Dishonesty in health care practice: A behavioral experiment on upcoding in neonatology

Dishonest behavior significantly increases the cost of medical care provision. Upcoding of patients is a common form of fraud to attract higher reimbursements. Imposing audit mechanisms including fines to curtail upcoding is widely discussed among health care policy-makers. How audits and fines affect individual health care providers' behavior is empirically not well understood. To provide new evidence on fraudulent behavior in health care, we analyze the effect of a random audit including fines on individuals' honesty by means of a novel controlled behavioral experiment framed in a neonatal care context. Prevalent dishonest behavior declines significantly when audits and fines are introduced. The effect is driven by a reduction in upcoding when being detectable. Yet upcoding increases when not being detectable as fraudulent. We find evidence that individual characteristics (gender, medical background, and integrity) are related to dishonest behavior. Policy implications are discussed