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89–077PS

" HOUSE COMMITTEE PRINT NO. 4 108th Congress

1st Session

2003

ELIMINATING WASTE, FRAUD AND ABUSE

IN VETERANS’ PROGRAMS

REPORT TO THE

COMMITTEE ON THE BUDGET

FROM THE

COMMITTEE ON VETERANS’ AFFAIRS

U.S. HOUSE OF REPRESENTATIVES

108TH CONGRESS

SEPTEMBER 2, 2003.—Printed for the use of the Committee on Veterans’

Affairs of the House of Representatives

COMMITTEE ON VETERANS’ AFFAIRS

CHRISTOPHER H. SMITH, New Jersey, Chairman

MICHAEL BILIRAKIS, Florida

TERRY EVERETT, Alabama

STEPHEN E. BUYER, Indiana

JACK QUINN, New York

CLIFF STEARNS, Florida

JERRY MORAN, Kansas

RICHARD H. BAKER, Louisiana

ROB SIMMONS, Connecticut

HENRY E. BROWN, JR., South Carolina

JEFF MILLER, Florida

JOHN BOOZMAN, Arkansas

JEB BRADLEY, New Hampshire

BOB BEAUPREZ, Colorado

GINNY BROWN-WAITE, Florida

RICK RENZI, Arizona

TIM MURPHY, Pennsylvania

LANE EVANS, Illinois

BOB FILNER, California

LUIS V. GUTIERREZ, Illinois

CORRINE BROWN, Florida

VIC SNYDER, Arkansas

CIRO D. RODRIGUEZ, Texas

MICHAEL H. MICHAUD, Maine

DARLENE HOOLEY, Oregon

SILVESTRE REYES, Texas

TED STRICKLAND, Ohio

SHELLEY BERKLEY, Nevada

TOM UDALL, New Mexico

SUSAN A. DAVIS, California

TIM RYAN, Ohio

PATRICK E. RYAN, Chief Counsel and Staff Director

(II)

(III)

LETTER OF TRANSMITTAL

HOUSE OF REPRESENTATIVES, COMMITTEE ON VETERANS’ AFFAIRS, Washington, DC, September 2, 2003

Hon. JIM NUSSLE,

Chairman, Committee on the Budget

House of Representatives, Washington, DC

DEAR MR. CHAIRMAN: Enclosed with this letter is the report of

the Committee on Veterans’ Affairs with its findings on means of

eliminating waste, fraud and abuse in spending programs under

the Committee’s jurisdiction.

The Committee conducts regular oversight of veterans programs

in accordance with its Oversight Plan for the 108th Congress. Pursuant to the requirement of the Conference Report to Accompany

the Concurrent Resolution on the Budget for Fiscal Year 2004, the

full Committee held hearings on waste, fraud and abuse in veterans’ programs on May 8 and June 10, 2003. The topics of the hearings included barring payment of veterans benefits to fugitive felons, stopping erroneous benefits payments in the Philippines, improving management of long-term care for veterans, ensuring that

part-time VA physicians meet their employment obligations,

strengthening debt management, and reducing costs in worker’s

compensation.

Additionally, the Committee has held hearings on the findings of

the President’s Task Force to Improve Health Care Delivery for our

Nation’s Veterans, and VA’s medical care collections program. As

reflected in the enclosed report, the Committee has utilized both

the U.S. General Accounting Office and the VA Office of the Inspector General in its oversight and evaluations of spending programs

for veterans.

Much of the potential savings in spending programs for veterans

the Committee report has identified can be appropriately achieved

through improvements in VA program management, and legislation is not recommended. However, the Committee has reported

legislation discussed in the enclosed report that would enable VA

to significantly increase medical care collections from nonfederal

sources. This legislation, H.R. 1562, was requested by the Administration and reported favorably by the Committee, but the House

has not acted on it.

The Committee intends to continue its aggressive oversight of

spending programs for veterans to ensure that tax dollars are efficiently used in the programs under its jurisdiction, and will continue its efforts to identify changes in law to eliminate waste, fraud

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and abuse. The support of the Committee on the Budget in these

endeavors is most appreciated.

Sincerely,

CHRISTOPHER H. SMITH, LANE EVANS,

Chairman Ranking Democratic Member

(1)

ELIMINATING WASTE, FRAUD AND ABUSE

IN VETERANS’ PROGRAMS

Pursuant to section 301 of the Conference Report to Accompany

the Concurrent Resolution on the Budget for Fiscal Year 2004 (H.

Con. Res. 95; H. Rept. 108–71), the Committee on Veterans’ Affairs

is transmitting herewith its findings on means of eliminating

waste, fraud, and abuse in spending programs under the Committee’s jurisdiction.

ENHANCING MEDICAL CARE COLLECTION AUTHORITY

The Committee is concerned that the Department of Veterans Affairs (VA) health care system is seriously under-funded and unable

to meet the demands being placed on it by the health care needs

of enrolled veterans. The VA health care system is under obvious

stress, as increasing enrollment and rising health care costs have

resulted in hundreds of thousands of veterans being forced to wait

months, some even more than a year, for an initial appointment.

VA recently reported in January 2003 that over 200,000 veterans

were waiting six months or more to be seen in VA primary care.

This waiting list has been reduced, but VA still fails to meet its

own access standards for a very large number of enrolled veterans.

The Committee conducted hearings and other oversight during

this Congress and previous Congresses to identify additional funding sources and promote management efficiencies to address the

rising demand for VA medical care services. As a consequence of

this oversight, on April 2, 2003, H.R. 1562, the Veterans Health

Care Cost Recovery Act of 2003, was introduced by Honorable Bob

Beauprez; the Committee’s Chairman, Honorable Christopher H.

Smith; and the Committee’s Ranking Member, Honorable Lane

Evans; the Subcommittee on Health’s Chairman, Honorable Rob

Simmons; and the Subcommittee’s Ranking Member, Honorable

Ciro D. Rodriquez. After subcommittee and full committee consideration, on May 15, 2003, H.R. 1562, as amended, was ordered reported favorably to the House by unanimous voice vote. To date,

the House has not acted on this bill.

In 1986, with Public Law 99–272 Congress provided VA authority to collect from third-party insurers of nonservice-connected veterans receiving VA health care. These funds are used by VA to supplement appropriated funds to maintain high quality health care.

However, VA is currently unable to collect fully from the sizeable

preferred provider sector, which now accounts for a major portion

of all health plans in the United States. H.R. 1562, as amended,

would enhance the ability of VA to collect reimbursements from

third-party insurers by clarifying VA’s power to recover costs for

medical care provided to veterans at VA facilities covered by preferred provider organizations and other non-traditional coverage.

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Specifically, H.R. 1562, as amended, would deem VA as a ‘‘preferred provider’’ for purposes of collection when a payer has payment arrangements with preferred provider organizations and a

covered veteran receives VA health care under an equivalent arrangement. This legislation would prevent a third-party payer from

denying or reducing reimbursement to VA solely because VA does

not have a participation agreement with that third-party payer.

Additionally, the legislation would grant specific authority for VA

to recover the cost of providing medical care to non-veterans from

any private health plan. Under current law, the collections recovered would be deposited into the Medical Care Collections Fund

(MCCF) and treated as offsets to discretionary spending. Subject to

annual appropriation, VA can spend the money in the MCCF to

provide medical care to veterans.

The Congressional Budget Office (CBO) estimates that under

H.R. 1562, as amended, collections from nonfederal sources would

increase by $111 million in 2004 and $737 million over the 2004– 2008 period. CBO estimates that implementing this legislation

would result in net discretionary savings of $24 million in 2004,

and $38 million over the 2004–2008 period, assuming appropriation

of the estimated collections and after accounting for the typical lag

between collections and spending.

IMPROVING MEDICAL CARE COLLECTIONS

In 1997, Congress gave VA the authority to retain third party

collections it recovered instead of returning the funds to the U. S.

treasury. This authority was requested by the Department as a

part of its 5-year plan to obtain 10 percent of its funding from third

party collections and other revenue sources. In 1999, the Committee received VA’s outsourcing business plan for health care revenue

collection. The plan involved consolidating certain revenue collection processes (pre-registration, insurance verification, billing collections, and customer service) into a ‘‘Consolidated Revenue Unit’’ at the network level. Also, in 1997 VA adopted a new fee schedule

called ‘‘reasonable charge’’ authorized by Public Law 105–33, the

Balanced Budget Act of 1997. By November 2000, VHA had initiated four pilot tests—two in-house and two by contract. VA also received a Price Waterhouse report with 24 major recommendations

for improving MCCF revenue operations.

In 2001, the U.S. General Accounting Office (GAO) reported in

hearing testimony that for the first time since 1995, VA had reversed the general decline in its third party collections. GAO largely attributed the increase to VA’s implementation of the reasonable

charges billing system. However, GAO reported recurring problems,

including: (1) VA billing times that were 14 times greater on average than the private sector; (2) continuing weaknesses in VA’s collections information systems; and (3) a lack of department-wide

standardization for collections. The VA’s Office of Inspector General

(IG) also reported problems and weaknesses in a number of areas,

including: (1) determination of veterans’ eligibility and entitlement

status; (2) verification and coordination of patient care with insurance carriers; (3) medical record documentation of care provided;

(4) coding of bills to insurance carriers; (5) billing of insurance carriers; and (6) collection of insurance carriers’ delinquent accounts.

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VA was also mandated by Congress to acquire and implement a

commercial patient financial system. VA is implementing the Patient Financial Services System project, which is intended to improve the business process and information technology in revenue

collections. In May of 2002, VA created a new office in the Veterans

Health Administration (VHA), the Chief Business Office, to improve collections. However, VA’s compliance with established policies and procedures for MCCF management continues to be inconsistent. In his April 1, 2002, to September 30, 2002, Semiannual

Report to Congress, the IG reported that deficiencies in the collections system result from the inability to properly bill for services.

The VA’s budget proposal for fiscal year 2003 proposed a new

outsourcing business plan to reconfigure the revenue collection program. However, of the four network pilot tests, only one produced

an outsourcing contract model. VA’s budget proposal for fiscal year

2004 indicated VA had made considerable progress in executing its

new business plan. The new plan would reconfigure the revenue

collection program to include both in-house and contract models.

MCCF collections have shown a steady improvement since fiscal

year 2000. Actual collections from third parties have been: $394

million for fiscal year 2000; $540 million for fiscal year 2001; and

$690 million for fiscal year 2002. Projected collections are $760 million for fiscal year 2003.

On May 7, 2003, the Subcommittee on Oversight and Investigations held its third oversight hearing on third party collections and

received an update from GAO on VA’s third-party collections since

September of 2001. GAO also provided an overview of continuing

operational problems in collections for fiscal year 2002, including

missed billing opportunities, insufficient documentation of services

for billing, shortages of billing and coding staff, insufficient pursuit

of accounts receivable, and unidentified insurance for some

patients.

The Deputy Secretary of Veterans Affairs, Honorable Leo S.

Mackay also testified at the May 7, 2003, hearing about VA’s efforts to improve third party collections. He informed the Subcommittee that the strategies being pursued include establishment

of health care industry based performance and operational metrics,

technology enhancements and integration of proven business approaches, including establishment of centralized revenue operations

centers. He further stated that VA is developing a demonstration

project to fully outsource the revenue process functions at a VA

Medical Center to test the feasibility of this approach to enhancing

revenue. The Committee will conduct oversight of the demonstration projects.

STRENGTHENING DEBT MANAGEMENT

According to the IG’s Report of the Audit of the Department of

Veterans Affairs Consolidated Financial Statements for Fiscal Years

2002 and 2001, Report No. 02–0163847, January 23, 2003, as of

December 2002, debts owed to the VA totaled $3 billion. The majority of these (52 percent) were active vendee loans. The debts owed

to the VA are derived from the payment of home loan guaranties;

direct home loans; life insurance loans; Medical Care Collections

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Fund receivables; and compensation, pension, and educational benefits overpayments.

The IG made several recommendations to the Department concerning its debt management activities. During testimony on May

8, 2003, Honorable Richard Griffin, VA Inspector General, reported

that the Strategic Plan for 2003–2008 shows that VA is addressing

his recommendations to be more aggressive in collecting debts; improve debt avoidance practices; and streamline and improve debt

waiver decisions. The IG also stressed that debt management activities could be improved.

The Committee will continue its oversight and working with VA

to ensure that the IG’s recommendations are implemented.

RESTRUCTURING CAPITAL ASSETS

As a result of improved technologies, new treatments and national changes in practice patterns of health care professionals, VA

has shifted its focus from inpatient to outpatient care. This shift

resulted in many instances of shortened lengths of stay when hospitalization is required and established needs for many new outpatient facilities. Consequently, many structures formerly used for

inpatient care have been converted for new uses. However, the vacant space that cannot be converted for effective uses has become

a significant burden and waste of VA resources that could be used

for direct health care for veterans.

GAO concluded in 1999 that VA’s existing infrastructure could be

the biggest obstacle confronting its ongoing transformation efforts.

During a hearing before the Subcommittee on Health in 1999, GAO

pointed out that although VA was addressing some realignment

issues, it did not have a plan in place to identify buildings that

were no longer needed to meet veterans’ health care needs. GAO

recommended that VA develop a market-based plan for restructuring its delivery of health care in order to reduce funds spent on

underutilized or inefficient buildings. In turn, those funds could be

reinvested to better serve veterans’ needs by placing health care resources closer to veterans’ homes.

In addition, GAO reported that most delivery locations had mission-critical buildings that VA considers functionally obsolete. The

functional obsolescence included inpatient rooms that failed to

meet contemporary standards for patient privacy; outpatient clinics

with too few examination rooms; and buildings with life safety

concerns.

In 1999, based on recommendations and actions of the Committee, VA began an effort to realign its capital assets, primarily

buildings, to better serve veterans’ needs as well as institute other

needed efficiencies. The Capital Asset Realignment for Enhanced

Services (CARES) initiative includes: (1) assessing a target population’s needs; (2) evaluating the capacity of existing assets; (3)

identifying any performance gaps (excesses or deficiencies); (4) estimating assets’ life cycle costs; and (5) comparing such costs to other

alternatives for meeting the target population’s needs. Alternatives

to be considered included: (1) partnering with other public or private providers; (2) purchasing care from other providers; (3) replacing obsolete assets with modern ones; and (4) consolidating services

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duplicated at multiple locations serving the same market. CARES

is the most ambitious such effort undertaken by VA.

Recent data from VA’s CARES office provided an overview of VA

facilities as follows: VA owns 5,044 buildings and 118.5 million

square feet. The average age of VA buildings is 50.4 years. The replacement life cycle at the current rate of investment is 155 years.

VA operates 162 hospitals, 677 community-based outpatient clinics,

137 nursing home units and 43 domiciliaries.

During the CARES process, VA has projected veterans’ demand

for acute health care services through fiscal year 2022, evaluated

available capacity at its existing delivery locations, and targeted

geographic areas where alternative delivery strategies might allow

VA to operate more efficiently and effectively while ensuring access

consistent with its standards for travel time. Efficiencies through

economies of scale have been identified in 30 geographic areas

where two or more major health care delivery sites were located in

close proximity and or provided duplicative inpatient and outpatient health care services. Also six high priority collocations of

regional benefits offices with medical centers have been proposed.

VA has also identified more than 70 opportunities for partnering

with DOD to better align the infrastructure of both agencies. Twenty-one of the collaborations or joint ventures with DOD are considered high priority. Four years after GAO recommended the formation of CARES, VA expects to issue its final plans by the end of

2003.

An exemplary model of public/private partnering supported by

the Committee is proposed at the site of the former Fitzsimons

Army Medical Center in Aurora, Colorado. This multi-acre tract

was deeded by the federal government to Colorado University to

enable it to consolidate one of the largest regional medical, educational and biomedical research complexes in the country. Discussions are underway between VA and DOD to negotiate a joint venture to construct and staff a Regional Federal Medical Center,

sharing resources, services and research with the University of Colorado at that site. H.R. 116, as amended, was reported by the Committee on July 14, 2003, to authorize the Secretary of Veterans Affairs, in consultation with the Secretary of Defense, to construct,

lease, or modify major medical facilities at the site of the former

Fitzsimons Army Medical Center, Aurora, Colorado.

The Committee will continue to monitor carefully the progress of

CARES and expects to hold a public hearing after the plan has

been completed.

IMPROVING EFFICIENCY AND ACCESS THROUGH VA-DOD SHARING

For approximately twenty years, the Committee has promoted

the sharing of health care resources between the Departments of

Veterans Affairs and Defense (DOD). The goal of sharing between

the two Departments is to improve the quality of health care for

VA and DOD beneficiaries and to reduce costs that exist in both

Departments. By collaborating, the two Departments can improve

access to care and reduce the overall costs of furnishing that care

to both veterans and the military beneficiary population.

In 1982, Congress enacted Public Law 97–174, (the Sharing Act)

to foster more effective sharing of health care resources between

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VA and DOD. The law was enacted not only to remove legal barriers, but also to provide incentives for military and VA health care

facilities to engage in health resources sharing through local agreements, joint ventures, national sharing initiatives, and other collaborative efforts pointed to better and more efficient use of Federal health care resources. The Sharing Act provides broad authority to both VA and DOD to share health resources across the spectrum of health care and health-related activities. With the advent

of the Sharing Act, a flurry of VA-DOD sharing activity occurred,

and hundreds of agreements were executed among military and VA

medical centers and their clinics. However, over the succeeding

years, sharing waned as military health care shifted from a facilities-based system to the TRICARE program that relies on private

health care networks.

On July 27, 2001, Chairman Smith introduced H.R. 2667, the

Department of Defense-Department of Veterans Affairs Health Resources Access Improvement Act of 2001. H.R. 2667 sought to establish a health care facilities sharing demonstration project in

keeping with the intent of the original legislation for VA-DOD

sharing. Under the bill, five qualifying sites would be selected for

participation in a demonstration project. The purpose of the demonstration project was to identify and measure the advantages of

sharing and work through the challenges of the two systems becoming true partners in health care delivery. The two Departments’ medical information systems are incompatible, but this legislation

would have created a framework for greater technology compatibility. By improving such communication, the Departments could better ensure continuity of care, equality of access, uniform quality of

service and seamless transmission of data. Most of the original concepts and objectives of H.R. 2667 were incorporated in Subtitle VII

of Public Law 107–314, the Bob Stump National Defense Authorization Act for Fiscal Year 2003.

On March 7, 2002, the Subcommittee on Health and the Committee on Armed Services Subcommittee on Military Personnel held a

joint hearing to examine collaboration and health resources sharing

by the two Departments, including consideration of H.R. 2667.

Chairman Smith testified to urge both subcommittees to aggressively increase resource sharing between these two health care systems. Defense Under Secretary David S. Chu assured the Committees that he and VA Deputy Secretary Mackay share a common vision of quality health care for the men and women serving our

country, their families, and those that have served. According to

Under Secretary Chu, the cooperative efforts of DOD and VA are

focused on a proactive partnership that meets the missions of both

agencies while benefiting the servicemember, veteran and taxpayer

with new initiatives and increased efficiency.

On June 3 and June 17, 2003, the Committee held hearings to

receive the Final Report of the President’s Task Force to Improve

Health Care Delivery for our Nation’s Veterans (PTF). One of the

four organizing principles which this task force used in developing

recommendations was that committed leadership from VA and

DOD is essential to achieve VA-DOD collaboration to improve

health care for veterans and military retirees. The PTF found that

VA and DOD should maximize the use of resources and infrastrucVerDate 11-MAY-2000 12:59 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 89077 HVETS1 PsN: HVETS1
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ture that each Department currently retains individually. Dr. Gail

Wilensky, Co-Chair of the PTF, stated in her June 3, 2003, testimony, ‘‘The goal of improved collaboration between VA and DOD

is not collaboration for the sake of collaboration, but rather that,

through such activity, VA and DOD can improve timely access to

quality health care and reduce the overall costs of furnishing

services.’’ H.R. 1911, to amend title 38, United States Code, to enhance cooperation and the sharing of resources between the Department of

Veterans Affairs and the Department of Defense, introduced by

Honorable John Boozman, was passed by the House on May 21,

2003, and would establish a DOD-VA Joint Executive Committee

to: (1) expand oversight of collaborative efforts beyond health care

issues to include benefits and other areas as determined by the cochairs; and (2) promote increased resource sharing.

Existing law allows each Department to determine individually

the number of employees each would designate to support the committee, but requires each one to share equally in the cost, notwithstanding parity in the numbers. It also requires a permanent staff

be assigned to the committee. This bill would delete these personnel requirements, thereby enhancing the flexibility of each Department to use its personnel in the most efficient manner possible,

while at the same time authorizing the establishment of subordinate committees and work groups as deemed appropriate by the cochairs.

Existing law specifically authorizes the recommendations of the

committee for sharing of resources to improve access, quality, and

cost effectiveness. Under H.R. 1911, the committee would also identify changes in policies to improve services, efficiencies, and opportunities for collaboration for delivery of benefits and services to

beneficiaries of both Departments.

According to CBO, this bill would have a negligible cost. Although CBO did not project any cost savings in its reported estimate, the Committee expects that cost savings would result from

the enactment of this bill, as it would further promote the sharing

between VA and DOD and create new methods by which the two

Departments would share resources and eliminate duplicate activities. The substance of H.R. 1911 was incorporated into H.R. 1588,

the National Defense Authorization Act for Fiscal Year 2004, which

the House passed on May 22, 2003.

MANAGING LONG-TERM CARE FOR VETERANS

In 1999, Public Law 106–117, the Veterans’ Millennium Health

Care and Benefits Act, was enacted to ensure VA better meets the

needs of its aging patient population. The Act required VA for the

first time to provide nursing home care and certain non-institutional long-term care services to eligible veterans. Some studies

have shown that appropriate use of case management in long-term

care can reduce both the number and the intensity of expensive

acute care hospitalizations. Due to recent reports the Committee

has received from VA, the Committee is concerned about VA’s ability to meet the nursing home care needs of veterans in accordance

with the law, particularly considering the World War II generation’s increasing needs for long-term care.

8

At the May 8, 2003, Committee hearing on waste, fraud, and

abuse, Members raised issues related to VA’s role in meeting the

long-term health care needs of veterans. On May 22, 2003, the Subcommittee on Health held a follow-up hearing to examine existing

VA long-term care programs and expenditures and appraise VA’s

strategy for addressing future long-term care needs of aging and

disabled veterans.

To better meet its oversight responsibilities in this area, the

Committee requested that GAO provide the Committee with a report on VA’s implementation of the Millennium Act, including analysis of current trends and forecasts in nursing home utilization and

long-term care expenditures by the Department. The Committee

also asked GAO to examine VA’s management of its in-house nursing home programs to improve efficiency and assure appropriate

utilization and access in consonance with the Millennium Act.

GAO will examine the use of nursing homes VA operates, as well

as the contract care it purchased between fiscal years 1998 and

2002. The scope of the study will include examining the expenditures VA incurred to provide nursing home care to these veterans,

the extent of the use of nursing homes and how their expenditures

have varied by VA’s 21 health care networks, and the degree to

which policy differs among VA’s networks on the type and extent

of nursing home care provided to veterans. GAO has agreed to complete its work and issue a report to the Committee by the fall of

2003. This next report will provide the Committee with a basis for

further oversight of VA long-term care programs.

REDUCING COSTS IN WORKER’S COMPENSATION

VHA has 214,000 employees and is the largest health care system in the United States. Under the Federal Employees Compensation Program, employees are eligible for Worker’s Compensation

Program benefit payments for lost wages and medical treatment for

the specific disability associated with a work-related injury.

In 1998, the IG audited VA’s Federal Employee Compensation

Act program and concluded the program was not effectively managed. Audit of VA’s Worker’s Compensation Program Cost, Report

No. 8D2–G01–067, July 1, 1998. The IG estimated VA could reduce

future payments by $247 million, by returning to work current

claimants who are no longer disabled.

In order to decrease program liability, VA issued Directive 7700

on July 8, 1998, to ensure a safe and healthy workplace for VA employees, and VHA issued specific related directives. Also, the VA’s

Office of Occupational Safety and Health initiated a case management and injury prevention project designed to reduce compensation costs and the rate of new compensation claims.

The IG Audit of High-Risk Areas in the Veterans Health Administration’s Workers’ Compensation, Report No. 99–00046, December

21, 1999, found that the lack of effective case management practices placed the Department at risk for program abuse, fraud, and

unnecessary costs. In April 1999, the IG provided VA with a handbook for ‘‘VA Facility Workers Compensation Program Case Management and Fraud Detection.’’ By the end of FY 1999, Office of

Workers Compensation Program costs had decreased by 1.6 percent

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creased to approximately $151 million, which caused the IG to

begin a follow-up audit.

On May 8, 2003, the IG in testimony before the Committee stated, ‘‘. . . VA continues to be at risk for program abuse, fraud, and

unnecessary costs because prior IG program recommendations have

not been fully implemented.’’ At the urging of the Committee, the

Office of Inspector General is conducting further audits of the

Workers’ Compensation Program. No legislation is recommended

by the Department to address this issue.

IMPROVING MANAGEMENT OF PART-TIME PHYSICIANS

VA currently employs 5,129 part-time physicians at a combined

salary of $400 million with poor or no accountability as to much of

their time and attendance. Problems with part-time physician time

and attendance have frequently been reported by the IG Combined

Assessment Program. In some instances, the affiliated medical

school determines assignments and work schedules for all the physicians on the VA payroll in violation of VA policy.

At the May 8, 2003, Committee hearing, the IG also testified concerning the findings in the Audit of the Veterans Health Administration’s Part-Time Physician Time and Attendance, Report No. 02–

001339–85, April 23, 2003. The IG testified that the audit found

that the VHA’s management controls were not effective in ensuring

that part-time physicians met their employment obligations and

that physician staffing was not aligned properly with workload requirements. The IG further testified that some VA medical centers

do not keep duty schedules and timekeepers do not know which

physicians are supposed to be on duty.

The IG provided several examples that showed part-time physicians were not working the hours established in their VA appointments and as a result part-time physicians were not meeting their

employment obligations to VA. Based on a review at five VA medical centers, the audit specifically found:

1. There was no documented evidence of any patient care workload (patient encounters, operating room time, progress notes,

physician orders, or network log times) for 33 percent of the

time in a 14-day review, where 223 part-time physicians were

scheduled for at least four hours of duty.

2. Part-time physicians did not complete a minimal amount of

patient care time (at least one hour in surgery or at least two

progress notes, doctors orders, or encounters per hour worked)

on 53 percent of days the physicians were scheduled to work

at least four hours.

3. Surgeons spent 38 percent of their available time on patient

care obligations. Of the 153 surgeons reviewed, 70 spent less

than 25 percent of their available time in direct patient care.

4. Part-time surgeons at six VA medical centers reviewed were

performing surgery at the affiliated medical schools during

their VA tours of duty.

5. Attending physicians at four VA medical centers reviewed

were not present to supervise the residents’ treatment of patients in six of 29 clinics reviewed.

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The Committee was advised that the IG had provided the Under

Secretary for Health with recommendations for corrective actions.

Specifically, the IG recommended that improvements include quarterly audits of physician time and attendance. The Under Secretary

generally agreed with the recommendations.

The Committee plans to monitor this matter through oversight

hearings and briefings with VA officials to ensure that these recommendations are fully implemented.

IMPROVING MANAGEMENT OF CONTRACTING, PROCUREMENT AND

ACQUISITION

The IG’s testimony at the May 8 2003, hearing indicated the existence of ineffective management practices involving the procurement of health care items and contracting for health care services

or resources, especially when service contracts involved an affiliated institution as a party. An IG audit of procurement practices

found VA facilities often failed to use VA national purchasing or

Federal Supply Service options, and often chose less cost-efficient

options such as local procurement. Studies advocate a more centralized focus for the purchase of health care items, but too often this

course of action is not followed because of a lack of VA procurement

oversight.

The IG also commented on the lack of rigor in contracting for

health care resources, noting an absence of evidence that VA had

assessed its actual needs or that the contract was in the Government’s best interests. The IG noted the potential conflict of interest

in the general process. Other IG concerns involved construction

contracting, purchase card activities, and inventory management— all of which lack adequate oversight at critical points in their respective processes. On June 10, 2003, at the Committee’s second

hearing on waste, fraud and abuse, Deputy Secretary Mackay acknowledged that problems exist with VA’s report to Congress regarding contracts for services other than scarce medical specialties.

The Committee believes that improved management of contracting,

procurement and acquisitions has the potential for considerable

savings and the Committee intends to conduct further oversight of

these areas.

BARRING BENEFITS FOR FUGITIVE FELONS

In 1996, Congress enacted Public Law 104–193, which barred fugitive felons from receiving Supplemental Security Insurance from

the Social Security Administration and food stamps from the Department of Agriculture. The intent of the law was to discontinue

the means of federal support that allow fugitive felons to continue

to flee. However, the law did not prevent a fugitive felon who was

a veteran from receiving benefits from the Department of Veterans

Affairs (VA).

In 2001, the Committee on Veterans’ Affairs reported H.R. 1291,

as amended, to prohibit veterans who are fugitives from receiving

benefits. The bill became Public Law 107–103. Under the law, a fugitive felon is defined as fleeing to avoid prosecution, or custody or

confinement after conviction, for an offense or an attempt to commit an offense which is a felony under the laws of the place from

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ice-connected disabilities; dependency and indemnity compensation

for surviving spouses of service-connected veterans; nonservice-connected disability/death pension; hospital, nursing home, domiciliary

and outpatient care; insurance; educational entitlements; training

and rehabilitation benefits for veterans with service-connected disabilities; and housing and small business loans.

Public Law 107–103 requires the Secretary to furnish to any

Federal, State, or local law enforcement official in specific circumstances and upon written request the most current address

maintained by the Secretary of a person who is eligible for a VA

benefit. The Secretary is also required to enter into memoranda of

understanding with Federal law enforcement agencies and may

enter into agreements with State and local law enforcement agencies for purposes of furnishing information to such agencies.

On May 8, 2003, the IG testified before the Committee on efforts

to identify fugitive felons. In response to Public Law 107–103, the

IG has established a fugitive felon program to identify VA benefits

recipients and VA employees who are fugitives from justice. Mr.

Griffin provided details of the program:

The program consists of conducting computerized matches

between fugitive felon files of law enforcement organizations and VA benefit and personnel records. Once a veteran or employee is identified as a fugitive, information on

the individual is provided to the law enforcement organization responsible for serving the warrant to assist in apprehension. Fugitive information is then provided to VA so

that benefits may be suspended and to initiate recovery action for any overpayments. Based on our pilot study and

matches conducted to date, I anticipate that between 1 and

2 percent of all fugitive felony warrants submitted will involve VA beneficiaries.

Based on computer matches to date, the IG has projected savings

related to the identification of improper and erroneous VA payments to exceed $209 million annually. The IG has also completed

memoranda of understanding or agreements with the U.S. Marshals Service, the States of California and New York, and the National Crime Information Center. These data matching efforts have

already identified more than 11,000 potential fugitive beneficiaries

and VA employees. The Committee intends to monitor and encourage the implementation of the IG’s fugitive felon program through

oversight hearings and briefings with VA officials. No further legislative action is recommended by the Department to address this

issue.

STOPPING ERRONEOUS BENEFITS PAYMENTS IN THE PHILIPPINES

The VA Regional Office in Manila, Republic of the Philippines,

has long struggled with fraudulent activity due to a combination of

factors, including the relatively large amount of VA payments, poverty and a lack of economic opportunity for indigenous persons. The

two main types of cases involve deceased payees and false claims.

In April 2001, the IG instituted a ‘‘Philippines Benefit Review’’ at

the request of the Manila Regional Office, which was seeking assistance in combating fraud associated with false claims.

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During the six-week operational phase of the review, the team

conducted 1,134 interviews and 2,391 fingerprint comparisons, reviewed 2,600 files, took 1,100 digital photographs, initiated nine

criminal cases, and obtained one search warrant. Five hundred

ninety-four beneficiaries were identified for suspension or termination of benefits. Criminal investigations initiated during the review were turned over to the Philippines National Police.

At the May 8, 2003, Committee hearing, the IG testified on the

results of the benefits review, and indicated that his office was

looking at other areas outside the continental United States where

large numbers of veterans and dependents reside. According to the

IG, 78,000 benefits recipients outside the continental United States

are receiving approximately $49 million per month in benefits, including $2.9 million to 5,100 veterans and other beneficiaries in

Germany, and $28 million to 42,000 veterans and other beneficiaries in Puerto Rico.

To date, the Philippines Benefit Review has resulted in cost sav- ings to VA of approximately $2.5 million in overpayments, and a

projected 5-year cost avoidance of over $21 million. The Committee

believes that these investigations of fraud outside the continental

United States should be aggressively pursued and intends to continue its oversight of them. No legislative action is recommended

by the Department to address this issue.

IMPROVING VOCATIONAL REHABILITATION DATA

VA’s Vocational Rehabilitation and Employment Program provides services and assistance necessary to enable veterans with

service-connected disabilities to become employable and obtain suitable employment. This program also helps certain veterans with

service-connected disabilities achieve functional independence in

daily activities. Program performance against these outcomes is

measured by the rehabilitation rate, which is defined as the number of veterans who were rehabilitated during a period of time compared to the total number that left the program during that period.

VA’s Annual Accountability Report for FY 2000 showed the rehabilitation rate for the year was 65 percent, which exceeded the goal

of 60 percent.

On February 6, 2003, the Office of Inspector General released a

report, Accuracy of VA Data Used to Compute the Rehabilitation

Rate for Fiscal Year 2000, Report No. 01–01613–52, that showed

the data used to compute the rehabilitation rate for fiscal year

2000 were not accurate. The counseling, evaluation and rehabilitation folders of 94 randomly selected veterans were reviewed for fiscal year 2000. The audit revealed that 7 of the 94 veterans left the

program during prior or subsequent years and should not have

been included in the computation of the rehabilitation rate that fiscal year. Of the remaining veterans in the sample, 57 were classified as rehabilitated and 30 were classified as discontinued. Based

on the evidence in the veterans’ folders, the IG determined that VA

regional office personnel incorrectly classified 15 of 57 veterans as

rehabilitated. However, no errors occurred among the 30 decisions

to classify veterans as discontinued. VA officials could not readily

explain the reasons for the discrepancies. They speculated that

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bilitation rate may have influenced the inappropriate decisions to

declare veterans rehabilitated.

The IG could not estimate the actual rehabilitation rate the program achieved for fiscal year 2000, because regional office personnel did not timely classify veterans as rehabilitated or discontinued. As a result, an unknown number of veterans were improperly excluded from the total number of veterans who left the program during the year. Because of the significant discrepancies

identified, the IG could not attest to the accuracy of the rehabilitation rate included in VA’s Annual Accountability Report for FY

2000. The IG recommended additional training for regional office personnel who make classification decisions and improved supervisor

accountability. Additionally, the IG recommended strengthened

oversight of VA regional office personnel to ensure that classification decisions are timely and accurate. The Under Secretary for

Benefits concurred with the IG’s recommendations and provided acceptable implementation plans.

Other accuracy problems in VA’s vocational rehabilitation program have also been identified. On January 31, 2003, the VA released its FY 2002 Performance and Accountability Report. Part of

this report addressed accuracy of outcome decisions and accuracy

of evaluation and planning services for veterans applying for vocational rehabilitation. In 2002, program managers conducted their

own quality reviews on 3,243 vocational rehabilitation cases. The

survey found a 19 percent error rate in rehabilitation rate outcome

decisions.

The IG report did not estimate entitlement, administrative, or

cost implications of VA errors that resulted in an overstated vocational rehabilitation rate. No legislative action is recommended by

the Department. The Committee expects to hold a public hearing

to further examine this matter and provide additional oversight.

REDUCING ERRORS IN EDUCATIONAL ASSISTANCE CLAIMS

The VA’s FY 2002 Performance and Accountability Report noted

quality assurance deficiencies in education claims. Of the 1,541

cases reviewed, 100 had payment errors and 340 had service errors

(some cases had more than one service error). Payment errors

mean the monthly educational assistance allowances of beneficiaries are being underpaid or overpaid. Service errors largely

deal with eligibility and entitlement determinations. Within the

category of service errors, development and due process notification

errors were 21 and 22 percent, respectively. The Committee finds

these error rates unacceptable. For 2001 and 2002, payment accuracy remained virtually the same, 92.0 percent and 92.6 percent,

respectively. The report noted that VA must continue periodic refresher training in these areas until improvement is shown.

The accountability and performance report also noted workforce

challenges. In fiscal year 2002, the VA Education Service employed

864 Full-Time Equivalent Employees (FTEE) in administering its

programs for about 465,000 veterans, active-duty servicemembers,

reservists, and survivors/dependents. About 50 percent of the education adjudicators were trainees at the beginning of fiscal year

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cation Service is developing standardized training for its employees. The first phase, covering claims processing tasks, will be completed in the summer of 2003.

The Committee notes that the report did not estimate the

amount that could be saved by reduction of payment errors in education claims. However, the report showed that VA obligated $1.77

billion in this program during fiscal year 2002 and the Committee

believes that the savings could be substantial. The Committee

plans continued close oversight of the Department’s efforts to reduce error rates in its educational assistance claims. No legislative

action is recommended by the Department to address this issue.

PREVENTING PENSION OVERPAYMENTS

VA’s improved pension program provides financial assistance

based upon need to certain wartime veterans with disabilities not

related to military service. This needs-based program has an income limitation, and it is designed to pay benefits on a graduated

scale whereby the person with the least amount of income, and

therefore with the greater need, receives the greater amount of

pension. There are income exclusions in determining a person’s income for pension purposes, including the exclusion of certain unreimbursed medical expenses. At the request of the Under Secretary

for Benefits, the IG conducted an audit of beneficiaries receiving increased benefits as a result of unreimbursed medical expense

claims. The objectives were to: (1) evaluate the effectiveness and efficiency of Veterans Benefits Administration (VBA) procedures for

verification of these claims; (2) identify the extent of unsupported

claims and processing errors; (3) determine the extent of any potential program fraud; and (4) determine causes and identify solutions

for deficiencies.

During fiscal year 2001, VA paid $2.9 billion in pension benefits

to 507,149 veterans and their survivors. On September 30, 2002,

the Office of Inspector General released a report, Audit of Veterans

Benefits Administration Benefit Payments Involving Unreimbursed

Medical Expense Claims, Report No. 00–00061–169. The audit

found that some pension beneficiaries are inappropriately submitting unreimbursed medical expense claims, significantly increasing

the level of benefit payments. The IG reported that processing errors and potential program fraud have occurred because regional

offices are not effectively managing the processing of these claims.

Erroneous benefit payments occurred due to the following:

Overpayments

1. Medicare (Part B) premium expenses were claimed, but not

actually paid.

2. Income and net worth were not properly reported.

3. Continuing Medical Expense Deductions—expenses allowed

prospectively if they are recurring or reasonably predictable

(i.e., nursing home fees)—were not properly adjusted to reflect

actual lower costs.

4. Claimed nursing home costs were not reduced for Medicaid reimbursements.

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5. Other processing errors occurred because claims were not fully

developed or mathematical errors were made in computing

them.

Underpayments

1. Medicare (Part B) premiums paid were not properly claimed

or adjusted by VBA to reflect increases in annual expenses.

2. Claims were not fully developed or mathematical errors were

made in computing claim amounts.

Potential Program Fraud

1. Income, net worth or unreimbursed medical expenses were

not properly reported.

2. Claims were for expenses that had already been reimbursed.

3. Veterans’ deaths were not timely reported to VA, and not all

pension checks were returned.

According to the IG, processing errors and potential program

fraud annually result in overpayments of up to $124.7 million and

underpayments of up to $19.9 million. The Under Secretary for

Benefits provided acceptable implementation plans to the IG. The

Committee will continue oversight of the VA pension program to

ensure the issues of processing errors and program fraud are adequately addressed. No legislative action is recommended by the Department to address these issues.

IMPROVING CAPABILITY OF THE OFFICE OF THE INSPECTOR GENERAL

The Committee notes that the VA Office of Inspector General is

the smallest of the statutory Inspectors General relative to the size

of the parent agency. The IG has a proven record resulting in savings for the VA by elimination of waste, fraud, abuse and management inefficiencies by finding meaningful cost avoidance opportunities. For every dollar invested in the IG, the department realizes

savings or cost avoidance estimated at thirty dollars. Committee efforts resulted in increased IG capabilities, with an additional 92

FTEE authorized in 2003, and should result in annual savings of

over $180 million VA-wide.

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