oversight

Medicare Fraud and Abuse: DOJ's Implementation of False Claims Act Guidance in National Initiatives Varies

Published by the Government Accountability Office on 1999-08-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to Congressional Requesters




August 1999
                  MEDICARE FRAUD
                  AND ABUSE
                  DOJ’s Implementation
                  of False Claims Act
                  Guidance in National
                  Initiatives Varies




GAO/HEHS-99-170
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-282251

      August 6, 1999

      The Honorable Ted Stevens
      Chairman
      The Honorable Robert C. Byrd
      Ranking Minority Member
      Committee on Appropriations
      United States Senate

      The Honorable Orrin G. Hatch
      Chairman
      The Honorable Patrick J. Leahy
      Ranking Minority Member
      Committee on the Judiciary
      United States Senate

      The Honorable C. W. Bill Young
      Chairman
      The Honorable David R. Obey
      Ranking Minority Member
      Committee on Appropriations
      House of Representatives

      The Honorable Henry J. Hyde
      Chairman
      The Honorable John Conyers, Jr.
      Ranking Minority Member
      Committee on the Judiciary
      House of Representatives

      Improper billings to Medicare have been a longstanding threat to the fiscal
      integrity of the program. The Office of Inspector General (OIG) of the
      Department of Health and Human Services (HHS) estimates that
      overpayments due to billing errors, fraud, medically unnecessary services,
      and other problems totaled $12.6 billion in fiscal year 1998.

      With the increased attention to health care fraud and abuse in recent
      years, the Department of Justice (DOJ) has been using the False Claims Act
      (31 U.S.C. sec. 3729(a)-3733) for practices that in the past might have been
      dealt with by seeking repayment. The act’s damages and penalties make it
      a powerful enforcement tool.




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DOJ’s efforts have included a series of nationwide investigations of
hospitals. These national initiatives—as they are termed by DOJ—have
been widely criticized by the hospital community.1 Hospitals have alleged
that they have been unfairly targeted and that DOJ has been overzealous in
its application of the act. Responding to hospital and congressional
concerns, DOJ issued guidance in June 1998 on the appropriate use of the
act in civil health care matters, including national health care initiatives.

Concerns about DOJ’s implementation of the guidance prompted the
Congress to add a provision to the Omnibus Consolidated and Emergency
Supplemental Appropriations Act of 1999 (P.L. 105-277) requiring us to
monitor DOJ’s and the U.S. Attorneys’2 compliance with the guidance,
including any revisions. We are required to issue two reports on the results
of our work.

Our first report, issued in February 1999, focused on DOJ’s early
implementation of the guidance.3 We reported that DOJ had designated four
national initiatives involving hospitals—Laboratory Unbundling, 72-Hour
Window, Prospective Payment System (PPS) Transfer, and Pneumonia
Upcoding—and had established work groups for each. We also noted that
DOJ had begun taking steps intended to ensure that the 93 U.S. Attorneys
comply with the guidance.4 For example, we reported that DOJ had
incorporated the guidance into its training programs and was planning to
include an assessment of compliance with the guidance in its ongoing
reviews of the U.S. Attorneys’ Offices. We also reported that the work
groups—consisting of representatives from DOJ and selected U.S.
Attorneys’ Offices—had been established to support the four ongoing
national initiatives. These work groups were then in various stages of
preparing documentation, such as legal analyses and investigative plans,
required by the guidance to assist the U.S. Attorneys’ Offices participating
in the initiatives. Our survey of all 93 U.S. Attorneys found that the
majority were participating in at least one national initiative. Our survey



1
 DOJ defines a national initiative as a nationwide investigation stemming from an analysis of national
claims data, indicating that numerous similarly situated health care providers have engaged in similar
conduct to improperly bill government health care programs.
2
 U.S. Attorneys are supervised by the Attorney General but exercise a large degree of independence
and discretion in the handling of their cases.
3
 See Medicare Fraud and Abuse: Early Status of DOJ’s Compliance With False Claims Act Guidance
(GAO/HEHS-99-42R, Feb. 1, 1999).
4
 These 93 U.S. Attorneys serve the nation’s 94 federal judicial districts. One U.S. Attorney serves both
the District of Guam and the District of the Northern Mariana Islands.



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                   also found that several offices had closed a large number of investigations
                   related to one initiative without taking actions against the providers.

                   This report summarizes the results of our monitoring of DOJ’s and selected
                   U.S. Attorneys’ Offices’ compliance with the guidance. Specifically, we
                   (1) determined the status of the work groups’ efforts and reviewed the
                   initiative-specific guidance they prepared, (2) evaluated DOJ’s efforts to
                   assess U.S. Attorneys’ compliance with the guidance, (3) examined
                   implementation of the guidance at selected U.S. Attorneys’ Offices, and
                   (4) identified state hospital associations’ concerns regarding DOJ’s use of
                   the False Claims Act.

                   In preparing this report, we conducted work at DOJ’s Civil Division and its
                   Executive Office of U.S. Attorneys and visited 10 U.S. Attorneys’ Offices.
                   Eight of the 10 offices were participating in at least one national initiative.
                   Four of the 10 had been involved in large numbers of Laboratory
                   Unbundling investigations but had closed them after DOJ’s guidance was
                   issued; we visited these offices to determine the reasons they had closed
                   the investigations. The results of our visits to these four offices are
                   described in appendix I. Finally, we surveyed state hospital associations
                   regarding their views on DOJ’s guidance and its implementation.

                   DOJ officials restricted our access to certain types of information at U.S.
                   Attorneys’ Offices because they believed public disclosure of this
                   information could adversely affect pending law enforcement matters. For
                   example, DOJ preselected materials from pending investigations, limiting
                   these materials to those they considered relevant to our review.
                   Furthermore, because investigations were pending, we could not obtain
                   complete information about how the offices were planning and conducting
                   their initiatives. We conducted our work between February and July 1999;
                   except for the access limitations noted above, our work was performed in
                   accordance with generally accepted government auditing standards. These
                   limitations, however, did not have a material effect on the conclusions we
                   reached in this report. For a complete discussion of our scope and
                   methodology, including the limitations on our access to information
                   needed to conduct our review, see appendix II.


                   DOJ’snational initiative work groups have made further progress in
Results in Brief   implementing the Department’s False Claims Act guidance since we issued
                   our February 1, 1999, report. All four work groups have completed their
                   examination of the legal and factual basis for their initiatives and have



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prepared initiative-specific guidance for the U.S. Attorneys’ Offices
participating in the initiatives. The guidance prepared by these work
groups is consistent with the requirements in DOJ’s guidance. For example,
the guidance addresses the legal basis underlying each initiative and
includes suggestions for conducting investigations of individual hospitals.

While DOJ officials told us compliance with its False Claims Act guidance is
an ongoing priority for the Department, we believe DOJ’s process for
assessing the U.S. Attorneys’ Offices’ compliance may be superficial. In
February 1999, DOJ began to include in its periodic reviews of U.S.
Attorneys’ Offices assessments of compliance with the guidance. These
assessments, however, appear to involve little more than reviewers asking
supervisors what they have done to ensure compliance with the guidance.
Such limited efforts will not provide the information needed to adequately
assess actual compliance. While we were not given access to the review
results, DOJ officials told us that, as of June 25, only 2 of the 15
assessments that had been done contained any information about these
offices’ compliance with the guidance. DOJ’s plans for strengthening the
assessment process, such as adding more questions, may not be enough to
effectively assess compliance. In our view, these additional questions will
not provide more substantive information than the original question and
are only a starting point for an effective assessment. Accordingly, we are
recommending that DOJ take additional steps to improve its oversight of
national health care initiatives.

We also found that the implementation of DOJ’s False Claims Act guidance
varied among the eight U.S. Attorneys’ Offices we visited that were
participating in the national initiatives. Five of these offices were
participating in the Laboratory Unbundling initiative and had begun their
involvement before DOJ’s guidance was issued. We found that their actions
were, to varying degrees, inconsistent with the guidance. Our limited
review also raised questions about whether four of these offices were
promptly incorporating the guidance into their ongoing investigations.
While the 72-Hour Window initiative also started before DOJ’s guidance
was issued, our work at the one office that was conducting this initiative
indicated that the office’s actions were consistent with the subsequent
guidance. We could not fully assess compliance at the offices we visited
that were participating in DOJ’s two newest national initiatives—PPS
Transfer and Pneumonia Upcoding—because few investigations had
started for either initiative nationwide. Nevertheless, based on our
discussions with representatives from the two work groups and the
offices, it appears that the initiatives are being developed in accordance



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             with the guidance. Restrictions on our access at all offices prevented us
             from conducting a complete and independent review.

             Our survey of state hospital associations indicated that the issuance of
             DOJ’s False Claims Act guidance has lessened their concerns about
             national initiative investigations. Half of the associations expressing
             concerns with DOJ’s use of the False Claims Act prior to the issuance of the
             guidance said that the guidance had fully addressed their concerns.


             The False Claims Act provides that anyone who “knowingly” submits
Background   false claims to the government is liable for damages up to three times the
             amount of the erroneous payment plus mandatory penalties between
             $5,000 and $10,000 for each false claim submitted. The act defines
             “knowingly” to mean that a person (1) has actual knowledge of the false
             claim, (2) acts in deliberate ignorance of the truth or falsity of the
             information, or (3) acts in reckless disregard of the truth or falsity of the
             information. In the health care setting, where providers submit thousands
             of claims each year, the potential damages and penalties provided under
             the False Claims Act can quickly add up.

             DOJ’s use of the False Claims Act currently includes four national
             initiatives involving hospitals. The 72-Hour Window initiative, which began
             in 1995, centers on separate payments for outpatient services received
             within 72 hours of a hospital admission, which are paid as part of
             Medicare’s inpatient reimbursement to hospitals. The Laboratory
             Unbundling initiative, which began in 1994 by U.S. Attorneys’ Offices in
             Ohio, identifies excess payments for laboratory tests that were performed
             concurrently on automated equipment but improperly billed or
             “unbundled” as separate tests. In January 1999, DOJ announced two new
             national initiatives. The PPS Transfer initiative focuses on overpayments to
             hospitals that incorrectly report transfers to other hospitals as discharges
             in order to receive higher Medicare payments.5 The Pneumonia Upcoding
             initiative targets inappropriate coding of inpatient hospital billings for a
             form of the disease that is more costly to treat and paid at a higher rate
             than was supported by a patient’s medical records.




             5
              Under Medicare PPS, payment rates are established in advance and hospitals treating Medicare
             beneficiaries must generally accept the rate as full payment, regardless of the patient’s length of stay.



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In 1998, we reported that hospital groups had criticized DOJ’s use of the
False Claims Act in the two older national initiatives.6 They alleged that in
both the 72-Hour Window and the Laboratory Unbundling initiatives, DOJ
subjected many of the nation’s hospitals to unwarranted investigations,
resulting in large penalties for unintentional errors. In particular, the
Laboratory Unbundling initiative provoked considerable controversy. The
hospital groups complained that the initiative lacked a sufficient legal
basis and relied on flawed data. They also charged that some U.S.
Attorneys’ Offices had issued demand letters threatening prosecution
without sufficient evidence that the hospitals had submitted false claims.

On June 3, 1998, DOJ issued “Guidance on the Use of the False Claims Act
in Civil Health Care Matters.” The guidance emphasizes the fair and
responsible use of the act in all civil health care matters, including all
current and future national health care initiatives. It also instructs all DOJ
attorneys to determine, before they allege violations of the act, that the
facts and the law sufficiently establish that a claimant knowingly
submitted false claims. The guidance requires them to take a number of
steps, including reviewing relevant statutes and regulations and verifying
the accuracy of the data relied on, to ensure that they support the
allegations.

The guidance also contains new requirements specifically applicable to
national initiatives. The guidance generally requires the U.S. Attorneys to
use “contact letters” to notify providers of their potential exposure under
the False Claims Act and to offer providers an opportunity to discuss the
matter before a specific demand for payment is made. The new
requirements also specify that a work group must be established for each
current and future initiative. Work groups of Civil Division attorneys and
Assistant U.S. Attorneys with expertise in health care fraud are expected
to coordinate the development and implementation of the initiatives. The
work groups are also expected to prepare “initiative-specific” guidance,
such as a legal analysis of pertinent issues, a summary of relevant claims
data, and an investigative plan to guide the U.S. Attorneys’ Offices
participating in the initiatives.

DOJ’s False Claims Act guidance provided that it would be subject to
review within a 6-month period. This review, completed in February 1999,
clarified a number of issues in the guidance and also described how
providers under investigation could elevate their concerns within the

6
 See Medicare: Application of the False Claims Act to Hospital Billing Practices (GAO/HEHS-98-195,
July 10, 1998) and Use of False Claims Act to Target Hospitals (B-279893, July 22, 1998).



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                      Department if they believed the guidance was not being followed. It also
                      announced that national initiative work groups would be required to
                      solicit and consider the views of HHS’ OIG and other relevant agencies in
                      conducting the initiatives. The review concluded that no major revisions to
                      the guidance were necessary.


                      At the time we issued our first report, only the Laboratory Unbundling and
Work Groups Have      PPS Transfer work groups had completed preparing the required
Completed             initiative-specific guidance. Since that time, the 72-Hour Window and
Initiative-Specific   Pneumonia Upcoding work groups have also finished their guidance. We
                      examined the initiative-specific guidance prepared by the work groups and
Guidance              found that this guidance was consistent with the requirements outlined by
                      DOJ for False Claims Act investigations. The confidential nature of these
                      work group documents precludes us from discussing them in detail.
                      However, we can make some general observations about each work
                      group’s initiative-specific guidance.

                      All the work groups have developed model contact letters for notifying
                      providers that they were the subjects of False Claims Act investigations.
                      We noted that these letters were carefully worded to avoid any inference
                      that the providers had violated the False Claims Act. Unlike the demand
                      letters previously used by some U.S. Attorneys’ Offices, the new contact
                      letters did not include a specific demand for payment nor, in our opinion,
                      did they contain the type of language that many hospitals had found to be
                      intimidating and coercive.

                      We found similarities between the documentation prepared by the
                      Laboratory Unbundling, PPS Transfer, and Pneumonia Upcoding work
                      groups. All three sets of documents elaborated on DOJ’s general guidance
                      and provided detailed steps for planning and conducting the initiatives.
                      The documentation included an analysis of the legal basis underlying each
                      initiative; however, we did not evaluate these analyses. All three sets of
                      documentation included investigative plans containing specific
                      suggestions for conducting investigations of individual hospitals. These
                      plans also outlined procedures for determining whether claims submitted
                      by these hospitals were false and, if so, whether the hospitals knowingly
                      submitted them. In addition, the work group materials addressed the
                      source, limitations, and reliability of the claims data to be used in the
                      investigations. In our opinion, the documentation prepared by these three
                      work groups was consistent with the requirements in DOJ’s guidance.




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                       The 72-Hour Window work group prepared a report that assessed the
                       initiative’s activities in light of DOJ’s guidance, rather than the detailed
                       guidance prepared by the Laboratory Unbundling, PPS Transfer, and
                       Pneumonia Upcoding work groups. Unlike the other three national
                       initiatives, which are being conducted by multiple U.S. Attorneys’ Offices,
                       a single U.S. Attorney’s Office is conducting the 72-Hour Window initiative.
                       For this reason, and because the initiative was more than two-thirds
                       complete at the time DOJ’s guidance was issued, this work group did not
                       develop the same step-by-step instructions that were developed by the
                       other three work groups. Nevertheless, we believe the report showed that
                       the work group, as directed, had considered whether the initiative met the
                       requirements established by DOJ’s guidance. Among other things, it
                       evaluated the accuracy of the data used in the initiative, the clarity of the
                       relevant billing rules, and the appropriateness of the office’s approach for
                       completing the initiative. In our view, this report satisfies the requirement
                       that work groups prepare initiative-specific guidance.


                       According to DOJ officials, the U.S. Attorneys’ Offices’ compliance with the
DOJ’s Assessments of   guidance is an ongoing priority for the Department. However, DOJ’s
U.S. Attorneys’        process for assessing compliance may be superficial. As we described in
Offices’ Compliance    our first report, DOJ said that beginning February 1, 1999, it would include
                       assessments of the offices’ compliance with the guidance as part of the
With the Guidance      reviews it conducts at each office every 3 years. DOJ’s assessments of
May Be Superficial     compliance with the guidance during these periodic reviews of offices
                       consists of a single interview question in which supervisors are asked to
                       identify the steps being taken to ensure compliance. We believe these
                       assessments provide little assurance that offices comply with the
                       guidance.

                       According to DOJ officials, as of June 25, 1999, reviews incorporating this
                       assessment were completed at 15 U.S. Attorneys’ Offices. DOJ officials told
                       us the reports on these offices were not yet complete; thus, they were
                       unwilling to share them with us. They said that they had reviewed the draft
                       reports or, if no draft report had yet been prepared, the reviewers’
                       submissions. DOJ officials said that reviewers typically only report negative
                       information. They also told us that the 15 draft reports or reviewer
                       submissions contained no negative information about the offices’
                       compliance with the guidance; in two cases, positive comments were
                       made. For example, according to DOJ, one reviewer’s report consisted of
                       the following:




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    This [office] is in compliance with the requirements of the Deputy Attorney General’s
    guidance on the use of the False Claims Act in health care fraud cases and matters.
    Training on the requirements has been provided to all ACE unit personnel.7


    In response to our concerns about these reviews, officials told us that they
    would require reviewers to comment both negatively and positively on
    offices’ compliance with the guidance in all future reviews. We do not
    believe that the two “positive responses,” however, provided much
    insight about either of the offices’ efforts to comply or their actual
    compliance because the comments were not specific. In our view, if the
    new requirement results in the reporting of similar information on all the
    offices assessed, these reports would not be meaningful.

    In addition, the officials told us that, due to the importance of ensuring
    compliance, they had instructed reviewers to ask additional questions in
    future reviews. These questions ask whether an office has participated in
    any national initiatives since the office’s last review and whether the office
    has complied with the guidance and the work groups’ recommendations
    for conducting investigations. While these additional questions are
    relevant, we believe that they are only a starting point for an effective
    assessment and will not provide a more meaningful assessment of
    compliance than the original question.

    DOJ officials told us that they were taking other steps, such as the
    following, to ensure that the guidance is followed.

•   The Deputy Attorney General has emphasized the necessity of compliance
    both orally and in writing on a number of occasions and has encouraged
    U.S. Attorneys’ Offices to document their compliance in investigative case
    files. We noted that three of the offices we visited had developed forms to
    document their compliance.
•   Compliance with the guidance is a top priority of the Subcommittee on
    Health Care Fraud of the Attorney General’s Advisory Committee. In this
    regard, the national initiative work groups are required to update the
    subcommittee on the status of each initiative on a regular basis.
•   Work groups are expected to maintain regular contact with U.S. Attorneys’
    Offices participating in an initiative, monitor their progress, and provide
    guidance throughout the investigative and litigative processes.
•   DOJ has assigned an experienced Civil Division attorney to each work
    group. DOJ officials believe that because these representatives specialize in


    7
     Most U.S. Attorneys’ Offices have ACE (Affirmative Civil Enforcement) units, which pursue civil
    actions to recover money lost due to fraud and other misconduct.



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                                           False Claims Act matters, their presence on the work groups helps ensure
                                           consistent adherence to Department policies concerning False Claims Act
                                           matters.


                                           DOJ’s False Claims Act guidance applies to all national initiative health care
Implementation of                          investigations—including those ongoing at the time the guidance was
Guidance by U.S.                           issued. Our limited review showed that the offices’ implementation of the
Attorneys’ Offices                         guidance varied among national initiatives. Eight of the offices that we
                                           visited were participating in at least one of the national initiatives. Five of
Varies Among                               these offices began participating in the Laboratory Unbundling initiative
National Initiatives                       before DOJ’s guidance was issued. Our review raised questions about how
                                           promptly four of them were incorporating the guidance into ongoing
                                           investigations. While the 72-Hour Window initiative also started before DOJ
                                           issued its guidance, the one office conducting this initiative did not appear
                                           to be having difficulty implementing the guidance, and we were more
                                           convinced that this office was conducting the initiative in compliance with
                                           the guidance. We could not fully assess compliance at the offices
                                           participating in DOJ’s two newest national initiatives—PPS Transfer and
                                           Pneumonia Upcoding—because few U.S. Attorneys’ Offices, including
                                           those we visited, had started investigations for either initiative nationwide.

                                           Table 1 shows the participation in the national initiatives for the eight U.S.
                                           Attorneys’ Offices at the time of our visits. We are not identifying these
                                           offices or the exact number of their investigations because DOJ is
                                           concerned that doing so could compromise open investigations.

Table 1: U.S. Attorneys’ Offices Visited
Participating in National Initiatives                                                                            Number of
                                           National initiative                                                     offices
                                           Laboratory Unbundling                                                          5
                                           72-Hour Window                                                                 1
                                           PPS Transfer                                                                   3
                                           Pneumonia Upcoding                                                             5

                                           Two of the eight offices had terminated their involvement in the
                                           Laboratory Unbundling initiative by the time of our visits. We also visited
                                           two other offices that decided to discontinue their participation in this
                                           project. These two additional offices were not involved in any other
                                           national initiative at the time of our visit. (For a discussion of the four
                                           offices’ participation in the Laboratory Unbundling initiative and their
                                           decisions to terminate their involvement, see app. I.)




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Implementation of                 The five offices participating in the Laboratory Unbundling initiative had
Guidance Slow at U.S.             taken actions in their investigations prior to the issuance of DOJ’s False
Attorneys’ Offices                Claims Act guidance that, to varying degrees, were inconsistent with the
                                  subsequent guidance. Generally, the five U.S. Attorneys’ Offices we visited
Participating in Laboratory       sent demand letters to large numbers of hospitals that alleged or implied
Unbundling                        violations of the False Claims Act. The letters warned that the hospitals
                                  could be liable for three times the amount of any overpayment plus
                                  penalties of between $5,000 and $10,000 for each false claim. The letters
                                  also presented the hospitals with an alternative: volunteer to conduct an
                                  independent self-audit and pay two times the amount of overpayments
                                  identified. However, contrary to the subsequent guidance, at the time
                                  these allegations were made, most of the offices had not sufficiently
                                  analyzed the claims data to determine if the pervasiveness and magnitude
                                  of the apparent errors were sufficient to warrant alleging a False Claims
                                  Act violation. Moreover, they also lacked evidence that each of the
                                  hospitals had knowingly submitted the alleged false claims.

                                  Because DOJ’s guidance applies to all health care investigations, including
                                  those ongoing at the time it was issued, these offices were faced with the
                                  task of determining what needed to be done to bring their investigations
                                  into compliance. We found that, more than 1 year after the guidance was
                                  issued, four of these offices had not completed actions to address the
                                  shortcomings in their ongoing Laboratory Unbundling investigations.
                                  Allegations that over 100 hospitals violated the False Claims Act remain
                                  unresolved at these four offices. The following provides more details
                                  related to our observations at these offices.

                              •   In late 1997, one U.S. Attorney’s Office notified about two dozen hospitals
                                  that they were under investigation because the office had identified
                                  certain claims that may have been submitted in violation of the False
                                  Claims Act. However, officials told us in March 1999 that these hospitals
                                  had actually been selected primarily because they were the largest billers
                                  of Medicare in the state, not because the office had evidence that they
                                  were unbundling laboratory claims. They acknowledged that their
                                  selection methodology was inconsistent with DOJ’s guidance but told us
                                  that they had subsequently obtained data showing that all of these
                                  hospitals had submitted significant numbers of unbundled laboratory
                                  claims to Medicare. We could not verify their statement because, citing the
                                  pending nature of the investigations, officials declined to share the data
                                  with us. In June 1999, more than a year and a half after beginning their
                                  investigations and 1 year after DOJ’s guidance was issued, these officials
                                  told us that they had recently begun a detailed analysis of billing data on



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    each of the hospitals. The analysis, while not completed, indicated that at
    least one of the hospitals should not be pursued for violating the False
    Claims Act. Other hospitals could be dropped from the investigation once
    their analysis is completed, they said. In addition, DOJ officials told us in
    July that the office, which had never before provided the hospitals with
    any of the evidence it had compiled against them, planned to share
    excerpts of the data indicating they had improperly billed Medicare.
•   Officials at another U.S. Attorney’s Office acknowledged making False
    Claims Act allegations against 75 hospitals in 1997 before obtaining
    sufficient evidence to support the allegations, as the guidance now
    requires. Officials told us that they did not know if these hospitals had
    knowingly submitted false claims at the time they made the allegations.
    Investigations against some of the hospitals were dropped after further
    analysis by the office indicated that the estimated overpayments to them
    were small. In addition, responding to the hospitals’ concerns about the
    cost of the proposed self-audits, most hospitals were later given the
    opportunity to accept the office’s estimate of the false claims plus
    damages in lieu of an audit. At the time of our visit in April 1999, however,
    over 60 of the investigations remained unresolved. Because the
    investigations were pending, officials would not discuss them. They did
    indicate, however, that opening so many investigations at the same time
    had strained their resources and, as a result, establishing whether all of
    these hospitals had knowingly submitted false claims—a step now
    required before alleging False Claims Act violations—would be
    time-consuming and difficult. In July 1999, officials told us that all of the
    investigations were still pending and they did not know how long it might
    take to resolve them.
•   In 1997, another U.S. Attorney’s Office alleged that about 10 hospitals had
    violated the False Claims Act, but the office lacked evidence that the
    claims were false—let alone that the hospitals were knowingly submitting
    false claims. The allegations were based on a computer analysis of claims
    data that indicated these hospitals had received the largest overpayments
    from unbundling laboratory services. At the time of our May 1999 visit, all
    these investigations were pending. The majority of the hospitals had
    completed self-audits, but self-audits of the remaining hospitals had not
    yet started. According to the officials, all of the completed audits found
    insignificant billing errors that could not, in their view, support a False
    Claims Act case. Officials conceded that investigations against some,
    maybe all, of these hospitals might not have been started had they done a
    better analysis of the claims data, as now required by DOJ’s guidance.
    Nevertheless, a DOJ official told us in July 1999 that investigations of the
    remaining hospitals will continue.



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•   In 1997, another U.S. Attorney’s Office sent letters to about three dozen
    hospitals in the state alleging that the hospitals might have submitted false
    claims and asking them to volunteer to conduct self-audits of their
    laboratory billings. At this time, however, the officials had not verified the
    accuracy of the data they were relying on to support this allegation, nor
    did they have information showing that false claims were knowingly
    submitted. The office did not initially respond to hospital requests that it
    provide the data supporting its allegations of false claims. When some
    hospitals did not promptly decide whether to volunteer for self-audits,
    they were warned that the government would seek the full penalties of the
    False Claims Act if the office did the audits itself. The office continued to
    assert that hospitals had submitted false claims. For example, in a late
    1997 letter to an attorney representing one of the hospitals, the office said
    it did not consider the matter to be a mere overpayment case. Rather, the
    letter said that the office would agree to settle the case for an amount
    equal to twice the overpayment, absent extenuating circumstances.
    Ultimately, the office obtained additional data that revealed that the
    original data used to select the hospitals for investigations had apparently
    overstated the hospitals’ billing errors. In late 1998, more than a year after
    the investigations had begun, the office concluded that about one-fourth of
    the hospitals should not be pursued for False Claims Act violations. At the
    time of our May 1999 visit, officials told us that they were developing
    overpayment estimates for the remaining hospitals. In July 1999, a DOJ
    official told us that a few additional investigations had been resolved but
    the office was attempting to collect evidence from the remaining hospitals
    in order to prove the “knowing” element necessary to establish that the
    claims were false.

    The fifth U.S. Attorney’s Office sent letters to about 75 hospitals—virtually
    all the acute care hospitals in the office’s jurisdiction—alleging that they
    had submitted false claims. Based on our review, this office appeared to
    have stronger evidence than the other offices that some of these hospitals
    had knowingly submitted false claims because they had been repeatedly
    identified in Medicaid audits and investigations as having unbundled
    laboratory services. At the time of our visit, the majority of the office’s
    investigations had been settled and over $5 million had been recovered.
    However, over 40 percent of these settlements involved only the recovery
    of the overpayments without False Claims Act damages or penalties being
    assessed.




    Page 13                           GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
                            B-282251




Implementation of           The 72-Hour Window initiative, like Laboratory Unbundling, began before
Guidance at the U.S.        DOJ issued its False Claims Act guidance. Officials at the one office

Attorney’s Office Leading   conducting the 72-Hour Window initiative told us that they believed that
                            actions taken in their investigations were consistent with the guidance.
the 72-Hour Window          Our review of selected closed case files found no compelling evidence to
Initiative Appears          dispute the officials’ assertions. Consequently, despite limitations on our
Appropriate                 access, we were more convinced that this office was conducting the
                            initiative in compliance with the guidance than we were at offices involved
                            in the Laboratory Unbundling initiative.

                            Our review of closed files showed that the office had sent letters to the
                            hospitals alleging that they had violated the False Claims Act and
                            providing an estimate of their total financial exposure under the act. The
                            hospitals were offered an opportunity to settle these matters before
                            litigation by paying lesser amounts. The case files contained overpayment
                            data that the officials told us had been developed from an audit conducted
                            by HHS’ OIG. These data formed the basis for the office’s allegations that the
                            hospitals had submitted false claims. Moreover, this audit was the fourth
                            in a series of audits going back to 1983 that showed that thousands of
                            hospitals had repeatedly violated the 72-Hour Window. In addition, they
                            told us that the three prior audits along with the recovery of overpayments
                            identified in those audits clearly put the hospitals on notice of the billing
                            rule. The officials believed that the hospitals’ continued submission of
                            improper claims after these audits was a strong indicator that the hospitals
                            were “knowingly” submitting false claims.

                            We did note, however, that some investigations that were pursued as False
                            Claims Act violations before DOJ’s False Claims Act guidance was issued
                            involved small dollar amounts. The guidance requires offices to consider
                            the pervasiveness and magnitude of the improper billings in assessing
                            whether the false claims were knowingly submitted rather than mere
                            mistakes. Officials told us that the pervasiveness and magnitude of
                            improper billings would be taken into account in future investigations.




                            Page 14                           GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
                               B-282251




Implementation of              We could not fully assess compliance with DOJ’s False Claims Act guidance
Guidance Cannot Be Fully       at the U.S. Attorneys’ Offices we visited that were participating in the two
Assessed at U.S. Attorneys’    newest national initiatives—PPS Transfer and Pneumonia Upcoding. Most
                               investigations related to these initiatives were pending at the time of our
Offices Participating in the   visits and, consequently, our access to information related to both
PPS Transfer and               initiatives was restricted. Moreover, only a few PPS Transfer investigations
Pneumonia Upcoding             had been started and none of them had progressed very far. Further, many
Initiatives                    of the pending Pneumonia Upcoding investigations were related to a qui
                               tam lawsuit,8 which we agreed to exclude from the scope of our review.
                               While we could not fully assess compliance with the guidance, based on
                               our work, it appears that these two initiatives are being developed in
                               accordance with DOJ’s guidance.

                               While DOJ’s PPS Transfer national initiative has been under development
                               since late 1997, only a few U.S. Attorneys’ Offices are currently
                               participating in the initiative, and investigations of individual hospitals by
                               these offices are just beginning. We visited three of these offices. Shortly
                               before our visits, two of the offices had sent several hospitals contact
                               letters notifying them that they were under investigation. Officials at the
                               third office told us they had recently completed analyzing data on one
                               hospital, had concluded an investigation was warranted, and planned to
                               send the hospital a contact letter soon. Other than showing us redacted
                               copies of the contact letters and, in one instance, a redacted copy of the
                               hospital’s response, officials at the three offices told us they could not
                               provide any other information about these pending investigations.

                               DOJ’s Pneumonia Upcoding initiative was established to determine whether
                               certain hospitals referred by HHS’ OIG had violated the False Claims Act by
                               upcoding pneumonia claims. But investigations of hospitals referred by
                               the OIG had not started at the offices we visited. Five of the offices,
                               however, were involved in investigations of pneumonia upcoding at 19
                               other hospitals. All but two of these investigations were pending at the
                               time of our visits; therefore, our access to information about these cases
                               was restricted. Moreover, many of the pending investigations were related
                               to a qui tam lawsuit and thus, as discussed further in appendix II, these
                               were outside the scope of our review. At two offices, we were provided
                               some documents related to several pending investigations that did not
                               involve qui tam lawsuits. At a third office we examined materials
                               associated with one of the closed investigations—not enough information,



                               8
                                A qui tam lawsuit involves an action brought by an individual on behalf of the United States alleging
                               that false or fraudulent claims have been submitted to the government.



                               Page 15                                      GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
                         B-282251




                         in our opinion, to be able to reach conclusions regarding these offices’
                         implementation of the DOJ guidance.


                         Of the 39 state hospital associations responding to our survey, 34 indicated
DOJ’s Guidance           they were concerned with DOJ’s use of the False Claims Act prior to the
Appears to Have          issuance of the guidance. Seventeen of the 34 reported that the guidance
Lessened State           fully addressed these concerns, and 2 said they were not sure. The
                         remaining 15 reported concerns reflecting a range of issues. But no single
Hospital Associations’   concern was shared by a majority of these associations. For example, six
Concerns                 associations told us that they believed that the guidance should have
                         established a minimum threshold of alleged overpayments before a False
                         Claims Act investigation would be initiated. One association charged that
                         the guidance is vague enough to allow DOJ to characterize intimidating and
                         unfair use of the act as compliance with the guidance.

                         Eight state hospital associations reported that they did not believe the
                         guidance was being followed in an ongoing national initiative in their state.
                         In all but one of these responses, the concerns raised were related to the
                         Laboratory Unbundling initiative. The most often voiced criticism was that
                         this initiative lacked a legal basis.9 These eight state hospital associations
                         also mentioned a variety of other concerns related to the Laboratory
                         Unbundling initiative. For example, they criticized U.S. Attorneys’ Offices
                         for using questionable data, alleging False Claims Act violations based on
                         these data, and requesting the hospitals to assist in the investigations by
                         conducting self-audits.


                         One of DOJ’s most important weapons in the fight against health care fraud
Conclusions              is the False Claims Act. As with all enforcement tools, it is important that
                         the law be fairly applied. Questions about the appropriateness of DOJ’s use
                         of the act in national initiatives led to the issuance of DOJ’s False Claims
                         Act guidance. DOJ has made progress in implementing the guidance since it
                         was issued last year. The materials the work groups have prepared to
                         guide U.S. Attorneys’ Offices provide detailed steps for planning and
                         conducting the initiatives. In our view, these materials are consistent with
                         the guidance and are designed to avoid actions that offices previously took
                         that would not have met the guidance’s requirements. DOJ also appears to
                         be developing the two newest national initiatives—PPS Transfer and
                         Pneumonia Upcoding—in a manner that is consistent with the guidance. In

                         9
                          As previously stated, we did not evaluate the legal merits of any of DOJ’s national initiatives, but we
                         did verify that DOJ has performed a legal analysis for the Laboratory Unbundling initiative.



                         Page 16                                       GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
                      B-282251




                      addition, our limited review at the one office conducting the 72-Hour
                      Window initiative suggested that little would need to be changed to
                      incorporate the guidance into the initiative. However, four of the five U.S.
                      Attorneys’ Offices we visited that were participating in the Laboratory
                      Unbundling initiative had not completely incorporated the guidance into
                      investigations they had started before the guidance was issued.

                      DOJ’s assessments of the U.S. Attorneys’ Offices’ compliance with the
                      guidance, as now performed, appear superficial. Although DOJ intends to
                      enhance these reviews, we do not believe that the proposed enhancements
                      will provide more useful information about the offices’ compliance. Given
                      the importance DOJ says it places on the guidance, we believe that its
                      monitoring of U.S. Attorneys’ Offices should provide DOJ management with
                      specific information on the offices’ compliance efforts and the results of
                      these efforts. Such assessments should involve more than asking questions
                      about an office’s compliance; it should also include verification of this
                      compliance.


                      We recommend that DOJ improve its oversight of U.S. Attorneys’ Offices
Recommendation        participating in national health care initiatives. Specifically, DOJ should

                  •   develop guidance for reviewers that includes specific steps for
                      determining whether offices appropriately follow the guidance and
                  •   require reviewers to independently determine whether the offices are
                      complying with the guidance.


                      We provided DOJ a draft of this report. In written comments, the
Agency Comments       Department generally agreed with our findings and said it would
                      implement our recommendations. In addition, DOJ said it would give
                      special attention to U.S. Attorneys’ Offices where the Laboratory
                      Unbundling initiative was ongoing at the time its False Claims Act
                      guidance was issued. As an initial step, DOJ plans to require these offices to
                      document their compliance with the guidance.

                      DOJ also offered comments in response to our concerns about the
                      Laboratory Unbundling initiative. These comments revolved around two
                      issues: (1) the timeliness of incorporating the guidance into ongoing
                      investigations and (2) the adequacy of the evidence used as a basis for
                      alleging False Claims Act violations.




                      Page 17                           GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
B-282251




Concerning the first issue, DOJ said that a number of factors have affected
the speedy resolution of Laboratory Unbundling investigations. In
particular, it said that investigations have proceeded with caution to
ensure that errors made in the past are not repeated. DOJ also explained
that, in many cases, hospitals have requested extensions to allow for
further review of claims data and that these requests have been granted.
While we agree that offices should proceed cautiously and that it is
reasonable to grant time extensions, we are uncertain about the extent to
which the slow progress in these investigations is attributable to these
factors. For example, as we described in the report, more than 1 year after
the guidance was issued, one office had only recently begun a detailed
analysis of hospital billing data. Also, as mentioned in the report, officials
at another office attributed their slow progress to having opened too many
investigations at the same time. According to these officials, the volume of
pending investigations had strained their resources, making it difficult and
time-consuming to bring these investigations in compliance with the
guidance.

Concerning the second issue, DOJ questioned our contention that some of
the offices we visited had alleged violations of the False Claims Act before
obtaining sufficient evidence. DOJ acknowledged that one office had sent
letters to hospitals discussing possible False Claims Act violations prior to
obtaining evidence that false claims had been submitted by these
hospitals. However, DOJ said that the other offices contacted hospitals only
after examining several years of claims data that had suggested claims
were improperly submitted. We agree these offices had some data that
suggested that unbundling of laboratory services could be occurring.
However, the offices used these data as a basis for alleging that numerous
hospitals had violated the False Claims Act. As discussed in the report, at
the time these allegations were made, most offices had not adequately
analyzed the data to determine if the apparent errors were sufficient to
warrant a false claims violation, as DOJ guidance now requires. We also
found that these offices lacked evidence that each of the hospitals had
knowingly submitted false claims.

Finally, DOJ said that self-audits have always been, and remain, a voluntary
option for hospitals. DOJ expressed concern with a statement in our draft
report that one office was requiring hospitals to conduct self-audits. We
recognize that the self-audit approach is a voluntary option and we revised
the report accordingly. We have included the Department’s comment letter
as appendix III.




Page 18                           GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
B-282251




We are sending copies of this report to the Honorable Janet Reno,
Attorney General of the United States, officials from the organizations we
visited, and other interested parties. We will also make copies available to
others upon request. Please call me at (202) 512-7114 or Leslie G.
Aronovitz at (312) 220-7600 if you or your staff have any questions about
this report. Other major contributors to this report include Paul D.
Alcocer, Barry R. Bedrick, Stefanie G. Weldon, Robert T. Ferschl, and
Geraldine Redican-Bigott.




William J. Scanlon
Director, Health Financing and
  Public Health Issues




Page 19                          GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Contents



Letter                                                                                                  1


Appendix I                                                                                             22

Data Problems Led to
Termination of
Laboratory
Unbundling in Illinois
and Texas
Appendix II                                                                                            24

Scope and
Methodology
Appendix III                                                                                           26

Comments From the
Department of Justice
Table                    Table 1: U.S. Attorneys’ Offices Visited Participating in National            10
                           Initiatives




                         Abbreviations

                         ACE        Affirmative Civil Enforcement
                         DOJ        Department of Justice
                         EOUSA      Executive Office for U.S. Attorneys
                         HHS        Department of Health and Human Services
                         OIG        Office of Inspector General
                         PPS        prospective payment system


                         Page 20                           GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Page 21   GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Appendix I

Data Problems Led to Termination of
Laboratory Unbundling in Illinois and Texas

               In our February 1999 report, we discussed the results of our survey of all
               the U.S. Attorneys’ Offices. We reported that some offices closed large
               numbers of Laboratory Unbundling investigations after DOJ’s False Claims
               Act guidance was issued, without taking adverse actions against providers.
               We also said we planned to determine the reasons for the seemingly large
               number of Laboratory Unbundling declinations in preparation for this
               report. The majority of these declinations—more than 85 percent—
               involved U.S. Attorneys’ Offices in Illinois and Texas. These offices had
               also reported they were no longer involved in Laboratory Unbundling.

               The three U.S. Attorneys’ Offices in Illinois and the four U.S. Attorneys’
               Offices in Texas pursued Laboratory Unbundling investigations on a
               coordinated basis in their respective states. The investigations began in
               1996 in Illinois and in 1997 in Texas. At their peak, more than 100
               investigations were under way against Illinois hospitals, while about 300
               hospitals were under investigation in Texas. We visited two offices in each
               of these states.

               We observed that these four offices—like the other offices we visited that
               were continuing with their Laboratory Unbundling investigations as
               discussed in our letter—had taken actions during their investigations that
               would no longer be permitted by DOJ’s guidance. For example, the offices
               sent demand letters to the hospitals alleging that the hospitals had
               unbundled laboratory claims in violation of the False Claims Act.
               However, the offices had not adequately verified or analyzed the data they
               were relying on as a basis for their allegations and they also lacked
               evidence that any false claims had been “knowingly” submitted by the
               hospitals. The key difference between the Illinois and Texas offices and
               the offices that are continuing with Laboratory Unbundling appeared to be
               related to the accuracy and reliability of the data supporting the False
               Claims Act allegations. In Illinois and Texas, these data were seriously
               flawed. The other offices did not appear to have such serious data
               problems, but we could not be sure in all instances because of limitations
               on our access to this information.

               The allegations against Illinois and Texas hospitals were based on claims
               data obtained from the local fiscal intermediaries,10 and the hospitals were
               provided with either computer disks or printouts listing claims the offices
               believed had been unbundled. These claims data, however, had not been
               adequately analyzed and verified before the offices made their allegations.

               10
                Fiscal intermediaries are private insurance companies that contract with the government to pay
               Medicare claims for services from hospitals and certain other health care providers.



               Page 22                                     GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Appendix I
Data Problems Led to Termination of
Laboratory Unbundling in Illinois and Texas




When hospitals reviewed the data, they found what they believed to be a
variety of errors. Follow-up by the U.S. Attorneys’ Offices confirmed that
the data were indeed flawed. Offices in both states made adjustments to
their overpayment estimates on the basis of partially corrected fiscal
intermediary data, but not all of the errors could be readily corrected.
Primarily because of the unreliability of the data, both the Illinois and
Texas offices ultimately concluded they had no alternative but to
withdraw their allegations of False Claims Act liability against the
hospitals and terminate their involvement in the initiative.11




11
  Three of the offices told the hospitals they were referring the matters to the local fiscal intermediary
for possible collection of some of the amounts. The other office reached an agreement with the
hospitals it was investigating whereby the hospitals agreed to repay an adjusted amount to the fiscal
intermediary without damages or penalties. At the four offices we visited, hospitals that had previously
settled—5 in Illinois and 19 in Texas—were refunded the amounts they had paid as part of their
settlement agreements. In addition, one Texas hospital opted not to rescind its settlement agreement.
A refund to another Texas hospital, which was involved in bankruptcy proceedings, had not been
made at the time of our visit.



Page 23                                       GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Appendix II

Scope and Methodology


              To monitor DOJ’s compliance with its False Claims Act guidance, we met
              with officials from the Civil Division and the Executive Office for U.S.
              Attorneys (EOUSA). In addition, we met with representatives from the work
              groups that have been established to support the four national health care
              initiatives. We also visited 10 U.S. Attorneys’ Offices to discuss the offices’
              participation in the national initiatives; their implementation of the
              guidance; and, in four cases, their decisions to terminate their involvement
              in the Laboratory Unbundling initiative.

              We used the results of our survey of all U.S. Attorneys’ Offices, discussed
              in our first report, to judgmentally select the 10 locations. Six of the 10
              offices were chosen because they had significant numbers of pending
              investigations related to at least one of the national initiatives. In addition,
              four offices were selected primarily because they reported closing large
              numbers of Laboratory Unbundling investigations without adverse action
              against the providers. These four offices were no longer participating in
              the Laboratory Unbundling, but two of them were participating in other
              national initiatives at the time of our visit. Thus, in total, we visited eight
              offices that were actively involved in at least one of the national initiatives.

              We stated in our first report that DOJ was unwilling to give us access to
              information relating to its use of the False Claims Act that we needed to
              assess compliance with the guidance. At that time, DOJ would not give us
              access to certain work group documents and deleted or “redacted”
              portions of other documents. In addition, DOJ would not allow us access to
              documents related to ongoing investigations. DOJ deemed this information
              confidential and feared that public disclosure could potentially
              compromise these investigations.

              For this review, DOJ officials agreed to expand our access, provided that
              we not disclose the contents of these documents. We agreed and,
              consequently, were permitted to examine unredacted versions of the work
              group documents. We were also allowed access to some documents
              related to pending national initiative investigations at U.S. Attorneys’
              Offices. However, DOJ officials preselected these documents and limited
              them to those that they considered relevant to our review. In addition,
              while we routinely obtain copies of documents in our reviews, DOJ would
              not permit us to have copies of any of these materials. In most cases, we
              were allowed to take handwritten notes, but this was a time-consuming
              process that may have interfered with our ability to monitor the offices
              while we were there. Moreover, while we normally have independent
              access to officials outside of an agency’s headquarters, DOJ would not



              Page 24                            GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Appendix II
Scope and Methodology




permit us to interview or contact officials from U.S. Attorneys’ Offices
unless a representative from EOUSA was present. Likewise, we were not
permitted to meet with work group representatives without an EOUSA
official in attendance. For these reasons, we cannot say with certainty that
we have all of the information necessary to conduct a complete and
independent review of U.S. Attorneys’ compliance with the guidance.

Our access was also limited by the existence of qui tam or
“whistleblower” lawsuits, which, DOJ officials told us, involved the
majority of pending investigations related to one of the national
initiatives—Pneumonia Upcoding. Such lawsuits are typically filed under
seal allowing DOJ to investigate without the defendant’s knowledge. DOJ
officials told us the seal prohibits them from disclosing information about
such cases. Consequently, we excluded pending qui tam investigations
from the scope of our review. By doing so, however, our ability to monitor
U.S. Attorneys’ Offices’ compliance with the Pneumonia Upcoding
initiative was limited.

In performing our work, we did not attempt to assess DOJ’s legal basis for
alleging that hospitals had violated the False Claims Act, nor did we
attempt to verify the accuracy of the data used by DOJ in making these
allegations. In addition, while DOJ’s False Claims Act guidance applies to
all civil health care fraud and abuse investigations, we limited our review
to those investigations that were related to the four designated national
initiatives.

We surveyed hospital associations from all 50 states as well as the District
of Columbia and Puerto Rico to obtain their views on DOJ’s False Claims
Act guidance and its implementation in national initiatives. We also met
with representatives from a state association and from the American
Hospital Association.

We performed our work between February and July 1999. Except for the
access restrictions discussed above, our work was performed in
accordance with generally accepted government auditing standards. These
limitations, however, did not have a material effect on the conclusions we
reached in this report.




Page 25                          GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Appendix III

Comments From the Department of Justice




               Page 26    GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
                    Appendix III
                    Comments From the Department of Justice




Now on pp. 11-14.




                    Page 27                             GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
Appendix III
Comments From the Department of Justice




Page 28                             GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
           Appendix III
           Comments From the Department of Justice




(101799)   Page 29                             GAO/HEHS-99-170 DOJ’s False Claims Act Guidance
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