Medicare Fraud and Abuse: Early Status of DOJ's Compliance With False Claims Act Guidance

Published by the Government Accountability Office on 1999-02-01.

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

       Unfted States
GAO    Gtatrd  Accounthg  Office
       Washingron, D.C. 20548

       Health,   Edncatlon   and Human Stxvicts   Division


      Febnmy        1, 1999

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

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

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

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

       Subject:      Medicare F’raud and Abuse: Earlv Status of DOJ’s Comnliance
                     With False Claims Act Guidance

       Last year, legislation was introduced in the House and the Senate that would
       have restricted the Department of Justice’s @oJ) ability to use the False

                                   GAOIHEHS-99-42R           DOJ’s False Claims   Act Guidance

Claims Act to prosecute civil health care tiaud. This legislation responded to.
concern that DOJ, through a series of national antifraud projects, was misusing
the act. The American Hospital Association (AHA) charged that DOJ was
subjecting many of the nation’s hospitals to unwarranted investigations,
resulting in large penalties for unintentional errors. Although the legislation did
not pass, DOJ issued detailed internal guidance in June 1998 on the appropriate
use of the False Claims Act. This guidance applies to &ll civil health care
matters and specifically addresses the use of the act in national health care
initiatives. DOJ defines these initiatives as nationwide investigations of “a
common wrongful action accomplished in a like manner by multiple, similarly
situated health care providers.”

  The Congress remains concerned about how DOJ and its U.S. Attorneys’ Offices
  are implementing the guidance. As a result, it added a provision to the
  Omnibus Consolidated and Emergency Supplemental Appropriations Act of 1999
  (P.L. 105-277) requiring us to monitor DOJ’s and all U.S. Attorneys’ compliance
  with the guidance, including any revisions. The act also requires us to report
  on this compliance not later than February 1, 1999, and again by August 2, 1999,
  to the Committees on the Judiciary and the Committees on Appropriations of
- the Senate and the House of Representatives.

 This is the first of the two required reports and addresses DOJ’s early
 implementation of its False Claims Act guidance. In addition, it provides
 information on U.S. Attorneys’ involvement in DOJ’s national health care
 initiatives, as well as our plans for conducting our remaining work. To prepare
 this report, we discussed the guidance and its implementation with appropriate
 officials from the Civil Division and the Executive Office of the U.S. Attorneys.
 We also met with representatives of several of the DOJ working groups that
 have been established to support national health care initiatives. To obtain
 information regarding the extent of U.S. Attorneys’ participation in these
 initiatives, we surveyed all 93 U.S. Attorneys.’ Finally, we met with
 representatives of AHA and a state hospital group to identify their concerns
 about the guidance and its implementation. We began our work in October
  1998, and this work is being conducted in accordance with generally accepted
 government auditing standards.

 ‘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

 2                          GAOLHEHS-99-42R       DOJ’s False Claims Act Guidance
 In summary, DOJ has begun taking steps to implement its False Claims Act
 guidance and has designated four national antifraud projects as “national
 initiatives.” However, it is too early for us to reach a conclusion regarding
 DO& compliance with the guidance, in part, because its working groups ke in
 various stages of preparing documentation to guide participating U.S. Attorneys’
 Offices. In addition, while we surveyed all U.S. Attorneys’ Offices concerning
 their involvement in national initiatives, we still need to visit selected offices to
 evaluate their compliance with the guidance. Our survey indicates that while
 most offices have matters pending related to at least-one of these national
 initiatives, such matters represent a small part of their overall civil caseload.
 The survey also indicates that since the guidance was issued, almost seven
 times as many national initiative matters were closed as were opened. About
 one-half of these closed matters involved settlements, while the remainder did
 not involve any adverse actions against providers.

  Improper billings to Medicare have been a longstanding threat to the fiscal
. -         of the program. In recent years, the government has stepped up its
  efforts to identify and recover overpayments, using the False Claims Act as its
  primary enforcement tool. The act provides that anyone who knowingly
  submits false claims to the government is liable for three times the amount of
  the erroneous payment plus mandatory penalties between $5,000 and $10,000
  for each false claim submitted. Because high-volume providers may submit
  thousands of claims each year, the potential damages and penalties can add up
  quickly, even if relatively few claims are found to be in violation of the False
  Claims Act.

  DOJ’s efforts to combat this threat have included nationwide investigations of
  multiple providers. These projects have included

        Phvsicians at Teaching Hosuitals PAT’?+focuses on inappropriate
        payments to teaching physicians for services that were actuaIly
        performed by residents.

        Laboratorv Unbundling-identifies excess payments for laboratory tests
        that were billed separately although performed concurrently on
        automated equipment.

        72-Hour Window Rule-centers on payments for outpatient services
        received within 72 hours of a hospital admission already paid for as part
        of Medicare’s inpatient reimbursement to hospitals.

  3                          GAOLEEHS-99-42R        DOJ’s False Claims Act Guidance
       PPS”Transfer-identifies overpayments to hospitals that incorrectly report
       transfers to other hospitals as discharges in order to receive higher
       Medicare reimbursements.

       DRG3 Pneumonia Uxoding-targets inappropriate coding of inpatient
       hospital billings for a form of the disease more costly to treat than was
       supported by patients’ medical records.

DOJ issued “Guidance on the Use of the False Claims Act in Civil Health Care
Ma$ters’ on June 3, 1998, to its attorneys, including U.S. Attorneys. The
guidance emphasizes the fair and responsible use of the act It also instructs all
DOJ attorneys handling civil health care fraud matters to determine before they
allege violations of the act that the facts and the law sufficiently establish that a
claimant lmowingly submitted false claims. The guidance requires them to take
a number of steps in making their determination, including reviewing relevant
statutes and regulations and verifying the accuracy of the data relied on to
ensure that they support the allegations. It further requires that they consider
whether the rule or policy violated had been clearly communicated to the
provider and whether the provider had made efforts to comply with the rule or
policy. The guidance provides other safeguards that DOJ attorneys should
consider, such as alternative remedies to civil action; a provider’s ability to pay;
the effect on the community served by the provider, particularly for rural and
 community hospitals; and the extent to which the provider cooperated in the
 investigation or audit,

The guidance also contains new requirements speci.licalIy applicable to national
initiatives. The new requirements specify that a working group must be
established for each current and future initiative. Working 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 their
initiatives. The working groups are also expected to prepare documentation,
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. The guidance also generally requires the U.S. Attorneys to use so

 ?Jnder the Medicare Prospective Payment System (PPS), payment rates are
 established in advance, and hospitals treating Medicare beneficiaries must generally
 accept the rate as full payment for a patient’s entire stay.
 3PPS payments are based on diagnosis related groups (DRG), which are
 classifications of the reasons for a patient’s hospital admission in terms of diagnosis
 and treatment.

 4                           GAO/HEHS-99-42R        DOJ’s False Claims Act Guidance

called contact letters to noti@ providers of their potential exposure under the
False Claims Act and to offer the providers an opportunity to discuss the matter
before a specific demand for payment is made. The use of this approach was
directed to avoid the problems associated with issuing demand letters before
offering to conduct a dialogue with hospitals. Such demand letters were
previously used by some U.S. Attorneys and were alleged by many hospitals to
be intimidating and coercive.


DOJ has begun taking steps intended to ensure that U.S. Attorneys’ Of&es
comply with the June 1998 False Claims Act guidance. For example, DOJ has
incorporated the guidance into its training programs on health care fraud issues,
thereby providing instruction to its attorneys throughout the country on the
appropriate use of the act in civil health care matters. DOJ also has an
evaluation program under which a broad review of the operations of each U.S.
Attorneys’ Office is conducted every several years. DOJ officials have told us
that they plan to include an assessment of compliance with the guidance in
these reviews beginning February 1, 1999.

DOJ also told us that it does not expect that the June 1998 guidance wiIl
necessarily require significant changes by all the U.S. Attorneys’ Offices.
According to DOJ, much of the guidance reemphasizes DOJ’s existing policies.
Only procedures pertaining to the national initiatives-namely, the requirements
to establish working groups and use contact rather than demand letters-are
actually new.

DOJ has designated four projects as national initiatives thus far-Laboratory
Unbundling, the 72-Hour Window Rule, PPS Transfer projects, and DRG
Pneumonia Upcoding. Although working groups for all four initiatives have
been formed, only the Laboratory Unbundling and the PPS Transfer working
groups have kalized documentation to guide offices participating in these

Besides the four designated national initiatives, DOJ has other antifraud projects
involving multiple judicial districts under way. However, DOJ considers only
the mu.ltidistrict projects that rely on national claims data to be subject to the
new requirements of the guidance that pertain specifically to national initiatives.
For example, the nationwide PATH project, which is based on Department of
Health and Human Senices-Office of Inspector General (IIEBOIG) audits, has
not been designated a national initiative by DOJ. Consequently, multidistrict
projects that are not formally designated as national initiatives may be subject

5                          GAO/HEHS-99-42R        DOJ’s False Claims Act Guidance

to a different type of oversight than those that have .been so designated. While
34 U.S. Attorneys’ Offices reported participating in such multidistrict projects,
we do not know how many projects are under way or how similar they are to
projects that are covered by the new requirements that pertain spectically to
national initiatives.


The results of our survey of U.S. Attorneys’ Oflices indicate that matters related
to national health care initiatives represent a relatively small potion of their
civil caseload.4 All 93 U.S. Attorneys responded to our stuvey.’ They reported
that of the 117,433 civil matters pending in their offices, 4,722 involved
af6rmative civil health care matters-that is, matters in which the government
makes a claim against private parties. Of these, 2,101 matters related to
national initiatives. Another 155 matters involved multidistrict investigations
that had not been designated national initiatives.

 Sixty-nine, or about 74 percent, of the 93 U.S. Attorneys reported that they were
 participating in at least one national initiative.” Table 1 shows a breakdown of
-the number of offices participating in these initiatives.

‘When a US . Attorney’s Office opens a civil investigation against a health care
provider, the investigation is referred to as a pending matter. A pending matter
becomes a case when the government files a civil complaint in a federal district
court. A pending matter also becomes a case when DOJ intervenes in a qui tam
lawsuit-an action brought by an individual on behalf of the United States alleging
that false or fraudulent claims have been submitted to the government In this
report, we use the term “matter” to refer to both matters and cases.
 5We asked the offices to provide data as of November 30, 1998. Not all were able
 to do so. Instead, some offices provided this information as of the date they
 completed our survey-late December 1998 or early January 1999.
 ‘We define “parti c ip sting” as having initiated one or more investigations against
 spectic providers.

 6                          GAO/HEiHS-99-42R        DOJ’s False Claims     Act Guidam
  Table 1: U.S. Attomevs’ Offices Particiuatina in Civil Health Care National

          National initiative                Number of offices
          Laboratory Unbundling                                          50
          72-Hour Window Rule                                            15
          PPS Transfer                                                   30
          DRG Pneumonia         Upcoding                                 38

   The survey results also indicate that of the 2,101 matters reported as pending by
   the US. Attorneys’ Offices, at most 110 matters, or about 5 percent, were
   opened after June 3, 1998. (We say “at most” because our survey dealt with
   aggregate numbers, and we could not readily tell fkom the responses whether
   any of these 110 pending matters have since been closed.) According to DOJ
. -officials, they have limited the number of new matters related to national
   initiatives while working groups finalized the documentation they are required
   to prepare to guide U.S. Attorneys participating in the initiatives. One official
   speculated that some of the matters opened since June 3, 1998, may involve qui
   tam cases, which the Attorney General is required by law to investigate.’

  U.S. Attorneys’ Offices reported closing 752 matters since the guidance was
  issued, almost seven times the number opened during this period. As table 2
  shows, these closed matters were almost evenly divided between settlements
  and declinations. The majority of settlements related to the 72-Hour Window
  Rule national initiative, while virtually all the matters closed without adverse
  action against providers involved the Laboratory Unbundling initiative. This
  initiative has been the subject of considerable criticism by the medical
  conummi~. For example, hospitals have claimed that the legal basis for this
  initiative is unsound. Further, they have contended that the demand letters
  issued by U.S. Attorneys’ Offices were overly aggressive and, in some cases,
  were not supported by accurate claims data We plan to determine the reasons
  for the seemingly large number of Laboratory Unbundling declinations as we
  continue our monitoring efforts.

  ‘Once a qui tam complaint is filed, the Attorney General is required to investigate
  the allegations and determine whether to join the lawsuit

  7                              GAOAEHS-99-42R    DOJ’s False Claims Act Guidance

 Table 2: National Initiative   Matters Closed Since June 3. 1998. bv Tvoe of


- -“An agreement reached between the government and the provider to resolve the
   matter in order to avoid litigation.

  bA matter closed without adverse action.


  To prepare for our required August 1999 report, we will continue to monitor
  DOJ’s compliance with the guidance. In this connection, we plan to meet with
  representatives from all the DOJ working groups. We will also verify that the
  working groups have prepared the documentation to guide U.S. Attorneys
  participating in the national initiatives, as required by the guidance.

  We plan to use the results of the survey responses from the U.S. Attorneys’
  Offices to assist us in focusing our work. We will concentrate our continuing
  monitoring efforts on offices that are most actively involved in national
  initiatives and in p ursuing other civil health care matters. At these offices, we
  plan to review compliance, in part, by examining matters subject to the

  On the basis of our experience to date, we face one major challenge in
  conducting our continuing work. In order to assess DOJ’s compliance with the
  guidance, we need access to information related to its use of the False Claims
  Act that it deems cotidential. DOJ’s policy is to restrict access to information

   8                            GAOEIEHS-99-42R      DOJ’s False Claims Act Guidance

% 281314
related to n a tio n a l initiatives th a t it considers nonpublic. D O J is c o n c e r n e d th a t
b r o a d e r access could result in public disclosure o f c o n fid e n tial inform a tio n ,
which could p o te n tially c o m p r o m i s e o p e n investigations. W e a r e required by
law, h o w e v e r , to m a intain th e s a m e level o f c o n fid e n tiality for inform a tio n as is
required o f th e a g e n c y from which it is o b ta i n e d .

D O J o fficials said th e y a r e c o m m i tte d to facilitating o u r review a n d providing us
access to inform a tio n in a m a n n e r th a t th e y believe is consistent with th e
c o n fid e n tial n a tu r e o f p e n d i n g law e n fo r c e m e n tinvestigations. R e s trictions o n
o u r access could lim it o u r ability to reach conclwions a b o u t D O J ’s or its U .S .
A ttorneys’ compliance with th e g u i d a n c e .

Finally, w e e x p e c t to c o n tin u e a d i a l o g u e with A B A a n d o th e r provider g r o u p s
as o u r work c o n tin u e s . In this r e g a r d , w e p l a n to survey all th e state hospital
associations to i d e n tify their concerns with D O J ’si m p l e m e n ta tio n o f th e


O fkials from D O J reviewed a d r a ft o f this report a n d generally concurred with
its c o n te n ts. T h e y s u g g e s te dtechnical or chuifying c o m m e n ts th a t w e
incorporate d as appropriate .

W e a r e s e n d i n g copies o f this report to th e A ttorney G e n e r a l ,o fficials from th e
organizatio n s w e visited, a n d o thers w h o a r e interested. W e also will m a k e
copies available to o thers u p o n r e q u e s t P leasecall m e a t (202) 5 1 2 - 7 1 1 4or
Leslie G . A ronovitz a t (312) 2 2 6 - 7 6 0 0if y o u or your staff h a v e a n y q u e s tio n s
a b o u t this report. O th e r m a jor c o n tributors to this report include P a u l D .
A lcocer, Barry R Bedrick, S te fa n i e G . W e l d o n ,R o b e r t T. Ferschl, a n d G e r a l d i n e
R e d & m - B i g o tt.

W illiam J. S canlon
Director, H e a l th Financing a n d
  Public H e a l th Issues


9                                  G A O /HEHS-99-42R           D O J ’s False Claims A c t G u i d a n c e
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