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Unraveling the Complexities of Overbilling

By Cristiana , in Finance , at July 30, 2023

Medical expenses are significant for businesses that offer workers’ compensation insurance. Many of these costs are due to medical overbilling from hospitals and doctors who overcharge for services rendered.

While a single instance of overbilling may be an honest mistake, recurring instances indicate intentional fraud and must be addressed immediately.

Lack of Transparency

Transparency is generally seen as positive; it accelerates information gathering, helps people coordinate their efforts, and makes those in higher positions accountable to subordinates. But there are times when transparency can have unintended consequences.

One example is overbilling. This is common in construction, where unexpected supply costs or last-minute change orders can drive project costs. In this case, the contractor will often frontload the contract to ensure they can complete the job on time and within budget.

Another way overbilling can occur is through the padding of time or submitting invoices with incorrect timekeeper rates. A legal billing tool with easy-to-use mobile tracking integrated with invoicing can help prevent these issues. In addition, requiring that time be logged in small increments and only including billable activities can make it harder to pad invoices.

Intentional Fraud

Intentional fraud is an underlying cause of overbilling. Employees tempted by pressure and rationalization will steal time, work side gigs on company time, or claim expenses they’re not entitled to. To prevent this, set clear attendance and mileage policies and implement a real-time spend management tool that accurately tracks employees’ hours, location, and mileage.

Healthcare providers can also commit intentional overbilling when they fraudulently code for unnecessary services or unbundle procedures to receive higher reimbursement rates from insurers. These violations can result in fines from the government and whistleblower claims by disgruntled patients.

Overbillings are often considered a private matter by business owners, but when part of a larger scheme, it’s a crime and can lead to civil and criminal penalties. In addition to violating federal laws, overbilling can damage a business’s reputation and create financial and operational risks for its lenders. This is why detecting overbilling schemes early is essential for businesses that want to avoid them.


Errors can be a significant issue when it comes to overbilling. These errors may include inaccurate billings or miscalculations, incorrect data entry, or unchecked assumptions that cause a company to overcharge clients. Errors can also be caused by human error. For example, staff must be adequately trained in handling time and billing to avoid accidentally overbilling a client.

While some overbilling is typical, contractors must be aware that significant overbilling can lead to a negative cash flow for the remainder of the project and a problem known as “job borrowing.” A contractor must understand what constitutes job borrowing and how it can impact their bottom line.

Another common overbilling source is an incorrect percentage of completion accounting. Percentage of completion accounting is a method for measuring the progress of a project. This method involves recording the revenue earned in a period compared to the total cost of the contract.

Lack of Accountability

A lack of accountability is the most damaging cause of overbilling because it destabilizes teams and wreaks havoc on the business. Teams develop a victim mentality and become inefficient without clear, high-performance standards that everyone takes ownership of. Over time, this erodes the culture of your organization.

Creating a culture of accountability means communicating expectations and consequences for non-performance, providing coaching, training, and regular feedback, and fostering transparency in communication and decision-making. It also requires leaders to set a positive example and hold themselves accountable for their actions.

One of the most common causes of overbilling is pre-designed electronic health records (EHR) billing templates that induce physicians to click and pick from a limited number of codes instead of reviewing documentation to find more appropriate, accurate code selections. Cloning medical data, copying or carrying forward medical records, and relying on auto-generation of codes are other common causes of overbilling errors.


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