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Negligence, Abuse or Fraud in Medical Coding

Law Offices Of David S. Barmak LLC - Princeton Junction Office

January 7, 2011

Often times, the discussion of negligent, abusive and/or fraudulent reimbursement practices focuses on what the payer has been charged. Of equal importance, and requiring the same level of professional due diligence, is the medical coding.  Medical coding is the representation of diseases, injuries, medical conditions and intervention procedures into numeric or alphanumeric terms.  The codes are predetermined to allow a ‘shorthand’ for the professional/the health care organization to communicate what is medically affecting the patient and what procedures were performed to diagnose and/or to treat these concerns.

In 1983, The Medicare’s Prospective Payment System (PPS) was designed to control Medicare expenditures and to provide a method to communicate medical information. The rate of reimbursement was based on Diagnosis Related Groups (DRGs), a classification of approximately 500 illness identified in the International Classification of Diseases, Ninth Revision, Clinical Modification, (ICD-9-CM).  Medical codes were further defined in The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1987 (HR5721) which amended The Consolidated Omnibus Reconciliation Act (COBRA) of 1985 (HR3128) to expand the health organizations authorized to enroll Medicaid beneficiaries and required all participating health care organizations to appropriately use a coding system for reimbursement when billing for Medicaid assignment. Additionally, “The Health Insurance Portability and Accountability Act of 1996 (HIPAA) determined the standards for the classification systems that covered entities must use to identify specific diagnosis and clinical procedures on claims, encounter forms, and other electronic transactions - HIPAA also names specific standards for electronic transactions when submitting medical claims”. (The American Health Information Management Association, 2010)  The ICD-10, sanctioned by The World Health Assembly in 1994, modified The ICD-9-CM. The ICD-10, in the United States, consists of 155,000 codes for diagnoses and medical conditions, signs, symptoms, complaints, social contexts and causation.  The data generated through the use of the ICD taxonomy can be the basis of: (1) the justification of reimbursement for services provided, (2) categorical groupings to establish benchmarks and quality improvement indicators, and (3) the necessary evidence used in justifying service costs. Full conversion to The ICD-10 is expected by 2013.  The Health Insurance Claim Number Form (Section 21; Items 1-4; Section 24 E, Diagnosis Code), approved by the American Medical Association,  Council on Medical Service 8/88, requires the use of these codes for physicians and suppliers to submit reimbursement claims. Additional coding systems, The CPT (Current Procedural Terminology), developed by The American Medical Association (AMA) and The HCPC (HealthCare Common Procedure System) are intended to report provider services and procedures. The use of The CPT 2011 was required as of January, 2011. To complete The Health Insurance Claim Number Form (Section 24D, Procedures, services or supplies), The CPT Codes and The HCPC Codes as modifiers, are required.


The conflict presented in the use of medical codes is how to assure adequate reimbursement while appropriately representing the patient’s condition and the services provided. In 1997, The US Department of Health and Human Services (HSS) established a Fraud and Abuse Control Program directed under The Office of Inspector General (OIG), to protect the integrity of The HHS program. The HHS OIG has established the standard of acceptable business practices to reduce fraud and abuse in the claims process. Medical billing coders, regardless of their relationship to the health care organization (e.g. out sourced or departmental staff), are obligated to the highest standard of practice and ethical principles.  The American Health Information Management Association (AHIMA) provides a code of ethics which is the industry standard for health information coding (AHIMA, 2010).


One of the primary ‘red flags’ determined by the HHS OIG is a variance in the case mix of the patient population, either as an increase in the medical severity over time and/or when there is a disproportionate number of high-severity claims compared to the general population. The three most common methods used to shift the patient population mix, and designed to fraudulently increase reimbursement are: upcoding, unbundling, and downcoding. Upcoding is the practice of assigning a medical code which will derive a greater financial benefit than allowed by the patient’s presenting condition and/or the services provided.  Exaggerating the patient’s diagnosis may be the substitution of a diagnosis known to net more money and/or the reporting of medical complications not presented by the patient. The misrepresentation of patient services is frequently claiming services for the exaggerated diagnosis, inflating the services provided, or for services not rendered.  Unbundling is the reporting of the medical conditions individually to increase reimbursement when a code exists for the more comprehensive diagnosis.  Downcoding is when a health care organization bills for a lesser reimbursed condition to avoid bringing attention to itself or with the knowledge that the lesser code will get reimbursed more expeditiously.

When errors in medical coding are identified, The HHS OIG will determine the degree of liability.  Negligence is the performance of sub-standard practice due to insufficiently trained personnel, a lack of oversight of the operation by the management and/or transcription errors. Fraud is defined as knowingly, and wilfully executing or attempting to execute a scheme for personal gains, to procure benefits by means of false or fraudulent pretences, representations, or promises, and/or to provide fraudulent information to any representative of The HHS OIG during its investigation . Abuse is defined as acts that are inconsistent with sound practice.  Unlike fraud, abuse is an unintentional act that directly or indirectly results in an overpayment to the provider.

When the investigator cannot establish the act was committed as knowingly, wilfully, or intentionally , it is found to be abuse. Under The False Claims Act (FCA) of 1986 those charged with fraud may be assessed fines of $5,500 to $11,000 per claim. The Fraud Enforcement and Recovery Act of 2009 (FERA) amended the FCA  to include additional fines for “making or using a false record or statement material to a false or fraudulent claim or to an ‘obligation’ to pay money to the government - and concealing, improperly avoiding or decreasing an ‘obligation’ to pay money to the government”.

The prevention of medical coding negligence, abuse and/or fraud requires effective self-assessment and the development of a corporate compliance program which designates a Corporate Compliance Officer/Quality and Performance Improvement Manager who does not directly gain from the reimbursement process of the health care provider or the health care organization.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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