What is Health Care Fraud

Health Care Fraud Definition

Health Care Fraud Laws You Need To Know

Americans have seen their healthcare costs rise over the past few decades, although “rise” is a gentle way of putting it. This rise was first seen in the 1970s when HMOs (a business management approach that was introduced to healthcare) began to take over the healthcare industry. Since that time, costs have sky-rocketed to the point where the healthcare industry in the United States generates close to $4 trillion annually. This incredible haul doesn’t come without its own cost. The healthcare industry is rife with healthcare fraud. The financial loss caused by this widespread fraud is staggering. Numbers are estimated to have reached the tens of billions of dollars each year and are steadily rising. But what is healthcare fraud?

“Fraud” itself is defined as wrongful or criminal deception intended to result in financial or personal gain. More simply, healthcare fraud is the filing of fraudulent health insurance claims. While the fraction of fraudulent claims that occur in the U.S. is small, the price tag they carry is quite large. A deeper dive is required to reveal the many faces that healthcare fraud wears.

The main culprit in most healthcare fraud cases is billing. This includes:

  • Phantom billing: Billing for services that were never rendered. Providers bill the insurance for services they never performed. This can be done in a variety of ways, from identity theft to using actual patient information. Providers then fabricate claims or even pad claims with services or procedures never performed.
  • Upcoding: This is billing for services that are much more expensive than the actual services performed. A provider must also inflate the patient’s diagnosis code in order to allow for upcoding to work. An example of this would be billing for a wheelchair that is power-assisted but actually supplying the patient a manual wheelchair.
  • Unbundling: This is where the insurance company is billed for each step of the procedure as if they were separate procedures.
  • Billing a higher amount for co-pays that were paid in full or prepaid. Under a managed care contract, many plans have co-pay amounts that are prepaid. A dishonest provider will bill higher than the amount agreed to in the contract.
  • A healthcare provider will waive the co-pay and/or deductible for medical care and in turn over-bill the benefit plan or the insurance carrier. This means that the co-pay/deductible goes right to the healthcare provider.


Along with these types of billing healthcare fraud, there are other forms of fraud.

  • Healthcare providers will perform unnecessary medical services or procedures for the sole purpose of generating insurance payments. This is often seen in nerve-conduction studies or other diagnostic tests.
  • The falsifying of a patient’s diagnosis. A medical provider will falsify a diagnosis to allow justification of surgeries, tests, or any other procedure that isn’t medically necessary.
  • Patients who don’t exist. Actually, the person exists but as a patient, they were never seen. They are also known as “ghost patients”. This is where a medical provider will submit insurance claims for procedures or services rendered to patients whom the provider had never seen.
  • Misrepresentation of non-covered treatments. Medical providers will turn non-covered treatments into a medically necessary treatment in order to receive insurance payments. The cosmetic surgery field is known for this type of fraud. An example of this is a provider billing an insurer for a deviated septum when in actuality they performed only a cosmetic nose job.
  • Kickbacks. Healthcare providers receive many forms of kickbacks for their referrals. These kickbacks can include free vacations, jewelry, corporate-sponsored retreats, and cash. There could be other gifts involved to include tickets to various sporting or concert events. These kickbacks can be received in various ways. For instance, a pharmaceutical company may fund a luxurious doctor/patient retreat in order to promote a specific prescription and use of a particular drug. Doctors have been “persuaded” to steer patients to certain home healthcare providers.


Healthcare Fraud is an Industry Crippling Issue

The monetary gains and losses are staggering. Its effect on how healthcare is perceived and performed across our nation goes without saying. However, it isn’t just cost that has become affected. There is much more at stake here than monetary gains and losses. Not only does healthcare fraud hit potential patients’ pocketbooks across the United States, it has a lasting effect on patients in general.

When it comes to healthcare fraud, there must be a misrepresentation of truth involved. False patient information needs to be passed off as true. When a dishonest provider attempts to gain monetarily, they also need to, in some way, falsify patient records. They enter into a patient’s record a diagnosis that isn’t accurate, such as a more severe condition than what the patient has been diagnosed with. In turn, this will generate a bogus insurance claim which can be submitted for payment. When this happens, these false records remain as permanent files in the patient’s health record. Even if these false records are discovered in a timely manner, trying to rectify this falsification can be trying and time-consuming.

Sadly, identity theft is something that affects millions of people. Many different types of accounts (bank, entertainment, etc.) are constantly compromised. Identity theft can affect every facet of one’s financial life, from credit ratings to the ability to borrow. The same can be said for medical identity theft. It is a rapidly rising problem with seemingly no end in sight. Medical identity theft occurs when a patient/person’s name or other personal information is used without that person knowing or giving consent to obtain medical goods or services. It could also be used to obtain payment on false insurance claims. The result of this is crippling to victims. Not only could false information be added to their medical records, but an entirely new, albeit fake, medical record could be created as a result. Victims could receive the wrong medical treatment. They could also find that they have become uninsurable for both health and life insurance based on the new false record. Their health insurance benefits could disappear entirely. As a result, a victim could fail a physical exam from a potential employer based on a condition or disease with which they’ve never been diagnosed or have received treatment on, but has been falsely documented in their record.


There is also physical associated with this kind of fraud. There are countless instances where offenders of healthcare fraud have put their victims at risk of injury, even death. These patients go through dangerous and unnecessary medical procedures as a result of widespread greed.

Some patients with private health insurance oftentimes have lifetime caps, or other limits on the benefits under their policies. Each time a false claim is paid in a patient’s name, that dollar amount counts against the patient’s lifetime cap or benefit limits. Therefore, when a patient truly needs to use his/her insurance benefits, they could already be exhausted.

Another rising problem within the healthcare industry involves organized crime. The financial gain from such fraud in health care has caught the eye of many organized crime groups. The illegal drug trade is big business in the United States. The trafficking of drugs has been and always will be a huge dice roll for those committing this illegal act. Law enforcement agencies across America have seen a shift in focus from illegal drugs to the far more profitable market of fraud schemes against entities such as Medicaid and Medicare, as well as other private health insurance companies. These programs and insurance companies have lost hundreds of millions of dollars as organized crime has been trying to secure their foothold. These organized crime groups are not solely based in the United States. Many have been identified as coming out of both South and Central America. These organizations have found their way into the false claim and false patient business. What makes this even more difficult is that these organizations are sophisticated enough to handle all these funds in offshore accounts.

As evidenced above, healthcare fraud is quite broad in its scale. In fact, when all is taken into account, the impact of this fraud is far-reaching. Healthcare fraud has the ability to affect the entire population of patients within the U.S. Everyone’s private healthcare records are at risk, and though there are laws and safety measures in place, those committing healthcare fraud have proven to be sophisticated and persistent. Not only do these perpetrators have the ability to use patient records, but they also have access to the entire range of medical treatments and conditions at their disposal to base false claims on. With that, they also have the know-how to simultaneously spread false claims to multiple insurers. This occurs frequently within Medicaid and Medicare, the two most widely abused programs.


What can be done about healthcare fraud?

Can anything be done? Are there any healthcare fraud laws out there that could take things under control? There are in fact health care fraud laws in place to help combat this out of control health care dilemma.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) was introduced and enacted by Congress and signed by President Bill Clinton in 1996. The act itself is comprised of five titles, but Title II of this act is what covers preventing health care fraud and abuse. This act makes health care fraud a federal criminal offense. The basic offense of fraud carries a federal prison term of up to ten years and comes with a significant financial penalty. This federal law also states that if the offender’s actions result in injury to the victim, the prison sentence could double, increasing it to up to 20 years in federal prison. If the fraud results in a victim’s death, the offender could be sentenced up to life in federal prison.

Another program was introduced after HIPAA called the Health Care Fraud and Abuse Control (HCFAC) Program. This program was introduced in 1997 and has since been on the front lines of the fight against health care fraud and abuse. Since its inception, the HCFAC Program has teamed up with the U.S. Department of Justice, U.S. Department of Health & Human Services, the Centers for Medicare & Medicaid Services, and the Office of the Inspector General in efforts to fully crackdown on health care fraud and abuse.

The combined efforts of this legislation have been successful. Since its inception, HCFAC has recovered and returned more than $33 billion to the Medicare Trust Funds group. More than $4 billion in settlements, fraud judgements, and other administrative improprieties has been recovered.


The fight is real and the stakes are high.

The healthcare industry in the United States is a hand-over-fist money-making gauntlet. Therefore, there are many who want a piece of the pie and will go to any lengths and means to make get it. Can we do anything, apart from what the federal government has established, to help ourselves out in this fight? Yes.

Be vigilant. Protect yourself and your health information at all costs. Protect your insurance cards as you would a credit card. Be careful who you give your health insurance ID number to. If you lose your health insurance ID card, report it immediately to your insurance company.

Report fraud. If you see it or suspect it, talk to your insurance company immediately. Most companies now have their own insurance fraud reporting procedures. Do not be afraid to come forward.

Healthcare fraud is serious business and a serious crime that affects many across the country. It drives costs up and creates major damage to all parties involved. However, it is a problem that can be solved. Stay on top of your healthcare business by contacting the Healthcare Fraud Group today 888-402-4054