Memo: Guidance on the Use of the False Claims Act in Civil Health Care Matters, June 3, 1998

U.S. Department of Justice

Office of the Deputy Attorney General



The Deputy Attorney General
Washington, DC 20530

June 3, 1998

MEMORANDUM FOR: All United States Attorneys

All First Assistant United States Attorneys

All Civil Health Care Fraud Coordinators in
the Offices of United States Attorneys

All Trial Attorneys in the Civil Division
Commercial Litigation Section

FROM: Eric H. Holder, Jr.

Deputy Attorney General
SUBJECT: Guidance on the Use of the False Claims Act

in Civil Health Care Matters

One of the Department's most important tools in protecting
the integrity of Medicare and other taxpayer-funded health care
programs is the civil False Claims Act. While the broad reach and
substantial damages and civil penalties under the Act make it one
of the Department's most powerful tools, Departmental attorneys
are obligated to use their authority under the Act in a fair and
responsible manner. This is particularly important in the context
of national initiatives, which can have a broad impact on health
care providers across the country.

This guidance is being issued to emphasize the importance of
pursuing civil False Claims Act cases against health care
providers in a fair and even-handed manner, and to implement new
procedures with respect to the development and implementation of
national initiatives.

1. National Initiatives.

Generally, national initiatives deal with a common wrongful
action accomplished in a like manner by multiple, similarly
situated health care providers. National initiatives must be
handled in a manner (i) that promotes consistent adherence to the
Department's policies on enforcement of the False Claims Act, as
well as a consistent approach to overarching legal and factual
issues, (ii) while avoiding any rigid approach that fails to
recognize the particular facts and circumstances of an individual
case.

To achieve these objectives, the Department has instituted
the following procedures:

(A) Legal and Factual Predicates.

Before alleging violations of the False Claims Act, whether
in connection with a national initiative or otherwise, Department
attorneys must evaluate whether the provider: (i) submitted false
claims to the government, and (ii) submitted false claims (or any
false statements made to get the false claims paid) with
"knowledge" of their falsity, as defined in the Act. These are
separate inquiries. Department attorneys shall not allege a
violation of the False Claims Act unless both of these inquiries
lead to the conclusion that there is a sufficient legal and
factual predicate for proceeding. The following issues, among
other issues, shall be considered in these determinations:

(i) Do False Claims Exist?

a. Examine Relevant Statutory and Regulatory Provisions and
Interpretive Guidance
. Department attorneys shall examine relevant
statutory and regulatory provisions, as well as any applicable
guidance from the program agency or its agents, to determine
whether the claims are false. In certain circumstances, such as
when a rule is technical or complex, Department attorneys should
communicate with knowledgeable personnel within the program agency
(e.g., the Health Care Financing Administration, TRICARE, Office of
Personnel Management) concerning the meaning of the provision.

b. Verify the Data and Other Evidence. Department attorneys
shall take appropriate steps to verify the accuracy of data upon
which they are relying, either independently, or with the
assistance of the fiscal intermediaries and carriers, the
Department of Health and Human Services - Office of Inspector
General, the Federal Bureau of Investigation, or another
investigative agency.

c. Conduct the Necessary Investigative Steps. Department
attorneys should conduct such investigative steps as are necessary
under the circumstances, including where appropriate, the
subpoenaing of documents and the interviewing of witnesses.

(ii) Did the Provider Knowingly Submit the False Claims?

In the event the claims are false, Department attorneys must
next evaluate whether the health care provider "knowingly"
submitted the false claims or "knowingly" made false statements to
get the false claims paid. As set forth above, and before making
this determination, Department attorneys should conduct such
investigative steps as necessary under the circumstances,
including where appropriate the subpoenaing of documents and the
interviewing of witnesses. Under the False Claims Act, false
claims and false statements are submitted "knowingly" if the
provider had actual knowledge of their falsity, or acted with
deliberate ignorance or reckless disregard as to their truth or
falsity. While relevant factors will vary from case to case and
the list below is not intended to be exhaustive, factors that must
be considered are:

a. Notice to the Provider. Was the provider on actual or
constructive notice, as appropriate, of the rule or policy upon
which a potential case would be based?

b. The Clarity of the Rule or Policy. Under the
circumstances, is it reasonable to conclude that the provider
understood the rule or policy?

c. The Pervasiveness and Magnitude of the False Claims. Is
the pervasiveness or magnitude of the false claims sufficient to
support an inference that they resulted from deliberate ignorance
or intentional or reckless conduct rather than mere mistakes?

d. Compliance Plans and Other Steps to Comply with Billing
Rules
. Does the health care provider have a compliance plan in
place? Is the provider adhering to the compliance plan? What
relationship exists between the compliance plan and the conduct at
issue? What other steps, if any, has the provider taken to comply
with billing rules in general, or the billing rule at issue in
particular?

e. Past Remedial Efforts. Has the provider previously on its
own identified the wrongful conduct currently under examination
and taken steps to remedy the problem? Did the provider report the
wrongful conduct to a government agency?

f. Guidance by the Program Agency or its Agents. Did the
provider directly contact either the program agency(e.g.,the
Health Care Financing Administration) or its agents regarding the
billing rule at issue? If so, was the provider forthcoming and
accurate and did the provider disclose all material facts
regarding the billing issue for which the provider sought
guidance? Did the program agency or its agents, with disclosure of
all relevant, material facts, provide clear guidance? Did the
provider reasonably rely on such guidance in submitting the false
claims?

g. Have There Been Prior Audits or other Notice to the
Provider of the Same or Similar Billing Practices
?

h. Any Other Information That Bears on the Provider's State
of Mind in Submitting the False Claims
.

(B) Oversight by National Initiative Working Groups.

For all current and future national initiatives, the Attorney
General's Advisory Committee (AGAC) and the Civil Division shall
establish a working group to coordinate the development and
implementation of each initiative.

Working groups will be comprised of Assistant United States
Attorneys and Civil Division attorneys with particular expertise
in health care fraud. In accordance with the health care
guidelines promulgated in January 1997, in appropriate instances
each working group may also need to coordinate and plan the
initiative with the Department's Criminal Division.

Each working group will (i) examine the initiative to ensure
that a factual and legal predicate is present for the initiative
prior to its implementation, (ii) prepare initiative-specific
guidance and sample documents (such as legal analyses, summaries
of audit data, contact letters, tolling agreements, compliance and
settlement agreement language) for use in the initiative, and
(iii) prepare a general investigative plan, setting forth
suggested investigative steps that each office should undertake
prior to proceeding. Working groups shall be responsible for
coordination with law enforcement agencies, the Health Care
Financing Administration, and other appropriate entities.

While the working groups shall be responsible for
coordinating the overall development and implementation of
national initiatives, each matter against a specific provider must
be evaluated on a case-by-case basis.

(C) Use of Contact Letters in National Initiatives.

As outlined above, Department attorneys participating in
national initiatives shall, in general, make initial contacts with
health care providers, to resolve a case, through the use of
"contact" letters. The purpose of a contact letter is to notify a
provider of their potential exposure under the False Claims Act
and to offer the provider an opportunity to discuss the matter
before a specific demand for payment is made. In limited
circumstances, where the specific facts of a situation warrant a
different approach, Department attorneys may make an initial
contact through other legitimate means.

The use of contact letters to make initial contact with
health care providers is in furtherance of Executive Order 12988,
which obligates Department attorneys to make a reasonable effort
to notify the opposing party about the nature of the allegations,
and attempt to resolve the dispute without litigation if at all
possible. The type of contact employed will depend on the nature
of the allegations and the stage of the investigation. Regardless
of the form of initial contact, Department attorneys must ensure
that health care providers are afforded: (i) an adequate
opportunity to discuss the matter before a demand for settlement
is made, and (ii) an adequate time to respond. In addition,
Department attorneys shall grant all reasonable requests for
extensions of time to the extent that they do not jeopardize the
government's claims. The use of statutory tolling agreements are
strongly encouraged to allow providers time to respond without
jeopardizing the government's claims.

2. Alternative Remedies.

After reviewing the legal and factual circumstances of a
particular matter, Department attorneys shall consider other
available remedies -- including administrative remedies such as
recoupment of overpayments, program exclusions, and civil monetary
penalties -- to determine what remedy, or combination of remedies,
would be the most suitable under the circumstances. Should the
recoupment of an overpayment be the most appropriate remedy,
Department attorneys shall consider referring the matter to the
appropriate carrier/fiscal intermediary for appropriate action.

3. Ability to Pay Issues.

Attorneys shall consider any financial constraints identified
by a provider in determining a fair, reasonable and feasible
settlement between the parties. Hospitals and other health care
providers citing an inability to pay a specific settlement amount
should be asked to present documentation in support of their
stated financial condition.

4. Rural and Community Health Care Provider Concerns -- Impact on
Availability of Medical Services
.

When dealing with rural and community hospitals and other
health care providers, Department attorneys shall consider the
impact an action may have on the community being served. In
determining an appropriate resolution, or deciding whether to
bring an action, care must be taken to consider the community's
interest in access to adequate health care along with any other
relevant concerns.

5. Hospitals and Other Health Care Providers Not Represented by
Counsel
.

Department attorneys shall pay special attention to contacts
with hospitals and other providers that choose (due to financial
constraints or otherwise) to resolve claims without legal
representation. Department attorneys faced with this circumstance
must carefully assess every action taken to avoid even an
appearance of coercion or overreaching because of the absence of
opposing counsel.

6. Minimizing Burdens Imposed on Providers During Investigations.

Department attorneys also should be mindful of the ways in
which our investigations and audits can disrupt and burden the
day-to-day operations of providers in both a financial and
practical sense. In developing and implementing an investigative
plan, we should do what we can do to minimize these adverse
effects, while still meeting our obligation to diligently investigate allegations of potential fraud. For example, while
recognizing that certain circumstances might warrant different
approaches, Department attorneys should consider a provider's
request to accept the results of an audit of a sample of claims in
lieu of a complete audit.

7. Provider Assistance with the Investigation.

In determining an appropriate settlement amount, Department
attorneys should consider the extent to which a health care
provider has cooperated with the audit or investigation of the
relevant matter.

8. Individualized Review.

The proper determination as to the use and application of the
False Claims Act or other appropriate remedy requires an
individualized review of each case, ensuring that each of the
above factors are given full consideration

9. Review of Guidance.

In order to assure the fair and appropriate application of
the False Claims Act, this guidance will be subject to review in
six months.

10. Additional Information.

Questions regarding use of the False Claims Act should be
referred to the Health Care Fraud Coordinator in your district, or
to Robert Liles, Health Care Fraud Coordinator for the Executive
Office for United States Attorneys (tel. no. 202-616-5136), or
Shelley R. Slade, Health Care Fraud Coordinator for the Civil
Division (tel. no. 202-307-0264).

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