Status Report

DATE: February 5, 1997
Connecticut, Illinois, Maine, Massachusetts, New Hampshire, Ohio, Rhode Island,
Vermont, Virginia
CC: All State and Metropolitan Allied Hospital Association Executives,
Allied Legal Counsel
FROM: AHA Office of General Counsel
Fredric J. Entin, Senior Vice President and General Counsel
John E. Steiner, Jr., Assistant General Counsel, Phone (312) 422-2788
RE: Department of Justice/Office of Inspector General -- Joint Recovery Project
Outpatient Lab Unbundling Project UPDATE #1


This is the first update from the AHA Office of General Counsel on another joint project initiated by the Department of Justice (DoJ) and Office of Inspector General (OIG). This project targets approximately 5,000 hospitals for certain Medicare and Medicaid outpatient lab claims. The crux of the government's case are allegations that hospitals allegedly "unbundled" outpatient Medicare and Medicaid lab claims, that is, the use of two or more CPT billing codes in lieu of one inclusive code. We believe that a report issued by the OIG's Department of Evaluations and Inspections to HCFA and the DoJ was the catalyst for this project.


Most hospitals already have experience with the joint DoJ/OIG national recovery project known as the DRG 3-Day Window Project that targets 4,640 hospitals. This project is similar in structure in that each affected hospital will receive a form letter from the United States Attorney's office in their state that offers the hospital an opportunity to settle with the DoJ, rather than litigate the government's allegations that claims for certain outpatient lab tests violated the civil False Claims Act. (A sample form letter from the DoJ is attached) (Please contact the OGC for a copy of the attachment.)

The Lab Unbundling Project differs from the DRG 3-Day Window Project in several respects:

  1. In the DRG 3-Day Window Project, the AHA was involved in direct negotiations with the DoJ and OIG that led to a model national settlement agreement. That settlement agreement is being administered principally by the U.S. Attorney's office in Scranton, Pennsylvania. The Lab Unbundling Project is decentralized and so far the DoJ in Washington, D.C. and the OIG have provided far less information to AHA.
  2. The Lab Unbundling Project allows each hospital to participate in a self-disclosure program, involving an audit of certain claims from January 1, 1990 to the date of the DoJ letter each hospital will receive. Under the DRG 3-Day Window project, each hospital receives a demand letter, settlement agreement and fiscal intermediary claims data to compare with its own claims data.
  3. The "recovery" amount for each hospital in the Lab Unbundling Project, as stated in the DoJ's letter, is twice the amount of the actual overpayment. The recovery amount for a hospital in the DRG 3-Day Window case will vary depending upon the penalty tier assigned to the hospital by the DoJ based on the hospital's "error to bed" ratio.


Hospitals in Ohio, Illinois and Virginia have received letters from their respective U.S. Attorney's offices. Very recent discussions with reliable government sources indicate that hospitals in New England states should expect form letters from their U.S. Attorney's offices in the near future.


As stated in the DoJ form letter, this project targets Medicare and Medicaid claims in three categories:

  • Selected chemistry tests performed on automated multichannel testing equipment
  • Hematology profiles
  • Urinalysis tests


  1. At a minimum, hospitals that receive the form letter from a United States Attorney's office that offers the self-disclosure program should request that three specific chemistry tests be dropped from the audit protocol;
         82550 Creatine phosphokinase (CPK), blood
         82977 Glutamyltranspeptidase gamma (GGT)
         84478 Triglycerides, blood
    These tests are the subject of active litigation brought by the Ohio Hospital Association and American Hospital Association, discussed in the next section of this Update.
  2. Certain outpatient urinalysis test claims submitted on the same date of service were included in DoJ form letters in late 1995. Form letters from the DoJ in late 1996 do not include urinalysis tests.Therefore, we recommend that each hospital request that the urinalysis tests be dropped from an audit conducted under the self-disclosure program if those tests appear in the form DoJ letter sent to hospitals.
  3. We understand that claims for hematology profiles have been dropped for several Illinois hospitals and recommend that hospitals request that those claims also be excluded from a self-audit.
  4. We understand that a major computer systems switch occurred with many fiscal intermediaries in early 1993. Hence, outpatient lab claims data may not be readily available to the FIs and hospitals affected by this project. It will likely be very difficult for hospitals to produce pre-1993 lab claims data as well as confirmatory copies of the lab test results. Therefore, we also recommend that each hospital request that their U.S. Attorney provide actual paid claims data in lieu of a brief sample period that is extrapolated over the review period. The ability of each hospital to "check the math," i.e., compare its data with FI data supplied to the DoJ and OIG was a critical point in our negotiations with the DoJ on the DRG 3-Day Window project. If the U.S. Attorney in your state is willing to provide hospital specific claims data, the scope and expense of a self-audit likely will be reduced, if not eliminated.


The "Lab Unbundling Project" is the subject of active litigation that was brought by the Ohio Hospital Association and the American Hospital Association against Secretary Shalala on October 7, 1996 in the United States District Court in the Northern District of Ohio. (Case No. 1:96-CV-2165) The OHA previously circulated to allied state associations a copy of the complaint that was filed against the Secretary and copies are available from the Clerk of the Court.

The OHA/AHA Complaint seeks declaratory and injunctive relief against the Department of HHS with respect to certain elements of the Lab Unbundling Project and the threatened use of the civil False Claims Act. On December 17, 1997, the Secretary filed a Motion to Dismiss our complaint. On January 24, 1997, we filed a memorandum of law against the government's motion to dismiss our lawsuit and requested the court to allow oral argument on the issues raised in our memorandum.

The OHA/AHA lawsuit does not challenge all of the claims under review by the DoJ. It does, however, ask the court to consider several important legal issues that bear on the threatened use of the civil False Claims Act against providers that may have submitted claims to carriers or fiscal intermediaries for these tests. A key issue in the complaint is whether regulations were ever published by the HCFA to provide guidance for proper submission of lab claims. The lawsuit asks the court, among other things, to drop three specific chemistry tests from the DoJ project because there were no regulations published until November 1995 that explained the billing requirements. As referenced in the DoJ form letter, those chemistry tests are:

82550 Creatine phosphokinase (CPK), blood
82977 Glutamyltranspeptidase gamma (GGT)
84478 Triglycerides, blood

Success in the litigation will only have direct effect on hospitals in Ohio and will be limited to the more narrow focus of the complaint. The information and recommendations in this Update are provided to assist you in responding to the DoJ and negotiating a settlement in the event you choose that form of resolution of this matter.


In addition to the active litigation described above, the AHA Office of General Counsel is attempting to engage the OIG in further discussions of the scope and nature of this national project. To the extent that information becomes available to our office, we will provide additional updates. If you have questions concerning this Update, please contact John E. Steiner, Jr. at 312/422-2788.


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