Billing Medicare and Medicaid for medical services is done using a complex system of numerical codes that designate various diagnoses and procedures. Reimbursements are based on those codes. The coded, computerized bills submitted by providers are processed by large insurance companies (known as "intermediaries" or "carriers.") that contract with the government to pay claims using government funds.
Because different codes or code combinations may produce dramatically different reimbursements from government programs, there is a financial incentive to "upcode" or bill for a more serious (and more expensive) diagnosis or procedure.
Another common example of improper coding is called "unbundling," also known as "fragmentation." Medicare and Medicaid often have special reimbursement rates for a group of procedures commonly done together, such as typical blood test panels by clinical laboratories. Some health care providers seeking to increase profits will "unbundle" the tests and bill separately for each component of the group, which totals more than the special reimbursement rates.
Genesee Valley Cardiothoracic Group paid $2 million to the federal government to settle a qui tam lawsuit brought on behalf of a whistleblower by Phillips & Cohen that alleged the group submitted false claims to Medicare for the services of "assistant attending surgeons" during surgery. Since qualified cardiothoracic residents were present at those times, they were not allowed to bill for assistant attending surgeons under Medicare regulations.