Back To HEALTHCARE FRAUD
Healthcare fraud can take many forms. One of the most common is known as upcoding, which is submitting improper medical codes to government healthcare programs to improperly increase reimbursement. Healthcare providers that upcode may be liable under the False Claims Act, a law that empowers whistleblowers to detect and expose fraud against the government.
Medical billing is generally done through a standard series of codes. The goal of a coding system is to make billing more standardized and predictable.
Submitting codes for services that are more expensive than those that were actually performed, or for services that were never performed at all, is known as upcoding.
To understand the specifics of upcoding, a bit of background on Medicare and medical billing is useful.
Medicare coverage generally falls into four categories, called Medicare Parts A, B, C, and D.
Medicare Parts A and B are generally known as “traditional” Medicare. Medicare Part A generally covers hospital stays and Medicare Part B generally covers physician visits. Reimbursement for services provided under Medicare Parts A and B is generally through what is known as a “fee-for-service” model—Medicare acts as the insurer and pays a medical provider for each service they perform.
Medicare Part C, also known as Medicare Advantage, also pays for hospital stays and physician visits, just like Medicare Parts A and B do. But Medicare Part C is a managed care program, which means that it pays for those services in a very different way than the fee-for-service model that Medicare Parts A and B use. In Medicare Part C, the government pays private insurers to administer a defined set of healthcare services. But instead of paying for each service, Medicare pays the private insurer premiums to provide all the services that Medicare beneficiaries need. Those premiums are “risk adjusted” based on the population an insurer covers, with sicker and older populations drawing higher premiums than younger and healthier ones. The Centers for Medicare and Medicaid Services (CMS), the federal agency that administers Medicare, sets the rates that private insurers receive.
Medicare Part D covers pharmaceutical drugs and is not discussed on this page. Here is how upcoding, an unlawful medical coding and billing practice, works under Medicare Parts A, B, and C.
Medicare Part A generally covers hospital stays. Inpatient hospital stays are billed using a coding system based on Diagnostic Related Groups, or DRGs. A DRG is a code that categorizes a hospital stay by a patient’s diagnoses and the treatments that patient may need. For example, in 2024, DRG 062 is the code for treatment of an ischemic stroke, while DRG 101 is the code for inpatient treatment of headaches.
DRGs affect Medicare reimbursement through a Case Mix Index (CMI). Each DRG is assigned a relative weight, with those that are riskier, harder to perform, or costlier to execute, drawing a higher value. Those relative weights add up to a CMI. The higher a hospital’s CMI is, the higher its Medicare reimbursements from CMS will be. Hospitals may have an incentive to falsely code DRGs to appear more complex or more resource intensive to increase their CMI and get high reimbursement from CMS. Upcoding DRGs in this way may violate the False Claims Act.
In some states, DRGs can also be modified by a Major Complication or Comorbidity (MCC) or a Complication or Comorbidity (CC). These are health conditions that make certain DRGs more expensive or resource intensive to treat, compared to if those health conditions were absent. For example, it’s more resource intensive to treat major chest trauma in a patient with a MCC such as diabetes (DRG 183) than it is to treat major chest trauma in a patient that does not have diabetes (DRG 185). Falsely coding MCCs and CCs to increase a hospital’s CMI results in improper medical billing that also may violate the False Claims Act.
Another common medical coding fraud scheme in Medicare Part A is called “unbundling.” CMS requires that hospitals and other healthcare providers bill for certain procedures as a bundle, getting one payment for a number of related services. Unbundling is billing for those related services separately, which can result in higher, improper payments that may violate the False Claims Act.
Some examples of medical billing and coding cases involving Medicare Part A include a home healthcare company (home healthcare, in addition to hospitals, is covered under Medicare Part A) in New York paying $57 million to resolve allegations it had not provided all services the government paid for; a Florida-based hospital chain specializing in inpatient rehabilitation paying $48 million to resolve allegations of billing for medically unnecessary services and services never performed (partners Hamsa Mahendranathan and Max Voldman were part of the team that represented that whistleblower), and a Tennessee hospital paying over $1.7 million to resolve allegations that it coded MCCs and CCs of stroke, pneumonia, and sepsis.
Medicare Part B generally covers physician visits. A physician visit under Medicare Part B is generally billed using a Current Procedural Terminology (CPT) code. There are thousands of CPT codes that cover many, many procedures, from standard physicals to outpatient surgeries to anesthesia.
CMS reimburses a healthcare provider a different amount for each CPT code. Healthcare providers can further modify a CPT code, and the payment the provider receives from Medicare for the procedure. CPT code modifiers are based on who performs the procedure (a MD generally draws a higher reimbursement than a NP, for instance), the location where the procedure is performed, and a number of other factors. In 2024, examples of CPT codes include 97036 (hydrotherapy) and CPT 78445 (vascular flow imaging).
The simplest medical billing fraud scheme under Medicare Part B is billing for services that were never provided. This can mean completely fabricating a patient visit and billing Medicare for it, or it can mean billing the government for several services when only a single service was actually performed.
Another common scheme is exaggerating the CPT code, performing a procedure but billing for it using a CPT code that is for a different procedure but draws a higher reimbursement. An example of this scheme involves a subset of CPT codes called Evaluation and Management codes (E&M codes). E&M codes are codes used to bill for services that involve evaluating and managing a patient’s health. The reimbursement for E&M codes depends on several factors, including the time spent with a patient, whether the patient is new or established, and how many body systems a provider evaluates in a visit. Exaggerating the time or complexity of evaluation and management services beyond what is true or medically necessary is E&M upcoding, which may also violate the False Claims Act.
Billing for services not performed, exaggerating the time spent with a patient, or fabricating the credentials of the provider that performed the service—all done to pocket additional reimbursement from CMS—are examples of medical coding and billing fraud that may violate the False Claims Act.
Some examples of medical billing and coding cases involving Medicare Part B include a Southern California urology practice paying $2 million to resolve allegations that it improperly used CPT modifiers to boost reimbursement (partners Mary Inman, Mike Ronickher, and Max Voldman represented that whistleblower), a Michigan vascular surgeon paying $44 million to resolve allegations of outpatient surgeries never performed, and a Texas ear, nose, and throat provider group paying nearly $1 million to resolve allegations of upcoding the severity of their E&M visits.
Medicare Part C, or Medicare Advantage, is a managed care program in which the government pays private insurers to administer a defined set of healthcare services. Those insurers then administer the program on behalf of Medicare beneficiaries who opt into the program. The amount of premium paid is generally determined by the health status and demographics of the insured population.
Demographic information, like a person’s age or gender, is hard to fake. But health status is a different story. The insurers who administer the program, called Medicare Advantage Organizations, or MAOs, have strong incentives to make the beneficiaries they cover look as diseased as possible to boost the premiums that CMS pays the insurers.
Coding in Medicare Part C relies on diagnosis codes, which are also known as International Classification of Disease (ICD) codes. There are tens of thousands of ICD codes. A group of ICD codes corresponds to generalized categories of healthcare conditions known as Hierarchical Condition Categories (HCCs). For example, in 2024, HCC 9 includes several diagnosis codes that correspond to the condition of “lung and other severe cancers.” Medicare Part C’s reimbursement system gives each HCC a relative weight. The sum of the relative weights for each beneficiary that an MAO insures determines how much CMS pays that MAO.
There are a few common medical coding schemes in Medicare Part C. An insurer or provider can simply fabricate diagnosis codes to make a patient population look less healthy, which may improperly increase premiums. Another common scheme is what’s known as “chart review.” In it, a MAO mines patient medical records to find additional diagnoses codes that increase premiums, but ignores erroneous diagnosis codes that would lower the premiums the government pays.
Falsely exaggerating the sickness level of a patient population that a MAO insures to get higher premium payments from CMS may violate the False Claims Act.
Some examples of medical billing and coding fraud cases involving Medicare Part C include a California hospital chain, which was paid a revenue share percentage of premiums that insurers whose patients it treated collected, paying $90 million to resolve allegations that it datamined patient charts without correcting errors discovered in the process (partners Poppy Alexander and Hamsa Mahendranathan represented the whistleblower that brought the case), a Florida health plan paying $32.5 million to resolve allegations of submitting unsupported diagnoses to CMS (partner Mary Inman representing the whistleblower that brought the case), and a Seattle-area health plan paying $6.375 million to resolve allegations it submitted diagnoses that were not supported by the beneficiaries’ medical records to inflate the payments that it received from CMS (partners Mary Inman, Mike Ronickher, and Max Voldman represented the whistleblower who brought the matter).
Healthcare fraud can take many forms. One of the most common is known as upcoding, which is submitting improper medical codes to government healthcare programs to improperly increase reimbursement. Healthcare providers that upcode may be liable under the False Claims Act, a law that empowers whistleblowers to detect and expose fraud against the government.
Schemes to game the rules can be extremely complex and look different than those discussed here. This page does not cover all, or even the majority of, medical and billing fraud schemes.
What’s important to know is that any scheme in which inaccurate billing leads the government to pay more than it otherwise would may violate the False Claims Act. And due to the complicated and often opaque nature of medical billing, insiders are necessary to prevent and detect fraud.
Under the FCA, whistleblowers can bring lawsuits against healthcare providers, insurers, and others who are engaged in fraud. As an incentive, whistleblowers can be rewarded 15-30% of the amount the defendant ultimately pays the government as a result of the case.
Whistleblower Partners has secured multiple high-profile wins in healthcare coding and billing fraud matters and can help you assess whether you might have a case. If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.
These descriptions of medical billing and coding fraud schemes are general in nature and do not constitute legal advice. Upcoding fraud is complex and ever-evolving. The attorneys at Whistleblower Partners understand the complicated, constantly changing legal landscape and are happy to discuss any potential matter further.
If you would like more information or would like to speak to an attorney at Whistleblower Partners, please contact us for a confidential consultation.
