Health Care Fraud, Waste, and Abuse: Requirements, Examples, and Controls

Health care fraud, waste, and abuse (FWA) drive up costs, erode trust, and expose organizations to significant risk. Understanding the differences, recognizing red flags, and installing strong controls helps you comply with medical billing regulations, protect patients, and support Medicare Program Cost Containment.

Defining Health Care Fraud

Fraud is an intentional deception or misrepresentation made to obtain an unauthorized benefit. It requires knowing intent—someone acts deliberately to bill, receive, or cause payment for something not allowed. Submitting claims for services not rendered, falsifying documentation, paying or receiving kickbacks for referrals, and misrepresenting provider identities are classic examples.

In practice, fraud often involves schemes designed to exploit reimbursement rules, including false statements on cost reports, collusive arrangements with vendors, or orchestrated patient recruitment to generate billable encounters. Because intent is central, investigations focus on patterns, communications, and documentation that show a plan to deceive.

Understanding Waste in Health Care

Waste refers to overuse, inefficiencies, or poor management of resources that lead to unnecessary costs without adding value. Waste is not necessarily illegal, but it undermines care quality and payment integrity. Common drivers include redundant testing, avoidable readmissions, unused supplies, and failure to coordinate care.

Targeting waste aligns directly with Medicare Program Cost Containment. Streamlined workflows, care coordination, and evidence-based ordering can curb avoidable spending while preserving clinical outcomes and patient experience.

Identifying Abuse Practices

Abuse is payment for items or services when there is no legal entitlement and the provider has not knowingly and intentionally misrepresented facts. It includes practices inconsistent with accepted medical, business, or fiscal standards that lead to unnecessary costs. Unlike fraud, abuse may stem from reckless disregard or persistent noncompliance rather than a deliberate scheme.

Typical abuse indicators include excessive charges, inappropriate billing for non-covered services, improper use of modifiers, and E/M levels unsupported by documentation. Even without intent to deceive, repeated disregard for coding and billing standards exposes you to repayments and health care regulatory penalties.

Examples of Fraudulent Activities

• Phantom billing: submitting claims for services or supplies never provided.
• Upcoding with intent: billing higher-complexity E/M visits or procedures than performed to inflate reimbursement.
• Unbundling to increase payment: separating services that must be billed under a single comprehensive code despite knowing the rule.
• Kickbacks and improper inducements: paying or receiving remuneration for referrals of services payable by federal health care programs.
• Misrepresentation of provider or site of service: billing under another clinician’s NPI, or misclassifying the setting to obtain a higher rate.
• Durable medical equipment schemes: billing for unnecessary or never-delivered DME, forged orders, or stolen beneficiary identities.
• Falsified documentation: altered records, backdated signatures, or fabricated test results to support claims.
• Duplicate and splitter claims: submitting multiple claims for the same service dates, or dividing one service into several dates to bypass edits.
• Cost report fraud: knowingly reporting false costs or related-party transactions to increase reimbursement.

Examples of Wasteful Activities

• Redundant diagnostics due to poor information exchange or failure to review recent results.
• Low-value care: routine imaging for uncomplicated low back pain without red flags; broad-spectrum antibiotics without indication.
• Inefficient scheduling and no-show management leading to idle capacity and rework.
• Stocking patterns that cause expired drugs or supplies to be discarded.
• Failure to use equally effective generics or preferred products when clinically appropriate.
• Unnecessary post-acute care days due to delayed discharge planning.
• Manual, error-prone claims workflows that generate denials, appeals, and rework costs.

Examples of Abuse in Billing

• Routine use of modifier 25 or 59 without documentation showing a significant, separately identifiable service.
• Consistent selection of higher-level E/M codes unsupported by medical decision-making or time.
• Unbundling of lab panels or procedures contrary to coding and billing standards.
• Billing incident-to without meeting supervision, scope, or plan-of-care requirements.
• Charging for non-covered services as if covered, or adding non-billable services to inflate claim totals.
• Rounding time to hit time-based thresholds absent contemporaneous time documentation.
• Excessive or unfair pricing practices that substantially exceed usual, customary, and reasonable ranges.

Legal Penalties and Enforcement

Regulators and law enforcement pursue FWA through civil, criminal, and administrative pathways. Key health care regulatory penalties include treble damages and per-claim assessments for false claims, civil monetary penalties for kickbacks and inducements, restitution, and criminal fines with potential imprisonment for egregious conduct.

Administrative consequences can be severe: exclusion from federal programs, payment suspensions, prepayment review, and Corporate Integrity Agreements that impose independent monitoring and reporting. Licensing boards may impose discipline, and payers can terminate network participation.

Enforcement is coordinated across agencies and contractors. Investigations may involve data mining, medical record reviews, interviews, subpoenas, and statistical sampling with extrapolation. Strong Office of Inspector General Reporting practices—hotlines, self-disclosure when appropriate, and timely corrective action—demonstrate good faith and can mitigate outcomes.

Prevention and Detection Strategies

Build Health Care Compliance Programs

Implement a written compliance plan aligned to OIG guidance: clear policies, a designated compliance officer, targeted training, effective reporting channels, routine auditing and monitoring, consistent discipline, and timely remediation. Active governance and board oversight are essential.

Embed Coding and Billing Standards

Use current ICD-10-CM, CPT, and HCPCS guidance, plus payer policies and NCCI edits. Standardize medical necessity criteria, documentation checklists, and attestation practices. Maintain provider signature protocols, accurate NPI use, and date-of-service integrity to satisfy medical billing regulations.

Use Analytics for Fraudulent Claims Detection

Deploy pre-claim scrubbers, edit libraries, and predictive models to flag outliers in utilization, code combinations, units, or place-of-service. Monitor trends by provider, location, and diagnosis-related groups. Pair analytics with targeted chart reviews and rapid feedback to clinicians.

Strengthen Internal Controls

Segregate duties across coding, charge entry, and claim submission. Require secondary review of high-risk codes and modifiers. Enforce access controls in EHR and billing systems and maintain audit logs. Document approvals for refunds, adjustments, and write-offs.

Train and Engage Staff

Provide role-specific education on documentation, coding, and privacy requirements. Conduct refresher sessions for new guidelines and payer updates. Reinforce speak-up culture and non-retaliation so staff report issues early.

Vendor and Referral Oversight

Screen contractors and referral sources against exclusion lists, evaluate financial relationships, and use written agreements. Periodically audit DME, lab, and telehealth partners for compliance with coverage and documentation requirements.

Incident Response and Office of Inspector General Reporting

When issues arise, preserve records, assess impact, stop the practice, and quantify overpayments for timely refund. Consider OIG self-disclosure or payer disclosure protocols when appropriate. Document investigations, corrective actions, and monitoring to demonstrate a credible compliance response.

Alignment with Medicare Program Cost Containment

Integrate utilization management, care pathways, and prior authorization checks into workflows. Track preventable admissions, duplicate tests, and high-cost prescribing to reduce waste while protecting access and quality.

Key Takeaways

Clear definitions, vigilant monitoring, and disciplined controls reduce FWA risk. Strong compliance programs, adherence to coding and billing standards, and transparent reporting support cost containment and durable, ethical practice.

FAQs.

What constitutes health care fraud?

Fraud is an intentional deception to obtain payment or other benefit not entitled to you—for example, billing for services not rendered, knowingly upcoding, receiving kickbacks for referrals, or falsifying documentation to support claims.

How can health care waste be identified?

Look for redundant tests, low-value services, inefficiencies, and rework. Use analytics to spot outliers, track avoidable admissions, measure denial and appeal rates, review supply expirations, and compare prescribing or imaging patterns against evidence-based benchmarks.

What are common examples of abuse in medical billing?

Abuse includes improper modifier use, unbundling contrary to rules, consistently inflated E/M levels without support, billing non-covered services as covered, incident-to noncompliance, and excessive pricing that departs from accepted standards.

How is health care fraud reported and investigated?

Report concerns to your compliance office or hotline, and when appropriate to payers or the Office of Inspector General. Investigations typically combine data analysis, medical record review, interviews, and, if warranted, subpoenas. Findings may lead to repayments, health care regulatory penalties, or administrative actions, with protections available for whistleblowers.