a

GAO

United States Government Accountability Office

Report to the Chairman, Subcommittee 

on Oversight and Investigations, 

Committee on Veterans’ Affairs, House of 

Representatives

July 2004 VA MEDICAL 

CENTERS

Further Operational 

Improvements Could 

Enhance Third-Party 

Collections

GAO-04-739
www.gao.gov/cgi-bin/getrpt?GAO-04-739.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-6906 or 

williamsm1@gao.gov. 

Highlights of GAO-04-739, a report to the 

Chairman, Subcommittee on Oversight 

and Investigations, Committee on 

Veterans’ Affairs, House of 

Representatives 

July 2004

VA MEDICAL CENTERS

Further Operational Improvements Could 

Enhance Third-Party Collections 

VA has continued to take actions to reduce billing times and increase thirdparty collections. Collections of third-party payments have increased from 

$540 million in fiscal year 2001 to $804 million in fiscal year 2003. However, 

at the three medical centers visited, GAO found continuing weaknesses in 

the billings and collections processes that impair VA’s ability to maximize 

the amount of dollars paid by third-party insurance companies. For 

example, the three medical centers did not always bill insurance companies 

in a timely manner. Medical center officials stated that inability to verify and 

update patients’ third-party insurance, inadequate documentation to support 

billings, manual processes and workload continued to affect billing 

timeliness. 

The detailed audit work at the three facilities GAO visited also revealed 

inconsistent compliance with follow-up procedures for collections. For 

example, collections were not always pursued in a timely manner and partial 

payments were accepted as payments in full, particularly for Medicare 

secondary insurance companies, rather than pursuing additional collections. 

VA’s current Revenue Action Plan (Plan) includes 16 actions designed to 

increase collections by improving and standardizing collections processes. 

Several of these actions are aimed at reducing billing times and backlogs. 

Specifically, medical centers are updating and verifying patients’ insurance 

information and improving health care provider documentation. Further, 

hiring contractors to code and bill old cases is reducing backlogs. In addition 

to actions taken, VA has several other initiatives underway. For example, VA 

is taking action to enable Medicare secondary insurance companies to 

determine the correct reimbursement amount, which will strengthen VA’s 

position to follow up on partial payments that it deems incorrect. Although 

implementation of the Plan could improve VA’s operations and increase 

collections, many of its actions will not be completed until at least fiscal year 

2005. As a result, it is too early to determine the extent to which actions in 

the Plan will address operational problems and increase collections. 

In the face of growing demand for 

veterans’ health care, GAO and the 

Department of Veterans Affairs 

Office of Inspector General (OIG) 

have raised concerns about the 

Veterans Health Administration’s 

(VHA) ability to maximize its thirdparty collections to supplement its 

medical care appropriation. GAO 

has testified that inadequate patient

intake procedures, insufficient 

documentation by physicians, a 

shortage of qualified billing coders, 

and insufficient automation 

diminished VA’s collections. In 

turn, the OIG reported that VA 

missed opportunities to bill, had 

billing backlogs, and did 

inadequate follow-up on bills. 

While VA has made improvements 

in these areas, GAO was asked to 

review internal control activities 

over third-party billings and 

collections at selected medical 

centers to assess whether they 

were designed and implemented 

effectively. 

GAO is making five 

recommendations to augment 

actions already underway to 

facilitate more timely billings and 

improve collection operations. In 

responding to our draft report, VA 

agreed with our conclusions and 

expressly concurred with the 

recommendations and reported 

that it is developing an action plan 

to implement them. 
Page i GAO-04-739 VA Billings and Collections

Contents

Letter 1

Results in Brief 2

Background 4

Scope and Methodology 7

Opportunities Exist for Improving Timeliness of Billings and 

Collection Activities 9

Conclusions 18

Recommendations 19

Agency Comments and Our Evaluation 19

Appendixes

Appendix I: Comments from the Department of Veterans Affairs 21

Appendix II: GAO Contacts and Staff Acknowledgments 23

GAO Contacts 23

Acknowledgments 23

Tables Table 1: Third Party Billing Timeliness for Selected Transactions 11

Table 2: Ratio of Bills Issued to the Number of Coders Per Day 

January-March, 2004 12

Figures Figure 1: VA’s MCCF Revenue Cycle for Third-Party Collections 5

Figure 2: Third-Party Collections in Millions 7

Figure 3: Four Functional Areas of Billing 10
Contents

Page ii GAO-04-739 VA Billings and Collections

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately.

Abbreviations

CBO Chief Business Office

MCCF Medical Care Collection Fund

OIG Office of Inspector General

PFSS Patient Financial Services System

VA Department of Veterans Affairs

VHA Veterans Health Administration
Page 1 GAO-04-739 VA Billings and Collections

United States Government Accountability Office

Washington, D.C. 20548

A

July 19, 2004 Letr

The Honorable Steve Buyer

Chairman

Subcommittee on Oversight and Investigations

Committee on Veterans’ Affairs

House of Representatives

Dear Mr. Chairman:

The Department of Veterans Affairs (VA) provides health care to eligible 

veterans through medical facilities managed by its Veterans Health 

Administration (VHA). Under certain circumstances, VA is authorized to 

collect reasonable charges from veterans’ health insurance companies to 

offset the cost of medical care and medications for treatment of 

nonservice-connected conditions. Specifically, VA may bill insurance 

companies for treatment of conditions that are not a result of injuries or 

illnesses incurred or aggravated during military service. VA is not 

authorized to bill for health care conditions that result from military 

service, nor is it generally authorized to collect from Medicare and 

Medicaid. In fiscal year 2003, VA collected $804 million in insurance 

payments, also known as third-party collections. These collections 

provided VA the largest source of revenue to supplement its $25 billion 

medical care appropriation in fiscal year 2003, and they helped pay for 

costs associated with growing health care demands for veterans. 

Over the past several years, we and the VA Office of the Inspector General 

(OIG) have raised concerns about VA’s ability to maximize its third-party 

collections to enhance revenue. In September 2001, we testified that 

problems in VA’s collection operations—such as inadequate patient intake 

procedures to gather insurance information, insufficient physician 

documentation of the specific care provided, a shortage of qualified coders, 

and insufficient automation—diminished VA’s collections.1

 In February 

2002, the VA OIG reported that VA missed billing opportunities, had billing 

1

 U.S. General Accounting Office, VA Health Care: VA Has Not Sufficiently Explored 

Alternatives for Optimizing Third-Party Collections, GAO-01-1157T (Washington, D.C.: 

Sept. 20, 2001).
Page 2 GAO-04-739 VA Billings and Collections

backlogs, and did inadequate follow-up on accounts receivable in fiscal 

years 2000 and 2001.2

 In May 2003 we testified that VA had made 

improvements in these areas but that operational problems, such as unpaid 

accounts receivable, missed billing opportunities, and billing backlogs 

continued to limit the amount VA collects.3

 

In conjunction with this revenue-enhancing responsibility, you asked us to 

review internal control activities over third-party billings and collections at 

selected VHA medical centers to assess whether internal controls are now 

designed and implemented effectively. 

To gain an understanding of VHA’s policies and procedures and the related 

internal controls and to assess the design effectiveness of those controls, 

we obtained and reviewed VA and VHA directives, handbooks, and other 

policy guidance, and previous reports issued by VA’s OIG. We also 

conducted interviews and walkthroughs with VHA personnel and reviewed 

our previous reports. To assess whether key control activities for billings 

and collections were effectively implemented, we used a case study 

approach, reviewing transaction documentation at three VA medical 

centers. We conducted our review from March 2004 through June 2004 in 

accordance with U.S. generally accepted government auditing standards.

Results in Brief VA has continued to take actions to reduce billing times and increase thirdparty collections. Collections of third-party payments have increased 49 

percent from $540 million in fiscal year 2001 to $804 million in fiscal year 

2003. At the same time, at the three medical centers we visited, we found 

continuing weaknesses in the billings and collections processes that impair 

VA’s ability to maximize the amount of dollars paid by third-party insurance 

companies. For example, the three medical centers did not always bill 

insurance companies in a timely manner. Medical center officials told us 

that inability to verify and update patients’ third-party insurance, 

inadequate documentation to support billings, manual processes and 

workload continued to affect billing timeliness. For instance, we were told 

2

 VA Office of Inspector General, Audit of the Medical Care Collection Fund Program, 

Report No. 01-00046-65 (Washington, D.C.: Feb. 26, 2002).

3

 U.S. General Accounting Office, VA Health Care: VA Increases Third-Party Collections as 

It Addresses Problems in Its Collections Operations, GAO-03-740T (Washington, D.C.: May 

7, 2003).
Page 3 GAO-04-739 VA Billings and Collections

that insufficient treatment documentation by physicians and other health 

care providers continued to cause delays in coding bills. The cumulative 

effect of this intertwined set of issues results in late or incomplete bills and 

lost revenue.

The detailed audit work at the three facilities we visited also revealed 

inconsistent compliance with follow-up procedures for collections. For 

example, collections were not always pursued in a timely manner and 

partial payments were accepted as payments in full, particularly for 

Medicare secondary insurance companies, rather than pursuing additional 

collections. 

VA’s current Revenue Action Plan (Plan) includes 16 actions designed to 

increase collections by improving and standardizing collections processes. 

Several of these actions are aimed at reducing billing times and backlogs. 

Specifically, medical centers are updating and verifying patients’ insurance 

information and improving health care provider documentation. Further, 

hiring contractors to code and bill old cases is reducing backlogs. In 

addition to actions already taken, VA has several other initiatives 

underway. For example, VA is taking action to enable Medicare secondary 

insurance companies to determine the correct reimbursement amount, 

which will strengthen VA’s position to follow-up on partial payments that it 

deems incorrect. However, the Plan has not yet been fully implemented. 

Therefore, it is too early to determine the extent to which actions in the 

Plan will address operational problems and increase collections. 

Because the Plan does not address all facets of the operational issues, we 

are making five recommendations to augment those actions currently 

underway. In commenting on a draft of this report the Secretary of 

Veterans Affairs concurred with our conclusions and recommendations 

and reported that the department is developing an action plan to implement 

them. For additional information see the Agency Comments and Our 

Evaluation section of this report and appendix I.
Page 4 GAO-04-739 VA Billings and Collections

Background The Veterans’ Health Care Eligibility Reform Act of 19964

 authorized VA to 

provide certain medical services not previously available to veterans with 

non-service connected conditions. The Balanced Budget Act of 19975

authorized VA to use third-party health insurance payments to supplement 

its medical care appropriations. As part of VA’s 1997 strategic plan, VA 

expected that collections from third-party payments and co-payments 

would cover the majority of costs of care for these veterans, some of which 

VA has determined to have higher incomes. For fiscal year 2002, about a 

quarter of VA’s user population were higher income veterans. 

In September 1999, VA adopted a new fee schedule, called “reasonable 

charges,” which are itemized fees based on diagnoses and procedures.6 

This schedule allows VA to more accurately bill for the care provided. By 

linking charges to the care provided, VA created new bill-processing 

demands—particularly in the areas of documenting care, coding that care, 

and processing bills per episode of care. First, VA must be prepared to 

provide the insurance company with supporting medical documentation 

for itemized charges. Second, VA must accurately assign medical diagnoses 

and procedure codes to set appropriate charges, a task that requires coders 

to search through medical documentation and various databases to identify 

all billable care. Third, VA must prepare a separate bill for each health care 

provider involved in the patient’s care and an additional bill when a hospital 

facility charge applies. 

To collect from health insurance companies, VA uses a four function 

process to manage the information needed to bill and collect third-party 

payments—also known as the Medical Care Collection Fund (MCCF) 

Revenue Cycle (see fig. 1). First, the patient intake function involves 

gathering insurance information and verifying that information with the 

insurance company as well as collecting demographic data on the veteran. 

Second, utilization review involves precertification of care in compliance 

with the veteran’s insurance policy, including continued stay reviews to 

determine medical necessity. Third, billing functions involve properly 

documenting the health care provided to patients by physicians and other 

4

 Pub. L. No. 104-262, § 101, 110 Stat. 3177, 3178 (Oct. 1996), codified at 38 U.S.C. § 1710.

5

 Pub. L. No. 105-33, § 8023, 111 Stat. 251, 665 (Aug. 5, 1997), codified at 38 U.S.C. § 1729A.

6

 Reasonable charges are defined as amounts that insurance companies would pay private 

sector health care providers in the same geographic area for the same services. 
Page 5 GAO-04-739 VA Billings and Collections

health care providers. Based on the physician documentation, the 

diagnoses and medical procedures performed are coded. VA then creates 

and sends bills to insurance companies based on the insurance and coding 

information obtained. And fourth, the collections or accounts receivable 

function includes processing payments from insurance companies and 

following up on outstanding or denied bills.

Figure 1: VA’s MCCF Revenue Cycle for Third-Party Collections

As discussed in prior OIG and GAO reports, reasons for untimely thirdparty billings were heavy caseloads and backlogs for cases to be coded. VA 

was unprepared to bill under reasonable charges initially in fiscal year 

2000, particularly because of its lack of proficiency in developing medical 

documentation and coding to appropriately support a bill. As a result, VA 

reported that many of its medical centers developed billing backlogs. 

1.

Patient

registration 

2.

Insurance

identification 

3.

Insurance

verification 

4.

Precertification

and certification 

5.

Continued

stay reviewsa

6.

Coding and

documentation 

7.

Bill

creation 

8.

Claims

correspondence

and inquiries 

9.

Establishment

of receivablesb

10.

Payment

processing 

11.

Collection

correspondence

and inquiries

12.

Referral of

indebtednessc

13.

Appealsd

I. Intake

II. Utilization review

IV. Collections

III. Billing

Source: VA.
Page 6 GAO-04-739 VA Billings and Collections

In January 2003, we reported7 that after initially being unprepared in fiscal 

year 2000 to bill reasonable charges, VA began improving its 

implementation of the processes necessary to increase its third-party 

billings and collections. In fiscal year 2002, VA submitted over 8 million 

third-party insurance bills that constituted a 54 percent increase over the 

number in fiscal year 2001. VA officials attributed increased third-party 

billings to, among other reasons, reductions in billing backlogs and an 

increasing number of patients with billable insurance. We also reported 

that collections could be increased by addressing operational problems 

such as unpaid accounts receivable and missed billing opportunities due to 

insufficient identification of insured patients, inadequate documentation to 

support billings, coding problems, and billing backlogs. 

To address these issues and further increase collections, VA has several 

initiatives under way and is continuing to develop additional ones. In 

September 2001, VA introduced its Veterans Health Administration 

Revenue Cycle Improvement Plan. This plan initially included 24 actions to 

improve revenue performance. After the establishment of the Chief 

Business Office (CBO) in May 2002, VA issued the Revenue Action Plan

(Plan) that superceded the 2001 plan and includes 16 objectives. With the 

implementation of several actions in the Plan, VA has reported increases in 

the number of billings. For example, in fiscal year 2003, VA submitted 10 

million bills, a 25 percent increase over the number of bills in fiscal year 

2002 and a 160 percent increase over fiscal year 2000. VA also reported that 

its collections of third-party payments over the past few years continue to 

increase as shown in figure 2. For fiscal year 2003, VA reported that it 

collected third-party payments of $804 million, a 6 percent increase over 

the $760 million collected in 2002 and a 49 percent increase over the $540 

million collected in fiscal year 2001. 

7

 U.S. General Accounting Office, VA Health Care: Third-Party Collections Rising as VA 

Continues to Address Problems in Its Collections Operations, GAO-03-145 (Washington, 

D.C.: January 31, 2003).
Page 7 GAO-04-739 VA Billings and Collections

Figure 2: Third-Party Collections (in millions)

Scope and 

Methodology

To gain an understanding of VHA’s policies and procedures and the related 

internal controls for the billings and collections, to identify key control 

activities, and to assess the design effectiveness of those controls, we 

obtained and reviewed VA and VHA directives, handbooks, and other policy 

guidance, and previous reports issued by VA’s OIG. We also conducted 

interviews and walkthroughs with VHA personnel and reviewed previous 

GAO reports. To assess whether key control activities for the two areas of 

operation were effectively implemented, we used a case study approach, 

reviewing transaction documentation at three VA medical centers. We 

selected medical centers with varying success in meeting established 

performance goals and other factors. Because we used a case study 

approach the results of our study cannot be projected beyond the 

transactions we reviewed. 

To determine whether key internal controls for billings were effectively 

implemented, we discussed billing requirements and procedures with VHA 

headquarters and medical center personnel. Because billing records were 

not in a usable format and time constraints did not permit us to put them in 

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003

Years

Source: GAO analysis based on VA Performance and Accountability Report for fiscal year 2003.
Page 8 GAO-04-739 VA Billings and Collections

a usable format, we could not select a statistical sample. Instead, we made 

a non-statistical selection of 30 patients from each of the three medical 

center’s inpatient and outpatient billing records to perform tests to assess 

compliance with policies and procedures and to determine the number of 

days to bill third-party insurance companies. 

To determine whether key internal controls for collections were effectively 

implemented, we discussed requirements and procedures with VHA 

headquarters and medical center personnel. At each medical center we 

visited, we used the same 30 patients chosen for our billing tests to also 

assess compliance with accounts receivable policies and procedures, 

including VA Handbook 4800.14, Medical Care Debts (Handbook) and the 

Accounts Receivable Third-Party Guidebook. 

We reviewed and used as guides, the Standards for Internal Control in the 

Federal Government 8

 and the Internal Control Management and 

Evaluation Tool.9 The Comptroller General issued these internal control 

standards to provide the overall framework for establishing and 

maintaining internal control. According to these standards, internal 

control, also referred to as management control, comprises the plans, 

methods and procedures used to meet the missions, goals, and objectives 

of an organization. Internal control also serves as the first line of defense in 

safeguarding assets and preventing and detecting errors and fraud.

We performed our work at VA medical centers in Cincinnati, Ohio; Tampa, 

Florida; and Washington, D.C., and at the VHA’s Chief Business Office in 

Washington, D.C. We conducted our review from March 2004 through June 

2004 in accordance with U.S. generally accepted government auditing 

standards.

We requested comments on a draft of this report from the Secretary of 

Veterans Affairs or his designee. Written comments were received from the 

Secretary of Veterans Affairs and are reprinted in appendix I.

8

 U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

9

 U.S. General Accounting Office, Internal Control Management and Evaluation Tool, 

GAO-01-1008G (Washington, D.C.: August 2001).
Page 9 GAO-04-739 VA Billings and Collections

Opportunities Exist for 

Improving Timeliness 

of Billings and 

Collection Activities

Although VA has decreased the number of days it takes to bill for patient 

services and has increased its collections from third-party insurance 

companies since 2000, problems remain. At the three medical centers we 

visited, we found continuing weaknesses in the billings and collections 

processes that impair VA’s ability to maximize the amount of dollars paid by 

third-party insurance companies. For example, medical centers did not 

always bill insurance companies in a timely manner. According to medical 

center officials, timeliness of billing is affected by, among other things, 

(1) VA’s ability to verify and update a patient’s third-party insurance 

information, (2) whether physicians and other health care providers 

properly document the patient’s treatment so a bill can be coded 

appropriately, (3) the extent of manual intervention to process the bill, and 

(4) workload. We believe that improvements could be made in each of 

these areas. 

Further, the three medical centers we visited did not always pursue 

collections of accounts receivable in a timely manner or follow up on 

certain partially paid claims. Weaknesses in VA’s collection activities 

hamper its ability to collect all monies due to the agency from third-party 

insurance companies to pay for veterans’ growing demand for care.

VA’s current Plan to implement and sustain effective collections operations 

is in process. However, the Plan has not been fully implemented. 

Therefore, it is too early to determine the extent to which it will address 

operational problems and increase collections. 

Operational Enhancements 

Could Improve Timeliness 

of Billings

While VA reported that it has decreased the average number of days it takes 

to bill for patient services, we found that medical centers could further 

improve billing timeliness by continuing to address operational problems 

that slow down the process. These operational problems include, among 

other things, delays in verifying and updating patient insurance 

information, incomplete or inaccurate documentation of patient care by 

health care providers, manual intervention, and workload. VA’s billing 

process cuts across four functional areas, as shown in figure 3. Each phase 

of the billing process is dependent on the completeness and accuracy of 

information collected in the prior phases. Breakdowns occurring during 

any part of the process can affect the timeliness of billings.
Page 10 GAO-04-739 VA Billings and Collections

Figure 3: Four Functional Areas of Billing 

Source: GAO analysis.

VA’s policies and procedures do not specify the number of days for a bill to 

be issued once health care services are rendered. In fiscal year 2003, VA’s 

Business Oversight Board established performance goals10 that were 

incorporated into the network and medical directors’ performance 

contracts. The goal for sending a bill within a set number of days was 

reduced periodically during fiscal year 2004. During the time of our review, 

the performance goal for billing third party insurance companies was an 

average of 50 days from the date of patient discharge. As of the end of the 

first quarter of fiscal year 2004, the cumulative average days to bill third 

parties for Tampa, Washington, D.C. and Cincinnati were 73, 69, and 44 

respectively.

At each of the three medical centers visited, we made a non-representative 

selection of 30 patients billed during the first quarter of fiscal year 2004. In 

evaluating the timeliness of billing, we used the then-in-effect performance 

standard of 50 days after patient discharge. We recognize that the 

cumulative billing times for the 90 cases selected do not represent the 

average days to bill, which VHA uses to measure each medical center’s 

performance. However, cases billed more than 50 days after patient 

discharge are illustrative of problematic issues that can delay billings. For 

the 90 cases selected, the number of days to bill at the three medical 

centers we visited ranged from 5 to 332 days, with almost 30 percent billed 

after 50 days. A summary of our results is shown in table 1. 

Process

Potential

breakdowns

• Failure to verify and

 update insurance

 information

• Poor medical record

 documentation

• Incomplete

• Inaccurate

Patient intake Medical

documentation Coding Billing

• Some billable care is 

 not identified due to 

 coding or systems 

 problems

• Staffing issues

• Backlog

10 Billing performance goals (e.g. 50 days from the date of patient discharge) are computed 

as averages for designated time frames. Days to bill are calculated from the billing date 

back to the date when the patient was discharged.
Page 11 GAO-04-739 VA Billings and Collections

Table 1: Third Party Billing Timeliness for Selected Transactions

Source: GAO analysis. 

Promptly invoicing insurance companies for care provided is a sound 

business practice and should result in improved cash flow for VA. Officials 

at each of the three medical centers cited verifying and updating patients’ 

third-party insurance information as a continuing impediment to billing 

third-party insurance companies in a timely manner. They told us that this 

occurs because, among other reasons, some patients are reluctant to 

provide insurance information for fear that their insurance premiums will 

increase. Patients delay providing insurance information until well after 

commencement of treatment, and patients do not always provide current 

insurance information. Thus, additional time is required to research and 

verify the patients’ insurance coverage. 

Medical center officials also told us that incomplete or inaccurate 

documentation from health care providers continues to cause delays in 

billing third parties. If the coders do not have sufficient data from the 

provider to support a bill, the coding process can be delayed, thus 

hampering timely billing of third-party insurance companies. Further, 

without complete data on the actual health care services provided, the 

coders may also miscode the treatment, which could result in lost revenue. 

 Another impediment to timely billing is that the billing process is not fully 

automated and manual intervention is required. For example, in certain 

cases, the medical diagnosis is transcribed onto a worksheet to be used for 

coding rather than being electronically transmitted. Additionally, before 

the coders can begin the coding process, they must first electronically 

download the listing of potential billable patients. Then the coders review 

the electronic medical records and assign diagnostic and procedure codes 

before a bill is generated. Further, due to system limitations, bills that 

exceed a certain dollar amount or number of medical procedure codes 

must be printed and mailed rather than transmitted electronically. For 

Medical Center

Billed within

50 days Billed > 50 days

Total bills 

tested

Cincinnati 23 7 30

Tampa 22 8 30

Washington, D.C. 19 11 30

Total 64 26 90
Page 12 GAO-04-739 VA Billings and Collections

example, in Cincinnati bills greater than $100,000 or that have six or more 

medical procedure codes must be processed in this manner. 

Another contributing factor may be the workload levels at the medical 

centers. During the second quarter of fiscal year 2004, Cincinnati 

submitted 45,883 bills and had a staff of 13 coders. Concurrently, Tampa 

submitted 192,407 bills and had 16 coders and Washington D.C. issued 

64,474 bills and had 8 coders. VHA data indicated that Cincinnati’s average 

billing time was under 50 days for the quarter and had the lowest bill to 

coder ratio. Conversely, Tampa and Washington, D.C. exceeded the 50-day 

performance goal and had a much higher bill to coder ratio. Assuming 60 

workdays per quarter, we calculated the ratio of bills issued per day to the 

number of coders as shown in table 2.

Table 2: Ratio of Bills Issued to the Number of Coders Per Day January-March, 2004 

Source: GAO analysis.

We recognize that other factors such as the number of billable encounters 

per bill and coder productivity may affect the billing workload. However, 

given the wide diversity of the bill to coder ratios, staffing may also be a 

contributing factor affecting days to code and issue bills.

VA’s Controls over 

Collections Need 

Strengthening 

Weaknesses in collection activities hamper VA’s ability to collect all monies 

due to the agency from third-party insurance companies for veterans’ care. 

We found that the three medical centers we visited did not always pursue 

collections of accounts receivable in a timely manner or follow up on 

certain partially paid insurance claims. These two factors could negatively 

affect third-party collections. 

Medical Center

Number of 

Bills/Per Day

Number 

of Coders

Ratio of Bills

to Coders

Cincinnati 765 13 59:1

Washington, D.C. 1,075 8 134:1

Tampa 3,207 16 200:1
Page 13 GAO-04-739 VA Billings and Collections

Accounts Receivable Not 

Pursued in a Timely Manner

VA’s Handbook sets forth the requirements for collection of third-party 

accounts receivables.11 Also, in 2003, the VHA’s Chief Business Office 

issued the Accounts Receivable Third-Party Guidebook that lays out more 

detailed procedures.12 Both documents require that once a claim has been 

sent to the insurance company, staff should follow up on unpaid 

reimbursable insurance cases as follows:

• The first telephone follow-up is to be initiated within 30 days after the 

initial bill is generated. All telephone follow-ups are to be documented 

to include, at a minimum, the name, position, title and telephone 

number of the person contacted, the date of contact, appropriate second 

follow-up date if payment is not received, and a brief summary of the 

conversation.

• A second telephone follow-up on unresolved outstanding receivables is 

to be made on an appropriate (but unspecified) date and documented.

• A third follow-up call is to be made within 14 days of the second contact 

and documented with a summary of the conversation and an 

appropriate, but not specified, follow-up date. 

• If no payment has been received by the next follow-up date, the case 

may be referred by the MCCF Coordinator to regional counsel for 

further action.

We tested compliance with these policies for the same 30 cases selected for 

our billing tests at each of the three medical centers we visited. Regarding 

the first follow-up procedure, initial follow-up calls were made within 30 

days for only 14, or about 22 percent, of the 64 cases for which billings had 

not been collected within 30 days. 

Second follow-up phone calls were not made in a timely manner either. We 

considered 15 days after the initial follow-up of 30 days to be an 

appropriate time frame since the third follow-up is to be made within 14 

days after the second follow-up and cases are to be referred to collection 

agencies after 60 days. Delays in making second follow-up calls increase 

11 VA Handbook 4800.14, Medical Care Debts, Department of Veterans Affairs, (Washington, 

D.C.: Dec. 8, 2003).

12 Accounts Receivable Third-Party Guidebook, Department of Veterans Affairs, 2003.
Page 14 GAO-04-739 VA Billings and Collections

the risk that payments will not be collected. Within our selected cases, four 

second follow-up calls were either made more than 15 days after the first 

follow-up call or not at all. These bills had not been paid within 120 days 

after the bill was sent to the insurance company.

Both the first and second follow-up calls require that staff document the 

contact’s name, title, telephone number, and expected follow-up date in the 

official records. However, we found that staff did not consistently do so. 

For example, for the 14 cases where a follow-up call was made during the 

first 30 days after the initial billing, only seven specified a follow-up date. 

Entering a follow-up date would serve as a reminder to make the second 

follow-up call. Further, we found that an unclear collection policy may have 

contributed to VA’s untimely second follow-up efforts. Specifically, VA’s 

Handbook requires that second follow-up telephone calls on unresolved 

outstanding receivables be made on an “appropriate date,” but that date is 

not specified (i.e., the number of days elapsed since the first contact). 

Specifying a follow-up date (i.e., 15 days after the first follow-up) or 

providing criteria for selecting an appropriate follow-up date would clarify 

this requirement and provide a benchmark on which compliance could be 

measured. 

Medical center officials at the three sites we visited told us that staff 

shortages and a heavy workload contributed to noncompliance with 

follow-up procedures. For example, Tampa officials told us that the 

accounts receivable staff typically have over 1,000 cases needing follow-up 

at any one time. The Cincinnati Medical Care Collection Fund (MCCF) 

supervisor told us that if two additional staff were available, they would be 

dedicated to following up on delinquent payments. 

Not Following Up on Partially 

Paid Claims Reduces the 

Possibility of Collecting 

Additional Revenue

During our review of the 90 selected cases, we noted wide variances 

between the amounts billed and amounts received for patients who were 

eligible for Medicare benefits. For example, in one of our selected cases, 

VA billed the secondary insurance company for $60,994 but received only 

$5,205, or about 9 percent. 

In non-Medicare cases, when the patient has primary and secondary 

insurance, VHA bills the primary insurance company and, depending on the 

amount collected, bills the secondary insurer for the residual amount. For 

Medicare patients who have secondary insurance (i.e., Medigap or 

Medicare Supplemental insurance), VA is generally entitled to receive 

payment only from the secondary insurance company. Thus far, VA has not 

been able to provide post-Medicare payment information (i.e., deductible 
Page 15 GAO-04-739 VA Billings and Collections

and co-insurance amounts) to other insurance companies because 

Medicare is generally not required to pay and thus does not pay VA. 

Lacking information on what Medicare would pay if required to do so, VA 

does not know what amount to bill the secondary insurance companies 

because it does not know the residual amount. In such cases, VA bills the 

secondary insurance company for the full amount associated with the care 

provided—the amount that would be reimbursable by Medicare as well as 

the amount not covered by Medicare. 

The secondary insurance companies have been using a variety of 

methodologies for reimbursing VA and some do not pay because they are 

unable to determine the proper amount of reimbursement. As a result, in 

certain cases, VA receives very little, if any, reimbursement from the 

secondary insurance companies for such billings. 

The Handbook describes procedures for following up on partial payments 

from insurance companies. It states that payment by a third-party 

insurance company of an amount which is claimed to be the full amount 

payable under the terms of the applicable insurance policy or other 

agreement will normally be accepted as payment in full. The unpaid 

balance is to be written down to zero. However, if there is a considerable 

difference between the amount collected and the amount billed, the 

Handbook directs staff to take various actions to pursue potential 

additional revenue. At each of the three medical centers, we found that 

accounts receivable staff typically accepted partial payments from 

secondary insurance companies as payment in full and adjust the unpaid 

balance to zero. Because the medical centers do not have the postMedicare information needed to pursue collection of the unpaid amounts, 

there may be failure to collect millions of dollars because partial payments 

are accepted as payment in full. 

VA reported that as of September 2003, the median age of all living veterans 

was 58 years, with the number of veterans 85 years of age and older totaling 

nearly 764,000. As these veterans age, the demand for care will increase as 

will the number of veterans eligible for Medicare. To be able to offset the 

cost of care through third-party collections, it will become even more 

imperative in the coming years for VA to collect the maximum amount 

possible from secondary insurance companies. 
Page 16 GAO-04-739 VA Billings and Collections

VA Initiatives Are Under 

Way to Address Operational 

Problems

VA’s current Revenue Action Plan includes 16 actions designed to increase 

collections by improving and standardizing the collections processes. 

Several of these actions are aimed at reducing billing times and backlogs, 

many of which have already been implemented. Specifically, medical 

centers are updating and verifying patients’ insurance information and 

improving health care provider documentation. In addition, hiring 

contractors to code and bill old cases is reducing backlogs. Further, the 

introduction of performance measures into managers’ performance 

contracts has provided an incentive for increased billings and collections. 

In addition to those actions already taken, VA has other initiatives under 

way such as automating the billing process by implementing the Patient 

Financial Services System (PFSS) and determining the amounts billable to 

Medicare secondary insurance companies through the use of an electronic 

Medicare Remittance Advice.

To assist in updating and verifying patients’ insurance information, a 

problematic issue discussed earlier in our report, each site now has staff 

dedicated to (1) verify that insurance reported by the veteran is current, 

(2) determine insurance coverage if the patient does not declare any, 

(3) acquire pre-certifications of patient admissions, and (4) obtain 

authorization of procedures from the patient’s insurance company. 

Additionally, medical centers have taken actions to update demographic 

information on file, including insurance. These efforts help to reduce 

insurance denials, produce more accurate bills, and ensure that VA receives 

reimbursement for services provided. 

To assist in improving medical documentation, which we reported as a 

continuing operational issue, VA mandated physician use of the 

Computerized Patient Record System in December 2001 and reinforced its 

use through a VHA Directive in May 2003. The coders use the electronic 

medical records to determine what treatment each patient received and to 

document the diagnostic codes. In addition, the medical centers have been 

educating the physicians about the importance of completing the records. 

To reduce billing backlogs, VHA entered into an agreement with four 

vendors to code and assist with backlogs. The Washington, D.C. medical 

center hired a contractor to handle a backlog of 15,000 encounters.13 The 

contractor has certified staff for coding and billing and must meet 12 

13An encounter is defined as a single medical treatment.
Page 17 GAO-04-739 VA Billings and Collections

performance measures. The revenue officer told us that the backlog was 

eliminated in May 2004. In addition, in December 2003, VHA was given 

authority by the Office of Personnel Management to directly hire 

credentialed coders at industry-compatible salaries.

In fiscal year 2003, VHA’s Chief Business Officer implemented industrybased performance metrics and reporting capabilities to identify and 

compare overall VA revenue program performance. Metrics were 

introduced to measure collections, days to bill, gross days revenue 

outstanding, and accounts receivable over 90 days. For both network and 

medical center directors, the metrics and associated performance targets 

were incorporated into annual performance contracts effective fiscal year 

2003. VHA officials attribute much of the decrease in days to bill and 

increased billings and collections to these performance measures. For 

example, VA reported that nationally the average days to bill insurance 

companies for the first half of fiscal year 2004 was about 74 days, which is 

an improvement from their fiscal year 2000 average days to bill of 117 days. 

However, VHA’s average days to bill for that period exceeded the 

performance goals of 50 days and 47 days for the first and second quarters 

of fiscal year 2004, respectively. The industry standard is 10 days.14

In addition to actions already taken, VA’s Plan has several other initiatives 

under way for improving billing times and increasing collections. For 

example, the PFSS is designed to integrate the health care billing and 

accounts receivable software systems to replace VA’s current legacy 

system. The system is intended to increase staff efficiency through a 

streamlined, standardized, re-engineered process; create more accurate 

bills; and shorten bill lag times through automation. VA officials believe 

that this initiative, when implemented, will reduce manual intervention 

noted earlier in our report as a reason for delayed billings. However, 

implementation is behind schedule.

14As we noted in our 2003 report, VA’s performance does not compare favorably to some 

industry benchmarks, such as the number of days required to bill. However comparisons 

between VA and the private sector should take into account how VA’s processes differ from 

those in the private sector. For instance, VA has the additional step of determining whether 

the care is service-connected, and VA bills for both facility and physician charges. By 

comparison, private sector hospitals may only bill for facility charges.
Page 18 GAO-04-739 VA Billings and Collections

Another effort under way, the electronic Medicare Remittance Advice 

project, helps to address obtaining allowable payments from secondary 

insurance companies, rather than accepting partial payments that are 

significantly lower than billed amounts as full payment. This project 

involves the electronic submission of claims to a fiscal intermediary15 to 

receive remittance advice on how Medicare would have paid the claim if it 

were legally bound to pay VA for care. The remittance advice, which will 

be attached to VA health care claims, will enable secondary insurance 

companies to determine the correct amount to reimburse VA. Further, VA 

believes it will be able to more accurately reflect the amount of its 

outstanding receivables and be in a strengthened position to follow up on 

partial payments, which it deems incorrect. The completion date for this 

project was November 2003 but has been delayed due to software issues. 

VA officials told us they plan to roll out the new system beginning in August 

2004. 

Although the Plan provides another step forward in potentially improving 

operations and increasing collections, it is still in progress and many of the 

actions are not scheduled for implementation until at least fiscal year 2005. 

Therefore, it is too early to determine whether the Plan will successfully 

address operational problems and increase collections when fully 

implemented.

Conclusions The growing demands for veterans’ health care increase VA’s responsibility 

to supplement, as much as possible, its medical care appropriations with 

collections from insurance companies for treatment of non-serviceconnected conditions. VA is making progress in developing and 

implementing procedures to identify patients who can be billed for 

services, to bill for services correctly and in a timely manner, and to pursue 

collections. VA’s Plan to further improve billing and collection operations, 

however, is still a work in progress and could benefit from the performance 

of a workload analysis. In the interim, strengthening internal controls such 

as clarifying billing and claims follow-up procedures and consistently 

implementing policies and procedures could help reduce billing times and 

increase collections. Even assuming that its Plan works as contemplated, 

these additional controls are needed to maximize VA revenues to enhance 

its medical care budget.

15A private company that contracts with Medicare to pay Medicare Part A and some Part B 

bills.
Page 19 GAO-04-739 VA Billings and Collections

Recommendations We are making five recommendations to facilitate more timely billings and 

improve collection operations. The Secretary of Veterans Affairs should 

direct the Under Secretary for Health to:

• Perform a workload analysis of the medical centers’ coding and billing 

staff, and

• Based on the workload analysis, consider making the necessary 

resource adjustments.

• Reinforce to accounts receivable staff that they should perform the first 

follow-up on unpaid claims within 30 days of the billing date, as directed 

by VA Handbook 4800.14, Medical Care Debts, and establish procedures 

for monitoring compliance.

• Reinforce the requirement for accounts receivable staff to enter the 

insurance company contact’s name, title and phone number and the 

follow-up date when making follow-up phone calls.

• Augment VA Handbook 4800.14, Medical Care Debts, by either 

specifying a date or providing instructions for determining an 

appropriate date for conducting second follow-up calls to insurance 

companies.

Agency Comments and 

Our Evaluation

VA provided written comments on a draft of this report. In its response, VA 

agreed with our conclusions and recommendations and reported that it is 

developing an action plan to implement them. Additionally, VA’s response 

stated that VHA is pursuing a number of strategies to improve overall 

performance toward achieving industry benchmarks. VA believes that the 

development of the Patient Financial Services System will address current 

billing system limitations and manual intervention and that the Medicare 

Remittance Advice project will assist VHA in pursuing partially paid claims. 

Also, in its response letter, VA included some technical comments that we 

have addressed in finalizing our report where appropriate. VA’s written 

comments are presented in appendix I.
Page 20 GAO-04-739 VA Billings and Collections

As arranged with your office, unless you release its contents earlier, we 

plan no further distribution of this report until 30 days after its issuance 

date. At that time, we will send copies of this report to the Secretary of 

Veterans Affairs, the Under Secretary for Health, interested congressional 

committees, and other interested parties. We will also make copies 

available to others upon request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov. Should you or your 

staff have any questions on matters discussed in this report, please contact 

me at (202) 512-6906 or williamsm1@gao.gov; or Alana Stanfield, Assistant 

Director, at (202) 512-3197 or stanfielda@gao.gov. Major contributors to 

this report are acknowledged in appendix II.

Sincerely yours,

McCoy Williams

Director, Financial Management and Assurance
Page 21 GAO-04-739 VA Billings and Collections

Appendix I

Comments from the Department of Veterans Apendxies

Affairs ApendxiI
Appendix I

Comments from the Department of Veterans 

Affairs

Page 22 GAO-04-739 VA Billings and Collections
Page 23 GAO-04-739 VA Billings and Collections

Appendix II

GAO Contacts and Staff Acknowledgments ApendxiI

GAO Contacts McCoy Williams, (202) 512-6906

Alana Stanfield, (202) 512-3197

Acknowledgments In addition to those named above, the following individuals made 

important contributions to this report: Teressa Broadie-Gardner, Lisa Crye, 

Jeffrey Isaacs, Sharon Loftin, Donell Ries, and Patricia Summers. 

(195014)
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability.

Obtaining Copies of 

GAO Reports and 

Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go to 

www.gao.gov and select “Subscribe to Updates.”

Order by Mail or Phone The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to:

U.S. Government Accountability Office

441 G Street NW, Room LM

Washington, D.C. 20548

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061

To Report Fraud, 

Waste, and Abuse in 

Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional 

Relations

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548

Public Affairs Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548
United States

Government Accountability Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Service Requested

Presorted Standard

Postage & Fees Paid

GAO

Permit No. GI00