Medicare's AI review vendors earn money for denials, nothing for approvals

Records show the Washington vendor denied 53 percent of its decisions through 30 March and the Arizona vendor 19 percent. The payment rules explain why neither denial rate faces a prompt financial check.

Medicare's new prior authorization program pays its vendors when they say no. An approval earns them nothing.

Through 30 March 2026, the vendor covering Washington state denied 53 percent of its decisions. The vendor covering Arizona denied 19 percent. Both figures come from a March report by Medicare's own contractor, released in records obtained by the Electronic Frontier Foundation. The payment rules explain why neither denial rate faces a prompt financial check. A denial cannot be appealed, only resubmitted, so the one check left is slow.

The program is called WISeR. It runs in traditional Medicare, not Medicare Advantage, and CMS says it runs from 1 January 2026 to 31 December 2031. The six states are Texas, New Jersey, Oklahoma, Ohio, Washington and Arizona. Despite the "Human in the loop" label, accountability depends on two design choices. One is how the vendor is paid when the answer is no. The other is whether the person hit by that answer can appeal.

How the payment formula works

CMS's Participant Guide sets the pay. It starts with a regional benchmark cost for the service. CMS cuts that by the state's 2025 medical necessity denial rate. Vendors earn 25 percent of the result on each payable denial, times a quality multiplier of 1.00, 0.95 or 0.90.

Take a net benchmark of $1,000. Our arithmetic gives $250 at a full quality score, $237.50 in the middle band and $225 in the lowest. The whole quality system moves a denial's pay by at most $25. A vendor scoring below 60 percent still earns 90 cents of every dollar. An approval pays $0.

CMS's own actuaries had warned about this incentive. Their pre launch memo said participants are paid on claims denied. It said they "will have an incentive to deny as many claims as possible." The memo assumed a sharing rate of 10 to 20 percent. The final rate is 25. The agency's FAQ says quality scores discourage denials, yet the table caps the penalty at 10 percent.

Resubmission and appeals

The available check on denials takes time. CMS's Operational Guide says a denied prior authorization "would not be appealable." The provider may resubmit without limit. Or it can give the care, bill Medicare and appeal the resulting claim denial. Before doing so, the provider should have the patient sign an Advance Beneficiary Notice, a form warning that Medicare may not pay.

Two things claw back a vendor's payment. One is a resubmission affirmed within 120 days. The other is a claim Medicare pays after a successful appeal, which CMS recoups even after paying the vendor. Only the appeal route needs the care to be delivered first. A patient who skips treatment after a denial never triggers it, so the vendor keeps the payment.

The March report shows what the rule produced. The two vendors issued 5,944 non-affirmations on 20,397 decisions, or 29 percent. Washington's rate was 2.8 times Arizona's. From here, "denials" means non-affirmations.

Noridian, the Medicare contractor that wrote the report, put Arizona's 81 percent affirmation rate down to what "may reflect submission type, provider familiarity, or workflow maturity." It called Washington's gap a trend that "warrants continued monitoring and targeted provider education efforts." A pay per denial contract pays the same whether a denial reflects provider behaviour or clinical merit.

Arizona's vendor carried 1,522 pending decisions at the report date, 98 percent of the backlog. Washington's carried 31.

Oversight and possible expansion

CMS has been pressing vendors. The Electronic Frontier Foundation sued for the records and published more of them on 27 October. They show CMS sent information requests or corrective action plan demands to at least four of the six vendors in the first three months.

Innovaccer, a third vendor, drew two corrective action plan requests. On 20 February it received a performance notice of non-compliance over a portal that was not fully functional. Zyter uses Palantir software infrastructure.

On 17 March CMS asked the Washington vendor, Virtix, about "denials that appear inaccurate or inconsistent with applicable criteria."

On 27 February CMS told the Arizona vendor, Zyter, it was "not issuing determination letters in a timely manner."

Congress is also pushing. The Ways and Means Committee rejected, 18 to 19, an amendment from Representative Suzan DelBene to force release of the Washington audit. She announced a records request for it on 5 October. In June, CMS ordered the Washington vendor to submit a corrective action plan after an audit.

The Senate voted 46 to 50 against a Congressional Review Act resolution to end the program. House appropriators added language to a Health and Human Services funding bill that would block funding for the model. The program touches nearly 6.5 million patients on traditional Medicare.

The results could support expansion of the program. A June 2025 CMS investment plan, quoted by Bloomberg Law on DelBene's site, makes the point. It says that if the model reduces spending, precedent "would strengthen the case for certification, regardless of evaluation results." A CMS spokesperson said the paragraph concerns one component of the evaluation process. CMMI director Abe Sutton said in September the agency will "closely monitor it and learn from its lessons before we look to expand."

The Home Office's asylum summariser is built differently. It summarises interview transcripts as an aid. Its evaluation says decision makers "cannot use the tool by itself to make a decision." In pilots from May to December 2024 it saved 23 minutes a case, and 9 percent of summaries were removed as inaccurate or incomplete.

What denials cost providers

For a hospital or device supplier in the six states, the cost of a denial depends on the claim, not the call. Delivering care after a denial means waiting for a claims appeal and carrying the risk of nonpayment. Resubmission inside 120 days is the cheaper route, and it also wipes out the vendor's payment.

A reversal has two effects: the provider gets its authorization and CMS stops paying the vendor. That is the only price signal the pay design carries against a wrong denial.

The first payment review is already scheduled. Performance period 2 ended on 30 June, its last resubmission day is today, and CMS may reconcile it from 28 October. Period 1 (January to March) has been reconcilable since 29 July.

CMS pays only for denials that survive two tests: no reversal on resubmission within 120 days and no payment on appeal. The share of first-half denials that survive is what the 25 percent rate paid for. Period 4 reconciles from 30 April 2027. CMS says it will weigh quality and beneficiary access findings before any expansion.