To emphasize fair and responsible use of the False Claims Act, DOJ issued “Guidance on the Use of the False Claims Act in Civil Health Care Matters” on June 3, 1998. The guidance instructs DOJ attorneys and U.S. Attorneys to determine, before they allege violations of the act, that the facts and the law sufficiently establish that the claimant knowingly submitted false claims. The guidance covers all civil health care matters and has specific provisions to address national initiatives. DOJ defines these initiatives as nationwide investigations stemming from an analysis of national claims data, indicating that numerous, similarly situated health care providers have engaged in similar conduct to improperly bill government health care programs. Prior to alleging a violation of the act in connection with a national initiative, attorneys shall, in general, use contact letters to notify a provider of a potential liability and give the provider an opportunity to respond before a demand for payment may be made. The guidance contains other safeguards to ensure the fair treatment of hospitals. For example, U.S. Attorneys’ Offices must consider alternative remedies to the use of the False Claims Act, including administrative remedies such as recoupment of overpayments, program exclusions, and other civil monetary penalties. In addition, they must also consider a provider’s ability to pay; the effect on the community served by the provider, particularly for rural and community hospitals; and the extent of provider cooperation in the matter. The guidance also requires the formation of a working group to coordinate each national initiative. The working groups, composed of DOJ attorneys and Assistant U.S. Attorneys with expertise in health care fraud control, must develop “initiative-specific guidance” to provide direction and support to the U.S. Attorneys’ Offices that are participating in the initiative. For example, working groups may prepare a legal analysis of pertinent issues, provide a summary of Medicare claims data indicating potentially significant billing errors, and develop an investigative plan. The working groups track the participating offices’ progress and respond to their questions as each initiative proceeds. Ongoing contacts can help assure the working group that the offices are following the guidance. The two national initiatives that currently have the most active investigations are the PPS Transfer and Pneumonia Upcoding projects. The PPS Transfer initiative was developed from a series of audits and joint recovery projects by the Department of Health and Human Services Office of Inspector General (HHS-OIG), the Health Care Financing Administration (HCFA)—the agency within HHS that administers the Medicare program—DOJ, and the claims processing contractors to identify improperly coded transfers and recover overpayments from hospitals. The Pneumonia Upcoding initiative targets inappropriate coding of inpatient hospital claims for a relatively rare bacterial form of the disease that is more costly to treat—approximately $2,500 more per claim—than the more common forms of pneumonia. The initiative assesses whether hospitals submitted claims for a more complex form of the disease than was supported by the patient’s medical records. This is the fourth report we have issued regarding DOJ’s implementation of its False Claims Act guidance and its efforts to oversee compliance. In February 1999, we issued an early status report on DOJ’s initial efforts to implement the guidance. In August 1999, we reported that DOJ’s process for reviewing implementation of the guidance appeared superficial and that U.S. Attorneys were not consistent in their application of the guidance. However, in March 2000, we reported that DOJ had taken steps to improve compliance with its False Claims Act guidance. We noted that DOJ had strengthened its oversight of U.S. Attorneys’ Offices and that the offices that we had previously found to be slow in implementing the guidance appeared to have addressed their shortcomings. We also found that the working groups were providing legal and factual material on each national initiative for U.S. Attorneys’ Offices to consult prior to contacting hospitals about potential False Claims Act liability. DOJ has demonstrated its continued commitment to promoting the importance of compliance with the False Claims Act guidance at its U.S. Attorneys’ Offices. In response to our prior recommendations, DOJ revamped its process for periodically evaluating the compliance of these offices and instituted an annual compliance certification requirement for all U.S. Attorneys’ Offices participating in national initiatives. These steps have helped to encourage compliance. We found that DOJ’s periodic evaluations of the U.S. Attorneys’ Offices now incorporate a more substantive examination of compliance with the guidance. The review process, which was instituted in February 1999, initially contained only one interview question relating to the guidance, but DOJ has since expanded its evaluation procedure as it relates to the guidance. By April 2000 the review included a number of questions devoted to the guidance in both the previsit questionnaires and the interviews conducted during on-site visits. Respondents must now describe in detail the activities and procedures each office has in place to ensure that the attorneys are informed of the guidance and that the office is in compliance. Of the 16 full evaluations that took place between April 2000 when the evaluation process was expanded and the end of the calendar year, none resulted in a determination that an office was out of compliance with the guidance. Through our discussions with DOJ officials and our review of relevant materials, we were able to verify that the evaluations provide an effective mechanism for identifying and documenting areas of concern and potential vulnerability, such as the need for additional information on the guidance for attorneys. No such findings were made during reviews of U.S. Attorneys’ Offices currently participating in a national initiative. U.S. Attorneys’ Offices must respond to weaknesses identified in the review, and the Executive Office for U.S. Attorneys subsequently verifies that, if needed, corrective action is taken. Our review showed that, when weaknesses were identified, this process was followed and implementation of corrective actions was monitored. DOJ’s annual requirement that all U.S. Attorneys’ Offices involved in national civil health care fraud initiatives certify their compliance with the guidance appears to have promoted compliance at the offices we visited. DOJ officials told us that all U.S. Attorneys’ Offices participating in civil health care matters had attested to their compliance for the period ending December 31, 2000. Although DOJ has not required offices to document their compliance with the guidance as part of the certification process, the offices we visited had either documented their compliance in individual case files or instituted a review process under the direction of their office’s Civil Chief. For example, every closed case file we reviewed in one office contained a certification that the case had been conducted in accordance with the guidance. Based on our review of the supporting documentation in these case files, we found no basis to dispute the office’s compliance certifications. Another office directed an attorney not involved in the national initiatives to review case files for evidence of compliance. The attorney then prepared a report for the review and approval of the Civil Chief prior to completing the annual compliance certification. We found this report provided detailed support for the attorney’s conclusion that the cases were handled in a manner consistent with the guidance. Based on our analysis of working group materials and review of case files at four offices, we believe that DOJ is following its guidance as it pursues the PPS Transfer and Pneumonia initiatives. The working groups have prepared material for the U.S. Attorneys’ Offices on the legal and factual bases for contacting hospitals about potential False Claims Act liability for each initiative. In addition, the working groups have prepared model contact letters and other documents to ensure that hospitals are contacted in a manner consistent with the guidance. The U.S. Attorneys’ Offices we visited consulted the working group materials and conducted independent investigations so that their settlement terms could be adjusted to reflect each hospital’s situation. Although the AHA and some state hospital association representatives remain concerned that the False Claims Act is inappropriately being applied to inadvertent billing errors, they did not identify specific instances where a particular U.S. Attorney’s Office has acted inconsistently with the guidance in either national initiative. The working groups prepared extensive initiative-specific guidance and memoranda outlining the relevant legal and regulatory requirements underlying the initiatives. After consulting with the HHS-OIG and HCFA, the working groups analyzed national and hospital-specific claims data. The U.S. Attorneys’ Offices were then able to use these data as a starting point to begin investigating whether specific hospitals had knowingly submitted false claims. The PPS Transfer working group conferred with the HHS-OIG regarding its prior audits of PPS hospitals. Similarly, the Pneumonia Upcoding working group obtained extracts of national inpatient claims data from HCFA and reviewed these data with HCFA specialists, the HHS-OIG, and an independent consultant to ensure their validity. We found that in addition to providing resources and coordinating the initiatives, the working groups play an active role in monitoring the progress of the offices participating in the initiatives. We were able to verify that participating districts consult with working group members on an ongoing basis throughout the development and settlement of their cases. This exchange of information allows the working groups to assess compliance with the guidance. Our review of case files at the four offices we visited suggests the interactions between these offices and the hospitals they investigated were consistent with the guidance. In reviewing records relating to initial contacts from the U.S. Attorneys’ Offices and hospitals, the investigations, and settlements, we observed that the offices were attentive to hospitals’ individual circumstances and that they varied their actions accordingly, as required by the guidance. For example, our review of correspondence showed that the contact letters used by these four offices were based on the model letters distributed by the working groups. Consistent with the guidance, the letters we reviewed informed hospitals of potential False Claims Act liabilities but did not make demands for payment and gave hospitals the opportunity to meet to discuss the matters further.