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The Ultimate Guide to US Healthcare Fraud Schemes

Healthcare fraud costs US taxpayers billions per year. Here are eight of the most common schemes.

Posted by Ann Snook on January 6th, 2020

While Medicare and Medicaid help millions of Americans afford the health services they need, the programs are plagued with fraudulent claims. In fact, improper payments account for nearly 12 per cent of Medicaid’s total payout each year, equalling almost $140 billion.

Fraudsters steal money from taxpayers and reduce their access to quality care. This guide details the most common US healthcare fraud schemes.


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Medicare vs. Medicaid


In the US, the government offers two healthcare programs to make services more affordable to a wider range of Americans.

Medicare covers seniors aged 65+, as well as younger people with certain disabilities or end-stage renal disease. It is strictly a federal program designed to help its beneficiaries pay for long-term medical expenses.

Medicaid, on the other hand, aims to help low-income Americans afford health services. Beneficiaries may be any age with any medical needs. Eligibility requirements vary from state to state, with many states favouring families, pregnant women, elderly people and those with disabilities.


RELATED: Investigating Medicare Fraud in 2020: How to Combat Common Challenges


Healthcare Fraud Schemes Similarities and Differences


Because of their similarity in coverage, Medicare and Medicare fraud, waste and abuse (FWA) schemes often overlap. For example, either program could be defrauded by:

  • Billing for unnecessary services or supplies
  • Billing for services or supplies not provided
  • Unbundling services or supplies that are usually grouped together
  • Upcoding (billing for a more expensive service than the one provided)
  • Drug diversion (using prescription drugs not as intended or selling them to others)
  • Kickbacks, bribes and corruption
  • Medical identity theft
  • Selling or giving a duplicate Medicare or Medicaid ID card to someone else
  • Sharing an ID card
  • Submitting false information in order to qualify for coverage


Both Medicare and Medicaid fraud schemes violate the Federal Civil False Claims Act (FCA). This law “protects the Federal Government from being overcharged or sold substandard goods or services.” Any time a beneficiary or healthcare provider submits a fraudulent claim to a government-run healthcare program, whether intentional or not, they could face penalties of up to three times the value of that claim.

In addition to fraud, both programs also have issues with waste and abuse. Waste occurs when someone misuses Medicare or Medicaid resources, such as a doctor scheduling more follow-up appointments for a beneficiary than are necessary. Abuse is essentially unknowing or unintentional fraud. For example, a provider could bill Medicare or Medicaid for a service that isn’t actually covered by a beneficiary’s plan.

Some fraud schemes, though, apply more to one program than the other. For instance, it is easier to lie about your income than your age, so eligibility fraud may occur more with Medicaid. On the other hand, pharmacists auto-refilling prescriptions for deceased beneficiaries probably happens more often with Medicare.

medicare part d fraud

Medicare Parts A and B Fraud


Medicare Part A covers hospital and inpatient services, while Part B covers outpatient medical treatments and supplies. Together, they make lab tests, doctor visits, preventive services and hospital stays affordable for beneficiaries. Unfortunately, both are common targets for fraud.

Beneficiaries, healthcare providers and contractors may work alone or together (collusion) to commit their crimes. When multiple parties collude to defraud a government healthcare program, one person usually performs the primary fraudulent act, while the others receive kickbacks, incentives or bribes in return.

Read more about these healthcare fraud schemes in our overviews of Medicare Part A fraud and Part B fraud.


Medicare Part D Fraud


Medicare beneficiaries have the option of adding Medicare Part D, a prescription drug benefit, to their plans. Depending on the beneficiary’s plan, Part D covers generic and/or brand-name drugs. The involvement of pharmacists and pharmacy benefits managers (third parties that negotiate drug prices, process claims, manage drug distribution to pharmacies, etc.) increases the risk of fraud.

Healthcare fraud schemes such as kickbacks and unnecessary services apply to Part D, but the addition of drugs adds more types of fraud to the list. For example:

  • Doctor shopping (beneficiary gets multiple identical prescriptions from many doctors)
  • Abusing prescription drugs
  • Writing prescriptions for personal use or sale
  • Drugs billed but not dispensed
  • Dispensing expired, returned or counterfeit drugs
  • Billing for brand-name drugs but dispensing generic
  • Overcharging or failing to pass rebate from manufacturer to beneficiary
  • Auto-refilling fraud (filling prescription either unrequested or not collected)


RELATED: What is Medicare Part D Fraud?


Durable Medical Equipment (DME) Fraud


Durable medical equipment (DME) includes healthcare equipment and supplies, including wheelchairs, crutches, hospital beds, oxygen equipment and diabetic testing supplies. This equipment can be expensive, especially for beneficiaries who need it for the long term and/or are on a limited income.

Unfortunately, DME fraud is one of the top healthcare fraud schemes affecting Medicare and Medicaid. Examples include:

  • Billing for unnecessary DME
  • Claiming DME that is ineligible under the beneficiary’s plan
  • Billing for DME that was never provided
  • Knowingly giving a beneficiary defective DME
  • Upcoding to more expensive DME
  • Charging for component parts of DME instead of a whole unit, such as billing for an ostomy bag separately from the skin barrier
  • Billing for the same DME multiple times
  • Marking up DME prices above state standards

healthcare fraud schemes

Fraudulent Drug Treatment Centers


One of the most horrifying healthcare fraud schemes in the US involves fraudulent drug treatment centers and sober homes. Rather than helping people recover from addiction, these facilities defraud Medicaid and Medicare in a variety of ways.

Primarily, fraudulent treatment centers make a profit by keeping patients in a relapse cycle. They allow, or even encourage, drug use to ensure patients have to stay around longer, meaning more treatments to claim.

Operators of these facilities also scam the US healthcare programs by billing for unnecessary services, such as excessive drug tests. This wasteful practice not only gets them money for the claims, but may also involve a kickback scheme with a lab.

Some fraudulent centers even bill for treatments that weren’t given. One owner of a chain of these shady facilities charged insurance providers for phony treatments, including billing patients’ insurance for group therapy when they actually had a movie night. Depending on whether the patient is on Medicare or Medicaid and what state they live in, they could be forced to shell out a copay for treatments they never received.


RELATED: Sober Homes and Fraud: An Even Darker Side of the Opioid Epidemic


Medical Identity Theft


Medical identity theft is defined as “the misuse of a person’s medical identity to wrongfully obtain health care goods, services, or funds.” In 2016, 27 million medical records were breached—that equates to 10 per cent of the US population. Stealing medical data is one of the most attractive healthcare fraud schemes for criminals for a number of reasons.

Fraudsters who steal Medicare and Medicaid information may want it for personal use. For example, someone who doesn’t qualify for either program but can’t afford healthcare may turn to fraud in order to access these services. Alternately, the fraudster may use a stolen ID number to obtain supplies, medical equipment or prescription drugs to sell or sell the data to someone who needs medical care.

In addition, fraudsters may use medical identity theft as a way to commit other Medicare and Medicaid fraud schemes. For instance, a fake DME supplier may steal healthcare ID numbers, then bill the government for supplies they never send. Unless the beneficiaries notice the error, the scheme defrauds the healthcare programs for thousands of dollars per stolen identity.

Edie Hamilton, an expert in clinical and surgical coding, notes that medical identity theft can be consensual. “For example,” she explains, “allowing a relative to present insurance to obtain services they might not otherwise be able to obtain due to cost or coverage restrictions is illegal.”


Download our healthcare fraud schemes cheat sheet for when you need a quick and handy refresher of common ploys.


Kickbacks and Bribes


Sometimes, people work together to orchestrate healthcare fraud schemes. In the case of kickbacks and bribes, one person or group offers cash payments or expensive gifts to another person or group in exchange for helping them commit fraud.

Some examples of kickback and bribe schemes include:

  • Accepting or giving payment for referrals to clinics, labs, hospital systems or treatment centers
  • Paying for patient referrals
  • Receiving payment for prescribing a manufacturer’s drugs
  • Payments for switching to drugs or supplies covered by the beneficiary’s Medicare or Medicaid plan
  • Bribing a patient into using a broker’s plan even though it isn’t the best fit for them


According to the Anti-Kickback Statute (AKS), you may not “knowingly and willfully offer, pay, solicit, or receive remuneration directly or indirectly to induce or reward patient referrals or the generation of business involving any item or service reimbursable by a Federal health care program.” Violating the AKS can lead to expensive fines, as well as exclusion from participating in Medicare and Medicaid.


Conflicts of Interest


Healthcare providers often have financial interests in healthcare facilities. Referring patients to these facilities would put money into their pockets, creating a conflict of interest (COI) situation.

For example, a doctor could refer a patient to a hospital that they’ve invested in. Or, a healthcare facility might offer cheaper rent for office space to doctors who refer patients there. In addition, referring a patient to an immediate family member who practices medicine is also a COI.

While most providers avoid conflicts of interest for ethical reasons, the Stark Law adds a legal incentive to not commit fraud. This law, formally named the Physician Self-Referral Law, prohibits providers from referring Medicare and Medicaid beneficiaries to facilities in which they have a personal interest. Physicians who violate the law may not only have to pay fines and penalties, but could also be excluded from participating in Medicare and Medicaid.


Use our conflict of interest policy template to ensure your employees know what constitutes a conflict of interest and steps to take if they have one.


US healthcare fraud schemes are becoming more and more complex, costing taxpayers billions of dollars annually. However, beneficiaries, doctors, pharmacists, SIU and OIG units and others involved in the programs can educate themselves about fraud, and work together towards better prevention and earlier detection.

Ann Snook
Ann Snook

Marketing Writer

Ann is a marketing writer at i-Sight Software. She writes about issues related to investigations of fraud, employee misconduct, corporate security, Title IX, ethics & compliance and more.

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