers and so forth around skin substitutes, DME, fraud, any of the other items and hot topic items in the, the ACO world.
And of course, recently, you know, there was a, a Medicare Advantage Advanced Notice that came out that sent shockwaves really through the industry, many payers and exhibiting impacts to stock prices and whatnot. So if you have any questions on Medicare Advantage, the impact of the new MA Advanced notice, also, please feel free to to contact me directly or again, our Alliant value-based healthcare page as well for more information.
[00:38:52] Stacey Richter: So that's Alliant Health on LinkedIn or Brian Machut and all of these links will be in the show notes as usual.
Brian Machut, thank you so much for being on Relentless Health Value today.
[00:39:03] Brian Machut: Of course, Stacey. Thanks so much.