Remarks of Eric H. Holder, Jr.
Deputy Attorney General

to the

American Hospital Association

February 1, 1999


I want to thank you for the invitation to speak with you today. The last year has been marked by very important - and, at times, contentious - developments on the health care fraud front. Today, I would like to highlight some of the progress we have made in the past year, touch briefly on some current and future enforcement priorities, and conclude with some thoughts on how we can work together to root out fraud and abuse in the health care system.

Health Care Fraud - Still A Problem

As you know all too well, fraud and abuse continue to plague the health care industry. Each year, American taxpayers lose billions of dollars to fraud and abuse in the health care system -- funds that could be used to expand health care for children, meet the health needs of elderly Americans, and fight AIDS and other life-threatening diseases.

Dollars alone, however, do not tell the whole story. All too frequently, we are seeing examples where the fraudulent conduct involved the systematic and knowing denial of medically necessary services - conduct that poses a threat to the health and safety of individual patients. In other instances, the fraud schemes involved medically unnecessary procedures - including unnecessary surgery - that posed a risk to the health and safety of individual patients. And in a shocking number of cases, we are seeing instances where fraudulent providers are paying parents to bring their children into sham clinics, where they are subjected to totally unnecessary procedures. We have found for example that parents are paid more for girls, because of the high reimbursement rates for some gynecological services.

The Past Year

Over the past year, we confronted major challenges in the relationship between the health care industry and the government, particularly the enforcement agencies. Some of these challenges were the result of necessary changes in the way the government addresses fraud and abuse in the health care system. For too long, the payment system had insufficient controls and enforcement activity. Compliance was not a sufficient priority within the industry or the government. Where overpayments were uncovered, even widespread patterns of overpayments, the matter was handled -- if at all -- through the administrative recoupment process. The lack of effective compliance and enforcement efforts resulted in massive losses from the Medicare and Medicaid programs.

The excesses led to a legitimate desire to crack down on fraud and abuse. In 1993, the Attorney General designated health care fraud as one of her top priorities. In 1996, Congress responded by giving the Department of Justice and HHS Office of Inspector General new tools and new resources to combat health care fraud and abuse.

Now, and in response to some of our enforcement efforts, there has been understandable concern within the industry about these changes and what have been, at times, heavy-handed treatment by the government.

What do I make of the events of the past year? First, I want to say that I am proud of the Department's accomplishments in the health care fraud area. Over the past two years, our civil and criminal caseload has increased and we have achieved a record number of criminal convictions and civil settlements. In 1997, we returned almost $1 billion dollars to the Medicare Trust Fund from criminal fines and civil settlements and judgments. We have also worked closely with the HHS OIG on their efforts to exclude unscrupulous providers, which is one of the best ways of maintaining the integrity of the health care system. In addition to these statistics, I was particularly heartened by two relatively recent items.

First, a GAO review of the Department's use of the FCA concluded that our enforcement efforts were having a major impact on compliance within the industry. Let me quote:

Hospital representatives told [GAO] that . . . the 72-Hour Window and Lab Unbundling Projects have encouraged increased attention to compliance by hospitals and their representatives. (GAO/HEHS 98-195, p.17)

The report continues:

... [H]ospital account managers told us that historically their offices received low priority for computer and staff resources and that the new attention to compliance has already been helpful in their effort to design billing systems that will better ensure accuracy. (Id.)

And the report concludes:

AHA representatives acknowledged . . . that using the False Claims Act got the attention of hospitals and led them to focus on improving their billing practices. (Id. at 20)

Second, I was encouraged by a front page article in the New York Times on [date]. The article noted that the growth in Medicare spending in 1998 was the lowest since the program started in 1965. While there are several factors involved, most experts - including many in the health care industry - agree that our aggressive efforts are having a positive and systemic impact on fraud and abuse in the health care industry.

While I am proud of our efforts, I recognize that at times our approach has been perceived to be heavy-handed. While the Attorney General and I expect our prosecutors to be aggressive, we must at all times be fair and even-handed. This is a bedrock principle for us, and where we fall short, we will take appropriate corrective action.

Last summer, in response to concerns about our enforcement efforts, I issued Guidance to all U.S. Attorneys offices and Civil Division health care fraud attorneys on the use of the False Claims Act. The Guidance reiterated long-standing policies and practices regarding the use of the False Claims Act generally, and established new oversight and coordination procedures for the development of so-called national initiatives - the types of projects that have stirred the most concern within your organization. Finally, the Guidance reaffirms that the False Claims Act should be the basis for suit only where there is evidence that false claims were submitted knowingly - that is, with actual knowledge or in deliberate ignorance or reckless disregard of the truth. Let me make this VERY clear: the False Claims Act does not address - and we should never use it to pursue - honest billing mistakes or mere inadvertence.

Over the past several months, we have placed great emphasis on compliance with the Guidance in all U.S. Attorneys offices. We have incorporated training on the guidance into virtually every health care fraud and affirmative civil enforcement training program sponsored by the Department. We are currently winding up an initial review of the Guidance, and I will soon be issuing a memorandum that summarizes the results of this review, reiterates that the Guidance applies to all civil health care matters investigated under the False Claims Act, and clarifies a number of other important points.

Current Enforcement Efforts

I think we have accomplished a great deal over the past year. On our side, we have refined our enforcement efforts to ensure that they are tough, fair, and even-handed. And on your side, I believe you have recognized that our enforcement program will remain robust and that the health care industry must focus greater attention and resources on comprehensive and effective compliance programs.

Unfortunately, the two new national enforcement projects that the Inspector General just discussed - the PPS Transfer and Pneumonia Upcoding Projects - highlight the continuing need for aggressive enforcement efforts. With respect to both projects, the illegal billing practices violate clear and unambiguous Medicare rules and regulations that are well known within the industry. Moreover, with respect to the PPS Transfer Project, the illegal billing practices have been the subject of nationwide audits by the HHS Inspector General. These earlier audits found widespread false billings by hospitals nationwide -- costing taxpayers hundreds of millions of dollars. To the extent possible, the overpayments were recovered through the administrative recoupment process.

Subsequent audits, however, found continued widespread violations by hospitals nationwide. The HHS OIG referred these matters to the Department of Justice for investigation under the False Claims Act. These investigations - which have been designated as a national project - are ongoing.

I should add that these projects are being pursued in strict compliance with my June 3 Guidance memorandum. A working group has been established for each project. The working group has carefully reviewed the data, relevant statutes, rules and regulations, and coordinated its efforts with the HHS OIG and HCFA. We are confident that there is a sound factual and legal predicate for both projects.

The Future

While it is instructive to assess how the fraud and abuse issue has evolved over the past several years, and to explain some of our current enforcement efforts, I would like to offer my thoughts on where we should go from here.

First, the Department of Justice and our law enforcement partners, particularly the HHS OIG, will continue our efforts in a number of priority areas, including managed care fraud and nursing home fraud and abuse.

Our emphasis on managed care is driven by the increasing number of Medicare beneficiaries enrolled in - and the increasing flow of federal dollars to - managed care organizations. Let me be perfectly clear - the Department of Justice has no interest in stifling innovation in the health care industry, nor do we believe that aggressive cost-cutting and down-sizing, without more, should subject managed care organizations to actions under the False Claims Act. However, the knowing failure to deliver promised services to Medicare, Medicaid and other beneficiaries of federal health care programs - whether by a managed care organization or other provider - would violate the False Claims Act, and we will pursue these actions in a tough and fair manner.

Second, and perhaps more importantly, I think our experience in the recent past - and our experience with the defense procurement scandals of the 1980s - offer valuable insight into where we should go from here.

Our experience with the defense industry was similar in ways to our current efforts with the health care industry - sharp increases in federal spending followed by sharp increases in the amount of tax dollars lost to fraud and abuse; a significant increase in anti-fraud efforts, including new tools and new resources from Congress; and subsequent complaints from the industry about overzealous enforcement efforts.

The defense industry sought legislative relief but, in the end, no legislative action was taken. The defense industry soon realized that the better approach was to embrace compliance in a comprehensive and meaningful fashion. Specifically, the major players in the defense industry created the Defense Industry Initiative, an industry-wide compliance effort. The DII endorsed specific, comprehensive compliance policies and procedures, and members of the Initiative were expected to adhere to the these guidelines. We believe the Defense Industry Initiative was a positive step in fostering compliance within the defense industry. And it can provide a model for the health care industry.

So today, I would suggest that your organization - the AHA - take the lead in developing a similar, industry-wide compliance initiative for the health care industry. I recognize the magnitude of this challenge and the fact that the health care industry is more diverse than the defense industry - making the development of an industry-wide initiative a daunting task. But I am sure that when the Defense Industry Initiative was first discussed, there were many nay-sayers who said it could not be done. But it was. Similarly, I believe the AHA and the other major health care industry groups could develop such an initiative.

Beyond the development of concrete compliance policies and procedures, the Initiative should include an effective internal oversight mechanism. This could take the form of subjecting providers to outside audit to determine whether they are living up to the Initiative's policies and procedures. And appropriate action should be taken against providers that fall short or are found to have engaged in serious wrongdoing.

For our part, we will continue to cooperate with the health care industry to foster compliance programs. We will continue to work with the HHS Office of Inspector General on compliance guides for the industry.

In addition, in the context of specific cases, the Department will continue to look favorably on providers that implement effective compliance programs and voluntarily report misconduct to the government. This has been our long-standing policy, and I reiterated this policy in my June 3rd Guidance Memorandum, which directed Department attorneys to consider whether a provider has implemented an effective compliance program when determining whether to bring a False Claims Act action or determining the amount of damages.

This is not just rhetoric. In a recent case in New Jersey, a hospital made a voluntary disclosure of improper billing to the U.S. Attorney's Office. The U.S. Attorney's Office investigated the matter, determined that the disclosure was truly voluntary and made in good faith, and a settlement was reached that was satisfactory to both the provider and the government. I think this case should serve as a model for future efforts.


In conclusion, I want to emphasize a couple of points. Health care fraud will continue to be one of the Department's top enforcement priorities, and we will be aggressive in protecting the integrity of the Medicare Trust Fund. At the same time, we must at all times conduct ourselves in a fair and even-handed manner. If you feel that you are not being treated fairly, we have implemented procedures to ensure that providers can have their concerns heard by appropriate supervisory personnel in the field or at Justice Department headquarters in Washington, D.C.

But there is still a great deal for us to do. I would urge the AHA to take the lead on developing a comprehensive, industry-wide compliance initiative - with an effective internal enforcement mechanism. The Department of Justice, in turn, will continue to look favorably on providers who implement effective compliance programs, and if you have suggestions on how to promote compliance efforts, I would like to hear your suggestions. There is a great deal more we can do to restore the historic trust and partnership between the government and the health care industry in meeting the health care needs of Americans, and we look forward to working with you on this very important goal.

Thank you.