Upcoding, Unbundling & Phantom Billing: How Medicare Fraud Actually Gets Caught

Most Medicare and Medicaid fraud isn’t uncovered by a dramatic government raid. It’s uncovered because someone inside the organization — a coder, a biller, a nurse, a compliance auditor, an office manager — noticed that the numbers didn’t match reality, and eventually said something. If you’re staring at a billing pattern that feels wrong and trying to figure out whether it’s a training issue or something more serious, understanding how these schemes are actually built — and actually caught — is the first step.

This guide walks through the three most common forms of Medicare billing fraud — upcoding, unbundling, and phantom billing — what each one looks like in practice, and how they typically come to light.

Why Billing Fraud Is Different From a Billing Mistake

Not every coding error is fraud. Medicare billing is genuinely complicated, and honest mistakes — a coder misreading documentation, a new employee applying the wrong modifier, an EHR template defaulting to the wrong code — happen constantly in every legitimate practice. The False Claims Act (31 U.S.C. §§ 3729–3733) targets knowing submission of false claims, which generally means the provider knew the claim was false, acted in deliberate ignorance of its truth or falsity, or acted in reckless disregard of the truth.

The distinction that usually separates an honest error from fraud is pattern and intent: a single miscoded claim caught and corrected looks like a mistake. The same error repeated across thousands of claims, especially when it consistently favors higher reimbursement and persists after being flagged internally, starts to look like a business practice.

Upcoding: Billing for More Than What Happened

Upcoding occurs when a provider bills for a higher level of service, a more complex procedure, or a higher-acuity patient than what the medical record actually supports. Common examples include:

• Billing a routine office visit under a higher-level Evaluation and Management (E/M) code than the documented complexity supports
• Coding a straightforward outpatient procedure as though it required significantly more physician time or medical decision-making
• Assigning diagnosis codes to Medicare Advantage patients that inflate their risk-adjustment score without supporting clinical documentation
• Billing an assistant-level service as though a physician personally performed it

How it typically gets caught: Upcoding leaves a paper trail by definition — the mismatch exists between the documentation and the code submitted. It’s most often flagged by internal coders or auditors who notice a provider’s coding consistently skews toward higher-paying codes with unusually little supporting documentation, or by comparing an individual provider’s coding distribution against national or regional Medicare billing norms, which the Centers for Medicare & Medicaid Services (CMS) and its contractors routinely analyze. A biller or coder who is instructed to “just code it higher” — or who is quietly discouraged from querying a physician about thin documentation — is often the first person to recognize the pattern, long before any government audit does.

Unbundling: Billing Separately for What Should Be Billed Together

Unbundling occurs when a provider separately bills for individual components of a procedure that Medicare requires to be billed together under a single, lower-paying comprehensive code. Medicare’s National Correct Coding Initiative (NCCI) edits exist specifically to prevent this, but schemes still emerge, including:

• Billing separate CPT codes for each step of a single surgical procedure instead of the comprehensive code that covers the full procedure
• Splitting a single lab panel into its individual component tests to increase total reimbursement
• Billing pre- and post-operative care separately when it’s supposed to be bundled into the global surgical package
• Using modifiers (like modifier 59) to bypass NCCI edits without a legitimate clinical basis for treating the services as separately billable

How it typically gets caught: Unbundling is often the easiest of the three to detect at scale, because it shows up as a statistical anomaly — a practice or facility that consistently bills bundled-code pairs separately, at a rate far outside its peers, is exactly what claims-data analytics are built to flag. Internally, it’s frequently a biller who notices the same override or modifier being applied as a default rather than case-by-case, especially if leadership discourages questions about it.

Phantom Billing: Billing for Services Never Provided

Phantom billing is the most direct form of fraud: billing Medicare or Medicaid for services, equipment, tests, or visits that never actually happened, or that were provided to a patient who was never seen. Variations include:

• Billing for appointments a patient never attended (a “no-show” billed anyway)
• Billing for durable medical equipment that was never delivered
• Billing for lab tests never run, or diagnostic imaging never performed
• Continuing to bill for services after a patient has died or been discharged
• “Ghost” patient billing, where claims are submitted for individuals who were never actually treated by the provider at all

How it typically gets caught: Phantom billing is often the easiest scheme to prove, once someone comes forward, because it’s the most falsifiable against objective records — appointment logs, equipment delivery records, lab requisitions, and even a patient’s own account of their care. It’s frequently discovered by front-desk or scheduling staff who notice billed visits that don’t match the appointment calendar, or by patients themselves who receive an Explanation of Benefits for care they never received and mention it to an employee rather than reporting it themselves.

The Common Thread: Insiders See It First

Government auditors and CMS data-analytics contractors do catch fraud through statistical outlier detection, but by the time a claims-data anomaly triggers a formal government audit, the scheme has often been running — and generating illegitimate Medicare payments — for months or years. The earliest and clearest evidence almost always exists inside the organization first: in the gap between what the chart says and what was billed, in the coder who was told not to ask questions, in the scheduling log that doesn’t match the claims submitted.

That’s precisely why the False Claims Act allows private individuals with inside knowledge to bring a qui tam lawsuit on the government’s behalf — the people positioned to catch this early are rarely the government’s own auditors. They’re billing specialists, coders, nurses, office managers, and compliance staff who saw the mismatch before anyone else did.

What to Do If You’ve Noticed One of These Patterns

If you’re recognizing your own workplace in this article, a few things are worth doing before you decide how — or whether — to act:

• Document what you’ve observed, including dates, specific claims or patients where possible, and whether you raised the issue internally and what response you got
• Distinguish between what you personally witnessed and what you were told secondhand — this matters significantly for your legal standing if you later pursue a qui tam claim (see our guide on the False Claims Act’s “original source” requirement)
• Be cautious about how you gather evidence — accessing records outside your normal job duties, even to document fraud, can create its own legal complications
• Talk to an attorney before reporting internally, if you believe the conduct may rise to the level of fraud rather than a correctable error — how and when you report can affect both your legal protections and your standing to bring a claim later

Talk to a Michigan Healthcare Fraud Attorney

Recognizing a billing pattern that looks like fraud is unsettling, and deciding what to do next shouldn’t be a decision you make without understanding your options. At Szura & Delonis, PLC, our qui tam practice draws on the same health care regulatory background we use to advise providers on Medicare and Medicaid billing compliance — which means when you describe what you’ve seen, we recognize immediately whether it fits a known fraud pattern or falls into a genuine compliance gray area.

Every initial conversation is confidential and free of charge. Learn more about our Qui Tam and False Claims Act practice, or call us directly to discuss what you’ve observed.

Phone: (248) 716-3600

Email: admin@szuradelonis.com

Address: 29777 Telegraph Rd #2401, Southfield, MI 48034

This article is provided for general informational purposes only and does not constitute legal advice. Whether a specific billing pattern constitutes fraud under the False Claims Act depends on the facts involved, including intent. If you believe you have information about health care billing fraud, consult an attorney about your specific situation before taking any action.