CMS proposes to hold Medicare ACOs harmless for spending levels stemming from catheter-billing fraud

CMS has issued a proposed rule to mitigate the impact of a high-profile Medicare fraud scheme on accountable care organizations (ACOs).

The rule seeks to address “significant, anomalous and highly suspect billing activity for selected intermittent urinary catheters on Medicare Durable Medical Equipment, Prosthetics, Orthotics & Supplies (DMEPOS) claims” as applied to ACOs in the Medicare Shared Savings Program (MSSP) for performance year 2023.

MSSP participants had raised concerns about the impact of a suspicious increase last year in Medicare billings for certain catheters.

“Accountable care arrangements such as this cannot function if the ACO may be held responsible for all SAHS billing activity that is outside of their control,” CMS wrote in the rule, using an abbreviation for significant, anomalous and highly suspect billing.

The National Association of ACOs (NAACOS), whose members helped flag the dubious billing, applauded the proposed adjustment.

“This ensures that clinicians, hospitals, other healthcare providers and ACOs can remain in the models and are not unfairly penalized,” the group said in a written statement.

This year’s MSSP roster includes 480 ACOs, encompassing roughly 608,000 providers that care for 10.8 million assigned beneficiaries.

The comment period for the proposed rule runs through July 29 at regulations.gov.

What led to the rule

Fraud was detected in a surge in billing of intermittent urinary catheter supplies by a relatively small number of suppliers since Q1 2023, CMS noted. The story generated national media attention when it broke in February.

CMS said the billing activity “represents a deviation from historical utilization trends that is unexpected and is not clearly attributable to reasonably explained changes in policy or the supply or demand for covered items or services.”

The HCPCS codes in question are A4352 and A4353, the latter of which increased in billing volume by more than 5,000% from 2022 to 2023. Medicare spending on the two codes increased from $153 million to $3.1 billion over a two-year period, stemming almost entirely from 10 suppliers, according to an April letter from leading provider groups to CMS.

The groups cited data showing nearly half of ACOs surpassed their region’s average for catheter spending, with 10% exceeding the mark by $50 per patient per year and 5% experiencing an impact of between $166 and more than $1,000 per patient per year.

“Accordingly, these ACOs’ spending is affected far more than would be captured by the regional-national spending trends used to update their benchmarks — which would lead to a loss of shared savings,” the groups wrote.

It’s vital to address the anomaly before making an initial determination of a participant’s shared savings, CMS stated in the proposed rule, noting the issue goes beyond fairness for ACOs. Overall Medicare spending also stands to be affected by the impact on benchmarks. ACOs not affected by the fraudulent billing activity would benefit from higher benchmarks, as would new entrants to the program over the next few years.

What adjustments would be made

In the proposed rule, CMS said it would exclude payments for the two codes from determinations of an MSSP ACO’s financial performance during 2023, as well as from benchmark calculations for ACOs that start or renew MSSP participation through 2026 (after that year, spending data from 2023 ceases to factor into benchmarks).

The payments also would not factor into designations of an MSSP ACO as low-revenue or high-revenue, a key distinction since low-revenue ACOs get more time in the program before being required to take on downside risk, or in calculations of an ACO’s repayment mechanism in two-sided risk tracks.

The adjustment would encompass codes submitted by any supplier, not just those that evidently engaged in suspicious billing activity. That approach is intended, in part, to “protect the integrity of any potential investigations that may be ongoing,” CMS wrote.

Applying the adjustments described in the rule would cause a delay of up to six weeks in financial reconciliation and disbursement of an ACO’s shared savings for 2023, CMS advised. The importance of minimizing any such lag spurred CMS to reduce the usual 60-day comment period for Medicare regulations to a 30-day window for the proposed rule.

The timetable to determine an ACO’s 2025 eligibility for the MSSP’s advance investment payment option or for participation in the new ACO Primary Care Flex Model would not be affected.

Long-term considerations

A next step is to consider policies that account for the impact of fraudulent activity on ACO programs more generally, CMS said.

“We look forward to working with CMS to establish permanent policies that will address future instances of fraud, waste and abuse, as well as streamline the process for identification and reporting,” NAACOS wrote in its statement on the proposed rule.

In their April letter, the provider groups said additional instances of billing fraud affecting ACO financial reconciliation and overall Medicare spending likely are just a matter of time. They specifically noted concerns surrounding ACO-reported “spikes in spending” for diabetes supplies and skin substitutes.

“To prevent similar issues in future years, CMS should consider implementing a permanent outlier policy at the service or billing code level,” the groups wrote.

The proposed rule does not include such a policy, but one could be forthcoming in the annual regulatory updates to the MSSP as described in the 2025 proposed rule for Medicare physician payments.