Fraud, Waste, and Abuse Policy and Procedure Examples, Risks, and Best Practices

Definitions of Fraud Waste and Abuse

Fraud

Fraud is an intentional deception or misrepresentation made to obtain an unauthorized benefit. It includes submitting false claims, concealing material facts, or paying or receiving improper remuneration that violates Kickback Statutes.

In healthcare and other regulated industries, fraud often involves billing for services not provided, falsifying documentation, or knowingly misrepresenting Medical Necessity to secure payment.

Waste

Waste is the careless or inefficient use of resources that results in unnecessary costs. It does not require intent but reflects poor processes, weak Internal Controls, or lack of oversight that leads to avoidable spending.

Typical drivers include duplicative work, inventory spoilage, and overuse of tests or services that provide minimal value relative to cost.

Abuse

Abuse is behavior that is inconsistent with sound business, fiscal, or clinical practices and leads to unnecessary costs or payments. Unlike fraud, intent to deceive is not required, but the conduct still causes overutilization or excessive charges.

Examples include routine waiver of patient cost-sharing or repeated use of higher-cost options without documented Medical Necessity.

Key distinctions and risks

Intent differentiates fraud from waste and abuse, but all three create legal, financial, and reputational risk. Potential outcomes include repayments, penalties, and even Healthcare Program Exclusion when violations are severe or repeated.

Examples of Fraud

Common billing and documentation schemes

• Billing for services not rendered (phantom billing) or for patients not seen.
• Upcoding to higher-paying codes without supporting documentation or Medical Necessity.
• Unbundling procedures to bill separately for services that should be billed together.
• Submitting duplicate claims to generate multiple payments for the same service.
• Altering records, dates, or signatures to justify payment or to fabricate Medical Necessity.

Improper financial arrangements

• Paying or receiving kickbacks for referrals or purchasing decisions in violation of Kickback Statutes.
• Improper inducements or gifts to patients or suppliers intended to influence utilization.
• Cost report manipulation or misstating financials to inflate reimbursement.
• Knowingly submitting False Claims or causing others to submit them through deceptive practices.

Examples of Waste

• Ordering duplicative laboratory or imaging tests due to poor records management or lack of interoperability.
• Using brand-name drugs when clinically appropriate generics are available and approved.
• Allowing supplies to expire because of inadequate inventory controls and forecasting.
• Inefficient scheduling that drives avoidable overtime, idle time, or premium staffing costs.
• Rework caused by incomplete documentation, denied claims, or preventable coding errors.
• Overuse of services that offer limited clinical value or marginal benefit relative to risk and cost.

Examples of Abuse

• Charging excessive fees or consistently using higher-level service codes without sufficient justification.
• Routine waiver of copayments and deductibles that encourages overutilization.
• Nonstandard referral or utilization patterns that increase volume without clear Medical Necessity.
• Misapplication of codes that results in higher payment even when not done with fraudulent intent.

Reporting Procedures

Reporting Mechanisms

Provide multiple confidential channels: a hotline, a monitored email inbox, and an online portal. Publish instructions in your Code of Conduct and onboarding materials, and post them in common areas.

Immediate steps for employees

• Document the concern with dates, times, people involved, and available evidence.
• Report promptly to a supervisor, Compliance Officer, or through anonymous Reporting Mechanisms.
• Preserve records; do not alter files or contact suspected individuals beyond normal duties.

Triage and investigation

• Log the report, assign a case number, and risk-rank within set timeframes (for example, 24–72 hours).
• Use an investigation plan: collect documents, interview witnesses, and analyze claims data.
• Engage legal or audit support when potential False Claims or Kickback Statutes risks arise.

Protection and follow-up

• Enforce non-retaliation and confidentiality policies; communicate protections clearly.
• Provide status updates to reporters when possible and document corrective actions and lessons learned.
• Where required, self-disclose, repay overpayments, and adjust processes to strengthen Internal Controls.

Best Practices for Prevention

Governance and culture

• Set the tone at the top with a clear policy prohibiting fraud, waste, and abuse, and define accountability.
• Map roles and segregation of duties to reduce opportunities for error or manipulation.

Risk assessment and Internal Controls

• Perform periodic risk assessments focused on billing, vendor management, and referral arrangements.
• Implement controls such as pre-authorization checks, edit rules, and exception thresholds.
• Automate reconciliations and access controls; restrict ability to create or modify key records.

Monitoring, analytics, and Compliance Audits

• Use data analytics to detect outliers (upcoding, unbundling, duplicate claims, or unusual referral patterns).
• Conduct scheduled and surprise Compliance Audits, combining pre-payment and post-payment reviews.
• Track corrective actions to closure and verify effectiveness with follow-up testing.

Workforce training and accountability

• Train staff on Medical Necessity, accurate documentation, coding standards, and Reporting Mechanisms.
• Incentivize quality and compliance, not volume alone; review compensation models for Kickback Statutes risk.

Third-party and screening controls

• Vet vendors and referral sources; use contractual right-to-audit and performance metrics.
• Screen workforce and vendors routinely to avoid Healthcare Program Exclusion risks.

Legal Consequences

Violations can trigger internal discipline, repayment of overpayments, and termination of contracts. When conduct implicates False Claims or Kickback Statutes, exposure extends to substantial civil penalties and potential criminal liability.

Organizations may face corporate integrity obligations, mandated monitoring, and reputational harm. Individuals and entities can be subject to licensure actions and Healthcare Program Exclusion, which restricts participation in government-funded programs.

Strong Internal Controls, timely Reporting Mechanisms, and targeted Compliance Audits reduce these risks and strengthen your defense posture while promoting ethical operations across the enterprise.

FAQs.

What are common examples of healthcare fraud?

Frequent examples include billing for services not provided, upcoding or unbundling, falsifying documentation to create Medical Necessity, paying or receiving kickbacks for referrals, and submitting False Claims through manipulated records or duplicate billing.

How should employees report suspected abuse?

Use the organization’s Reporting Mechanisms—hotline, email, or web portal—to submit detailed, timely reports. Include who was involved, what occurred, when and where it happened, why it seems improper, and any evidence. Preserve records, maintain confidentiality, and rely on the Compliance Officer to coordinate investigation and follow-up.

What are the legal penalties for wasteful practices?

Waste typically leads to corrective action, repayments, and process remediation. Persistent or reckless waste can escalate to abuse or fraud findings, triggering civil penalties, potential contract termination, and—in severe cases—regulatory enforcement and program participation restrictions.

How can organizations prevent fraud effectively?

Establish strong Internal Controls, perform ongoing Compliance Audits, and use data analytics to flag anomalies. Train staff on Medical Necessity and referral safeguards to avoid Kickback Statutes issues, maintain clear Reporting Mechanisms, vet third parties, and screen for Healthcare Program Exclusion to keep high-risk actors out of your network.