CMS’s two-pronged approach to crushing fraud, waste, abuse

Four of the six major programs run by the Centers for Medicare and Medicaid Services saw their improper payment rate increase in fiscal 2025.

Medicare Part C, Medicare Part D and Medicaid all saw upticks in how much money went out the door that shouldn’t have.

While not all improper payments are considered fraud, CMS is planning an all-out effort to reign in fraud specifically and improper payments more broadly.

CMS says it’s taking on this systemic challenge through both technology and regulatory reforms.

On the regulatory side, CMS released a request for information on Feb. 27 asking for feedback from the public on “potential regulatory changes that might be included in a potential future proposed rule, as well as other programmatic changes that could be implemented to make CMS more effective in crushing fraud to protect taxpayer dollars and the Americans we serve.”

CMS laid out seven questions, including:

• Are there ways in which CMS could better use existing statutory authorities to expeditiously prevent bad actors from engaging in fraud, waste and abuse?
• What changes could CMS or its contractors make to existing processes to promote their ability to effectively deter fraud, waste and abuse, and promote payment accuracy and efficiency, including by more expeditiously gathering actionable information?
• A core component of crushing fraud to protect taxpayer dollars is transparency to the Americans we serve about CMS’ program integrity undertakings. How can CMS improve its transparency about its oversight and enforcement activities?

Feedback is due by March 30. So far, CMS has received about 68 comments.

At the same time, CMS is applying new technologies, including artificial intelligence, to go after waste, fraud and abuse.

Kim Brandt, CMS’s chief operating officer and deputy administrator, said fighting fraud and abuse is her number one priority.

“One of our biggest problems is making sure that we catch people who are going to be potentially bad actors and stop them from actually getting a number so that they can start billing the programs. If we can stop them from coming in, or at least identify that they’re high risk on the front end, it’s a greater chance that we can then either kick them out more quickly or keep them from defrauding us,” Brandt said at the recent Fed Tech Priorities conference, sponsored by GovExec. “One of the cool things we’ve been using is a Netflix-type algorithm, which basically we put all of the information about all the people that we’ve taken administrative actions against into and then as new applicants come in, it runs that information against everything that we already know about the people who have already had bad acts. We can take those characteristics and then be able to identify, particularly for things like durable medical equipment, home health and hospice, which are three of the areas that we’re seeing the most fraud in. We can then take it and determine that those people are high risk.”

CMS then puts anyone deemed high risk on a watch list where they can do more enhanced site visits, do more data analysis on them and really watch the company’s billings for possible fraud.

Brandt said this tool has been effective, particularly in the area of hospice. CMS kicked out over 60% of these companies within the first six months. Then overall, another 30% of the ones that CMS put on the watch list weere kicked out when they tried to commit fraud. Brandt said within the first year, CMS got rid of 90% of some of these potentially bad actors.

Improper payments ticked up

Medicaid is one of the several CMS programs that saw increases in improper payments last year. While none of the rates skyrocketed, CMS says several increased both in overall percentage and total dollars.

CMS says the Medicare Part C estimated improper payment rate was 6.09%, or $23.67 billion, compared to its 2024 reported rate of 5.61%, or $19.07 billion.

CMS says the Medicare Part D estimated improper payment rate was 4.00%, or $4.23 billion, compared to its 2024 reported rate of 3.70%, or $3.58 billion.

And CMS says the Medicaid estimated improper payment rate was 6.12%, or $37.39 billion, compared to its 2024 reported rate of 5.09%, or $31.10 billion.

To be clear, not all of this is fraud or abuse, since some of the time improper payments are because of paperwork problems. For example, CMS says of the 2025 Medicaid improper payments, 77.17% were the result of insufficient documentation. CMS says this is generally not indicative of fraud or abuse.

The agency also says most Part C improper payments were attributable to situations where the Medicare Advantage Organization’s supporting documentation failed to substantiate the beneficiary diagnosis data submitted for payment.

It’s not all bad news for the agency. CMS says its Medicare Fee-for-Service (FFS) estimated improper payment rate was 6.55%, or $28.83 billion. Compared to the 2024, the rate and dollars dropped from 7.66%, or $31.70 billion. The 2025 estimate marks the ninth consecutive year this figure has been below the 10% threshold established in law.

CMS is applying several other AI tools in its battle against improper payments as well as using these capabilities internally to improve employee productivity and efficiency.

Brandt offered two other examples. One that focused on billing and claims analysis. She said CMS has a “war room” running this fraud effort.

“We are actually able to look at the claims as they come in and the Medicare Administrative Contractor is not waiting until after we’ve waiting until after we paid them, before they go through the claims floor and identify issues. As a result of that, the team has been able to save $2 billion just since March of last year,” she said. “Our hope is that in this next year, as we implement that even more widely, it’s going to be a huge saver for us. The fact of the matter is, last year, we almost doubled our total savings in terms of program integrity, just thanks to some of these developments because we were able to stop people from billing very quickly, so that we had less bleed on the back end, but also because we were able to really use it to make smarter choices about how to go after these people and then actually stop them from taking the money from the program.”

CLAW looking at contracts

A third tool is called CLAW, which Brandt says is a contracts analysis wizard.

“What we’ve done here is we put all of our CMS contracts into CLAW, and then as we have new contracts, you run them against the tool, and then it tells us based on historical contracts of this type or of this nature, here’s what the cost should be. Here’s what you should think about. Here’s the type of contract vehicle it should be, whether time and material or firm fixed price. It really gives us the ability to use historical knowledge to be able to then make smart financial decisions about how we move forward on the contracts,” Brandt said. “The team has only been using this for a few months now, but it’s already been extremely effective. They think it saved us maybe the better part of several $100 million already. I don’t have an exact number, but the fact is, it’s a really neat way for us to be able to use technology to help us make smarter choices, and hopefully be able to negotiate better rates and get better overall terms.”

Brandt said CMS developed the CLAW tool in-house with the help of a contractor.

CMS seems to be leaning heavily into AI, not just for improper payments but in several of its mission areas. CMS has almost doubled the number of AI uses cases it’s working on or using. In the Department of Health and Human Services updated AI use case inventory from January, CMS says it has 72 uses cases, up from 43 in the 2024 inventory.

The inventory showed not all of them are in production and many are pretty basic ones, like a helpdesk assistant or CMS chat to draft email or other responses to help improve employee productivity.

Brandt said a big part of the move to AI is to hire more employees with specific technology skillsets like software engineers.

She said a year ago, CMS had only 13 software engineers on staff and more than 36,000 contractors. It was a 6 to 1 ratio of contractors to CMS IT staff.

“What we realized was for a lot of the things that [CMS Administrator] Dr. [Mehmet] Oz wanted to do in terms of moving forward with the tech ecosystem and things like that, we really needed to have more in-house technologists to really be able to help us. So we’ve been working very closely with Amy Gleason from the U.S. DOGE Service. And Amy has helped us really start to build out a really impressive team of engineers and tech experts, some of whom are coming from the digital services over to CMS on detail and some of which we are hiring,” she said. “In fact, if you look at USAJobs.gov, you will see that there are tons of CMS tech jobs. We’re working with the [Office of Personnel Management on the] Tech Force. We’re working with lots of other partners. We are looking to hire a few dozen engineers to come in house to CMS. Again, we don’t want to completely replace our contractors, but to help us sort of figure out what those good off the product type of things are, and how we can then modify them to be able to make it work better at CMS across the board, on a variety of things.”

Brandt said CMS isn’t going to replace all of its contractors, but would like to have more talent on staff to develop and maintain new and current capabilities. So far, CMS has increased the number of software engineers to about 40 and would like to add maybe 20 more in the coming months.

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