Americans Lose $108 Billion a Year to Medical Bill Fraud and Overcharges: Here’s How it Happens

Hospitals, insurance carriers, doctors, and billing agencies all play varying roles in this massive heist, with 40% – 80% of medical bills containing price fraud, errors or overcharges. 

It’s no secret that Healthcare spend in the US is massive. To the tune of over $3.6 trillion and growing, every year.

The National Healthcare Anti-fraud Association (NHCAA) conservatively estimates 3% of that spend is lost to fraudulent charges and medical billing mistakes every year. That’s a $108 billion a year heist that directly impacts your wallet.

In 2017, the largest healthcare fraud bust in Department of Justice history took place. In a scattershot of healthcare fraud schemes, 412 people, with 100 doctors among them, were arrested for allegedly ripping off the government for $1.3 billion, mostly from Medicare.

Americans rely on their insurance providers to cover their healthcare needs. And that’s a pretty reasonable expectation after paying hefty premiums – month in and month out.

But a problem is emerging. A steady rise in deductibles and out-of-pocket costs means patients are paying more. Healthcare spending in the U.S. increased by 4.6 percent in 2018, averaging $11,172 per person according to the Centers for Medicare and Medicaid Services. Deductibles alone have nearly quadrupled over the last 12 years according to a poll conducted by Kaiser Family Foundation and the LA Times.

Patients are finding larger bills becoming more of the norm, never knowing when to expect them. A 2019 study conducted by the Kaiser Family Foundation found that 67% of Americans range from very worried to somewhat worried about unexpected medical bills.

And patients are having more and more trouble paying those bills, with past due medical debt as the fallout. Third-party debt agencies collect around $21 billion in past-due healthcare bills annually according to Forbes.  

Medical bill fraud and overcharging is a reality, one that’s chronic and crippling for Americans. But how do overcharges make their way into bills in the first place?


Your insurance is billed using a diagnostic or procedure code assigned by your doctor. The question is, what makes a provider choose one code over another? Recently, the list of codes to choose from grew from 24,00 to a whopping 155,000. And using the wrong code could mean a denial that you’ll owe as the patient.

For instance, say an insured patient goes in for a preventive exam that should be covered per their policy. Later they get a full bill, with the explanation they have a high deductible, and everything was applied to the deductible. What really happened? If the visit and labs were not coded properly as preventive, the patient will owe.

Coding issues create out-of-pocket costs for patients. And sadly, incorrect diagnostic codes are more commonly found on bills totaling more than $10,000, with the errors totaling more than $1300, according to Equifax.

Hospital Overcharging (also called Price Gouging)

A hospital represents a world of opportunity for overcharging, as hospital bills can be large and multifaceted. According to data from the Center for Medicare and Medicaid Services, many hospitals price gouge, charging private insurers twice the rate they’ll allow from Medicare patients. What’s to stop them? Most states don’t have hospital fair pricing laws in place.

Hospital markups can be as much as 20 times their own cost, according to research from Johns Hopkins University. And the worst part is, hospitals often focus markups on their most complex procedures. Why? Because more complex procedures are harder for patients to price compare, according to Ge Bai of Johns Hopkins, an expert in healthcare accounting issues.

There’s also the cost of rounding to consider. An ER stay or in-patient stay requires the attention of numerous doctors, each doing their rounds, each incurring a daily fee. A problem occurs when one of those doctors is not in-network. During an in-patient hospital stay, patients are visited by a separate ancillary service doctor called a hospitalist who does the rounding for each patient. These doctors are almost never employees and unfortunately for the patient, not in-network with any carrier.

Because of the confusing nature of these bills, it’s a great idea to ask up front for an estimate of out-of-pocket costs. If they balk, be insistent. Hospital billing departments routinely outline costs for self-pay patients. Also, get with your insurance company and find out if pre approval is needed for your procedure.

Preventive Exams

Typically, a patient goes in for their annual visit and labs are ordered, a common part of preventive care. But often, after claims are processed by insurance, the doctor’s visit is paid, but not all the labs are covered. The patient then gets a bill from the lab saying they owe $100-200. Invariably, the carrier will say they don’t deem the labs as preventive.

According to the Affordable Care Act, a patient’s annual preventive care exam is supposed to be free. Oddly, though, a problem emerges when a doctor’s clinical advice in ordering lab work is not deemed sufficient, and the claim is denied. Preventive exams should be covered by insurance, plain and simple.


If you’ve ever experienced sticker shock at the pharmacy, you’re not alone. Say a patient arrives at the pharmacy to pick up their monthly medication, expecting to pay a $50 copay, but are instead told their total is $500. The pharmacist isn’t sure what happened, and can merely see that insurance has paid $0. What happened?

What many don’t know is that some prescriptions require prior authorization, which needs to be renewed after a certain amount of time has passed, perhaps every six months or yearly. The renewal date arrives and passes without warning or notification, only to leave the patient and pharmacist scratching their heads at the cause for denial.

Yet another source for overcharging happens when insurance holders are increasingly required to meet a prescription deductible, in addition to meeting their medical deductible.


Out-of-network providers are not bound by agreements with your insurance network. This can mean billing is more subjective, especially in states without laws to protect patients from surprise balance billing.

Patients (rightfully) assume that their in-network doctor will refer them to an in-network facility when needed. But often, referrals are sent to out-of-network facilities. What went wrong? Many times a doctor, surgeon, or specialist will refer to an out-patient facility because of an affiliation between the ordering doctor and the facility, such as being part-owner. When this facility turns out to be out-of-network, it’s the patient who pays.

How do you know when a provider is out-of-network? The problem is, sometimes you don’t. And you can’t always rely on facilities to be forthcoming with that information (although they should). Do your own research and make sure each provider who will be handling your treatment is in-network. This might take a meeting with the billing department before your procedure, but it’s far easier on the front end than after the bills are issued.

Third Party Billers & Strategized Billing

Billing services know which codes pay more, and sometimes bill insurance in a way that benefits the doctors they serve. This type of fraud is not as common, but it’s crooked and lucrative.

One real-life example of this happened when an outside management company called EmCare, took over billing at a particular hospital investigated by reporters from the New York Times. Before EmCare, around 6 percent of patients were billed for the most expensive care. After EmCare, that number rose to 28 percent. The patients weren’t suddenly requiring higher levels of treatment. Rather, the new billing company started billing four times as much for the same care.

Surprise Bills

Patients may be caught off guard by unexpected bills. This happens when they do not know in advance what their charges for a medical treatment will be. A Consumer Reports survey found that only 4 out of 10 consumers attempted to find out what they’d owe in advance of their office visit. Most patients assume they’ve been correctly billed and owe what they’re charged. Unfortunately, this is not always the case.

The solution? Ask what the patient responsibility will be ahead of time. Then you can shop around if you decide to try to find a better price.

Unclear Patient Billing Process

Medical jargon and obscure billing processes make it difficult for patients to understand what they’re being billed (and spot errors). Without a leg to stand on, patients don’t have the tools to fight erroneous bills, or even know when they’re wrong.

Furthermore, there’s no standardization across statements. A patient can visit 12 different doctors and receive 12 different versions of an invoice. These invoices can be tedious to decipher, requiring a line by line analysis, something typical insurance holders don’t have the time or training to do. But it shouldn’t take being a seasoned veteran in the billing industry to decipher a medical bill. A simpler, clearer patient billing experience is warranted.

The Bright Side

Medical bills are confusing by design. Uncovering and fixing intentional — and unintentional — price fraud and hidden overcharges is hard. While all of this can feel overwhelming, knowing where to start and what to look for can be half the battle. Healthlock price fraud and overcharge alerts are a great start. Learn more about how HealthLock can help you today.

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