Medicare’s new AI experiment sparks alarm among doctors, lawmakers

A Medicare pilot program will allow private companies to use
artificial intelligence to review older Americans’ requests for certain
medical care — and will reward the companies when they deny it.

In January, the federal Centers for Medicare & Medicaid Services
will launch the Wasteful and Inappropriate Services Reduction (WISeR)
Model to test AI-powered prior authorizations on certain health services
for Medicare patients in six states: Arizona, New Jersey, Ohio,
Oklahoma, Texas and Washington. The program is scheduled to last through
2031.

The program effectively inserts one of private insurance’s most
unpopular features — prior authorization — into traditional Medicare,
the federal health insurance program for people 65 and older and those
with certain disabilities. Prior authorization is the process by which
patients and doctors must ask health insurers to approve medical
procedures or drugs before proceeding.

Adults over 65 generally have two options for health insurance:
traditional Medicare and Medicare Advantage. Both types of Medicare are
funded with public dollars, but Medicare Advantage plans are contracted
through private insurance companies. Medicare Advantage plans tend to
cost less out of pocket, but patients enrolled in them often must seek
prior authorization for care.

AI-powered prior authorization in Medicaid Advantage and private insurance has attracted intense criticism, legislative action by state and federal lawmakers, federal investigations and class-action lawsuits. It’s been linked to bad health outcomes. Dozens of states have passed legislation in recent years to regulate the practice.

In June, the Trump administration even extracted a pledge from major health insurers to streamline and reduce prior authorization.

“Americans shouldn’t have to negotiate with their insurer to get the
care they need,” U.S. Health and Human Services Secretary Robert F.
Kennedy Jr. said in a June statement announcing the pledge. “Pitting patients and their doctors against massive companies was not good for anyone.”

Four days after the pledge was announced, the administration rolled
out the new WISeR program, scheduled to take effect in January. It will
require prior authorizations only for certain services and prescriptions
that the Centers for Medicare & Medicaid Services has identified as
“particularly vulnerable to fraud, waste, and abuse, or inappropriate
use.” Those services include,
among other things, knee arthroscopy for knee osteoarthritis, skin and
tissue substitutes, certain nerve stimulation services and incontinence
control devices.

The companies get paid based on how much money they save Medicare by
denying approvals for “unnecessary or non-covered services,” CMS said in
a statement unveiling the program.

The new program has alarmed many physicians and advocates in the affected states.

“In concept, it makes a lot of sense; you don’t want to pay for care
that patients don’t need,” said Jeb Shepard, policy director for the
Washington State Medical Association.

“But in practice, [prior authorization] has been hugely problematic
because it essentially acts as a barrier. There are a lot of denials and
lengthy appeals processes that pull physicians away from providing care
to patients. They have to fight with insurance carriers to get their
patients the care they believe is appropriate.”

CMS responded to Stateline’s questions by providing additional
information about the program, but offered few details on what the
agency would do to prevent delays or denials of care. It has said
that final decisions on coverage denials will be made by “licensed
clinicians, not machines.” In a bid to hold the companies accountable,
CMS also incentivizes them for making determinations in a reasonable
amount of time, and for making the right determinations according to
Medicare rules, without needing appeals.

In the statement
announcing the program, Abe Sutton, director of the CMS Innovation
Center, said the “low-value services” targeted by WISeR “offer patients
minimal benefit and, in some cases, can result in physical harm and
psychological stress. They also increase patient costs while inflating
health care spending.”

A vulnerable group

Dr. Bindu Nayak is an endocrinologist in Wenatchee, Washington, a
city near the center of the state that bills itself as the “Apple
Capital of the World.” She mainly treats patients with diabetes and
estimates 30-40% of her patients have Medicare.

“Medicare recipients are a vulnerable group,” Nayak told Stateline.
“The WISeR program puts more barriers up for them accessing care. And
they may have to now deal with prior authorization when they never had
to deal with it before.”

Nayak and other physicians worry the same problems with prior
authorizations that they’ve seen with their Medicare Advantage patients
will plague traditional Medicare patients. Nayak has employees on staff
whose only role is to handle prior authorizations.

More than a quarter of physicians nationwide say prior authorization
issues led to a serious problem for a patient in their care, including hospitalization or permanent damage, according to the most recent report from the American Medical Association.

And some patients are unfairly denied treatment. Private insurers have denied care for people with Medicare Advantage plans even though
their prior authorization requests met Medicare’s requirements,
according to an investigation from the U.S. Department of Health and
Human Services published in 2022. Investigators found 13% of prior
authorization denials were for requests that should have been granted.

But supporters of the new model say something must be done to reduce costs. Medicare is the largest single purchaser of health care in the nation, with spending expected to double
in the next decade, according to the Medicare Payment Advisory
Commission, an independent federal agency. Medicare spent as much as $5.8 billion in 2022 on services with little or no benefit to patients.

Congress pushes back

In November, congressional representatives from Ohio, Washington and other states introduced a bill to repeal the WISeR model. It’s currently in committee.

“The [Trump] administration has publicly admitted prior authorization
is harmful, yet it is moving forward with this misguided effort that
would make seniors navigate more red tape to get the care they’re
entitled to,” U.S. Rep. Suzan DelBene, a Washington Democrat and a
co-sponsor of the bill, said in a November statement.

Physician and hospital groups in many of the affected states have backed the bill,
which would halt the program at least temporarily. Shepard, whose
medical association supports the bill, said that would give CMS time to
get more stakeholder input and give physicians more time to prepare for
extra administrative requirements.

“Conventional wisdom would dictate a program of this magnitude that
has elicited so much concern from so many corners would at least be
delayed while we work through some things,” Shepard said, “but there’s
no indication that they’re going to back off this.”

Adding more prior authorization requirements for a new subset of
Medicare patients will tack on extra administrative burdens for
physicians, especially those in orthopedics, urology and neurology,
fields that have a higher share of services that fall under the new
rules.

That increased administrative burden “will probably lead to a lot
longer wait times for patients,” Nayak said. “It will be important for
patients to realize that they may see more barriers in the form of
denials, but they should continue to advocate for themselves.”

Dr. Jayesh Shah, president of the Texas Medical Association and a San
Antonio-based wound care physician, said WISeR is a well-intentioned
program, but that prior authorization hurts patients and physicians.

“Prior authorization delays care and sometimes also denies care to
patients who need it, and it increases the hassle factor for all
physicians,” he told Stateline.

Shah added that, on the flip side, he’s heard from a few physicians
who welcome prior authorization. They’d rather get preapproval for a
procedure than perform it and later have Medicare deny reimbursement if
the procedure didn’t meet requirements, he said.

Prior authorization has been a bipartisan concern in Congress and statehouses around the country.

Last year, 10 states
— Colorado, Illinois, Maine, Maryland, Minnesota, Mississippi,
Oklahoma, Vermont, Virginia and Wyoming — passed laws regulating prior
authorization, according to the American Medical Association.
Legislatures in at least 18 states
have addressed prior authorization so far this year, an analysis from
health policy publication Health Affairs Forefront found. Bipartisan
groups of lawmakers in more than a dozen states have passed laws regulating the use of AI in health care.

But the new effort in the U.S. House to repeal the WISeR program is
sponsored by Democrats. Supporters worry it’s unlikely to gain much
traction in the Republican-controlled Congress.

Shepard said his organization has talked with state and congressional
representatives, met with the regional CMS office twice, and sent a
letter to CMS Director Dr. Mehmet Oz.

“We’ve looked at all the levers and we’ve pulled most of them,” Shepard said. “We’re running out of levers to pull.”

Venture capital jumps in

CMS announced in November it has selected six private tech companies to pilot the AI programs.

Some of them are backed by venture capital funds that count larger insurance companies among their key investors.

For example, Oklahoma’s pilot will be run by Humata Health Inc., which is backed by investors that include Blue Venture Fund, the venture capital arm of Blue Cross Blue Shield companies, and Optum Ventures,
a venture capital firm connected to UnitedHealth Group, the parent
company of UnitedHealthcare. Innovaccer Inc., chosen to run Ohio’s
program, counts health care giant Kaiser Permanente as an investor.

Nayak said she knows little about Virtix Health, the Arizona-based
private company contracted by the feds to run Washington state’s pilot
program.

“Virtix Health would have a financial incentive to deny claims,”
Nayak said. “It begs the question, would there be any safeguards to
prevent profit-driven denials of care?”

That financial incentive is a concern in Texas too.

“If, financially, the vendor is going to benefit by the denial, it
could be a problem for our patients,” Shah said. He said that Oz, in a
webinar presentation on the new program, assured physicians that their
satisfaction and turnaround times would be metrics that Medicare would
factor into the tech companies’ payments.