New Medicare Pilot Program Tests AI to Flag Lab & Equipment Fraud, But Requires You to Opt-In

The Medicare Transaction Fraud Prevention Act is setting up a two-year pilot program, starting no later than January 1, 2026, designed to catch fraud in two specific areas: durable medical equipment (DME)—think wheelchairs, oxygen tanks—and clinical diagnostic laboratory tests. The big change here is the tool they want to use: a predictive risk-scoring algorithm, essentially an AI system, to flag suspicious payments after they’ve been processed. This is Medicare trying to use smart tech to stop bad actors from ripping off the system, but there’s a catch: you have to volunteer to be part of the test.

The Algorithm and Your Medicare Card

For this pilot to work, Medicare needs participants, and the bill makes participation completely voluntary. To join, beneficiaries must agree to two things: first, receiving their Medicare Summary Notices (MSNs) electronically, and second, agreeing to enroll in the pilot. The algorithm will then assign a risk score (1 to 99) to claims for DME or lab tests based on a few suspicious factors. These factors include things like a provider suddenly billing way too many claims in a small geographic area, a quick change in a provider’s ownership, or a switch in how a provider gets paid (like moving from paper checks to electronic transfers). Essentially, the system is looking for patterns that scream "scam."

What Happens When the System Flags a Claim

If a transaction scores above a certain risk level, it triggers a review. This is where the human element comes back in, which is crucial. Before any payment is suspended, Medicare has to contact the beneficiary—you—via email or phone. This gives you a chance to correct the record if the data is wrong, or confirm that the transaction is legitimate. If, after this human review informed by the algorithm, the transaction is still deemed suspicious, payment can be suspended. If that happens, the beneficiary gets electronic alerts every two weeks for three months, detailing the transaction and how to report fraud. Crucially, the bill gives the Secretary the power to cancel your Medicare card and issue a new one if that's what it takes to stop ongoing fraud. This is a significant administrative power, even if the intent is to protect the system.

The Real-World Impact and Trade-Offs

For the average person, this pilot offers a benefit: better fraud protection. If someone is trying to bill Medicare for a lab test you never got, the system might flag it, and you get a heads-up before the payment goes through. This is great for protecting the Medicare Trust Fund, which ultimately affects all taxpayers. However, there are potential downsides, especially for providers and beneficiaries who need these services quickly. If the algorithm makes a mistake—a false positive—a legitimate DME supplier could see their payment delayed while the review process plays out. Imagine a small lab that suddenly gets a lot of business because a larger competitor closed; this sudden increase in volume could trigger a high-risk score, leading to payment suspension and cash flow problems, even though they did nothing wrong. While the bill mandates human oversight for any final suspension decision, the initial delay caused by the algorithm could still be a headache for the providers and potentially delay access to necessary equipment or tests for patients.