Nursing Home Psychological Testing Fraud: When Every Admission Becomes a Bill

Nursing home psychological testing fraud involves billing Medicare or Medicaid for unnecessary tests, unsupported psychiatric evaluations or sessions that never happened. For a clinician or biller, the question is what turned a resident into a recurring claim: an individual clinical decision, a standing order for every admission or a caseload target. The resident’s condition and the session record need to tell the same story as the bill.

Taxpayers pay for unnecessary encounters while residents become a source of recurring revenue. A psychological-services case connects the clinical and billing records to the people who decided how the business would bill.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

What Does a Standing Psychiatric Evaluation Order Do?

A standing psychiatric evaluation order for every nursing home admission sends new residents to a behavioral health care supplier as a routine part of admission. Vericare Management agreed to pay more than $1 million to resolve allegations about these routine evaluations and unsupported nursing-facility visit claims.

The Justice Department’s October 2015 settlement announcement described allegations of routine evaluations for all new admissions at 128 facilities without patient-specific medical-necessity orders. The alleged conduct covered January 2012 through December 2014. Admission to the facility allegedly became the reason for the evaluation.

The whistleblower’s complaint put the standing orders inside the company’s compensation system. It alleged that regional managers received cash bonuses for obtaining orders that sent each new nursing-home patient to a Vericare psychologist. It also described how clinicians were paid:

The complaint also alleged that caseload calculators pushed three or more sessions per month per patient and that psychological testing was overused. The alleged pressure reached both the decision to see a resident and the frequency of later sessions. The supplier’s managers and clinicians had financial incentives to keep the encounters coming, according to the complaint.

Why the Service Count Matters

Fee-for-service payment makes the frequency and type of service financially important. The California Research Bureau explained that incentive in its 1997 report Fraud and Abuse in the Health Care Market of California. Comparing fee-for-service payment with a fixed budget, it wrote:

In the Vericare allegations, that healthcare payment incentive reached individual paychecks: the complaint tied compensation to the number of services and the reimbursement they generated.

Psychological Testing Billed Repeatedly to Nursing Home Residents

Psychological testing billed repeatedly to nursing home residents raises a specific question: what was each new examination supposed to establish for that resident?

Park Avenue Medical Associates agreed to a $1 million federal settlement in July 2013 over psychiatric services provided in nursing homes, inpatient psychiatric facilities and other long-term-care settings. The Justice Department described admissions about inadequate documentation of diagnostic examinations and repeated examinations without showing that they met billing requirements.

The government’s complaint alleged unnecessary or undocumented psychotherapy and duplicative psychiatric evaluations for elderly patients. The admissions give an insider something concrete to compare: the examination billed, the reason recorded for it and the documentation supporting another examination.

The comparison with Vericare is the decision to schedule another encounter. Its whistleblower described caseload targets pushing repeat sessions. Park Avenue admitted failures to support repeat examinations. Both accounts put the reason for returning to the resident at the center of the billing question.

Dementia Residents and Sessions With No Documented Benefit

For a dementia resident, psychological sessions billed with no documented benefit put the resident’s capacity to benefit at the center of the case. Park Avenue admitted billing psychotherapy for patients with dementia without demonstrating that capacity.

The Vericare whistleblower’s allegation was starker: the company billed unnecessary psychotherapy and psychological services to patients who could not benefit because of severe dementia or cognitive disorders.

Psychological Services Billed While the Resident Was Hospitalized

A hospital record can place the resident somewhere other than the nursing home on the date of a billed psychological session. In June 2024, the Justice Department announced a $4,595,739 settlement payment in the Supportive Care Holdings behavioral-health billing case.

The government’s account of the settlement alleged that the suppliers claimed psychological services for residents who were actually hospitalized. It also alleged that the companies billed telehealth originating-site fees that belonged to the nursing facilities. The payment resolved both kinds of allegations.

Here, the government challenged the outside suppliers’ claims for services to nursing-home residents. The alleged hospitalization mismatch gave the case a concrete point of comparison: where the resident was when the supplier said the encounter happened.

A Diagnosis Can Affect Both Payment and a Star Rating

Resident diagnoses help determine a facility’s payment classification and which residents count toward its antipsychotic-use quality measure. The Patient Driven Payment Model uses resident characteristics, including diagnosis and function, to classify a covered skilled nursing stay for payment. The facility’s Minimum Data Set assessment produces the HIPPS classification used on its bill, as described in CMS’s assessment manual.

The quality-rating system creates another incentive. In its March 2026 review of 40 nursing-home inspections, the HHS Office of Inspector General found instances of inappropriate schizophrenia diagnoses used to mask antipsychotic misuse and inflate star ratings. Residents diagnosed with schizophrenia are excluded from the antipsychotic-use quality measure, which factors into a home’s rating.

An insider who sees the same diagnosis in an assessment, a session note and a bill can help explain who entered it, what clinical information supported it and what each system did with it.

What Evidence Is Needed to Prove Fraud?

The useful evidence connects the resident’s clinical need, the service actually delivered, the claim and the decisions behind it. Orders, clinical notes, hospital records and billing records let us compare what the supplier represented with what happened to the resident.

We connect the standing orders, session notes, hospital dates, claims and compensation arrangements with your knowledge of how care and billing operated inside the business.

A clinician may understand why a proposed encounter made no clinical sense. A facility employee may know where the resident actually was. A billing employee may understand how the service reached the claim. We bring those perspectives together to identify the conduct, the biller and the decisions that put unsupported services before the government for payment.

When the Session Record and the Bill Part Company

If you know how standing orders, testing targets or unsupported sessions became government claims, speak with our whistleblower experts about the psychological services your company billed. We work with you to build the case around the clinical decisions, the billing and the people directing both. We stay your partners through the whole case and bring in behavioral-health whistleblower lawyers who know nursing-home billing.