According to the National Health Care Anti-Fraud Association (NHCAA), healthcare fraud costs the United States an estimated $68 billion every year, representing roughly 3% of all healthcare spending.

A separate report from the Centers for Medicare & Medicaid Services (CMS) stated that improper payments in Medicare alone reached $31.2 billion in 2023. These are not small numbers—they directly affect patients, taxpayers, providers, and the quality of healthcare services across the country.

Healthcare fraud involves knowingly deceiving a healthcare program to receive unauthorized benefits, whether it’s extra payment, free services, or illegal financial gain. Fraud shows up in hundreds of ways, from fake medical bills to illegal kickbacks.

What Is Healthcare Fraud?

Healthcare fraud occurs when an individual or organization intentionally misrepresents information to obtain money or benefits from a healthcare program—especially Medicare, Medicaid, or private insurance companies.

The U.S. Department of Justice (DOJ) defines healthcare fraud as:

“Knowingly executing a scheme to defraud any healthcare benefit program.”

Fraud is different from waste (accidental overuse of services) and abuse (misuse of services). Fraud requires intent.

Why Healthcare Fraud Is a National Issue?

There are three reasons this problem is massive:

1. It costs taxpayers money

Medicare and Medicaid are funded by public taxes. Fraud drains billions every year, raising costs for everyone.

2. It puts patient safety at risk

Unnecessary procedures, fake prescriptions, and false diagnoses can harm patients.

3. It increases insurance premiums

Insurance companies pass the cost of fraud to consumers.

The FBI estimates healthcare fraud costs the U.S. $100 billion annually when public and private losses are combined.

Most Common Types of Healthcare Fraud

Below is a detailed breakdown of the most frequent forms of fraud occurring in clinics, hospitals, pharmacies, telehealth setups, and insurance networks.

1. Billing & Coding Fraud
2. Upcoding
3. Unbundling
4. Phantom Billing
5. Falsifying Diagnosis
6. Kickbacks & Illegal Referrals
7. Prescription Drug Fraud
8. Pharmacy Fraud
9. Durable Medical Equipment (DME) Fraud
10. Medicare Fraud
11. Medicaid Fraud
12. Telemedicine Fraud
13. Home Healthcare Fraud
14. Medical Identity Theft
15. Patient Fraud
16. Provider Fraud
17. Insurance Fraud

1. Billing Fraud

Billing fraud occurs when a provider charges for services that were never performed, not medically necessary, or incorrectly coded.

Billing fraud makes up nearly 50% of all healthcare fraud cases according to the Office of Inspector General (OIG). There are several subtypes of billing fraud, including phantom billing, upcoding, unbundling, double billing and Inflated charges.

2. Upcoding

Upcoding involves billing for a more expensive service than what was actually provided.

Example:

A patient receives a simple 10-minute check-up. The clinic bills insurance for a level 4 or 5 office visit, which is meant for complex medical evaluations.

Real Case (DOJ):

A Miami medical clinic billed $7 million in upcoded services that patients never received.
Source: DOJ.gov. Upcoding is one of the most common fraud strategies because it is harder to detect without audits.

3. Unbundling

Unbundling occurs when a provider bills separate codes for procedures that should be billed together at a reduced “bundled” rate.

Example:

A surgeon performs a single surgical procedure that includes anesthesia, a post-op assessment, and suturing. The surgeon bills each component separately to increase reimbursement.

Government Example:

The OIG found 32% of unbundled claims in a 2022 audit of outpatient surgical facilities.

4. Phantom Billing

Phantom billing is the act of billing for services, tests, or procedures that never took place.

Example:

A physical therapist bills for 12 sessions when the patient only attended 4.

Notable Case:

A California clinic owner billed Medicare $4.2 million for non-existent physical therapy sessions.
Source: HHS-OIG.

Learn More: What Is a Class D Felony? | Crime and Punishment

5. Falsifying Diagnoses

Falsifying diagnoses happens when a provider exaggerates or fabricates a diagnosis to justify billing insurance for more expensive treatment.

Example:

Assigning a diagnosis of chronic obstructive pulmonary disease (COPD) to a patient who only has mild allergies.

Insurance companies reimburse more for chronic or serious conditions, making it financially tempting for fraudulent providers.

6. Kickbacks & Illegal Referrals

The Anti-Kickback Statute (AKS) makes it illegal for healthcare providers to receive compensation in exchange for referrals. Kickbacks can include are cash, free rent, gifts, vacation trips, expensive equipment and referral bonuses.

Example Cases:

• A medical device company paid $17 million in kickbacks to doctors.
• A lab company offered doctors free office staff in exchange for sending all blood tests to their lab.

7. Prescription Drug Fraud

Prescription drug fraud includes activities that involve illegally obtaining or distributing controlled substances.

The Drug Enforcement Administration (DEA) reports that opioid-related healthcare fraud has increased by 28% since 2019.

Common prescription fraud schemes:

1. Doctor shopping

Patients visit multiple doctors to obtain multiple prescriptions.

2. Forged prescriptions

Fraudsters create fake prescriptions for opioids, ADHD meds, or benzodiazepines.

3. Pill mills

Clinics distribute large quantities of controlled substances with no medical justification.

4. Pharmacy collusion

Pharmacies and clinics work together to bill for medically unnecessary drugs.

5. Diversion schemes

Legitimate prescriptions are sold illegally on the black market.

8. Pharmacy Fraud

Pharmacies commit fraud when they bill insurance for:

• Drugs never dispensed
• Fake refills
• Higher-priced brand drugs while giving patients generic versions
• Compounded medications that are unnecessary

Case Example:

A Texas pharmacy billed $21 million for compounded creams that were never dispensed.

9. Durable Medical Equipment (DME) Fraud

DME includes wheelchairs, oxygen machines, braces, walkers, and prosthetics. DME fraud increased by 45% during the COVID-19 pandemic due to telemarketing scams and fraudulent supply companies (OIG report, 2023).

Common DME fraud examples:

• Billing for equipment never delivered
• Providing unnecessary braces to elderly patients
• Submitting claims for high-end equipment but delivering cheaper alternatives
• Using stolen Medicare numbers

Government Case:

A nationwide DME scam resulted in $1.2 billion in fraudulent Medicare claims.
Source: DOJ’s “Operation Brace Yourself.”

10. Medicare Fraud

Medicare fraud involves improper billing to the federal Medicare program. According to CMS:

• Medicare improper payments (2023): $31.2 billion
• Medicare fraud convictions (2023): 412 defendants

Common types of Medicare fraud:

• Billing for unnecessary services
• Billing for deceased patients
• Identity theft schemes
• Home health agency fraud
• Hospice fraud
• DME fraud
• Upcoding and phantom billing

11. Medicaid Fraud

Medicaid fraud involves misusing funds from the joint federal-state program for low-income individuals.

Medicaid is particularly vulnerable because:

• Millions of claims are processed daily
• Providers face less oversight in some states
• Many services occur in home-care environments

Common Medicaid fraud schemes are billing for services not provided, patient kickbacks, transportation fraud (especially non-emergency medical transport services) and Pediatric dental fraud.

12. Medical Identity Theft

Medical identity theft occurs when someone steals a patient’s personal information to obtain medical services or submit fraudulent claims.

Commonly stolen items:

• Medicare numbers
• Medicaid IDs
• Driver’s licenses
• Social Security numbers
• Insurance member IDs

13. Insurance Fraud

Insurance fraud can occur at the level of patients, providers, insurance companies and insurance agents.

Common insurance fraud schemes include:

• Filing fake injury claims
• Inflating legitimate claims
• Insurance companies denying valid claims to reduce payouts
• Agents pocketing premiums without issuing policies

Insurance fraud increases costs for everyone in the system.

Red Flags and Warning Signs of Healthcare Fraud

Patients should watch for the following signs:

• Bills for services you never received
• Duplicate charges
• Providers asking for your Medicare number “just in case”
• Receiving medical supplies you didn’t order
• Charges for equipment you returned
• Doctors who rush visits but bill for long sessions
• Providers offering cash or gifts for using their service

How to Prevent Healthcare Fraud?

For Patients

• Review explanations of benefits (EOBs)
• Protect your Medicare/insurance number
• Never sign blank medical forms
• Avoid “free medical supplies” offers
• Ask for detailed bills

For Providers

• Use certified billing coders
• Train staff on compliance
• Avoid referral arrangements that seem suspicious
• Maintain accurate medical records
• Conduct internal audits

For Insurance Companies

• Use AI-based fraud detection tools
• Perform routine audits
• Flag unusual billing patterns
• Verify provider credentials

What are the Legal Penalties for Healthcare Fraud?

Penalties depend on the severity of fraud.

Criminal Penalties Include:

• Fines up to $250,000 per offense
• Prison sentences of 10–20 years for major fraud
• Lifetime bans from Medicare/Medicaid
• Seizure of assets

The False Claims Act allows the government to recover three times the amount of the fraudulent claim.

How to Report Healthcare Fraud?

You can report fraud to:

1. HHS Office of Inspector General (OIG)

https://oig.hhs.gov/fraud/report-fraud

2. Medicare Fraud Hotline

1-800-HHS-TIPS (1-800-447-8477)

3. Medicaid Fraud Control Unit (MFCU)

Each state manages this.

4. FBI Field Office

https://www.fbi.gov/contact-us

5. Insurance Company Hotlines

Most insurers maintain fraud reporting systems.

Conclusion

Healthcare fraud is not just a financial crime — it directly threatens patient safety and burdens the entire healthcare system. By understanding the most common types of fraud, recognizing red flags, and reporting suspicious behavior, patients and providers can help reduce this growing problem.

Billions of dollars are lost every year to fraud, but awareness, strong compliance systems, and patient vigilance create a powerful defense. Whether you’re a healthcare professional, insurer, or patient, your actions can make healthcare safer, more ethical, and more affordable for everyone.

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