How the DME Industry Can Rise Up 

A Framework for Eliminating Fraud, Reducing Abuse, Cutting Waste, Improving Quality  

and Building a Value-Based Future – Together for Patients 

By Peter Falkson | CEO, Eastern MedTech | May 2026 

 

The DME industry is at a crossroads. Not because of a single bad actor or a difficult regulatory cycle but because of a structural problem that has been building for years, and that CMS has now made unmistakably clear it intends to address with or without the industry’s help. 

This is not a critique of the people in this industry. Most of the operators, clinicians, and companies serving patients with diabetes, COPD, sleep apnea, and incontinence at home got into this line of work for the right reasons. They work hard. They care about patients. And they are caught in a system that was never designed to reward them for doing the right thing. 

This piece is an attempt to name that problem honestly, trace it to its root cause, and propose a framework for solving it not as individual companies competing in a zero-sum game, but as an industry that rises together by aligning around the one thing that should always have been at the center of everything we do: patient outcomes. 

Because here is the reality: if we do not solve this together, CMS will solve it for us. And the solution imposed on us will look very different from the one we could build ourselves. 

The Broken System: How Fee-for-Service Fails Everyone 

Before we can fix the DME industry, we need to understand exactly how its payment model creates the conditions for failure. And the answer is more nuanced than most people realize because fee-for-service does not fail in one direction. It fails in two completely different directions depending on the product. And both failures hurt patients. 

The Oversupply Problem 

For supply-based DME incontinence supplies, CPAP resupply, diabetic supplies, wound care materials providers are reimbursed per unit shipped. That means the financially rational decision is always to ship the maximum allowable quantity, regardless of what the patient actually needs. More units shipped equals more revenue. Whether the patient used the supplies, whether their clinical needs changed, whether the shipment was appropriate none of that affects the economics. 

The result: patients end up with closets full of supplies they did not need. Insurers pay for product that delivers no clinical value. And the DME company genuinely trying to do the right thing watches competitors win on volume while they lose on prudent restraint. The current payment model punishes clinical appropriateness. 

The Under-Service Problem 

For rental equipment – power wheelchairs, hospital beds, ventilators, CPAP devices the economics run in the opposite direction. Rental DME is reimbursed at a flat monthly fee regardless of service level. That means every service call, every equipment check, every patient follow-up, every clinical interaction costs the provider money out of a fixed payment. 

The rational business response is to minimize those interactions. Buy the most reliable equipment available not to serve the patient better, but so you never have to go back. Collect the rent. Minimize the contact. 

Patients on rental equipment frequently receive the device but not the important monitoring, adjustments, education, and follow-up care that determine whether the equipment actually improves their health. That failure is invisible in claims data. It shows up weeks later as a preventable hospitalization a cost that falls on the payer, the healthcare system, not on the DME provider who minimized service to protect margin. 

In neither model is the provider’s revenue connected to whether the patient actually got better or maintained their quality of care. That is the root cause of everything broken about this industry. 

The Consequence: Three Predictable Failures 

When a payment model systematically disconnects provider revenue from patient outcomes, three things become inevitable: 

Fraud 

Low entry barriers combined with high reimbursement rates and limited real-time oversight create ideal conditions for exploitation. CMS’s own data tells the story in unambiguous terms: 

• $1.9 billion in improper DMEPOS payments identified in FY2024 – a 21.4% improper payment rate (CMS DMEPOS Fraud Hot Spot Report, FY2024) 

• Fifteen companies attempted to bill Medicare for over $4 billion in catheters that were never delivered to a single patient – CMS data analytics caught it and prevented all but $41 million from being paid (GAO Report GAO-26-107799, April 2026) 

• CMS data analytics prevented $11.9 billion in potentially fraudulent Medicare payments across FY2022-2024 (GAO-26-107799) 

• A 17% supplier revocation rate – nearly triple the rate of any other Medicare supplier category 

• A nationwide enrollment moratorium on new DMEPOS suppliers imposed on February 27, 2026, because fraud had become so pervasive the system required an emergency brake (Federal Register 2026-03971) 

These bad actors did not just steal from Medicare. They tainted an entire industry of companies trying to serve patients with integrity and they handed regulators every justification they needed to impose sweeping restrictions on everyone. 

Abuse 

Abuse is the problem that does not look like fraud because it is not. Abuse is a good company responding rationally to the incentives it operates within. When fee-for-service pays per unit shipped, oversupplying is not a moral failure. It is a logical business response to a broken payment model. The same is true of under-service in rental categories. 

The distinction matters because the solution to fraud is enforcement. The solution to abuse is incentive realignment. Confusing the two leads to the wrong interventions. 

Administrative Waste 

Prior authorizations. Renewal prescriptions. Claim denials. Appeals. Compliance audits. Documentation requirements. Every piece of this administrative infrastructure exists for one reason: the system cannot trust that what is being billed is what the patient actually needed. 

Prior authorization exists because fee-for-service incentivizes oversupply payers built a gate to slow it down. Audits exist because fraud is rampant investigators built a system to catch it after payment. Renewal prescriptions exist because nobody verified the clinical need was real the first time. 

Every piece of administrative waste is a workaround for a broken payment model. 

This overhead costs DME operators and payers enormous time and money resources that could be spent on patient care. And critically, the best operators bear this burden disproportionately. They invest in compliance. They respond to audits. They navigate the prior authorizations. The bad actors who created the problem have already moved on. 

The Three-Pillar Framework: How We Fix This Together 

The good news is that the solution to fraud, abuse, and waste is not three separate initiatives. It is a single coherent framework where each pillar enables and amplifies the next. Fix fraud, and the trust that makes value-based contracting possible begins to rebuild. Fix abuse through value-based care, and the compliance machine loses its reason to exist. The result is a compounding effect that benefits every stakeholder in the system payers, providers, patients, and physicians. 

Pillar 1: Use AI and Large Language Models to Eliminate Fraud Before Payment 

The federal government has already shifted its approach. CMS has moved away from the traditional ‘pay and chase’ model toward a ‘detect and deploy’ strategy using AI to flag suspicious billing before payments go out. Medicare program-integrity savings rose 59% in FY2025, from $26.3 billion to $41.9 billion, partly driven by AI-enhanced screening (CMS / GAO-26-107799). The DOJ’s 2025 National Healthcare Fraud Takedown charged 324 defendants with $14.6 billion in intended losses DME fraud featured prominently throughout. 

The technology available today goes significantly further. Large Language Models (LLMs) trained on enrollment data, billing patterns, ownership structures, and claims history can identify fraudulent actors at four distinct intervention points: 

Step 1: Stop Fraud at Enrollment 

The current system enrolls first and investigates later. That is the original sin of DME fraud. LLMs trained on enrollment patterns, ownership histories, billing relationships, and prior exclusion data can score every new applicant before a provider number is issued flagging statistical outliers and requiring human review of high-risk profiles before they ever enter the system. 

Peer-reviewed research confirms this approach works: AI models trained on Medicare claims data have demonstrated a 52% increase in fraud detection accuracy and a 40% reduction in manual audits (Journal of Computer Science and Technology Studies, 2025). 

Step 2: Pre-Payment Claim Screening 

For providers already in the system, pre-payment anomaly detection is the most powerful intervention available. LLMs can evaluate every claim against three questions simultaneously: What did this provider bill last month and last year? How does that compare to legitimate peers serving the same patient population? Does this claim make clinical sense for this specific patient’s diagnosis and history? 

If any signal is out of range flag it, hold it, require review. Not a denial. A hold. Sixty seconds of AI review before payment versus months of investigation after. Credit card companies flag suspicious transactions in milliseconds. The same logic applies to DME claims. 

Step 3: Detect Abuse in Real Time 

AI can address abuse patterns that sit below the threshold of fraud. For supply-based categories, LLMs can compare what was shipped against what clinical evidence indicates this patient actually needs reviewing every order, every time, against an evidence base of what similar patients actually utilize. 

For rental equipment, AI can monitor service interaction frequency against clinical care protocols flagging patients who are overdue for follow-up and making under-service as visible and accountable as oversupply. 

The Downstream Effect on Administrative Waste 

Fix fraud at enrollment and pre-payment and you no longer need the audit infrastructure built to catch it after the fact. That infrastructure the RAC audits, the compliance reviews, the OIG investigations exists because the system pays first and asks questions later. Eliminate the fraud and the system can begin to trust its own participants. The policing apparatus loses its purpose. 

Even in the transition period, LLMs can automate the administrative burden that currently consumes 20 to 30 percent of DME operational costs. An AI that understands payer policy, clinical guidelines, and patient records can process a prior authorization in seconds, predict a denial before submission and correct it automatically, and draft an appeal with the clinical evidence already assembled. 

Pillar 2: Pivot from Fee-for-Service to Value-Based Care 

Eliminating fraud is necessary but not sufficient. As long as the underlying payment model rewards volume over outcomes, the conditions for abuse will persist. The structural fix is a pivot to value-based care a model where every stakeholder in the DME ecosystem is rewarded for the same thing: the patient getting measurably better or maintaining their quality of care. 

This is not a distant vision. As of January 2025, 53.4% of traditional Medicare beneficiaries are already in value-based arrangements a 4.3 percentage point increase in a single year (CMS, January 2025). The policy direction is established. What is missing is the consistent extension of value-based contracting to DME specifically. 

What Value-Based Alignment Looks Like 

Under a value-based care model, the four stakeholders who currently operate with misaligned incentives align around a single shared goal: 

• The DME company is reimbursed for verified patient health outcomes, not units shipped or service calls minimized. Oversupplying hurts the outcome score and the revenue. Under-servicing a patient who subsequently gets hospitalized hurts the outcome score and the revenue. The only path to full reimbursement is getting the patient better. 

• The insurance company saves money through reduced hospitalizations, fewer medical complications, and lower long-term chronic disease costs the direct result of DME providers who are financially incentivized to actually manage patient care. 

• The patient receives clinically appropriate care the right product, in the right amount, with the right level of monitoring and support because the provider’s business model depends on it. 

• The physician’s quality metrics reflect actual patient health outcomes, because the DME partner they referred to is now accountable for those outcomes in a way that was never true under fee-for-service. 

The evidence that this model works already exists at scale. The Medicare Shared Savings Program documents average savings of $20,000 per patient annually through coordinated, outcome-focused care. CVS Oak Street Health value-based clinics achieved hospital admission rates of 171 per thousand members versus the Medicare benchmark of 303 a 44% reduction in one of healthcare’s most expensive cost drivers. 

Pillar 3: Scaled Economies Shared The Costco Model Applied to DME 

Once fraud is eliminated and incentives are realigned, a third and perhaps most powerful dynamic emerges: the structural efficiency savings generated by a cleaner, better-aligned system can be redistributed across all stakeholders rather than captured as margin by any single party. 

Think about how Costco operates. Costco does not maximize revenue by charging members more. It buys at scale, eliminates operational waste, and passes savings through to members creating a model where Costco’s financial success is structurally tied to member value. When members win, Costco wins. The incentives are identical. 

The same architecture can be applied to DME: as the industry operates at scale under value-based contracts with fraud eliminated, abuse curtailed, and administrative overhead reduced structural cost efficiencies accumulate. Redistributed rather than extracted: 

• A portion reinvested in patient outcomes remote monitoring technology, patient education programs, clinical care coordination for high-need populations 

• A portion returned to payers as cost reduction lowering per-member DME spend below the jointly established baseline 

• A portion shared with providers and patients creating aligned incentives across the full care ecosystem 

• A portion retained by DME operators as sustainable, performance-based margin that rewards outcomes rather than volume 

This is how the DME industry breaks the Iron Triangle the long-held belief that quality, access, and cost cannot all improve simultaneously. Technology-enabled efficiency at scale is one of the few mechanisms that can expand all three corners at once. 

When fraud savings reduce the cost base, when abuse detection frees clinical capacity, and when administrative waste collapses as a consequence of both the resources freed can be reinvested in the patients who were supposed to be at the center of this industry from the beginning. 

The Lobbying Problem: We Know What We Want But Not Why CMS Is Acting 

Every year, DME trade associations travel to Washington to represent the industry. The people doing this work genuinely care about the companies and patients they represent. The effort is real and the frustration behind it is legitimate. 

But there is a strategic problem with the current approach that the industry needs to confront honestly. 

CMS has been extraordinarily transparent about what it sees and why it is acting. The data is public. The language is unambiguous. A 21.4% improper payment rate. A 17% supplier revocation rate nearly triple any other category. A nationwide enrollment moratorium. These are not arbitrary regulatory actions. Every restriction, every audit requirement, every documentation burden has a documented why behind it. CMS handed the industry its diagnosis in plain language. 

The industry’s lobbying response has focused on the what rate increases, moratorium relief, rollback of documentation requirements, exceptions for established providers. For compliant operators who built legitimate businesses, some of these asks represent genuine and understandable grievances. 

But here is the strategic reality: CMS walked into that room knowing the 21.4% improper payment rate. They imposed the moratorium because they had no other lever powerful enough to stop the bleeding. When the industry responds by asking for more rates and fewer restrictions without acknowledging a single problem CMS told us it has the conversation goes nowhere. 

When you ask for the what without addressing the why, the answer will be no. 

This is not a criticism of the people lobbying for the industry. It is a strategic observation about what a more effective approach could look like. 

What a Different Conversation Could Look Like 

What if the DME industry walked into Washington not just with what it wants, but with solutions to the problems CMS told us it has? 

Not ‘increase our rates’ but ‘here is an enrollment screening framework using AI that eliminates the bad actors driving your 21.4% improper payment rate.’ 

Not ‘lift the moratorium’ but ‘here is how we make the moratorium unnecessary by screening every new applicant algorithmically before a provider number is issued.’ 

Not ‘reduce documentation requirements’ but ‘here is how value-based contracting replaces prior authorization with outcome measurement that costs both sides less and delivers better clinical data.’ 

That is a fundamentally different conversation one that positions the industry as a partner in solving the problem rather than a constituency defending the status quo. CMS might engage with that conversation very differently. Because it addresses what they actually said the problem is. 

The DME companies that earn the trust of regulators, payers, and patients over the next decade will not be the ones that lobbied hardest to preserve the status quo. They will be the ones that came to the table with solutions and demonstrated that the industry is capable of governing itself toward better outcomes. 

The Path Forward: Rising Together 

The framework described in this piece eliminating fraud through AI, reducing abuse through value-based care, and allowing waste to collapse as a natural consequence is not a theoretical proposal. It is a practical operating model built on documented evidence, existing technology, and a policy environment that is actively moving in this direction. 

But it will not happen if each company in the DME industry treats this as a zero-sum competition. The bad actors who created the fraud problem did not ask permission from the good operators before destroying the industry’s credibility. The regulatory response to their behavior lands on everyone. The solution has to be collective as well. 

The Compounding Logic 

Fix fraud pre-payment AI replaces post-payment investigation. Audit costs collapse. Fix abuse value-based care replaces prior authorization as the mechanism of restraint. Approval costs collapse. Both together the infrastructure built to police a broken system loses its purpose. Waste collapses. The resources freed on both sides get reinvested where they have always belonged. In the patient. 

Eastern MedTech is committed to this new model now. We serve patients with diabetes, COPD, sleep apnea, and incontinence at home, and we are actively structuring value-based contracts where our reimbursement is tied to verified patient outcomes not units shipped, not rent collected. 

To payers: we are ready to structure outcome-based contracts today. We will accept lower base reimbursement in exchange for performance-based upside tied to verified patient outcomes. We will share in the savings we generate together. That is not a future concept. That is a contract structure we are prepared to sign. 

To fellow DME operators: the direction CMS is moving is not ambiguous. The moratorium, the fraud data, the revocation rates these are signals, not threats. The companies that will lead this industry over the next decade are the ones building toward what comes next. Eastern MedTech is building. The door is open to anyone who wants to build it together. 

To the broader healthcare community payers, physicians, patient advocates, policy makers: the DME industry has the expertise, the patient relationships, and the operational capability to be a meaningful partner in chronic disease management and home-based care. What has been missing is the payment model and the incentive structure that allows that potential to be realized. We are working to build both. 

This industry has everything it needs to rise. The technology exists. The evidence is there. The policy direction is clear. All that is missing is the decision to move together. 

Citations and Sources 

All statistics cited in this article are drawn from primary government and peer-reviewed sources: 

CMS National Health Expenditure Data, 2024 – U.S. DME market size ($78 billion) 

CMS DMEPOS Fraud Hot Spot Report, FY2024 (cms.gov) – $1.9 billion improper payments; 21.4% improper payment rate 

GAO Report GAO-26-107799, April 2026 (gao.gov) – catheter billing scheme; $11.9 billion in fraud prevented FY2022-2024 

Federal Register 2026-03971; CMS Press Release, February 25, 2026 – nationwide DMEPOS enrollment moratorium 

CMS / Medical Economics, 2026 – 17% DMEPOS supplier revocation rate 

CMS, January 2025 – 53.4% of Medicare beneficiaries in value-based arrangements 

Medicare Shared Savings Program published data – $20,000 average annual savings per patient 

CVS Health / Oak Street Health, September 2024 – 44% reduction in hospital admissions vs. Medicare benchmark 

Journal of Computer Science and Technology Studies, 2025 – 52% fraud detection accuracy improvement; 40% reduction in manual audits 

CMS / GAO-26-107799, 2025 –  Medicare program-integrity savings rose 59% in FY2025 to $41.9 billion 

DOJ National Healthcare Fraud Takedown, 2025 – 324 defendants; $14.6 billion in intended losses 

42 CFR Part 414 – CMS DMEPOS payment policy for rental equipment 

About Eastern MedTech 

Eastern MedTech is a specialized DME company serving patients at home across chronic disease populations: diabetes, COPD (home oxygen and non-invasive ventilation), sleep apnea (CPAP), urology, incontinence, and maternal health. We are committed to advancing value-based care in the DME sector and to building the collaborative framework described in this article. 

To start a conversation about value-based DME contracting, industry collaboration, or the ideas in this article, reach out at heather.davis@easternmedtech.com or peter@easternmedtech.com. 

Visit: www.easternmedtech.com.