Medicare Upcoding and Unbundling

When submitting claims to Medicare and Medicaid for reimbursement for services rendered to patients, healthcare providers enter certain numerical codes which represent specific services provided. These codes are known as HCPCS codes. “Upcoding” refers to a fraudulent practice of entering codes that represent more expensive services than the ones actually rendered and that are not supported by physician documentation in the patient’s medical record. Many of these fraudulent codes are not detected because random audits are only performed on about 2% of all Medicare and Medicaid claims in a given year. Since this conduct causes the government to overpay healthcare providers, it can be a violation of the FCA. By some estimates, upcoding alone costs the taxpayers billions of dollars.

Additionally, some codes represent a bundle of services that are usually performed together, such as a group of routine laboratory tests. When entered as a bundle, the government will pay less than if the codes were entered individually. In some cases Medicare and Medicare require that certain bill codes be used to obtain reimbursement for these group tests. Some healthcare providers defraud the government by “unbundling” these codes and entering the services individually (also called “fragmentation”). This is especially prevalent in a clinical laboratory setting where certain panels of tests are so routinely ordered and performed by physicians that the group tests are assigned separate billing codes. For example, clinical labs routinely perform Complete Blood Count (“CBC”) testing when ordered by a physician. These tests consist of analyzing over a dozen platelets, enzymes, and minerals in the blood. Since a CBC is such a commonly ordered test, labs use a standardized code when they conduct it. In an unbundling scheme, providers or clinicians would bill each of these tests separately. This again causes the government to pay more than required based on a fraudulent billing practice and can violate the FCA.


A former director of radiation oncology at Melbourne Internal Medicine Associates (MIMA) blew the whistle on a scheme involving several fraudulent billing practices. For instance, when submitting reimbursement claims to Medicare using Medicare’s system of numerical codes, MIMA doctors entered incorrect codes representing more expensive services than those actually rendered. In addition to this system of “upcoding,” MIMA doctors also billed Medicare for medically unnecessary services and services not rendered. MIMA ended up settling with the U.S. government for $12 million, and the whistleblower received an award of $2.64 million.


In 2002, Roger Williams Medical Center in Providence, Rhode Island, agreed to pay $400,000 to settlement allegations of Medicare fraud related to “upcoding” a pneumonia diagnosis code. The use of the more expensive diagnosis code was not supported by physician documentation in the medical record and resulted in false claims submitted to Medicare for reimbursement.


In 2008, Acculab Laboratories and its owner agreed to pay the government $461,000 to settle allegations that it submitted false claims to Medicare in a scheme that included services that were not rendered, were not medically necessary, and that were improperly unbundled. The whistleblower in the case received $92,200 of the settlement.

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