Fraud involving “medical necessity” is among the most pervasive and subtle forms of Medicare abuse. It doesn’t rely on fake patients or invented services; it hides inside legitimate treatment — where the service was real but not necessary, properly documented, or accurately coded. These false claims can trigger substantial liability under the False Claims Act (FCA), which imposes treble damages and penalties for each improper claim.
Below, our friends at Whistleblower Law Partners discuss the hidden fraud in Medicare when it comes to “medical necessity.”
What “Medical Necessity” Really Means
Medicare reimburses only for items and services that are “reasonable and necessary for the diagnosis or treatment of illness or injury.” 42 U.S.C. § 1395y(a)(1)(A). That language sounds simple, but in practice, it requires documentation showing that each billed service was clinically justified. Providers who perform or bill for tests, therapies, or procedures that don’t meet this standard risk submitting false claims — even if the patient benefitted.
The Centers for Medicare & Medicaid Services (CMS) has issued extensive guidance on medical necessity. Medicare Administrative Contractors (MACs) publish Local Coverage Determinations (LCDs) describing when certain services are covered. Providers are expected to understand and follow those policies. Billing outside of them — without adequate justification — can cross the line from error to fraud.
Common Schemes: Upcoding and Unnecessary Services
Two patterns dominate DOJ enforcement:
- Upcoding the level of service. Skilled nursing facilities, for example, bill patient encounters under Resource Utilization Group (RUG) codes or CPT codes that reflect complexity. A routine follow-up visit (CPT 99307) might be billed as an initial comprehensive exam (CPT 99305) — worth far more in reimbursement. In U.S. v. Life Care Centers of America, the DOJ alleged systematic upcoding of therapy minutes to place patients in higher-paying RUG categories. The company paid $145 million to settle.
- Billing for unnecessary tests or treatments. DOJ settlements regularly involve providers ordering excessive diagnostic tests — from genetic panels to urine drug screens — with little clinical rationale. The scheme inflates revenue while exposing patients to needless procedures. A 2023 case against a pain-management company led to a $24 million settlement over medically unnecessary confirmatory tests that were automatically performed regardless of results.
Why “Medical Judgment” Isn’t a Shield
Providers often defend these cases by claiming medical judgment: that reasonable doctors can disagree about what’s necessary. Courts have consistently rejected blanket immunity. In U.S. ex rel. Polukoff v. St. Mark’s Hospital, 895 F.3d 730 (10th Cir. 2018), the court held that a physician who performed unnecessary heart procedures could be liable under the FCA, even if he personally believed they were warranted. Objective falsity isn’t limited to forged data — it includes claims inconsistent with accepted medical standards.
Red Flags for Whistleblowers
Employees and clinicians often see early signs of abuse:
- Pressure to meet productivity or “utilization” quotas.
- Pre-printed order forms that default to high-level codes.
- “Standing orders” for labs or imaging regardless of diagnosis.
- Templates in electronic health records that auto-populate medical necessity language (“patient continues to improve with therapy”) for every visit.
- Internal emails from administrators directing staff to “maximize reimbursement” or “capture higher codes.”
Whistleblowers with access to these materials — especially internal compliance warnings or utilization data — are essential to uncovering patterns invisible to payers. If you are a whistleblower or thinking about becoming one, a whistleblower lawyer can provide you with legal advice and guidance.
Using Data to Prove the Pattern
Modern FCA cases rarely rely only on witness testimony. DOJ and state investigators mine claims data to detect outliers. A facility billing CPT 99305 twice as often as peers for the same patient population, or one where every patient receives identical therapy minutes, triggers suspicion. Whistleblowers can strengthen a case by gathering comparable data — public CMS datasets, billing summaries, or evidence of internal audits showing awareness of the anomalies.
Why This Matters
Every unnecessary procedure drains Medicare trust funds and erodes patient trust. “Medical necessity” fraud looks respectable — doctors still see patients, charts look thorough, and claims appear legitimate. But it’s no less serious than billing for ghost patients. It’s the quiet fraud that only insiders can expose.