Hospital Fraud: Admission Status, Coding and Physician Arrangements
Hospital fraud under the False Claims Act includes admitting patients as inpatients when observation status was appropriate, upcoding diagnosis-related groups, billing medically unnecessary procedures, and maintaining physician compensation arrangements that violate the Stark Law or Anti-Kickback Statute.
Inpatient versus observation is the biggest category
An inpatient admission pays substantially more than observation. The clinical distinction turns on expected length of stay and medical necessity, and it is a judgment call at the margin.
The fraud is not a single wrong call. It is a system that pushes the call in one direction: admission targets, utilization review overridden by administration, or clinical decision support tuned to recommend admission. Case managers and utilization review nurses see this immediately.
DRG upcoding and severity capture
Inpatient payment is driven by the diagnosis-related group, which is driven by documented diagnoses and complications. Adding secondary diagnoses raises the weight.
Clinical documentation improvement programs are legitimate and required. They cross the line when queries are leading, when they only ever run in the direction that raises payment, and when documentation is added that the clinical record does not support.
Physician arrangements
Hospitals compensate physicians through employment, medical directorships, on-call pay, leases, and recruitment agreements. Each is a financial relationship implicating the Stark Law, which is strict liability.
- Compensation above fair market value for the services actually performed
- Medical directorships where the duties are not performed or documented
- Compensation that varies with the volume or value of referrals
- Written agreements that expired while the arrangement continued
- Recruitment and income guarantee arrangements outside the exception
- Leases at below-market rates to referring practices
The 60-day rule applies here too
Hospitals run internal audits that identify overpayments. Once identified, the Affordable Care Act requires reporting and returning them within 60 days. Retaining them converts the overpayment into a reverse false claim.
Compliance and internal audit staff frequently know an issue was quantified and never returned, and that documentation is a case in itself.
Frequently asked questions
I am a case manager overruled on admission status. Is that a case?
It can be. A pattern of utilization review determinations overridden by administration, with billing following the override, is exactly the evidence these cases are built on. Document the specific cases and who directed the change.
Are clinical documentation improvement programs illegal?
No, they are standard and appropriate. The problems are leading queries, one-directional review that never removes unsupported codes, and documentation the record does not support.
Can a physician arrangement be a problem if nobody intended anything wrong?
Under the Stark Law, yes. It is strict liability, so a technical failure such as an unsigned or expired agreement can put the arrangement outside its exception regardless of intent.
The attorneys who handle these cases
Related reading
Talk to a whistleblower attorney before you report
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