Pursuant to a congressional request, GAO reviewed: (1) the False Claims Act and its application to claims involving health care programs; (2) information on the data sources, analysis, and procedures used to bring False Claims Act cases against hospitals under the 72-Hour Window Project; and (3) similar information on the Lab Unbundling Project.

GAO noted that: (1) the False Claims Act was originally created to help combat widespread fraud in government contracts during the Civil War; (2) amendments to the False Claims Act in 1986 strengthened the government's ability to identify and recover improper payments to federal programs; (3) the number of civil health care fraud matters pending at the Department of Justice (DOJ) at the end of the year increased from 270 in fiscal year (FY) 1992 to over 4,000 in FY 1997; (4) because the Medicare program involves millions of claims submitted by thousands of providers, the cumulative effect of even small overpayments can involve billions of dollars in Medicare losses; (5) the False Claims Act allows for penalties of between $5,000 and $10,000 for each false claim plus damages of up to three times the amount of the erroneous payment; (6) DOJ's use of the False Claims Act currently includes two major multistate initiatives involving hospitals--the 72-Hour Window Project and the Lab Unbundling Project; (7) the 72-Hour Window Project investigates whether hospitals have separately billed Medicare for outpatient services covered by the Medicare inpatient payment; (8) DOJ and the Department of Health and Human Services Office of Inspector General (HHS-OIG) have been working together to analyze hospitals' Medicare billings and to develop the information needed for False Claims Act cases; (9) the Lab Unbundling Project investigates whether hospitals have billed Medicare separately for each blood test performed concurrently on automated equipment or billed Medicare for medically unnecessary tests; (10) although hospitals and their associations have been critical of both national initiatives, they are particularly concerned that the Lab Unbundling Project involves cases in which U.S. Attorneys have issued demand letters that threaten prosecution without valid supporting data analysis; (11) the widespread application of the False Claims Act to improper Medicare billing is a change in approach to resolving this issue and has heightened the importance of hospital compliance with program requirements; (12) most of the settlements under the 72-Hour Window Project have involved a focused compliance strategy to improve billing practices that have resulted in the specific types of billing errors that prompted DOJ's demand letters; and (13) both HHS-OIG and DOJ officials have stated that the presence of an effective compliance program would indicate a hospital's intent to comply with Medicare policies.