Contributor: Fraud, Waste, and Abuse—A Value-Based Care Risk Hiding from Health Care Leaders

Health care leaders have long viewed fraud, waste, and abuse as compliance issues. But as more provider organizations accept financial risk through accountable care and other value-based arrangements, fraud, waste, and abuse are no longer simply compliance concerns. They are increasingly financial performance risks that can directly affect benchmark attainment, shared savings results, and care delivery strategy. Inappropriate utilization can distort shared savings calculations, influence regional benchmark trends, complicate risk adjustment methodologies, and ultimately undermine efforts to deliver high-quality care efficiently.

The financial impact is substantial. According to CMS, Medicare Fee-for-Service improper payments totaled nearly $29 billion in FY2025, underscoring the scale of spending that can be influenced by billing errors, inappropriate utilization, and other program integrity issues.

The challenge is not simply the amount of wasteful spending moving through the health care system. It is the fact that many of the patterns now attracting federal scrutiny no longer look obviously fraudulent at first glance.

Fraud, waste, and abuse are often discussed as a single issue, but they represent different challenges for health care organizations. Fraud typically involves intentional deception and criminal conduct, whereas waste reflects services that are unnecessary or provide limited clinical value, even when delivered by well-intentioned clinicians. Abuse occupies the gray area between the 2, where reimbursement structures or operational incentives encourage utilization patterns that may be technically permissible but difficult to justify clinically. In practice, these categories often exist on a continuum rather than as clearly defined buckets.

For health care leaders, that distinction matters. Detection of emerging atypical spending patterns differs from detection of longstanding low-value care. The challenge is often not in identifying obvious criminal activity. It is in recognizing when utilization patterns begin to diverge from clinical appropriateness and in discerning existing care patterns that are not evidence-based or are not associated with clinical best practices. In many cases, those patterns emerge gradually within otherwise legitimate care delivery settings, making them difficult to distinguish from normal variation until viewed at scale.

Modern fraud patterns increasingly resemble normal utilization

Over the last several years, health care fraud investigations have expanded well beyond traditional examples of phantom billing or “ghost” patients. Many of today’s enforcement actions involve real clinicians, existing patients, and clinically plausible services delivered within legitimate care settings. Recent federal investigations have centered on hospice utilization, durable medical equipment, telehealth-driven ordering pipelines, genetic testing, and high-cost skin substitute products. What makes these situations difficult is that they often exist in the gray area between intentional fraud, operational waste, and reimbursement-driven overutilization.

Although recent headlines have focused on criminal investigations and enforcement actions, many health care organizations face a more common challenge: waste. New therapies, evolving reimbursement models, fragmented care delivery, and administrative complexity can all contribute to utilization that may be clinically questionable without being intentionally fraudulent.

From an operational perspective, that distinction is important. The financial impact of inappropriate utilization can be substantial, even when no criminal conduct is involved. As health care organizations assume greater accountability for cost and quality performance, identifying and addressing waste becomes just as important as detecting outright fraud. The issue is further fraught by the reality that utilization patterns, such as site of service assignment, may reflect both avoidable spending and revenue drivers supporting the sustainability of services.

Most clinicians are trying to provide appropriate care under increasingly complicated conditions. They are evaluating new therapies, responding to administrative demands, managing rising patient complexity, and operating within reimbursement systems that frequently create competing incentives. They are also committed to the sustainability of care in their communities. In most cases, the underlying issue is not criminal intent. It is that health care has become exceptionally efficient at financing utilization without always being equally effective at evaluating appropriateness, outcomes, or downstream value. And this occurs in the context of the increasing cost to deliver care, placing constant pressure on operators to address practice margins. That complexity creates opportunities for bad actors to exploit gaps in oversight.

We saw this dynamic emerge in recent skin substitute investigations, where some products entered the market with extremely high reimbursement rates and aggressive marketing tactics. Some providers may have believed they were adopting innovative therapies. Others allegedly exploited the payment structure itself by applying excessive amounts of product or targeting vulnerable populations. For healthcare organizations, the challenge is that these utilization patterns can often blend into otherwise legitimate clinical activity until viewed at scale.

The resulting spending growth has been difficult to ignore. Medicare spending on skin substitutes has increased more than 50-fold in just more than 6 years and is projected to top $13 billion, making it one of the fastest-growing categories of Medicare spending. Federal watchdogs, policymakers, and accountable care organizations have raised concerns that the rapid growth reflects not only broader adoption of these products but also reimbursement incentives and utilization patterns that warrant closer scrutiny. Although not all of this growth reflects inappropriate utilization, the category has become a focal point in ongoing discussions about fraud, waste, abuse, and payment reform.

Traditional oversight models struggling to keep up

Historically, health care fraud enforcement has been largely retrospective. By the time suspicious utilization patterns are identified, payments have often already been made, and significant dollars have already moved through the system. Investigations occur months or years later once suspicious trends emerge. Federal regulators increasingly appear to recognize the limitations of that approach.

CMS has expanded prospective oversight efforts through mechanisms such as the Wasteful and Inappropriate Service Reduction (WISeR) Model. The 6-year initiative is designed to reduce fraud, waste, abuse, and inappropriate utilization through more prospective review mechanisms within traditional Medicare by introducing prior authorization-style review processes. Although the model reflects a broader effort to identify potentially problematic utilization earlier, it has also become the subject of ongoing debate among providers, policymakers, and lawmakers over how best to balance program integrity, administrative burden, patient access, and the appropriate role of technology in utilization review. Regardless of WISeR's ultimate trajectory, the debate underscores a larger industry challenge: how to strengthen oversight without creating new barriers to medically necessary care.

The rationale is understandable. Traditional Medicare has historically had fewer utilization controls than commercial insurance or Medicare Advantage. Still, the shift toward prospective oversight introduces legitimate operational concerns. Critics of the WISeR model, including policy analysts and provider groups, have raised concerns that expanded prospective review requirements could increase administrative burden and contribute to delays in care.

CMS also introduced the Comprehensive Regulations to Uncover Suspicious Healthcare (CRUSH) initiative to transition federal health programs from a "pay and chase" model to a proactive, "detect and prevent" strategy using artificial intelligence and data analytics. It’s increased scrutiny in areas such as durable medical equipment and ACA enrollment.

The health care industry now faces a balancing act that is likely to become more important over the next several years: how to strengthen program integrity without creating additional barriers to medically necessary care. Regardless of how federal oversight evolves, health care organizations will need better visibility into utilization patterns before they become performance or compliance concerns.

But recognizing the problem is only the first step. The larger challenge is identifying unusual utilization patterns before they become financial, operational, or compliance risks. That's where data, benchmarking, and visibility become critical.

In Part 2, I will explore why many organizations struggle to detect emerging utilization concerns and the capabilities required to spot them before they affect outcomes, costs, and performance.