Hospital Fraud FAQ: The Decisions Behind the Bill

Hospital fraud can begin with a billing rule, an admission target or a physician deal that turns patient care into false government claims. If you work where those choices are made, you may recognize the decision long before anyone calls it fraud. The question is how that decision reached the bill, and who knew what it would do. Taxpayers pay for inflated government claims, and patients can face extra copayments.

What Qualifies as Healthcare Fraud at a Hospital?

Hospital healthcare fraud includes knowingly billing Medicare or Medicaid for care the records do not support, or paying doctors for the patients they send. A diagnosis added in coding, an admission ordered to meet a target or a benefit tied to referrals can change what a hospital collects.

Hospital billing fraud can involve unperformed services, unsupported diagnoses or care billed in a more expensive setting. It can also begin in finance: inflated charges can generate extra outlier payments intended for unusually costly stays. Double billing seeks payment twice for the same care. Unbundling bills separately for services that belong in one payment.

Hospital Upcoding and Medicare Payment

Hospital upcoding means billing at a higher-paying level than the patient’s condition or the care delivered supports. In an inpatient stay, one unsupported secondary diagnosis can move the whole admission into a higher-paying group, which is how DRG upcoding works.

In a February 2021 review of Medicare inpatient billing, the Inspector General found that highest-severity stays rose almost 20% from fiscal 2014 through 2019 while their average length fell, and the Centers for Medicare & Medicaid Services declined its call for targeted scrutiny of vulnerable stays and the hospitals billing them.

Upcoding shows when the clinical findings and the billed code describe different levels of illness or care. RAND’s 2024 review of upcoding research found direct measurement against a gold standard, such as the medical record, in just three of the 39 articles it examined, which is why the chart and the coding instruction are central to detecting upcoding.

Admissions and Emergency Department Billing

Observation falls under Medicare’s outpatient rules. An inpatient admission uses a different payment system. Hospital admission fraud cases have alleged that hospitals pursued inpatient payment for patients who needed observation or other outpatient care. Admission targets, physician scorecards and pressure to admit can show how a revenue policy reached that choice.

The two-midnight benchmark supports inpatient payment when the admitting physician expects necessary hospital care to cross two midnights and the medical record supports that expectation, with room for certain shorter admissions.

Medicare’s three-day payment window concerns earlier services rather than the admission itself: it puts specified outpatient services from the admission date and the three preceding calendar days on the inpatient bill. Its Hospital Readmissions Reduction Program reduces adjusted operating base payments by up to 3% for hospitals with excess readmissions for selected conditions, according to the Medicare Payment Advisory Commission’s payment guide. Both rules affect what Medicare pays for an inpatient stay.

A whistleblower brought the case against UCHealth, which agreed to a $23 million settlement announced on November 12, 2024. In the government’s account, an automatic rule let routine vital-sign checks decide when certain visits received the highest emergency department facility level, the question at the heart of automatic facility upcoding.

Physician Payments and Referrals

Hospital kickbacks can put the price of a referral into salary, a bonus formula or another benefit. Favorable office rent, free staff and call coverage have all appeared in hospital settlement allegations. Referral-linked ownership can put the condition in a physician’s right to buy or keep shares. The physician’s contract, the calculation behind the payment and the work actually performed show different parts of the exchange.

In its 2025 settlement, New York-Presbyterian Hudson Valley Hospital admitted paying more than $4 million for oncology work that was not performed, not performed as agreed or unsupported by time records. The Justice Department’s account of the admissions also described continued payments after the hospital knew, or should have known, that the practice was doing only part of the required work.

That is why what management knew matters. The promised work went missing. The payments kept coming.

Procedures, Devices and Vendor Instructions

A supplier’s reimbursement advice can influence how hospitals bill the same procedure. A former reimbursement manager and a former regional sales manager at Kyphon brought the kyphoplasty cases. Their amended complaint alleged that the sales force was told to sell hospitals on treating kyphoplasty as inpatient care when, in most cases, no admission was medically needed.

In a separate complaint against hospital customers, the whistleblowers alleged that a sales model showed hospitals the money they could make if every procedure was inpatient. They also alleged that splitting treatment into return visits generated another full hospital payment and extra patient copayments. The alleged instruction changed the setting and timing of care as well as the bill.

Kyphoplasty inpatient billing settlements reached approximately $105 million across more than 130 hospitals by December 2015, according to the Justice Department’s announcement. The vendor employees could see the advice traveling between facilities.

Unnecessary procedures raise a further question: what did the patient undergo because of the financial arrangement? In Sanford Health‘s 2019 settlement, the government alleged that colleagues repeatedly warned about unnecessary spinal procedures involving devices in which a surgeon had a financial interest. It alleged that the hospital continued allowing the surgeon to profit from the devices and kept billing federal programs for those surgeries.

Hospital Drugs and 340B

Hospitals make money on 340B when payment for an outpatient drug exceeds the discounted price they paid for it, and in 2015 the Government Accountability Office found that Medicare’s set drug payments, independent of a hospital’s purchase price, gave participating hospitals an incentive to prescribe more drugs or more expensive drugs.

For disproportionate share hospitals, 340B eligibility includes qualifying government ties and a disproportionate share adjustment percentage above 11.75% on the latest filed cost report, a number finance and audit staff may see before it reaches a patient claim. Inside the program, 340B diversion means discounted drugs going to people who are not the hospital’s eligible patients, and a duplicate discount means the manufacturer also paid a Medicaid rebate on a drug sold at the discounted price.

Payer-specific billing can produce another kind of case. In MemorialCare‘s 2020 settlement, the Justice Department alleged that the hospitals kept billing Medi-Cal at higher usual costs after a court lifted a temporary block on the requirement to bill at actual acquisition cost. An internal audit led to the hospital’s disclosure. The issue was the price submitted to that payer.

The Decisions Different Employees Can See

Hospital whistleblowers work at different points between the care and the claim. Their firsthand knowledge can explain what a document alone leaves unanswered:

• Coding and clinical documentation staff see the original findings, the diagnosis query, the response and the code that reached billing.
• Utilization-review and case-management staff see admission orders, clinical assessments, targets and pressure to change the patient’s status.
• Finance and internal audit staff see physician compensation calculations, valuation inputs, charge changes, cost-report figures and management’s response to findings.
• Vendor reimbursement and sales staff see training materials and billing instructions sent to hospital customers, sometimes across many facilities.

The written rule and the resulting claims belong in the same account. So does what happened after someone raised a concern. If you recognize that connection, our experts can work through the hospital fraud evidence you know firsthand with you.

Hospital Whistleblower Cases and Rewards

You Know Why the Bill Changed

If you saw the instruction that changed a diagnosis, an admission or a physician payment, speak with our whistleblower experts. We connect your knowledge of the hospital’s decisions to the claims they produced and bring in hospital fraud whistleblower lawyers who understand that payment system. We stay with you as partners to build your strongest hospital fraud whistleblower case.