Hospital Billing Fraud: Common Red Flags for Whistleblowers

Hospitals and health systems are among the most frequent targets of False Claims Act enforcement. The Department of Justice recovered over $5.7 billion in healthcare fraud settlements in fiscal year 2025 alone, the highest total ever recorded. A significant portion of that recovery came from cases involving hospitals, and many of those cases began with someone on the inside who noticed something wrong and came forward.

If you work at a hospital or health system, you may be in a position to see billing conduct that outside investigators cannot. It is important to recognize common forms of hospital billing fraud and know what to do if you observe them. Doing so may help recover taxpayer funds and may also put you in a position to receive a share of any recovery.

Upcoding and inflated diagnoses

Upcoding is one of the most common forms of hospital billing fraud. It happens when a provider submits a claim using a billing code for a more expensive service or a more severe diagnosis than the care actually delivered. A patient who received routine care may be billed under a code reserved for complex or high acuity services. A diagnosis may also be assigned or inflated in the medical record to support a higher payment even when the clinical documentation does not justify it.

In the Medicare Advantage context, this often takes the form of adding diagnosis codes during retrospective chart reviews when the underlying visit or clinical encounter does not support those diagnoses. Employees in coding, clinical documentation, or compliance who observe pressure to add codes, meet risk score targets, or avoid deleting unsupported diagnoses may be witnessing this form of fraud in real time.

Physician compensation tied to referrals

The Stark Law prohibits hospitals from billing Medicare for services referred by a physician who has a financial relationship with the hospital unless that relationship meets specific requirements. One of the most important requirements is that physician compensation must reflect fair market value and cannot be tied to the volume or value of referrals.

In December 2023, an Indianapolis based health system agreed to pay $345 million to resolve allegations that it violated the Stark Law by overcompensating specialist physicians, including cardiologists and surgeons, and tying bonuses to the referrals those physicians generated. The case, which was initiated in 2014 by the health system’s former Chief Financial and Chief Operating Officer, became the largest Stark Law settlement in the history of the False Claims Act. The system later paid an additional $135 million to resolve remaining claims from the same matter.

In May 2024, a Pittsburgh hospital settled a related case for $38 million, resolving allegations that it paid neurosurgeons compensation far above fair market value in a way that was tied to the volume of procedures those physicians performed within the system.

Employees in finance, physician contracting, or executive roles who observe compensation arrangements designed to reward referral volume rather than reflect legitimate market rates may have knowledge relevant to a Stark Law claim.

Billing for medically unnecessary services

The government will not pay for services that are not medically necessary. When a hospital submits claims for procedures, tests, or admissions that lack clinical justification, those claims may be false. This category of fraud can involve pressure on physicians to admit patients who could be treated in a less intensive setting, order tests that are not clinically indicated, or perform procedures whose frequency or pattern does not match what is medically appropriate for the patient population.

Nurses, therapists, case managers, and other clinical staff are often the first to notice when admission or treatment decisions appear driven by billing targets rather than patient need. Documentation staff who are instructed to make records support a billing code rather than reflect what actually occurred may also be in a position to recognize this conduct.

Kickbacks for referrals

The Anti-Kickback Statute prohibits offering or receiving anything of value to induce referrals for services covered by federal health programs. In the hospital context, kickbacks can take many forms beyond the obvious. They may include below market lease arrangements with physician practices, free use of staff or equipment, payments labeled as medical directorships that do not reflect actual work performed, and bonuses or incentive structures that reward physicians for steering patients toward affiliated facilities or services.

In March 2024, a New York hospital agreed to pay $17.3 million to resolve allegations that it paid unlawful kickbacks to physicians based on the number of referrals those physicians made for services at the hospital’s chemotherapy infusion center.

Employees in contracting, administration, finance, or operations who observe arrangements between the hospital and referring physicians that do not appear to reflect legitimate business value may be seeing a kickback arrangement that violates the Anti-Kickback Statute and gives rise to False Claims Act liability.

What to do if you observe these red flags

Hospital billing fraud is not always visible from the outside. Compliance staff, coders, billers, finance personnel, clinicians, and executives all occupy positions from which fraudulent conduct can be observed. If you have seen any of the patterns described above, one of the most important steps you can take is to speak with a whistleblower attorney.

Speaking with an attorney first helps protect you. It establishes privilege before disclosures are made, allows you to understand your rights before you act, and helps ensure that the steps you take strengthen rather than compromise a potential case.

Speak to a whistleblower attorney at Keller Grover

The attorneys at Keller Grover represent whistleblowers in False Claims Act cases involving hospital billing fraud, Stark Law violations, Anti-Kickback Statute violations, and related misconduct. If you have knowledge of fraudulent practices at your organization, contact our legal team today for a confidential consultation.