Status Report


DATE: December 11, 1995
TO: AHA Institutional Members
Allied Hospital and Healthcare Association
Chief Executive Officers
FROM: Fredric J. Entin
Senior Vice President and General Counsel
John E. Steiner, Jr.
Assistant General Counsel
SUBJECT: Office of Inspector General/Department of Justice Joint Project
Medicare Nonphysician Outpatient Bills Submitted by Hospitals
A/K/A: The DRG 72 Hour Window Project


As you may know, the Office of Inspector General of HHS and the Department of Justice (DOJ) are jointly pursuing 4,660 hospitals for allegedly submitting improper billings for certain outpatient services, often referred to as the DRG 72 Hour Window Project. This joint project started in Pennsylvania approximately one year ago and the DOJ intends to pursue this project across the United States in the coming months.

Hospitals will be receiving a form letter advising them of their liability for duplicate payments with a proposed Settlement Agreement (Agreement) as an attachment. The DOJ form letter will explain that previous recoveries by HCFA of duplicate paid claims for certain non-physician outpatient services "have not extinguished the hospital's potential liability for penalties and damages under the civil False Claims Act as a result of its conduct." In lieu of litigation, the Agreement describes how to calculate and pay the government penalties for duplicate paid claims, and also describes compliance steps providers can take to obtain immunity from future False Claims Act allegations for possible violations of the DRG 72 Hour Window Rule (Rule). Our most current information regarding the next states to receive DOJ letters is as follows (some of these dates may have slipped due to the recent Federal government furloughs):

Approximate DOJ mailing date


December: Louisiana, Missouri (partially, approximately 50 hospitals)

Early January: Indiana, Illinois

Early February: New York, New Jersey




In the coming weeks and months, the DOJ will be sending many hospitals a form letter that explains the basis for a proposed settlement of this payment recovery project and how to accept the settlement offer. The DOJ recently informed us that the form letter will differ in certain respects from an earlier version used in parts of Pennsylvania and Florida. The DOJ also informed us that at the time it sends the form letter it will attach a proposed Agreement and claims data, specific to the recipient hospital, that were used to assign the hospital to one of three tiers as described in the Agreement. The tiers assess different financial penalties based on a hospital error/bed size ratio that will be described in the DOJ cover letter.

We have been working to ensure that the DOJ, both the Harrisburg, PA office where this project originated and Main Justice in Washington, D.C., and HCFA have a clear perspective of hospitals' concerns about the complexity of the Rule and the inconsistent way in which HCFA's fiscal intermediaries (FI) administer and interpret the Rule. We have told them that these issues need to be straightened out once and for all if our members are ever going to be able to comply with the Rule in good faith. To date, our office has written twice to the DOJ raising a number of interpretive and operational issues related to the Rule. We attach the most recent AHA correspondence to the DOJ, dated September 19, 1995. Based on recent conversations with DOJ in Harrisburg, it is our understanding that some of the issues raised in that correspondence will be explained in the DOJ's form cover letter and will be addressed by way of amendment to the initial version of the Agreement that was used in Pennsylvania and parts of Florida.


The dialogue between the AHA and the government continues. Hospitals and their counsel should keep the following in mind as they consider the government's settlement offer:

  • The AHA has not endorsed or recommended any settlement agreement for this project. We continue to assert that in the vast majority of instances, duplicate payment requests were made because of honest billing mistakes, attributable in part to numerous changes made to the Rule since its inception. Each hospital will have to determine for itself whether the settlement offer is an appropriate resolution of this matter.
  • Despite the DOJ's assertions, the legal question of whether, under the circumstances in these cases, the alleged duplicate payments are "false or fraudulent" claims under the False Claims Act has not yet been addressed. The AHA is very concerned with the emergence of the civil False Claims Act as the statute of choice for the DOJ when pursuing provider billing errors.
  • When DOJ started this project in December 1994, their intent was to apply the same penalty to all hospitals, i.e., three times the erroneous claims between November 1, 1990 and December 31, 1991 plus one times the erroneous claims between December 1, 1987 and October 31, 1990 with interest, regardless of the number of erroneous claims submitted by a hospital.

After a series of meetings between the DOJ, attorneys representing hospitals in Pennsylvania, the AHA, the Hospital Association of Pennsylvania, and the Hospital Council of Western Pennsylvania, the DOJ modified in its December 1994 demand by significantly reducing many hospitals' financial exposure. While the three tiered settlement approach initiated in Pennsylvania, which adopts an error to bed ratio for assigning hospitals to specific tiers, retains the DOJ's initial position for Tier 3 hospitals, a Tier 2 hospital would pay approximately 50% of the penalty assessed a Tier 3 hospital and a Tier 1 hospital would pay approximately 25% of the penalty assessed a Tier 3 hospital. This represents a substantial reduction in the penalties the DOJ was originally seeking from hospitals, regardless of their number of erroneous claims.

  • The DOJ did issue a letter to the attorneys representing the Pennsylvania hospitals indicating that the DOJ does not intend to pursue any criminal prosecutions of hospitals that may have submitted erroneous claims, based on the information that the DOJ had at the time it issued that letter. DOJ confirmed for us on December 5, 1995 that it does not intend to change its position on this point.
  • On November 29, 1995, our office received confirmation that the defined term "Claim" that will be used by the DOJ will not include the potential universe of claims that might be submitted by entities that are "wholly owned or operated" by a hospital, as that phrase is defined in HCFA regulations and transmittals. As discussed in Part III below, the DOJ represented to AHA that it intends to use the definition of Claim set forth in Part III.
  • Hospitals should check their claims data for November 1, 1990 to December 31, 1991 -- the period covered under the HHS Inspector General's fourth audit of duplicate claims. DOJ will send each hospital the data it used to determine the hospital's tier placement and financial exposure under the terms of the Agreement. DOJ will consider adjusting the amount of a penalty by moving a hospital into a lower tier, if the hospital can show that the duplicate claims data received from DOJ is in error.


1. What is an "erroneous claim?"

The DOJ represented to us that now, a year after this project started, it more fully appreciates the complexities of complying with the Rule in light of rapidly evolving ownership structures and management relationships among providers. In that regard, a key term that needs clarification is the definition of an erroneous claim, which is referred to as the defined term "Claim" in the Agreement. We have received repeated confirmation from DOJ that it is calculating penalties based on duplicate paid claims. The precise wording of this key term will be in Paragraph 2 of the Agreement as a defined term. On December 5, 1995, the Harrisburg office of the DOJ confirmed that the following language will be used in Paragraph 2 of the Agreement:

The Office of Inspector General of the Department of Health and Human Services ("Inspector General") has conducted a number of audits of the claims for reimbursement for outpatient services submitted by the Hospital. As a result of these audits, the United States contends that from October 1987 through and including December 1991, a number of claims were submitted to and paid by the Hospital's fiscal intermediary that, with minimal exceptions as set forth in subparagraph 2 (III) below, have all of the following three characteristics. The claims were:

I. For certain outpatient services provided to Medicare beneficiaries identifiable by Health Insurance Card Number (HICN);

II. Provided in conjunction with a subsequent inpatient admission to the provider of the outpatient services and identified by a single provider number for the outpatient and inpatient paid claims (In a few instances, claims for outpatient services performed by a second provider during an inpatient admission are also included); and

III. Provided within specific time frames that, under applicable Medicare laws and regulations, would have permitted the hospital to have billed the fiscal intermediary only for the inpatient services to which the outpatient claims were principally related.

For purposes of this Settlement Agreement, the duplicate paid claims described above in subparagraphs 2(I) - (III) shall be referred to as "Claims." As a consequence of the payment of Claims to the Hospital by the Hospital's fiscal intermediary, the Hospital received money which the United States contends it was not entitled to receive pursuant to applicable provisions of the Social Security Act.

IMPORTANT NOTE: Hospitals should carefully compare this definition of a Claim against the claims data that the DOJ includes with the Agreement. This revised definition should prove valuable, especially to Tier 2 and Tier 3 hospitals, in identifying claims that the OIG auditors and the DOJ should not have included in a hospital's data run for the fourth review cycle (Nov. 1, 1990 to December 31, 1991) when fiscal intermediary edits reportedly were not as sophisticated as in subsequent years.

2. Is the DOJ focusing on claims submitted by entities "wholly owned or operated" by a hospital?

The DOJ has now confirmed that multiple fact patterns that might arise by applying HCFA principles pertaining to entities "wholly owned or operated by a hospital," as discussed in regulations and recent HCFA transmittals referenced below, are not the intended target of this project or the Agreement.


  • Attached to this memo are cover pages and excerpts from HCFA Transmittals dated June 1995 pertaining to the DRG Rule; i.e., Medicare Intermediary Manual Transmittal No. 1654 and Medicare Hospital Manual Transmittal No. 682. These Transmittals do not appear to add interpretive guidance on the Rule beyond earlier language in the January 12, 1994 HCFA regulation pertaining to the phrase, "an entity wholly owned or operated by a hospital." (See attached CCH Medicare Guide Paragraph 42,024 - "Preadmission Services Included in Part A Payment.")
  • Also attached is the format of a DOJ data sample sent to a hospital, with identifiers removed, to assist hospitals in checking their claims data and anticipating the format used by the DOJ.
  • A videocassette tape of a one hour AHA educational teleconference that was broadcast on October 26, 1995 entitled "72 Hour DRG Window Rule" is available through Westcott Communications, phone number 1-800-999-4242. Cost per tape is $35 for subscribers to AHA Teleconferences. If you are not an AHA Teleconference subscriber, the cost per tape is $200. That program covers the origin of this DOJ project, the content and structure of the Settlement Agreement and a discussion of HCFA principles related to the Rule. Panelists include representatives from AHA Office of the General Counsel and HCFA central office.

NOTE: Approximately one third of the one hour program involves a discussion by AHA and HCFA representatives of the interpretation of the phrase "wholly owned or operated entity" as it relates to the Rule. Given the DOJ's recent clarification that this project is not intended to apply to that aspect of the Rule, that portion of the tape may be moot for purposes of this OIG/DOJ joint project.

We will keep you apprised of additional developments, including states and estimated DOJ mailing date, as this project evolves. If you have questions, please call John Steiner in the AHA Office of the General Counsel at (312) 422-2788.



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