A Brief Review of Upcoding Fraud

Upcoding fraud is a type of health insurance fraud where a healthcare provider submits a bill to an insurance provider that’s more expensive than the actual services provided. The goal of this fraudulent activity is to increase the amount of reimbursement a healthcare facility receives from private health insurers or government health programs like Medicaid and Medicare

In one recent case, John Peter Smith Hospital of Texas had to pay a $3.3 million settlement after it allegedly violated the False Claims Act with its upcoding practices. In a ten-year span between 2002 and 2012, an estimated $11 billion in fraud occurred in the publicly funded insurance industry alone.

However, a massive portion of upcoding fraud goes completely undetected, so the true total losses could easily be in the multi-tens of billions…

And growing.

Here, we discuss what exactly upcoding is, how it happens, its difference from unbundling, and how a real-time fraud prevention solution could potentially help detect and possibly prevent it.

Upcoding is any fraudulent component of a medical bill that is more complex and expensive than what was actually provided to a patient. This medical billing “error” is made intentionally so that the healthcare facility or provider can acquire higher insurance reimbursements.

An example of upcoding is when a patient visits her OBGYN for colposcopy, a procedure that is typically priced around $500. However, instead of billing her health insurer for a colposcopy, her doctor charges for a different procedure that costs more than the actual medical service she received, perhaps in addition to the colposcopy charges…

It’s all done to run up the bill.

If an employee becomes aware of upcoding fraud in a healthcare organization, they are encouraged to report it as soon as possible. The government ensures that the organization can not retaliate against the whistleblower, preventing discharge, demotion, or suspension against the terms and conditions of their employment. As a reward, the whistleblower will also be entitled to between 15% and 30% of the total amount the government recovers.

Despite being illegal, far too many institutions and doctors have been knowingly upcoding the medical bills of their patients. As mentioned, it’s done purposely to defraud insurance providers to increase the dollar value of reimbursements.

But how exactly do healthcare facilities do it?

There’s a Current Procedural Terminology (CPT) code that healthcare facilities use to bill the patient’s health insurer. Each medical service has its own code. To initiate the fraud, a healthcare provider submits a code for a different yet related medical service. This code can either be for a lengthier and more serious procedure, more expensive equipment, or a more serious diagnosis.

The reason upcoding frauds are often submitted for services that are somewhat related to what the patient actually received, is because it makes detection of the fraud much more difficult.

The bottom line is this: whatever the CPT code was fraudulently entered for, it’s almost always for a more expensive procedure than what was actually performed.

This fraudulent activity not only enriches criminal practitioners, but negatively affects the American health insurance consumer and taxpayer. Since healthcare insurers are forced to pay for these unknowingly fraudulent charges, the costs to the insured rises. To offset losses, insurance companies may need to increase healthcare premiums, causing a broad-stroke-rise in costs for the insured. For government backed insurance, taxpayers are on the hook.

Upcoding vs. Unbundling

Another related fraudulent practice you’re likely aware of is called unbundling. Both upcoding and unbundling aim to increase the healthcare provider’s reimbursements from the health insurer. The main difference between the two is the specific method used to increase the bill’s total amount.

We know that upcoding happens when a healthcare provider exaggerates the type of services provided to a patient, which results in higher bills. However, when it comes to unbundling, the objective is to charge for performed medical services per-component, rather than choosing the “bundled” option with a lower price tag.

For example, a patient needs to undergo angioplasty. Instead of charging the operating room and the surgery fees as one, the healthcare provider will charge them separately — making the total bill higher than what it should be.

How Can You Prevent Upcoding Fraud Payouts?

True medical billing errors should be identified and resolved as quickly as possible. No legitimate healthcare provider wants their business involved in fraudulent activities that can tarnish their organization’s esteemed reputation.

However, since much of the healthcare industry has adopted an Electronic Health Record (EHR) practice to streamline the medical records process of, and for, their clientele, proper medical coding can be a challenge — particularly for healthcare providers with limited resources.

While honest providers can simply double-check every piece of information entered into databases before sending claims to health insurers, human error, and fraud, is still possible.


Legitimate providers are always on the lookout for errors and potential fraud. It’s the illegitimate fraudsters that insurance companies and tax authorities must be on the lookout for.

The best option for insurers, both public and private, may be to integrate all data systems with a comprehensive suite of AI-based solutions that offer fraud detection and prevention in real-time.

With the help of artificial intelligence, insurers have an efficient, secure way of detecting errors in databases and transactions, potentially preventing fraudulent activities such as upcoding and unbundling.

This preferred solution to fraud is ToolCASE.

ToolCASE has developed perhaps the most sophisticated transactional real-time, multi-level Ai fraud detection system anywhere. It’s called RembrandtAi.

RembrandtAi is a powerful tool that may help streamline the way you detect inaccuracies, anomalies or fraud across all of your systems, both intentional and accidental. In fact, its pattern recognition and forecasting capabilities could potentially help you pinpoint exactly which providers may be fraudulently upcoding and may show you where new upcoding frauds could occur in the future.

With RembrandtAI, the potential to reduce your fraud costs is real, and substantial.

For a demonstration of ToolCASE’s remarkable RembrandtAi capabilities, simply call us toll free at 1-888-TOOLCASE.

Or, contact one of our artificial intelligence experts at https://www.toolcase.com/contact-us for a full and thorough demo.