The Law Firm of Piacentile, Stefanowski & Malherbe LLP
Upcoding — Health care and Medicare Fraud

Upcoding — Health care and Medicare Fraud

Upcoding is a type of fraud where healthcare providers submit inaccurate billing codes to insurance companies in order to receive inflated reimbursements. These false “current procedural technology” (CPT) submissions indicate that doctors provided patients with treatments that were more complex, costly, and time-consuming than what they actually received. This unlawful scheme is a violation of the False Claims Act (FCA) because it defrauds federal programs including Medicare, Medicaid, and Tricare.

How does Upcoding work?

There are nearly 7,800 CPT codes used by healthcare providers. Collectively, these codes represent all of the procedures, conditions, and drugs that are currently reimbursable by the health insurance industry. Each one of them has an associated cost for individuals and insurance companies, based upon the urgency of the issue and the complexity of the decision-making required of the healthcare provider. Medicaid and Medicare reimburse providers based on this system.
For example, a five-minute consultation with a nurse for a minor medical question would receive a different, less expensive CPT than the one for a full examination by a doctor lasting 45-minutes. However, if the physician charges the federal programs for the more expensive 45-minute examination when the five-minute consultation is what actually occurred, this would constitute upcoding


Unbundling is another common form of upcoding. This fraudulent scheme involves billing for individual procedures that are usually performed and billed together under a single CPT code. In some cases, the billing codes for complicated medical operations have associated components built into their CPTs. For example, a hip replacement surgery may factor in the costs of the surgeon’s as well as the use of the operating room. Unbundling occurs when a healthcare provider submits each component within a CPT to Medicare or Medicaid separately. This creates a cost redundancy where wrongdoers can unlawfully seek reimbursement for the same procedure several times over.

The Cost and Dangers of Upcoding

Upcoding is one of the most costly and pervasive types of healthcare fraud. Between 2002 and 2012, it cost publicly-funded medical assistance programs an estimated $11 billion dollars. These are not victimless crimes, as they place undue strain on a social safety net that millions rely upon for their basic medical needs.

Recognizing the heavy cost of these illegal schemes on the US taxpayer, the US Department of Justice (DOJ) has made the prosecution of medical fraud one of its top priorities in recent years. It has robustly enforced the (FCA) against healthcare providers who engage in upcoding, and has established a reward system to encourage whistleblowers to expose this type of Medicare fraud.

Identifying and Reporting Upcoding

Upcoding can be difficult to detect. Medical diagnoses, the length of office visits, and the complexity of treatments are left to the discretion of healthcare providers. Individual cases of this criminal behavior, or even small clusters of them, can be nearly impossible to find or prove. Frauds can be even more pervasive and more difficult to uncover in large institutions like laboratories or hospitals, which have greater ranges of procedural options and where Medicare billing tends to be lax.

Emergency rooms, in particular, are a common site of misrepresentation, and are estimated to cost the U.S. Government an extra $1 billion per year. Further complications may arise with the use of Electronic Health Records (EHR), which can be prone to error and are easier to alter than traditional methods. Moreover, electronic records remove doctors further from the coding process and place it more firmly under the review and control of hospital administrators.

While excessive institutional scams may lead to billing anomalies that could be noticed by investigative agencies, qui tam whistleblowers remain the best tool for discovering widespread fraudulent practices. Physicians, accountants, administrators and the executives of medical institutions are the people most frequently in the position to take a step forward and report the crime.

Examples of Upcoding Fraud

GlaxoSmithKline pays $325 million

In April 1998, GlaxoSmithKline settled with the DOJ over civil charges. With the critical aid of SKB employee and whistleblower Robert Marena, the government learned of a scheme where the lab “bundled” a number of blood tests together under one cheaper billing package, assuring providers that this would not raise Medicare prices. However, once the tests had been processed by the lab, SKB “unbundled” the package and billed the federal program for each one separately, including the ones that the doctors had never ordered. Five years later, a qui tam settlement was reached with SKB for $325 million. Marena and the two other chief relators split $52 million.

Community Health Systems commits upcoding

In May 2000, Community Health Systems hospital chain paid out $31 million for systematically upcoding Medicare/Medicaid/Tricare throughout the mid-1990s.

The largest FCA case in history

In what remains the largest False Claims Act case in history, on June 2003, the Justice Department obtained $1.7 billion from HCA for a vast conspiracy of criminal fraud, including upcoding. Whistleblower John Schilling was among 30 others who split a record $151,591,500 between them.

The Sound Inpatient Physicians settlement

In July 2013, Sound Inpatient Physicians settled claims with the US government for $14.5 million. Craig Thomas, the company’s former VP of Regional Operations, was granted a qui tam award.

IPC Healthcare current lawsuit

In June 2014, the US government filed a civil suit claiming that healthcare provider “IPC: The Hospitalist Company” (renamed “IPC Healthcare” after the case was filed) engaged in large-scale, systemic violations of the FCA, driven by the publicly-traded company’s culture of maximizing profits. Aided by a company employee who worked for IPC between 2003 and 2008, the government’s lawsuit alleges that the hospital chain encouraged its doctors to bill at the highest levels regardless of the level of service provided, pressuring them with lower billing levels to ‘catch up’ to their peers. With 2,500 employees in 1,900 affiliated facilities across 28 states, this costs of mass unlawful schemes added up very quickly. The lawsuit remains in court, although the potential fine would be considerable given the duration and scale of the fraud.


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