SPEAKERS CONTENTS INSERTS Tables
Page 1 TOP OF DOC59924
HEALTH CARE INITIATIVES UNDER THE FALSE CLAIMS ACT THAT IMPACT HOSPITALS
IMMIGRATION AND CLAIMS
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
APRIL 28, 1998
Serial No. 143
Printed for the use of the Committee on the Judiciary
Page 2 PREV PAGE TOP OF DOC
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
COMMITTEE ON THE JUDICIARY
HENRY J. HYDE, Illinois, Chairman
F. JAMES SENSENBRENNER, Jr., Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
BOB BARR, Georgia
WILLIAM L. JENKINS, Tennessee
ASA HUTCHINSON, Arkansas
EDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
JAMES E. ROGAN, California
LINDSEY O. GRAHAM, South Carolina
Page 3 PREV PAGE TOP OF DOCMARY BONO, California
JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
STEVEN R. ROTHMAN, New Jersey
THOMAS E. MOONEY, General Counsel-Chief of Staff
JULIAN EPSTEIN, Minority Staff Director
Subcommittee on Immigration and Claims
LAMAR S. SMITH, Texas, Chairman
ELTON GALLEGLY, California
WILLIAM L. JENKINS, Tennessee
Page 4 PREV PAGE TOP OF DOCEDWARD A. PEASE, Indiana
CHRIS CANNON, Utah
ED BRYANT, Tennessee
JAMES E. ROGAN, California
MELVIN L. WATT, North Carolina
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
ZOE LOFGREN, California
ROBERT WEXLER, Florida
CORDIA A. STROM, Chief Counsel
EDWARD R. GRANT, Counsel
GEORGE FISHMAN, Counsel
MARTINA HONE, Minority Counsel
C O N T E N T S
April 28, 1998
Smith, Hon. Lamar, a Representative in Congress from the State of Texas and chairman, Subcommitee on Immigration and Claims
Page 5 PREV PAGE TOP OF DOCWITNESSES
Berenson, Dr. Robert A., Director, Center for Health Care Plans and Providers Administration, Health Care Financing Administration, Department of Health and Human Services
Blacker, Ruth, Member, National Legislative Counsel, American Association of Retired Persons
Cameron, Terry, Senior Vice President, Medicode, Inc.
Lane, William L., President, Holy Family Hospital and Medical Center
Morris, Lewis, Assistant Inspector General for Legal Affairs, Office of Inspector General, Department of Health and Human Services
Richy, Don L., Administrator, Guadalupe Valley Hospital, Sequin, TX
Sprenger, Gordon M., Executive Officer, Allina Health Systems
Stern, Donald K., U.S. Attorney for the District of Massachusetts and Chair, Attorney General's Advisory Committee, Department of Justice
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Page 6 PREV PAGE TOP OF DOC Berenson, Dr. Robert A., Director, Center for Health Care Plans and Providers Administration, Health Care Financing Administration, Department of Health and Human Services: Prepared statement
Blacker, Ruth, Member, National Legislative Counsel, American Association of Retired Persons: Prepared statement
Cameron, Terry, Senior Vice President, Medicode, Inc.: Prepared statement
Hovelson, Lisa, Executive Director and General Counsel: Prepared statement
Lane, Wiliam L., President, Holy Family Hospital and Medical Center: Prepared statement
Morris, Lewis, Assistant Inspector General for Legal Affairs, Office of Inspector General, Department of Health and Human Services: Prepared statement
Richy, Don L., Administrator, Guadalupe Valley Hospital, Sequin, TX: Prepared statement
Sprenger, Gordon M., Executive Officer, Allina Health Systems: Prepared statement
Stern, Donald K., U.S. Attorney for the District of Massachusetts and Chair, Attorney General's Advisory Committee, Department Of Justice: Prepared statement
Page 7 PREV PAGE TOP OF DOC
HEALTH CARE INITIATIVES UNDER THE FALSE CLAIMS ACT THAT IMPACT HOSPITALS
TUESDAY, APRIL 28, 1998
House of Representatives,
Subcommittee on Immigration and Claims
Committee on the Judiciary,
The subcommittee met, pursuant to call, at 10:05 a.m., in Room 2237, Rayburn House Office Building, Hon. Lamar S. Smith [chairman of the subcommittee] presiding.
Present: Representatives Lamar S. Smith, Ed Bryant, Edward A. Pease, Howard L. Berman, Melvin L. Watt.
Staff Present: Cindy Blackston, Clerk; George Fishman, Counsel; Judy Knott, Staff Assistant; Tina Hone, Minority Counsel; and Samara Ryder, Minority Counsel.
OPENING STATEMENT OF CHAIRMAN SMITH
Mr. SMITH. The Subcommittee on Immigration and Claims will come to order. We appreciate the individuals who are here to represent the various interests involved. I have an opening statement. Then we will go to other Members' opening statements. Then we will hear the testimony of the first panel.
Page 8 PREV PAGE TOP OF DOC
The purpose of this hearing is to look into the process being used by the Federal Government to pursue Medicare fraud under the False Claims Act, specifically in relation to hospitals. The False Claims Act is the main civil statute used by the government to seek monetary damages for fraudulent misuse of Federal resources. Although the provisions of the False Claims Act have always applied to health care fraud, recently the Federal Government has substantially increased its effort to pursue possible False Claims Act violations in this area. That effort has resulted in a national initiative related to hospitals billing for Medicare reimbursement.
Those representing the hospitals have called the process unnecessarily onerous. They argue that they cannot possibly verify the validity of the alleged misbilling within the time provided by the U.S. Attorneys, cannot risk going to court and potentially being excluded from the Medicare program, and therefore are forced to settle with the Federal Government even though the misbillings may not be their fault. They believe the False Claims Act is being used improperly to penalize hospitals for innocent misbillings, and suggest the Act should be amended.
The U.S. Attorneys and Office of Inspector General of the Department of Health and Human Services state that it is imperative that a strong effort be made by the government to deter health care fraud. Government officials say that the False Claims Act is a vital tool in their efforts to recover monies inappropriately paid, and to encourage providers to be responsible and diligent in submitting valid claims.
The American Hospital Association has recommended nonlegislative solutions to improve the process. The Department of Justice has indicated that it has responded to hospitals' concerns by advising and educating U.S. Attorneys how to proceed differently in these matters, and by taking steps to ensure that hospitals have an opportunity for an open dialogue with the Department and the U.S. Attorneys resolving their cases.
Page 9 PREV PAGE TOP OF DOC
In Texas, approximately 400 hospitals received ''demand letters'' that included threatening language concerning billings that in most cases turned out to be for relatively small amounts of overbillings. It is my understanding that U.S. Attorneys are no longer sending out such ''demand letters,'' which have been unacceptably heavy-handed. They are currently using prelitigation contact letters to notify hospitals of their concerns and discuss with them their potential liability.
While I appreciate the effort that has been made by the Department of Justice to make their initial contacts with hospitals in a less threatening manner, there are no written guidelines to be used by U.S. Attorneys. Enforcement of the False Claims Act should not be determined by subjective judgment or personal whim. Both hospitals and the government could benefit from having written procedures clearly stated.
This hearing will explore the Government's ability to accommodate the concerns of hospitals, and to guarantee full and reasonable processing of these cases. The hearing also will look at how these cases are referred to the U.S. Attorneys, and the roles and responsibilities of each entity involved in that process.
We will hear from all the parties involved in the process: the Health Care Financing Administration that administers the Medicare program; the Department of Health and Human Services Inspector General that polices the program and turns matters over to the U.S. Attorneys for pursuit under the False Claims Act; the U.S. Attorneys, who decide whether cases are actionable under the False Claims Act; representatives of the hospital community; and two witnesses who support use of the False Claims Act to pursue Medicare fraud.
Page 10 PREV PAGE TOP OF DOC
The gentleman from North Carolina, Mr. Watt, is recognized for his opening statement.
Mr. WATT. Thank you, Mr. Chairman. I would express my thanks to the chairman for conducting this hearing.
I have in the past criticized the chairman for conducting hearings unrelated to specific pieces of legislation, but this happens to be one of those cases where I think I am going to praise him for doing thatfor holding this hearingbecause I hope that this hearing can set a context for a resolution to a problem without legislative action, although I know that there is a pending bill already in place.
Hospitals in every congressional district have weighed in with their Representatives and complained about the Department of Justice being overzealous in its application of the False Claims Act in cases where hospitals have made Medicare or Medicaid billing errors. Mr. McCollum and Mr. Delahunt have responded by introducing legislation which would create certain safe harbors to protect hospitals from liability.
While this hearing is not about that specific legislative proposal, I hope we will use the hearing to review the underlying problem and try to find solutions within the existing law.
On Friday, the Department of Health and Human Services, which is the agency that administers the Medicare and Medicaid programs for the Federal Government, released its Chief Financial Officer's audit. In it, HHS found that there had been $20 million in improper Medicare and Medicaid payments. Certainly all of those overpayments were not the result of fraud, but it is equally certain that some of these overpayments were the result of fraud, and in fact, in every meeting I have had with hospitals, I have heard it acknowledged over and over and over that fraud does in fact exist in Medicare and Medicaid billings.
Page 11 PREV PAGE TOP OF DOC
Let me digress from my prepared statement and make a comment that that kind of puts this in context for me. I happen to represent a congressional district that adjoins four of my Republican colleagues' congressional districts, and in the period leading up to the 1994 revolution, because I adjoined them, and people were having these bipartisan invitational things, I quite often got invited to come to some places that were characterized as bipartisan, but did not always turn out to be bipartisan when I got there.
I often remember some of my candidate friends, some of whom now serve in Congress, rising to the campaign occasion by chastising the amount of fraud and abuse in Federal programs. One in particular I went to was an event where there were physicians and hospital administrators, and one of my colleagues got up and made this impassioned statement about the amount of fraud and abuse that existed in performance that served the poor. He went on and talked about the massive amounts of fraud and abuse that have existed in welfare and Medicare and Medicaid. At the end of his presentation he got a rousing standing ovation.
There I was in the middle of this setting, and said, let us take a step backwards here and look at what my colleague here is saying. Who is it in the Medicare industry and the Medicaid industry who can defraud the Federal Government? Is it in fact poor people? Who is it that is doing the defrauding?
All of a sudden, I think for the first time a lot of my physician and hospital friends realized that what was being done to them is they were being put into the same picture with all these poor people who were being beat up on out there, and accused of being guilty of fraud and abuse in the system. It dawned on them what was happening. The audience saw a picture of poor people defrauding the government. But poor people cannot defraud the government in Medicare and Medicaid. It can only be done by the hospitals and the physicians who are doing the billing.
Page 12 PREV PAGE TOP OF DOC
Who commits Medicare and Medicaid fraud? So often when we talk about fraud and abuse in any of the Federal entitlement programs we point our fingers at the poor people who are receiving the benefits. We cannot point that finger at the poor in this case. Medicare and Medicaid fraud is committed when doctors and hospitals improperly bill the Federal Government for Medicare procedures and treatment that never took place. It occurs when laboratories bill the Federal Government for the same tests multiple times. It occurs when pharmacies bill for one type of medicine but give the patient a different type.
Poor people are not committing this fraud. It is the doctors, the hospitals, the laboratories, and the pharmacies who are committing fraud in these circumstances.
Now some of the same people who fed this frenzy of prosecution, ''Let us go get these people who are committing this fraud in the system,'' are now back as sponsors of bills trying to address the problem. They come riding in on the horse, the white horse, to solve the problem, after they have created the frenzy that led to the problem in the first place. So we have to be very careful here, is the point I want to make.
I am a little troubled by the current debate surrounding the Justice Department's pursuit of false claims in the Medicare and Medicaid context, because there happens to be a sense underlying that debate that doctors, hospitals, laboratories, and pharmacies are somehow entitled to special treatment. I cannot condone a double standard. Time and time again we are reminded that everyone must be responsible for his or her actions. That rule should not change simply because it is being applied to those people who are not poor. We cannot have a double standard in this area.
Page 13 PREV PAGE TOP OF DOC
Having said that, I also believe that everyone who is subject to investigation by the Justice Department is entitled to fair treatment. I have said this to the hospitals in my district. Some of the initial demand letters that have been sent to hospitals in the congressional district I represent have been far too accusatory in their tone. I do not think anyone's first contact with the Justice Department pursuant to a False Claims Act should be framed in such an accusatory tone, whether it is hospitals or doctors or poor people that are being accused. They should be dealt with in a fair and reasonable way.
I have encouraged the Department of Justice not to pursue this accusatory tone, and I understand that the Justice Department has changed its policies regarding demand letters. Instead, it is now issuing contact letters, which invite a dialogue between the hospitals and the Justice Department to resolve any questionable billing practices. I believe this change is an important step for the Justice Department to take.
No doubt there are additional changes which the hospitals and others would like to see taken, and perhaps there are additional changes that need to be taken. At a time when we have reaffirmed our commitment to preserving Medicare for seniors and Medicaid for the poor, I do not believe it is wise to weaken any of the laws which enable the Federal Government to protect the program from fraud and abuse by anyone, including doctors and hospitals.
For this reason, I have serious doubt that I would be able to support any legislative proposals on the table that weaken the False Claims Act, but I welcome this hearing to see if some acceptable balance can be achieved within the context of the current law.
Page 14 PREV PAGE TOP OF DOC Mr. Chairman, I yield back the balance of any time that I have, now that I have kind of laid a framework here and got this in some context, I hope.
Mr. SMITH. Thank you, Mr. Watt.
Are there any opening statements over here?
Mr. PEASE. No, Mr. Chairman.
Mr. SMITH. The gentleman from Tennessee, Mr. Bryant, is recognized.
Mr. BRYANT. Thank you, Mr. Chairman. Having been tied up in other meetings, I arrived late and heard the last three sentences of Mr. Watt's statement. I agree with that part of it, we have to be very careful.
Mr. WATT. Why don't you adopt the whole statement? That would be all right.
Mr. BRYANT. He being the chairman of the States Rights Caucus, I probably could do that and get away with it. Thank you, Mr. Chairman, for holding these hearings.
Mr. SMITH. Thank you, Mr. Bryant.
Page 15 PREV PAGE TOP OF DOC The gentleman from California, Mr. Berman, is recognized for an opening statement.
Mr. BERMAN. Thank you very much, Mr. Chairman. I just want to get to a few points as part of the opening statement, and then ask you a question, if I might.
First, just to reiterate some points that our ranking member has already made, the False Claims Act truly is the government's strongest enforcement mechanisms against knowing or reckless false claims. But it is not a law that is concerned with negligence, it is not a law that is concerned with innocent mistakes, it is not a law that is concerned with inadvertent billing glitches.
Under the False Claims Act, a knowing false claim is one made with actual knowledge that the claim was false, or with deliberate ignorance or reckless disregard of the truth, or falsity of the claim. In other words, it is evidence that the people under whose control the claim was made specifically and through their general practices sought to avoid instituting any process or paying any attention to the nature of the claims being filed in their name; sticking their head in the sand, going to great lengths to avoid knowing the validity of the claims being submitted under their name.
The primary civil remedy for recovering loss due to fraud is the False Claims Act. Back in 1996 I joined with Senator Grassley to update and strengthen the False Claims Act in response to the widespread and escalating fraud upon the government. At that time much of the focus was on fraud in defense contracts. Of course, since that time, it turns out that fraud in health care claims has also become widespread, and escalating.
Page 16 PREV PAGE TOP OF DOC
Since 1986 alone, the taxpayers have recovered over $4 billion, $4 billion returned to the U.S. Treasury, under this Act. The GAO estimates that tens of billions of dollars are lost due to improper payments in health care, some portion of which, although by no means all, is due to fraud, as defined in the False Claims Act.
A recent study commissioned by the Taxpayers Against Fraud, prepared by the former chief economist for the Senate Committee on the Budget, indicates that the False Claims Act has deterred fraud by as much as $295 billion since 1986, and will deter up to an estimated $480 billion over the next decade. What has happened since the 1986 amendments passed, both through government actions and qui tam actions brought by private parties, is many companies have instituted procedures and gone to far greater lengths to ensure that fraud is not being committed in their contracts with the government or in their claims with the government as a result of fear of the liabilities that could be imposed. It is having a deterrent effect which far exceeds the very substantial real benefits it has produced in terms of recoveries.
On Friday I had a conference call with four leading hospitals in my area who obviously feel deeply aggrieved by virtue of their interfaces with the Justice Department on what they view as essentially mistakes, and in some cases, very minor mistakes, in claims that have been submitted. It is quite clear that they are sincere in their feelings of being both intimidated, and also of tremendous concern that should some of the contacts get into the public sphere, their reputations will be sullied very dramatically.
I also know these institutions, and I would be stunned to think, and do not believe that they are the kinds of institutions that would be engaged in systematic fraud. But the question comes about the relevance of the legislation, that is not the subject, I take it, of the hearing today to amend the False Claims Act in terms of this specific problem.
Page 17 PREV PAGE TOP OF DOC
I guess my question to the chairman is, if we are not going to study in great detail today the amendments being proposed by Mr. McCollum's legislation, will we have a chance before there is any markup on that legislation to have a hearing that details it, or is that appropriate to discuss in today's hearing?
Mr. SMITH. If the gentleman will yield, the answer to both questions is probably yes, which is to say that it is appropriate, I think, to bring up that legislation. I think our witnesses are prepared to discuss that. Yes, before we mark up any bill, it is likely that we may have a short hearing before the markup as well.
Mr. BERMAN. Thank you.
And a letter of a number of different organizations who are concerned about this legislation, spelling out the reasons for their concern, dated April 2, 1998.
Mr. SMITH. Without objection, the letter will be entered into the record.
[The information referred to follows:]
DEAR MEMBER: We are writing to express our deep concern about a recently introduced bill: H.R. 3523, the ''Health Care Claims Guidance Act''. Contrary to its title, H.R. 3523 would not provide ''guidance'' on health care claims. Instead it would provide a ''free-fraud zone'' for billions of dollars of health care fraud by exempting hospitals and other medical corporations from prosecution under the False Claims Act (FCA) in a broad range of circumstances. At a time when Congress has emphasized that we should be cracking down hard on Medicare and Medicaid fraud, this bill would take us in the wrong direction by eviscerating the False Claims Act-the Governments most effective fraud-fighting tool.
Page 18 PREV PAGE TOP OF DOC
Medicare service providers received $23 billion in ''improper payments'' during fiscal year 1996a full 14% of the $168 billion in total payments, according to the Department of Health and Human Services. But despite the widespread evidence of improper billing practices in the health care industry, H.R. 3523 would carve out special exemptions just for health care claims, shielding-health care companies from accountability under the FCA in the following circumstances:
H.R. 3523 creates ''free-fraud zone'': No health care fraud claim could be brought under the FCA when the Government's damages are not a ''material amount''. However, what is considered a ''material amount'' under the bill's definition could equal billions of dollars. The definition provides that a ''material amount'' will be defined by HHS as a fixed proportion of total claims filed by that provider to a federally funded health care program for the same calendar year. But the proportion must be based on the American Institute of CPA's definition of the term ''material'', which cites up to 10% as not being a material amount. This definition appears to allow industry to set a level of acceptable Medicare and other health care fraudthe ''free-fraud zone.''
H.R. 3523 creates loopholes for health care fraud: In addition, the bill further excuses false billings by restricting when fraudulent claims can be added together to determine the materiality of damages. Claims can be aggregated ''only if the acts or omissions resulting in such damages were part of a pattern of related acts or omissions by such person.'' Thus, health care corporations may be able to dodge FCA liability by engaging in billing practices that spread out fraud among different federally funded health care programs, different years, and different schemes. In effect, this provision amounts to guidance'' on how to maximize illegal profits.
Page 19 PREV PAGE TOP OF DOC
Even if the false claims are a ''material amount'', the bill gives health care companies three more chances to get off the hook: First, companies can evade FCA enforcement if they submitted claims ''in reliance on'' verbal or written information provided by any federal agency or any agent thereof. Following advice by fiscal intermediaries can already be a defense to a FCA charge-this provision; however, would unreasonably turn existing protections into, an absolute defense and encourage wrongdoers to manipulate the intermediaries and other federal agencies or agents.
Second, fraud would be tolerated under the FCA when the company submitting the claim ''is in substantial compliance with a model compliance plan.'' Therefore, health care companies could insulate themselves from liability simply by showing that they will establish better procedures in the future even if they are defrauding Medicare today.
Third, the bill makes it significantly harder to prove that claims were wrongfully submitted by changing the burden of proof for all health care claims from the usual civil ''preponderance of the evidence'' standard to the elevated ''clear and convincing evidence'' standard. This goes far beyond the normal standard and would make it far more difficult to prove liability.
The False Claims Act was first signed into law by Abraham Lincoln in 1863 and then modernized by Ronald Reagan in 1986. Since 1986, the Act has returned more than $4 billion to the Treasury. Perhaps more importantly, estimates indicate that the FCA has deterred approximately $150 to $300 billion between 1986 and 1996 and, in the next ten years, will deter as much as $480 billion. Given the FCA's proven record of effective enforcement, it is not surprising that industry lobbyists have put the FCA under attack. We urge you not to allow hospital corporations to turn the FCA into a license to steal from taxpayers. Please do not support H.R. 3523.
Page 20 PREV PAGE TOP OF DOC
American Federation of Teachers
American Federation of State, County and Municipal Employees
The CFIDS Association of America
Coalition for Nursing Home Reform
Communications Workers of America
Consumer Federation of America
Page 21 PREV PAGE TOP OF DOC
Government Accountability Project
Justice for All
National Association of Social Workers
National Council of Senior Citizens
National Health Law Program
National Senior Citizens Law Center
Office for Church in Society
The Older Women's Leacrue
Page 22 PREV PAGE TOP OF DOC Project on Government Oversight
rvice Employees International Union
Taxpayers Against Fraud, The False Claims Act Legal Center
Taxpayers for Common Sense
United Church of Christ
United Steelworkers of America
PREPARED STATEMENT OF LISA HOVELSON, EXECUTIVE DIRECTOR AND GENERAL COUNSEL
Mr. Chairman and Members of the Subcommittee, my name is Lisa Hovelson. I am the Executive Director and General Counsel of Taxpayers Against Fraud, The False Claims Act Legal Center (TAF). Founded in 1986, TAF is a nonprofit public interest organization dedicated to combating fraud against the Federal Government through the promotion and use of the qui tam provisions of the federal False Claims Act (FCA). TAF carries out a wide variety of activities in pursuit of its mission, including maintaining a comprehensive FCA library, producing a quarterly publication-the False Claims Act and Qui Tam Quarterly Review-which provides an overview of major FCA developments including case decisions and settlements, and filing amicus briefs on important legal and policy issues in FCA cases throughout the country.
Page 23 PREV PAGE TOP OF DOC
We unequivocally oppose legislation backed by the American Hospital Association (AIFIA) that would amend the FCA as it applies to health care fraud. Since being strengthened in 1986, the FCA has proven to be the Government's most effective weapon against fraud-with over $4 billion in recoveries for the U.S. Treasury. About half of those recoveries have stemmed from health care fraud cases. At a time when Medicare and Medicaid fraud remains widespread, Congress should be looking to strengthen the Government's anti-fraud efforts, not cripple them.
Legislation to weaken the FCA is primarily the result of an aggressive lobbying campaign by AHA. Not surprisingly, hospitals account for over $100 billion in Medicare billings annually. According to HHS audits, Medicare providers have received over $40 billion dollars in ''improper payments'' over the past two years. As much as half of that is likely to be due to out-and-out fraud. And recent government investigations have revealed that the AHA's largest member, Columbia/HCA Healthcare, is perhaps the single largest Medicare abuser.
This legislation would establish a series of major exemptions from FCA liability for those who defraud Medicare and other federal health insurance programs by:
Excusing illegal practices such as double billing and billing for unnecessary services or services not provided so long as the amount ripped off from the Government through any particular scheme is not ''material.'' Under the legislation, hospitals and other health care providers would escape civil liability for some amount of fraud-as much as 10 percent of their billings-no matter how egregious. Based on HHS estimates, this means that Medicare cheats could escape FCA liability for up to $21 billion of the approximately $210 billion in total Medicare billings annually. And for huge corporate providers such as Columbia/HCA, it could be a free ticket to cheat Medicare out of hundreds of millions of taxpayer dollars each year.
Page 24 PREV PAGE TOP OF DOC
Shielding health care providers from civil liability for fraud if they are in ''substantial compliance'' with a ''model compliance plan.'' Providers could thus insulate themselves from liability simply by showing that they've established certain billing procedures even if, at the same time, they're nevertheless ripping off millions from Medicare.
Allowing wrongdoers to evade FCA liability if they can claim reliance on verbal or written information provided by any federal agency or agent thereof. Good faith reliance on advice or opinions from HCFA or fiscal intermediaries already can be a defense under the FCA. The legislation, however, establishes a major loophole for fraud, enabling wrongdoers to avoid accountability even when the information they claim to have relied upon was obviously incorrect. This loophole would prompt bad actors to scour every word uttered by federal employees and intermediaries for 'erroneous information' on which to claim reliance in order to escape liability for their fraud.
Making it more difficult for the Government to hold Medicare cheaters accountable by imposing a heightened ''clear and convincing'' burden of proof-as opposed to the FCA's usual civil ''preponderance of the evidence'' standard, which is itself difficult to meet because of the self-concealing nature of fraud schemes.
To add insult to injury, the pro-fraud provisions of the AHA-backed legislation would apply retroactively-that is, they would preclude liability for false and fraudulent claims that already have been submitted. This would be the ultimate lobbying victory for hospitals that are currently facing FCA charges and investigations. As such, this legislation might best be termed the ''Columbia/HCA Bailout Bill.''
Page 25 PREV PAGE TOP OF DOC
It should be recognized that legislative change is not necessary to adequately address the crux of the health care lobbyists' concerns, which is that their clients have been unfairly subjected to overly aggressive government enforcement tactics. The FCA is a fair law and a proven success for the American taxpayer. Even if, as the AHA claims, this law has been misused in some instances, DOJ and HHS have demonstrated a willingness to discuss and look into these matters, and to make appropriate changes in enforcement policies and process. Meanwhile, the legislation completely misses the point. Enacting it would be like responding to alleged police misconduct by taking away their guns-unnecessarily letting the guilty off the hook in order to protect the supposed innocent.
Rather than aiming to weaken the law that is vital to holding Medicare cheaters accountable, the health care industry would best serve the American taxpayer by focusing its attention and ample resources on improving compliance with the law. Toward this goal, we support increased industry-HHS/DOJ dialogue regarding both the underlying rules and regulations governing Medicare and other federal programs and the Government's enforcement process and policies.
In sum, health care fraud is a multi-billion dollar problem. The AHA-backed legislation represents a multi-million dollar lobbying effort to make it worse.
Mr. BERMAN. Thank you, Mr. Chairman.
Page 26 PREV PAGE TOP OF DOC Mr. SMITH. Are there any other opening statements? If not, before we get to the first panel I just want to take a second to recognize Congressman Bill Delahunt, who is with us today, and has been as active as anybody else in trying to resolve the issues or the contention between the Department of Justice and the hospitals. Bill, if you will stand up, I know that people would appreciate hearing from you.
The gentleman from Massachusetts needs to be recognized for the active interest he has taken in the issue, and the initiatives he has taken as well.
We will now go as to the first panel and welcome them. From the Department of Justice, Donald Stern, U.S. Attorney for the District of Massachusetts, and Chair, Attorney General's Advisory Committee; from the Department of Health and Human Services, Office of Inspector General, Lewis Morris, Assistant Inspector General for Legal Affairs; and from the Health Care Financing Administration, Dr. Robert Berenson, Director, Center for Health Care Plans and Providers Administration.
Welcome to you all. We will begin with Mr. Stern.
STATEMENT OF DONALD K. STERN, U.S. ATTORNEY FOR THE DISTRICT OF MASSACHUSETTS AND CHAIR, ATTORNEY GENERAL'S ADVISORY COMMITTEE, DEPARTMENT OF JUSTICE
Mr. STERN. Thank you, Mr. Chairman. By the way, I am accustomed to have Congressman Delahunt look over my shoulder, particularly when he was the District Attorney in Norfolk County. He was one of many District Attorneys who told me how I should do my job as U.S. Attorney.
Page 27 PREV PAGE TOP OF DOC
Thank you, sir, Mr. Chairman, for the opportunity to testify today on this very important subject. As you know, Attorney General Reno has made health care fraud one of the Department's highest priorities, so I am pleased here to be representing the Department of Justice and the 93 U.S. Attorneys scattered around the country to discuss with you the magnitude of the problem, how the Department has enforced the False Claims Act, and secondly, if time permits, to discuss some of our very serious concerns that exist with respect to some of the proposals submitted, and urged by the American Hospital Association.
With me, Mr. Chairman, is Joyce Branda, sitting behind me, who is the Deputy Chief of the Commercial Litigation Section in the Department, and during the question and answer session if there are any questions that you want directed to the Civil Division, she is here to answer those.
As Congressman Watt noted, just last week the Inspector General of HHS estimated that more than $20 billion in Medicaid payments were paid out in fiscal year 1997 in violation of the Medicare rules.
While not all of those funds were violations, or were violations of the False Claims Act, and while we certainly recognize that the vast majority of health care providers are honest and determined to obey the law, this information still suggests that billions of dollars, of tax dollars, are being wasted. This jeopardizes the future of the Medicare Trust Fund, just as aging baby-boomers are about to need it, in addition to those Americans who presently need health care. This might be in fact the very reason that Congress passed legislation first in 1996 and then in 1997 to help the government fight fraud and abuse in health care.
Page 28 PREV PAGE TOP OF DOC
Government efforts in the health care fraud area are designed to maintain the solvency of the Medicare and Medicaid programs by returning substantial funds to the Medicare Trust Fund. Last year, for example, these efforts brought in almost $1 billion, and no doubt saved the taxpayers many more billions of dollars by deterring others from committing health care fraud. But our health care fraud enforcement, Mr. Chairman, is not simply about collecting more dollars. Very often these cases involve unscrupulous practices that pose a direct threat to the health and safety of our most vulnerable citizens.
Criminal and civil enforcement actions are used to deter wrongful conduct, to punish wrongdoers, and to recover funds to compensate the government for its losses. Our civil enforcement has primarily relied upon the False Claims Act, which provides, as Congressman Berman outlined, not simply that claims be made, knowing that they are fraudulent, but also provides for penalties and damages where a provider submits a claim with reckless disregard for the truth, or with deliberate ignorance, or what Senator Grassley referred to back in the mid-1980's as the ostrich in the sand mentality. But the statute does not apply to honest mistakes and inadvertent errors.
Of course, which category a false billing falls in is a very case-specific kind of analysis, and whether a claim fits under the category of an honest, inadvertent mistake or the ostrich in the sand or fraudulent, knowing billing depends on each case and each fact.
In addition to our enforcement efforts, the Department is firmly committed to working with health care providers to prevent health care fraud. We recognize that we can only bring so many cases, and part of what we want to do is to work with providers, both for prevention and compliance. We have worked very closely with the HHS IG's office, for example, on its model compliance guidance for clinical laboratories.
Page 29 PREV PAGE TOP OF DOC
Attorney General Reno and many Department officials, including, I must say, U.S. Attorneys around the country, have recently stepped up their efforts to meet with providers to encourage their adoption of compliance plans that prevent fraud, so that we are not simply in the position of investigating it after the fact.
Two of our recent national initiatives which relate to hospitals are the so-called 72-hour DRG window project and the laboratory unbundling project. The 72-hour window project has thus far recovered more than $58 million from hospitals which, despite clear billing rules, numerous audit findings, and prior notices, continued to double bill the government for outpatient services rendered within 72 hours of inpatient admission, in clear violation of Medicare rules.
Our experience with the 72-hour project suggests that in some instances, at least, that without the potential for liability and further penalties under the False Claims Act as an economic incentive, prior notification to hospitals through audits and pay-backs are simply not enough. Repeatedly facing nothing more than the prospect of having to pay back the money that hospitals should not have received in the first place is an inconsistent deterrent, and the False Claims Act is very necessary.
[The prepared statement of Mr. Stern follows:]
PREPARED STATEMENT OF DONALD K. STERN, U.S. ATTORNEY FOR THE DISTRICT OF MASSACHUSETTS AND CHAIR, ATTORNEY GENERAL'S ADVISORY COMMITTEE, DEPARTMENT OF JUSTICE
Page 30 PREV PAGE TOP OF DOC Thank you for the opportunity to testify today on this very important subject. As you know, the Attorney General has designated combating health care fraud as one of the Department of Justice's highest priorities. I am pleased to be here today, representing both the Department of Justice and its 93 United States Attorneys, to discuss with you the magnitude of the problem, outline the Department's enforcement efforts, and address our concerns over proposals by the American Hospital Association (AHA) that would substantially hinder these efforts.
Our civil Medicare enforcement efforts, which are conducted primarily under the False Claims Act, 31 U.S.C. §3729, et seq's, contribute significantly to ensuring the solvency of the Medicare Trust Fund. The False Claims Act provides that persons may be liable for penalties and damages if they file claims for payment with the federal government that they know are incorrect or with reckless disregard as to whether the claim was accurate. The statute does not pertain to honest mistakes and inadvertent errors. The question of whether incorrect claims are actionable under the statute, of course, depends on the particular facts of each matter.
Medicare False Claims Are a Serious Problem
Government efforts in the health care area are designed to maintain the continued solvency of the Medicare program by returning substantial funds to the Medicare Trust Fund. Last year, these efforts brought in almost $1 billion and saved the taxpayers more by deterring others. By making health care fraud and abuse a priority, the Department of Justice hopes to address problem of false claims in order to ensure the integrity of the Medicare Trust Fund. It is critical that this problem be addressed now so that Medicare can continue to provide life-saving health care services to future generations of elderly and disabled Americans. Congress twice enacted legislation, in 1996 and 1997, to help the government fight fraud.
Page 31 PREV PAGE TOP OF DOC
While we believe that most health care providers are law-abiding, fraud on the government's health care programs is consuming tens of billions of taxpayer dollars each year. The Medicare program relies on the honesty of the health care provider. Less than 9% of all claims for payment are scrutinized in any significant way by Medicare's fiscal intermediaries and carriers. The Medicare system is set up to pay claims quickly. Unfortunately, with regard to fee-for-service claims submitted to Medicare, HHS-OIG estimates that in 1997, $120.0 billion, or 11% of the charges were improper or were improperly documented.
Dollars, however, do not tell the whole story of abuse in the health care system. All too often unscrupulous practices pose a direct threat to the health and safety of our most vulnerable citizens. For example, National Medical Enterprises (NME) kept patients its psychiatric facilities hospitalized for as long as Medicare would pay, even though the patients did not need psychiatric treatment. The Department investigated NME for this conduct under the False Claims Act, and obtained a $379 million settlement from NME in 1994.
And even less dramatic facts still result in the diversion of funds from the Medicare program. For example, St. Joseph's Medical Center in Baltimore billed Medicare for 159 ''ambulance'' trips for patients that actually only consisted of moving patients on rolling beds for diagnostic services at offices on or near the hospital's premises. After patients reviewed their bills and brought the matter to the Department's attention, enforcement actions under the False Claims Act resulted in the hospital paying $188,000.
Overview of the Department of Justice's Enforcement Efforts
Page 32 PREV PAGE TOP OF DOC Federal criminal and civil enforcement actions relating to health care fraud and abuse are used to deter wrongful conduct, punish wrongdoers, and recover funds to compensate Medicare for its losses. In Fiscal Year (FY) 1997, federal prosecutors filed 282 criminal indictments in health care fraud cases and convicted 363 defendants.
In a case brought this past January in my district, four top executives of Damon Clinical Laboratories (Damon) were charged with conspiracy to defraud the Medicare program of more $25 million. In October 1996, Damon, pled guilty to a conspiracy to defraud Medicare in connection with conduct alleged against these executives and paid $119 million to the United States$35 million as a criminal fine and $84 million to resolve related civil liabilities. This criminal fine paid by Damon was the largest ever recovered in a health care fraud prosecution nationally, and the largest criminal fine in any case in Massachusetts.
Civil enforcement efforts, primarily conducted under the False Claims Act, also contribute significantly to our mission of combating health care fraud to ensure the solvency of the Medicare Trust Fund. A recent example of significant funds that can be recovered through the False Claims Act is LABSCAM, a 5-year investigation by the Government of a widespread scheme by clinical laboratories to defraud Medicare and other federal health programs. The Government's investigation revealed that laboratories were marketing common laboratory blood tests onto a single automated panel so that physicians would have to order the entire panel even when their patients did not need every test.
This investigation resulted in several settlements worth hundreds of millions of dollars. As a result of this effort, settlements were reached with Damon Clinical Laboratories ($84 million); Laboratory Corporation of America, Inc. ($182 million); and, Smith Kline Beecham Clinical Laboratories ($325 million).
Page 33 PREV PAGE TOP OF DOC
In addition to the enforcement efforts that are outlined above, the Department is committed to working with the industry to prevent health care fraud and other false billing from occurring in the first place. We have invested substantial resources in fostering and promoting industry compliance. Specifically, we worked closely with the HHS-OIG in its development of model compliance guidance for clinical laboratories and the recently-released hospital compliance guidance. Attorney General Reno and many other Department officials have stepped up their efforts to meet with providers to make clear that a working compliance program that prevents, investigates, and reports fraud and other false billing is the best way for a health care provider to protect itself from criminal charges or a civil lawsuit by the Government.
I offer you this information as context for how the Department's national initiatives relating to hospitals fit into our overall health care fraud efforts. Now I would like to take a few minutes to talk about those initiatives in more detail.
II. NATIONAL PROJECTS
As a result of the widespread nature of false billing practices, one component of our civil enforcement effort has involved national initiatives, such the 72 Hour/DRG Window project and the laboratory unbundling project.
72 Hour/DRG Window Project
As of this month, the 72 Hour/DRG Window project has recovered more than $58 million from hospitals that, despite clear billing rules, several audit findings and prior notice, continued to double-bill Medicare for outpatient services rendered within 72 hours of an inpatient admission, in violation of Medicare rules.
Page 34 PREV PAGE TOP OF DOC
Under 42 C.F.R. §412.2, non-physician outpatient services (such as tests conducted before surgery) rendered in connection with subsequent hospital admissions (and within three days before such admissions) may not be billed separately to Medicare. Instead, such services are covered by the set fee paid to the hospital for the admission/procedure itself These regulations were first adopted in 1984 and have been in continuous use since then (the regulation was renumbered in 1985 with no substantive change). Since 1984, the length of the ''window'' has increased from one to three days.
In 1988, 1990, and 1992, HHS-OIG conducted three formal audits of hospitals, identifying gross overpayments ranging from approximately $28 million to $40 million. On each of three separate occasions, the government allowed hospitals to treat these wrongful double-billings merely as overpayments, with the hospitals only returning the amount they were overpaid, without any additional penalties. In addition to their knowledge of recoupments, many hospitals had received several specific mailings from HCFA and its fiscal contractors, highlighting the duplicate billing problem.
In 1994, despite repeated notice of proper Medicare billing regulations and the previous experience with overpayments, a fourth audit found that a number of hospitals continued to improperly bill Medicare in the same fashion. As a result, HHS-OIG referred a number of these matters to the United States Attorneys office in the Middle District of Pennsylvania for enforcement under the False Claims Act. Other United States Attorney's offices, including my own office in Massachusetts, also pursued this matter. Hospitals were identified and referred by HHS-OIG, based upon the three prior audits, as having filed duplicate claims in violation of the ''window'' rule, resulting in prior repayments of money for these violations.
Page 35 PREV PAGE TOP OF DOC
Unfortunately, our experience with the 72 Hour/DRG project indicated to us that repeated notifications to hospitals of false billingswithout the potential for liability and further penalties under the False Claims Act as an economic incentivehad no effect on the provider conduct. Facing nothing more than the prospect of having to pay back money they should not have received in the first place, providers continued to bill Medicare incorrectly.
Unbundling of Automated Laboratory Tests
A second national project involves the Department's investigation of hospitals that may have engaged in the improper ''unbundling'' of claims for automated laboratory tests. Unbundling occurred when hospital outpatient laboratories performed multiple automated blood chemistry tests on a single patient using a single specimen on the same day. Under Medicare rules in effect at that time, these packaged tests were to be billed using a single code. They were not to be billed as if each test had been performed separately, when in fact they had been performed together. Failure to bill using a single code resulted in excessive payments to the hospital at the expense of federal taxpayers.
Since at least 1989, health care providers have received clear instruction, (including the American Medical Association's CPT-4 Codebook) from the Health Care Financing Administration (HCFA) and from their fiscal intermediaries (which are contractually responsible to HCFA for processing claims for Medicare benefits), about how to bill properly packaged automated laboratory tests using a single code. Many hospitals followed the correct procedures. Unfortunately, some hospitals appear to have submitted false claims for payment. It is this group that the United States Attorneys' offices are contacting regarding their potential liability under the False Claims Act. Despite receiving notice regarding the proper billing of certain automated blood chemistry laboratory tests, these hospitals appear to have unbundled or otherwise submitted false invoices for these tests, seeking payment by Medicare and other government health insurance programs.
Page 36 PREV PAGE TOP OF DOC
The Department's Process in Handling National Projects
We recognize that there have been legitimate concerns expressed about our civil enforcement strategies in these two national projects and we have taken steps to address them. Specifically, we have heard complaints that the tone of the demand letters used to initially contact some hospitals was unduly harsh. To avoid misunderstandings about the Department's goals, we are now encouraging the United States Attorneys' offices in national projects to use initial, pre-litigation contact letters that invite providers to confer with us about their potential False Claims Act liability. Providers are given a reasonable opportunity, prior to litigation, to review the allegations and present any defenses and/or other mitigating circumstances for consideration by the Department of Justice. Keeping in mind statute of limitation concerns, hospitals are given appropriate extensions of time to consider the Government's evidence. If a health care provider claims financial distress, the provider's financial statements and other information bearing on its financial standing will be reviewed, and the provide's ability to pay will be given due consideration in any settlement. In national projects, like all matters handled by the Department of Justice, the appropriate disposition will depend on an individual, case-by-case, examination of the facts. This ensures that the unique circumstances of every hospital will be taken into account.
To help ensure that national projects are pursued responsibly, the Department has established working groups to provide best practices guidance and basic parameters are implemented consistently, while at the same time, giving United States Attorneys' offices the flexibility they need to address each matter fairly on an individual basis. These working groups, consisting of Assistant United States Attorneys and Civil Division Trial Attorneys, will now work with HHS-OIG and the Health Care Financing Administration to review all relevant data, likely defenses, and mitigating factors.
Page 37 PREV PAGE TOP OF DOC
We believe that more outreach activities will be important in educating the provider community regarding our use of the False Claims Act and the fact that the statute does not apply to inadvertent billing mistakes or simple negligence in billing. We are not in the business of putting rural and community hospitals out of business and we invite rural and community hospitals to meet with us to discuss any inability to pay issues which may arise. Finally, as the Attorney General recently indicated to hundreds of hospital representatives at the AHAs national conference, the Department is committed to working with hospitals to resolve any concerns they might have. It is our hope that the Department's thoughtful enforcement of the False Claims Act will help to foster a culture where providers themselves take responsibility for accurate billing. Ultimately, that is the most important factor to preserving the integrity of the Medicare Trust Fund.
In summary, the Department will meet with any health care provider to discuss potential defenses or mitigating circumstances. While we will continue in appropriate circumstances to use other legitimate means to pursue an investigation, we hope that the use of contact letters will lead to productive discussions with hospitals identified as having potential exposure under the False Claims Act. This approach, combined with the coordination offered by working groups in national projects, will help to ensure that we are using the enforcement tools that Congress has provided us in a fair and reasonable manner. Our doors are always open to those whose conduct is under investigation, and, in particular, we encourage any health care provider who believes that we are pursuing an honest billing mistake to contact the government attorney handling the investigation and present the provider's point of view.
III. AMERICAN HOSPITAL ASSOCIATION (AHA) PROPOSALS TO AMEND THE FALSE CLAIMS ACT
Page 38 PREV PAGE TOP OF DOC
Since the False Claims Act was first enacted in 1863, it has been become the Department's primary civil enforcement tool to combat fraud and other false billing in a variety of areas, including defense procurement, food stamps, HUD programs, and health care. When Congress amended the statute in 1986, both the Senate and the House clearly indicated their intent to apply it specifically to false claims for reimbursement from the Medicare and Medicaid programs. See S. Rep. No. 345, 99th Congress, 2d Sess., pp. 2122 (1986); H. Rep. No. 660, 99th Congress, 2d Sess., p. 21 (1986). The legislative history of these amendments also makes clear that Congress intended that the False Claims Act be used to discourage health care providers from committing fraud and other false billing that depletes the Medicare Trust Fund. Without the False Claims Act, enforcement and remedial efforts of the Department in health care fraud would be seriously undermined.
Nevertheless, the AHA is supporting several proposals that would essentially provide the health care industry with preferential treatment compared to other industries that do business using government funds. One of them would preclude the use of the False Claims Act against a health care provider unless the federal treasury suffered a material amount of damages. They have asked the Department to set this ''materiality threshold'' at $100,000. The result of this proposal would be to create a free zone for false claims submitted by health care providers, giving them a ''pass'' on false or fraudulent claims up to the threshold. The AHA also supports a broad grant of immunity to health care providers who are in substantial compliance with a model compliance plan issued by the Secretary of Health and Human Services. Currently, whether a hospital has instituted such a model plan may be a relevant factor in determining culpability under the False Claims Act, but the inquiry cannot stop there. In each case where this issue is raised, an examination must be made as to whether the compliance plan has resulted in the hospital's employees actually making their best efforts to follow the particular rules at issue in the case. By contrast, the AHA proposal would immunize any violation, so long as a hospital adopted the training, hotline, and other features of a model compliance plan.
Page 39 PREV PAGE TOP OF DOC
Another proposal would again grant immunity to health care providersthis time to providers who are able to show that they submitted their false claim in reliance on erroneous information supplied by a Federal agency or its agent. This type of ''safe harbor'' is unnecessary and unworkable. In each case in which this issue is raised, consideration must be given to such things as whether the guidance was in fact inaccurate, whether it was relied upon, and whether that reliance was reasonable in light of other information that might have been available. Certainly, if a complete review of all the relevant information indicates that the hospital operated in good faith under inaccurate guidance on the billing practice at issue, recoupment would be the appropriate remedy. However, it is critical that each case be considered on its own merits. The establishment of a ''safe harbor'' would eliminate any analysis of the legitimacy of the claim, and would result in false billings going unaddressed.
A final significant proposal by the AHA is to change the Government's burden of proof in a False Claims Act case against a health care provider from a ''preponderance of the evidence'' standard to require ''clear and convincing evidence,''a burden of proof near what is necessary in criminal cases. The Supreme Court has made clear that the normal civil burden of proof, even in civil fraud cases, is proof by a ''preponderance of the evidence.'' Herman & MacLean v. Huddleston, 459 U.S. 375, 390 (1983). There is simply no principled reason to give the health care industryor any industrythis type of preferential treatment. Why should the standard of proof for a case against a hospital be different than a case against a bankrupt debtor, a defense contractor, or a food stamp recipient?
The False Claims Act, as currently written, strikes the right balance. It not only covers the instance where the President of a company instructs his employees to commit fraud, but also those circumstances where management sticks its head in the sand and acts in ''deliberate ignorance'' of the truth or falsity of the claims that the company is submitting for government funds. When Congress amended the False Claims Act in 1986, both the House and Senate specifically indicated their intent for the False Claims Act to cover ''ostrich''-like behavior. While the health care industry would like to be exempt from this standard and held accountable only for what amounts to criminal fraud, the Department believes that the False Claims Actboth as it reads today as well as how it is used todayis a critical tool in fighting and deterring fraud and other false billing in the health care industry.
Page 40 PREV PAGE TOP OF DOC
Thank you again for inviting me to share with you the views of the Department. I would be happy to answer any questions that you might have.
Mr. SMITH. Thank you, Mr. Stern.
STATEMENT OF LEWIS MORRIS, ASSISTANT INSPECTOR GENERAL FOR LEGAL AFFAIRS, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. MORRIS. Thank you, Mr. Chairman, for this opportunity to testify about the use of the False Claims Act in our continuing efforts to preserve the integrity of the Medicare and health care systems.
The False Claims Act has been an essential tool to protect the integrity of the Medicare program. We believe that the proposals by the American Hospital Association to modify the False Claims Act would seriously weaken the government's efforts to control fraud in the health care system.
I would like to briefly review the scope of fraud in the Medicare program, and then discuss how the False Claims Act has contributed to preserving the integrity of our system. As we have noted, last week the Inspector General released its second annual audit of the Health Care Finance Administration's financial statement. Last year we identified $20 billion in improper payments. The prior year we identified $23 billion in improper payments, money wasted. Of those two audits, hospitals received a total of $14 billion in improper payments in just 2 years.
Page 41 PREV PAGE TOP OF DOC
It is important to note that these figures reflect improper payments ranging from inadvertent errors to blatant fraud. It is also important to note that they do not reflect losses due to undetected fraud schemes or losses associated with kickbacks, poor quality of care, or other abuses of the Medicare program.
But the audit confirms that our program is vulnerable to substantial fraud and abuse from health care providers. My written testimony provides many examples of the sort of fraudulent practices that the Medicare program is exposed to.
Congress has provided several very effective tools in fighting this problem of fraud. One of the most valuable tools to us has been the False Claims Act. As we have noted, the False Claims Act specifically spells out when liability may be imposed, and contrary to what some critics may have said, billing errors due to simple negligence, mistakes, or inadvertence are not actionable under the False Claims Act.
Let me describe how the False Claims Act has been used to protect the integrity of the Medicare program. I have selected as my example the DRG 72-hour window that Mr. Stern just referenced, in part because there have been mischaracterizations about this initiative.
The rule at play here is straightforward: Hospitals receive a set amount of payment for the treatment of a patient based on the medical condition at the time of admission. These DRGs, or what we called diagnostic-related groups, are used to set the amount of payment. Payment to the hospital includes non-physician outpatient services, such as tests performed prior to surgery, within 72 hours of admission, and during the inpatient stay.
Page 42 PREV PAGE TOP OF DOC
From the period from 1987 through 1992, the Office of Inspector General conducted four nationwide audits of the hospitals' compliance with this rule, and found widespread violations. In the first OIG audit we found $28 million in improper payments. The Medicare contractors were informed of these erroneous payments, contacted the hospitals, informed them of the misbillings, and collected the overpayments.
The second audit identified another $40 million in improper payments. Again, the contractors contacted each of these hospitals, advised of the errors, collected the payment.
Three years later a third audit, which found $38.5 million in improper payments, and again, we collected the money back and advised hospitals of the error.
Yet a fourth audit; again, $8.6 million of improper payments from these same hospitals.
These four audits identified over $115 million in trust fund monies which hospitals were not entitled to. In addition, there were significant administrative costs incurred by the Medicare program and the OIG in identifying and recovering these double payments.
As Mr. Watt noted, the poor are really the victims here, because Medicare beneficiaries pay 20 percent copayments for many of these outpatient services, payments that would not have had to have been paid if the hospitals had billed these services correctly in the first place.
Page 43 PREV PAGE TOP OF DOC
After 5 years of audits, education, and overpayment recoveries, it became apparent that hospitals were not going to change their billing practices. In a sense, this makes good sense from a cost-benefit analysis. After all, why install internal controls to make sure the claims go in right if, at worst, the Medicare program will eventually catch you and just make you pay the overpayment? In fact, you are getting an interest-free loan during that period of time.
So the OIG approached the U.S. Attorney's office in the middle district of Pennsylvania to see if we could come up with a different approach to Medicare's pay and chase. Using the False Claims Act to recover losses, and where appropriate, impose penalties, we began first with hospitals in Pennsylvania and then eventually the entire country.
Under the 72-hour initiative the U.S. Attorney's office has based recoveries on the culpability of the hospital. Of the 3,000 hospitals that have been the subject of this initiative, 1,700 have simply been asked to repay the money plus interest. That is 57 percent of the hospitals contacted as part of this project. The remaining hospitals were asked to pay penalties in addition to overpayments.
If Members would like, I can also tell you that the settlements involved in these matters required restitution to the beneficiaries, as well as putting in compliance programs to ensure these problems did not reoccur in the future. Thank you.
[The prepared statement of Mr. Morris follows:]
PREPARED STATEMENT OF LEWIS MORRIS, ASSISTANT INSPECTOR GENERAL FOR LEGAL AFFAIRS, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Page 44 PREV PAGE TOP OF DOC
Mr. Chairman, and members of the Committee. I am Lewis Morris, Assistant Inspector General for Legal Affairs in the Office of Inspector General (OIG), U.S. Department of Health and Human Services (HHS). I appreciate the opportunity to testify before you today on health care initiatives pursued under the False Claims Act. In particular, I wish to voice our very serious concerns about recent efforts to dilute the effectiveness of the Act, as the Act applies to the health care industry in this country.
There is before this Committee a proposal by the American Hospital Association (AHA) that would raise unprecedented barriers to the Government's ability to pursue those who knowingly or recklessly take advantage of our taxpayer-supported health care programs. We urge the Congress to weigh carefully the impact of this AHA proposal on worthy law enforcement efforts, and to reject its overly lenient standards for establishing health care fraud.
In my testimony, I will provide an overview of the extent of fraud and other systemic vulnerabilities, the available enforcement tools, the troubling ramifications of the AHA proposal, our national projects, and our extensive efforts to work proactively with industry to develop appropriate fraud prevention measures.
1. EXTENT OF FRAUD AND OTHER IMPROPER PRACTICES
FYs 1996 and 1997 Financial Statement Audits of HCFA
Billing errors and billing fraud are costing Medicare billions of dollars. Just last Friday, on April 24, 1998, the OIG issued its 1997 Financial Statement Audit of the Health Care Financing Administration (HCFA). We estimate that the dollar value of improper Medicare fee-for-service benefit payments made during FY 1997 totaled approximately $20.3 billion nationwide. This $20.3 billion represents about 11 percent of the $177.4 billion in fee-for-services payments made by HCFA in FY 1997. The improper payments for hospital inpatient and outpatient services in FY 1997 was estimated to be $6 billion. These numbers compare with our estimates that approximately $23 billion in Medicare fee-for service payments in FY 1996 were improper, with improper inpatient and outpatient services payments estimated at $8 billion.
Page 45 PREV PAGE TOP OF DOC
While we do not know what portion of these amounts were attributable to fraud, this continuing error rate is unacceptably high for Medicare generally, and for hospitals in particular. We have encountered enough examples of reckless billing practices to be very concerned about the extent of fraud. In fact, the above audit figures may not reflect the magnitude of Medicare fraud. Sophisticated fraud schemes fabricate the necessary medical documentation in an effort to thwart detection. Our recent audits of HCFA might not uncover such a scheme.
Simply put, Medicare is highly vulnerable to fraud and other improper billing practices. One problem is the program's sheer size. Today, Medicare outlays exceed $200 billion annually; it has 38 million beneficiaries, and its contractors process and pay well over 800 million claims per year. Since only about 9% of Medicare claims are reviewed, the program is highly dependent on the care and honesty with which providers prepare and submit claims. Providers have a duty to prepare true and accurate claims for their goods and services.
Hospitals I would now like to share just a few examples of fraud uncovered by the Government in the hospital industry.
In 1995, a component of a large east coast university health system agreed to pay $30 million to the U.S. Government to settle allegations that the institution submitted false Medicare bills for faculty physician services. The institution's own internal memos showed it knew that for a physician to bill for a service performed by a resident, the physician had to be physically present, ''at the elbow'' of the resident. However, the institution encouraged its physicians to bill for services performed by others. The second questionable practice was billing by faculty physicians for in-patient services at the highest levels of the 5-tier coding system for hospital visits, without reference to the services actually performed. In fact, the institution printed forms for physician billing which left off the two lowest-reimbursed codes altogether.
Page 46 PREV PAGE TOP OF DOC
In 1997, two east coast billing consultants settled charges that they enlisted more than 100 hospitals in schemes to aggressively and inappropriately manipulate Medicare's billing rules to increase payments. Some hospitals did the right thing, and told the consultants that their advice promoted fraud and would not be followed. Unfortunately, many hospitals used the consultants to make a quick buck at the Medicare program's expense. As part of the settlement with the U.S. Attorney's Office, the consultants have agreed to cooperate in the Government's ongoing investigation of these hospitals.
In 1997, a Midwest medical center agreed to pay $17.5 million arising out of allegations that it paid two physicians over $1 million to refer an estimated $42 million in Medicare business to the hospital. The hospital designed sham ''consulting agreements'' with the physicians and paid them over an 11-year period in exchange for patient referrals. The doctors did not perform the services specified in the agreements and were paid far more than market value for those they did perform.
In all of these hospital cases, the False Claims Act was an essential component of the Government's enforcement effort. The AHA proposal to amend the False Claims Act would adversely affect enforcement efforts with respect to all health care providers, not just hospitals. Here's a sample of what we are uncovering in other health care industries:
During FY 1997, OIG concluded ''Labscam,'' a multi-year interagency initiative targeted at abusive marketing and billing practices by the nation's largest independent clinical laboratories. We found a number of improper activities, including unbundling clinical laboratory tests, billing for tests not performed, insertsing false diagnosis codes to obtain reimbursement, double billing for laboratory tests for patients with end stage renal disease, payment of kickbacks, and billing for calculations which were both unordered and medically unnecessary. The Federal Government's case against the abusive laboratories, all told, resulted in three corporate criminal convictions, and will ultimately produce recoveries of more than $800 million.
Page 47 PREV PAGE TOP OF DOC
First American Health Care of Georgia, Inc. was the largest privately held home health care provider in the country. When our investigation began, the company was known as ABC Home Health, and Jack and Margie Mills were the majority shareholders and chief officers of the company and its subsidiaries. Offenses included shifting unallowable costs to Medicare. The company and its owners claimed items and services that benefitted the owners personally as reasonable and necessary ''general and administrative'' expenses related to the care of Medicare patients. These fraudulent claims included golf course memberships, greens fees, a family vacation, and a BMW for a son in college. After extensive investigation and audits by the Office of Inspector General, the Mills and the parent company were convicted in 1996 of several Medicare-related criminal offenses and received significant prison time. In a related settlement, $255 million was returned to the United States.
On a smaller scale, the co-owner of a Washington, D.C. home health agency billed for 1,450 skilled nursing visits for which there was no evidence that the visits were made. It also billed for home nurse visits when patients were actually hospitalized. The co-owner was sentenced to 27 months in prison and ordered to pay full restitution of $100,000 defrauded from the Medicare and Medicaid programs.
Medical Equipment and Supplies
One of the highest-reimbursed Medicare suppliers of incontinence care products, Ben Carroll, agreed to plead guilty to conspiracy to defraud Medicare of more than $70 million. He had actually collected $45 million. He distributed adult diapers (which are not covered by Medicare) but billed Medicare for female urinary collection pouches. He agreed to forfeit $32 million in seized bank accounts, paid $2.5 million in restitution, and was sentenced to 10 years imprisonment.
Page 48 PREV PAGE TOP OF DOC
2. CRITICAL ENFORCEMENT TOOLS PROVIDED BY CONGRESS
The above examples hint at the breadth of the improper practices plaguing Medicare and other federally funded health care programs. To stem the tide of abuses and to protect Medicare's beneficiaries, we have adopted an attitude of ''zero tolerance'' of Medicare fraud and abuse. And we are pleased that the American Hospital Association and many other groups have embraced the ''zero tolerance'' goal. To achieve this goal, the Government relies on a number of enforcement optionscriminal, civil, and administrative, as well as educational outreach efforts. Chief among the enforcement tools has been the False Claims Act.
Congress deserves great credit for its amendments to the False Claims Act in 1986, amendments that have improved the Government's ability to recover false or fraudulent payments. Now, the False Claims Act imposes treble damages liability and civil penalties of $5,00O$10,000 per claim on any person who knowingly presents, or causes to be presented, a false or fraudulent claim for approval to the U.S. Government. See 31 U.S.C. sec. 3729. The Act is the primary means of recovering damages for losses to the Medicare Trust Fund (and to the U.S. Treasury as a whole). It is also the primary means of recovering fraudulently claimed dollars from health care providers, including hospitals. To prove liability, the Government must show actual knowledge of falsity, reckless disregard for truth or falsity, or deliberate ignorance of truth or falsity. ''Deliberate ignorance'' reaches those who consciously ignore or fail to inquire about readily discoverable facts that would alert them that a given claim is false.
It is absolutely critical to note that billing errors due to simple negligence, mistakes, or inadvertence are not actionable under the False Claims Act. The government must prove at a minimum a ''deliberate ignorance'' or a ''reckless disregard'' of the truth or falsity of the claims submitted by the provider.
Page 49 PREV PAGE TOP OF DOC
In our experience, the penalty provisions of the False Claims Act are also a crucial deterrent to repeat offenders. If a provider or supplier gets caught actually bilking the system, i.e., submitting claims recklessly, and only has to pay the money back, there is precious little incentive for the wrongdoer to stop.
The qui tam provisions of the False Claims Act, also amended in 1986, have provided the incentive for whistle blowers to overcome the substantial detriment and obstacles to speaking out. Most of the time, a whistle blower is a health care employee with inside knowledge of wrongdoing. When he/she blows the whistle, he/she invariably becomes an outcast in the industry. However, the qui tam provisions allow such whistle blowers to act as private attorneys general and bring suit under the False Claims Act seeking recoveries against defrauders of government programs. The Department of Justice then determines whether or not to intervene in the case; the case may proceed without DOJ. In either case, the whistle blower, or ''relator,'' may share in any later recoveries. In just the hospital industry alone, from January 1, 1995 to April 17, 1998, OIG's figures show that 199 qui tams were filed against hospitals. The law is working as intended. Whistle blowers are stepping forward, and billions in false claims are being recovered as a result. In the last ten years, qui tam cases in which the government has intervened have produced approximately $1.8 billion in recoveries. About half of these recoveries were in health care cases.
The AHA proposal will adversely impact the fight against health care fraud and abuse. While the AHA proposal does not amend the qui tam provisions themselves, it would make the underlying substantive cause of action quite onerous to pursue. Thus, the qui tam provisions will effectively be gutted. The crucial information provided by whistle blowers will be lost in most cases because the insiders will not come forward to the Government.
Page 50 PREV PAGE TOP OF DOC
Health Care Fraud and Abuse Control Program Mandated by the Health Insurance Portability and Accountability Act (HIPAA)
Congress has repeatedly recognized the magnitude of health care fraud, and has provided other crucial fraud fighting tools. In 1996, Congress and the President gave law enforcement a major boost through the Fraud and Abuse Control Program, authorized in the Health Insurance Portability and Accountability Act of 1996. The program is designed to provide a framework and resources to coordinate Federal, State, and local law enforcement efforts. It mandates a comprehensive program of investigations, audits, and evaluations of health care delivery; authorizes new criminal, civil, and administrative remedies; requires guidance to the health care industry about potentially fraudulent health care practices; and establishes a national data bank to receive and report final adverse actions imposed against health care providers. The Act also provides an innovative mechanism to fund these new anti-fraud efforts, thereby assuring that needed resources are always available for the effort.
The recent report detailing the substantial recoveries to the Medicare Trust Fund brought about by HIPAA demonstrates that the Congress invested wisely in the effort to control health care fraud and abuse. Indeed, in January, 1998, HHS and DOJ jointly issued the first annual report of the Health Care Fraud and Abuse Control Program. The report provides some helpful measures of recent progress made in the effort to control health care fraud and abuse. During fiscal year 1997:
$1.087 billion was collected in criminal fines, civil judgments and settlements, and administrative impositions.
Page 51 PREV PAGE TOP OF DOC
$968 million was actually transferred to or restored to the Medicare Trust Fund , and $31 million was recovered as the federal share of Medicaid restitution.
More than 2,700 individuals and entities were excluded from federally sponsored health care programs, a 93% increase over 1996.
Federal prosecutors opened 4,010 civil health care matters, an increase of 61 percent over 1996.
At the same time, it is important to keep these results in perspective. Hospitals paid approximately $73.2 million last year to settle potential False Claims Act liabilities with the government, while they received over $100 billion in Medicare payments.
The bottom line is that the problem of health care fraud is real and it is massive in scope. The AHA proposal would hamstring the Government's use of the most important tool we have in stemming the tide. I will now briefly share some specific reasons why this would occur.
3. THE AMERICAN HOSPITAL ASSOCIATION'S PROPOSAL
The AHA proposal would erect serious obstacles to pursuing Federal health care fraud. Curiously, these obstacles would not be imposed on any other defrauders of federal programs. But under the AHA/AHA's proposal, regardless of what some advocates state, members of the health care industry would enjoy immunity from the False Claims Act in many situations.
Page 52 PREV PAGE TOP OF DOC
I. Material Amount Required in Order to Be Actionable
Under the AHA proposal, for a false claim to be actionable where submitted to a ''federally funded health care program'' (e.g., Medicare, Medicaid, the Children's Health Insurance Program), the Government's damages must be for a ''material amount.'' That term would more specifically be defined in regulations to be promulgated by the Secretaries of Health and Human Services and Defense. Because the AHA seeks to have its proposal made retroactive in effect, current enforcement efforts would grind to a halt until a regulatory definition of ''materiality'' successfully navigates the protracted rule making procedures. And defining when the Government's fraud losses are ''material'' would defy a simple answer.
The AHA proposal mandates that the American Institute of Certified Public Accountants' (AICPA) definition of materiality be used in the joint HHS and DOD regulations. AICPA defines materiality as ''the magnitude of an omission or misstatement of accounting information that, in the light of the surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.'' This is explicitly and necessarily a subjective standard. AICPA itself recognizes that ''an illegal payment of an otherwise immaterial amount could be material if there is a reasonable possibility that it could lead to a material contingent liability or a material loss of revenue.''
While the AHA proposal seems to require that the Secretary quantify a specific proportion of an entities' claims that must be fraudulent before being deemed ''material,'' AICPA makes plain that what is material is very much context-dependent, and requires the consideration of any number of quantitative and qualitative factors. While useful for accounting purposes, this is not a workable standard for an enforcement statute of general applicability.
Page 53 PREV PAGE TOP OF DOC
Specifically, it would be quite inappropriate to create some set percentage or dollar threshold below which fraud would go unpunished. For example, the AHA has suggested a threshold of $100,000 of false claims in any claim category before the False Claims Act could apply. AICPA suggests, from an accounting perspective, that materiality may range from 5% to 10%. Such proposals would result in large ''free for fraud'' zones. If you multiply the number of providers by the number of potential categories, many billions of dollars could be fraudulently claimed with no remedy under the False Claims Act. While most everyone voices support for ''zero tolerance'' for fraud, this AHA proposal amounts to a safe harbor for fraud, as long as the loss to the Medicare program is not too big in any one of a provider's categories of claims.
The AHA proposal mandates other prerequisites to finding ''materiality.'' Only Medicare claims can be aggregated with other Medicare claims when demonstrating that a claimant has surpassed the ''material'' threshold, and then, only if the claims are made in the same calendar year. Consequently, the same claimant may well be defrauding Medicaid, but those false claims must be counted separately. Claimants would be free to cheat so long as they are savvy enough to consistently steal only a ''non-material'' amount from each program, each year.
Furthermore, under the AHA proposal, improper claims cannot be aggregated in order to establish materiality unless they can be shown to have been part of a ''pattern'' of ''related acts or omissions.'' These barriers further reduce the remote possibility that the government could demonstrate materiality with respect to false claims by any but the smallest and most corrupt Medicare providers.
Page 54 PREV PAGE TOP OF DOC
What is ''material'' at a Fortune 500 corporation invariably will not be so for a small ''mom and pop'' health care company. Many corporate financial statements, particulary those of massive health care conglomerates, might not consider even a $1 million contingent liability as material relative to total assets. The AHA proposal may well give such a $1 million false claim a ''free pass,'' because if the corporation bills Medicare $100 million each calendar year, $1 million may not be deemed ''material.'' Consequently, enforcement will likely become regressive, in that smaller health care entities will be the primary target of False Claims Act enforcement.
II. Standard of Proof Ratcheted Up
The AHA proposal raises the standard of proof for all false claims to federally-funded health care programs, even claims that manage to satisfy the onerous ''materiality'' requirements. ''Clear and convincing evidence'' (much closer to a criminal standard) would be required, rather than a ''preponderance'' standard (the standard in civil cases). This relaxed standard will invite members of the health care industry to be less vigilant in avoiding abusive behavior.
III. Model Compliance PlansA ''Substantial Compliance'' Safe Harbor
The AHA proposal seeks to immunize claimants who are in ''substantial compliance'' with a model compliance plan issued by the HHS Secretary in conjunction with the DOD Secretary. This vague term (''substantial compliance'') will require definition, presumably by regulation. We are greatly concerned as to how it will be determined what constitutes ''substantial compliance.''
Page 55 PREV PAGE TOP OF DOC
The AHA proposal, by its own language, does not mandate that HHS/DOD issue compliance plans, nor are they mandated anywhere else. HHS has never issued such plans in conjunction with DOD. More importantly, the ''model compliance'' issued to date by HHS has been non-binding ''guidance,'' not the text of actual compliance plans. This guidance approach, requested by trade groups, including AHA, allows actual compliance plans to be flexible and to be tailored to the needs and capabilities of the individual provider. It should be noted that the OIG and (heretofore) the health care industry agree that there can be no ''one size fits all'' compliance scheme.
The AHA proposal thus creates yet another anomaly: under the U.S. Sentencing Commission guidelines, an effective compliance plan warrants just a downward adjustment with respect to fines imposed upon a corporate defendant for its criminal conduct. By contrast, the AHA proposal would grant civil immunity to health care defrauders with a compliance plan. Ironically, conduct which enjoys civil immunity could still be the subject of a criminal prosecution.
IV. Safe Harbor for Reliance on ''Agency'' Advice
The AHA proposal also seeks to immunize claimants who have relied on erroneous information from a ''Federal agency,'' or ''an agent thereof.'' First, we always take guidance of carriers, intermediaries and other official pronouncements into consideration in our cases. It is only fair that we do so. However, the AHA proposal goes much further. The AHA proposal invites claimants to ''shop'' carrier and intermediary personnel, and encourages ''gaming'' of the system. Under the AHA proposal, the erroneous guidance does not even have to be in writing for a fraudster to benefit from this immunity provision.
Page 56 PREV PAGE TOP OF DOC
There is a longstanding general principle that ''the United States is neither bound nor estopped by acts of its officers or agents in entering into an arrangement or agreement to do or cause to be done what the law does not sanction or permit.'' Utah Power & Light Co. v. United States, 243 U.S. 389, 409 (1917). See also Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947) (court held that the government was not bound by the unauthorized representations of its agents in advising a farmer that his crop was insured when, under regulation, over 80% was not). Although more recent case law and the decisions of the Comptroller General have softened this rule of law, a person relying on erroneous advice must show his/her reliance was reasonable under the circumstances.
Where the issue of contractor guidance arises, we consider whether the agency or contractor guidance was in fact inaccurate, whether the provider in fact relied upon it and, indeed, whether that reliance was reasonable in light of other available information. The AHA's suggested ''safe harbor,'' however, would confer immunity even when the provider knew that the person providing the guidance was acting outside of his or her authority or was providing misinformation.
Again, with respect to HCFA and HCFA contractor guidance, it must be emphasized that law enforcement most certainly takes into consideration whether there was reasonably clear guidance in place before a case is pursued. This is a key factor in evaluating whether behavior was egregious, or a simple mistake based on good faith reliance on erroneous advice.
Although we believe the AHA proposal is not the answer to the concerns that have brought us here today, we wish to address the objections by the industry to the concept of national enforcement projects. Specifically, I will discuss in detail the ''DRG 72 Hour Window'' project, which is the subject of particular industry concern.
Page 57 PREV PAGE TOP OF DOC
4. NATIONAL PROJECTS
When the federal law enforcement community detects repeated and widespread violations of the same or related Medicare rules, we may undertake nationwide projects targeting that abuse. National projects also allow us to pursue abuses that are not large cases individually, yet, collectively, cause significant drains on the Medicare Trust Fund . While these are national projects focused on pervasive abuse, it is also important to keep in mind that each case is evaluated and pursued on its own merits.
The industry proponents of the relaxing of False Claims Act standards have been critical of these OIG and DOJ-coordinated national enforcement efforts. We feel that it is important for us to dispel misconceptions about these initiatives. As an example, the first national project affecting all Medicare hospitals was the ''DRG 72 Hour Window'' project. The rule underlying this project is simple. Hospitals which are paid by Medicare under the Prospective Payment System (''PPS'') receive a set amount for hospital admissions for particular types of illnesses (''Diagnostic Related Groups'' or ''DRGs''). The Medicare regulations require that non-physician outpatient services rendered in connection with such hospital admissions (and within a three day ''window'' of such admissions) not be billed separately to Medicare. Rather, such services are included in the pre-established fee paid to the hospital for the admission itself.
Between 1987 and 1992, the OIG performed four nationwide audits of the Prospective Payment System (PPS) hospitals' billing of non-physician outpatient services. Each audit revealed widespread violation of the ''DRG 72 Hour Window'' rule. The first OIG audit covered the period between October 1983 and January 1986. OIG determined that approximately $28 million was improperly paid to hospitals in violation of the rule during that time frame. The OIG supplied HCFA with computer listings of the claims paid improperly. HCFA, through its contractors, then pursued repayment, and put the hospitals on formal notice of their noncompliance.
Page 58 PREV PAGE TOP OF DOC
The second OIG audit covered payments made to hospitals between February 1986 and November 1987. This time, approximately $40 million in improper payments were identified. Once again, OIG asked HCFA to recoup the payments and put the hospitals on notice. Yet again, HCFA recovered the improper payments, and put the hospitals on notice of their improper billing practices.
When OIG revisited the issue a third time, we found approximately $38.5 million in improper payments for the period December 1987 to October 1990. HCFA again expended the considerable resources necessary to recover the overpayments.
After each of the first three audits, HCFA instructed the Medicare fiscal intermediaries to recover the overpayments and further educate the hospitals how to conform to the rule. Each time, funds were recouped and notices issued. Unfortunately, hospitals performance overall did not improve despite these repeated, explicit efforts by HCFA and its contractors.
In 1993, the fourth OIG audit identified approximately another $8.6 million in improper billings from November 1990 to December 1991. By this point, the HCFA contractors had been catching more of the claims before they were paid. All told, the first four audits identified approximately $115.1 million in Medicare overpayments to hospitals caused by the improper billings. The OIG presented the results to the U.S. Attorney for the Middle District of Pennsylvania to devise a plan to recover the continuing overpayments, with penalties, from hospitals in Pennsylvania. Based upon early results, the U.S. Attorney for the Middle District of Pennsylvania then developed a national plan to replicate the Pennsylvania experience across the nation.
Page 59 PREV PAGE TOP OF DOC
In 1996, OIG audited this issue a fifth time, identifying an additional $27 million in potential improper payments for the period January 1992 through December 1994. Incredibly, even after all of the previous public OIG audit reports and HCFA's repeated efforts to remind hospitals of the requirements, OIG's fifth audit revealed that with respect to the hospitals' claims processing systems, the necessary edits at hospitals were not sufficient, or were nonexistent. All of this left the question: What would it take to get hospitals to comply with the ''DRG 72 Hour Window'' rule?
The first four OIG audits revealed tens of thousands of individual small dollar overpayments by some 4,660 hospitals nationwide. Certainly, a prevalent pattern of abuse had been identified. At the same time, the individual overpayments were low (generally less than $100 each), and the total number of improper claims submitted by individual hospitals was relatively small. The average overpayment for the entire five year period was only about $10,000 per hospital, though some overpayments reached $1 million. Approximately $58 million has been recovered to date as a result of the national project efforts. In short, repeated audits and resulting recoveries of simple overpayments (with interest) and repeated notice to the industry proved wholly ineffective in stemming the abuse. Moreover, interest is normally only charged from the date an overpayment is identified, yet another windfall for the hospitals.
Innocent mistakes? Perhaps initially. But at some point, repeated failure to abide by explicit notice becomes, at a minimum, reckless behavior. We had every reason to believe that without this remedy, false claims would continue. And the Medicare program could not depend on the OIG to repeatedly audit compliance. Yet, without the continued audits, the program and taxpayers would suffer annual improper losses in the millions of dollars due to this abuse.
Page 60 PREV PAGE TOP OF DOC
This recklessness has tangible and significant cost to society. The OIG and HCFA resources necessary to identify and recover these improper payments is not insignificant. And Medicare beneficiaries are injured even more directly. Many of the services billed by hospitals in violation of the ''DRG 72 Hour Window'' rule are subject to a 20% coinsurance, or ''co-payment.'' Consequently, senior citizens on fixed incomes unnecessarily have paid millions to hospitals for charges which should have been included in the inpatient payment.
Even after involving the Department of Justice and the False Claims Act, we have approached this problem judiciously. A great many hospitals which violated the billing requirement were placed in what was called ''Tier zero;'' the False Claims Act would not be applied to these hospitals. Rather, they have or will have the opportunity to simply pay the money back with interest.
The remaining hospitals identified in the national project were divided into three tiers: Tiers 1, 2, and 3. This ranking was based primarily on a ratio of the number of false claims submitted in relation to the hospital's bed size. Hospitals with 10 or fewer false claims were grouped into Tier 1. In settling their liability under the False Claims Act, the Tier 1 hospitals are treated just like the zero tier hospitalsthey merely have to return the money with interest.
It stands to reason that the number of false claims should be considered in relation to a hospital's size, as reflected by its number of beds. Consequently, Tier 1 includes those hospitals with the lowest false claims to bed size ratio, while Tier 3 includes those hospitals with the highest ratio (and thus the most flagrant violations). False Claims Act penalties were proposed based on the severity of the hospital's conduct, beginning with Tier 2.
Page 61 PREV PAGE TOP OF DOC
With the active participation of the AHA early in the national initiative, the Department of Justice and OIG developed a model settlement mechanism that included repayment with interest, penalties where appropriate, and two other important features. The first requires the hospital to conduct a review of patient accounts and records to identify instances where the Medicare beneficiaries (or the Medicaid program if the person was dually eligible for both Medicare and Medicaid) paid the hospitals for deductibles or coinsurance. Within 90 days of settlement, the hospital would agree to refund to the beneficiary, when feasible, the amount identified. A second provision of the settlement requires the hospital to establish both computerized and manual controls to prevent future billing for outpatient services included in the outpatient payment under PPS.
Some statistics: It is my understanding that approximately 3,000 hospitals to date have received letters from DOJ. Some 1,700 of these have had to pay no penalty whatsoever. Approximately 500 of these 1,700 hospitals have been grouped in the zero tier, and approximately 1,200 have been grouped in the first tier. As for the flagrant, or Tier 3 cases, I would like to share a few examples:
A 560-bed east coast hospital paid $976,035 to settle allegations that it had made 346 erroneous claims as determined by the fourth OIG audit, and 1,056 improper claims as determined by the fifth OIG audit. A 502-bed hospital in the southeast paid $836,852 to settle allegations that it improperly made 238 claims during the fourth OIG audit period, and 1,200 improper claims during the fifth OIG audit period.
The national ''DRG 72 Hour Window'' project shows a reasonable approach to a situation where hospitals generally refused to recognize their collective responsibility to bill Medicare correctly. Enforcement action became necessary with respect to significant violators; the rest paid only overpayments and interest. However, OIG is not relying only on enforcement; we are seeking to engage hospitals at the front end '' to prevent their getting in trouble in the first place.
Page 62 PREV PAGE TOP OF DOC
5. COMPLIANCE: THE OIG'S COMMITMENT TO ASSISTING THE HEALTH CARE INDUSTRY
June Gibbs Brown, the Inspector General at HHS, is personally committed to efforts beyond just enforcing past violations and punishing wrongdoers. Under her leadership, OIG has also engaged in numerous proactive outreach efforts designed to help the industry comply at the front end, by identifying and preventing health care fraud and abuse generally. Indeed, hospitals in particular have reacted quite positively to the Inspector General's initiatives.
These outreach efforts are even made available through the Internet, to anyone who wishes to review them. For the record, the OIG Website may be found at www.hhs.gov/progorg/oig.Some of these public outreach and prevention efforts include:
The February 1998 ''Offical General's Compliance Program Guidance for Hospitals.''''This document presents basic procedural and structural guidance for developing a hospital compliance program that will avoid false or improper claims. Hospitals owe a duty reasonably to ensure that the claims they submit to Medicare are true and accurate. This guidance is intended to assist hospitals and their agents and subproviders to fulfill that duty. It suggests that hospitals develop effective internal controls that promote adherence to applicable federal and state law, and the program requirements of federal, state and private health plans. Fundamentally, compliance guidelines are intended to foster a culture within an organization that promotes the prevention, detection, and resolution of conduct that does not conform with Federal and State law, program requirements, or the provider's ethical and business policies. This is a critical prevention mechanism that is rapidly gaining acceptance in the health care industry. Indeed, the hospital guidance was developed with substantial input from the American Hospital Association, the American Medical Association and other industry groups. We are currently developing guides for home health providers, billing services, health maintenance organizations, and durable medical equipment suppliers.
Page 63 PREV PAGE TOP OF DOC
The OIG Advisory Opinion Process. Mandated by the Health Insurance Portability and Accountability Act, OIG issues advisory opinions to requesters on whether certain conduct, including certain business arrangements, constitutes a violation of applicable law, including, in particular, the anti-kickback statute. (The OIG advisory opinion regulations may be found at 42 CFR part 1008). Twelve such opinions have been issued to date.
Special Fraud Alerts. While advisory opinions offer one-on-one guidance, OIG Special Fraud Alerts sweep more broadly, by seeking to identify practices in particular segments of the health care industry that are particularly vulnerable to abuse. These alerts are published in the Federal Register, posted on the Internet, and are available upon request to any interested party. As just one example, in March 1998, OIG issued a special fraud alert concerning fraud and abuse in nursing home arrangements with hospices.
OIG Workplan. Our annual workplan is available on the Internet, so interested parties can identify areas of particular OIG interest and emphasis.
These and other efforts demonstrate our real commitment to assist providers in complying with Medicare's requirements, and avoiding the submission of improper claims. Providers owe a duty to Medicare reasonably to ensure that the claims they submit are true and accurate. We suggest that careful compliance efforts are necessary to discharge this duty. These efforts will prove cost effective for the providers in avoiding liability. Regardless, we must not forget that the lax compliance efforts of the past have been grossly damaging to the solvency of the Medicare Trust Fund. With the above proactive examples, we have attempted to demonstrate that law enforcement is not, as suggested, looking to prosecute providers for innocent errors. On the contrary, we are engaged in an extensive, good faith effort to work with the industry to prevent potential liability for fraud and improper billing before it even occurs.
Page 64 PREV PAGE TOP OF DOC
For the reasons explained, the Office of Inspector General strongly opposes the AHA proposal.
The False Claims Act is an invaluable tool in the Government's continuing effort to control health care fraud and abuse. In an era when the long-term solvency of Medicare is in doubt, and when our audits reveal huge losses due to improper payments, and when taxpayers, the Congress, and the Administration are rightfully demanding a more concerted law enforcement effort, it would not be wise to weaken the protections afforded by the False Claims Act.
Mr. SMITH. Thank you, Mr. Morris.
STATEMENT OF DR. ROBERT A. BERENSON, DIRECTOR, CENTER FOR HEALTH CARE PLANS AND PROVIDERS ADMINISTRATION, HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Mr. BERENSON. Thank you, Chairman Smith and members of the subcommittee. Thank you for inviting us to discuss hospital initiatives pursued under the False Claims Act.
We believe the False Claims Act is an important tool for our law enforcement partners to pursue fraud and abuse. Fighting fraud and abuse is one of our highest priorities. Letting providers who intentionally submit improper bills merely pay back the money turns the Medicare trust funds into a no-interest loan program. That is something we cannot afford to tolerate.
Page 65 PREV PAGE TOP OF DOC
In too many instances when providers found to be billing improperly were merely made to pay back the money, they went on to continue the very same improper billing practices, and waited until being caught again to pay back the money. We need the penalties under the False Claims Act if we are to put an end to these deliberate improper billing practices. The Health Care Financing Administration works with providers to ensure that Medicare rules are clear. It is the provider's obligation to know these rules and to bill Medicare appropriately.
Medicare payments to hospitals are estimated to total almost $100 billion for this year. Most providers bill appropriately most of the time, but we have an unacceptable error rate. As you have heard, the Chief Financial Officer's audit released last week estimates that 11 percent of Medicare payments should not have been made. That amounts to some $20 billion, and hospitals received about $6.5 billion, or one-third of that $20 billion.
It is important to stress that we cannot determine what portion of the improper payments were due to fraud and abuse. It is also important to stress, however, that Medicare contractors pay claims correctly 98 percent of the time based on information provided on the claim. The error rate was found only when medical experts looked further at the providers' records to discover that the documentation did not support the claim.
Medicare policies are issued through regulations, program memoranda to contractors who process claims, and manual issuances that are sent to contractors and providers. We also consult with associations and providers on an ongoing basis to explain rules and consult with them as we develop new ones.
Page 66 PREV PAGE TOP OF DOC A critical component of the Medicare payment system is the correct coding of patients' diagnoses. A panel of representatives from HCFA, the American Hospital Association, and other groups make recommendations on coding policies. Correct coding is also critical in Medicare payment for lab services and hospital outpatient departments. Lab service codes are maintained by the American Medical Association, with help from physician specialty societies, providers' organizations, and HCFA. All these efforts are done in close collaboration with providers to ensure that they understand and have appropriate input into our rule-making process.
Ensuring that Medicare payments are made in accordance with these rules is essential. This committee has expressed particular interest in civil and criminal prosecution for Medicare fraud. HCFA as an agency does not prosecute providers. If we or one of our contractors suspect a provider of fraud, the case is referred to the Inspector General. The IG then evaluates whether the case should be referred to the Department of Justice for further action.
If hospitals make honest errors, we want to find those errors, but we are not looking to invoke the False Claims Act for honest mistakes. There has to be more than just an error for us to refer a case for further investigation. Complaints from beneficiaries, tips from law enforcement, unusual billing patterns, specific cost report audit findings, can all suggest that there was more than an honest error involved, and thus trigger a referral.
We do not prosecute providers ourselves, but we recognize that our law enforcement partners need the False Claims Act in order to protect our programs. It is up to our Inspector General and Department of Justice colleagues to determine when and how to prosecute providers.
Page 67 PREV PAGE TOP OF DOC When providers make an error, we want to work with them to make sure that taxpayers are not paying for something they shouldn't. Let me emphasize again, we are not going to refer providers for occasional errors, but we are being more diligent than ever in ferreting out mistakes that may not be innocent, and we are not pulling back from our efforts to fight fraud and abuse.
Thank you. I would be happy to answer questions.
[The prepared statement of Mr. Berenson follows:]
PREPARED STATEMENT OF DR. ROBERT A. BERENSON, DIRECTOR, CENTER FOR HEALTH CARE PLANS AND PROVIDERS ADMINISTRATION, HEALTH CARE FINANCING ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERVICES
Chairman Smith and Members of the Subcommittee, thank you for convening this hearing today to discuss hospital initiatives pursued under the False Claims Act. The False Claims Act is an important tool for our law enforcement partners to pursue fraud and abuse in the Medicare program.
Fighting fraud and abuse is one of our highest priorities. Letting providers who intentially submit improper bills merely pay back the money turns the Medicare Trust Funds into a no-interest loan program. That is something we simply cannot afford to tolerate. In too many instances, when providers found to be billing improperly were merely made to pay back the money, they went on to continue the very same improper billing practices and waited until being caught again to pay back the money. We need the penalties under the False Claims Act if we are to put an end to these deliberate improper billing practices.
Page 68 PREV PAGE TOP OF DOC
The Health Care Financing Administration administers the Medicare program and, in partnership with the States, the Medicaid and Children's Health Insurance programs. The concerns raised today relate to Medicare payment for hospital services. As you know, the Medicare program provides health insurance to almost thirty-nine million aged and disabled Americans. More than 6,000 hospitals participate in the Medicare program. These hospitals provide acute inpatient care, long term, rehabilitative, and psychiatric care, as well as outpatient services to Medicare beneficiaries nationwide.
The Health Care Financing Administration maintains a commitment to working with providers to ensure that the Medicare program rules are clear. It is the provider's obligation to know these rules and to appropriately bill the Medicare program.
Medicare Improper Payments
Medicare payments for hospital services are estimated to total almost $100 billion (including acute care hospital, pps-exempt hospital, and outpatient hospital) in Federal Fiscal Year 1998. An essential part of running this public program is ensuring that providers bill properly. Although our providers bill appropriately most of the time, there is still an unacceptable error rate.
The Fiscal Year (FY) 1997 Chief Financial Officers (CFO) audit by the Department of Health and Human Services Office of the Inspector General (OIG) estimated that net Medicare improper payments totaled $20 billion or 11 percent of total Medicare fee-for-service benefit payments. Of the $20 billion in improper payments, about $6.5 billion, or 32 percent was to hospitals, including $4 billion in acute hospital inpatient payments, $2 billion in outpatient payments and $.4 billion in payments to long term care, rehabilitation, psychiatric and children's hospitals.
Page 69 PREV PAGE TOP OF DOC
It is important to stress that we cannot determine what portion of the improper payments identified in the audit were due to fraud and abuse. It also is important to stress that Medicare contractors paid claims correctly 98 percent of the time based on information provided on the claim. The true error rate was found only when auditors and medical experts obtained medical records from providers and discovered that the documentation did not support the claims.
The largest factor in improper payments to hospitals is claims for services that are not medically necessary. Almost fifty percent of improper hospital claims were identified by medical professionals who found that the documentation provided did not show that the service was medically necessary. These cases include some obvious abuses such as a hospital admitting a patient five years after a stroke to provide medication and physical therapy for thirty-seven days.
But obvious cases are just the tip of the iceberg. We have no tolerance for fraud which is why we are developing, in conjunction with our Peer Review Organizations, pilot programs to test ways to ensure the medical necessity of inpatient hospital claims. The projects will focus on identifying unnecessary admissions, unnecessary readmissions, and the necessity of billings for specific cardiac procedures. HCFA will continue its efforts to aggressively implement corrective actions to address improper payments to Medicare providers.
The Medicare Program
The Medicare program has two parts, Part A and Part B. Part A of Medicare provides coverage for inpatient hospital, skilled nursing facility, hospice and some home health care. Part B provides coverage for several types of health services including physician services, outpatient hospital services, laboratory services and durable medical equipment. The Health Care Financing Administration develops policies related to the Medicare program but contracts with some seventy different insurers, referred to as ''contractors,'' to administer Medicare, including claims processing, audit functions, and provider education.
Page 70 PREV PAGE TOP OF DOC
Medicare pays for most inpatient hospital care through its prospective payment system (PPS), which pays hospitals a predetermined amount for each Medicare discharge based on the patient's diagnosis. Medicare pays hospital outpatient departments in a variety of ways depending on the service. Generally, outpatient department services are paid for based on a pre-determined fee schedule or on the lower of the hospital's costs or charges.
Medicare Policy Development
The Health Care Financing Administration issues policy through regulations, program memorandum to our contractors, and manual issuances to the contractors and to the providers. The Administrative Procedures Act provides direction, in most cases, on when a policy should be implemented via regulation. In addition to this formal policy guidance, HCFA consults with associations and providers on an ongoing basis to explain new legislation and regulations as well as respond to questions on existing rules.
The Health Care Financing Administration consults with provider associations and other interested parties in developing regulations. HCFA usually starts by publishing a proposed regulation in the Federal Register with, generally, a sixty day period for public comment. HCFA considers public comments and evaluates the policy recommendations included in the public comments for inclusion in the final rule. The final rule is generally effective sixty days after publication.
Page 71 PREV PAGE TOP OF DOCProgram Memorandum
The Health Care Financing Administration sends program memoranda to contractors to inform them of changes in policy or to clarify existing policy. Our contractors then communicate these policy changes or clarifications to providers. In most cases, HCFA will also send the contractors a program memorandum with instructions on how to implement any changes included in a new regulation. The contractors then incorporate these program memoranda changes into their manuals.
The Health Care Financing Administration also distributes and updates manuals that provide guidance to Medicare contractors and providers.
The Medicare prospective payment system for acute care hospitals relies on hospitals to correctly code patients' diagnoses for Medicare payment. A panel of representatives from HCFA, the American Hospital Association, the American Health Information Management Association, and the National Center for Health Statistics Coding makes recommendations concerning coding policy. HCFA includes major coding changes in the annual prospective payment system regulation. The coding panel publishes a quarterly report, the Coding Clinic, which hospitals obtain from the AHA. This quarterly report includes smaller coding changes and clarifications.
Page 72 PREV PAGE TOP OF DOC Medicare pays for laboratory services in hospital outpatient departments according to a fee schedule. The fee schedule stipulates Medicare payment for each lab service and ''panel'', or group, of services. In billing Medicare, the hospital uses codes to indicate the lab services provided.
A panel organized by the American Medical Association (AMA) with members from physician specialty societies and a HCFA representative maintains and updates the laboratory codes. HCFA incorporates the panel's coding changes into its current policy.
Medicare Program Integrity
Ensuring the integrity of the Medicare program requires the efforts and coordination between several Departments. The Health Care Financing Administration has adopted a strategy to deter fraud in the Medicare program. We also have a process for handling honest billing mistakes.
This committee has expressed particular interest in civil and criminal prosecution for Medicare fraud. HCFA as an agency does not prosecute providers. If HCFA or one of HCFA's contractors suspects a provider of fraudulent activity, HCFA or the contractor refers the case to the OIG. The OIG then evaluates whether the case should be referred to the Department of Justice.
If hospitals make billing errors, we want to find those errors, preferably before we make payment. We are significantly increasing our efforts to screen claims before they are paid, to review them afterwards, and to audit providers with billing patterns that are out of the ordinary. And, we are using increasingly sophisticated claims analysis software to search out unusual billing patterns that suggest where we need to take a closer look. Our decision to refer a case to the OIG may be in response to several factors including beneficiary complaints, unusual billing patterns, tips from law enforcement, and cost report audits.
Page 73 PREV PAGE TOP OF DOC
If we finds errors after we make payment, make no mistake about it, we do want the money back. But we are not looking to put anyone in jail for honest mistakes, and we are not going to refer hospitals to the OIG for occasional errors.
Health Care Financing Administration Fraud Strategy
The Health Care Financing Administration employs a four-part strategy to deter fraud and abuse. The strategy focuses on prevention, early detection, coordination, and enforcement.
Prevention means paying right the first time, the most desirable approach. Prevention is the best means to guarantee the initial accuracy of both claims and payments, and to avoid having to ''pay and chase'', a lengthy, uncertain and expensive process. HCFA is committed to making Medicare rules as clear as possible so that providers may bill correctly and with confidence.
Early detection is the second key ingredient of our approach. We can identify patterns of fraudulent activity early by using data to monitor unusual billing patterns and other indicators of the integrity and financial status of providers, promptly identifying and collecting overpayments, and making appropriate referrals to law enforcement. I would like to emphasize again that if we finds errors, we want the money back. But whether any further action is warranted should be determined by the facts and circumstances of each case.
Coordination with our partners is another important way we can maximize our success. We share information and tactics for fighting fraud and abuse with the States, the Department of Justice, including the Federal Bureau of Investigations (FBI), and the private sector.
Page 74 PREV PAGE TOP OF DOC
When we do find ''bad apples'' among our many good providers, we take enforcement action against them, including suspension of payment, referral to the OIG for potential exclusion for the program, disenrollment, collection of overpayments, and imposition of civil monetary penalties. Investing in prevention, early detection, and enforcement has a proven record of returns to the Medicare Trust Fund. Medicare Integrity Program alone saved an estimated $7.5 billion in FY 1997mostly by preventing inappropriate paymentsthrough audits, medical reviews, and ensuring that Medicare does not pay for claims owed by private insurers.
Department of Justice and HHS OIG National Studies
The DOJ and OIG may embark on a national study of a particular issue or provider without a referral from HCFA. The DOJ and OIG work directly with the Medicare contractors and intermediaries to collect necessary data for their national projects.
We have an obligation to the American taxpayer to take fraud and abuse in the Medicare program seriously. Although HCFA does not prosecute providers, we recognize that the False Claims Act represents an important tool for our law enforcement partners. We must have its substantial penalties if we are going to put an end to deliberate improper billing practices. Without its substantial penalties, fraud and abuse would become even bigger problems than they are today.
We also have an obligation to treat providers fairly. If providers make billing errors, we want to find errors before we make payment or get our money back. But, let me say again, we are not looking to put anyone in jail for honest mistakes, and we are not going to refer providers to the Inspector General for occasional errors. I would be happy to answer any questions you may have.
Page 75 PREV PAGE TOP OF DOC
Mr. SMITH. Thank you, Mr. Berenson.
Mr. Stern, let me begin my questions and direct them to you, to start with. Give us a sense, if you will, very briefly of the nature of the investigative process that is used by U.S. Attorneys before they ever contact the hospital.
Mr. STERN. The best answer to that is, and I will be more specific in a moment, but the best answer is it varies from case to case. Let me give you a couple of examples to illustrate that.
In some instances we will get a fairly well-refined package from the HHS IG's office based upon audits of particular hospitals and based upon a very careful analysis of data. In other instances, a U.S. Attorney might get information directly from a fiscal intermediary. In a third instance, it might be a qui tam plaintiff, someone who has filed a civil action in Federal court, and the government is given an opportunity to intervene. In other instances it might be tips, or somebody going to a law enforcement agency.
Mr. SMITH. It is usually a response to an affirmative action taken on the part of somebody else?
Mr. STERN. In some cases it is, sure. I would not sit in my office and decide, wouldn't it be interesting to investigate Hospital X. It is almost always, if not always, triggered by some event.
Page 76 PREV PAGE TOP OF DOC Mr. SMITH. You have, I think, probably seen the testimony by representatives of the hospitals coming up on the next panel. You have read about their experience and their encounters with U.S. Attorneys.
Do you have any comments in general about those experiences?
Mr. STERN. I do, I do.
Mr. Chairman, it has been valuable to us over the last several months to not only sit with the hospitals in Washington, but frankly, I have done the same thing in my district. I think it is pretty clear, without going into specifics, district-by-district, case-by-case, that some of the letters that were sent, some of the so-called demand letters, were unnecessarily harsh. We need to be, I think, more aware of what it is like to be on the receiving end of getting a letter like that.
I have to say, in some instances, though, it was not the first contact. There may have been an earlier contact between the U.S. Attorney's office and the hospital before getting a so-called demand letter.
What I think we are going to be moving towards, or we are moving toward in these national projects, is really what we would refer to as a contact letter, or at least, as the initial contact, making it very clear that the hospital will have an ample opportunity not only to assess the data, but to present to us, to present to the U.S. Attorney's office, contrary information, and to present financial information which relates to a particular hospital. We understand that certain community and rural hospitals have a different financial picture and a different problem than some of the large teaching hospitals in urban areas.
Page 77 PREV PAGE TOP OF DOC
So we have done two things. First of all, we have made clear that, at least in the future, the contact letters for the national projects in most instances are the way to go. We have in some cases doubled back to some of the recipients of those early letters to make crystal clear they are invited, they are encouraged, we want them to come in and present that information.
Third, we are creating working groups of experienced Assistant U.S. Attorneys and trial lawyers from the Civil Division to really analyze, from the ground up, some of the data that comes in on national projects, so we can create in certain instances, Mr. Chairman, best practices.
Finally, we are redoubling our efforts with prevention and compliance. We are putting together a package so that I think every U.S. Attorney will do what I am trying to do in Massachusetts, which is to reach out to the Massachusetts Hospital Association, to meet with them, not only in a formal setting, but an informal setting, to try to get the message that compliance is the way to go.
Mr. SMITH. Thank you, Mr. Stern.
Mr. Morris, what proportion of the overall billing errors would you attribute to fraud or recklessness?
Mr. MORRIS. Are you referring, sir, to the CFO audit that we have been talking about, the $20 million?
Page 78 PREV PAGE TOP OF DOC
Mr. SMITH. Start with that, and then overall, as well.
Mr. MORRIS. I am not sure we could give you an accurate answer to that question as it relates to the CFO audit. The purpose of that audit was not to identify fraudulent claims, but improper payments. The GAO has estimated that 10 percent of services billed to the program are fraudulent or otherwise abusive.
I think the other reason it is so difficult to say what the percentage of fraud is is that the truly successful fraud artists do not get detected. If you do a good job committing a fraud, no one finds it. In fact, one of our greatest challenges is using more of the technology available to us to do data analysis to identify trends, for example, which if you are too close to the forest and just look at the trees, when you stand back is when you see abusive patterns. Certainly the CFO audit we have been talking about and in GAO's work suggests to us that we are losing billions of dollars, but to put an exact figure on it I think would be risky.
Mr. SMITH. But you go back to the 10 percent that is uncovered?
Mr. STERN. That is the GAO figure. Certainly our figures of 11 and 14 percent are based on
Mr. SMITH. I just want to get a rough idea.
One more question. HHS has issued nonbinding compliance guidelines for the hospitals. Why are they nonbinding? Why would they not be binding?
Page 79 PREV PAGE TOP OF DOC
Mr. MORRIS. We have issued guidance both to the hospitals and to the clinical laboratories. We plan to issue additional guidance to other parts of the industry, including home health agencies, medical equipment companies and the like.
The reason they are nonbinding is that providers, including the American Hospital Association, have urged us to approach this issue of guidance with flexibility, and recognize that the cost and need for compliance varies with the individual providers. So rather than have a rigid set of requirements that all hospitals or DME companies need to abide by, we wanted to encourage flexibility, so that there would be incentives for all companies, regardless of size or ability to put these programs into place, could start putting compliance in place.
Mr. SMITH. Thank you, Mr. Morris.
The gentleman from North Carolina is recognized, Mr. Watt.
Mr. WATT. Thank you, Mr. Chairman.
Let me address this question to Mr. Stern and Mr. Morris, both of whom I presume are lawyers, right?
Mr. MORRIS. Yes, sir.
Mr. WATT. Mr. Berenson is not a lawyer?
Page 80 PREV PAGE TOP OF DOC Mr. BERENSON. It is actually Mr. Berenson, and I am not a lawyer.
Mr. WATT. I am not discriminating against you.
Mr. BERENSON. I am just emphasizing that I am not a lawyer.
Mr. WATT. I want to ask you a question about legal standards. Both of you know that I have been pretty aggressive in my opinions about the tone and quality of the demand letter, so I will not go there with you. I have already been there with you.
Let us talk about the legal standard itself. The current statute, the False Claims Act, talks about a knowing violation, and it defines that as a person having actual knowledge of the information, acting in deliberate ignorance of the truth or falsity of the information, or acting in reckless disregard of the truth or falsity of the information.
I am wondering how that standard, that legal standard, compares with the legal standard for welfare fraud.
Mr. STERN. Do you mean from a false claims point of view?
Mr. WATT. Yes.
Mr. STERN. It is the same standard.
Page 81 PREV PAGE TOP OF DOC Mr. WATT. So if you were talking about revising that standard, I take it you all are the wrong people to ask this question, because you do not support revising the standard. But if we were going to revise the standard, would we also be called upon, in fairness, to talk about a revision to the standard, not only for Medicare and Medicaid fraud, but for the legal standard in other areas of fraud, such as welfare fraud and other areas of that kind?
Mr. STERN. I think the standard is about as clear as the English language permits, set out in the statute, understanding that particular cases are fact-dependent. If you have an eyewitness that sees the president of a hospital forging and changing certain claims, that is one kind of case. That is the intentional, knowing fraud. If you have a pattern of audits, for example, and a failure to change the practices within the hospital, that is a second. That is more of the reckless disregard, willful blindness.
I will give an example of that. In the DRG project, and I know Mr. Lane, the President of Holy Family Hospital from Methuen, in Massachusetts, is here. But in his statement he makes reference or he gives the impression, at least that is the way I read it, that somehow this came out of the blue; that their request that they settle under the DRG project came out of the blue.
They had three prior audits, and in fact had a series of earlier incidents when they were asked to pay back the money with interest. We took the view that something else needed to be changed. Every industry, I think, probably wants their own special set of rules. The American Hospital Association is here asking for a separate set of rules under the False Claims Act, and I suspect that the defense industry would love a separate set of rules. Those who receive welfare benefits might need still another.
Page 82 PREV PAGE TOP OF DOC
The standard that is in the False Claims Act is workable, and what we need, I think, at least in the health care area, is to bring the best practices to bear from experienced assistants and make sure that is followed around the country.
Mr. WATT. Talk about, if you would there is one segment of the proposed legislation that talks about a de minimis what is the word?
Mr. STERN. Materiality is the word.
Mr. WATT. Materiality provision. What impact, if any, would that have on the ability to enforce the False Claims Act, and what implications might it have if the same kind of materiality standard were adopted in some of the other areas of fraud against the government?
Mr. STERN. I think the impact it would have in the health care area is, first, it would make it difficult if not impossible for us to use the False Claims Act to protect the health and safety kind of cases, where sometimes it is difficult to put a dollar amount on that.
Apart from that, if you are talking about materiality, as I understand it, the AHA proposal, it is either a fixed dollar amount, let us say $100,000, or a percentage of billings. In either instance, you do not include, in some cases, very serious efforts at false claims. What you do is you knowingly create kind of a free zone, a pass, if you will, so the False Claims Act could not be used.
Page 83 PREV PAGE TOP OF DOC
Mr. STERN. I think that would be a mistake. I think it would signal to the industry that at least within a certain tolerance, fraud is okay and you don't have to put in place compliance measures to stop it.
Mr. MORRIS. There are several other drawbacks to the materiality proposal that AHA is floating. One would be that, as we understand the proposal, it would be retroactive in application, which is to say that all current enforcement efforts would have to stop until we were able to define this term materiality. That would need to be done through regulation, and so we would be looking at a three to 5-year time period while we put out the necessary regulations.
In addition, the AICPA, which the American Hospital Association cites to as a basis for establishing materiality, in and of itself recognizes that materiality is context defined. It is a very subjective standard. And so what might not be material in some context would be highly material in others. In fact, the AICPA specifically recognizes that fraudulent claims, false claims, which by dollar amount might be insignificant, could be quite material if they would have an impact on other decisions or actions, such as the exclusion of that provider.
The other difficulty we see with the materiality provision, if it is a fixed dollar amount, is it necessarily is regressive. That is to say, that if we are going to say any false claims under $100,000 is a free fraud zone, you can file those and not be subject to the civil False Claims Act, well, large corporations which file millions of dollars in claims would benefit from that; whereas, a small company which has just a small portion of claims would not.
Page 84 PREV PAGE TOP OF DOC In addition, if you look at it from a percentage standpoint, you are, as Mr. Stern identified, acknowledging that there is some percentage of false claims which are acceptable. That seems to be contrary to even the AHA's view that we should have zero tolerance for fraud.
Mr. WATT. Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Watt.
The gentleman from Indiana, Mr. Pease, is recognized.
Mr. PEASE. Thank you, Mr. Chairman.
Mr. Stern, in your statement you gave your general presentation and began to cite two examples. You got through the DRG window, and didn't get to do the second one which was on unbundling of automated lab tests.
Mr. STERN. Right.
Mr. PEASE. I wanted to give you the chance to at least explain some of that as you tried to do earlier.
Mr. STERN. Okay. Thank you. The unbundling project has to do with the submission of claims by hospitals for laboratory tests which were performed on the same day and on a single specimen, which under Medicare rules and reimbursement requirements get billed with a single code for a single amount. In some instances, hospitals in many instances, hospitals followed the rules and submitted claims appropriately. But in many, many other instances, claims were unbundled. So if you unbundle the claims rather than submitting it with one fixed code, if you submit it for several, you make more money. And part of what is going on now is an effort to determine the extent of this kind of effort by hospitals around the country.
Page 85 PREV PAGE TOP OF DOC
Mr. PEASE. You don't have any results of a specific study in that area? This is an area of emphasis you are going to do?
Mr. STERN. Well, the IG's office and HHS has looked at some of this, so I think I am going to defer to Mr. Morris.
Mr. PEASE. Fine.
Mr. MORRIS. The concern we have had with the unbundling of lab tests goes back quite a number of years. We first looked at independent clinical labs who were using a single machine, performing a single test and billing us for multiple charges, contrary to our requirements.
We started with the independent clinical labs. We have now started looking at hospital outpatient labs, laboratories, who are doing the same thing.
We have started in Ohio, and based on work done by our office, as well as the FBI, this involves both data analysis, as well as on-site interviews at the hospital. So we are developing these cases on a case-by-case basis. We have identified systematic efforts by hospitals to bill for services not rendered, bill for services as double claims, bill for services which doctors did not order, in addition to inappropriately unbundling these services.
Mr. PEASE. Okay. But this has not yet been the subject of a comprehensive study as your setting up with the DRG window study or enforcement?
Page 86 PREV PAGE TOP OF DOC
Mr. MORRIS. Well, we have not conducted a series of audits as we did in the DRG initiative. I guess in retrospect we probably should have moved quicker in the DRG project to go to U.S. Attorneys and look for alternatives to pay and chase. In this case, where we have found repeated fraudulent claims submitted by hospitals, we have gone directly to the hospitals to deal with it. So we have not conducted a series of repetitive audits in collection of overpayments.
Mr. PEASE. Thank you. I did want to ask you about that series of audits on the 72-hour DRGs. You did, I think you said, three or four comprehensive audits a few years apart and each time found tens of millions of dollars in violations.
Did you see any pattern, or did you do a comparison, year-to-year, audit-to-audit, either in terms of specific providers that appeared each time or specific DRGs that seemed more prone to violation than others? I mean, was there any pattern at all that appeared in your reviews?
Mr. MORRIS. Yes, there was. Our analysis indicated that some hospitals, having been contacted and educated, actually did a much better job. They put into place internal control systems so their rate of inappropriate billings dropped off. Others, unfortunately, had consistent or increasing error rates.
We also believe that some of the responsibility rested with the Medicare program and urged HCFA, which agreed, to do a better job of keeping an eye on the system and edit in place as the claims came in. There is a cost of course associated with this, but we thought that was an important part of improving the overall problem.
Page 87 PREV PAGE TOP OF DOC
In terms of which DRGs, which of the codings were particularly abused, I think it was pretty much across the board. We are looking at all sorts of different outpatient services, x-rays and other work-ups prior to inpatient admission so that it did not appear, to my knowledge, to be a particular group of services which were more likely to be abused.
Mr. PEASE. Okay. Thank you. I didn't get my notes right on this, but help me. I thought you said that of the approximately 3,000 hospitals that you audited, there were 1,700 that were in violation of the law in this area.
Mr. MORRIS. No. Of the approximately 3,000 that have been contacted as part of this initiative, 1,700 of them have been required only to repay the amount that they improperly billed plus interest and install compliance programs so these kind of problems do not recur.
The other portion of that 3,000 represent hospitals who based on the number of billing errors and that is when we calculate the number of inappropriate errors, one of the things we do is look to the size of the hospital, the number of beds, so that we have a proportionate analysis of errors to the size of total claims. The remainder of that 3,000 represents cases where the U.S. Attorney's Office imposed penalties, usually double damages, in addition to recovering the overpayment.
Mr. PEASE. Okay. So there were 3,000 that were in violation.
Mr. MORRIS. Correct.
Page 88 PREV PAGE TOP OF DOC
Mr. PEASE. Out of approximately how many that were audited?
Mr. MORRIS. All 3,000. The 3,000 is the universe of
Mr. PEASE. So all 3,000 of the hospitals were in violation somewhere?
Mr. MORRIS. That is correct. In some cases, the
Mr. BERMAN. That is why they were audited?
Mr. MORRIS. That is why they were audited. The way we identified the 3,000 hospitals of approximately, I believe, 4,600 hospitals
Mr. PEASE. That was my question. So 3,000 of 4,600 had some violation?
Mr. MORRIS. Correct. And we identified those initially by a computer network. We basically looked at the billing for inpatient services when a patient came in and looked back 3 days, 72 hours, and saw whether we got additional bills for the same purpose of the admission.
Mr. PEASE. Okay.
Page 89 PREV PAGE TOP OF DOC Mr. MORRIS. That was the first step.
Mr. PEASE. I realize I am over. Just one little follow-up, Mr. Chairman.
My question was: How many hospitals total were reviewed? And you found 3,000 of 4,600?
Mr. MORRIS. Correct.
Mr. PEASE. Okay. Well, then I guess one could draw a couple of conclusions from that and if you have on this, help me. One conclusion would be either there are a whole lot of people either deliberately violating the law or the law is so complex that it is impossible for them to comply with.
I mean, if three-fourths of the hospitals are violating the law, what conclusions do you draw from that?
Mr. MORRIS. The Inspector General draws the conclusion that hospitals believe they could submit these bills, get them paid and not get caught, quite frankly, given that we audited them multiple times, educated them multiple times and they continued to submit these claims inappropriately.
I believe one of the witnesses in a later panel will say that there are internal control systems, management information systems, available that would allow hospitals to bill these services correctly. I will be the first to acknowledge that systems like that cost money. And as long as the only thing the Medicare program did was recover the overpayment, not even interest, it made a very practical cost-benefit analysis not to incur the costs to bill the program correctly.
Page 90 PREV PAGE TOP OF DOC
Mr. PEASE. So your contention is that hospitals are deliberately, intentionally, violating the law for financial gain?
Mr. MORRIS. I guess I would use the word ''knowingly,'' and thus recklessly.
Mr. PEASE. Okay. Thank you.
Mr. MORRIS. If I could just answer one last point, as to the complexity of this rule, the rule on billing within 72 hours is set forth in our regulations and it is at 42 CFR 412.2. I won't go into the details of it, but it specifically says that within 72 hours of an admission, those services are to be billed as part of the inpatient stay. It is a very straightforward rule.
Mr. PEASE. Thank you.
Mr. SMITH. Thank you. One quick follow-up question. Your total universe was 4,600 hospitals. Are there not around 6,000 hospitals in the United States? Or how many hospitals are there in the United States?
Mr. MORRIS. The figure that I have been given is 4,600. If, in fact, there are a larger number of hospitals it may well be that they are what we call non-PPS, nonprospective payment system hospitals.
Page 91 PREV PAGE TOP OF DOC Mr. SMITH. Right.
Mr. MORRIS. The rule that I have been talking about applies only to those hospitals that are reimbursed on the prospective payment system.
Mr. SMITH. The 4,600 was the total universe from which 3,000 were audited?
Mr. MORRIS. That is my understanding.
Mr. SMITH. Okay. Thank you.
Mr. MORRIS. If I could make one correction. All of them were audited. Only 3,000 were identified as having a problem. We looked at all the hospitals who have billed us. Of that 3,000 had problems billing us. Of that, 1,700 were asked only to repay the overpayment.
Mr. SMITH. I understand. Thank you. The gentleman from California, Mr. Berman.
Mr. BERMAN. Flipping it around, 1,300 of the 4,600 universe were hospitals where your investigation concluded that perhaps there was an issue of intentional or reckless conduct resulting in the overpayment?
Mr. MORRIS. That is correct.
Page 92 PREV PAGE TOP OF DOC
Mr. BERMAN. I would like to ask some questions about that. I will be interested in hearing the second panel and some of the things that have gone on that have upset this very important industry so much, and what we can do about them. But I would like to ask some questions about the bill that is with the subcommittee that seeks to deal with this.
The bill, for obvious reasons, doesn't go directly to the heart of the complaint of the hospital industry, because the hospital not only says we are getting hit with very damaging false claims, threats and actions, based on mistakes, omissions, billing errors. Since the law only applies, it doesn't cover those issues. The bill doesn't simply repeat what the law already says and exclude mistakes and billing errors and mere negligence from the False Claims Act. Instead, it seeks to focus on some tangential issues, which I think might have the impact of preventing you from going after the fraud cases, and I just want to see if you agree with my initial reaction to it.
First of all, the burden of proof is always on the government. What is generally the state of the law in the context of the False Claims Act and the burden that the government has to carry?
I am told that the bill's requirement of clear and convincing evidence is the functional equivalent of a beyond a reasonable doubt standard in the criminal law. Is that a fair conclusion?
Mr. STERN. I think it probably comes pretty close, Congressman Berman. I am not aware of any other instances, certainly no other instance where what is at issue is submission of claims for the government to pay money where there is a standard, other than preponderance of the evidence. It would be unique, I think, to this industry if we were to move from preponderance of the evidence to something which is not beyond a reasonable doubt but is within hailing distance of beyond a reasonable doubt.
Page 93 PREV PAGE TOP OF DOC
Mr. BERMAN. It would be unique in the context of laws affecting the Federal Government's ability to recover?
Mr. STERN. Well, unique actually in the whole civil context. It is very unusual. I know in my State the only civil case where there is a standard other than, in a civil case, preponderance, is in the civil commitment where you are depriving somebody of their liberty; mental health commitments. And there, the Court has, by court rule, said it is not criminal but it involves a deprivation of liberty so we will force the government, we will force the petitioner, to a higher standard.
In the civil arena, I am not aware, really, of any instance that comes to mind where it is anything other than preponderance.
Mr. BERMAN. And if this bill were to pass, that standard would not affect fraud in the defense industry or fraud in any of the other industries? It would only affect, as Mr. Watt pointed out earlier, fraud in the health care industry?
Mr. STERN. That is right, although I suspect there will be other industries quickly coming in looking for the same.
Mr. BERMAN. All right. Second question: Model compliance plans, my understanding of a compliance plan is it has two potential benefits. Benefit number one is it sets up a system which will catch errors, mistakes, negligence; and secondly, it will help the higher-ups learn when the lower-downs are doing something which could constitute fraud.
Page 94 PREV PAGE TOP OF DOC
I mean, we have discussed materiality in this context. It seems to take many different shapes. It could be a very specialized unit in a hospital wanting to impress the board of trustees and the chief administrator of the hospital that it's earning its way and won't be cut out, decides to engage in some intentional overbilling in order to make its case, unbeknownst and undirected by the board or the top administrators of the hospital. As to the total revenues of the hospital, it might be very immaterial in that sense.
And then so my question, Mr. Chairman, is could one have a compliance plan proposed by HHS implemented and, if they wanted to, still submit fraudulent claims if they intended to, and if this bill were to pass and that happened, would you be able to have the False Claims Act as a remedy where they had, in fact, adopted and implemented a good faith compliance plan and substantially complied with it and still sought to defraud the government?
Mr. MORRIS. If I could answer that in reverse order. As the AHA proposes, if a compliance plan was in place and a specialized unit were to knowingly submit false claims, we would not be able to use the False Claims Act to recover against that hospital.
The reason that we think it is inappropriate to provide an immunity, or an immunity provision for compliance, is several. First, compliance only works if the board of directors on down wants the corporation to act in an ethical fashion. It isn't buying the books and putting them on the shelf. It is implementing the program that counts. So just saying you have a compliance program in place is never going to be enough.
Mr. BERMAN. In all fairness, in the bill they say substantial compliance with the compliance plan.
Page 95 PREV PAGE TOP OF DOC
Mr. MORRIS. And unfortunately, human beings being what they are, there will always be some individual, high ranking or low level, who may well act outside of that compliance program. The U.S. Sentencing Commission recognizes that fact when in establishing corporate fines it says that if a corporation has a compliance program in place it permits for a downward departure. That inherently recognizes that even where you have an effective plan in place there will not only be civil frauds but criminal frauds.
It is impossible for anyone to say that putting a compliance plan in place will ensure that all claims submitted are always accurate. What it does allow you to do is to identify problems early, get them fixed promptly and, thus, ensure that the program and the provider are acting in good faith.
Mr. BERMAN. So what you are really saying is it should go to the weight of the penalty, not constitute an immunity from the fraud?
Mr. MORRIS. And we have said in our model guidance that that is precisely how we will approach providers that put guidance in place. We will take it into consideration in deciding how to approach both the investigation as well as the resolution of any problems that they or we detect.
Mr. STERN. I would probably go further, Congressman Berman, and say it is not just the penalty, but an effective compliance plan is a factor to take into account in determining whether the provider is in reckless disregard or is putting its head in the sand. It is a factor. But I think the proposal, as it is written now, it would stand alone. The mere existence of a plan or substantial compliance would be an absolute legal bar, and I think that you avoid the nuances. I think that is what Mr. Morris is saying, you avoid the nuances that exist in the everyday world. It is a factor, but ought not to be a legal bar.
Page 96 PREV PAGE TOP OF DOC
Mr. SMITH. Thank you, Mr. Berman.
The gentleman from Tennessee, Mr. Bryant.
Mr. BRYANT. Thank you, Mr. Chairman.
Gentlemen, as I understand, prior to 1994, or so, there existed a process where at the end of each year there was some accounting made of the hospitals, and if they were overpaid they had to reimburse the government and vice versa, a reconciliation situation, in effect. What has happened? Why does that not work?
Mr. MORRIS. I am sorry?
Mr. BRYANT. Just a reconciliation between government and the hospitals each year, annually. Why doesn't that work?
Mr. MORRIS. Well, I think it does work. I think it is part of how the Medicare system works. The difficulty is that relying just on the reconciliation puts the sole burden on the program to identify all the improper claims. An awful lot of what happens you know, if we look at a total of 9 percent of all the claims pre-audit, that means 91 percent of the claims are submitted and paid in the belief that they are accurate on the front end. It would be impossible and incredibly expensive if we were to try to reconcile every item that a hospital submits to us. We have to take on faith that the vast majority of what they have billed us for, and we thus seek to reconcile at the end of the year, is accurate.
Page 97 PREV PAGE TOP OF DOC
Unfortunately, as we do these more sophisticated analyses we find that is not often the case. Certainly reconciliation is an important part of this. The fiscal intermediaries and contractors continue, in large volume, to collect just overpayments in those cases where the errors are minor, and don't represent a pattern of abuse. But to say that reconciliation is the only vehicle, I think, undercuts our potential to discourage improper conduct.
Mr. BERENSON. I was going to make a similar point. As the CFO audit demonstrated, the contractors pay directly 98 percent of the time, based on the information that they had. It was only looking behind the claims that overpayments were identified. So the reconciliation, basically, goes to reconcile mutually agreeable cost reports. That is not the same issue that we are dealing with here today.
Mr. BRYANT. Now, Mr. Morris has testified that he believes in large part there are people within the health care industry that are intentionally cheating the system on a large scale. Would you agree with that, Doctor?
Mr. BERENSON. Well, again we don't make the determination about what qualifies as a false claim but we have referred a number of cases to the IG and so I don't know that I would characterize it as a large number, but there are patterns of practice where some providers take advantage of the complexity of the payment system.
Mr. BRYANT. Well, do you believe, as a doctor, not as a lawyer and I am not going to quote the number of pages and so forth that the hospitals have to understand and comply with. Do you believe that given those types of rules and regulations that it is easy to comply consistently, or do you believe again, Mr. Morris I think very clearly testified that there are those out there where there is clear guidance on issues, the 72-hour issue being one example, they avoid that and just take their chances.
Page 98 PREV PAGE TOP OF DOC
Mr. BERENSON. Well, I think, as you said, 72 hours is a good example. To comply involves costs. You have to purchase the edits so that you can distinguish the outpatient services within the 72-hour window from the routine outpatient services that happen elsewhere. It is a cost to the hospital that, one, if they don't have to expend, they won't. I assume, with the activity going on now, there will be more hospitals that will decide that complying with the requirements is worth it.
Mr. BRYANT. Well, in reading some of the testimony on both sides of this, and knowing the general public and representing a lot of people who every time I go to town meetings and we talk about Medicare and things like this, we hear fraud and abuse and if you could just cut that out, we are all on the same sheet of music there, but it is not being done. And I think, as Ed Pease said, we have got the hospitals and those folks saying it is massive and we can't comply, and we have got a government trying to enforce, and I think rightfully so, and trying to make sure we cut this out. Doctor, how can we make this better?
Mr. BERENSON. Well, it would be nice to make some of the payment systems a little simpler for people to understand. Unfortunately, it is very complicated. The CPT system, which hospitals follow, as doctors do, contain 8,000 codes and multiple modifiers and there is some confusion. One way to make it better is there is beginning to be sophisticated software and edits that help all parties. We have given instructions to our carriers and intermediaries to try to build that editing capability so that if a hospital does bill in error, we are protecting the trust fund. I think the hospitals need to as well.
One of my goals since I have recently joined HCFA. One of my goals would be to try to simplify payment systems so that inadvertent mistakes don't occur so much, but it is a complicated system.
Page 99 PREV PAGE TOP OF DOC
Mr. BRYANT. Mr. Chairman, could I ask for an additional minute or two?
Mr. SMITH. Yes.
Mr. BRYANT. Would it not be HCFA's role to mandate these hospitals that they go to a uniform code in their intermediaries? I mean, wouldn't that be simple to say all of you have to do it this way?
Mr. BERENSON. Well, we have basically except it depends on which one we are talking about but, for example, with lab coding there is an established system in the CPT coding that the AMA houses, but the AHA and other organizations sit on their editorial panel, which is the established method for correct billing and so, in fact, we assume that the hospitals do follow that. At the same time, we are trying to have our contractors be able to detect mistakes or patterns of mistakes and bill correctly, but we assume that the hospitals and other providers will understand what the payment rules call for and bill appropriately.
Mr. BRYANT. Okay. Well, just in closing, I would simply say that there is obviously a serious problem here and we all have a fiduciary relationship with our taxpayer dollars to make sure that they are well spent. It seems to me that we are well-directed to go after those people, those hospitals that have consistently violated clear regulations on overpayment, on the idea that well, we will just pay until we get caught and then there is no penalty. We ought to do that but then I hear about examples from my hospital people where they got billed for 200 something dollars. So de minimis cases I am not sure we need a set rule there either but somehow we have got to I guess like any other case, and I am talking to our U.S. Attorney here from Massachusetts, drug cases, I mean, you can't go after every drug case out there but you have got to go after the big ones and do that and maybe send a message there, but I think there is a balance that Mr. Watt was referring to in his opening statement that can better be achieved.
Page 100 PREV PAGE TOP OF DOC
Mr. Stern, did you have a comment?
Mr. STERN. Well, one of the goals of these working groups on the national project is to try to calibrate the response and to find the appropriate balance. I would say, and as you know, Congressman, from your prior tenure as U.S. Attorney, every U.S. Attorney's office has various internal guidelines for drug cases, for example and believe me, I am not suggesting that hospital administrators are akin to drug dealers, which I will probably hear about unless I make that very clear.
Mr. BRYANT. Nor do I mean that.
Mr. STERN. But we don't publish those internal guidelines. We don't let people know what our benchmarks are for doing certain cases.
Mr. BRYANT. Okay. Thank you. Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Bryant.
The gentleman from California, Mr. Rogan, is recognized.
Mr. ROGAN. Thank you, Mr. Chairman.
Gentlemen, thank you for your testimony today. I appreciate your coming. I assume that we can all agree that the amount of fraud that is going on is something that ought to be stopped. All of you say you are anxious to ensure that it ceases, and I think everyone also agrees that we don't want to throw the baby out with the bathwater.
Page 101 PREV PAGE TOP OF DOC
In reading some of the materials provided by representatives of the American Hospital Association, it did raise some administrative concerns in my mind. Let me just read you a few selected quotes and then ask for your comment.
The American Hospital Association notified the committee in their prepared testimony that hospitals and health care systems submit a daily average of about 200,000 Medicare claims every day.
In a letter from the Executive Vice President for AHA, they stated that such errors are inevitable in a billing system as complex as Medicare's, which is governed by 1,800 pages of law, 1,300 pages of regulation and thousands of additional pages of instruction.
Finally, Mr. Sprenger, in his prepared testimony for today, concludes that Medicare billing errors often result from confusing and conflicting regulations and instructions that are part of the Medicare reimbursement system. These are not intentional acts.
Is that a fair analysis?
Mr. STERN. I think in certain instances, it is easier than in other instances to comply. And certainly if you are a hospital, particularly a small community hospital, having to deal with market forces, cutbacks in reimbursement and the like, the ability to comply 100 percent is difficult. Those tend not to be the false claims cases. It is a little bit like, if I can draw perhaps an imperfect analogy, the DRG window project was a little bit like someone who parks in front of a fire hydrant knowing that it is illegal but then points to all the complexity in the criminal law or the other law and say it is hard to comply.
Page 102 PREV PAGE TOP OF DOC
What the False Claims Act cases tend to do is to focus on a particular area, and although it might be complicated and ambiguous in other areas, what we have to do to bring a case, what we have to do to prevail, is to demonstrate that notwithstanding any general ambiguity, that the rules were clear enough in that particular case.
Mr. ROGAN. Mr. Stern, I am sure you are aware that one of the major complaints against the way it is being administered is that what the prosecution needs to achieve to prevail often is not the concern or the chilling effect that goes through different health care providers.
Let me just read to you a passage I received from a letter out of my district from Mr. Robert Carmen, President and CEO of Adventist Health of Southern California.
He said, ''the rule sounds simple and reasonable but difficulties arise in a health care system where patients have many choices of providers. For example, a patient is given lab tests at Verdugo Hills Hospital. Two days later he is admitted to Glendale Adventist Medical Center, where additional lab tests are done. Although we have no record of the previous lab tests, we can be prosecuted for double billing or fraud under the False Claims Act.''
Mr. Carmen notes that the False Claims Act imposes astronomical fines: treble damages plus $5,000 to $10,000 per violation. And then he sets forth an example: ''For every $10 lab test that is improperly billed, the hospital could be held accountable for $10,030. Because of these harsh penalties, many hospitals, including ours, feel pressure to settle their cases instead of fighting a lengthy and costly court battle.
Page 103 PREV PAGE TOP OF DOC
Two of our hospitals have received letters threatening civil prosecution under the False Claims Act and have signed settlement agreements in order to avoid the exorbitant costs we would face during litigation.''
How do we reconcile justice into this matrix?
Mr. STERN. Well, I think one of the things that, from our end, what we need to do is to make clear to every hospital that we want their information. If they have defenses, for example, that the rules are ambiguous, we want to know about that. Frankly, just from a trial lawyer's tactical point of view, if your case is weak, you would just as soon find that out before you step foot in the courtroom. So we want to make it clear, and I think in some instances, Congressman, it wasn't clear, it wasn't clear. We want to make very clear to providers, particularly to hospitals, that we want that information. We need that information. This is not a one-way street.
I will say that there have been instances where hospitals have used a little bit of scare tactics, I think. There are, for example, suggestions that we are trying to prosecute every hospital in America for a single false claim. This is not a criminal statute. This is a civil statute. And I think that what will ultimately prevail on both sides will be common sense.
Mr. ROGAN. Thank you. Mr. Chairman, may I have an additional 90 seconds?
Page 104 PREV PAGE TOP OF DOC Mr. SMITH. Yes.
Mr. ROGAN. Just because you were talking about how we try to remedy this, let me just read a quick paragraph from the testimony previously referred to from the American Hospital Association.
''Until 1994, government and hospitals acted as partners to make sure both sides were treated fairly in Medicare billing disputes. Sometimes hospitals were underpaid; sometimes they were overpaid. Either way, they and the government would settle up after reviewing claims at the end of each quarter or each year as the case may be. The government has abandoned its partnership with hospitals in a campaign to extract money from them.''
Without getting into the merits of the last sentence, was there a model in place before that was more efficient and working better and have we moved away from that model?
Mr. STERN. Well, you know, it is an interesting question. I would argue that in part, because of the huge amount of dollars at stake, in part because Congress has recognized that there is enormous fraud and abuse in the system, and that Congress has given us the resources and the direction to do what we can responsibly to fight health care fraud, that there has been a change over the last couple of years. I think part of what we are seeing is a provider community, frankly, that is unaccustomed in many instances to that level of scrutiny.
The issue of, you know, ''it will all work out in the end through an audit'' is precisely what Mr. Morris is suggesting that in certain areas took away the incentive to make the kind of corrections that will save taxpayer dollars.
Page 105 PREV PAGE TOP OF DOC
Mr. ROGAN. Thank you, Mr. Stern. Thank you, Mr. Chairman.
Mr. MORRIS. Might I make two brief comments?
Mr. SMITH. Very briefly, Mr. Morris, yes.
Mr. MORRIS. First, the Inspectors General do recognize the program is complex. In fact, many of our audits and recommendations are directed at HCFA to improve and streamline the system. In addition, the fact that there are innocent errors is largely an explanation for how, of DRG project, 1,700 of the 3,000 hospitals I talked about merely paid back overpayments.
The other thing I would note, though, is that innocent errors should really cut 50 percent in favor of the hospital and 50 percent in favor of the government. If it is truly a random error, you should see an equal mix of mistakes. We go after cases where all the errors are against the government.
Mr. ROGAN. Thank you, Mr. Morris.
Mr. SMITH. Thank you, Mr. Rogan.
Mr. WATT. Might you indulge me for 1 second to ask Mr. Berenson a question?
Page 106 PREV PAGE TOP OF DOC
Mr. SMITH. Sure.
Mr. WATT. That he may or may not know the answer to, since he deals only with health care audits.
I am just wondering how the error rate and fraud rate , and/or fraud rate, in Medicare and Medicaid compare with the error rate, if you know, in welfare? You don't have access to that information, I take it?
Mr. BERENSON. No, I don't. And I would also point out that the recency of our audit was Medicare only and was not Medicaid, but I don't have that kind of data.
Mr. WATT. Thank you, Mr. Chairman. I was just curious. I didn't think he would.
Mr. SMITH. Okay. We thank the members of the first panel for your testimony.
Let me introduce our members of the second panel, beginning with Gordon Sprenger, Executive Officer, Allina Health Systems.
Mr. Sprenger, one of the things you might do, because you can anticipate it being the first question, is to address those figures of 4,600 hospitals and the 1,300 figure that we heard a few minutes ago.
Page 107 PREV PAGE TOP OF DOC
Mr. Don Richey, Administrator, Guadulupe Valley Hospital, who is also a constituent of mine; William Lane, President, Holy Family Hospital; Terry Cameron, Senior Vice President, Medicode, Inc.; and Ruth Blacker, Member, National Legislative Counsel, American Association of Retired Persons.
We welcome you all. We would begin with Mr. Sprenger.
STATEMENT OF GORDON M. SPRENGER, EXECUTIVE OFFICER, ALLINA HEALTH SYSTEMS
Mr. SPRENGER. Thank you very much, Chairman Smith. I am pleased to be here today. As you indicated, I am the Executive Officer of the Allina Health System in Minneapolis, which is a system of small rural hospitals as well as metropolitan hospitals in the Minnesota area. And I am also former chairman of the American Hospital Association.
First of all, to start out, I want to make it very clear on behalf of the hospitals represented in our presentations today: We also agree with zero tolerance of fraud. This is not an issue if there is any evidence of fraud, they should be actively prosecuted, and we want to make that clear right up front.
This is not about relieving anyone of fraud. The issue is assuring or assuming that you are guilty before proven otherwise, and that is the issue that we have in terms of these letters that we are getting and the interaction that we are having with the Department of Justice.
Page 108 PREV PAGE TOP OF DOC
Until 1994, as was said, the government and the hospitals really had a good working relationship to try and solve these Medicare disputes that we had. But the government, we really believe, did make a change, in which they now believe any mistakes made are mistakes under the Fraud and Abuse Act and infer that we are guilty of fraud. And we have a lot of very good workers in the health care system that are scared stiff right now of even making a mistake, because of the potential criminal actions that might be taken.
We know that the Department of Justice is using the False Claims Act to target all of the 4,700 hospitals that have been referred to, particularly in these two major projects that have been referred to before.
In what is known as Operation Bad Bundle, the Department of Justice alleges that hospitals are inappropriately billing Medicare individually for tests that it contends could be grouped together and reimbursed at a lower rate.
We released a report this last week by outsiders that proves that the DOJ's massive recovery project is not based on law, regulations, but conflicting government instructions. It was the responsibility of the fiscal intermediaries, not the individual hospitals, to catch this bundling. As the example that was used earlier, where you had activity that goes on in one institution or in another institution, the person who ultimately pays the bill sees all of these claims coming together. We can go into the reasons why it is difficult for the hospitals to catch these all the time. Maybe a person doesn't use their full name each time that a request is made and our systems just don't catch it, and these are honest mistakes that happen.
Page 109 PREV PAGE TOP OF DOC Another investigation looks at the 3-day window that has been referred to. The Department of Justice alleges that the hospitals are submitting improper bills for outpatient services that should have been included in their inpatient visits. However, frankly, HCFA's guidance has been spotty at best. In 1990, Congress expanded the window to include outpatient services 72 hours prior to admission, but between 1991 and 1994 there were no regulations issued that told us how we were supposed to execute this. Interim final regulations were finally issued in 1994 and final regulations were not issued until 4 years later.
In these investigations, hospitals, most of whom received no notice, were then notified by the Department of Justice demand letter that they have 2 weeks in which to respond to the government's charges or face immediate prosecution; fines of $5,000 to $10,000 plus triple damages could be levied for each disputed claim. The result of that campaign: Millions of dollars today are being spent, out of the health care system dollars, for lawyers and accountants instead of patient care.
Is that the government finding fraud? No. In the majority of cases, hospital error rates are proving to be minuscule.
In Maine, 24 hospitals settled with the Department of Justice. Their error rate was.005 percent. In Vermont, 11 hospitals settled. At one of them, 200 cases were reviewed and the government found only 1 dispute. In Alaska, the Department of Justice investigated two hospitals and found no errors. Still, these hospitals were assessed Federal penalties of $69 and $289.
In Connecticut, the Department of Justice found an error rate of less than three one-hundredths of 1 percent. The government should be applauding these hospitals, not prosecuting them.
Page 110 PREV PAGE TOP OF DOC
Hospitals and health systems, as I have said, have zero tolerance for fraud. The AHA has worked with the Inspector General, June Gibbs Brown, on a model compliance program and that has been a good process, a good working relationship. It will help the hospitals establish better internal safeguards to comply with some very complex Medicare and other government programs, and we applaud Ms. Brown for her leadership.
But we still must stop the government's misuse, we believe, of the False Claims Act. There are two ways to do it from our point of view. Amend the False Claims Act to clarify what is and what is not intentional fraud, and return to the partnership we have had once had with the government.
We do not call for changing the act's criminal provisions. We do not call for changing its whistleblower provisions. We do not call for changes to the fraud and abuse provisions of the Health Insurance Portability and Accountability Act. We do, however, call for modest changes in the False Claims Act's civil provisions. These changes would provide safe harbors for hospitals with low error rates, hospitals that have implemented effective compliance plans and hospitals that obey the instructions of their fiscal intermediaries, who is responsible for paying the bills. In every case where there is a misbilling, the government absolutely should get its money back, plus interest, as far as we are concerned.
We understand that some Members of Congress want us to resolve the issue administratively. We would like to do that, too. A month ago, in the spirit of cooperation, we submitted a detailed proposal to the Deputy Attorney General. It includes many of the issues that I have outlined. We received their response last Friday. Our suggestions were rejected. DOJ conceded that there is no coordinated national process for its investigations.
Page 111 PREV PAGE TOP OF DOC
Their refusal to accept an adequate facial predicate before threatening False Claims Act prosecution and the rejection of formal national enforcement guidelines was obviously extremely disappointing to us. The DOJ still apparently assumes that every one of the 72 million Medicare claims submitted annually by hospitals is potentially a fraud.
Let me just give you a personal example.
Mr. SMITH. Mr. Sprenger, we are going to need to move on. Can you be brief in your personal example?
Mr. SPRENGER. Yes, I will. My personal example is one where we recently went through one of these audits. The government reviewed 15 claims for services provided over 6 months. We were shocked to suddenly get a bill for $600,000. As it turns out, one of the 15 claims represented most of our problem. It involved a 72-year-old woman who the auditors called at home. This is an elderly woman that has diabetes, chronic heart failure, atrial fibrillation, osteoporosis, Paget's disease, which is a disease of the bone, and she has an amputation; very noncompliant patient whose medical leaders told her that she should stay in her apartment, be on bed rest. Yet when the auditors called her and found out that she had left her home on several occasions, in their opinion, she was not eligible for home care. Thus we were in violation of defrauding the government because we should have known that she left home.
We do not see how we can be the police force to know whether or not someone is complying, particularly if they are a noncompliant patient. It is these kinds of threats that has got the industry upset.
Page 112 PREV PAGE TOP OF DOC
In conclusion, our experience, I think, reflects a crying need to restore common sense to the process, but we need your help. We would ask you to direct the Department of Justice to change its behavior and offer a substantive response to our proposals. In the absence of expeditious action by the DOJ, we would urge you to move legislation in Congress.
Thank you very much.
[The prepared statement of Mr. Sprenger follows:]
PREPARED STATEMENT OF GORDON M. SPRENGER, EXECUTIVE OFFICER, ALLINA HEALTH SYSTEMS
Mr. Chairman, I am Gordon Sprenger, executive officer of the Allina Health System in Minneapolis, Minnesota, and a former Board chair of the American Hospital Association (AHA). The AHA represents nearly 5,000 hospitals, health systems, networks, and other providers of care. We appreciate this opportunity to present our views on an issue of critical importance to our members and the patients they care for: the governments misuse of the False Claims Act, and the need to distinguish Medicare fraud from unavoidable billing mistakes.
Each year, Mr. Chairman, hospitals and health systems submit on average nearly 200,000 Medicare claims a day. To ensure the accuracy of those claims, they must comply with 1,800 pages of law, 1,300 pages of regulations interpreting the law and thousands of additional pages of instructions. In addition, they are required to work with 43 intermediariesmostly insurance companiesthat each have their own distinct procedures that hospitals must follow as part of the billing process.
Page 113 PREV PAGE TOP OF DOC
Meanwhile, the federal government has allocated more than $1 billion through the year 2002 to target every type of provider in the largestever investigation of Medicare and Medicaid billing practices.
Until 1994, government and hospitals acted as partners to make sure both sides were treated fairly in Medicare billing disputes. Sometimes hospitals were underpaid, sometimes they were overpaid. Either way, they and the government would ''settle up'' after reviewing claims at the end of each quarter or each year, as the case may be. But, the government has abandoned its partnership with hospitals in a campaign to, quite simply, extract money from them.
The Department of Justice (DOJ) is employing the False Claims Act in a series of highprofile investigations in which they have stated their intent to target all 4,700 prospective payment system hospitals. The subjects of these federal probes include:
Outpatient clinical laboratory ''unbundling.'' DOJ alleges hospitals are inappropriately billing Medicare individually for tests that it contends should be grouped together and reimbursed at a lower rate. However, the department has knowingly launched this investigation of hospitals based on no laws, no regulations and conflicting government instructions, according to a report by Jones, Day, Reavis and Pogue, a legal adviser to the AHA on Medicare billing disputes. The special report is titled: ''Development of Government Guidelines for Hospital Outpatient Laboratory Reimbursement.''
Page 114 PREV PAGE TOP OF DOC
Government agencies involved in the Medicare billing investigation have even stated that hospitals are not obligated to bundle blood chemistry tests. And neither the Office of the Inspector General (OIG) of the Department of Health and Human Services (HHS) nor the Department of Justice can point to any legal authority requiring bundling of laboratory test claims that has been violated by AHAmember hospitals.
The report discloses:
Repeated confirmations by OIG that hospitals were not legally obligated to bundle claims. The inspector general faults fiscal intermediaries for failing to bundle blood chemistry tests that were not grouped together when submitted by hospitals. The Health Care Financing Administration (HCFA) issued similar instructions to fiscal intermediaries, and directed fiscal intermediaries to use computers to detect unbundled lab claims and bundle them together for payment if it would result in a lower payment.
A number of fiscal intermediaries confirmed that hospitals have no legal obligation to bundle tests. Intermediaries across the country advised hospitals that they would bundle the tests prior to payment if hospitals didn't do it.
Before 1997, the inspector general's office maintained that hospitals were under no legal obligation to bundle claims. The office abruptly changed its policy last year, and started characterizing bills that contained unbundled outpatient lab tests as potential false claims warranting severe penalties. Apparently frustrated that fiscal intermediaries continued to reimburse hospitals for unbundled outpatient lab tests, the OIG shifted its focus from the reimbursement methods of intermediaries and carriers to the billing practices of hospitals. Then, the inspector general earlier this year declared unbundling ''illegal,'' despite a long record of contrary assertions by HHS and HCFA.
Page 115 PREV PAGE TOP OF DOC
Manual provisions are not binding regulations, and do not subject hospitals to liability beyond recovery of overpayments. A hospital that has misinterpreted an intermediary's instructions has not violated the False Claims Act.
Therefore, the government has engaged in a massive recovery project based on no statutory or regulatory basis. We have to seriously question the reasons for their actions.
The Medicare ''DRG threeday window.'' DOJ is seeking penalties from hospitals for allegedly submitting improper billings for outpatient services that were included in their inpatient payment under the DRG prospective payment system. Medicare requires that hospitals include in the inpatient bill charges for certain preadmission services provided within three days prior to hospital admission. However, HCFA's guidance on this issue has been spotty at best.
Historically, although the statutory definition of operating costs of inpatient services did not include outpatient services, administrative policy established that services provided 24 hours prior to admission were included in the hospital inpatient payment. Since both outpatient services and inpatient services were based on costs, there was no financial advantage nor disadvantage for either hospitals or the program.
Since then, HCFA's guidance on the issue has ranged from intermittent and inconsistent to nonexistent. In 1990, the Omnibus Budget Reconciliation Act amended the definition of operating costs to include readmission services. It expanded the window to include 72 hours prior to admission, doing so in three phases. However, between 1991 and 1994, no regulations were issued on the change in policy. During this period, HCFA and the nation's hospitals disagreed over whether diagnostic services should be related to the admission or not. This was not resolved until interim final regulations were issued in 1994. Final regulations issued in January 1998four years after the interim ruleresponded to comments on the interim final regulation of 1994.
Page 116 PREV PAGE TOP OF DOC
No matter how hard hospitals try to comply, it is impossible to be errorfree. A patient could give his or her name differently for the hospital outpatient visit and the hospital admission. Or the patient could be unconscious at entry and be listed as John Doe or Mary Doe for several days. Because the services will not be linked, two different medical records would be created and two separate bills generated. Hospitals typically double check that process by hand or more recently with special softwarebut duplicates can slip through.
In addition, outpatient and inpatient claims could enter the hospital's financial system at different times. One may have been held up waiting for a physician's sign off or medical documentation. As a result, the two claims are never identified as related and within three days of each other.
Hospitals also ask patients if they received separate outpatient services within the last 72 hours. However, the patient may fail to remember those services due to confusion or illness.
How is the government's 72-hour window investigation affecting hospitals? In Maine, 24 hospitals settled with the DOJ. The Maine Hospital Association studied those hospitals, and found some interesting things:
The total number of Medicare billing errors over a 5-year period was fewer than 1,000.
Billing errors per-hospital over the 5-year period ranged from 3-200.
Page 117 PREV PAGE TOP OF DOC
There were 2.9 million Medicare claims submitted by the 24 hospitals in the 5year period. This represents an error rate of just .034 percent of total claims.
During the same period only $139,000 in claims for all of the hospitals were found to be in error; this represents .005 percent of their $2.6 billion in total Medicare claims.
In Vermont, 11 hospitals made payments to the federal government to settle $83,816 in reported Medicare billing errors that occurred between 1990 and 1995. During that period, Vermont hospitals billed Medicare for $1.5 billion. So the amount demanded by the government translates into an error rate of 1/200th of one percent. One Vermont hospital's data makes the point even clearer: the Medicare case load at the hospital is roughly 20,000 cases a year. Of the 200 cases reviewed, the government came up with only one dispute. The government should be applauding hospitals like that, not prosecuting them.
In Alaska, DOJ investigated two hospitals and found no errors. Still, those hospitals were assessed federal penalties. The penalties were small$69 and $289but the hospitals' letters asking DOJ for an explanation about why were fined have not been answered.
Thirty-four hospitals in Connecticut were given demand letters on the 72-Hour Window Rule. During the period of investigation, 1990-1995, Connecticut hospitals handled more than 10 million Medicare claims. Of that total, fewer than 3,000 claims were cited by DOJ in the investigationan error rate of less than three one-hundredths of one percent. The government identified less than $1 million worth of payment errors out of a total of $6 billion in payments.
Page 118 PREV PAGE TOP OF DOC
Most accounting firms' standards include expected error rateshuman and otherwisethat generally fall between three and five percent. Clearly, the DOJ is basing its investigation on a zero-tolerance-for-errors rule that is unfair and unrealistic, which raises serious questions about their purpose.
The physicians at teaching hospitals (PATH) audit. Teaching hospitals and medical schools are being investigated to determine whether physician instructors billed Medicare for work performed by medical residents they supervise.
Mary Hitchcock Memorial Hospital in Lebanon, NH, spent more than $1 million in staff time and fees for attorneys, consultants and accounting assistance to perform a self audit on Medicare billing. Why? The government demanded the audit as part of its PATH investigation. What did the audit find? An error rate of zero.
Mr. Chairman, these examples prove that, under DOJ's tactics, hospitals are considered guilty until proven innocent. DOJ notifies a hospital through a ''demand letter'' that it is under investigation. The letter offers up to two weeks to respond to the government or face immediate prosecution, including fines of $5,000 to $10,000 plus treble damages for each disputed claim.
The result of their campaign? Millions of dollars are being spent on lawyers' and accountants' fees instead of patient care. Is the government finding fraud? On the contrary. In the majority of cases, hospital error rates are proving to be minuscule.
Page 119 PREV PAGE TOP OF DOCOUR PRINCIPLES
Zero tolerance for fraudAmerica's hospitals and health systems are rooted in a tradition of ethics and caring. We're committed to preventing, uncovering, and eliminating health care fraud and abuse. Hospitals across the nation are voluntarily adopting plans to ensure compliance with complex and confusing Medicare laws and regulations.
However, Medicare billing errors often result from confusing and conflicting regulations and instructions that are part of the Medicare reimbursement system. These are not intentional acts. Yet DOJ would have you believe that mistakes and fraud are the same.
Providers who make billing mistakes after attempting to comply with the complicated and frequently changing rules of Medicare payment should be treated in a fair, equitable and civil manner and granted appropriate due process rightsrights that are guaranteed to all Americans.
ComplianceThe AHA Board of Trustees recently issued a statement urging all hospitals and health systems to voluntary adopt regulatory compliance programs ''as a way to minimize errors in conforming to highly technical and complicated rules,'' and urged hospitals and health systems to ''develop and implement or strengthen a formal compliance program to ensure that regulations are accurately followed.''
In addition, the AHA recently made available to its members its Health Care Compliance Service, which can help them establish internal systems designed to achieve the best possible compliance with the government's complex billing requirements and regulations.
Page 120 PREV PAGE TOP OF DOC
And we worked closely with the OIG on its Model Compliance Program Guidance for Hospitals. The model will help hospitals establish better internal safeguards and processes to successfully comply with Medicare, Medicaid and other government health programs.
We applaud the OIG's efforts in releasing their plan at a time when most hospitals are searching for guidance. We especially thank Inspector General June Gibbs Brown for her leadership in this effort and her willingness to collaborate with hospitals and health systems to find the best way to comply with intricate federal rules and regulations and improve the integrity of the health care system. We will continue to provide her with constructive suggestions that promote these goals.
We are also pleased that the OIG incorporated some of our suggestions in the model. The OIG's work acknowledges that hospitals with effective compliance programs are making a good faith effort to comply and allows hospitals flexibility to tailor the guidance to best fit their organization. We do believe, however, that there is still room for clarity, particularly in the area of voluntary disclosure. We believe that if hospitals, through a selfaudit, discover a billing problem and disclose that problem to the government voluntarily, they should not be subjected to the threat of treble damages and $5,000 to $10,000 in fines.
To solve this problem, Mr. Chairman, we need two solutions. The first is to amend the False Claims Act by clarifying what is and what is not intentional fraud.
Page 121 PREV PAGE TOP OF DOC
The second is to return to the partnership we once had with the government. By rebuilding this partnership, we can go a long way toward ensuring compliance and fairness.
Amending the False Claims ActWhen Attorney General Janet Reno spoke before the AHA's Annual Membership Meeting in February, she offered an open door. She told hospital and health system leaders that, if they had problems with the DOJ's investigations, they should talk with the people in charge and work things out.
We appreciated the attorney general's warm words. And while the people who work for her at DOJ do seem to have changed their rhetoric slightlydemand letters, for example, are reportedly going to be written in a less confrontational waythe fact is that their behavior remains the same. Hospitals are still receiving letters, they are still being threatened with prosecution, and they are still spending millions of dollars to try and answer DOJ's demands. In other words, DOJ is still misusing the False Claims Act.
The way to stop this misuse is to amend the False Claims Act to distinguish Medicare billing fraud from honest and unavoidable billing mistakes. We would propose:
imposing a ''de minimus'' standard. Under the standard, as defined by the American Institute of Certified Public Accountants, Medicare overpayments to providers of less than a specified percentage would result in penalties of no more than the amount of the claim plus interest.
raising the burden of proof required under the act from a ''preponderance of the evidence'' standard to a ''clear and convincing evidence'' standard.
Page 122 PREV PAGE TOP OF DOC
establishing a ''safe harbor'' for hospitals that submit a claim based on advice given by fiscal intermediaries and carriers. Such hospitals would be subject to fines limited to actual damages and interest, not trebles damages plus $5,000 to $10,000 per claim.
We do not advocate changing any of the criminal provisions of the False Claims Act. Only the civil provisions of the act, which are the provisions being misused by DOJ, would be altered and clarified. No other federal laws would be affected, including changes made by Congress in 1996 in the Health Insurance Portability and Accountability Act. The changes would apply only to health care claims for federally funded programs such as Medicare and CHAMPUS (Civilian Health and Medical Program of the Uniformed Services). Nor would our proposed changes prevent the government from receiving any money that it is rightfully due. In all cases, overpayments would be returned with interest.
Why do we need these changes? Because, although Congress two years ago gave federal agencies the tools they need to go after health care fraudsuch as expanded enforcement authority in the Health Insurance Portability and Accountability Act, which recognizes the unique nature of health care facilitiesDOJ has nonetheless decided that use of the False Claims Act guarantees ''easy money.''
Rebuilding the hospital/government partnershipHospitals and health systems want a new partnership with the federal government. Working together, we can do more to prevent hospital billing errors, and to prevent government over-reaching as it tries to account for those errors. This effort got off to a good start with the compliance guidelines issued by the Office of the Inspector General. In meetings with Inspector General June Gibbs Brown, we have said we would like the government to prescribe ''good behavior''to tell us what it considers fraud and what it considers mistakesso that we can in turn tell our members what is expected of them.
Page 123 PREV PAGE TOP OF DOC
We have proposed several other ways in which the federal government can make the billing system more workable. In addition to the OIG's compliance guidelines, we have proposed to HCFA a ''best practices'' process. Under this process, the AHA would identify vague laws, regulations, carrier instructions, etc., and go to HCFA with our best view on how they can be implemented. HCFA in turn would consider the problem and our suggestions, and get back to us with proper guidance. Through this process, disputes related to interpretation of laws, or individual concerns, could be solved without antagonism. We await HCFA's response.
In addition, we have talked to the OIG's office about a mechanism that would give our members an ''early warning'' about potential areas of concern. We respectfully disagree with the OIG that our members have received reasonable notice of problems in the past. Nevertheless, the OIG has agreed to enter into discussions with us to allow the AHA to act as a conduit from them to share new areas of concern with our members. We look forward to establishing a positive relationship in this area.
Also, we are preparing a proposal for HCFA to look at a dispute resolution system that could remove some of the adversarial relationship between the government and the hospital field. If we can develop an administrative mechanism to resolve disputes over both broad policies and specific disagreements, we can diffuse a potentially volatile situation.
Finally, Mr. Chairman, we understand and appreciate the concern of some members of Congress that we should attempt to resolve this issue administratively, before Congress has to act. In the spirit of cooperation, we submitted to Deputy Attorney General Eric Holder a detailed proposal as to how the department could resolve our concerns. We received his response late Friday, and we are extremely disappointed to report that the department rejected our proposal. It is clear from this rejection that DOJ does not understand a very key point: that, at a minimum, we need to return to a system in which HCFA exercises its authority to review and discuss billing disputes with hospitals. Only after the failure of those efforts should DOJ become involved.
Page 124 PREV PAGE TOP OF DOC
We were interested to see that DOJ, in its response, conceded that there is not a coordinated, national process for its investigations into alleged billing errors. Yet, the department went on to reject our detailed proposals to remedy the problem. Our proposed administrative remedy would include, at a minimum:
The coordination of False Claims Act investigations of individual hospitals through the DOJ as a national program subject to DOJ approval and oversight. This assumes that only true False Claims Act cases will be referred to the DOJ, and that there will be a factual predicate before any action is taken. Other instances of misbilling would be handled by the traditional, but expedited, HCFA-HHS and fiscal intermediary annual review to determine underpayments and overpayments.
The development and publication of national enforcement guidelines concerning investigations of hospitals, whether under the False Claims Act or any other federal law, which would:
develop a materiality threshold for overpayments that refers all overpayments under $100,000 back to HCFA for administrative resolution. Actual overpayments amount to an extremely small proportion of overall billing, and absent specific evidence of fraudulent conduct, should not be part of a DOJ investigation. In such instances, hospitals should refund the overpayment.
develop clear and objective standards that differentiate between a regulatory overpayment and a civil/criminal fraud and publish these standards in the U.S. Attorney's Manual so that the AHA may advise its members on the standards. The DOJ needs to speak clearly and precisely to retain its enforcement credibility, which is now at risk as it tries to stretch its enforcement resources with collection efforts of this sort.
Page 125 PREV PAGE TOP OF DOC
develop a selfdisclosure program for regulatory overpayments that encourages compliance and not fear of unreasonable claims of penalties and damages, and would not require payment of penalties beyond standard interest penalties absent specific evidence of fraud or reckless disregard of overbilling.
along with the HHS OIG, develop a ''safe harbor'' treatment for hospital overpayments that occur as a result of inaccurate or incomplete fiscal intermediary/carrier instructions.
The AHA recognizes that, along with DOJ, other agencies, such as HHS, the OIG, and HCFA, also have jurisdiction. In the interest of reaching an acceptable settlement with all parties, we recommend the formation of a working group with representatives from all these agencies and the AHA, to develop a solution that addresses our administrative proposal.
This would not be unprecedented. In the early 1990s, the AHA worked closely with DOJ and the Federal Trade Commission to resolve problems of antitrust enforcement in the health care field and developed the Antitrust Enforcement Policy. This effort was successful and very well-received.
Mr. Chairman, we understand and agree with the government's determination to investigate and punish those who would abuse the system. But the government is doing the right thing in the wrong way. The overwhelming majority of America's hospitals and health systems work hard to comply with the mountain of rules and regulations that govern Medicare payment. When a mistake is made, it should not be treated as fraud. It should be treated as a mistake.
Page 126 PREV PAGE TOP OF DOC
Through modest changes to the False Claims Act, and through a rebuilding of the health care field's partnership with the government, we can make things fair againfor hospitals and health systems and the people they serve, and for the government as well.
Mr. SMITH. Thank you, Mr. Sprenger.
STATEMENT OF DON L. RICHY, ADMINISTRATOR, GUADALUPE VALLEY HOSPITAL, SEQUIN, TX
Mr. RICHEY. Thank you, Mr. Chairman. My name is Don Richey. I am from Guadalupe Valley Hospital in Seguin, Texas, and it is a pleasure to have you as our Congressman.
Mr. SMITH. Anytime, Mr. Richey.
Mr. RICHEY. We are 94
Mr. WATT. Can we give him back to you?
Mr. RICHEY. After the session, yes, sir, Mr. Watt. He is welcome in San Antonio any time.
Page 127 PREV PAGE TOP OF DOC We represent a 94-bed hospital in Seguin, Texas, a rural community east of San Antonio. We have a compliance plan and we have been regularly complimented by our external auditors on the quality of our bookkeeping and on the other things that we do to stay in compliance.
As a small rural hospital, we are under the market pressures that were discussed earlier, and I have to say that we have a very small number of errors, so I was actually shocked last October when I received a demand letter from the Justice Department that I actually carry with me now. It is somewhat worn, demanding $158,000 in damages for errors between 1992 and 1996. We immediately asked the Justice Department for the data to look at and engaged an independent certified public accountant to help us work through these issues and see what allegations were accurate and what were not.
By the time we got back together with the Justice Department and received a list of over 10,000 claims, we had found that there were 84 rural hospitals with the same situation as we had in Texas. Nobody had ever been approached by the Justice Department. We were all, to the best of our knowledge, without contact by anybody along the way and we were all seeing the same kind of claims.
When our analysis was done, we found that we had a very small number of problems. We had actual damages of only about $8,300 compared to the $158,000 original demand letter.
We went back and started looking at the issues and finding out where they were coming from, and I have to admit it is a complicated situation. As you have heard already, there are over 1,700 pages of law, 1,200 pages of regulations and 14,000 instructions. This book is just the instructions from our fiscal intermediary on laboratory billing for Medicare. So it is a complicated situation.
Page 128 PREV PAGE TOP OF DOC
In our case, 80 percent of the errors that were alleged were actually found to be correct billings. Those that weren't, we checked on and found a couple of specific areas and have corrected those. We had none, I repeat zero, 72-hour violations, although I can understand how people can. If you have a reference lab that does work for other people and the patient goes to another place to be hospitalized, the only one who can tell these people that they have had a 72-hour episode within the admission is the fiscal intermediary and we were under the impression that Blue Cross-Blue Shield of Texas had that in effect. Apparently, they did not.
The two areas that we have found that we had errors in were, first, the areas of repeated tests. I will use an example of a simple one called a glucose. A patient comes into the hospital in a diabetic coma, in shock and the doctor has to do a glucose exam to find out how much insulin to give them or to give them sugar, D5W. After that first infusion of insulin, you also need to check and make sure that the patient is doing well before you give them more insulin. You don't want to put them in insulin shock, and so sometimes it takes two or even three glucose examinations to get one patient stabilized.
Those were determined by the Justice Department as duplicate billing, where we went back and actually pulled the medical records and showed that the lab test was ordered, done, reported, a time elapsed and then they were done again at the order of a physician, and basically a patient's life saved.
The other area that we got zinged on was unbundling, that you have heard about before. In our particular case, we were able to demonstrate through letters from our intermediary that we were not even properly instructed until the end of 1996 on how to bundle these lab procedures. So for $37,000 of our whole $53,000 single damages, we found out that we were not even instructed on how to bill until after the fact.
Page 129 PREV PAGE TOP OF DOC
The bottom line is, our error rate, calculated by our independent CPA, is running in Texas for our 84 hospitals between one-tenth of a percent and one-one hundredth of a percent, which is pretty good. In other words, over 99.9 percent of the time our billing is correct. This just doesn't constitute fraud.
Since 1965, we have had a very good arrangement with the Federal Government, where at the end of the year they do an audit and determine whether we owe them back money or they owe us back money, and it can range between a quarter of a million dollars very simply.
In Texas, we don't believe in fraud. Charlie Stenholm mentioned that very specifically that if he can find a hospital administrator committing fraud, he will buy the rope, he will put it around the administrator's neck and he will slap the horse.
We are small rural hospitals, 84 of us, who think we are doing good for the community and are proud of our low error rate and the service to our Medicare patients.
Thank you very much.
[The prepared statement of Mr. Richey follows:]
PREPARED STATEMENT OF DON L. RICHY, ADMINISTRATOR, GUADALUPE VALLEY HOSPITAL, SEQUIN, TX
Mr. Chairman, my name is Don Richey. I am the administrator of Guadalupe Valley Hospital, a 94-bed public hospital in Seguin, Texas, and I am very pleased to have this opportunity to tell my story.
Page 130 PREV PAGE TOP OF DOC
I was shocked last October when I opened the letter from the U.S. Department of Justice (DOJ), which is appended to my statement. The letter demanded almost $159,000 for alleged billing errors that occurred between 1992 and 1996. I was given less than 14 days to decide whether to self audit or let the DOJ do it for us.
We chose to self audit. The first thing we did was request information from DOJ about these errors. In December our accountant received a list of more than 10,000 alleged billing errors during those five years. By that time 84 rural Texas hospitals, mostly public and mostly fewer than 100 beds, had agreed to jointly hire a certified public accountant to analyze the data and advise us on what to do. None of us have reached settlement as of yet. There is a very distinct possibility that we will pursue this in a court of law since we are confident we are innocent of violating the False Claims Act.
Please understand that Medicare billing is extremely complicated. The regulations for Medicare are at least three times the size of the Internal Revenue Codewhich in itself can be a nightmare. For example, this book comes from our fiscal intermediary, Blue Cross/ Blue Shield of Texas. It contains instructions for just one area of Medicare billinghow to bill for lab tests.
Back to our case. We tested the data and found the Justice Department to be wrong on more than 80 percent of its allegations. I would think that before our federal government sends a letter demanding payment for alleged misbillings, it would have specific proof that real fraud had taken place. We have been forced to go through this whole process for what amounts to a tiny percentage of billing errors. It is a waste of government dollars and health care resources.
Page 131 PREV PAGE TOP OF DOC
For example: When the government saw charges for two or three glucose tests on the same day, the Justice Department assumed that they were duplicate billings, and labeled them as fraud. When we pulled the medical record we found that the patient had diabetes. In diabetes patients, the doctor must determine the level of blood sugar in order to know how much insulin to order. Later, he must re-check the blood sugar until the patient is stable. According to the Justice Department, that's fraud.
The bottom line: An independent CPA conducting a verifiable audit found that hospitals in Texas have a Medicare billing error rate that is between one-tenth of one percent and one one- thousandth of one percent. In other words, we are accurate at least 99.9 percent of the time. Even the IRS admits to a 4 percent error rate. In my hospital's case, we found $8,300 in overpayments over four years on about $80 million in Medicare billings.
Since 1965, overpaymentsand underpaymentshave been settled with our fiscal intermediary through a Medicare audit at the end of each year. The year before last we owed Medicare $250,000. Last year Medicare owed us $240,000. We urge you to ask Medicare to re-adopt this system. It's fair to all parties.
Use of the False Claims Act is totally unwarranted for any of the 84 rural hospitals in our group. We are among the smallest, most cost-effective hospitals in the country, and I believe that we do a good job taking care of our patients in rural Texas. We work hard, and we try to obey the rules.
The False Claims Act should only be used to prosecute criminals who willingly and intentionally attempt to defraud the government. It should not be used to bully hospitals filled with honest people who are trying their best to follow complicated and often conflicting instructions from the government. And it should certainly not be used against hospitals whose billing error rates can only be calculated through scientific notation.
Page 132 PREV PAGE TOP OF DOC
Mr. Chairman, I believe the hospital community has the right to an enforcement process that is once again consistent, predictable, and fair. Hospitals like mine try to do the right thing. The government should too.
PENNY WALLACE, Director of Financial Services,
|U.S. Department of Justice,|
|United States Attorney,|
|San Antonio, TX, October 10, 1997.|
Guadalupe Valley Hospital,
Re: Guadalupe Valley Hospital
Outpatient Lab Unbundling Project
During settlement negotiations with some hospitals involved in this investigation, certain counsel inquired whether the option of conducting a self-audit, performed by an independent auditing company, with subsequent payment of only double damages, is avaliable. This opportunity was afforded hospitals in other states. Upon consideration of the request, this office has concluded that the self-audit option is appropriate and will be made available. However, it should be noted that during the early stages of this investigation the self-audit option was discouraged by some of these same counsel because of the expense involved and the real possibility that the audit would identify increased overpayments and higher damages.
Page 133 PREV PAGE TOP OF DOC
In other districts offering the independent self-audit option, the background numbers gathered in the investigative review were not provided to the hospitals. Here, as promised, we will provide you the background data supporting the overpayments if you have requested such in writing. That information will be forwarded to you when possible under separate cover. From the date of that letter, each hospital will be given two weeks to review the background data. During those two weeks, each hospital must elect whether it wishes to settle this matter and under which circumstances:
(a) payment of treble the single amount our office has determined to be the overpayment and entering into our proposed settlement agreement, or
(b) election of independent self-audit and agreement to the payment of double damages based upon the result, and entering into our proposed settle agreement.
If the independent self-audit option is chosen, Guadalupe Valley Hospital must enter into a binding letter of commitment in effect settling the matter for an amount which will be determined by the audit. If the overpayment amount determined by the audit is higher than this office's assessment, that amount controls and will be doubled. The audit must be conducted by a certified audit firm, based upon a work plan approved by HHS and this office. All work papers are subject to verification.
Our original review and damage calculation included only 24 blood chemistry CPT cords for those hospital whose fiscal intermediary is Blue Cross/Blue Shield of Texas (Attachment 1) and 34 CPT codes for fiscal intermediary Mutual of Omaha (Attachment 2). It also included the hermatolgy CPT codes listed in Attachment 3.
Page 134 PREV PAGE TOP OF DOC
The independent self-audit would require review of all 34 blood chemistry CTP codes listed in Attachment 4, the hermatology CPT codes listed in Attachment 3, and organ panels 80050 through 80099. Organ panels were not included in our original calculations.
If Guadalupe Valley Hospital elects to settle for treble damages (without a self-audit), the settlement agreement will be forwarded for review and execution. Any release will include all of the areas noted above.
Upon further review of the circumstances, this office has decided to change the treatment of blood chemistry overpayments which occurred after the edits directed by the Health Care Finance Administration went into effect in July 1994 (for Blue Cross/Blue Shield) or June 1994 (for Mutual of Omaha). Our office agrees that the blood chemistry overpayments from the date of the edits through December 1996 should be settled for single damages, rather than treble damages under the False Claims Act. This decision changes our proposed settlement as shown below.
Treble damages for period January 1992 through December 1996 (excluding post-edit amounts)= 153,384.13
Post-edit single damages for blood chemistry= 339.28
Proposed settlement for period January 1992 through December 1996= 158,723.41
I look forward to resolving this matter soon.
Page 135 PREV PAGE TOP OF DOC
By: Marialyn P. Barnard, Assistant U.S. Attorny
|James William Blagg, U.S. Attorney, By: Marialyn P. Barnard.|
Mr. SMITH. Thank you, Mr. Richey.
STATEMENT OF WILIAM L. LANE, PRESIDENT, HOLY FAMILY HOSPITAL AND MEDICAL CENTER
Mr. LANE. Thank you.
I am proud to say that we count Bill Delahunt as one of our congressional delegates and we are pleased that he is part of our Massachusetts delegation.
I am president at a midsized suburban Catholic hospital. Although with all the testimony you have heard about treating small hospitals differently, I would like to amend that and say that we are a small hospital. We are about 200 beds.
I appear before you this morning both as president of that hospital and also as chairman elect of the Massachusetts Hospital Association. I have been the chief executive officer in my hospital for 27 years and have served the industry since 1966, the year Medicare was established.
Page 136 PREV PAGE TOP OF DOC
My purpose in appearing before you this morning is to comment, as others have, on the inappropriate use of the False Claims Act for addressing hospital billing errors, errors which largely are the result of hundreds of pages of law, thousands of pages of regulation and interpretation of those regulations, which differ very widely among more than 40 fiscal intermediaries that administer the Medicare program for the Federal Government across the country.
As has been pointed out by one of your members, from 1966 until the mid-1990's, claims billing errors by hospitals across the country were handled through normal external audit processes. Sometimes the government owed a given hospital more on a credit in a given year. Sometimes it worked the other way. But in the end, the system worked and remained in balance.
Further, if the independent auditors commissioned by the Medicare intermediary found or even suspected fraud, there was a mechanism to deal with it and the full weight of the law was felt, as it should be in such instances.
In 1994, however, the Federal Government began to institute a number of hospital-directed initiatives to combat what it claimed was health care fraud or abuse. The four largest initiatives to date have been the DRG 3-day window rule, the path audits, Operation Bad Bundle and DRG Creep, and they all focus on the submission of what the government has characterized as false claims to the Federal Government. My personal experience in this instance has been limited to the DRG 3-day window, so I will confine my remarks to that matter.
The government has alleged that hospitals in large numbers have separately billed Medicare for nonphysician outpatient services which were provided in conjunction with inpatient admissions and, accordingly, should not have been billed separately from the diagnostic related group related to the admission. The Department of Justice claims that hospitals have violated the civil False Claims Act and plans to pursue all hospitals nationwide, eventually reaching more than 4,000 facilities.
Page 137 PREV PAGE TOP OF DOC
In Massachusetts, the U.S. Attorney targeted 83 hospitalsthere are only 87 or 88 in the Statefor cursory audits and then sent demand letters in the tens of millions of dollars but with options to settle potential false claim violations for just a fraction of the total demand, though still a substantial sum, if the target hospitals would respond within 20 days.
A survey done recently of 22 of the 83 hospitals that were targeted in Massachusetts revealed that during the period covered by the audit, about 3 years and 9 months, there were 2,315,000 patient bills totaling over $2.3 billion. Only 2,960 claims were alleged to be in error. That is .12 percent of total claims and they had a billing value of just over $450,000. But the false claims threat by the U.S. Attorney's Office was to impose fines and penalties of up to $36 million. The final settlements reached by those 22 hospitals were for a total of $943,000.
Holy Family Hospital, the institution I serve, was found to have 80 claim errors involving $10,717 in billing of more than 70,000 claims processed during the period. The value of our total claims was over $150 million. In its demand letter, the U.S. Attorney's Office indicated we could, under the False Claims Act, be penalized up to $427,000 but if we responded within 20 days we could settle the dispute for just $20,950.
We settled because we felt we couldn't do justice to a thorough review of our situation within the 20-day time period required and because we also felt it would cost us more than the settlement demand to study the issue than to just pay it off.
Page 138 PREV PAGE TOP OF DOC In retrospect, I wish we had fought the demand, as there is a better than even chance that we would have found our error rate was less than that calculated by the government.
Another of the State's hospitals with which I am familiar did challenge the demand letter, St. Vincent's Hospital in Worcester, Massachusetts. They were successful in reducing an initial threat of $2.6 million, but with a settlement potential of $33,000, to a final settlement of $19,000. They processed more than 80,000 claims totalling almost $300 million during the study period.
It is important for the Committee on the Judiciary to know that one component of the complex rules and regulations governing Medicare billing actually fosters many of the billing errors that occur in this issue. This has to do with Medicare cases which may also have some other insurance.
Medicare law and regulation requires hospitals to bill other insurers first. In most cases, though, these other insurers do not pay on the basis of DRG or on a per case basis. Hence, the preadmission test is billed as an outpatient to that other carrier, rather than as an inpatient. Then, when the hospital's claim to the first insurer gets denied, as often is the case, the hospital must then regenerate the Medicare bill, in this instance, a manual process, in most institutions. Therefore, by complying with one set of Medicare regulations, the secondary insurer payments, the hospital compromises its ability to comply with the 72-hour billing requirements.
Please know that no responsible health care professional has any tolerance whatsoever for Medicare fraud and abuse. It should be uncovered and prosecuted to the fullest extent of the law. But honest clerical or other errors that result from an inadvertent misinterpretation of law or regulation that are present in any human endeavor, and we would stack our industry's billing error rates, which consistently err at the rate of one-tenth of 1 percent or less, against any other enterprise with which the government does business. They ought not to be classified as criminal, but should be addressed in a more responsible, less threatening manner.
Page 139 PREV PAGE TOP OF DOC
Hospitals do not want more revenue than they are due for providing patient service, and if they have made errors that result in loss, either to the government or to the hospital, then these should be addressed, most preferably as they were addressed prior to the U.S. Attorney probe, by fiscal intermediary audit.
[The prepared statement of Mr. Lane follows:]
PREPARED STATEMENT OF WILIAM L. LANE, PRESIDENT, HOLY, FAMILY HOSPITAL AND MEDICAL CENTER
Mr. Chairman, members of the subcommittee on Immigration and Claims of the House of Representatives Judiciary Committee, my name is William L. Lane, I am a hospital president at a mid-sized suburban Catholic Hospital in Northeastern Massachusetts, and I appear before you this morning both in that capacity and as a representative of the board of trustees of the Massachusetts Hospital Association where I serve as chairman-elect. I have been a hospital chief executive officer for some twenty-seven years and have been in the field since 1966, the year Medicare was implemented in our society. My purpose in presenting to you this morning is to comment on the inappropriateness of using the False Claims Act for addressing hospital billingerrors which largely are the result of hundreds of pages of law, thousands of pages of regulations and interpretations of those regulations which differ widely among the more than forty fiscal intermediaries that administer the Medicare payment program for the federal government across the country.
From 1966 and until the mid-1990s, claims billing errors by hospitals across the country were handled through normal external audit process. Sometimes the government owed a given hospital more on credit in a given year, sometimes it worked the other way, but in the end the system worked and was in balance. Further, if the independent auditors commissioned by the Medicare intermediary found, or even suspected fraud, there was a mechanism to deal with it and the full weight of the law was felt, as it should be, in such instances.
Page 140 PREV PAGE TOP OF DOC
In 1994, the federal government began to institute a number of hospital-directed initiatives to combat what it claimed was health care fraud or abuse. The four largest initiatives to date have been the ''DRG 3 Day Window Rule'', ''The Paths Audits'', ''Operation Bad Bundle'' and ''DRG Creep'', and they all focus on the submission of what the government has characterized as false claims to the federal government. My personal experience has been limited to the ''DRG 3 Day Window'' issue, so I'll confine my remarks to that matter.
The government has alleged that hospitals in large numbers have separately billed Medicare for non-physician outpatient services which were provided in conjunction with inpatient admissions and, accordingly, should not have been billed separately from the diagnostic related group (DRG) related to the admission. The Department of Justice claims that these hospitals have violated the civil False Claims Act and plans to pursue all hospitals, nationwide, eventually reaching more than 4,000 facilities.
In Massachusetts, the U.S. Attorney targeted forty-six hospitals for cursory audits and then sent demand letters in the tens of millions of dollars, but with options to settle potential false claims violations for just a fraction of the total demandthrough still a substantial sumif the targeted hospital would respond within twenty days. A survey done recently of twenty-two of the 46 hospitals that were targeted in Massachusetts revealed that during the period covered by the audits, about 3 years and nine months, there were 2,315,635 patient bills totaling $2,318,928,040. Only 2,672 claims were actually found to be in error (that's 0.2% of total claims) and they had a billing value of just under $400,000, but the false claims threat by the U.S. Attorney's office was to impose fines and penalties of up to $32,089,722. The final settlements reached by those twenty-two hospitals was for $713,807.
Page 141 PREV PAGE TOP OF DOC
Holy Family Hospital, the institution I serve, was found to have 80 errors, involving $10,717 in billing of more than 70,000 claims processed during the period with a total value of over a quarter of a billion dollars. In its demand letter, the U.S. Attorney's office indicated we could, under the False Claims Act, be penalized up to $426,295, but if we responded within 20 days, we could ''settle'' the dispute for $20,950. We settled because we felt we couldn't do justice to a thorough review of our situation within the 20 day time period required and because we also felt it would cost us more than the settlement demand to study the issue than to just pay it off. In retrospect, I wish we had fought the demand as there is a better than even chance we'd have found our error rate was less than that calculated by the government.
Another of the state's hospitals with which I'm familiar did challenge the demand letterSt. Elizabeth's Medical Center in Bostonand they were successful in reducing an initial threat of $807,595 but with a settlement potential of $11,306 to a final settlement of $1,455 on 80,236 claims totaling $238,653,248 during the study period.
Now it is important for the Judiciary Committee to know that one component of the complex rules and regulations governing Medicare billing actually fosters many of the billing errors that occur in this issuethis has to do with Medicare cases which may also have some other insurance. Medicare law and regulations requires hospitals to bill the other insurer first. In most cases though, these other insurers do not pay on the basis of DRG or per case payment, hence the pre-admission testing is billed as an outpatient to that other carrier rather than as an inpatient. Then, when the hospital's claim to the first insurer gets deniedas often is the casethe hospital must then re-generate the Medicare bill, in this instance a manual procedure. Therefore, by complying with one set of Medicare regulations (secondary insurer payments) the hospital compromises its ability to comply with the 72 hour billing requirement.
Page 142 PREV PAGE TOP OF DOC
Please know that no responsible health care professional has any tolerance whatsoever for Medicare fraud and abuse. It should be uncovered where found and prosecuted to the fullest extent of the law. But honest clerical or other errors that result from an inadvertent misinterpretation of law or regulations, or that are present in any human endeavorand we'd stack up our industry's billing error rates which consistently are at the rate of 1/10 of one percent or less against any other enterprise with which the government does businessought not to be classified as criminal, but should be addressed in a more responsible, less threatening manner. Hospitals don't want more revenue than they're due for providing patient services and if they've made errors that result in loss, either to the government or to the hospital, then these should be addressed, most preferably as they were addressed prior to the U.S. Attorney probesby fiscal intermediary audit.
Thank you for your patience. I'd be pleased to answer any questions you might have.
Mr. SMITH. Mr. Cameron.
STATEMENT OF TERRY CAMERON, SENIOR VICE PRESIDENT, MEDICODE, Inc.
Mr. CAMERON. Good morning, Mr. Chairman. I am Terry L. Cameron, a health care industry professional with over 10 years of experience working for a major health care organization. I am currently employed in the private sector of health care information. I would like to thank the committee for inviting me today.
Page 143 PREV PAGE TOP OF DOC
I am here today to talk about generally three points: First, despite the volume of regulation governing Medicare payments, it is possible for every claim to be in compliance.
Second, there are some hospitals that are now making conscious decisions to devote the necessary resources to encourage compliance. But in contrast, there are also hospitals that are not devoting the effort or resources to ensure compliance.
Third, the False Claims Act should not be weakened, because any reduction in that act could encourage more noncompliant claims to be submitted to Medicare. For over 10 years I have directed the activities of accounts receivable, reimbursement managed care contracting, and compliance for a number of teaching physician and nonteaching physician hospitals and medical groups. I have had an opportunity to play an instrumental role in the development of compliance programs and strategies during my tenure at each of these organizations.
Health care organizations are very complex. The hospital and physician group, for instance, may have a fragmented organizational structure which foster little control over policies and procedures. It is not uncommon to see as many as a dozen billing systems in one health care organization. The organizations that have managed to centralize and reengineer their fragmented billing processes have been successful in complying with governmental regulations.
Developing a billing compliance strategy to meet the Federal health care requirements takes a tremendous amount of support from within the organization. Senior management must be committed to understanding the billing regulations, and willing to deploy the ongoing compliance program. There is software and rules engine technology on the market today which makes it possible for hospitals and teaching physician groups to standardize and comply with governmental and commercial payer regulations, whether the regulations are related to unbundle, 72-hour window, teaching physician guidelines, or any other Federal payment requirement. If technology and a willingness to change current processes are deployed, every claim can be billed correctly.
Page 144 PREV PAGE TOP OF DOC
Prior to the more recent OIG, HHS, and DOJ scrutiny, some health care organizations made management decisions not to allocate the resources necessary to bring their billing operations into compliance. Although the billing operation is the lifeblood of each and every one of these institutions, financial and personal resources to run the operation effectively while complying with all carrier regulations were not always committed.
In business we make decisions on two things, cost and benefit. There is a cost of reengineering, automating, and simply standardizing the health care billing process to meet compliance guidelines. But it can be done, and it is in fact being done throughout the Nation. In most cases, the changes will save money in the long run.
The Federal health care payment system involves hundreds of pages of law and regulations. However, I know from experience that hospital and provider organizations can comply with Federal and commercial claims submission guidelines. American Express has not made a single mistake on my monthly statement in 10 years that I have been a card member. Regardless of whether I travel to Washington, D.C., Puerta Vallarta, or London, the charges I make always are correctly detailed at the end of every month. The reason: The banking industry came together over two decades ago and determined how financial transactions should be structured. The lack of standardization of hospital and professional billing makes it difficult, but not impossible to similarly comply with billing rules.
There is a need in the health care industry to standardize the rules associated with claims payment. To insist, however, the current rules, some of which have been on the books for decades, are too complicated or impossible to comply with is hard to imagine. I have worked for organizations that were willing to commit the necessary resources and successfully implement processes to comply with Federal payment regulations, so I know it can be done.
Page 145 PREV PAGE TOP OF DOC
Drastically reducing the core enforcement tool of the False Claims Act with legislation is not the answer. In my experience, I use the False Claims Act to educate upper management regarding the importance of dedicating necessary resources to comply with governmental regulations.
Every decision in health care or any other business, as I said before, is a cost and benefit. You have to weigh the pros and the cons. The current False Claims Act was a powerful catalyst when I had to discuss the consequences or costs of noncompliance with senior management. When fully informed of the possible fines and penalties, the organization typically took the high road and allocated the necessary resource. Any weakening of the False Claims Act will dramatically reduce any chance that upper management will undertake crucial compliance programs.
I am here today as an expert in health care compliance, and as a strong supporter of the False Claims Act. The Act has increasingly demonstrated its necessity and effectiveness since its inception in 1996. The recent increase in health care-related cases suggests that without a strong False Claims Act, the health care industry is unlikely to change its complicated and oftentimes fragmented organizations to comply with governmental regulations. Self-policing and weakening enforcement capabilities is not the answer. We should be concentrating on standardizing, reengineering processes, and using technology to get claims out the door correctly each and every time. I appreciate the opportunity to appear before this committee today to share my views.
[The prepared statement of Mr. Cameron follows:]
Page 146 PREV PAGE TOP OF DOC
PREPARED STATEMENT OF TERRY CAMERON, SENIOR VICE PRESIDENT, MEDICODE, INC.
Good morning, Mr. Chairman. I am Terry L. Cameron, healthcare industry professional with ov er ten years of experience working for major healthcare organizations. I am currently employed in the private sector of healthcare information. I would like to thank the committee for inviting me to speak to you today.
I am here today to talk about generally three points. First, despite the volume of regulations governing Medicare payments, it is possible for every claim to be in compliance. Second, there are some hospitals that are now making the conscious decision to devote the effort and resources to ensuring compliance. But in contrast, there are also hospitals that are not devoting the effort and resources to ensuring compliance. Third, the False Claims Act should not be weakened because any reduction of the enforcement of the False Claims Act could encourage more noncompliant claims to be submitted to Medicare.
For over ten years I have directed the activities of accounts receivable, reimbursement, managed care contracting and compliance operations for a number of teaching physician, and forprofit nonteaching institutions in the healthcare industry. I have had the opportunity to play an instrumental role in the development of billing compliance strategies during my tenure at each institution.
Healthcare organizations are very complex. The hospital or physician group may for instance, have fragmented organizational structures, which results in little control over policies and procedures. It's not uncommon to see as many as a dozen billing systems in one healthcare organization. The organizations that have managed to centralize and reengineer their fragmented billing practices have been successful in complying with government regulations.
Page 147 PREV PAGE TOP OF DOC
Developing a billing compliance strategy to meet federal healthcare payment requirements takes a tremendous amount of support from within an organization. Senior management must be committed to understanding billing regulations, and willing to deploy an ongoing compliance program. There is software and rules engine technology on the market today which makes it possible for hospitals and teaching physician groups to standardize and comply with government and commercial payer billing regulations. Whether the regulations are related to lab unbundling, 72 hour window, teaching physician guidelines or any other federal billing requirement, if technology and a willingness to change current processes are deployed every claim can be billed correctly.
Prior to the more recent OIG, HHS and DOJ scrutiny, some healthcare organizations made management decisions not to allocate the resources necessary to bring their billing operations into compliance. Although the billing operation is the lifeblood of each and every hospital and physician group, the financial and personnel resources to run the operation effectively, while complying with all carrierbilling regulations, were not always committed. In business, we make decisions based on two things cost and benefit. There is a cost to reengineering, automating or simply standardizing the healthcare billing process to meet compliance guidelines. But it can be done, and is in fact, being done throughout the nation. And in most cases, the changes will save money in the long run.
The federal health care payment system involves hundreds of pages of law and regulations. However, I know from experience that hospital and provider organizations can comply with federal and commercial claims submission guidelines.
Page 148 PREV PAGE TOP OF DOC American Express has not made a single mistake on my monthly statement in the ten years I have been a card member. Regardless of whether I travel to Washington D.C., Puerto Vallarta, or London, the charges I make are always correctly detailed at the end of every month. The reason? The banking industry came together over two decades ago and determined how financial transactions should be structured. The lack of standardization of hospital and physician billing makes it sometimes difficult, but not impossible, to similarly comply with billing rules.
There is a need within the healthcare industry to standardize the rules associated with claims payment. To insist, however, that current rules, some of which have been on the books for decades, are too complicated and impossible to comply with is hard to imagine. I have worked for organizations that were willing to commit the necessary resources, and successfully implemented processes to comply with federal payment regulations, so I know it can be done.
Drastically reducing the core enforcement tool of the False Claims Act with legislation is not the solution. In my own experience, I used the False Claims Act to educate upper management regarding the importance of dedicating necessary resources to comply with government regulations. Every decision in healthcare or any other business as I said before is a cost benefit. You have to weigh the pros and cons. The current False Claims Act was a powerful catalyst when I had to discuss the consequences of noncompliance with senior management. When fully informed of the possible fines and penalties, organizations typically take the high road and allocate the necessary resources. Any weakening of the False Claims Act will dramatically the chances that upper management will undertakearding crucial compliance programs.
I am here today as an expert on healthcare compliance, and as a strong supporter False Claims Act. The Act, has increasingly demonstrated its need and effectiveness since its revision in 1986. The recent increase in health care related cases suggests that without a strong False Claims Act, the health care industry is unlikely to change its complicated and often times fragmented organizations to comply with governmental regulations.
Page 149 PREV PAGE TOP OF DOC
Selfpolicing and weakening the enforcement capabilities of the False Claims Act is not the answer. We should be concentrating on standardization, reengineering processes and using technology to get claims out the door correctly each and every time.
I appreciate the opportunity to appear before this committee today to share my views and welcome any question you may have.
Mr. SMITH. Thank you, Mr. Cameron.
STATEMENT OF RUTH BLACKER, MEMBER, NATIONAL LEGISLATIVE COUNSEL, AMERICAN ASSOCIATION OF RETIRED PERSONS
Ms. BLACKER. Thank you. Good morning, my name is Ruth Blacker, and I am a member of the National Legislative Council of AARP. I am very happy to be here to testify today.
Fraud and abuse in the health care system affect all Americans by increasing the costs of the programs providing care, and the Medicare program is no exception. Public concern and even outrage has led the Congress in recent years to expand statutory authority and income resources to deal with the problem. However, none of these things are likely to play a more important role in recovering improper payments or in acting as a deterrent than the False Claims Act. Use of the FCA by Federal authorities has become an important tool for fighting fraud and abuse in many programs, including the Medicare program. It should not be changed.
Page 150 PREV PAGE TOP OF DOC
Federal enforcement authorities have relied on the FCA to recover hundreds of millions of dollars in improper payments to the Medicare program in recent years. It has also served as a strong deterrent to fraud and abuse. In light of the financial stress Medicare is currently under, these efforts are important to maintaining the solvency of the program.
It is AARP's understanding that the hospital industry has recently come under unprecedented scrutiny by the Department of Justice through a series of national projects involving the use of the False Claims Act. Because fraud and abuse have a very real impact on Medicare, we believe that Federal law enforcement officials need to have adequate authority to pursue those who take advantage of the program. However, this authority carries with it a responsibility for enforcement authorities not to take shortcuts in pursuing fraud. Among other things, this would include making a good-faith effort to distinguish cases involving real fraud and abuse from those involving honest mistakes or misunderstandings.
Providers, however, have the responsibility to remain up to date on current billing regulations, and to maintain a competent staff to avoid billing mistakes and subsequent improper payments. Such improper payments, whether honest mistakes or fraudulent payments, cost Medicare significant amounts in inappropriate payments.
AARP is deeply concerned about the effect the Health Care Claims Guidance Act, H.R. 3523, would have on the False Claims Act. We believe it would seriously undermine the FCA, making it much easier for unscrupulous providers to successfully submit fraudulent Medicare claims, and remove an important incentive for providers to take great care to see that their billings are correct.
Page 151 PREV PAGE TOP OF DOC
In light of recent congressional actions to strengthen the government's hand against fraudulent health care providers, it would seem contradictory for Congress to now take action on a bill that would reduce the tools that officials have at their disposal to identify and prosecute fraud and abuse. AARP strongly recommends that the Congress not make changes to the False Claims Act.
The False Claims Act is, however, a very powerful tool, and when used inappropriately, could have a corrosive effect on honest providers' sense that they are being treated fairly by Medicare and Federal law enforcement authorities. In this regard, we understand that the FCA projects undertaken by the Justice Department have created problems for some legitimate providers.
We are encouraged, however, by the fact that the Department has shown a willingness to reevaluate and revise its procedures for using the FCA, and that it has offered assurances that it is not pursuing honest billing errors or simple mistakes. These steps will require ongoing oversight to ensure that they strike an appropriate balance, but we are pleased that initial steps have been taken to address legitimate concerns of the hospital industry.
It would not be appropriate or necessary for Congress to change the False Claims Act in order to deal with problems in its implementation. It would make sense, however, for standards to be established to guide enforcement authorities with carrying out this responsibility. This does not require a change in the law.
Important to this effort is the need for enforcement officials to consult with Medicare program officials, as well as with the organizations representing providers and health professionals, as they develop policies to guide the exercise of prosecutorial discretion. The False Claims Act must remain intact and be used appropriately to continue to preserve and protect the Medicare program for the American people. This is not a time for tying the hands of enforcement authorities by weakening the False Claims Act. There is too much at stake. At the same time, however, it is very important that this powerful law be used judiciously by enforcement authorities.
Page 152 PREV PAGE TOP OF DOC
Mr. Chairman, thank you for this opportunity.
[The prepared statement of Ms. Blacker follows:]
PREPARED STATEMENT OF RUTH BLACKER, MEMBER, NATIONAL LEGISLATIVE COUNSEL, AMERICAN ASSOCIATION OF RETIRED PERSONS
Good morning. My name is Ruth Blacker from Guntersville, Alabama. I am a member of the National Legislative Council of AARP. I appreciate the opportunity to testify before the Subcommittee today.
Fraud and abuse in the health care system affect all Americans by increasing the costs of the programs providing care, and the Medicare program is no exception. The public is, justifiably, very concerned about the effect of fraud and abuse on the Medicare program and on the cost and quality of the care they receive. This public concerneven outragecoupled with accounts of how much Medicare fraud and abuse could be costing taxpayers and the American public, have led the Congress in recent years to expand statutory authority and increase resources to deal with the problem.
The problem is not always a simple one to tackle, however. For example, the sheer number of Medicare claims that are processed annually, approximately 800 million in 1995, makes scrutinizing them for irregularities a complex undertaking. This enormous volume of claims must be reviewed to determine which irregularities are appropriate and which are not. Determining which are fraud and which are abuse is also necessary, because they are sometimes dealt with differently under the law. In addition, it is critical to recognize throughout this process that most providers are honest and, in fact, have an investment in the Medicare program and in it being run efficiently.
Page 153 PREV PAGE TOP OF DOC
THE FALSE CLAIMS ACT
The False Claims Act (FCA) is a critical tool for fighting fraud and abuse in government programs, including the Medicare and Medicaid programs. It should not be changed.
Federal enforcement authorities have relied on it to recover hundreds of millions of dollars in improper payments to the Medicare program in recent years. It has also served as a strong deterrent to fraud and abuse. In light of the financial stress Medicare is currently under, these efforts are important to maintaining the solvency of the program.
The False Claims Act authorizes the Department of Justice to seek treble damages against those who submit false claims to the Federal government. It also permits private individuals to initiate qui tam suits against persons submitting such claims and to share in any recovery that is obtained. These two features establish strong incentives to pursue fraud and abuse. Although the Social Security Act contains its own provisions for punishing those who submit false claims to Medicare and Medicaid, the penalties authorized by these provisions are generally less severe than those under the FCA. Taken together, these two bodies of law provide enforcement officials with a spectrum of possible sanctions to impose, depending on the seriousness of the violation.
AARP applauds the action Congress has taken in recent years to strengthen enforcement tools and to provide additional resources to fight fraud through provisions in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Balanced Budget Act of 1997 (BBA). These provisions, which include establishment of a new section of criminal law specific to health care fraud, creation of a health care fraud and abuse control board and account, and increased penalties and fines, will make it easier to identify, prosecute, and punish unscrupulous providers. However, none of these are likely to play a more important role in recovering improper payments or in acting as a deterrent than the False Claims Act.
Page 154 PREV PAGE TOP OF DOC
THE PUBLIC'S CALL TO REDUCE FRAUD AND ABUSE
Despite the major drive by enforcement authorities in the past few years, a 1997 survey by AARP indicated that 80 percent of Americans are unaware of any efforts to combat health care fraud. Of those who are aware, nearly onethird believe that such efforts have had no effect. Moreover, the public remains pessimistic about the government's ability to fight fraud.
The public also believes that reducing fraud and abuse will increase the quality of their care and lower their costs, and that more can and should be done to reduce fraud in the health care system. Perhaps most important, there is a widely held perception among the public that if fraud and abuse were curbed, this could keep Medicare solvent. While this is a misperception, it colors the public's willingness to seriously consider the tradeoffs that will be required to achieve longterm fiscal viability in Medicare.
THE FALSE CLAIMS ACT
It is AARP's understanding that the hospital industry has recently come under unprecedented scrutiny by the Department of Justice (DOJ) through a series of national projects involving use of the False Claims Act. These projects have been looking specifically at hospital billing practices with regard to the 72-hour DRG ''window,'' outpatient laboratory tests, and physician services provided by residents in teaching hospitals.
In carrying out these projects, in many cases the first step that DOJ took was to issue ''demand'' letters informing hospital administrators that they believed fraudulent billings were submitted by their institutions in violation of the False Claims Act. These letters urged the hospitals to pay damages to settle the dispute quickly and to not risk further action, fines, and possible exclusion from the Medicare program under the FCA. Hospitals saw these letters as intimidating and beyond the intent of the law.
Page 155 PREV PAGE TOP OF DOC
Because fraud and abuse have a very real impact on Medicare, we believe that federal law enforcement officials need to have adequate authority to pursue those who take advantage of the program. However, this authority also carries with it a responsibility for enforcement authorities not to take short cuts in pursuing fraud. Among other things, this would include making a good faith effort to distinguish cases involving real fraud and abuse from those involving honest mistakes or misunderstandings, and giving the providers and health professionals that treat Medicare beneficiaries some idea about how prosecutors will use the False Claims Act in individual cases.
Providers, however, have the responsibility to remain uptodate on current billing regulations and to maintain a competent staff to avoid billing mistakes and subsequent improper payments. Such improper paymentswhether honest mistakes or fraudulent claimscost Medicare significant amounts in inappropriate payments. The extent of fraud and abuse in Medicarewhether real or perceivedalso contributes to diminished public confidence in the Congress' stewardship of taxpayer dollars and in the Medicare program itself.
MAINTAINING A STRONG FALSE CLAIMS ACT
AARP is deeply concerned about the effect that proposed legislation would have on the False Claims Act. We believe such legislation would seriously undermine the FCA, making it much easier for unscrupulous providers to successfully submit fraudulent Medicare claims, and remove an important incentive for providers to take great care to see that their billings are correct.
Page 156 PREV PAGE TOP OF DOC The legislation would establish a series of major exemptions from civil liability under the False Claims Act for fraud perpetrated by providers supplying health care services under the Medicare program. Through its retroactive application it would also protect those companies with enforcement actions already well underway.
In particular, the legislation would amend the FCA to excuse from civil penalty such practices as overbilling, double billing, and billing for unnecessary services or services not provided, so long as the amount for any particular scheme is not ''material.'' Thus, in an environment where there is intense public concern about the need to reduce fraud and abuse, Congress would be changing the law to create a ''loophole'' that would protect hospitals and other providers from prosecution under the False Claims Act if the amount fell below a certain threshold. For huge corporate providers who process millions of claims and receive billions from Medicare, the chance of misuse of such a ''loophole'' is far too great a riskhundreds of millions of dollars in improper payments could be at stake.
In addition, the legislation would impose a far heavier burden of proof on the government for civil cases pursued under the FCA. Changing the evidentiary standard from ''preponderance of evidence'' to ''clear and convincing evidence'' would make it more difficult, and in some cases impossible, to prove fraud.
In light of recent Congressional actions to strengthen the government's hand against fraudulent health care providers, it would seem contradictory for Congress to take action on a bill that would reduce the tools that federal law enforcement officials have at their disposal to identify and prosecute fraud and abuse. AARP strongly recommends that the Congress not make changes to the False Claims Act.
Page 157 PREV PAGE TOP OF DOC
The FCA is, however, a very powerful tool, and when used inappropriately could have a corrosive effect on honest providers' sense that they are being fairly treated by Medicare and federal law enforcement authorities. In this regard, we understand that the FCA projects undertaken by the Justice Department have created problems for legitimate providers. We are encouraged by the fact that the Department has shown a willingness to reevaluate and revise its procedures for using the FCA, and that it has offered assurances that it is not pursuing honest billing errors or simple mistakes. These steps will require ongoing oversight to ensure that they strike an appropriate balance, but we are pleased that initial steps have been taken to address legitimate concerns of the hospital industry.
It would not be appropriate or necessary for Congress to change the False Claims Act in order to deal with problems in its implementation. It would make sense, however, for standards to be established to guide enforcement authorities with carrying out this responsibility. This does not require a change in the law, but important to this effort is the need for enforcement officials to consult with program officials, as well as with the organizations representing providers and health professionals, as they develop policies to guide the exercise of prosecutorial discretion, and avoid excess.
The False Claims Act must remain intact and be used appropriately to continue to preserve and protect the Medicare program for the American public. The most recent audit by the Department of Health and Human Services Office of Inspector General (OIG) shows that progress is being made in stemming fraud in the Medicare program, but there is still a long way to go. As we become better at identifying and rooting out the ''easy fraud,'' it becomes more difficult to distinguish among fraud, honest mistakes, and justifiable anomalies in billing. This is not a time for tying the hands of enforcement authorities by weakening the False Claims Act, there is too much at stake. At the same time, however, it is very important that this powerful law be used judiciously by enforcement authorities.
Page 158 PREV PAGE TOP OF DOC
In compliance with House Rule XI, clause 2(g) regarding information of public witnesses, attached is AARP's statement disclosing federal grants and contracts by source and amount received in the current and preceding two years.
THE AARP FOUNDATION
HISTORY AND ROLE
The AARP Foundation was established in the District of Colombia in 1961 as a 501(c)(3) nonpartisan charitable corporation to which are tax deducible. As an affiliate of AARP, the corporation was originally named the Retirement Research and Welfare Association and was set up to engage in the study and discussion of issues affecting aging persons.
In 1983, the Retirement Research and Welfare Association changed it's named to the AARP Foundation and shifted it's emphasis to promoting project and community service endeavors related to the social welfare, maintenance, and improvements of health and educational services for older persons. During the 1980s and early 1990s, the AARP Foundation received grants for various AARP transferred all of its public and private grant programs (staff, funds, and administration) to the AARP Foundation. These transfers were approved by all of the federal funding agencies.
The AARP Foundation administers educational, employment and community service programs funded by both private and federal grants totaling an estimated $72 million in 1997. Major problems of the AARP Foundation include the AARP Senior Community Service Employment Program and the AARP Tax-Aide Program. The AARP Foundation's fivemember Board of Directors is appointed by AARP Board of Directors and provides oversight and guidance to the supervises and Foundation's administrative, financial, and professional activities. Under a service provider agreement, AARP provides the AAPR Foundation with support services and specialized skills needed to carry out some of the grantfunded programs
Page 159 PREV PAGE TOP OF DOC
AARP Statement of Federal Grants & Contracts Pursuant to Rule XI, Clause 2(g)
On December 19, 1995, the President signed into law the Lobbying Reform Disclosure Act of 1995 which prohibited 501(c)(4) organizations that lobby from receiving federal funds. Although the lobbying act only applies to new grants, AARP transferred its grant programs (staff, funds, and administration) to the AARP Foundation, a 501(c)(3) nonpartisan, charitable corporation established in the District of Columbia in 1961. These transfers, effective January 1, 1996, were approved by all of the federal funding agencies.
Three Largest Programs:
(1) The AARP SCSEP is a work-training program authorized under the Older Americans Act of 1965. Eligible program applicants must be at least 55 years of age, physically able to work, and have income at or below the poverty level. This program operates in 102 locations in 33 states and Puerto Rico. For the grant-year ending June 30, 1997, the program served over 13,000 individuals and had an unsubsidized placement rate of 39%.
(2) The AARP SEE Program placed retired, or unemployed individuals, 55 or older, in technical assistance roles with the EPA. For the last grant year, participants were enrolled in 33 locations throughout the United States. Multi-year cooperative agreements were projected originally for 12 months in 1997, until a decision was agreed to with EPA for the AARP Foundation to phase out the program on 9/12/97. The program was transitioned to the National Older Worker Career Center (NOWCC) effective 9/13/97.
Page 160 PREV PAGE TOP OF DOC
(3) The AARP Tax-Aide Program provides free tax counseling for low and middle-income individuals, 60 and over, through a network of more than 10,000 sites and 30,000 volunteers. In 1997, this program helped over 1.5 million taxpayers.
Mr. SMITH. Thank you, Ms. Blacker.
Mr. Sprenger, I want to direct my first question to you.
Did I understand you to say that the fiscal intermediaries were the ones who are liable or should be liable, rather than the hospitals themselves? If you would want to elaborate on that.
Mr. SPRENGER. In certain instances, as my colleague from Texas indicated, Blue Cross had a responsibility to deal with the bundling of the outpatient laboratory tests with the inpatient, under the 72-hour program, and it is the fiscal intermediary. But it changes, depending upon the program. There are certain programs where it is the fiscal intermediary's responsibility. There are other programs where it is the individual hospital's responsibility. So it varies.
Mr. SMITH. Mr. Sprenger, the Justice Department indicated in their testimony that some of the proposals by the American Hospital Association were preferential; that is, that they would treat the health care industry with preferential treatment, particularly in regard to, I think, some materiality standard, and particularly in regard to the safe harbor concept.
Page 161 PREV PAGE TOP OF DOC
I gather you disagree with that, and if so, why?
Mr. SPRENGER. We disagree with the point of view, first of all, in that we are not trying to change the law, we are trying to clarify it, and as to how it should be applied in these given circumstances. We want it to be used as we think it was intended when the law was passed.
What we have asked for is that there be a certain screen from HCFA, whereby they would screen to see whether or not there was potential fraud; and if there is, it absolutely should be sent on over to the Department of Justice, and they should move ahead with it.
On the other hand, if it is obvious that it is a misinterpretation, or if it is obvious that it is an error that has been made, that we settle it as we always have. So we are not trying to change the law. We are not trying to change the intent of the law. All we are trying to do is to protect the hospitals from these letters that they are receiving that say you are guilty before you even can prove otherwise. That is what we are trying to protect.
Mr. SMITH. You mention in your testimony, in fact it was at the end of your testimony, I think, that you regretted the lack of national enforcement guidelines, that there were no definitions or procedures for intentional fraud. The Department of Justice argues that the guidelines are very clear, at least the False Claims Act.
What did you mean that there are not national enforcement guidelines?
Page 162 PREV PAGE TOP OF DOC
Mr. SPRENGER. I think that was in reference to the response that we got back from the Department of Justice. We just got that on Friday. They did not in any way give us specific national guidelines that we could use.
Mr. SMITH. Which raises concerns about individuals, U.S. Attorneys, enforcing the law in different ways, is that your primary concern?
Mr. SPRENGER. That is correct. That is our concern.
Mr. SMITH. There are not many people in the administration who have found themselves unable to write rules and regulations governing government behavior. This would be an exception, I think, to the general rule.
Thank you, Mr. Sprenger.
Mr. Richey, I appreciate your good comments about the difference between rural hospitals and hospitals in large metropolitan areas. I think they were on target.
I just want to go back to the figures you used and make sure that I understood them. The initial letter from the Department of Justice said that you had something like $159,000 in fraudulent billings, is that correct?
Mr. RICHEY. That is correct, sir.
Page 163 PREV PAGE TOP OF DOC Mr. SMITH. From that $159,000 you determined there were actually only $8,000 in fraudulent billings.
Mr. RICHEY. The $159 plus was triple damages. Our actual damages netted out were $8,300.
Mr. SMITH. Does the Department of Justice agree with you on the $8,300?
Mr. RICHEY. They have not yet done the confirmation and audit yet. We are hoping they would review that and come to reasonable terms with us on a number like $8,300.
Mr. SMITH. Thank you, Mr. Richey.
Mr. Lane, you may have pointed out, at least in part, a way to put some of those figures that we heard a minute ago in perspective, the figures being that of the 4,600 hospitals, 1,300 were found to have willfully violated the False Claims Act. You mentioned in your testimony that when it came to an actual percentage of billings, it was something like one-tenth of 1 percent that were actually fraudulent.
It just seems to me that you can have just a handful of fraudulent billings that would taint the whole hospital, so it would be very easy to see why a large percentage of the hospitals would be in some shape or form in violation of the False Claims Act.
Page 164 PREV PAGE TOP OF DOC Is it your feeling that the percentage of billings that are actually fraudulent, and we are talking about billings now, not hospitals, would be less than 1 percent, overall?
Mr. LANE. Attorney Stern mentioned the analogy to the fire hydrant, and the fact that people park in front of it and then go on about their business and hope not to get caught. I would say in all honesty in my 32 years in the business I have never ever, either parked in front of a fire hydrant or submitted or caused to be submitted a false claim of any type.
I think the overwhelming majority of the people in this field are as honest and as upright and as forthright about their responsibility as I am. So I would be shocked if fraud and abuse accounted for, in any shape or manner, a significant portion of hospital billings.
Mr. SMITH. Thank you. Mr. Sprenger, is that a fair comparison, do you think, to look at the total number of billings as opposed to the total number of hospitals?
Mr. SPRENGER. Yes. Absolutely. If I understand your question to look at it in terms of the number of billings, rather than the hospitals? Is that your question, Chairman Smith?
Mr. SMITH. Yes. Among the hospitals that you represent or the health care systems that you are familiar with, what percentage of the total billings would be fraudulent, would you guess?
Page 165 PREV PAGE TOP OF DOC
Mr. SPRENGER. If there are any, I would be hitting the horse. That was referred to earlier. I do not know, of all of the colleagues that I work with across the country, and certainly in my own system, a culture that encourages billing in any kind of fraudulent way, if that is your question?
Mr. SMITH. My question was, what is the actual percentage of fraudulent billings? You are saying that there are no fraudulent billings. I assume that there are some.
Mr. SPRENGER.There is no profession, no industry, I suspect, where there are not shnooks out there who will take advantage.
Mr. SMITH. My question was, among all the industry that you are familiar with, what percentage of all the billings would be fraudulent?
Mr. SPRENGER. I would have to believe it would be very, very small.
Mr. SMITH. Would it be less than 1 percent?
Mr. SPRENGER. Less than 1 percent, absolutely.
Mr. SMITH. Thank you, Mr. Sprenger.
Page 166 PREV PAGE TOP OF DOC Mr. Watt.
Mr. WATT. Thank you, Mr. Chairman. Let me just ask the general question to the whole panel first. Is there anybody on this panel who believes that the standard for fraud for a hospital should be different than it is for poor people?
Mr. RICHEY. The only exception that I see, Mr. Watt, is when we have been specifically instructed by our fiscal intermediary to bill a certain way, and then are penalized when we do it the way they said, and somebody else comes back and says, no, we have changed our mind. That would be the only example I can think of.
Mr. WATT. All right. Anybody else think there ought to be a different standard?
Mr. Sprenger, let me express some dismay at this assertion that you have made that you are not asking for a change in the law. I have a bill here that has 6 pages to it, and not often does anybody assert to me that they are not asking for a change in the law when there is a 6-page bill that has been proposed. So I find that a little hard to reconcile. I will not beat up on you on that, but I think you might be overstating the case in some measure.
One area in which you seem to be asking for a change in the law is in the standard of proof, where you on page 3 of this bill, in particular, and maybe you have not suggested this bill, but somebody has suggested this bill on behalf of your industry. They are talking about going from a clear and convincing evidence standard, which is the standard that exists in every single area of fraud in the country, to a standard of a preponderance of the evidence; or the other way around, I am sorry. I got them backwards.
Page 167 PREV PAGE TOP OF DOC
I take it if you are not asking for a change in the law, then you do not support that provision in this bill?
Mr. SPRENGER. I would like to ask Mary Grealy, I think we are on a legal technicality, here.
Mr. WATT. I don't think this is a legal technicality. This is the standard by which one is judged to have either violated the law or not violated the law, whether you are violating the law based on a preponderance of the evidence, or whether prosecutors have to prove clear and convincing evidence. If that is not a change in the standard of law, which you just told me, I thought, that you are not asking for, I don't know what is.
Mr. SPRENGER.The way it is being applied, as you have heard over and over again, that we are being told that we are guilty before we even go through a process.
Mr. WATT. Wait a minute, now. Let me do another little nuance, here. Guilt and innocence has to do with the criminal law. This is a civil process. There is no guilt and innocence in the civil process. You are either liable or not liable, but it is not guilt or innocence.
Mr. SPRENGER. We are having to prove our innocence.
Mr. WATT. You are having to prove that you are not liable.
Page 168 PREV PAGE TOP OF DOC
Mr. SPRENGER. That is correct.
Mr. WATT. You are not being accused of being guilty of any criminal violation. Guilt and innocence is a criminal term.
Ms. GREALY. Excuse me, Mr. Watt, I am Mary Grealy, the counsel for the American Hospital Association. I think what Mr. Sprenger is saying, when he says we are talking legal terms here, our position is that
Mr. WATT. I hope you are not standing up to tell me that this is not a change in the law, but that you are asking for a change
Ms. GREALY. Correct.
Mr. WATT. It is a change in the law that you are asking for?
Ms. GREALY. What we are saying is we would prefer not to be in this position of asking to change the law, but given
Mr. WATT. Maybe I need to go back with you, since you are not on the panel, and ask if you are advocating for a different standard for hospitals?
Ms. GREALY. Yes, we are. The rationale
Page 169 PREV PAGE TOP OF DOC Mr. WATT. I just want to be clear on that, because we do not need to leave here today thinking that we are not being asked under this bill to maybe make what appears to be some dramatic changes in the law.
Ms. GREALY. Because we think there are dramatic penalties involved here, given the large volume of claims that hospitals are dealing with: 200,000 claims per day. When you add 10,000 per claim
Mr. WATT. I just wanted to be clear. There seemed to be a disconnect between what Mr. Sprenger was saying.
Mr. SPRENGER. I think the difference here is between the legal and the intent. We as hospitals have no interest in changing the right to prosecute anyone that it is found that they have committed fraud.
Mr. WATT. I think you all probably ought to tell the hospital association that represents you that, because that is not what is being proposed here.
Let me just ask Mr. Richey quickly, and if you will indulge me, am I clear that you were saying that this demand letter that you got was the first contact that your hospital had had from the Department of Justice about potential problems?
Mr. RICHEY. That is correct.
Mr. WATT. So you were never a part of this earlier series of steps, where they did an audit and found some violations, and did a second audit and found some violations, and did a third audit and found some violations, and did a fourth audit and found some violations? You never got any request or correspondence about that?
Page 170 PREV PAGE TOP OF DOC
Mr. RICHEY. That is absolutely correct.
Mr. BERMAN. If the gentleman will yield, I don't think the gentleman meant the Department of Justice, or the Department of Justice or HHS or HCFA; in other words
Mr. RICHEY. We had never gotten any correspondence from any Federal agency dealing with the Medicare program: Blue Cross, Blue, Shield, our intermediary, the Medicare program, HCFA, the Department of Justice, or Health and Human Services. That is correct.
Mr. WATT. I am not disagreeing with what you are saying, but there needs to be some reconciliation, again, of what you are saying as opposed to the information that I have been provided, which says that the Department of Justice says they sent several letters before the demand letter, and even gave your hospital an extension of time to respond to some of the letters. So I am not trying to be adversarial here. I just want the record to be clear, and that what we are talking about is clear.
If you have some further clarification to give me on that, I am happy to receive it.
Mr. RICHEY. Yes, sir. The demand letter came with a requirement that you respond within 14 days. We did not even have the data to look at initially, so we requested that we get the data, and the Department of Justice, realizing that it may take a little bit of time, it would get into the period that they were looking at, so they asked for tolling, so we would leave the issues open for 1992 and whatever.
Page 171 PREV PAGE TOP OF DOC
Mr. WATT. That was after the demand letter?
Mr. RICHEY. That is correct.
Mr. WATT. Okay. But you didn't have any notice about these prior audits that had been taking place?
Mr. RICHEY. Nor did the majority of the hospitals that we are aware of. None of our 84 responded that they had ever been notified by the Justice Department or HCFA or our intermediary, or the other 400 hospitals in the State of Texas that got the letters at the same time.
We did not we literally did not believe this. We thought it was somebody's imagination gone completely berserk, until I actually received one of these. And it was a very, very sobering experience, opening it up and reading that I was now under investigation by the Justice Department.
Mr. WATT. Okay. Thank you, Mr. Chairman. I am sorry, I have overstayed my time at the fire hydrant.
Mr. SMITH. The gentleman from Indiana, Mr. Pease, is recognized.
Mr. PEASE. Thank you, Mr. Chairman.
Page 172 PREV PAGE TOP OF DOC
Mr. Sprenger, I want to explore a little bit the relationship between HHS and your fiscal intermediary and the hospitals themselves. Please tell me if this understanding is correct or incorrect, and then what it actually means in practice; that if the fiscal intermediary, for instance, were to instruct hospitals that they are to bill a certain way, or record a certain way, or keep records a certain way, and the hospital does not do that, and later there is found to be in violation, you have no defense. But if your fiscal intermediary says to do it a certain way and you do it that way, and HHS decides later that wasn't correct, it is no defense to you that you relied on your fiscal intermediary. Is that a correct understanding?
Mr. SPRENGER. That is correct.
Mr. RICHEY. Yes.
Mr. PEASE. Do you have experience with that, or can you cite us examples, or any personal experience of the three hospitals represented here, or anybody that is represented here?
Mr. SPRENGER. I have not personally in Minnesota, but we have certainly heard examples of hospitals across the country where they have had conflicting or lack of instructions from the fiscal intermediary, in terms of how something should be handled. Later it is determined it should have been handled a certain way, and they are penalized because it was not handled appropriately that way.
Mr. LANE. I think over the years there have been instances, and I am not going to speak specifically about fraud and abuse, but about what constitutes hospital costs that would be reimbursable under the Medicare program and what isn't.
Page 173 PREV PAGE TOP OF DOC
Going back a good many years, there were different Medicare fiscal intermediaries across the country that handled dues to associations like the Massachusetts Hospital Association and the American Hospital Association and the Catholic Health Association of the United States in different ways. Some fiscal intermediaries would let you cost it all in, some allowed some portions of it, so forth and so on. The same thing was true with hospitals that were self-insured for general and professional liability. Certain costs were excluded in some areas of the country and not excluded in others, and there wasn't any uniformity across the Nation.
A lot of those issues have been worked out and made uniform time, because as they got to be issues, and then you could point out through a normal audit process that they were reimbursing are doing it another way in a different part of the country, eventually those things came together. That is really what I was referring to when I said, from 1996 until 1994 we had a rather collegial relationship, and it worked. It really did. I just do not understand why in 1994 all of a sudden the hammer came down. It just didn't make any sense to me.
Mr. RICHEY. The other difference was when there was a discrepancy between the fiscal intermediary and HCFA that was worked out through the Medicare cost report and recuperated in the normal cost report methodology even if we had to go back and open an old cost report, which is not unusual. This is the first time we have ever just been hammered because we didn't do it the way the Justice Department thought that the instructions were originally given, even though we had not been given them properly in some areas.
Mr. PEASE. Thank you. Again, to the hospital folks, my background at one point was as general counsel to a State university, so I have some experiences similar to what you deal with in working for a government agency, trying to provide legal counsel to it.
Page 174 PREV PAGE TOP OF DOC
We found ourselves on occasion making a business decision, for lack of a better way to put it, that though we thought we were right in a case, or litigation, or a regulation problem, it was cheaper for us in the long run, partly because it eventually got paid by the government anyway, to just settle. Does that mentality obtain any? Does it affect your work, and if so, how?
Mr. LANE. I think that is absolutely true.
Mr. RICHEY. Yes.
Mr. LANE. Absolutely. The public trust hangs in the balance very significantly, and you can go to the mat on an issue and win the battle but lose the war in terms of your relationship with your own community. So most hospitals feel so strongly about the trust relationship they have with their community they are unwilling, unless it is absolutely necessary, to put themselves on the line for it, because most people do not understand what you are doing or why you are doing it. They only understand that there is trouble, so therefore, there must be some complicity there. I think as a result of that, hospitals tends to walk away.
The other issue is that in many instances you make a judgment that it is going to cost you more to fight it than it will to pay it, and most of us do not get paid as much under the Medicare program as it costs us to provide services to Medicare recipients. So we are always juggling the books, so to speak, in relationship to the dollars we are spending, in order to make sure that we have enough resources to serve the patients that come to our institutions. That is not always easy.
Page 175 PREV PAGE TOP OF DOC
Mr. PEASE. I appreciate that.
Just one more question, Mr. Chairman. Since you didn't respond, I will take it.
Mr. Cameron, just one question. What is Medicode, Inc.?
Mr. CAMERON. Medicode, Inc., is a company that provides health care information to both payers and providers on both sides of the fence. We are a wholly-owned subsidiary of United Health Care.
Mr. PEASE. Okay. Thank you very much.
Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Pease.
The gentleman from California, Mr. Berman.
Mr. BERMAN. Thank you, Mr. Chairman.
I apologize for missing the initial presentations of most of this panel. I heard Mr. Sprenger but I didn't hear the others.
Page 176 PREV PAGE TOP OF DOC Mr. SMITH. On the subject of apologizing, Mr. Berman, let me apologize to you and our panelists. I am afraid I have a conflict that began sometime ago. I am going to have to excuse myself.
Mr. BERMAN. I will be happy to chair this.
Mr. SMITH. I hope you won't take advantage of my absence to go too far beyond the 5-minute rule. I would ask Mr. Pease to take the chair.
Mr. BERMAN. Under the Pease rule, if there is no response, we are going to ask additional questions.
A few questions I am going to pursue. One is where we are. I heard Mr. Sprenger say before we left that his concern, AHA's concern, is that there were no guidelines. Just to back up for a moment, is there any dispute now that the kind of letter, that accusatory letter that you feel is, in a sense, a charge of guilt and almost a prove-why-you-are-not-guilty kind of a letter, at least it leaves you with a feeling that this ''demand letter'' is no longer the policy of the Department of Justice. Is that in dispute anymore?
Mr. SPRENGER. Our concern is that those letters, while they have changed their tone to a certain extent, they have not changed the basic premise: Prove that you are not guilty.
Mr. BERMAN. Would it be fair to say, and I haven't studied these letters, or I haven't been fact-specific, as we like to say these days, but would it be fair to say that essentially they have information there were improper payments, and they are now telling you we have this information that there are improper payments; take this opportunity to show us why they weren't improper?
Page 177 PREV PAGE TOP OF DOC
Could that be an equally justified characterization of the letter you are getting now under the changed tone as your characterization that you still have to prove you are innocent? In other words, they are only sending you a letter because they have information that was only revealed from an audit that there were improper payments made.
Mr. SPRENGER. Many times a very small audit, a very small sample.
Mr. BERMAN. Okay. But they have some information. Now they are saying, we got this information. It looks like you were improperly paid. Tell us why that isn't so.
Is that basically what they are asking?
Mr. SPRENGER. I have not seen one of their specific new letters that you are talking about, so for me to respond. . .
Mr. BERMAN. It is unfair for me to ask you to characterize it. What you are saying is you hear there is a better tone, but then you don't really know whether under this new post-demand era letter, the implication that you have something to prove is still carried forward because you haven't seen it?
Mr. SPRENGER. No. My own experience has been that even though they have the information, it would be desirable coming forward with the information and through a partnership looking at the information and determining whether or not there was an error or whether there truly was fraud. The burden is on us to prove what the situation is.
Page 178 PREV PAGE TOP OF DOC
Mr. BERMAN. Although you do understand that the law puts the burden, were it ever to go to litigation, the burden is on the government to prove not simply that an error was made, but that the requisite state of mind, either the intent to defraud or the recklessness that the burden is on the government to prove that. You do understand that?
Mr. SPRENGER. If it goes to court, yes.
Mr. BERMAN. That is the law, whatever their letters say? And at this point you have not seen the most recent version of that.
Mr. SPRENGER. If it goes to court, yes.
Mr. BERMAN. Now, the guidelines. I did hear you mention you would like to see some national guidelines for how Justice proceeds in these cases.
Mr. SPRENGER. Right.
Mr. BERMAN. What I can't remember is whether the first panel indicated why they haven't done these national guidelines. I have heard them talk about no more demand letters and creating working groups. Have they specifically rejected national guidelines?
Mr. SPRENGER. In the letter that we received last Friday they did not offer any additional national guidelines to guide us.
Page 179 PREV PAGE TOP OF DOC Mr. BERMAN. Could it be the result of creating these working groups would be to produce some national guidelines, only having you involved?
Mr. SPRENGER. We could be very helpful. We have been disappointed that we as an industry have not been part of the working groups.
Mr. BERMAN. The working groups will not involve the health care industry?
Mr. SPRENGER. Not at this point.
Mr. BERMAN. All right.
One last question, and then anything you want to add I would be interested in hearing.
There is a factual issue here. I had the impression from the Inspector General and the Department of Justice that these sort of intimidating, nasty, you-are-a-bad-guy, prove-you-aren't letters, the ''demand letters,'' pay up now, were the result of a number of different communications, and that this was sort of the final letter.
Mr. Richey says, not so. That is a matter of fact that we have to try and get to, we have to look into here. Because you would know better than anybody whether your hospital had been contacted previously about these errors. At the same time, the first panel, the witnesses there sort of left me an impression that that is sort of the final letter in this whole process.
Page 180 PREV PAGE TOP OF DOC
Do any of you disagree with the notion that repeated efforts to get a hospital to change its practice which has resulted in improper payments and the refusal to change that practice and to continue billing in the same way, even though it is not proper under the rules, even though you were admonished a number of times in the past, can appropriately lead to an inference that there is sort of either an intent to defraud or a recklessness in avoiding your obligations?
Mr. SPRENGER. Obviously, if there is a history of intentional
Mr. BERMAN. A history of a certain practice which has led to improper payments, and it has been pointed out to you, and you have made the payments but you don't change the practice, that that can lead to an inference that you have some intention here of continuing to try and collect money you are not entitled to?
Mr. LANE. If the denominator is very large and the nominator is very, very small.
Mr. BERMAN. The denominator is the one on the bottom?
Mr. LANE. Yes. If you are talking about a continuing problem of 50 or 60 claims a year that are inappropriately billed, and you are talking about hundreds of thousands of claims that have been submitted, I would say that that hospital, if it is continuing, I would say maybe there is a problem with the system that needs to be corrected, because it isn't possible in every single instance, just given human error, to bat one hundred percent. You are never going to do it.
Page 181 PREV PAGE TOP OF DOC
Mr. BERMAN. I know. But if it is the same mistake that involves 50 or 60 claims a year, and a hospital is submitting 10,000 claims a year, it is just simply a notion of, in this particular area, let us see what we can get away with.
Once you have been told that something is wrong, and told and told, and had to pay back money each time, and you do not change it, what are we to think? What is anyone to think, other than that you are, at the very least, being reckless?
Mr. LANE. If the bulk of the hospitals are involved in it in some way, and have these small numbers of claims, then I would submit to you that the issue is one of complexity, and not one of not trying to live up to the rules and regulations.
Mr. PEASE. [Presiding.] Do you want to follow up with, Mr. Richey?
Mr. BERMAN. Mr. Richey, you wanted to make some point.
Mr. RICHEY. We actually have had on behalf of our 84 hospitals some response back from the Justice Department. We represent four different Justice districts. That is one of the problems. We sometimes get 3 or 4 different answers.
In our specific area, the response came back when we asked about, is this negotiable, the answer was, you got it here, it is triple damages based on our number, or double damages based on your audit.
Page 182 PREV PAGE TOP OF DOC
Another issue that bothers me is the issue of the enormous impact that Medicare has on a hospital. A local hospital simply cannot operate without the Medicare volume that you depend on for the benefit of your patients.
You know, if you are in a small community like we are, and we are the only hospital there, it would be absurd for a hospital to attempt to defraud the government even once, much less repeatedly, and hope to stay within its Medicare participation agreement and be able to take care of the patients that we need to.
Mr. BERMAN. I don't disagree, although the jails are filled with people who did absurd things.
Mr. RICHEY. I can't argue that.
Mr. SPRENGER. We are not here to protect them.
Mr. BERMAN. I understand.
Mr. WATT. Mr. Chairman, can I just make one observation in response to what Mr. Richey said?
Mr. PEASE. Yes.
Mr. WATT. One of the things I chastised the Department of Justice about was that the letters to the hospitals in North Carolina, in my congressional district, had actually come from a U.S. Attorney's office in Pennsylvania. Apparently that happened because they were trying to pursue a more national policy.
Page 183 PREV PAGE TOP OF DOC
My bias actually was in the opposite direction. If you got these things to local U.S. Attorneys, you would get a lot more conciliation, a lot more reasonable attitude about it. So this can cut both ways, is the point I wanted to make to you.
I hope that nobody will end with the notion that we are not trying to work through this. This is a difficult, delicate issue. All of us have our own concepts of why all of a sudden, in 1994, the attitude seems to have changed. My own personal perspective is that it had a lot to do with the rhetoric that was at play in general in terms of fraud and abuse, and that some of the people who are now back on the white horse trying to solve this problem are the people who created it by this incendiary rhetoric.
But this is a serious problem and I think we have to address it.
Mr. PEASE. Thank you, Mr. Watt. I want to thank the Members of the panel.
Mr. BERMAN. If those are your concluding remarks, may I ask one last question?
Mr. PEASE. Sure.
Mr. BERMAN. The issue of the fiscal intermediary, I think that was raised when I came back in the room, I guess the issue is if the fiscal intermediary told you this is the right way to do it, should you be able to rely on that?
Page 184 PREV PAGE TOP OF DOC
Mr. RICHEY. Yes.
Mr. BERMAN. When you write this bill, or you write this bill that seeks to change the law, you view the fiscal intermediary as an agent of a Federal agency?
Mr. RICHEY. Yes.
Mr. SPRENGER. That is the way we do, yes.
Mr. BERMAN. That is why you have included ''agent of a Federal agency'' in the safe harbor or whatever you want to call it provision that says you ought to be able to rely on what you have been told?
Mr. RICHEY. That is right.
Mr. BERMAN. But you do not view a staff person in a congressional office who tells you this is the right way to do it as a Federal agency or an agent of a Federal agency, do you? How far are we going with this?
Mr. SPRENGER. No. But there is a contract with these fiscal intermediaries, with HCFA. We have to assume that when they tell us that this is the way we ought to do it, that we should listen to them.
Mr. BERMAN. That is very interesting. I wonder if the fiscal intermediary would then be liable, if they misrepresented HCFA positions in their dealings with the hospital, whether they might be liable under the False Claims Act?
Page 185 PREV PAGE TOP OF DOC
Mr. SPRENGER. If they were here, at least what they have told us, is that sometimes they get conflicting information as well.
Mr. BERMAN. Thank you, Mr. Chairman.
Mr. PEASE. Thank you, Mr. Berman. I thank the Members of the panel. There are many folks beyond those who are here who also participated in preparation. We are grateful to them for that.
I will regret my full disclosure at some date here, but on behalf of folks in the industry, like my mother, who is the recently retired director of information systems for the largest hospital in my district, I know this is a complex issue.
Thank you. The record will remain open. We are adjourned.
[Whereupon, at 1:05 p.m., the hearing was adjourned.]