Mental Health Fraud and it's impact on the most vulnearble citizens

About the Author:

Mrs. Andria Jacobs serves as the Chief Operating Officer (COO) at PCG Software and has over 50 years of experience in the healthcare sector across both administrative and clinical domains. Prior to her tenure at PCG, Ms. Jacobs held the position of administrative director for medical management at VertiHealth Administrators. Earlier in her career, she worked as an independent consultant specializing in ambulatory care and practice management, with a diverse array of clients including hospitals, physician groups, and the University of California, Los Angeles.

Why is Mental Health Fraud so easy to to exploit

Mental health fraud is quietly costing taxpayers billions while exploiting those least able to protect themselves. It affects elderly patients with cognitive decline, young adults with limited access to care, and underserved populations who often don’t understand their medical rights. In this article, we examine how these scams operate, who is at risk, and what clinics, payers, and providers must do to stay compliant—and protect patients.

How Mental Health Fraud Happens

Fake Clinics and Phantom Billing

Many fraud schemes use shell mental health clinics that bill Medicare, Medicaid, and private insurance for services never rendered. Common examples include:

• Submitting claims for therapy sessions that never happened
• Billing for higher levels of care than delivered (e.g., intensive outpatient vs. group counseling)
• Using stolen or “recruited” patient identities to generate claims
• Employing unlicensed or underqualified staff to deliver care
• Forging documentation or therapy notes to pass audits

In 2023, the DOJ charged several operators in Texas and Florida for submitting $100M+ in false mental health claims using fake therapy visits. These schemes often involve recruiters who target low-income or elderly individuals in exchange for cash or free food to sign up for services.

Sources: Federal-Lawyer Tips for Clinics and Providers

Vulnerable Patients become Easier Fraud Targets

Patients with behavioral health needs are often more trusting, more isolated, and less informed about their rights. This makes them easy targets for fraud schemes, especially when:

• They suffer from dementia or cognitive decline
• They experience mental illness or housing insecurity
• English is not their primary language
• They lack close family or advocate oversight

A 2024 University of Michigan poll found that over one-third of older adults had been targeted by scams, with health-related fraud among the most common. When healthcare fraud intersects with these vulnerabilities, the result is more than financial damage—it’s a violation of trust and dignity.

Sources: University of Michigan Article

How Clinics and Health Plans Can Prevental Mental Health Fraud

Internal Compliance Checklists

Preventing mental health fraud requires more than compliance checklists—it demands a culture of accountability and layered safeguards. Clinics and health plans must proactively adopt tools and protocols that catch fraud early. This includes deploying medical coding scrubbers to identify CPT code misuse, running monthly claims audits to surface unusual billing trends, and training front-line staff to recognize HIPAA violations and behavioral red flags. Requiring thorough credential verification—especially for remote or telehealth-based providers—is essential to maintaining care integrity across all settings.



Technology also plays a pivotal role. Advanced analytics platforms like PCG’s iVECoder™ and Virtual Examiner® help organizations monitor billing behavior in real time, flag outliers, and reduce the risk of payment errors. These systems not only reduce financial loss—they empower clinical and billing teams to make faster, better-informed decisions while protecting patient trust.

Educating your patients about Mental Health Fraud

While technology and audits help catch fraud behind the scenes, empowering patients remains one of the most effective front-line defenses. Health plans, MSOs, and provider groups should implement outreach programs that educate patients about their rights, benefits, and warning signs of fraud. When patients know what to expect from legitimate behavioral health services—and how to verify their coverage—they’re less likely to fall for scams.

Educational materials should be simple, multilingual, and accessible both online and in waiting rooms. Topics can include: how to read an Explanation of Benefits (EOB), how to report suspicious charges, and the risks of sharing personal information outside of trusted care settings. Community workshops, caregiver webinars, and patient advocate hotlines are additional tools that reinforce awareness. Fraud thrives in silence—so clear, consistent communication can help protect the most vulnerable before they’re ever targeted.

Summary on Mental Health Fraud

Mental health fraud isn’t just a billing issue—it’s a violation of vulnerable lives, trust, and care systems. Clinics, payers, and providers must go beyond compliance checkboxes by implementing real safeguards: technology that detects fraud in real-time, training that empowers staff, and outreach that educates patients. At PCG Software, we believe prevention starts upstream—with data transparency, provider accountability, and a commitment to ethical care. Whether you're defending your network from infiltration or building stronger audit tools, our solutions are designed to protect both your bottom line and the people you serve.