Medicare Pilot Program Puts Algorithms on Watchdog Duty for Equipment and Lab Test Claims by 2026

This bill, the Medicare Transaction Fraud Prevention Act, sets up a two-year pilot program designed to fight fraud by letting computers do the heavy lifting. Starting no later than January 1, 2026, the Department of Health and Human Services (HHS) will begin testing a “predictive risk-scoring algorithm” on Medicare payments for durable medical equipment (think wheelchairs, oxygen tanks) and clinical diagnostic laboratory tests. The core idea is simple: use smart software to flag suspicious claims before they pay out, scoring each transaction from 1 (low risk) to 99 (high risk).

Your Data is the Test Group (If You Opt-In)

Here’s the catch for regular folks: this pilot program only applies to “applicable beneficiaries”—meaning people who have already chosen to receive their Medicare Summary Notices (MSNs) electronically. If you’re still getting paper statements, you’re not in the test group. Crucially, participation is voluntary, and you can opt out anytime. This limitation means the program won't catch fraud across the whole system, but it gives HHS a manageable group to test the technology on, essentially making digital-native Medicare users the early adopters of this new oversight tech.

What Triggers the Algorithm?

So, what makes a claim look risky to the computer? The bill gives HHS some specific factors to program into the algorithm. It will look for things like whether a provider is suddenly billing a massive number of claims in a very small geographic area, if a provider recently changed ownership, or if they just switched their payment method to Electronic Fund Transfer (EFT). The goal is to spot the administrative red flags that often signal a scammer moving in. For providers of lab tests or medical equipment, this means their billing practices are about to get a lot more granular scrutiny, which could be a headache even for legitimate businesses.

The Suspension Zone: Delays vs. Defense

If the algorithm flags a transaction as high-risk (above a level set by the Secretary), that claim can be suspended. This is where things get real for beneficiaries. While the algorithm can flag it, the bill requires a human review before any suspension is finalized. This is critical because it prevents a computer from automatically cutting off payments for necessary medical supplies. However, even with human review, any suspension means a delay in payment, which could, in turn, delay a patient receiving essential equipment like a new oxygen machine or necessary diagnostic test results. This trade-off—better fraud prevention versus potential service delays—is the practical challenge of this system.

Getting the Alert

If your transaction is flagged or suspended, the system is designed to alert you immediately. The Secretary must give the beneficiary—you—a chance to respond via email or phone to explain why the flag might be a mistake. If the transaction remains suspended, you'll get an electronic alert detailing the issue, and for the next three months, you’ll receive electronic MSNs every two weeks (instead of the usual quarterly or monthly schedule) with clear instructions on how to report suspected fraud. The bill also grants the Secretary the power to cancel and reissue a Medicare card if fraud is confirmed, a significant administrative step intended to stop ongoing abuse cold.