Upcoding, Unbundling, and Other Forms of Healthcare Fraud

These small percentages explode in massive programs like Medicare and Medicaid. Medicare is a huge target for fraud; it covered around 67 million people in 2024, with projected spending exceeding $1 trillion in recent years. Medicaid covered about 78 million people in June 2025, with total spending of $919 billion in the federal fiscal year (FFY) 2024 (rising further into FY2026). The pool of potential healthcare fraud extends even further to the privately insured. And healthcare fraud itself exists on a wide spectrum, ranging from a one-off act by a single individual to a complex recurring scheme with multiple conspirators.

In FY2023 alone, federal efforts recovered $3.4 billion from healthcare fraud, returning approximately $974 million to Medicare Trust Funds. Fighting healthcare fraud requires a collaborative effort between providers, patients, administrators, and the public. It also requires greater awareness about what healthcare fraud is—and what it isn’t. Read on to learn more about upcoding, unbundling, and other forms of healthcare fraud.

“The rules for Medicare are so confusing as to what you can bill for, what the codes are, and everything else, that some practitioners and administrators think that what the government calls healthcare fraud is really just a bunch of errors being made,” Saccoccio says. “But that’s not the case: there really is deliberate, extensive fraud that occurs. And it’s not just folks that made a mistake or didn’t know what the rules were.”

Healthcare providers use thousands of CPT codes in the U.S. to bill for procedures, treatments, conditions, or drugs covered by insurance like Medicare and private plans.

Each code has a set payment rate based on its complexity, urgency, and severity—a simple office visit pays much less than major surgery. The American Medical Association (AMA) updates this list every year to keep up with medical advances. For CPT 2026, they added 288 new codes, deleted 84, and revised 46 for a total of 418 changes covering AI tools, remote monitoring, and new procedures.

With so many codes and constant changes, it’s easy to pick the wrong one, intentionally or not, which is where upcoding often starts. Proper training helps providers bill accurately and avoid fraud risks.

Upcoding happens when a healthcare provider bills for a code for a more complex or expensive service than they actually provided to the patient, to get higher payments from insurance such as Medicare or Medicaid. For example, charging for a “high-level” hospital visit when it was just basic care.

Recent studies show upcoding costs Medicare about $3.48 billion per year on average, mostly from doctor services. In 2025, CMS found that upcoding caused $1.8 billion in improper Part B payments, with codes like 99233 driving $490 million in overpayments.

“On the individual practitioner side, the average physician or physician group practice should make sure their staff has gotten proper training about coding,” Saccoccio says. “They should also have a compliance plan in place to make sure the ones doing coding and billing know what the rules are, and if they see something that may be wrong, that they report it and correct it.”

Unbundling occurs when providers split a single service into multiple billable codes instead of using a single “bundled” code to charge more. For example, billing separately for a urine test’s collection, analysis, and report when it’s one test. In October 2024, Precision Toxicology agreed to pay $27 million to settle DOJ claims of unbundling unnecessary urine drug tests billed to Medicare and Medicaid.

Notably, it’s not always just solo doctors. Big hospitals and companies get caught, too. In November 2024, the University of Colorado Health (UCHealth) agreed to pay $23 million to settle Department of Justice (DOJ) claims of upcoding emergency room visits for Medicare and Tricare (DOJ settlement announcement). An employee reported the fraud to the government. UCHealth used an automatic coding system that billed higher-level ER codes than the care provided, leading to millions in overpayments.

“When it comes to the public, there’s a lack of information, a lack of understanding around how much healthcare fraud is out there,” Saccoccio says. “A lot of the cases we see are broader types of fraud.”

Some of the most egregious forms of healthcare fraud include billing Medicare for equipment, services, and patients that don’t exist and racking up phony charges in the hundreds of thousands or millions of dollars. Durable medical equipment (DME) fraud remains among the biggest cases, often involving fake offices, sham patient referrals, and even money laundering rings.

In the 2025 DOJ National Takedown, a ring allegedly billed $10.6 billion to Medicare for fake urinary catheters using stolen identities of 1 million Americans.

Healthcare fraud impacts everyone. In Medicare fraud, it picks the pocket of the taxpayer; in private insurance fraud, the financial cost comes in the form of higher premiums. Patients can be impacted in tangibly dangerous ways, subjected to unnecessary treatments or phony treatments that can harm their health. The reputation of the healthcare system as a whole suffers from the actions of a few unscrupulous actors.

“It really varies when it comes to who is committing healthcare fraud,” Saccoccio says. “It could be a healthcare provider who came into the system honestly, then went in the wrong direction. It could be someone who commits fraud in business. The majority of fraud comes from bigger fraud schemes, but there’s also some nickel and diming going on.”

As technology advances, healthcare fraud schemes evolve too. AI-powered coding tools now help providers upcode more efficiently, while Medicare Advantage risk adjustment fraud exploded as plans grew to cover 54 percent of Medicare beneficiaries in 2025.

CMS audits identified Medicare Advantage overpayments estimated at $17 billion annually across plans. But the same technology—like AI analytics and real-time claims monitoring—helps detect and stop fraud before payments go out.

“The key now in healthcare fraud, from the standpoint of the payers, at least, is trying to get out ahead of the curve: prevention, as opposed to pay-and-chase,” Saccoccio says. “The way you prevent healthcare fraud is, one, through data analytics, and two, through information sharing.”

Data analytics is a powerful fraud prevention tool. By analyzing claims data and looking for outliers, it’s possible to identify instances of fraud and cut off avenues for more in the future. But individual payers can only see a small piece of the overall picture: information sharing across public and private payers gives everyone better visibility. 

The National Health Care Anti-Fraud Association (NHCAA) was formed in 1985 as a private-public partnership to share anti-fraud information among insurers and government agencies. Today, NHCAA has more than 100 members, including insurance companies, government agencies, and affiliates. It also serves several hundred individual members from private insurers, law enforcement, and regulators.

Additionally, the Healthcare Fraud Prevention Partnership (HFPP) was formed as a public-private partnership in 2012. Its initial 21 partners have grown to 310, making HFPP uniquely positioned to examine emerging trends by analyzing aggregated claims data and developing key recommendations and strategies to address them.

“The healthcare system is so large, and so complex, that you’re never going to be able to totally do away with all fraud and abuse,” Saccoccio says. “But, certainly, progress is being made.”

Matt Zbrog

Writer

Matt Zbrog is a writer and researcher from Southern California. Since 2018, he’s written extensively about trends within the healthcare workforce, with a particular focus on the power of interdisciplinary teams. He’s also covered the crises faced by healthcare professionals working at assisted living and long-term care facilities, both in light of the Covid-19 pandemic and the demographic shift brought on by the aging of the Baby Boomers. His work has included detailed interviews and consultations with leaders and subject matter experts from the American Nurses Association (ASCA), the American College of Health Care Administrators (ACHCA), and the American Speech-Language Hearing Association (ASHA).