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Billing Fraud and Abuse in Healthcare

In 2020, the federal government won or received more than $1.8 billion in healthcare fraud convictions and settlements (Wolfson et al., 2018). Healthcare fraud is expensive for governments and taxpayers, and it endangers people. Healthcare fraud is defined as the intentional misleading of the healthcare system in order to get illegal services or payments. Excessive pricing is associated with significant healthcare scams. There is a reliance on providers to carry out and charge for medical services legally, yet some commit fraud and create billing claims to gain remuneration. The federal government has developed rules and regulations to combat fraud and punish violators. This study will focus on the critical topics of health care fraud, fraud law, upcoding regulations, and fraud prevention options.

Major Categories of Health Care Fraud and Abuse

Health care providers charge third-party payers, such as Medicare and Medicaid, for the services they provide. It is on to providers to treat patients and file proper billing claims. Fraud is defined as the intentional misrepresentation of services in order to get a more considerable compensation. Health care abuse violates ethical patient care by performing unnecessary medical procedures, billing for services that were not done, and charging erroneously to increase pay. CMS classifies fraud and integrity problems as administrative errors, such as Inaccurate billing, inefficiencies that lead to waste, e.g., profit from unnecessary diagnostic procedures, billing manipulation, and referrals (Moses & Jones, 2019).


Self-referral occurs when a doctor sends business to a company in which the doctor or a member of the doctor’s family has a financial interest and will result in financial advantages. When patients need higher-quality treatment, physicians refer them to other doctors or institutions. Patients should be directed to a place that is ethical and based on objective and medically relevant grounds. Physicians may send patients to institutions for financial gain rather than in the patient’s best interests. When a doctor or corporation purposefully gets money or other compensation in return for direct or indirect recommendations, such as items or services, that are paid for by a government healthcare program, this is referred to as kickback fraud. Doctors are paid to recommend patients to therapy that may or may not be the best choice for them. Giving or getting gifts in exchange for recommendations, obtaining supplier discounts, and renting space or equipment at a fair market value are all examples of kickbacks, depending on the particular service provided.

False Claims and Fraudulent Billing

Fraudulent billing, upcoding, duplicate billing, improper provision of medical treatments, and billing for services not rendered directly influence the cost and quality of treatment. Billing fraud raises insurance premiums, increases treatment costs, and causes significant losses for patients, such as getting therapy or surgery for reasons other than medical necessity (Drabiak & Wolfson, 2020). According to the Federal Bureau of Investigation, fraudulent invoicing accounts for 3% to 10% of total healthcare costs, pushing up prices, generating inefficiencies, and squandering resources (Bauder et al., 2017). Fraudulent billing includes upcoding, charging for services that cost more than the service supplied, disconnecting, charging at each step of the process rather than a single fee, charging for services that were not provided, and manipulating patient records to push treatments. It has been verified that it is not medically necessary. Upcoding is the process of filing a claim to a third-party payer for a more expensive service than the one provided. A 30-minute appointment at the doctor’s office, for example, costs more than a 10-minute visit. Only the amount of service or goods provided to the recipient may be charged (Bauder et al., 2017).

Five Laws Relating to Health Care Fraud and Abuse

Federal False Claims Act

According to the Federal False Claims Act (FCA), anybody who knowingly files a false or fraudulent claim for damages conspires to deceive the government or discovers that they are hiding to avoid making payments to the U.S. government suffers civil penalties. False claims may result in penalties ranging from $5,000 to $10,000, plus four times the amount of money lost. When someone or something observes a false statement and decides to dismiss it intentionally or carelessly, this is referred to as “knowingly” (Wolfson et al., 2018). Drug and medical device manufacturers, managed care providers, hospitals, pharmacies, care groups, laboratories, and physicians paid $2.6 billion in court settlements and verdicts (Nicholas et al., 2020).). In August 2021, the Department of Justice admitted that Sutter Health violated the FCA by providing an erroneous diagnostic rating in order to increase compensation. Sutter Health was aware of the false charges but failed to take the required procedures to identify and address the issue.

Sutter Health agreed to pay $90 million to resolve False Claims Act claims. The company purposefully provides false health information to consumers enrolled in Medicare Advantage programs. Sutter Health has agreed to pay a $90 million fine and engage into a five-year Corporate Integrity Agreement (CIA) with the U.S. Department of Health and Human Services’ Office of the Inspector General. The CIA requires Sutter Health to implement a centralized risk assessment and program of compliance needed and hire an independent organization to review medical records and related patient records at Sutter Health’s Medicare Advantage program (Nicholas et al., 2020).

Anti-Kickback Statute

The Anti-Kickback Statute (AKS) is a federal law that makes it unlawful to intentionally distribute, pay, solicit, or receive money in exchange for promoting or rewarding referrals for patients or services covered by federal healthcare programs. Compensation includes anything of value in exchange for payment, such as money, a service refund, or any other kind of overpayment (Drabiak & Wolfson, 2020). According to the Centers for Medicare and Medicaid Services (CMS), the response has resulted in more claim filing and higher healthcare costs, as well as corruption in medical service alternatives and the incapacity of consumers to pick the best service for their treatment. For violating the AKS, penalties include a $25,000 fine, up to five years in prison, and exclusion from the Medicare and Medicaid programs (Clemente et al., 2018).

The Department of Justice accused Cardiology P.C. of Birmingham, Alabama, of breaching the Anti-Kickback Charter in 2012 by taking money from the Natural Molecular Testing Corporation (NMTC) in exchange for genetic testing and billing Medicare for the service (Bauder et al., 2017). The seller has agreed to pay a fine of $1.1 million. Higher costs, corruption, payment focused on money rather than the quality of care, unfair competition, and unnecessary services may all be the outcome of healthcare failure. The Safe Harbor Rules allow for anti-rollback penalties to be waived. Certain business activities are immune from examination under Safe Harbor law, which also defines permitted financial contacts, such as those between physicians or vendors and other vendors. According to the rule, all monetary transactions between the two entities must be handled at fair market value. For example, a clinic may lease space to another provider. The lease must be equivalent to a comparable space in the area and not based on proposals from the supplier (Wolfson et al., 2018).

Physician Self-Referral Law

The Physicians’ Self-Referral Act, often known as the Stark Act, prohibits doctors from referring patients to facilities where the doctor or a close family receives Medicare or Medicaid compensation (Wolfson et al., 2018). Specialized healthcare services include laboratory services, home healthcare, medical equipment and supplies, inpatient and outpatient treatments, and physical therapy. Financial ties include direct or indirect ownership, company shares, leases between doctors and health care corporations, service contracts, employment contracts, and medical staff benefits. Noncompliance may result in Medicare refusing to pay the doctor or employer being required to refund all payments for illegal referrals, fines, and suspension from the Medicare and Medicaid programs, among other penalties (Nicholas et al., 2020). Each infraction will result in a $15,000 punishment, plus the collection of three illegal payments.

All laboratory tests are sent to the doctor’s laboratory, and he benefits from the advice. A doctor is paid above market value as the medical director of a home health care organization. In exchange for enhanced compensation, doctors recommend their Medicare and Medicaid patients to an outpatient healthcare facility for home health care (Wolfson et al., 2018).

Exclusion Statute

The Office of Inspector General (OIG) has the jurisdiction under the Exclusion Act to lawfully exclude or allow persons and companies to participate in federal health programs. Mandatory exclusions include federal penalties for Medicare, Medicaid, or other government program fraud, patient abuse or neglect, financial health abuse, and criminal penalties for illegal prescriptions. Exemptions from licensing allow the OIG to exempt individuals and businesses for a variety of reasons (Moses & Jones, 2019). The exemption allows the OIG to obtain a conviction for healthcare fraud, student loan default, filing a false application for a federal health program, suspension, revocation, or denial of a license to practice, provision of unnecessary or nonstandard services, and conviction for illegal distribution crimes based on a conviction. Manufacturing of prescription or restricted substances (Moses & Jones, 2019).

Mandatory clearances and exclusions result in exclusion from all federal healthcare programs, inability to collect fees for Medicare and Medicaid patients’ treatment, and inability to collect payments indirectly via employers or group practices (Drabiak & Wolfson, 2020). The exemption might last anywhere from three to indefinitely, depending on the offense and the number of offenders. Doctors who prescribe illegal drugs without a legitimate medical reason may be barred from doing so for five years under OIG restrictions. After breaching the False Claims Act using a coding system, a medical business was forbidden from participating in the government health program for five years.

Civil Monetary Penalties Law

The Civil Monetary Penalties Law (CMPL) gives the Secretary of Health and Human Services the authority to impose civil fines, ratings, and program exclusions for specific types of Medicare and Medicaid fraud and abuse, depending on the seriousness of the act. Sanctions may be up to three times the amount claimed, plus any compensation promised, paid, or received. Knowingly submitting a false application, violating backflow prevention standards, or misrepresenting facts in order to participate in a federal health program are all instances of offenses subject to civil penalties by the OIG (Nicholas et al., 2020). According to the Office of Inspector General, a Nevada health care facility violated the CMPL by hiring a medical assistant who was not permitted to work for a federal health care program and agreed to pay a $13,000 fine (Clemente et al., 2018).

Law Pertaining to Upcoding

Upcoding is a kind of False Claims Act violation. However, since providers are based on the medical diagnosis, length of the doctor’s visit, and complexity of the treatment charged, identification may be difficult. When providers file a claim to a government healthcare program, they ensure that the coding for the services provided is correct. According to the False Claims Act, a provider that knowingly updates the code in order to provide better service is defrauding the government (Nicholas et al., 2020). The E/M code changer 25 is an example of upcoding, which is used to demand overpayment for service despite no significant additional service being provided. The Evaluation and Management (E/M) code is a CPT number that is used for billing and claim filing. The use of several E/M codes demonstrates the complexity of a patient’s visit, and billing must be supported by approved documentation. Using modifier 25, E/M codes may be billed for several services on the same day. Additional treatments that are not often included in the therapy and typical follow-up services immediately after surgery. The provider claims more services by incorrectly adding the 25 modifier to encode the service and get a larger payment. For example, an endocrinologist recodes a routine blood test as an intensive care blood draw and is fined $447,000 (Medicare & Medicaid Services Centers lack of documentation and inaccurate categorization of E/M services to satisfy medical requirements, and the billing of appropriate E/M services (Clemente et al., 2018).

Evidence-based Recommendations to Identify and Address Upcoding

To prevent fraud and abuse, vendors should analyze rules and legislation, assess current or potential exemptions for new and existing individuals in the Office of the Inspector General of the Department of Health and Human Services (HHS), and establish compliance measures. The HHS-primary OIG’s purpose is to urge providers to implement compliance systems that will aid healthcare organizations in avoiding false claims and participating in fraudulent behavior (Drabiak & Wolfson, 2020). The OIG further suggests that written supplier behavior standards and guidelines stress the organization’s need to comply, including compliance as part of employee assessment and addressing possible fraud areas such as claims processing and financial ties with other providers. The compliance officer manages, controls, and instructs employees in the compliance program. Within the hospital, a healthcare fraud reporting system, such as an anonymous hotline or email, should be in place to protect this person from bullying.

The agency performs audits, conformance assessments, violation detection, and areas for improvement. Suppliers may report suspected fraud, waste, and abuse by calling the OIG’s hotline. Anyone may use the hotline to report a potential concern safely and securel. Physicians are reimbursed for their services based on clinical documentation. Accurate and complete supplier documentation aids in correct coding and complaint filing (Wolfson et al., 2018). Erroneous and inaccurate coding may lead to investigations into healthcare fraud and abuse. The Office of Inspector General (OIG) recommends an annual review of medical records in order to investigate the claims process and claims-based payment submissions and identify issues that might lead to noncompliance (Wolfson et al., 2018). The self-assessment confirms the claim’s proper categorization, the legality of the services delivered, full documentation of the maintenance services provided, and verification of the medical necessity for the services.

Healthcare providers and organizations must build compliance procedures, conduct their own claims reviews, have policies in place that outline what to do if errors are discovered, and follow the OIG’s self-assessment approach. The Office of Inspector General (OIG) negotiates a Corporate Integrity Agreement (CIA) with a vendor or firm that commits a violation. The CIA is involved in the counterfeiting enterprise (Moses & Jones, 2019). Organizations agree to comply with CIA criteria, and the OIG agrees that Medicare, Medicaid, and other federal healthcare programs will not be excluded. The basic requirements that the company must meet are the current compliance program and the compliance plan guidelines. The CIA typically lasts five years, and if providers fail to meet the criteria, the OIG will levy financial penalties as well as bar them from participation in federal healthcare programs.

In 2019, Sanford health care providers received reimbursement claims and False Claims Act breaches. Sanford Health agreed to pay $20.25 million and join the CIA with the Office of Inspector General of the Department of Health and Human Services. According to the CIA, Sanford Medical Center adopts a compliance strategy, implements a risk assessment approach, and engages an independent audit company to check Medicare and Medicaid claims (Clemente et al., 2018). The CIA holds the Sanford Medical Center Board of Directors and key senior management people accountable for their billing methods.


Fraudulent billing occurs when an unethical physician or other healthcare provider charges for a service that was not done in order to earn the most significant payment. Upcoding for services rendered, billing for therapy that is not medically necessary, and referring patients for financial assistance are all instances of Medicare abuse. Medicare fraud and abuse have cost states and taxpayers billions of dollars. The Departments of Health and Human Services and Justice collaborate to combat healthcare fraud and to investigate suspected misconduct by suppliers and companies. The federal government enforces state limits to avoid fraud and abuse in government-sponsored healthcare. The federal government has recovered billions of dollars through billing fraud and abuse by enforcing federal laws. The use of encryption is crucial in the prank. Upcoding refers to more thorough claims than claims handled and paid at a higher percentage. The False Claims Act makes this kind of fraud unlawful, and vendors who violate the law risk significant civil and criminal penalties.

The Office of the Inspector General (OIG) has implemented a compliance program to detect and prevent violations. Compliance Strategists conduct frequent audits of billing procedures to ensure that all claims are valid and not fraudulent. Health care facilities should perform self-examinations on randomly selected patients to verify proper billing and supporting documentation in the patient’s medical record. Some vendors cheat governments by making financial decisions such as discounts, fees for services not delivered, or demands for more services than are rendered. Health care providers must give fundamental and essential medical treatment to their patients while also properly presenting the services they provide. On the other hand, some commit bill fraud, causing havoc on the whole healthcare system.


Bauder, R., Khoshgoftaar, T. M., & Seliya, N. (2017). A survey on the state of healthcare upcoding fraud analysis and detection. Health Services and Outcomes Research Methodology17(1), 31-55.

Clemente, S., McGrady, R., Repass, R., Paul III, D. P., & Coustasse, A. (2018). Medicare and the affordable care act: fraud control efforts and results. International Journal of Healthcare Management11(4), 356-362.

Drabiak, K., & Wolfson, J. (2020). What Should Health Care Organizations Do to Reduce Billing Fraud and Abuse?. AMA Journal of Ethics22(3), 221-231.

Moses, R. E., & Jones, D. S. (2019). Health care fraud: Developing a basic compliance plan for your practice. Official journal of the American College of Gastroenterology| ACG114(7), 1020-1021.

Nicholas, L. H., Hanson, C., Segal, J. B., & Eisenberg, M. D. (2020). Association between treatment by fraud and abuse perpetrators and health outcomes among Medicare beneficiaries. JAMA internal medicine180(1), 62-69.

Wolfson, J., Smith, J. L., & Proper, S. A. (2018). Avoiding and managing medicare fraud and abuse investigations of Mohs surgery: Mohs in the crosshairs. JAMA dermatology154(11), 1249-1250.


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