Medicare: Application of the False Claims Act to Hospital Billing
Practices (Letter Report, 07/10/98, GAO/HEHS-98-195).
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.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-98-195
TITLE: Medicare: Application of the False Claims Act to Hospital
Billing Practices
DATE: 07/10/98
SUBJECT: Fraud
Program abuses
Medical expense claims
Claims processing
Hospitals
Overpayments
Health insurance cost control
IDENTIFIER: 72 Hour Window Project
Lab Unbundling Project
Medicare Program
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Cover
================================================================ COVER
Report to Congressional Requesters
July 1998
MEDICARE - APPLICATION OF THE
FALSE CLAIMS ACT TO HOSPITAL
BILLING PRACTICES
GAO/HEHS-98-195
Application of the False Claims Act
(101722)
Abbreviations
=============================================================== ABBREV
AHA - American Hospital Association
CPT-4 - Physicians Current Procedural Terminology
HCFA - Health Care Financing Administration
HHS - Department of Health and Human Services
HHS-OIG - HHS' Office of Inspector General
OIG - Office of Inspector General
PATH - physicians at teaching hospitals
Letter
=============================================================== LETTER
B-280088
July 10, 1998
The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives
The Honorable Henry J. Hyde
Chairman, Committee on the Judiciary
House of Representatives
The Honorable Bill Thomas
Chairman, Subcommittee on Health
Committee on Ways and Means
House of Representatives
The Honorable Lamar S. Smith
Chairman, Subcommittee on Immigration and Claims
Committee on the Judiciary
House of Representatives
Improper billings to Medicare--the federal health care program with
nearly 39 million beneficiaries--are a serious threat to the fiscal
integrity of the program and may also create a financial burden for
Medicare patients who pay deductibles and copayments. 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
$20.3 billion in fiscal year 1997--about 11 percent of all Medicare
fee-for-service payments that year.
HHS and the Department of Justice have stepped up their efforts to
identify and recover overpayments, assisted by additional resources
and enforcement tools provided by the Health Insurance Portability
and Accountability Act of 1996 (P.L. 104-191) and the False Claims
Act (31 U.S.C. sec. 3729(a) to 3733), which was strengthened by the
Congress in 1986. HHS and Justice reported that their efforts
combating health care fraud returned almost $1 billion to the
Medicare Trust Fund in fiscal year 1997. Two nationwide
initiatives--the 72-Hour Window Project and the Lab Unbundling
Project--have raised concerns on the part of hospitals that they have
been unfairly targeted by Justice and that the use of the False
Claims Act to pursue penalties and damages under these initiatives is
inappropriate.\1 The 72-Hour Window Project targets separate payments
for outpatient services that were included in the Medicare inpatient
payment to hospitals, and the Lab Unbundling Project targets excess
payments for lab tests that were performed concurrently on automated
equipment.
Because of concerns about these projects, you asked us to provide you
with (1) an overview of 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. This report also
includes information on two recent developments related to the issues
in your request: recent changes by the Department of Justice in its
management of national initiatives involving the use of the False
Claims Act and the release of model compliance guidance by HHS-OIG.
To address these issues, we reviewed pertinent federal laws and
regulations and obtained information from the Health Care Financing
Administration (HCFA), which administers the Medicare program. We
also met with HHS-OIG headquarters and Boston regional office staff
to discuss their audits of Medicare payments to hospitals, the data
they provided to the Department of Justice, and their work with
Justice staff on the national initiatives. We met with Department of
Justice headquarters officials and with U.S. Attorneys' Offices in
the Middle District of Pennsylvania, the Northern District of Ohio,
the Southern District of Texas, and the Massachusetts District. We
also met with fiscal intermediaries (HCFA contractors that pay claims
filed by hospitals) in Massachusetts, Ohio, and Texas. In addition,
we met with the American Hospital Association (AHA); the
Massachusetts, Ohio, and Texas hospital associations; and
representatives of several hospitals that were involved in the
national initiatives pursued by the Department of Justice. We
obtained the perspectives of these representatives on the Department
of Justice's actions regarding the national initiatives.
To be able to issue the report on the date requested, we did not
independently verify the accuracy of the data used by HHS-OIG and the
Department of Justice or the analyses used in their application of
the False Claims Act against hospitals. However, we did determine
how the data were generated and used by these agencies in their
investigations and discussed the reliability of these data with
representatives of the hospital associations and fiscal
intermediaries. Also, at one U.S. Attorney's Office, Justice
officials provided information only on typical procedures used to
investigate possible health care fraud cases; they declined to
provide detailed information on the procedures used to investigate
potential lab unbundling cases because they believed public
disclosure of that information could compromise unresolved matters.
With these exceptions, we performed our work between March and June
1998 in accordance with generally accepted government auditing
standards.
--------------------
\1 We will address another multistate initiative involving hospital
billings to Medicare for physicians at teaching hospitals (PATH) in a
separate report.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
The False Claims Act was originally created to help combat widespread
fraud in government contracts during the Civil War. Amendments to
the False Claims Act in 1986 strengthened the government's ability to
identify and recover improper payments to federal programs, such as
defense procurement and Medicare. The number of civil health care
fraud matters pending at the Justice Department at the end of the
year increased from 270 in fiscal year 1992 to over 4,000 in fiscal
year 1997. By comparison, in fiscal year 1997 all civil fraud
matters pending at the end of the year totaled about 6,500. 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. 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. These penalties can result in potential
liability of millions of dollars to high-volume health care
providers, even though many individual Medicare claims total less
than $100 each. The Justice Department'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.
The 72-Hour Window Project investigates whether hospitals have
separately billed Medicare for outpatient services covered by the
Medicare inpatient payment, such as preadmission tests provided
within 72 hours of admission. Hospitals that do so are, in effect,
double-billing Medicare. The Department of Justice and HHS-OIG have
been working together to analyze hospitals' Medicare billings and to
develop the information needed for False Claims Act cases. In most
states, the U.S. Attorney for the Middle District of Pennsylvania is
implementing the project for all federal judicial districts in the
state. Hospital and Justice representatives have negotiated a
nationwide approach for reaching False Claims Act settlements for the
72-Hour Window Project. As of April 1998, about 3,000 hospitals had
received demand letters seeking recovery of overpayments, and about
$58 million has been recovered. Of the 2,400 hospitals that have
settled with the Department of Justice, about 1,700--those that had
only a few erroneous billings--were required only to return the
overpayments with interest, and not to pay damages.
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. The project began as a joint state-federal effort in Ohio but
has since been pursued independently by individual U.S. Attorneys'
Offices. 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,
they contend, U.S. Attorneys have issued demand letters that
threaten prosecution without valid supporting data analysis. They
also contend that billing problems have resulted from unclear or
conflicting Medicare guidance rather than false billing by hospitals.
Justice has responded to these concerns by changing how it manages
national initiatives, creating a working group to increase
coordination among the U.S. Attorneys' Offices, and issuing guidance
for all Justice Department attorneys handling civil health care fraud
matters.
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. 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 Justice's demand letters. In addition, in
February 1998, HHS-OIG released program compliance guidance for
hospitals covering every aspect of Medicare billing. This guidance
was developed with the cooperation of the American Medical
Association and the AHA and has been well received. Both HHS-OIG and
Justice officials have stated that the presence of an effective
compliance program would indicate a hospital's intent to comply with
Medicare policies. In such a situation, Justice officials have said,
billing errors would be likely to be viewed as inadvertent mistakes
rather than as deliberate or reckless overbilling subject to the
False Claims Act.
USE OF THE FALSE CLAIMS ACT IN
FEDERAL HEALTH CARE PROGRAMS
HAS INCREASED
------------------------------------------------------------ Letter :2
The False Claims Act is the federal government's primary civil remedy
for improper or fraudulent claims. It applies to all federal
programs, from military procurement contracts to welfare benefits to
health care benefits. People who "knowingly" submit false claims may
be found liable under the act for penalties of between $5,000 and
$10,000 for each false claim plus up to three times the amount of the
damages caused to the federal program. Specific intent to defraud
the government is not required: the government need only establish
that the claim submitted is false and that it was submitted
knowingly, as defined in the statute. Thus, the False Claims Act
covers activity that would not be included under the traditional
definition of fraud, which requires actual knowledge and the intent
to defraud. As with most other civil actions, the government must
establish its case by presenting a preponderance of the evidence
rather than by meeting the higher burden of proof that applies in
criminal cases.
Enacted in 1863 in response to allegations of widespread fraud in
connection with Union Army procurement contracts, the False Claims
Act underwent major amendments in 1986 when, among other things, the
Congress both defined the knowledge requirement and specified the
burden of proof at the level of a preponderance of the evidence.\2 To
prove that a defendant has submitted a false claim knowingly, the
government must establish that the person submitted the claim with
actual knowledge, in deliberate ignorance, or with reckless disregard
for the claim's truth or falsity. Statements in the Senate report on
the 1986 amendments clarify that the statute is not intended to apply
to honest mistakes and negligence. However, as another statement
indicates, one of the goals of the amendments was to establish that
"those doing business with the Government have an obligation to make
a limited inquiry to ensure the claims they submit are accurate."
Most of the False Claims Act cases brought in the aftermath of the
1986 amendments involved defense contractors. However, as spending
on federal health programs and interest in combating health care
fraud have grown, the act has been applied more frequently to health
care providers than in the past. The number of civil health care
fraud matters pending at the Justice Department at the end of the
year rose from 270 in fiscal year 1992 to more than 4,000 in fiscal
year 1997, as compared with all civil fraud matters pending at the
end of fiscal year 1997, which totaled about 6,500. Each U.S.
Attorney's Office now has a health care fraud coordinator, and there
is increasingly close coordination among Justice, HHS-OIG, the
Federal Bureau of Investigation, state Medicaid fraud units, and a
number of other federal agencies. The False Claims Act has been
applied to cases of improper billing practices; claims for services
not rendered; provision of medically unnecessary services;
misrepresenting eligibility or credentials; and, most recently,
substandard quality of care.
The Medicare program involves claims for services submitted by
thousands of providers on behalf of 39 million beneficiaries. The
cumulative effect of even small overpayments can translate to
significant program losses because of the number of claims and
providers involved. Justice's recent multistate initiatives reflect
the particular nature of the Medicare program--vulnerable to major
losses from a large number of relatively small overpayments.
The increased attention to health care does not mean that
participants in other federal programs are not subject to potential
liability under the False Claims Act, which continues to be widely
used in defense-related matters but also covers activities related to
all federal programs. Examples of False Claims Act activity in other
federal programs include pursuit of false certifications of
eligibility for student financial aid, the Food Stamp program, and
disability and retirement benefits.
--------------------
\2 The amendments also strengthened the False Claims Act's provisions
that enable private parties to bring actions on behalf of the
government through qui tam, or whistleblower, cases.
THE 72-HOUR WINDOW PROJECT
INVOLVES COORDINATED NATIONWIDE
EFFORTS
------------------------------------------------------------ Letter :3
The 72-Hour Window Project focuses on Medicare billings by hospitals
for certain outpatient services already covered by a Medicare
inpatient payment to the hospital. Medicare pays hospitals for
inpatient services using a prospective payment system with a fixed
fee based on the patient's diagnosis. Outpatient diagnostic services
and most nonphysician services provided within 72 hours of the date
of admission or during an inpatient stay are included in Medicare's
fixed fee for inpatient services.\3 In a series of audits over
several years, HHS-OIG determined that numerous hospitals were
violating these rules by billing Medicare separately for services
already covered by Medicare inpatient payments. Responding to
HHS-OIG's referral of these violations, the Department of Justice
established the 72-Hour Window Project and notified hospitals of
their potential liability under the False Claims Act. Justice
started the project in Pennsylvania and then expanded it nationwide.
As of April 1998, about 3,000 hospitals had received demand letters
from the Department of Justice, and settlements totaled about $58
million. Although some settlements involved damages, most required
only that the hospitals return the overpayment plus interest.
--------------------
\3 For hospitals not included in the prospective payment system, this
only applies to services furnished within 24 hours before the date of
admission.
IMPROPER BILLING WAS
WIDESPREAD
---------------------------------------------------------- Letter :3.1
In 1988, HHS-OIG reported that between October 1983 and January 1986
Medicare paid over 5,500 hospitals about $28 million in claims that
violated the rule against billing separately for services covered by
the inpatient payment.\4
Overpayments were identified from a computer match of HCFA's file of
prospective payment system hospital claims with its file of all
claims paid by the fiscal intermediaries, including payments for
nonphysician outpatient services. HHS-OIG recommended that HCFA (1)
instruct the intermediaries to install computerized claims processing
edits to deny payments for claims that violated the 72-hour window
rule and (2) put the hospitals on notice that they would be subject
to sanctions if they did not correct their billing procedures; HCFA
agreed to implement these recommendations. In 1990, 1992, and 1994,
HHS-OIG issued additional audit reports with similar findings.\5
HHS-OIG officials told us that frustration over continued violations
of the 72-Hour Window rule caused them to bring this matter to the
attention of the Department of Justice. It should be noted, however,
that the timing of HHS-OIG's audit reports limited the ability of the
hospitals to react to the audit findings. For example, the third
audit report covered December 1987 through October 1990; since the
second audit report was not released until August 1990, there was
little time for any corrective action taken by the hospitals in
response to the second audit report to be detected in the third
audit. Indeed, while little improvement was detected by the first
three audits, the fourth audit did detect a substantial decrease in
the level of claims improperly paid by the fiscal intermediaries.
According to an HHS-OIG official, this decrease could be attributed
to many factors, including improved edits installed by the fiscal
intermediaries and improved hospital billing performance.
HHS-OIG and the U.S. Attorney's Office for the Middle District of
Pennsylvania established a project team that initially focused on 145
hospitals in Pennsylvania served by one fiscal intermediary. Using
data developed during HHS-OIG's fourth audit, Justice, after
consultation with HHS-OIG, decided to employ the False Claims Act
against these hospitals rather than have the fiscal intermediary seek
repayment of the amounts improperly billed, as had been done in the
past. The project team used letters to notify the hospitals of their
total potential financial exposure through civil prosecution under
the False Claims Act. This exposure consisted of recoupment of
unrecovered overpayments, assessment of damages, and a mandatory
minimum penalty of $5,000 per false claim. The demand letters
offered the hospitals the opportunity to settle the matter before
litigation.
In response to these letters, the Hospital Council of Western
Pennsylvania, the Pennsylvania Hospital Association, and the AHA
worked closely with the U.S. Attorney's Office and HHS-OIG to
develop a model settlement agreement among the Pennsylvania
hospitals, the HHS-OIG, and Justice that reflected the relative
volume of each hospital's inappropriate billing. Hospitals were
divided into three tiers primarily on the basis of the number of
errors per hospital bed. The first tier contained hospitals with a
total of 10 or fewer erroneous claims and hospitals with relatively
few erroneous claims per hospital bed, compared with other hospitals
in the state. The second tier contained hospitals with a higher
number of errors per bed, and the third-tier hospitals had the most
errors per bed. In defining the tiers, the U.S. Attorney's Office
looked for clusters of hospitals with comparable volumes of
inappropriate claims per bed. Therefore, the number of hospitals in
each tier can vary significantly. The Justice Department and HHS-OIG
subsequently expanded this initiative nationwide to all 4,660
hospitals identified in HHS-OIG's fourth audit as receiving
overpayments. After the project expanded to other states, a "tier 0"
was established to include all hospitals with overpayments of less
than $1,000 regardless of the number of errors per bed. The criteria
for the different tiers in two states are illustrated in table 1.
Table 1
Criteria for Assigning Hospitals to
Tiers in New Jersey and Nebraska
New Jersey Nebraska
-------------------------- --------------------------
Ti Hospital Hospital
er s Criteria s Criteria
-- -------- ---------------- -------- ----------------
0 1 Less than $1,000 \a Less than $1,000
in overpayments in overpayments
1 31 Less than 0.0676 \a 10 or fewer
errors/bed or 10 errors
or fewer errors
2 29 Between 0.0725 3 Between 0.0438
and 0.1385 and 0.0769
errors/bed errors/bed
3 28 Between 0.1429 4 Between 0.1189
and 0.4592 and 0.5467
errors/bed errors/bed
----------------------------------------------------------
\a Nebraska's hospitals in tiers 0 and 1 total 55; break-down data
were not available.
Source: U.S. Department of Justice.
Hospitals were given the opportunity to justify the claims in
question on the basis of their analysis and interpretation of the
claims data, and some were able to convince the Assistant U.S.
Attorney to put them in a lower tier. The damages assessed against
hospitals in each tier were negotiated between the U.S. Attorney's
Office and hospital representatives and are depicted in table 2.
Hospitals, except those in tier 0, agreed to institute a compliance
strategy to correct billing problems associated with outpatient
services rendered in connection with an inpatient stay. In addition,
all hospitals agreed to reimburse Medicare beneficiaries for their
copayments and deductibles paid.
Table 2
Settlement Terms by Tier Level
Tier Repayment Damages assessed
------ -------------- ----------------------------------
0 Overpayments None
plus interest
1 Overpayments None
plus interest
2 Overpayments 75% of actual overpayments
plus interest detected in third HHS-OIG audit
and recovered by the fiscal
intermediary.
3 Overpayments 200% of potential overpayments
plus interest detected in fourth HHS-OIG audit;
100% of actual overpayments
detected in third HHS-OIG audit
and recovered by the fiscal
intermediary.
----------------------------------------------------------
The project team in Pennsylvania asked every fiscal intermediary for
information on the 4,660 hospitals nationwide identified as having
received overpayments and, together with other U.S. Attorneys'
Offices, is steadily reaching agreements with hospitals on the basis
of the model settlement used in Pennsylvania.\6 Of the approximately
3,000 hospitals that had received demand letters from the Department
of Justice by April 1998, 2,400 have settled with the Justice
Department. Of these, 1,700 were in either tier 1 or tier 0.\7
Thus, most of the hospitals have not been required to pay any
damages. Altogether, settlements totaled about $58 million as of
April 1998.
Hospital associations contend that their members attempt to bill
Medicare correctly but that their efforts are stymied by the
complexity of the regulations or by conflicting instructions from
HCFA and the fiscal intermediaries. Further, they point out that
Medicare is just one of the many medical insurance programs that they
deal with. While it is incumbent upon HCFA and its fiscal
intermediaries to issue clear, consistent instructions regarding
billing procedures and other Medicare requirements, Justice and
HHS-OIG officials stress that the restrictions on outpatient billings
prior to an inpatient stay have been part of the Medicare statute
since 1984 and should be clear to everyone. Further, Justice
officials note that they deal only with straightforward billing,
involving the same provider number, to avoid the more complex
situations involving multiple affiliated providers.
Hospital groups also state that it is inappropriate to handle billing
errors as potential False Claims Act cases rather than routine
overpayments. They believe that this could result in the negative
impression that hospitals have committed fraud against the government
when, in fact, only inadvertent billing mistakes have occurred.
These groups stress that, in the past, routine overpayments were
corrected through the review of the annual cost reports submitted to
the fiscal intermediaries. However, this is not entirely accurate,
because the annual cost report review does not examine the
appropriateness of specific claims. Instead, it involves a
reconciliation of the cost report with interim payments that have
been made to the hospital.
Hospital groups also contend that the False Claims Act's enormous
penalties make its use in this area inherently coercive. They have
stated that the only reason that hospitals settle with the Justice
Department and HHS-OIG is that they would face huge liability if they
lost in court. Justice officials state that they are not out to
coerce or punish hospitals for inadvertent billing errors and point
to the fact that 1,700 of the 2,400 hospitals that have settled to
date have not paid any damages, and no hospital has been assessed a
per-claim penalty of between $5,000 and $10,000.
--------------------
\4 HHS, OIG, Millions in Improper Payments to Hospitals for
Nonphysician Services Under the Prospective Payment System,
A-01-86-62024 (Washington, D.C.: HHS, July 1988).
\5 HHS, OIG, Improper Medicare Payments for Nonphysician Outpatient
Services Under the Prospective Payment System February 1986 through
November 1987, A-01-90-00516 (Washington, D.C.: HHS, Aug. 1990);
HHS, OIG, Nationwide Review of Improper Medicare Payments for
Nonphysician Outpatient Services Under the Prospective Payment
System, A-01-91-00511 (Washington, D.C.: HHS, Dec. 1992); and HHS,
OIG, Expansion of the Diagnosis Related Group Payment Window,
A-01-92-00521 (Washington, D.C.: HHS, July 1994).
\6 Hospitals are divided into tiers within service areas of each
intermediary--which usually, but not always, correspond to individual
states--so that the data underlying the tier placement within each
fiscal intermediary's service district are consistent.
\7 Some hospitals had such a low error rate that they were not
included at all in the initiative.
THE LAB UNBUNDLING PROJECT
LACKS CENTRALIZED CONTROL
------------------------------------------------------------ Letter :4
The Lab Unbundling Project is an investigation of improper billing of
outpatient clinical lab tests by hospitals.\8 Unlike the 72-Hour
Window Project, the Lab Unbundling Project was not centrally
coordinated by one U.S. Attorney's Office. Originally known as the
Ohio Hospital Project, it began as a joint effort between the two
U.S. Attorneys' Offices in Ohio and the Ohio State Auditor.
Following training on data sources and techniques by the Ohio U.S.
Attorneys' Offices and HHS-OIG, U.S. Attorneys' Offices in other
states have begun to independently pursue lab cases. Hospitals are
highly critical of this initiative and claim that no legal basis
exists for requiring them to bill automated tests as one claim.
Further, they contend that the demand letters issued by U.S.
Attorneys' Offices are overly aggressive and in some cases do not
reflect the necessary research and data analysis needed to support
them. On the other hand, Justice officials have said that hospitals'
claims to Medicare must accurately indicate the services performed
for automated tests and that changes are being made in the letters
sent to hospitals.
--------------------
\8 Most cases involve how tests for the chemical and cellular
composition of blood should be coded and billed, concerns about
whether a physician ordered the tests, and the medical necessity of
certain tests.
CODES TO INDICATE AUTOMATED
LAB TESTS ARE NOT ALWAYS
USED
---------------------------------------------------------- Letter :4.1
Developments in technology have made it possible to perform multiple
clinical tests on a single blood sample simultaneously, greatly
decreasing labs' labor costs as well as costs associated with
occupational hazards due to contact with blood and medical waste. To
reflect these lower costs, the coding system used for billing these
tests--referred to as "automated multichannel tests"--includes
generic codes to indicate that the tests were done as part of an
automated series, or "profile," rather than individually. Each
profile code specifies the number of tests performed. A profile is
generally reimbursed at a lower rate than the same combination of
tests submitted separately, or "unbundled," using the specific code
for each test. An overpayment may occur when tests are submitted and
paid for separately if they were in fact performed as a profile.
The Medicare Hospital Manual, section 437j, instructs hospitals to
follow the Physicians' Current Procedural Terminology, Fourth
Edition--commonly referred to as the CPT-4--in the absence of
instructions from their fiscal intermediary.\9 The section in the
CPT-4 entitled "Automated, Multichannel Tests" states:
The following list contains those tests that can be and are
frequently done as groups and combinations (`profiles') on
automated multichannel equipment. For any combination of tests
among those listed immediately below, use the appropriate [code]
number 80002-80019. Groups of the tests listed here are
distinguished from multiple tests performed individually for
immediate or `stat' reporting.
A list of 19 tests follows this statement.\10
As the Medicare Hospital Manual indicates, if the fiscal intermediary
has issued other instructions, hospitals should follow those. Some
intermediaries issued instructions regarding lab bundling at various
times in the early 1990s. In 1994, HCFA required its intermediaries
to implement comprehensive edits to detect and bundle separate codes
for lab tests on the same claim following an HHS-OIG audit report
citing significant overpayments due to inadequate edits.\11
Most fiscal intermediaries established edits and notified hospitals
in the summer of 1994.
Hospital representatives dispute that they have an obligation to bill
multichannel tests as a profile. They assert that it is the
responsibility of the fiscal intermediary to determine the correct
payment amount. They also contend that billing instructions from
HCFA and the fiscal intermediaries are misleading, contradictory, and
an insufficient basis for a legal obligation for hospitals to bundle
their services for billing purposes. Justice officials and the U.S.
Attorneys we met with stated that a hospital's obligation is very
simple: claims to Medicare must accurately indicate the services
performed; therefore, tests done on automated multichannel equipment
must be billed using the profile codes established in the CPT-4.
--------------------
\9 The Physicians' Current Procedural Terminology, Fourth Edition
(Chicago: American Medical Association, 1993), is a compilation of
codes and descriptive terms used as a standard system for reporting
medical, surgical, and diagnostic services.
\10 Three additional tests, also frequently done on automated
multichannel equipment, are the subject of controversy about whether
they are required to be bundled with other automated tests in a
profile or may be billed separately.
\11 HHS, OIG, Reimbursement by Massachusetts Blue Cross for
Laboratory Services Performed by Hospitals as an Outpatient Service,
A-01-92-00523 (Washington, D.C.: HHS, Aug. 1993).
OHIO U.S. ATTORNEYS'
OFFICES CONDUCTED INITIAL
REVIEWS
---------------------------------------------------------- Letter :4.2
The Lab Unbundling Project involved the U.S. Attorneys' Offices in
the Northern and Southern Districts of Ohio as well as the State
Auditor's office, the fiscal intermediary, and HHS-OIG. In 1994, one
of the Assistant U.S. Attorneys in the Northern District
investigated allegations of duplicate billings for venipuncture at a
hospital outpatient lab. While reviewing the hospital's lab claims,
he noticed unusually high numbers of blood chemistry tests. Then, in
December 1994, he was informed by an Assistant U.S. Attorney for the
Eastern District of Pennsylvania that some Ohio hospitals had been
clients of a billing consultant who had recommended strategies to
maximize reimbursement that the Justice Department considered
suspect. To follow up on the possibility of improper billing for
clinical lab tests, the Assistant U.S. Attorney in Ohio requested
that the Ohio fiscal intermediary process data from these client
hospitals as well as the hospitals with the highest outpatient lab
billings--about 40 in all--for a 29-month period beginning in 1992.
The fiscal intermediary had already begun to analyze hospital
outpatient lab claims in 1993 following audit findings by HHS-OIG
showing systematic overpayments for automated blood chemistry tests
in another state.
The computer program developed to identify duplicate, or unbundled,
claims was tested and refined several times before hospitals were
contacted about potential liability under the False Claims Act. To
determine the accuracy of the program and underlying claims data, the
U.S Attorney's Office sampled medical records for 50 beneficiaries
from 15 hospitals to review the physician's order, the itemized bill,
and the test results. The review and interviews with hospital
personnel established that the blood chemistry tests that can be
performed on automated test equipment are always done that way.
Both U.S. Attorneys for Ohio began to issue demand letters for
hospitals on the basis of the first round of claims data analysis in
1995. These letters covered Medicare and Medicaid clinical lab
claims over a 6-year period.\12 In contrast with the 72-Hour Window
Project, these letters did not list a specific amount of damages;
instead, they indicated the codes that showed up as potential
problems on the basis of the claims data analysis for each hospital.
The demand letters sent in the Northern District of Ohio presented
hospitals with a settlement option: conduct an independent
self-audit based on a work plan approved by the Assistant U.S.
Attorney and pay two times the amount of overpayments identified.
Most Ohio hospitals chose to conduct self-audits.
Settlement agreements began to be announced in the summer of 1996.
Repayments and damages are being negotiated individually for each
hospital rather than according to a tier arrangement as in the
72-Hour Window Project. According to hospital representatives, most
settlements in the Northern District were negotiated for between 1.6
and 1.8 times the overpayments identified in the self-audit for
claims before July 1, 1994. As of May 5, 1998, settlements of over
$22 million from 80 hospitals had been announced. In October 1996,
the Ohio Hospital Association, along with the AHA, had filed suit in
federal district court against the Secretary of HHS seeking
injunctive relief from application of the False Claims Act to
hospitals' outpatient lab claims. This case was dismissed on
jurisdictional grounds.
--------------------
\12 As part of HHS-OIG's Partnership Plan to conduct joint reviews
with state auditors, the Ohio State Auditor's Office had already
conducted audits involving similar Medicaid billing requirements for
several hospitals.
DATA SOURCES AND TECHNIQUES
WERE SHARED WITH OTHER U.S.
ATTORNEYS
---------------------------------------------------------- Letter :4.3
Although the project had not been conceived as a potential nationwide
initiative, Assistant U.S. Attorneys from both Ohio districts and
HHS-OIG representatives provided a briefing on the Ohio Hospital
Project for Department of Justice officials in March 1997. These
Assistant U.S. Attorneys shared sample documents and discussed lab
billing requirements and data sources with their counterparts in
other districts.
The U.S. Attorney's Office in Boston requested that data on
outpatient lab claims compiled by HHS-OIG be made available to other
U.S. Attorneys' Offices around the country.\13 The Boston U.S.
Attorney's Office notified other U.S. Attorneys' Offices that these
data were available for them to use as a first step in identifying
hospitals with potentially improper billing patterns. Any U.S.
Attorney's Office interested in pursuing lab bundling cases could use
HHS-OIG data or request data from the fiscal intermediary within its
district and proceed independently.
In Texas, lab unbundling cases are being pursued in a coordinated
effort by all four U.S. Attorneys' Offices using claims data to
which the fiscal intermediary applied the program developed in Ohio
for identifying improper claims. The demand letters were sent on the
basis of summary data for each hospital that had been checked against
HHS-OIG's audit data. A follow-up letter was sent later, along with
disks with detailed claims data for the hospital's review. Hospitals
were also provided the option of conducting an independent
self-audit. Hospitals with overpayments of less than $2,000 have not
been subject to False Claims Act damages, and those with very few
errors were simply instructed to repay the fiscal intermediary
without participating in a formal settlement.
--------------------
\13 These data consisted of national claims information from 1992,
1994, and 1995 to which HHS-OIG had applied its own audit protocols
to identify potential duplicate or otherwise improperly billed lab
claims.
CONCERNS HAVE BEEN RAISED
ABOUT THE IMPLEMENTATION OF
THE LAB UNBUNDLING PROJECT
---------------------------------------------------------- Letter :4.4
Hospital representatives have criticized the wording and tone of the
demand letters themselves as well as the intimidating nature of False
Claims Act liability. This issue is particularly acute in Texas,
where the demand letters were not accompanied by supporting claims
data and hospitals' individual circumstances had not been closely
analyzed before the hospitals were contacted. Justice officials and
the U.S. Attorney in Texas we met with acknowledged that some
letters were overly aggressive and that the situation should have
been handled differently, with more advance research and individual
attention. However, they also indicated that the harsher aspects of
the demand letters do not reflect the reality of the process. For
example, they stated that hospitals in Texas have always been granted
additional time to analyze their situation if they requested it, and
the threat of legal action if hospitals failed to respond within 14
days has never been carried out.
Hospitals have also raised concerns about the cost of conducting the
self-audit. One hospital representative in Ohio that we met with
estimated the hospital's audits and attorney fees cost at least
$40,000--in addition to the hospital's own staff time. One hospital
spent over $25,000 defending claims of $15,425 in alleged
overpayments. Hospital representatives in Texas told us they believe
the cost of the audits is prohibitive, particularly for large-volume
providers. They were also concerned that the audit option proposed
by the U.S. Attorneys' Offices included more types of lab claims
than did Justice's estimate of overpayments, thereby putting
hospitals who chose the audit option at risk of even greater
liability. The one Texas U.S. Attorney we met with stated that, at
the time of our visit, no hospitals in his district had opted to
conduct audits or tried to negotiate the scope of the audit that
would be required. However, in cases in which hospitals have brought
concerns about the data to the attention of Assistant U.S. Attorneys
in Texas, adjustments have been made. For example, separate claims
for the three tests that are not included in the CPT-4 list of
automated multichannel tests were removed from the estimates of
overpayments by the U.S. Attorneys' Offices in all four districts.
Ohio hospital representatives also stated that there were errors in
the data used by the U.S. Attorneys' Offices, particularly regarding
the dates of service. Dates of service were not available for many
older claims, so some tests that in fact were performed on different
days may have been identified as duplicates. While this does raise
concerns, in Ohio the settlements were almost always based on
overpayments identified in the self-audits, not the U.S. Attorneys'
Offices' analyses. Furthermore, the fiscal intermediary in Ohio
estimated that, at the most, only about 15 percent of lab claims
contained services that occurred on more than 1 day. Texas hospitals
have also raised concerns about the date of service issue. Because
few if any hospitals in Texas have conducted audits at this time, the
scope of this problem has not been identified. The U.S. Attorney we
met with was aware of the situation and indicated an intent to take
appropriate action.
JUSTICE HAS ANNOUNCED CHANGES
TO ITS MANAGEMENT OF MULTISTATE
INITIATIVES
------------------------------------------------------------ Letter :5
Responding to hospital concerns, Justice has announced a new approach
to how it manages national initiatives such as the Lab Unbundling
Project. In June 1998, Justice issued detailed guidance on the use
of the False Claims Act in national health care initiatives. The
guidance instructs all Justice Department attorneys handling civil
health care fraud matters to first research the relevant provisions
in both statutes and regulations and to verify the data being used to
support the investigation. Further, the guidance directs the use of
"contact letters" instead of "demand letters" in most circumstances.
According to the Justice officials, a contact letter will notify
hospitals that claims data indicate possible concerns and invite
hospitals to evaluate and discuss the situation with the U.S.
Attorney's Office. Justice officials believe that this guidance will
ensure more thoroughness and consistency in national initiatives.
Justice officials have stated that they believe it is important that
multistate initiatives also preserve the flexibility of U.S.
Attorneys to respond to local circumstances. Guidance issued by the
Department of Justice now requires the Lab Unbundling Project and
future multistate initiatives involving health care issues to
establish working groups. The goal of these working groups is to
promote coordination among Assistant U.S. Attorneys involved in
similar cases across the country by consolidating contacts with other
government agencies, developing data sources, gathering documents
needed for background research, and preparing sample documents. Once
an initiative is under way, the working group will continue to
operate as an information clearinghouse and track how cases are being
resolved in different districts.
Representatives of the AHA stated that the guidance was a step in the
right direction. However, they were concerned about several aspects
of the implementation of the guidance by the U.S. Attorneys'
Offices: AHA representatives believe individual U.S. Attorneys'
Offices may not fully implement the guidance; moreover, AHA is
concerned because the guidance did not specify how the Department of
Justice would monitor its implementation. AHA felt that U.S.
Attorneys' Offices would not be held accountable for the manner in
which they implemented national initiatives in their districts
without Justice Department monitoring. Further, AHA representatives
believed that the working groups for national initiatives involving
health care matters should include representatives from HCFA and
HHS-OIG to promote understanding and agreement on technical aspects
of Medicare billing issues.
HHS-OIG HAS ISSUED COMPLIANCE
GUIDANCE
------------------------------------------------------------ Letter :6
HHS-OIG and Justice officials acknowledged that some billing errors
are inevitable. They believe, however, that providers need to take
steps to minimize such errors. These officials told us they believe
that the presence of an effective compliance program would indicate a
hospital's intent to comply with all Medicare rules and regulations.
Theoretically, billing errors would be caught by the hospital itself,
and those not caught would more likely be viewed as inadvertent
mistakes rather than a billing pattern subject to the False Claims
Act. Representatives of hospital associations and individual
hospitals told us that they are hopeful HHS-OIG and Justice will
follow through with this approach.
While hospitals had to implement compliance strategies as part of the
settlement agreement for the 72-Hour Window Project, those strategies
addressed only billing issues associated with outpatient services
rendered in connection with an inpatient stay. Compliance programs
foster a culture within hospitals that encourages compliance with
applicable rules and regulations and establishes systems to prevent,
detect, and resolve conduct that does not conform to them. In order
to encourage institutionwide compliance programs for all aspects of
Medicare billing, HHS-OIG released guidance for developing hospital
compliance programs in February 1998. This guidance was developed
with the active involvement of the American Medical Association and
the AHA.
Hospital representatives told us that HHS-OIG's February 1998
guidance is both reasonable and flexible and that the 72-Hour Window
and Lab Unbundling Projects have encouraged increased attention to
compliance by hospitals and their representatives. For example, the
Ohio Hospital Association has sought written clarification from HCFA
on some complex billing questions on behalf of the Association's
members. Moreover, hospital accounts managers told us that
historically their offices have received low priority for computer
and staff resources and that the new attention to compliance has
already been helpful in their effort to design billing systems that
will better ensure accuracy. We plan to assess the effectiveness of
compliance programs in future work.
CONCLUSIONS
------------------------------------------------------------ Letter :7
Health care providers participating in the Medicare program must bill
the program in accordance with its requirements and retain only those
payments they are entitled to receive. Given its volume of claims,
the Medicare program can suffer significant cumulative losses even
with small overpayments on individual claims. Such losses could
compromise the solvency of the program and its ability to sustain the
current level of benefits available to Medicare beneficiaries. At
the same time, HCFA and its fiscal intermediaries also have a
responsibility to clearly and consistently delineate Medicare billing
policies in a timely manner and install proper edits to ensure that
Medicare pays only what it is supposed to. However, because so few
claims are audited, the voluntary compliance of hospitals is crucial
for maintaining the integrity of the Medicare program.
The False Claims Act is a powerful tool available to the federal
government to ensure compliance with government program requirements.
Its widespread application to the health care field is a relatively
recent phenomenon that surprised many health care
providers--particularly its use in multistate initiatives. Hospital
groups have raised legitimate concerns about how the Justice
Department used computer data from various sources as the sole basis
for alleging liability under the False Claims Act. It is important
that Justice officials test and refine the computer data to ensure
their accuracy before hospitals are notified of potential False
Claims Act liability. Such notification may seem threatening because
the penalties and damages that can result are so extensive. Further,
it is important that providers be given a realistic opportunity to
review and analyze the data in question and provide an explanation
for why they may not be accurate before legal action against
providers is either threatened or undertaken. The Department of
Justice has recognized the legitimacy of these concerns and has both
developed guidance for using the False Claims Act in multistate
initiatives and established working groups to improve coordination
and development of cases.
AGENCY AND OTHER COMMENTS AND
OUR EVALUATION
------------------------------------------------------------ Letter :8
We provided a draft of this report for comment to HCFA, the
Department of Justice, HHS-OIG, and the AHA. The following
summarizes their comments and our responses.
HCFA officials reviewed the draft and had no comments. Department of
Justice officials generally agreed with the report but suggested some
technical and editing changes. In some cases, we agreed to make
changes along the lines Justice suggested. In other cases, Justice
agreed that a change it suggested was not needed or that alternative
wording we suggested was acceptable.
HHS-OIG officials said the draft report fairly characterized the
factual basis for the nationwide initiatives. We discussed technical
and editing changes they suggested, and we reached agreement on most
points. However, regarding the timing of the series of audit reports
on the 72-Hour Window rule, HHS-OIG officials believe that hospitals
had enough time between the issuance of the first and third audits to
improve their billing practices, although no improvement was detected
by the third audit. We agree, but, as noted in our report, this is
not consistent with HHS-OIG and Justice statements that the 72-Hour
Window Project was undertaken because all four audits detected little
improvement in hospitals' billing practices.
HHS-OIG officials agreed that there was significant improvement
detected in the fourth audit. However, they believe this improvement
was a result of edits installed by the fiscal intermediary rather
than an improvement in hospitals' billing practices. The fourth
audit did not determine the exact cause of this improvement.
Recognizing the uncertainty over the source of improvements found in
the fourth audit, we clarified our report's presentation on this
issue.
Representatives of the AHA clarified their views on a number of
issues raised in the report. In particular, they stressed that
hospitals do not object to returning overpayments, but they oppose
the use of the False Claims Act to address what they believe are
billing errors due to many factors, including the complexity of the
Medicare program, rather than fraudulent behavior by hospitals. AHA
representatives acknowledged, however, that using the False Claims
Act got the attention of hospitals and led them to focus on improving
their billing practices.
AHA officials took issue with our conclusion that, because so few
claims are audited, the voluntary compliance of hospitals is crucial
for maintaining the integrity of the Medicare program. AHA
representatives said that virtually all claims are audited because
they are processed through automated claims processing edits. They
added that all hospitals undergo annual cost report reviews and
hospitals also employ other methods to identify and correct billing
errors. We disagree that all claims are audited. Even if fiscal
intermediaries do implement effective prepayment edits, those edits
are not equivalent to audits because the edits cannot determine if
the information on a claim is accurate.
AHA representatives also stressed that the Medicare program is highly
complex and expressed the view that the billing policies governing
the 72-Hour Window rule and the bundling of lab claims are not as
clear-cut as the report implies. They expressed doubts that over
4,600 hospitals would have purposely misbilled Medicare under the
72-Hour Window rule as alleged by the Department of Justice and
HHS-OIG. They stated that HCFA should take major responsibility for
the billing errors that have occurred because of its failure to
promulgate Medicare billing policies in a clear and timely manner.
We note in our report that HCFA and its fiscal intermediaries have a
responsibility to clearly and consistently delineate Medicare billing
policies in a timely manner.
AHA representatives acknowledged that the newly issued guidance from
the Justice Department governing the management of national health
care initiatives was a step in the right direction but were skeptical
that U.S. Attorneys would implement the guidance consistently. They
provided examples of actions taken by U.S. Attorneys' Offices since
the issuance of the guidance on June 3, 1998, that they believe
demonstrate this inconsistency. While examination of these
situations is beyond the scope of this review, we did include AHA's
concerns in the section of the report dealing with the newly issued
Department of Justice guidance.
Finally, AHA representatives said that any time a hospital receives a
letter from the Justice Department, it is an intimidating event
whether it is a contact letter or a demand letter. Our report
acknowledges that notification of potential False Claims Act
liability can be perceived as threatening, and we stress that
providers be given a realistic opportunity to respond before legal
action against them is either threatened or undertaken.
---------------------------------------------------------- Letter :8.1
As agreed with your offices, unless you release its contents earlier,
we plan no further distribution of this letter for 30 days. At that
time, we will make copies available to other congressional committees
and Members of the Congress with an interest in these matters, the
Secretary of Health and Human Services, the HHS Inspector General,
the Administrator of HCFA, and the U.S. Attorney General.
This report was prepared by Frank Putallaz and Suzanne Rubins under
the direction of William Reis, Assistant Director. Please call me at
(202) 512-7114 or Leslie G. Aronovitz, Associate Director, at (312)
220-7600 if you or your staff have any questions about the
information in this letter.
William J. Scanlon
Director, Health Financing and
Systems Issues
*** End of document. ***