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Testimony on Improper Billing by Hospitals by John E. Hartwig
Deputy Inspector General for Investigations
Office of Inspector General
U.S. Department of Health and Human Services

Before the Senate Government Affairs Permanent Subcommittee on Investigations
February 14, 1996

Good morning Mr. Chairman and Members of the Committee. I am John E. Hartwig, Deputy Inspector General for Investigations, Office of Inspector General of the United States Department of Health and Human Services and I thank you for giving us the opportunity to testify on the subject of Medicare coverage of investigational devices and the OIG's significant accomplishments in this effort.

OVERVIEW - THE OFFICE OF INSPECTOR GENERAL

By way of background, the Office of Inspector General (OIG) was created in 1976, and is statutorily charged with protecting the integrity of departmental programs, as well as promoting their economy, efficiency, and effectiveness. The OIG meets this statutory mandate through a comprehensive program of audits, program evaluations, and investigations designed to improve the management of the Department and to protect its programs and beneficiaries from fraud and abuse.

Our role is to detect and prevent fraud and abuse, and to ensure that beneficiaries receive high quality, necessary services, at appropriate payment levels. We have been extensively involved in examining the Department of Health and Human Services' policies concerning investigational medical devices. I will first report on our investigation of improper billing by hospitals for procedures involving devices not approved by the Food and Drug Administration (FDA) for general marketing. I will then describe our assessment of whether controls over clinical testing of investigational devices adequately ensure patient safety and sound clinical research.

THE INVESTIGATION OF HOSPITAL BILLINGS FOR INVESTIGATIONAL DEVICES

In 1993, the OIG was advised by the Health Care Financing Administration (HCFA) that it was concerned that several hospitals had billed Medicare improperly for minions of dollars worth of surgical procedures involving unapproved medical devices. Specifically, it was alleged that these hospitals knowingly were billing Medicare for the implantation of pacemakers, defibrillators and other cardiac devices that had not been determined to be safe and effective by the FDA. Under Medicare program rules then in effect, medical devices that have not been approved for marketing by the FDA were considered investigational, and as such were not reimbursable by Medicare. The policy prohibiting payment for these experimental devices had been clearly set out in the Medicare Hospital manual provided to all hospitals participating in the Medicare program.

In response to HCFA's request, the OIG opened an investigation to determine whether the hospitals' practices violated any provisions of the various civil and criminal false claims statutes. OIG subpoenas were issued to five manufacturers of the investigational devices in October 1993.

In March 1994, the investigation significantly expanded to determine whether the deliberate use of improper billing codes was part of an industry-wide abuse that encompassed both hospitals and many medical device manufacturers. In June 1994, the OIG issued over 130 additional subpoenas to hospitals in 30 States for documents related to the billing of investigational cardiac devices.

The requests for documents drew strenuous objections from the hospitals and interested medical groups. Our attorneys then engaged in protracted negotiations with lawyers for some of the subpoenaed hospitals before the requested materials were produced. The affected groups also turned to Congress for support, arguing that HCFA's reimbursement policy unfairly deprived Medicare patients of the benefit of new technologies. The industry's request for legislative relief produced proposed legislation that not only would extend Medicare coverage to procedures involving new devices, but also make the revised rules retroactive, thus possibly nullifying the basis of the OIG investigation.

Despite these challenges, OIG continued its investigation and eventually received several hundred boxes of responsive documents. These documents were logged and reviewed by teams of OIG Special Agents and auditors. As the investigations progressed into early 1995, the Department of Justice and Federal prosecutors were apprised of developments affecting the cases in their jurisdictions.

FINDINGS OF THE OIG INVESTIGATION

To date, we have invested over 4,000 staff hours to analyzing documents, developing leads and conducting interviews in furtherance of the investigational devices investigation. When discussing an investigation as complex as this one, it is difficult to summarize its findings without oversimplifying the issues. However, several conclusions are readily apparent.

First, the majority of hospitals that we examined had billed for investigational cardiac device procedures that were not covered by Medicare and for which payment should not have been made. The number of improper billings on a per-hospital basis ranged from less than 10 to in excess of 400 procedures. Although additional audit work must be completed before we know the precise amount of the improper payments, it is clear that Medicare was misled into paying millions of dollars to hospitals for procedures using these experimental devices.

Based upon our evaluation of the documents provided in response to the OIG subpoenas, the level of culpability of the hospitals also varied. We found ample evidence that the majority of hospitals had some knowledge of the prohibition against billing Medicare for the implantation of an investigational device.

We also identified close to 30 hospitals that appear to have knowingly submitted improper claims for procedures involving investigational devices and which took steps to obscure the experimental nature of the implanted device. We believe these hospitals intentionally defrauded the Medicare program. In addition, we have questions concerning the role played by the physicians in the implantation of investigational devices, as they may bear some responsibility for these fraudulent claims. After all, as clinical investigator for the medical device manufacturer, the physician must submit research protocols to the hospital's institutional review board (IRB) prior to the use of the investigational device in clinical trials. Furthermore, we believe physicians must have known that the device he or she was about to implant in a patient was still awaiting FDA approval.

In view of these findings, Inspector General June Gibbs Brown has written to Bruce Vladeck, the Administrator of HCFA, urging that HCFA recover the overpayments made to the hospitals and physicians who improperly billed for these investigational devices. She fully supports the recovery of these funds and has directed my staff to work closely with HCFA to facilitate the recovery effort. She also requests that HCFA take steps to ensure that the hospitals do not attempt to offset the repayments to Medicare by billing the patients who received these devices. In any case where the audits to determine the amount of overpayments uncover evidence of criminal conduct, the matter will be referred to OIG investigators for further investigation.

Although the recovery of overpayments is a priority, let me state again that the OIG also supports the prosecution of entities and individuals engaged in criminal fraud. With regards to the evidence of fraud that already has been uncovered by the OIG, we will make appropriate referrals to the Department of Justice for an assessment of the prosecutive merit of these cases.

ASSESSMENT OF CONTROLS OVER CLINICAL TESTING OF INVESTIGATIONAL DEVICES

In addition to investigating the submission of improper claims related to investigational devices, we conducted a study in 1994 at the request of FDA to address concerns with the clinical testing of investigational devices. FDA was particularly concerned about manufacturers distributing investigational devices outside of clinical trials and clinical investigators implanting devices in patients who do not fit clinical protocols. The design and size of clinical trials are carefully determined to minimize the number of patients exposed to risk while still generating information to establish efficacy of the device.

We traced four investigational devices through the clinical trials process from the manufacturer to the clinical investigator and local hospital where clinical research is carried out. AR of these devices in our review were significant-risk, implantable devices, but were not part of our investigation on hospital billing practices.

During our assessment of the testing process, we found problems in the accounting and tracking of investigational devices and in the local oversight by IRBS, including the informed consent process. With three of the devices we found problems with the distribution outside of the approved clinical trials. One device was distributed in excess of the approved protocol, with one clinical investigator clearly implanting devices in more patients than the local review board or FDA had granted permission. Two of the devices we focused on were not properly accounted for among clinical investigators.

The study also identified potential weaknesses in local oversight of clinical trials. We found that institutional review boards within hospitals have difficulty monitoring clinical trials. They are dependent on information provided by clinical investigators and may not independently verify data. We found several cases where clinical investigators violated orders from the local review board or began implanting devices prion our contributions in this critical area. The Office of Inspector General plays the role of the fact finder for the Department as well as providing an accurate assessment of the Department's policies. I believe that through our efforts to date we have accomplished four equally important objectives. First, we have identified a significant abuse by hospitals and physicians of the Medicare program, and assisted HCFA in identifying these inappropriate billing practices. Second, we have identified a source of significant Medicare overpayments and will support the ongoing overpayment collection efforts. Third, we have identified potential criminal violations relating to the submission of fraudulent claims and are making appropriate referrals of these cases to the Department of Justice. Finally, we have served as the catalyst for a review of a Medicare coverage policy that has resulted in a change that the Department believes will allow Medicare beneficiaries greater access to advances in technology.