Clean-up Your Defenses: Why Health Plans Can't Afford to Wait on Fraud Hygiene

The modern health care landscape is at a critical juncture. Heightened regulatory scrutiny, particularly within Medicare and Medicaid, coupled with the rising sophistication of criminal schemes, is forcing health plan executives to fundamentally reassess their strategy for addressing fraud, waste, and abuse (FWA). FWA is estimated to cost the US health care system tens to hundreds of billions of dollars.^1,2 The federal government's intense focus on program integrity, which now includes targeted inquiries about prepayment programs and the use of artificial intelligence (AI), has shifted proactive FWA management to a critical business mandate.

The defining characteristic of today's FWA schemes is their speed and their ability to exploit the gaps created by temporary regulatory flexibilities and new technology. Health plans’ reliance on manual, resource-intensive defense mechanisms is proving ineffective against evolving and sophisticated crime schemes. Here are 3 current high-impact threats:

1. The Wild West of Telehealth

The rapid growth of telehealth, accelerated by post-COVID-19 flexibilities, has outpaced regulation, creating significant risk. While overall telehealth use across specialties is not decreasing, tracking data show concerning signs of overutilization—a strong indicator of potential FWA. The policy decisions enacted to encourage access during the pandemic inadvertently opened up new avenues for fraud. These vulnerabilities include:

• The loosening of state-by-state border restrictions: Looser restrictions allow providers to administer services without residing in the same state as the patient.
• Audio-only visits: Video is optional based on the patient’s comfort, so verifying identity is difficult. Additionally, experts are increasingly concerned about the potential for AI-based services as a substitute for human interaction, making it necessary for plans to verify that they are actually talking to a human versus an AI-generated bot in a telehealth setting.
• Prescription/treatment fraud: Telehealth visits enable doctors to prescribe controlled substances without an initial face-to-face visit. These flexibilities create a ripe environment for criminal exploitation. In fact, the US Department of Justice (DOJ) enforcement actions have targeted schemes involving up to $1.4 billion in alleged telehealth-related fraud, often involving unnecessary equipment or tests authorized by doctors who never examined the patient.³

2. The HIgh-Cost Threat of Skin Substitutes 

The Office of Inspector General (OIG) identified skin substitutes (advanced wound-care products, which have become a focal point for upcoding) as a major concern due to the enormous overall spend in this space.⁴ While the spend per provider can be low, the per-member spend is exceptionally high, often averaging between $25 000 and $30 000 in payments for inappropriate, undocumented, or upcoded claims. Low per-provider spending keeps fraudulent actors below the thresholds of traditional monitoring systems.

3. Phantom Providers

Durable medical equipment (DME) fraud is a perennial challenge revitalized by phantom providers—nonexistent providers set up as LLCs solely to submit fraudulent claims. These criminals submit "trickle” or low-dollar claims to test the efficacy of their scam, followed by a large "claim dump," and then vanish. The scheme's speed is its defining characteristic, making financial recovery post-payment virtually impossible.

The Solution: Focus on Prepay and Removing Organizational Barriers

The analysis of these modern threats makes it clear: the legacy "pay and chase" operational model is no longer viable. Furthermore, potential regulatory prompt-pay updates, intended to improve provider satisfaction, will worsen the problem by shortening the window for review. This reactive approach leaves plans vulnerable to criminals that leverage speed to commit fraud. Spending administrative resources on recovery is an exercise in sustained loss.

The single most important strategic step a health plan can take is to invest in a smart prepay program, not one that blocks all claims, which would cause unacceptable provider abrasion, but one that uses sophisticated analytics—a blend of AI, rule-based technology, and human validation—to be highly selective, targeting only the true “bad actors" and maintaining a robust network. For phantom providers, for instance, this means using analytics to flag new National Provider Identifiers (NPIs) when they begin billing, catching the fraudulent behavior as it starts.

Plans must also address organizational silos. Effective FWA defense requires a unified front between payment integrity (PI), which handles claim editing, and the special investigations unit (SIU), which targets fraud. PI and SIU often report to different leaders with separate and competing priorities and budgets, creating a political push and pull that causes missed opportunities. For example, a provider with consistently high claim-editing rates—a clear indicator of unusual patterns—should be immediately funneled from PI to SIU for deep FWA investigation. A unified, shared data workflow must be prioritized to remove these structural barriers and prevent sustained financial loss.

Where to Invest: Technology and Talent

C-suite leaders making budget decisions must focus on 2 main areas for FWA investment: advanced technology and securing talent.

Investment must be directed toward AI and advanced technology that enables the plan to stop payment versus chasing it. The same AI tools that criminals use to automate claim generation, fabricate sophisticated medical documentation, and create prior authorization forms that "tick all the boxes" must be leveraged by health plans for detection. Advanced machine learning (ML) algorithms are uniquely capable of identifying the subtle, systemic anomalies created by adversarial AI and human fraudsters that static rules will invariably miss.

Crucially, this technology must be governed by explainable AI (XAI) principles. With regulatory oversight over AI utilization inevitable—CMS has actively solicited tools for AI-based fraud detection—plans cannot rely on "black-box" models to deny claims. XAI techniques provide clear reasoning for why a claim was flagged, which is vital for auditing, supporting legal proceedings, and building trust, ensuring regulatory compliance and avoiding false accusations against legitimate providers.

While technology is essential, human expertise is even more critical. Budget cuts often lead to fewer investigative resources, but subject matter experts (SMEs) are necessary on the front lines, as plans cannot rely solely on their vendor partners for their FWA strategy. Plans must secure the funding for internal teams that work in close partnership with prepay claim editing, using claim-editing data to funnel suspicious provider activity to the FWA team. External partners remain critical, however, to provide data aggregation across multiple plans. No single health plan, even a national carrier, possesses the full data necessary to identify sophisticated, multistate criminals.

The cost of maintaining a reactive system in today’s economic environment is unsustainable at best. Health plans that proactively invest in smart prepay, advanced analytics, and a skilled FWA team will be positioned to help stop the egregious amount of money lost to FWA and meet the intensifying demands of the regulatory landscape.

References

1. Fraud, waste, and abuse. Community Health Plan of Washington. Accessed December 8, 2025. https://individualandfamily.chpw.org/member-center/member-rights/fraud-waste-and-abuse/
2. The Challenge of Health Care Fraud. National Health Care Anti-Fraud Association. Accessed December 8, 2025. https://www.nhcaa.org/tools-insights/about-health-care-fraud/the-challenge-of-health-care-fraud/
3. National health care fraud enforcement action results in charges involving over $1.4 billion in alleged losses. Press release. US Department of Justice. Published September 17, 2021. Accessed December 8, 2025. https://www.justice.gov/archives/opa/pr/national-health-care-fraud-enforcement-action-results-charges-involving-over-14-billion
4. Medicare Part B Payment Trends for Skin Substitutes Raise Major Concerns About Fraud, Waste, and Abuse. US Department of Health and Human Services, Office of Inspector General. Published September 8, 2025. Accessed December 8, 2025. https://oig.hhs.gov/reports/all/2025/medicare-part-b-payment-trends-for-skin-substitutes-raise-major-concerns-about-fraud-waste-and-abuse/