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entitled 'Medicare Fraud And Abuse: DOJ Continues to Promote 
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United States General Accounting Office: 
GAO: 

Report to Congressional Committees: 

April 2002: 

Medicare Fraud And Abuse: 

DOJ Continues to Promote Compliance with False Claims Act Guidance: 

GAO-02-546: 
		
Contents: 

Letter: 

Results in Brief: 

Background: 

DOJ's Oversight Aims to Foster Compliance with False Claims Act 
Guidance: 

National Initiatives Are Being Conducted in Accordance with the 
Guidance: 

Hospital Associations Express Few Concerns Regarding DOJ's Compliance 
with the Guidance: 

Concluding Observations: 

Agency Comments: 

Appendix I: GAO Reports Concerning the Use of the False Claims Act in 
Civil Health Care Fraud: 

Abbreviations: 

AHA: American Hospital Association: 

DOJ: Department of Justice: 

HCFA: Health Care Financing Administration: 

HHS-OIG: Department of Health and Human Services Office of Inspector 
General: 

PPS: prospective payment system: 

[End of section] 

United States General Accounting Office: 
Washington, DC 20548: 

April 5, 2002: 

Congressional Committees: 

In fiscal year 2001, the Department of Justice (DOJ) reported 
recoveries of more than $1.2 billion related to civil health care 
fraud. Identifying improper payments and ferreting out fraud in 
Medicare—the federal health insurance program serving approximately 40 
million elderly and disabled Americans—is one of DOJ's top enforcement 
priorities. DOJ's recoveries have been bolstered by the use of the 
False Claims Act,[Footnote 1] a powerful enforcement tool, which 
enables the government to seek significant damages and penalties 
against providers who knowingly submit false or fraudulent bills to 
Medicare, Medicaid, or other federal health programs. 

DOJ's use of its False Claims Act authority has included several 
nationwide investigations of hospitals—projects known as national 
initiatives.[Footnote 2] These investigations resulted in significant 
concerns from hospital industry representatives in the late 1990s. 
They criticized DOJ for overzealously pursuing hospitals for improper 
Medicare billings by conducting unwarranted investigations and 
demanding large penalties for unintentional errors. Amid growing 
concerns from both the industry and the Congress, DOJ issued guidance 
on the appropriate use of the act in civil health care matters, 
including national initiatives, in June 1998. The guidance was 
intended to emphasize the importance of using the act in a fair and 
even-handed manner and to implement new procedures regarding national 
initiatives. 

The Congress subsequently required us to monitor DOJ's implementation 
of the guidance, which has resulted in a series of reports (see 
appendix I).[Footnote 3] While our initial reviews identified concerns 
with a DOJ initiative that had commenced before the guidance was 
issued, our more recent work shows that DOJ has made progress in 
ensuring that the guidance is followed. 

This report represents our final required evaluation of DOJ's efforts 
to ensure compliance with the guidance. It focuses on DOJ's efforts to 
monitor compliance at its U.S. Attorneys' Offices and the application 
of the guidance in three national initiatives. These three initiatives 
all focus on hospitals that may have received greater reimbursement 
from the Medicare program than they were entitled to receive. The 
Prospective Payment System (PPS) Transfer initiative examines whether 
hospitals have improperly reported patient transfers between hospitals 
as discharges. The Pneumonia Upcoding initiative assesses whether 
Medicare has been billed improperly on behalf of beneficiaries 
hospitalized with pneumonia. Finally, the Laboratory Unbundling 
initiative reviews potentially improper billings for laboratory tests. 

Our specific objectives were to: (1) review the actions taken by DOJ 
to ensure U.S. Attorneys' Offices compliance with the guidance, (2) 
determine whether the PPS Transfer, Pneumonia Upcoding, and Laboratory 
Unbundling projects are being conducted in a manner consistent with 
the guidance, and (3) determine whether the hospital industry has 
concerns with DOJ's current use of the False Claims Act. 

Although DOJ's guidance applies to all civil health care matters, we 
focused this review, as we have our prior reports, on DOJ's
implementation of the guidance in national initiatives. To evaluate 
DOJ's oversight of U.S. Attorneys' Offices, we discussed ongoing 
monitoring and compliance efforts with DOJ officials, including those 
responsible for periodic evaluations of the operations of each U.S. 
Attorney's Office. In addition, we confirmed that all offices involved 
in civil health care matters had certified their compliance with the 
guidance for the period ending December 31, 2001, as required by DOJ. 
We also reviewed relevant documentation supporting these 
certifications and interviewed members of DOJ's working groups that 
coordinate each initiative to discuss their oversight of U.S. 
Attorneys' Offices participating in the initiatives. 

To determine if the PPS Transfer, Pneumonia Upcoding, and Laboratory 
Unbundling projects are being conducted in a manner consistent with 
the guidance, we visited 4 of the 94 U.S. Attorneys' Offices. The 
offices we visited were participating in at least one national 
initiative. At these offices we reviewed investigative files 
pertaining to PPS Transfer, Pneumonia Upcoding, and Laboratory 
Unbundling matters. We reviewed correspondence and other materials to 
determine whether these offices were conducting their investigations 
in accordance with the guidance. We chose the offices to visit to be 
able to review examples of both open and closed matters from the three 
initiatives. In total, we reviewed 35 investigative files-19 closed 
matters and 16 open matters. To identify industry concerns with DOJ's 
implementation of the guidance, we spoke to representatives of the 
American Hospital Association (AHA) and representatives from eight 
state hospital associations. 

We were provided access to documents through an agreement with DOJ to 
ensure that confidentiality of ongoing matters and DOJ's internal 
review process would not be compromised. This agreement did not 
materially affect our review because we were able to document 
compliance with specific elements of the guidance in both open and 
closed matters. We conducted our work from October 2001 through March 
2002. Except for these restrictions on our access, our work was 
performed in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

DOJ continues to take actions to foster compliance with its False 
Claims Act guidance. First, DOJ has successfully integrated an 
assessment of compliance with the guidance in its periodic evaluations 
of all U.S. Attorneys' Offices. In addition, all U.S. Attorneys' 
Offices involved in pursuing civil health care fraud matters must 
annually certify their compliance with the guidance. Although not 
required to do so, DOJ officials told us that some offices have 
implemented procedures to support their annual certifications by 
documenting their compliance with the guidance in individual 
investigative files or by establishing a review process under the 
direction of their civil chiefs. All of the offices we visited this 
year that are resolving matters with the use of the False Claims Act 
had, in fact, instituted such procedures. The national initiative 
working groups also have encouraged compliance with the guidance. 
Their efforts have helped ensure that claims data are accurate and 
that offices do not open more investigations than resources can 
support. Offices are therefore better able to devote individualized 
attention to each hospital's circumstances, as the guidance requires. 
In our view, these activities have helped to promote compliance with 
the guidance. 

DOJ appears to be conducting its three national initiatives in a 
manner that is consistent with the guidance. Our work continues to 
show that the U.S. Attorneys' Offices we visited had coordinated their 
activities with the national initiative working groups and, as the 
guidance requires, took each hospital's unique circumstances into 
consideration in resolving these matters. We noted one of the offices 
we visited that was participating in the Laboratory Unbundling 
initiative had simultaneously opened many matters in 1995, prior to 
the issuance of the guidance. According to an official in this office, 
a lack of resources to handle this workload ultimately resulted in 
delays in resolving these matters. The office found it could not 
resolve all of these matters soon enough to utilize the damages 
provision available under the False Claims Act. According to an 
official in this office, approximately 12 matters remained open at the 
time of our March 2002 visit. In addition, this office was unable to 
resolve 4 of the recently closed matters we reviewed as false claims. 
Instead, it collected the amount of any overpayment plus interest. 

Representatives from the AHA and the state hospital associations we 
spoke to were generally satisfied that U.S. Attorneys' Offices were 
adhering to DOJ's False Claims Act guidance in the national 
initiatives. Although a few hospital association representatives 
expressed continuing concerns with the use of the act in health care 
matters, none of the representatives we contacted identified specific 
instances of noncompliance with the guidance—either by a particular 
U.S. Attorney's Office or in one of DOJ's national initiatives. Many 
of these representatives provided us with examples of DOJ's compliance 
with the guidance. Officials from DOJ's Executive Office for U.S. 
Attorneys and its Civil Division generally concurred with our findings 
and concluding observations. 

Background: 

The False Claims Act provides that anyone who "knowingly" submits 
false claims to the government is liable for damages up to three times 
the amount of the erroneous payment plus mandatory penalties between 
$5,500 and $11,000 for each false claim submitted. In the health care 
setting, where providers submit thousands of claims annually, the 
potential damages and penalties provided under the act for violators 
can quickly add up. 

DOJ's use of the False Claims Act currently includes three national 
initiatives involving hospitals.[Footnote 4] The two initiatives that 
currently have the most active investigations are the PPS Transfer and 
Pneumonia Upcoding projects. The PPS Transfer[Footnote 5] initiative 
was developed from a series of audits and joint recovery projects by 
DOJ, the Department of Health and Human Services Office of Inspector 
General (HHS-OIG), the Health Care Financing Administration (HCFA), 
[Footnote 6] the agency within the Department of Health and Human 
Services that administers the Medicare program—and the contractors to 
HCFA that process and pay Medicare claims. This effort sought to 
identify improperly coded transfers and recover associated 
overpayments from hospitals.[Footnote 7] The Pneumonia Upcoding 
initiative targets inpatient hospital claims inappropriately coded as 
stays for a relatively rare bacterial form of the disease that is more 
costly to treat—approximately $2,500 more per claim—than the more 
common viral pneumonia. DOJ's older national initiative—Laboratory 
Unbundling—is nearly completed. The Laboratory Unbundling initiative, 
which began in 1994 prior to the issuance of the False Claims Act 
guidance, identifies excess payments for laboratory tests that were 
performed concurrently on automated equipment but improperly billed or 
"unbundled" as separate tests. 

DOJ issued "Guidance on the Use of the False Claims Act in Civil 
Health Care Matters" on June 3, 1998. The guidance, which applies to 
all civil health care matters, emphasizes fair and responsible use of 
the act and instructs DOJ attorneys and U.S. Attorneys to determine, 
before they allege violations of the act, that the facts and the law 
sufficiently establish that the claimant knowingly submitted false 
claims. The guidance also contains provisions that specifically 
address the use of the act in DOJ's national initiatives. Prior to 
alleging a violation of the act in connection with a national 
initiative, attorneys should use contact letters to notify a provider 
of a potential liability and give the provider an opportunity to 
respond before a demand for payment is made. The guidance contains 
other safeguards to ensure the fair treatment of hospitals. For 
example, U.S. Attorneys' Offices must consider alternative remedies to 
the False Claims Act, including administrative remedies such as 
recoupment of overpayments, program exclusions, and other civil 
monetary penalties. In addition, they must also consider a provider's 
ability to pay; the effect on the community served by the provider—
particularly for rural and community hospitals; and the extent of 
provider cooperation in the matter. 

According to the guidance, working groups must be established to 
coordinate each national initiative. These groups, comprised of DOJ 
attorneys and assistant U.S. Attorneys with expertise in health care 
fraud control, must develop "initiative-specific guidance" to provide 
direction and support to the U.S. Attorneys' Offices that are 
participating in the initiatives. This initiative-specific guidance 
may include a legal analysis of pertinent issues, an investigative 
plan, and a summary of Medicare claims data indicating potentially 
significant billing errors for specific providers to assist individual 
U.S. Attorneys' Offices participating in the initiatives. As we 
reported in August 1999, the PPS Transfer, Pneumonia Upcoding, and 
Laboratory Unbundling working groups developed extensive guidance and 
memoranda for their respective initiatives outlining relevant legal 
and regulatory requirements.[Footnote 8] The working groups are also 
tasked with tracking the participating offices' progress, responding 
to their questions, and monitoring compliance with the guidance, as 
each initiative proceeds. 

This is the fifth and last in a series of reports we have issued 
regarding DOJ's implementation of its False Claims Act guidance and 
its efforts to oversee compliance. In February 1999, we issued an 
early status report on DOJ's initial efforts to implement the 
guidance.[Footnote 9] In our August 1999 report we concluded that 
DOJ's process for reviewing implementation of the guidance appeared 
superficial and that U.S. Attorneys' Offices were not consistent in 
their application of the guidance. However, in March 2000, we reported 
that DOJ had taken steps to improve compliance with its False Claims 
Act guidance.[Footnote 10] Our March 2001 report concluded that DOJ 
seemed to have made substantive progress in ensuring compliance with 
the guidance by strengthening its oversight of U.S. Attorneys' 
Offices.[Footnote 11] In that report, we also pointed out that both 
the PPS Transfer and Pneumonia Upcoding initiatives appeared to be 
conducted in a manner that was consistent with the guidance. 

DOJ's Oversight Aims to Foster Compliance with False Claims Act 
Guidance: 

DOJ continues to promote compliance with the False Claims Act guidance 
at its U.S. Attorneys' Offices. We believe that the oversight 
mechanisms it has put in place help ensure that the guidance will be 
followed and, that if instances of noncompliance occur, there are 
procedures in place to detect them. 

DOJ's periodic evaluation of compliance with the guidance at U.S. 
Attorneys' Offices continues to be substantive. Two years ago DOJ 
revamped this process to provide a more meaningful assessment of 
compliance, in response to our prior recommendations. As we reported 
last year, these evaluations include detailed interviews regarding the 
activities and procedures each office has in place to ensure that the 
attorneys are informed of the guidance and that the office is in 
compliance. Of the 28 evaluations that took place in 2001, none 
resulted in a determination that an office was out of compliance with 
the guidance. DOJ officials indicated that offices found to be out of 
compliance in future evaluations will be required to develop a plan of 
corrective action. DOJ's Executive Office for U.S. Attorneys would 
then be tasked with monitoring the offices' implementation of these 
plans. 

Similarly, DOJ's requirement that all U.S. Attorneys' Offices involved 
in civil health care fraud matters annually certify their compliance 
with the guidance, a process also instituted 2 years ago in response 
to our recommendations, appears to have continued to promote 
compliance. According to DOJ officials, all U.S. Attorneys' Offices 
participating in civil health care matters had attested to their 
compliance for the period ending December 31, 2001. Although DOJ has 
not required offices to document their compliance with the guidance as 
part of the certification process, the offices we visited this year, 
like those we visited the year before, had either specifically 
documented their compliance in individual investigative files, 
instituted a review process under the direction of their office's 
civil chief, or developed a process to document compliance in a 
particular stage of an investigation. For example, closed 
investigative files we reviewed in one office contained certifications 
that the investigations had been conducted in accordance with the 
guidance. Another office conducted an annual review of all open 
national initiative matters to assess compliance. A third office 
documented its justification for opening investigations before 
hospitals were notified of potentially false claims. Based on our 
review of the materials supporting these certifications, and our 
analysis of the files we reviewed, we found no basis to dispute any 
office's certifications. 

The working groups have continued to be involved in the development 
and implementation of the national initiatives. They have also 
continued to monitor the progress of the offices participating in 
them. Particularly for DOJ's two newer initiatives, the working groups 
have helped ensure the accuracy of the data on which the 
investigations are premised. By obtaining and analyzing national and 
hospital-specific claims data and subsequently sharing them with U.S. 
Attorneys' Offices to use as a basis for initiating their 
investigations, the working groups' review has helped ensure the 
validity of the analysis, thus addressing a problem which we noted in 
a prior report.[Footnote 12] In addition, substantially fewer matters 
are being pursued under the two newer initiatives, which we believe is 
attributable to the working groups' oversight and their limiting the 
data provided to participating offices. This approach helps ensure 
that the offices do not simultaneously open more matters than 
resources can support. It also enables offices to devote 
individualized attention to each hospital's unique circumstances, such 
as its efforts to comply with billing rules and its financial 
condition, as the guidance requires. In addition, we found that U.S. 
Attorneys' Offices participating in the initiatives consulted with 
working group members throughout the development of their
investigations and shared proposed settlement agreements with them. 
This exchange of information allows the working groups to monitor 
compliance with the guidance on an ongoing basis. 

National Initiatives Are Being Conducted in Accordance with the 
Guidance: 

Our review of files at the U.S. Attorneys' Offices we visited suggests 
that the interactions between these offices and the hospitals they 
investigated were consistent with the guidance, in all three national 
initiatives. However, we also found that one of the offices that was 
participating in the Laboratory Unbundling initiative had 
simultaneously opened more matters than could be processed 
expeditiously. It subsequently found that it could not resolve all of 
these matters soon enough to utilize the damages provision available 
under the False Claims Act. 

In reviewing correspondence and other documentation pertaining to the 
PPS Transfer, Pneumonia Upcoding, and Laboratory Unbundling 
investigations and settlements, we observed that the offices conducted 
detailed examinations of each hospital's billing patterns and
circumstances, as the guidance requires. They also considered 
hospitals' individual circumstances and varied their actions 
accordingly, as required by the guidance. For example, one office 
reviewed the data supplied by the PPS Transfer working group and found 
that billing patterns for five hospitals indicated that some improper 
billings had been submitted. However, the office chose not to pursue 
False Claims Act actions because in its view, the amounts of the 
overpayments were not of a magnitude to warrant the use of the act. 
This office also recognized that resolving these matters as false 
claims could adversely affect the hospitals' financial conditions and 
impair their ability to provide services to their rural communities. 
Both considerations are consistent with proper use of the guidance. 
Another office participating in the Pneumonia Upcoding project reduced 
its proposed settlement offer because the hospital was able to 
demonstrate that it was in dire financial condition and was currently 
billing Medicare properly. The office also considered that the 
hospital's improper billings occurred while it was under different 
management. In a different office participating in the Laboratory 
Unbundling initiative, the office closed a matter without recovering 
any monies because of the hospital's poor financial condition and the 
community's dependence on it as a sole source of medical care. The 
hospital, however, instituted new procedures to prevent improper 
billings in the future. 

However, we found that one office we visited that was participating in 
the Laboratory Unbundling initiative is currently facing a challenge 
comparable to one we previously identified at another office in our 
August 1999 report—simultaneously opening more matters than the 
office's resources could ultimately support. As that report noted, the 
office was unable to close most of its matters as false claims and 
instead collected overpayments only.[Footnote 13] 

In March 2002, we visited an office that had opened approximately 60 
matters in June 1995, prior to the issuance of the guidance. Although 
many of these matters had been settled, an official told us that 
approximately 12 were still open at the time of our visit. When 
matters remain open for many years the government may jeopardize its 
ability to recover damages under the False Claims Act. In order to 
settle or litigate allegations as False Claims Act violations, the 
government must resolve these matters within the timeframe specified 
by the act's statute of limitations.[Footnote 14] At the office we 
visited, the statute of limitations had expired for some of the 
office's closed matters, including 4 of the recently closed matters we 
reviewed. The office collected the amount of the overpayments plus 
interest, but could not assess any damages or penalties available 
under the False Claims Act. 

Officials there largely attributed the delay in resolving these 
matters to the complexity of the investigations as well as the 
office's workload and an accompanying lack of resources. The resulting 
delays may also have kept the hospitals in a state of prolonged 
uncertainty regarding their liability. 

However, since the guidance was issued, scrutiny by the working groups 
and more careful selections of matters by offices has made it less 
likely that offices will open more matters than they can resolve in a 
timely fashion. 

Hospital Associations Express Few Concerns Regarding DOJ's Compliance 
with the Guidance: 

Representatives from the AHA and the eight state hospital associations 
we spoke to were generally satisfied that U.S. Attorneys' Offices were 
adhering to DOJ's False Claims Act guidance in the national 
initiatives. They had no specific examples of noncompliance with the 
guidance either by a particular U.S. Attorney's Office or in a 
specific national initiative. Many of these representatives provided 
us with examples of DOJ's compliance with the guidance. For example, 
some stated that since the guidance was issued, U.S. Attorneys' 
Offices have shown greater willingness to communicate with hospitals. 
Similarly, they mentioned that these offices were now more likely to 
consider information that hospitals submit in their defense and 
otherwise treat them reasonably in resolving these matters. Some 
associations noted that in the more recent national initiatives—PPS 
Transfer and Pneumonia Upcoding—DOJ seems to have carefully identified 
potentially improper payments before contacting hospitals. Several 
hospital association representatives attributed improved working 
relationships between DOJ and the health care community to the 
development of an ongoing dialogue between some U.S. Attorneys' 
Offices and hospital associations regarding billing issues. 

However, a few hospital association representatives we spoke to did 
raise some concerns regarding the appropriateness of DOJ's use of the 
False Claims Act. For example, a representative of one state hospital 
association questioned whether U.S. Attorneys' Offices were giving 
enough consideration to the clarity of Medicare's billing rules and 
the adequacy of communicating these rules to providers in its current 
initiatives. However, the four offices we visited appeared to be 
willing to consider whether hospitals misunderstood the billing rules. 
In the case of PPS Transfer, both of the offices we visited that were 
participating in this initiative exclusively targeted hospitals that 
had been the subject of prior PPS Transfer audits conducted by the HHS-
OIG. These audits identified improper billings and the results were 
shared with the hospitals. In DOJ's opinion, these audits should have 
clarified hospitals' understanding of the PPS billing rules. 

Although the AHA and state hospital association representatives we 
spoke to acknowledged that DOJ's guidance has resulted in less 
threatening communications, they reported that hospitals nonetheless 
feel intimidated when they are notified by DOJ that they are under 
investigation. One association suggested that, instead of DOJ 
conducting initial investigations and notifying hospitals, the 
contractors that process and pay Medicare claims should be permitted 
to initiate investigations. In our review, which included an 
examination of correspondence between the U.S. Attorneys' Offices and 
the hospitals, we did not detect an unreasonable or threatening tone. 
And, while Medicare contractors as well as the HHS-OIG conduct audits 
and perform other tasks to detect and investigate improper billings, 
it remains the prerogative of DOJ to pursue providers who may have 
violated the False Claims Act. Moreover, only DOJ can initiate a False 
Claims Act action against a provider. 

AHA representatives also expressed concern about an ongoing False 
Claims Act case that is not related to the national initiatives. Their 
concerns involve an investigation of over 100 hospitals that allegedly 
billed Medicare improperly for investigational medical devices. 
[Footnote 15] This investigation is based on a qui tam lawsuit. 
[Footnote 16] As with all qui tam cases, DOJ was required to 
investigate the allegations and determine whether to join the lawsuit. 
Part of its investigation, therefore, included an assessment of 
whether the alleged billing improprieties merited pursuit under the 
False Claims Act. AHA representatives said the billing rules regarding 
these devices had been unclear and that the use of the act was 
uncalled for. However, DOJ officials explained that, while these rules 
changed over time, their clarity was sufficient to have permitted 
hospitals to bill Medicare properly. Because of this pending lawsuit's 
qui tam status and the fact that many cases remain under seal, we were 
unable to address the matter further. 

Finally, some hospital associations raised an issue that was also 
brought to our attention in preparing last year's report. Association 
representatives continue to be concerned that corporate integrity 
agreements they regard as burdensome may be included in settlement 
agreements of national initiative matters at the insistence of the HHS-
OIG.[Footnote 17] Consistent with our findings last year, the 
imposition of these agreements was not routine for the matters we 
reviewed this year. These agreements were required in 7 of the 19 
closed matters we examined. Moreover, in an open letter to the medical 
community in November 2001, the EMS inspector general announced new 
criteria that would be used in determining when a corporate integrity 
agreement would be required. These new criteria are based on a variety 
of factors including the age and financial significance of the alleged 
impropriety and whether the provider has a viable voluntary compliance 
plan in place. 

Concluding Observations: 

DOJ's oversight of U.S. Attorneys' Offices has helped to foster 
compliance with its False Claims Act guidance. DOJ has instituted 
sufficient monitoring of U.S. Attorneys' Offices participating in the 
national initiatives and other civil health care fraud matters to help 
ensure that offices use the act in a fair and even-handed manner. The 
review of each office's compliance is now an integral component of the 
periodic evaluations conducted of all U.S. Attorneys' Offices. The 
annual certification of compliance with the guidance by each U.S. 
Attorney's Office pursuing civil health care fraud matters has also 
helped encourage compliance, as have the activities of the working 
groups that coordinate and oversee offices participating in national 
initiatives. Our review of open and closed PPS Transfer, Pneumonia 
Upcoding, and Laboratory Unbundling project files in the four offices 
we visited also supports that the guidance is being followed. And, 
although hospital association representatives still expressed some 
concerns with the use of the act, they did not identify specific 
instances of noncompliance by either a particular U.S. Attorney's 
Office or in a specific national initiative. 

We believe that it is in the interest of both the government and the 
hospitals to pursue investigations thoroughly and resolve them 
expeditiously. DOJ is involved in a balancing act. On one hand, if 
offices have sufficient evidence to allege that false claims have been 
filed, but do not pursue them, the government loses the opportunity to 
use the sanctions of the act for the intended purpose of discouraging 
false claims for federal monies. On the other hand, if offices 
overextend themselves by opening more matters than they can reasonably 
be expected to resolve within the required timeframes, the hospitals 
are kept in a state of uncertainty about their investigations for 
unnecessarily prolonged periods while the government is also unable to 
use the act as a deterrent. One of the offices we visited had opened 
many Laboratory Unbundling matters in 1995, prior to the issuance of 
DOJ's guidance, and is still in the process of resolving some of these 
matters. However, offices participating in the two newer national 
initiatives—PPS Transfer and Pneumonia Upcoding—are now opening fewer 
investigations, reducing the likelihood that this situation will 
resurface. 

Agency Comments: 

We provided a draft of this report to DOJ for comments. Officials from 
DOJ's Executive Office for U.S. Attorneys and its Civil Division 
provided oral comments, in which they generally concurred with our 
findings and concluding observations. They also provided technical 
comments, which we incorporated, as appropriate. 

We are sending copies of this report to the attorney general of the 
United States, the secretary of HHS, and other interested parties. We 
will make copies available to others upon request. 

If you or your staff have any questions about this report, please call 
me on (312) 220-7767, or Geraldine Redican-Bigott at (312) 220-7678. 
Other major contributors were Lynn Filla-Clark, Don Kittler, and 
Barbara Mulliken. 

Signed by: 

Leslie G. Aronovitz: 
Director, Health Care—Program: 
Administration and Integrity Issues: 

List of Committees: 

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

The Honorable Ernest F. Hollings: 
Chairman: 
The Honorable Judd Gregg: 
Ranking Minority Member: 
Subcommittee on Commerce, Justice, State, the Judiciary: 
Committee on Appropriations: 
United States Senate: 

The Honorable Jim Sensenbrenner, Jr. 
Chairman: 
The Honorable John Conyers, Jr. 
Ranking Minority Member: 
Committee on the Judiciary: 
House of Representatives: 

The Honorable Frank R. Wolf: 
Chairman: 
The Honorable Jose E. Serrano: 
Ranking Minority Member: 
Subcommittee on Commerce, Justice, State, and the Judiciary: 
Committee on Appropriations: 
House of Representatives: 

[End of section] 

Appendix I: GAO Reports Concerning the Use of the False Claims Act in 
Civil Health Care Fraud" 

Reports Mandated by the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999 (P.L. 105-277): 

Medicare Fraud and Abuse: Early Status of DOJ's Compliance with False 
Claims Act Guidance. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-42R]. Washington, D.C.: 
February 1, 1999. 

Medicare Fraud and Abuse: DOJ's Implementation of False Claims Act 
Guidance in National Initiatives Varies. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-170]. Washington, D.C.: August 
6, 1999. 

Reports Mandated by the Consolidated Appropriations Act of 2000 (P.L. 
106-113): 

Medicare Fraud and Abuse: DOJ Has Made Progress in Implementing False 
Claims Act Guidance. [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-73]. Washington, D.C.: March 
31, 2000. 

Medicare Fraud and Abuse: DOJ Has Improved Oversight of False Claims 
Act Guidance. [hyperlink, http://www.gao.gov/products/GAO-01-506]. 
Washington, D.C.: March 30, 2001. 

Other Related Products: 

Medicare: Application of the False Claims Act to Hospital Billing 
Practices. [hyperlink, http://www.gao.gov/products/GAO/HEHS-98-195]. 
Washington, D.C.: July 10, 1998. 

Medicare: Concerns with Physicians at Teaching Hospitals (PATH) 
Audits. [hyperlink, http://www.gao.gov/products/GAO/HEHS-98-174]. 
Washington, D.C.: July 23, 1998. 

Letter to the Committee on Ways and Means. B-278893. Washington, D.C.: 
July 22, 1998. 

[End of section] 

Footnotes: 

[1] 31 U.S.C. sec. 3729(a) to 3733: Anyone who "knowingly" presents 
false claims for payment to the United States may be found to be in 
violation of the False Claims Act. The act defines "knowingly" to 
include a person who (1) has actual knowledge of the false claim, (2) 
acts in deliberate ignorance of the truth or falsity of the claim, or 
(3) acts in reckless disregard of the truth or falsity of the claim. 

[2] DOJ defines a national initiative as a nationwide investigation 
stemming from an analysis of national claims data, indicating that 
numerous, similarly situated providers have engaged in similar conduct 
to improperly bill government health care programs. 

[3] These requirements were contained in the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act of 1999 (P.L. 105-277) and 
the Consolidated Appropriations Act of 2000 (P.L. 106-113). 

[4] Another project, the 72-Hour Window, was previously designated as 
a national initiative, but according to DOJ, is now complete. This 
project, begun in 1995, centered on improper claims for payments for 
outpatient services received within 72 hours of a hospital admission. 
Payments for the inpatient admission cover these services in addition 
to services during a patient's stay. 

[5] Under Medicare's Prospective Payment System, hospitals are 
reimbursed a single amount to cover an entire inpatient stay. When a 
patient is transferred from one inpatient hospital to another, the 
transferring hospital is only entitled to receive a prorated payment 
based upon the patient's diagnosis and the number of days at the 
transferring hospital. 

[6] On June 14, 2001, the secretary of Health and Human Services 
announced that the name of the Health Care Financing Administration 
had been changed to the Centers for Medicare and Medicaid Services. In 
this report, we will refer to HCFA where our findings apply to 
operations that took place under that organizational structure and 
name. 

[7] See, for example, reports issued by the Department of Health and 
Human Services Office of Inspector General, Medicare Hospital Patient 
Transfers Incorrectly Paid as Discharges—January 1992-December 1994 (A-
06-95-0083), November 1996; and Medicare Hospital Patient Transfers 
Improperly Reported and Paid as Hospital Discharges (A-0693-00095), 
February 1995. 

[8] U.S. General Accounting Office, Medicare Fraud and Abuse: DOJ's 
Implementation of False Claims Act Guidance in National Initiatives 
Varies, [hyperlink, http://www.gao.gov/products/GAO/HEHS-99-170] 
(Washington, D.C.: Aug. 6, 1999). 

[9] U.S. General Accounting Office, Medicare Fraud and Abuse: Early 
Status of DOJ's Compliance with False Claims Act Guidance, [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-42R] (Washington, D.C.: Feb. 
1, 1999). 

[10] U.S. General Accounting Office, Medicare Fraud and Abuse: DOJ Has 
Made Progress in Implementing False Claims Act Guidance, [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-00-73] (Washington, D.C.: March 
31, 2000). 

[11] U.S. General Accounting Office, Medicare Fraud and Abuse: DOJ Has 
Improved Oversight of False Claims Act Guidance, [hyperlink, 
http://www.gao.gov/products/GAO-01-506] (Washington, D.C.: March 30, 
2001). 

[12] This report noted that data used for the basis of unbundling 
investigations by certain offices were seriously flawed and had not 
been adequately analyzed and verified before these offices made 
allegations. U.S. General Accounting Office, Medicare Fraud and Abuse: 
DOJ's Implementation of False Claims Act Guidance in National 
Initiatives Varies, [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-99-170] (Washington, D.C.: Aug. 
6, 1999). 

[13] Officials had made False Claims Act allegations against 75 
hospitals in 1997 Officials at that office told us that obtaining 
evidence needed to establish violations of the act would be time 
consuming and difficult and that opening so many matters at the same 
time strained their resources. Ultimately, the office opted to not 
pursue hospitals for violation of the act and instead offered them the 
alternative of returning the overpayments identified during the 
investigation. 

[14] The statute of limitations applicable to the False Claims Act 
requires that a civil action may not be brought more than 6 years from 
the date the false claim was made or 3 years from the date that the 
government could have reasonably discovered the facts about the claim 
but not to exceed 10 years from the date the claim was made. 

[15] Investigational medical devices are those that have not been 
approved for marketing by the Food and Drug Administration. 

[16] 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. 

[17] A corporate integrity agreement is an obligation imposed by the 
HHS-OIG on a provider as part of a settlement of a potential fraud 
matter. The provider agrees to take affirmative steps to improve 
compliance and report periodically to the HHS-OIG. The HHS-OIG, in 
turn, agrees not to seek further administrative penalties for the 
behavior in question. Corporate integrity agreements typically last 
for 3 years for national initiative matters. 

[End of section] 

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