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Upcoding and Unbundling

Upcoding and Unbundling Fraud in Healthcare

Healthcare fraud poses a significant threat to the integrity of the healthcare system, costing billions of dollars annually. The practices of "upcoding" and "unbundling" are prevalent among healthcare providers, from individual physicians to larger organizations.

These practices exploit federal healthcare programs and private insurers and compromise patient care. For this reason, federal law imposes severe penalties on upcoding and unbundling, typically prosecuted under the False Claims Act. If you're charged with either of these types of healthcare fraud, you could face exorbitant fines and possibly even prison time.

Upcoding and Unbundling Fraud in Healthcare
The practices of "upcoding" and "unbundling" are common to get a higher reimbursement.

“Upcoding” occurs when a healthcare provider submits codes to Medicare, Medicaid, or private insurers for more serious and expensive diagnoses or procedures than the provider diagnosed or performed.

Healthcare providers use billing codes to identify the services and procedures they provide to patients. Each code corresponds to a particular service or diagnosis and reflects the complexity of the healthcare provider's work.  

Government and private insurers use these codes to determine how much to pay for the services and procedures. Thus, when healthcare providers intentionally upcode medical bills for Medicare and Medicaid patients, they commit a federal offense. 

Improper coding could also occur through “unbundling” or “fragmentation.” Medicare and Medicaid will typically have lower reimbursement rates for groups of procedures usually performed together, such as incisions and closures during surgery.  

Unbundling or fragmenting billing codes unlawfully increases a provider's profits by billing bundled procedures separately, which could result in higher reimbursement from Medicare and Medicaid. 

Doctors must document the care provided to patients and then bill for the procedure using standard billing codes representing a particular service or procedure. Let's take a closer look below.

What Is Upcoding? 

Upcoding occurs when healthcare providers submit claims for higher-paying services than those actually performed. This deliberate misrepresentation boosts reimbursement rates unjustly. 

For instance, coding a standard outpatient visit as an in-depth consultation exemplifies upcoding. This deceit not only inflates healthcare costs but also unjustly burdens Medicare and, indirectly, taxpayers.

The impact of upcoding extends beyond financial loss. It erodes trust between patients and healthcare providers, leading to unnecessary investigations or treatments based on inaccurately documented medical records. 

Through the Centers for Medicare & Medicaid Services (CMS), the federal government employs various tools and audits to detect such fraudulent activities. However, the sophistication of upcoding schemes often makes detection challenging.

What Is Unbundling?

Unbundling, another fraudulent practice, involves fragmenting billing codes for procedures typically charged under a single comprehensive code to increase reimbursement. 

Submitting multiple bills for what should be a bundled service exploits loopholes in the Medicare billing system. For example, billing each step of a surgical procedure separately when a single code should encompass all steps constitutes unbundling.

The repercussions of unbundling are far-reaching, leading to inflated Medicare bills and misallocation of resources. It undermines the efficiency and affordability of healthcare by artificially increasing the perceived volume of services provided.

Detection mechanisms, like those for upcoding, include data analysis and audits, but the complexity of medical billing codes often complicates these efforts.

Electronic health records (EHR) software can help facilitate upcoding and unbundling. With EHR software, healthcare providers can copy and paste notes from a patient's previous visit into current treatment notes.

Thus, this can make it appear that the provider has diagnosed and treated every condition on that list. Healthcare providers might also restrict the menus on their EHR software to show only diagnoses and treatment codes with the highest reimbursement rates.

Who are the Common Perpetrators of Upcoding and Unbundling?

Upcoding or unbundling fraud may occur at almost all points within the healthcare system. For example, Doctors, hospitals, outpatient facility administrators, billing specialists, and medical coders may all be implicated in upcoding and unbundling fraud. 

These practices are not limited to any specific type of healthcare entity but can occur in any setting where Medicare service billing occurs. The pressure to meet financial targets or inadequate compliance programs often leads to these unethical billing practices.

Hospitals could engage in upcoding lower-level charges for better-paying ones. Notably, hospital inpatient costs are paid using pre-determined rates that will vary according to the diagnosis-related group (DRG) assigned to the type of patient stay and the severity of the diagnosis. Diagnosis codes (ICD codes) determine the DRG and severity level.

Upcoding occurs when hospitals bill for inpatient stays at the highest severity level when a patient's care is routine. A high severity level requires that there be at least one secondary diagnosis that is considered a major complication or comorbidity, such as acute respiratory failure and sepsis.

Prosecution and Penalties Under the False Claims Act 

The consequences of upcoding and unbundling fraud can be severe. Penalties under the FCA can range from $11,000 to $22,000 per false claim. Furthermore, individuals or organizations found guilty may also be excluded from participating in federal healthcare programs.

The False Claims Act (FCA) is the primary tool of federal prosecutors in combating Medicare fraud, including the practices of upcoding and unbundling. Under the FCA, individuals or entities submitting false claims for government funds can face severe penalties. 

If you are accused of upcoding or unbundling fraud, you could face any/all the following upon conviction:

  • Civil fines reaching up to three times the amount of loss.
  • Significant statutory fines, adjusted for inflation, amount to $27,894 per violation as of 2023.
  • In case of criminal charges, you may encounter additional fines and a maximum of 5 years in federal prison.

What are the Possible Defenses?

Despite the seriousness of possible charges under the FCA, a skilled federal criminal defense attorney may implement specific defense strategies to refute allegations of upcoding or unbundling fraud. These include the following:

  • Thorough Documentation: Providing detailed and accurate documentation can prove that the services billed were necessary and performed as claimed.
  • Unintentional Error: Demonstrating that the alleged fraud was unintentional, such as a clerical mistake or misunderstanding of complex billing codes, can be a viable defense.
  • Lack of Knowledge: Your attorney may contend that you were unaware of the fraudulent activity—for example, an employee of yours may have committed the fraud without your knowledge or consent.
  • Compliance Program: A robust compliance program can serve as a defense. Your attorney may provide evidence that you have conducted regular audits, provided staff training, and implemented clear policies to demonstrate a commitment to lawful practices.

Legal proceedings under the FCA involve meticulous investigation and evidence gathering. If you're a healthcare provider accused of upcoding and unbundling fraud, hiring effective legal counsel may help mitigate potential damages and penalties. Contact us for more information. Eisner Gorin LLP has offices in Los Angeles, California.

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