Fraud, Waste, and Abuse Policy: Requirements, Examples, and Compliance Guide

Understanding Fraud in Healthcare

What constitutes fraud

Fraud occurs when someone knowingly submits, or causes the submission of, false information to obtain payment or other benefit. In healthcare, this includes intentional misrepresentation of facts, falsifying documentation, or manipulating codes to increase reimbursement beyond what is allowed.

Common fraud schemes

• Upcoding: billing a higher-level service or more complex diagnosis than was provided or documented.
• Unbundling: separating services that should be billed together as a single bundled code to inflate charges.
• Phantom billing: charging for services, supplies, or visits that were never rendered.
• Falsified medical necessity: altering records so services appear to meet medical necessity criteria when they do not.
• Kickbacks and self-referrals: receiving something of value for referrals or steering services.

Red flags and controls

• Outlier billing patterns by provider, location, or payer compared with peers.
• Documentation that repeats verbatim across encounters or conflicts with clinical findings.
• High frequency of add-on codes without a corresponding primary service.
• Controls: coder education, pre-bill reviews, second-level approval for high-risk codes, and decision support that checks medical necessity criteria.

Recognizing Wasteful Practices

Definition and impact

Waste is the overuse or misuse of resources that results in unnecessary costs without necessarily involving intent to deceive. Although not fraudulent, waste undermines care quality, strains budgets, and increases compliance risk.

Examples of waste

• Ordering duplicative tests due to poor information exchange or lack of prior records.
• Using branded drugs where lower-cost therapeutically equivalent generics are appropriate.
• Inefficient scheduling, no-show follow-up gaps, and overstocking supplies that expire unused.
• Standing orders applied without verifying current medical necessity criteria.

How to reduce waste

• Implement clinical decision support and prior-test lookups to curb redundant services.
• Use formulary management and pharmacist review to optimize drug spend.
• Track key metrics (e.g., duplicate imaging rates, supply expiration) and assign owners for corrective action.
• Embed internal audits focused on high-cost, high-variability services to pinpoint process fixes.

Identifying Abuse in Services

What distinguishes abuse

Abuse involves practices that are inconsistent with sound fiscal, business, or clinical standards and that lead to unnecessary costs or improper payment. Unlike fraud, intent may be unclear, but the conduct still results in overpayment or poor-quality care.

Abusive patterns to watch

• Excessive frequency or duration of services relative to diagnosis and accepted guidelines.
• Billing for services that are not reasonable or do not meet medical necessity criteria.
• Charging fees that substantially exceed usual, customary, and reasonable amounts without justification.
• Using modifiers or settings that maximize payment rather than reflect clinical reality.

Escalation and remediation

• Begin with education and corrective action plans; escalate if patterns persist.
• Convert abusive trends into focused reviews with repayment where overpayments occurred.
• If intent or concealment emerges, treat the matter as potential fraud and proceed under investigation protocols.

Implementing Compliance Training

Compliance training requirements

• Audience: all employees, contractors, volunteers, and relevant vendors who touch billing, coding, referrals, documentation, or patient access.
• Timing: at hire or engagement, within 30 days of role change, and at least annually thereafter.
• Content: definitions and examples of fraud, waste, and abuse; upcoding/unbundling risks; medical necessity criteria; reporting channels; non-retaliation; case scenarios.
• Assessment: knowledge checks with a documented passing threshold and policy attestations.
• Records: maintain completion logs and test results for audit readiness.

Role-based depth

• Clinicians: documentation quality, medical necessity, ordering practices, and modifiers.
• Coders/billers: code selection, edits, bundling rules, and claim submission standards.
• Leaders: oversight duties, resource allocation, and response expectations during investigations.

Establishing Reporting Procedures

Reporting channels

• Reporting hotlines available 24/7 with options for anonymous intake.
• Secure web portal, dedicated email, and direct access to the compliance officer.
• Open-door reporting to supervisors, HR, or the special investigations unit.

Intake, triage, and confidentiality

• Assign a unique case number and timestamp each report; preserve reporter anonymity when requested.
• Risk-rank allegations, safeguard records, and restrict access on a need-to-know basis.
• Provide timely acknowledgement and updates to reporters when possible without compromising the review.

Documentation and response timelines

• Define expected timeframes for triage, preliminary review, and resolution.
• Capture facts, interviews, evidence, and determinations; retain files per records policy.
• Escalate credible concerns to legal, privacy, or clinical leadership as appropriate.

Enforcing Disciplinary Actions

Progressive and proportionate discipline

• Apply coaching, written warnings, suspension, or termination based on severity, intent, and history.
• Require remediation such as targeted training or closer oversight when appropriate.

Financial and operational remedies

• Calculate and return overpayments; adjust claims and correct records.
• Restrict privileges or billing authority for individuals who violate policy.

External implications

• When laws are implicated, consider self-disclosure, cooperation with authorities, or restitution.
• Serious violations can lead to licensure actions, contract termination, or exclusion from services by government programs.

Applying Preventive Measures

Risk-based controls

• Internal audits that rotate through high-risk areas such as evaluation and management, infusion, imaging, and durable medical equipment.
• Pre- and post-bill edits, automated bundling checks, and outlier analytics to detect upcoding and unbundling.
• Sanction screening of workforce and vendors against relevant exclusion lists prior to hire and monthly thereafter.
• Segregation of duties for ordering, coding, billing, and payment posting to reduce opportunity for manipulation.

Process and vendor oversight

• Standardized documentation templates aligned to medical necessity criteria and payer rules.
• Contract clauses requiring cooperation with audits, training participation, and adherence to compliance training requirements.
• Regular performance dashboards with thresholds that trigger immediate review.

Conclusion

A strong Fraud, Waste, and Abuse Policy protects patients, finances, and reputation. By defining misconduct clearly, training the workforce, enabling safe reporting, enforcing fair discipline, and hardwiring preventive controls like internal audits and analytics, you create a culture where problems are surfaced early and corrected decisively.

FAQs.

What are the key components of a fraud waste and abuse policy?

Core components include a clear policy statement; definitions and examples of fraud, waste, and abuse; roles and responsibilities; compliance training requirements; confidential reporting options; investigation and documentation standards; corrective action and disciplinary pathways; repayment and disclosure processes; and ongoing monitoring, auditing, and record retention.

How can employees report suspected fraud anonymously?

Employees can use reporting hotlines or a secure web portal that allow anonymous submissions. They may also report to the compliance officer or a supervisor and request confidentiality. The policy should guarantee non-retaliation, assign a case number for tracking, and communicate status updates whenever feasible without compromising the investigation.

What disciplinary actions are taken for fraudulent activities?

Discipline is proportionate to severity and intent, ranging from written warnings and suspension to termination. Organizations also pursue remedies such as claim corrections, repayments, and privilege restrictions. When warranted, matters may be referred to authorities, potentially resulting in licensure consequences or exclusion from services by government payers.

How often is compliance training required?

Compliance training is required at hire or engagement, within 30 days of role changes, and at least annually thereafter. High-risk roles may need more frequent refreshers. Completion, assessment scores, and policy attestations should be documented and retained to demonstrate adherence to program requirements.