Lawmakers, advocates debate amputation of the long arm of the law

Proponents say Department of Justice's heavy-handed tactics must stop

Those ominous demand letters flooding hospital mailboxes nationwide could dry to a mere trickle if lawmakers get their way. The letters, sent from the U.S. Department of Justice (DOJ) in Washington, DC, threaten legal action against hospitals with possible fines of up to $10,000 plus triple damages for disputed claims. Litigation is not brought against a hospital, however, if it agrees to negotiate a settlement.

(For information on recent developments in teaching hospital audits, see related story, p. 83.)

But relief may be in sight for hospital administrators and health information managers thanks to bipartisan legislation recently introduced in both the House of Representatives and the Senate. Specifically, the Health Care Claims Guidance Act of 1998 (HR 3523) would amend the False Claims Act to distinguish between Medicare fraud and unavoidable billing mistakes.

The bill's sponsors in the House are Rep. Bill McCollum (R-FL) and Bill Delahunt (D-MA). Senators Thad Cochran (R-MS) and Ernest F. Hollings (D-SC) are sponsoring a companion measure in the Senate. The House bill currently has about 130 co-sponsors.

At issue between government officials and advocates for health care providers is what constitutes fraud rather than billing mistakes. "Billing errors are not fraud and are understandable in a system with increasingly complex rules and no or conflicting guidance," says Dick Davidson, president of the Chicago-based American Hospital Association (AHA).

"Using the heavy hammer of the False Claims Act, the Justice Department is broadly painting all errors as fraud, and that's simply not the case," Davidson explains.

On average, hospitals submit 200,000 claims a day based on a payment system covered by 1,756 pages of law, according to the AHA. That's not counting the 1,257 pages of regulations interpreting the law and thousands of pages of instructions, Davidson points out.

Specifically, the proposed legislation would amend the False Claims Act by:

· Imposing a de minimus standard - under the standard 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.

· Establishing a "safe harbor" for hospitals that submit a false claim based on advice given by fiscal intermediaries and carriers - such hospitals would be subject to fines limited to actual damages and interest, not triple damages plus $5,000 to $10,000.

· Raising the burden of proof required under the act from a "preponderance of the evidence" standard to a "clear and convincing evidence" standard.

· Establishing a safe harbor for hospitals that have adopted effective compliance plans in which they are, if found in violation of the False Claims Act, subject only to actual damages plus interest, rather than triple damages plus $5,000 to $10,000 per claim.

The DOJ's aggressive, and according to some critics, intimidating use of the False Claims Act bullies hospitals into quick settlements. The DOJ only recently ended its practice of sending demand letters to hospitals, which required a hospital to respond within two weeks or face immediate prosecution.

The DOJ, as a result of a meeting with representatives from the AHA, agreed to replace the demand letters with a toned down "contact" letter.

The DOJ refused additional requests from the AHA, however. The AHA requested that the DOJ agree not to pursue false claims against hospitals when less than $100,000 is in dispute and to temporarily suspend use of the False Claims Act.

Despite the refusal on the additional requests, the decision to discontinue using the demand letters will come as a relief to most health information managers. But the decision is too late for some.

In April, for example, 46 Colorado hospitals were hit with written allegations about false billing practices. The letters those hospitals received, similar to those already received by countless other hospitals, contained a dollar amount and a demand that the hospital repay Medicare or face steep penalties.

A kinder, gentler letter

The less belligerent contact letters will not be as direct. The new version will state the DOJ's suspicions of billing fraud but will not include specific demands for financial restitution.

The idea for the demand letter started when the DOJ became involved in investigating 72-hour window violations a few years ago, says Leo Reichert, JD, an attorney with the firm of Parker, Hudson, Rainer and Dobbs, LLP in Atlanta. Reichert is a former member of the U.S. Attorney's Office.

The DOJ got billing information from Medicare carriers through the Health Care Financing Administration (HCFA) in Baltimore, then analyzed the information to detect irregular claims submissions patterns.

The plan was to hit all 50 states and all 4,700 hospitals participating in the Prospective Payment System, adds Reichert. "It was a new idea for these kinds of nationwide investigations. It was relatively inexpensive for the government to pursue the claims, and the potential recoveries would be significant."

Bullying to be cash cow

Indeed, the demand letters have been cash cows for the federal government, according to DOJ's own statistics. For example, in its 1997 annual report on health care fraud and abuse, the DOJ claimed that a "significant portion of the $1.087 billion collected [by the government in health care fraud cases] was the result of nationwide investigations into fraudulent billing practices of hospitals and independent laboratories" - two key targets of the demand letters.

In addition to hospitals charged with 72-hour window violations, independent laboratories also received letters as part of the government's lab unbundling project.

One reason the letters were so successful, Reichert notes, is that no one ever resisted them. "Not a single hospital in the 25 or 30 states they targeted fought them on it," he says. "Everyone kept rolling over and settling. The AHA was trying to find a hospital or hospitals to fight this aggressive use of the False Claims Act, but everyone was afraid to challenge them. The amount of money involved could become very significant if you fight, and the settlement ranges are fairly reasonable."

Errors a result of the system

Perhaps the biggest contributor to billing mistakes is the system itself. "Medicare billing errors often result from confusing and conflicting regulations and instructions that are part of the Medicare reimbursement system," says Gordon Sprenger, executive officer of Allina Health System in Minneapolis. Sprenger testified before the House subcommittee on Immigration and Claims.

The previous system whereby hospitals and the government worked as partners to ensure both sides were treated fairly in terms of Medicare billing disputes is over, Sprenger adds.

"The government has abandoned its partnership with hospitals in a campaign to, quite simply, extract money from hospitals. The result is millions of dollars being spent on lawyers' and accountants' fees instead of patient care," says Sprenger.