Healthcare Billing Fraud: Upcoding, Unbundling, and Payor Audits
A single billing code repeated across a few thousand claims can open a federal healthcare fraud investigation. Government contractors scan Medicare and Medicaid data for outliers every day. A practice that bills more high-level visits than its peers can be flagged before anyone files a complaint. Aaron L. Wiley, P.C., defends physicians, clinics, pharmacies, and healthcare executives facing billing fraud allegations and payor audits in the Northern District of Texas.
What Upcoding Looks Like to Investigators
Upcoding means billing for a more complex or more expensive service than the one actually provided. The claim says one thing, but the chart says another.
Office visits are billed at level 4 or 5, even when the notes suggest a level 3 would be more appropriate.
Ambulance transports are coded as advanced life support, despite the patient only needing basic transport.
Durable medical equipment is billed at a higher price than what was actually delivered.
Hospice or home health services are billed for a more intensive level of care, even if the records indicate otherwise.
Extra diagnosis codes are added to Medicare Advantage records in order to increase a patient’s risk score, which is a major target for both the DOJ and whistleblower groups.
Evaluation and management (E/M) coding has caught many physicians by surprise. Since the 2021 guideline changes, levels of office visits have turned on medical decision-making or total time spent that day. These are judgment calls. However, when your level 5 billing is far above specialty standards year after year, investigators stop treating it as a judgment call.
Preliminary Investigation and Evidence Gathering
Many services are priced as packages. Unbundling occurs when the components are billed separately, increasing the payment.
The CMS enforces this through the National Correct Coding Initiative (NCCI), which identifies code pairs that should not be billed together for the same patient on the same day. These problems typically occur in the following situations:
Individual lab tests are billed when they should be included in a panel.
Separate charges for preoperative and postoperative care are added when they are already included in the global package for surgery.
Modifier 59 or the X modifier is used to submit a claim that has been edited by NCCI, but there is no evidence in the record to support the claim.
Modifier 25 is added to routine visits on procedural days, often by habit.
Modifiers are legitimate tools. When overused, they become evidence.
When Does a Billing Mistake Become Fraud?
Every practice makes coding errors. The legal question is what you knew.
The False Claims Act applies to claims submitted “knowingly,” a term that covers deliberate ignorance and reckless disregard, not just actual knowledge. In U.S. ex rel. Schutte (2023), the Supreme Court held that the focus is on what the defendant actually understood and believed at the time. This puts your emails, compliance memos, and coding complaints at the center of the case.
Criminal charges carry a higher bar. The federal health care fraud statute requires proof that someone knowingly and willfully carried out a scheme to defraud a health care benefit program, and private insurers count. Each count carries up to 10 years in prison, with more if a patient was seriously hurt.
The consequences can stack on top of each other:
Civil False Claims Act liability, including treble damages plus a penalty for every claim
Criminal charges, sometimes paired with false statements relating to health care matters
Exclusion from Medicare and Medicaid
A complaint to the Texas Medical Board (see our medical board defense page)
State claims under the Texas Medicaid Fraud Prevention Act, which can run alongside a federal case
Who Audits Healthcare Claims?
Most providers work with more than one review agency, sometimes simultaneously. The main parties involved include:
Medicare Administrative Contractors (MACs), who conduct targeted probe and education reviews of small claims
Recovery Audit Contractors (RACs), who are paid based on improper payments they identify
The Texas HHSC Office of Inspector General for Medicaid providers
Unified Program Integrity Contractors (UPICs), fraud-focused agencies that can recommend payment suspensions and refer cases to the HHS-OIG (Office of Inspector General)
Special investigation units at commercial insurance companies, which often lead to law enforcement involvement
The government is also moving faster. On June 23, 2026, DOJ announced the 2026 National Health Care Fraud Takedown and charged 455 defendants, including 90 doctors and other licensed medical professionals. They credited advanced data analytics for exposing fraud networks and freezing suspicious payments early.
How a Payor Audit Turns Into a Federal Case
An audit looks administrative. It doesn’t always remain that way.
A UPIC reviewer who spots a pattern can refer your file to HHS-OIG, which works with the FBI and the U.S. Attorney’s Office. Medicare can suspend your payments based on credible allegations of fraud, often before you even know an investigation is taking place. Contractors may also project errors from a small sample over years of claims. The Medicare Integrity Program statute limits extrapolation to cases where there is a sustained or high level of payment error or where education has already failed.
What to Do When an Audit Letter or Records Request Arrives
The first few weeks will set the tone for everything that follows. Here’s what you need to do:
Keep a calendar of all deadlines. To prevent Medicare from recovering an alleged overpayment during an appeal, you must generally request a redetermination within 30 days and a reconsideration within 60 days.
Save everything, including emails, billing system logs, and electronic health record (EHR) audit trails. Don’t delete anything automatically.
Don’t add or “clean up” medical records after you’ve made a request. Late entries can look like obstruction if they’re made after the request.
Have a lawyer review records before you send them out, and have any internal billing reviews done through your attorney to ensure privilege can be attached.
Don’t speak with agents or the UPIC (Unified Payments Interface for Contracting) investigators without an attorney present. A misstatement could become a charge under 18 U.S.C. § 1001.
Why Providers Choose Aaron L. Wiley, P.C.
Aaron L. Wiley spent 18 years as an Assistant U.S. Attorney in the Northern District of Texas, handling complex fraud and financial crimes. Before that, he served as Dallas County Assistant District Attorney. He knows how billing data becomes a charging decision because he worked inside that process.
That experience shapes the defense. It shapes how clients are treated and helps them to challenge when to engage with the prosecutor and when an audit is best resolved quietly. Most providers have never faced the legal system before, but Mr. Wiley is there to answer the phone and walk you through each step with honest guidance, even when the news is difficult.
Talk to a Healthcare Fraud Defense Lawyer Before the Audit Becomes a Case
By the time an auditor contacts you, someone has usually been studying your claims for months. If you have received a records request, a UPIC letter, a payment suspension notice, or a subpoena, contact Aaron L. Wiley, P.C. We will tell you where your case likely stands and what may still change.
FAQs
Upcoding is when a bill is billed for a service at a higher level than what is actually provided. This can lead to higher payments for the patient. Unbundling is when one service is split into separate codes, which can also lead to increased payments. Both of these practices can raise concerns about fraud, as they may be done in order to increase payments or generate more revenue.
An honest mistake is not a crime. Federal prosecutors need to prove that you acted knowingly and intentionally. Ignoring warning signs or keeping an overpayment that you know about could still lead to civil liability. Our blog explains when billing mistakes lead to federal charges.
Not necessarily. Most MAC and RAC reviews are administrative in nature. However, a UPIC review is different because it specifically looks for fraud. Please treat this letter seriously and get legal counsel involved. Find out what could trigger a federal healthcare fraud investigation.
The government can, and so can private whistleblowers. Former employees, coders, and office managers often file these qui tam cases. The complaints are kept under seal while the government investigates, which can take years.
In most cases, the government can look back six years under the False Claims Act. In some situations, it can go back up to ten years. Most federal criminal charges need to be filed within five years. The Centers for Medicare and Medicaid Services (CMS) also have a six-year rule for reporting overpayments.
Your billing company can review claims and explain the codes. It cannot protect your communications from privilege or judge your criminal liability. Its interests may also differ from yours, if its coders make errors.
