This is a simple explanation. Medicare and private insurance companies pay for many physician services using Evaluation and Management (commonly referred to as “E&M”) codes which are 5 escalating codes that vary depending on the time spent with the patient and the complexity. New patient visits generally require more time than follow-up visits for established patients, and therefore E&M codes for new patients command higher reimbursement rates than E&M codes for established patients. An example of upcoding is an instance when a physician or health care provider provides a follow-up office visit or follow-up inpatient consultation but bill using a higher level E&M code as if the physician or health care provider had provided a comprehensive new patient office visit or an initial inpatient consultation.
Another example of upcoding related to E&M codes is misuse of Modifier 25. Modifier 25 allows additional payment for a separate E&M service rendered on the
same day as a procedure. Upcoding occurs if a provider uses Modifier 25 to claim payment for an E&M service when the patient care rendered was not significant, was not separately identifiable, and was not above and beyond the care usually associated with the procedure.
Health care providers often underbill and use a lesser code to avoid audits. Some specialists tend to use higher level codes assuming the cases are complex and this can make them more prone to audit.
As for criminal cases that arise from upcoding, the cases are less likely to be filed given the complexity and subjective nature of the codes — and the judgment calls physician or health care providers must routinely make in picking codes, or in hiring someone to do it for them.