Veterans Health
 

Administration
 

Audit of Medical Care 

Collection Fund Billings 

for Non-VA Care 

May 25, 2011 

10-02494-176 

OFFICE OF AUDITS AND EVALUATIONS
ACRONYMS AND ABBREVIATIONS
 

CBO Chief Business Office 

CPAC Consolidated Patient Account Center 

MCCF Medical Care Collection Fund 

OIG Office of Inspector General 

PCRR Potential Cost Recovery Report 

VHA Veterans Health Administration 

VISN Veterans Integrated Service Network 

VistA Veterans Health Information Systems and Technology Architecture 

To Report Suspected Wrongdoing in VA Programs and Operations:
 

Telephone: 1-800-488-8244
 

E-Mail: vaoighotline@va.gov
 

(Hotline Information: http://www.va.gov/oig/contacts/hotline.asp)
 
Report Highlights: Audit of the Medical 

Care Collection Fund Billings for 

Non-VA Care 

Why We Did This Audit 

Veterans Health Administration (VHA) 

increasingly relies on non-VA care, often 

referred to as “fee care,” to provide medical 

services to veterans who cannot easily 

receive care at VA medical facilities. We 

conducted this audit to determine the extent 

to which VHA’s Medical Care Collection 

Fund (MCCF) Program bills third-party 

health insurers for non-VA care. We wanted 

to identify potential opportunities for VHA 

to increase third-party revenue. 

What We Found 

VHA missed opportunities to increase 

MCCF revenue by not billing third-party 

insurers for 46 percent of billable fee care 

claims. This occurred because VHA did not 

have an effective process to identify billable 

fee claims and lacked a system of controls to 

maximize the generation of MCCF fee care 

revenue. 

VA medical facilities used two processes for 

identifying billable fee claims and we 

concluded that both processes were 

ineffective and unreliable. We also found 

that two of the eight VA medical facilities 

we reviewed did not routinely review fee 

claims to identify billable fee care. 

Furthermore, we determined that medical 

facilities that are a part of a regional 

Consolidated Patient Account Center 

(CPAC) were no more successful in 

identifying billable fee claims than facilities 

that have not yet transitioned to the CPAC 

model. As a result, we estimate that with an 

improved process and system of controls 

VHA could increase third-party revenue by 

$110.4 million annually or by as much as 

$552 million over the next 5 years. 

What We Recommended 

We recommended that the Under Secretary 

for Health reengineer and implement a 

standardized business process for identifying 

billable fee claims, publish management 

policies and procedures to support the 

business process, provide training to fee and 

revenue staff on how to use the business 

process, establish separate collection goals 

for fee care third-party revenue, and monitor 

third-party billing for fee care. 

Agency Comments 

The Under Secretary for Health agreed with 

our recommendations and potential 

monetary benefits and plans to complete all 

corrective actions by March 31, 2012. We 

consider these planned actions acceptable 

and will follow up on their implementation. 

BELINDA J. FINN
 

Assistant Inspector General
 

for Audits and Evaluations
 

i 
TABLE OF CONTENTS
 

Table of Contents............................................................................................................................ ii
 

Finding VHA Could Significantly Increase Third-Party Insurance Revenue for
 

Appendix D Potential Monetary Benefits in Accordance With Inspector General
 

Introduction......................................................................................................................................1
 

Results and Recommendations ........................................................................................................2
 

Fee Care ..............................................................................................................2
 

Appendix A Background ........................................................................................................ 9
 

Appendix B Scope and Methodology................................................................................... 11
 

Appendix C Statistical Sampling Methodology................................................................... 14
 

Act Amendments.............................................................................................. 18
 

Appendix E Under Secretary for Health Comments............................................................ 19
 

Appendix F OIG Contact and Staff Acknowledgments....................................................... 26
 

Appendix G Report Distribution .......................................................................................... 27
 

ii 
Audit of the MCCF Billings for Non-VA Care 

Objective 

The MCCF 

Program 

Consolidated 

Patient 

Accounting 

Centers 

Program Revenue 

INTRODUCTION 

The audit determined the extent to which Veterans Health Administration’s 

(VHA’s) Medical Care Collection Fund (MCCF) Program billed third-party 

health insurers for non-VA care. We wanted to identify potential 

opportunities for VHA to increase third-party revenue. 

VHA’s Chief Business Office (CBO) is aligned under the Deputy Under 

Secretary for Health for Operations and Management and is responsible for 

managing the MCCF Program. The purpose of the MCCF Program is to 

recover costs of medical care that VA provides to veterans who have private 

health insurance, referred to as third-party insurance. The Balanced Budget 

Act of 1997 authorized VA to collect and deposit third-party health insurance 

payments in its MCCF, which VA could then use to supplement its medical 

care appropriations. Under the MCCF Program, VA bills third-party health 

insurers for nonservice-connected medical services provided by VA or 

non-VA care, often referred to as “fee care.” VA bases its insurance billing 

rates on reasonable charges, which are the amounts that insurers would pay 

private sector health care providers in the same geographic area for the same 

services. 

VHA is in the process of establishing seven regionalized centers called 

Consolidated Patient Account Centers (CPACs) to improve billing and 

collection functions. Under the CPAC model, a small number of CPAC staff 

work at each VA medical facility to identify, support, and forward billable 

claims to the regional CPAC, while a larger number of staff located at the 

CPAC perform MCCF billing, collections, and management functions. As 

of January 1, 2011, three CPACs were fully operational. VHA expects the 

remaining four CPACs to be operational by the end of FY 2012. 

Total MCCF third-party revenue increased 27.2 percent over the last 3 years 

from approximately $1.5 billion in FY 2008 to $1.9 billion in FY 2010. This 

represents 69 percent of the total $2.8 billion revenue collected by the MCCF 

Program in FY 2010. The potential for third-party revenue from the Fee 

Care Program increased significantly over this same 3-year period. From 

FY 2008 through FY 2010, Fee Care Program expenditures grew by 

43 percent, from $3.0 billion in FY 2008 to $4.4 billion in FY 2010. VHA 

does not report how much of its third-party revenue is generated from VA 

care and how much is generated from fee care. 

VA Office of Inspector General 1 
Audit of the MCCF Billings for Non-VA Care 

Finding 

Improve 

Identification 

of Billable Fee 

Care 

RESULTS AND RECOMMENDATIONS 

VHA Could Significantly Increase Third-Party Insurance 

Revenue for Fee Care 

VHA missed opportunities to increase MCCF revenue by not billing 

third-party insurers for 46 percent of billable fee care claims. This occurred 

because VHA did not have an effective process to identify billable fee claims 

and lacked a system of controls to maximize the generation of MCCF fee 

care revenue. As a result, we estimate that with an improved process and a 

system of controls VHA could increase third-party revenue by 

$110.4 million annually (5.8 percent of total third-party revenue for 

FY 2010) or by as much as $552 million over the next 5 years. 

Under the MCCF Program, VHA is authorized to bill a veteran’s third-party 

health insurer for health care provided at VA and non-VA medical facilities. 

Generally, VA considers a veteran’s health care billable if the treatment is 

nonservice-connected and the veteran’s third-party health insurer covers the 

treatment. After treating a veteran, the fee provider bills the VA medical 

facility, and the facility’s fee staff processes the payment. The MCCF staff 

then identifies which fee payments can be billed to veterans’ third-party 

insurers. Under the regional CPAC model, the small number of CPAC staff 

located at the medical facility are responsible for identifying billable claims. 

We found that VA medical facilities used two processes for identifying 

billable fee claims and both were ineffective and unreliable at the eight sites 

we reviewed. Furthermore, we found that medical facilities that are a part of 

a CPAC were no more successful in identifying billable fee claims than 

facilities that have not yet transitioned to the CPAC model. We determined 

that the eight sample sites were not taking consistent actions to identify 

billable fee claims. Revenue staff at three facilities used the Potential Cost 

Recovery Report (PCRR) and revenue staff at three other facilities reviewed 

copies of paid fee invoices to identify billable fee claims. The remaining two 

VA medical facilities did not routinely review fee claims to identify billable 

fee care. Table 1, on the next page, shows the percentage of errors for the 

two processes and the sites that did not have a review process. 

VA Office of Inspector General 2 
Audit of the MCCF Billings for Non-VA Care 

Table 1 Percentage of Errors in Sample by Type of Process 

Identification 

Process Sites Number of Errors 

Number of 

Billable Claims 

Reviewed 

Error Rate 

(Percent) 

PCRR 3 103 225 46 

Fee Invoice 3 82 225 36 

No Review 2 140 150 93 

All Sites 8 325 600 46* 

PCRR Process 

Not Identifying 

46 Percent of 

Billable Claims 

Source: VA OIG 

*Note: Although dividing the 325 errors by the 600 sample items yields an 

error rate of 54 percent, we used a statistical methodology whereby we 

weighted the overall rate based on the volume of paid claims for each 

sampled facility resulting in an estimated error rate of 46 percent. Appendix 

C explains more on our statistical methodology. 

VA medical facility revenue staff at three sites used the PCRR to identify 

billable fee care. The sites that used this process did not identify 

103 (46 percent) of the 225 billable claims reviewed in our sample. The 

PCRR lists claims that fee staff have designated as potentially billable when 

they enter fee authorization information into the Veterans Health Information 

Systems and Technology Architecture (VistA). The reliability of the 

information of the PCRR depends on the fee staffs’ determination whether 

the claim is potentially billable or not billable. If the fee staff does not 

designate the claim as potentially billable, the claim will not appear on the 

PCRR. Facility revenue staff manually review each claim on the PCRR to 

determine if the facility could bill third-party insurers. 

We determined that the current PCRR process was ineffective and unreliable. 

Most errors at facilities using the PCRR were for billable claims that were 

listed on the PCRR but were not identified as billable by facility revenue 

staff. Of the 103 errors at the three sites using the PCRR, 78 (76 percent) 

were for billable claims that were on the PCRR. The following example 

illustrates this type of error. 

Revenue staff at one VA medical facility did not bill a veteran’s 

third-party insurer for a urological surgery fee claim that was on the 

PCRR. The revenue manager could not explain why revenue staff 

had not processed the claim for billing. The facility revenue office 

did not have written guidance for reviewing fee claims, did not 

document fee claim reviews, and did not periodically assess the 

VA Office of Inspector General 3 
Audit of the MCCF Billings for Non-VA Care 

Process Did Not 

Identify 36 Percent 

of Billable Claims 

93 Percent of 

Billable Claims 

Not Identified 

effectiveness of its fee claims reviews. As a result, VHA missed an 

opportunity to bill $12,275 to the veteran’s third-party insurer. 

In addition, fee staff incorrectly determined whether a claim was potentially 

billable or not billable, thus affecting the accuracy and reliability of the 

PCRR. Of the 103 errors at the three sites using the PCRR, 25 (24 percent) 

were for billable claims that fee staff did not designate as potentially billable 

on the PCRR. The following example illustrates this type of error. 

Revenue staff at one VA medical facility did not identify billable fee 

claims for 5 months of a veteran’s outpatient dialysis treatment 

because the claims did not appear on the PCRR. This occurred 

because fee staff at this facility did not identify the five claims as 

potentially billable during the payment process. As a result, VHA 

missed an opportunity to bill $73,183 to the veteran’s third-party 

insurer. 

VA medical facility revenue staff at three sites used copies of fee invoices to 

identify billable fee care. The sites that used this process did not identify 

82 (36 percent) of the 225 billable claims reviewed in our sample. This 

process consisted of fee staff providing copies of paid invoices to the facility 

revenue staff. The revenue staff manually reviewed each invoice to 

determine if the facility could bill third-party insurers. However, we 

determined this process was also ineffective and unreliable because revenue 

staff did not receive all paid invoices or did not bill all billable claims. The 

following example illustrates this type of error. 

Revenue staff at one VA medical facility reviewed copies of fee 

invoices to identify billable claims and did not identify a billable fee 

claim for a veteran’s knee surgery. The facility revenue manager 

was unable to determine the reason the bill had not been identified as 

billable. We could not determine if the error occurred because the 

revenue staff did not receive a copy of the fee invoice or received the 

invoice, but did not bill. Neither the fee office nor the revenue office 

maintained records of which fee invoices were sent to the revenue 

office. As a result, VHA missed an opportunity to bill $11,350 to 

the veteran’s third-party insurer. 

VA medical facility revenue staff at two locations did not review fee claims 

to bill third-party insurers. Consequently, these locations did not identify 

140 (93 percent) of the 150 billable fee claims reviewed. Although these two 

sites did not routinely review fee claims, revenue staff identified 10 claims 

by exception when fee staff provided copies of the fee claims. 

At the first VA medical facility, the facility revenue supervisor told us that 

they had not routinely reviewed billable fee claims in at least 4 years. This 

occurred because the revenue staff had sufficiently identified and billed 

insurers for VA-provided care, enabling the facility to meet its annual 

VA Office of Inspector General 4 
Audit of the MCCF Billings for Non-VA Care 

Reasons for 

Missed Billing 

Opportunities 

Develop an 

Effective and 

Reliable Process 

revenue goals for those years. Furthermore, the Chief Financial Officer, who 

supervised the facility revenue office, stated she did not know that the 

revenue office was not reviewing billable fee claims. 

At the second VA medical facility, the revenue staff did not review fee 

claims for a 5-month period when they stopped receiving copies of 

potentially billable fee invoices from the fee office. The facility revenue 

supervisor stated he did not monitor reviews of billable fee claims because 

the medical facility had been meeting its FY 2010 revenue goal. The Chief 

of the Patient Administration Service, who supervised the facility revenue 

office, stated he did not know that the revenue office was not reviewing 

billable fee claims. 

VHA missed opportunities to increase MCCF revenue because of the 

following reasons. 

 Lack of an effective process to identify billable fee claims 

 Ineffective policies and procedures 

 Inadequate training of fee staff 

 Lack of fee revenue goals 

 Lack of an effective monitoring program 

The United States Government Accountability Office’s Standards for 

Internal Control in the Federal Government states that controls are an 

integral part of an organization’s planning, implementing, reviewing, and 

accounting for Government resources and achieving effective results. 

Management controls, such as establishing policies and procedures, ensuring 

a trained staff, validating performance measures, and monitoring of 

operations, are fundamental requirements in the Federal Government. 

The use of the PCRR and copies of paid fee invoices were ineffective and 

unreliable in identifying billable fee claims. Revenue offices used one of the 

two described processes because VHA had not established an effective 

standard process and published adequate procedural guidance to identify 

billable fee care. MCCF Program officials acknowledge that current 

guidance is inadequate. With an estimated 46 percent error rate, a 

reengineered process to identify billable fee claims would increase the 

effectiveness of revenue offices to collect third-party revenue. Any 

reengineered process should address the identification of third-party 

insurance and service-connection and establishment of an audit trail. 

VHA missed opportunities to increase MCCF revenue because of the lack of 

adequately trained fee staff. We interviewed fee supervisors to understand 

how their staff determined whether veterans’ conditions were serviceconnected for the care they received or had billable insurance. Fee 

supervisors told us their staff were not trained to determine whether fee 

VA Office of Inspector General 5 
Audit of the MCCF Billings for Non-VA Care 

Goals Need To 

Be Established 

Monitoring Needs 

To Be Improved 

claims were billable; yet the reliability of the information of the PCRR 

depends on the fee staffs’ determination whether the claim is potentially 

billable. An official from the National Fee Program Office confirmed fee 

staff do not receive specific procedural guidance and training to make these 

decisions. To avoid fee staff identifying billable fee claims, some medical 

facilities used the process of sending paid fee invoices to the revenue office 

to identify billable fee claims. This caused missed billing opportunities 

because the process did not have sufficient controls to ensure the revenue 

office received all paid fee invoices. 

Missed opportunities to increase MCCF revenue also occurred because fee 

revenue goals had not been established for facility revenue offices. CBO 

officials established annual revenue goals for each VA medical facility based 

on the CBO’s Integrated Collections Forecasting Model. The model 

determines each facility’s goals by considering historical workload and 

collection rates, best practices, and systemic changes. However, these goals 

did not result in effective efforts by revenue offices to identify and bill all 

potentially billable fee claims. This is because the current revenue goals do 

not distinguish between third-party insurance revenue for VA-provided care 

and fee care. Appendix A contains more detailed discussion of CBO’s 

revenue goals. 

We discussed this issue with CBO officials who told us they were aware of 

significant differences between large annual increases in VA fee care 

expenditures and smaller increases in collections of third-party insurance 

revenue from fee care. They stated that a major reason for this difference 

could be the problem of revenue offices not identifying and billing all 

potentially billable fee claims. 

Another reason VHA missed opportunities to increase MCCF revenue was 

because of the lack of monitoring during the course of normal operations. 

We found little evidence that revenue supervisors at the VA medical 

facilities were conducting periodic reviews of their staff’s identification of 

billable fee claims, such as consistently reviewing the PCRR or fee invoices 

to determine whether their staff had correctly identified billable claims. In 

addition, the Compliance and Business Integrity Office and CBO’s Revenue 

Cycle Enhancement Teams conducted limited reviews of third-party billing 

of fee care. 

At the eight medical facilities, we only found one Compliance and Business 

Integrity Office official conducting regular reviews of the collection of 

third-party billing of fee care. Although the facility had an error rate of 

29 percent, it was achieving results that were significantly better than most 

medical facilities in our sample. Furthermore, CPACs were not monitoring 

the reliability of the claims identification process at the three CPAC sites we 

visited. 

VA Office of Inspector General 6 
Audit of the MCCF Billings for Non-VA Care 

Effect of Missed 

Billing 

Opportunities 

Conclusion 

Recommendations 

Management 

Comments and 

OIG Response 

Because VHA lacks an effective process and a system of controls, VHA does 

not have reasonable assurance they are maximizing third-party billing of fee 

care. We estimate that VHA can increase its revenue by approximately 

$110.4 million annually (5.8 percent of total third-party revenue for 

FY 2010) or by as much as $552 million over the next 5 years. 

VHA has increasingly relied on the Fee Care Program to provide care to 

veterans who cannot easily receive care at a VA medical facility. This 

change in VHA’s delivery of medical care to veterans is shown by the 

43 percent growth of fee care in the past 3 years. To help meet its increasing 

demands for providing medical care to veterans, VHA needs to maximize its 

revenue collection. By implementing an effective process for identifying 

billable fee claims and augmenting that process with a system of controls, 

VHA can increase its revenue by approximately $110.4 million annually or 

by as much as $552 million over the next 5 years and improve its capability 

to provide care to our nation’s veterans. 

Recommendation 1: We recommended that the Under Secretary for Health 

reengineer and implement a standardized business process to ensure billable 

fee claims are identified. 

Recommendation 2: We recommended that the Under Secretary for Health 

publish management policies and procedures to ensure the business process 

for identifying billable fee claims is followed. 

Recommendation 3: We recommended that the Under Secretary for Health 

provide training to fee and revenue staff to ensure they understand how to 

use the business process for identifying billable fee claims. 

Recommendation 4: We recommended that the Under Secretary for Health 

establish separate collection goals for fee care third-party revenue. 

Recommendation 5: We recommended that the Under Secretary for Health 

establish a facility revenue monitoring program that periodically tests the 

reliability of the business process for identifying billable fee claims. 

The Under Secretary for Health agreed with our recommendations and 

potential monetary benefits and provided an acceptable corrective action 

plan. In his initial comments dated April 28, 2010, the Under Secretary 

stated that the CBO has recognized the need to enhance business processes 

for identifying billable fee claims and has begun a pilot project at two 

facilities to identify best practices. CBO plans to reengineer its business 

processes by standardizing procedures for capturing fee workload, fee billing 

reports, and communications protocols between fee and revenue staff. 

VA Office of Inspector General 7 
Audit of the MCCF Billings for Non-VA Care 

After reengineering its business processes, CBO will update its procedural 

guidebooks, develop internal controls and monitors, add training modules for 

revenue staff, and update its fee claims processing guidance with instructions 

on identifying potentially billable claims. CBO will also develop a facility 

monitoring program and test the reliability of its reengineered business 

processes. In his revised comments dated May 10, 2010, the Under 

Secretary stated that CBO plans to institute a process of establishing 

third-party collection goals for fee care using historical ratios of fee 

collections to total third-party collections as a baseline. VHA plans to 

complete these corrective actions by March 31, 2012. We consider these 

planned actions acceptable and will follow up on their implementation. 

Appendix E contains the full text of the Under Secretary’s comments. 

VA Office of Inspector General 8 
Audit of the MCCF Billings for Non-VA Care 

Appendix A 

MCCF Office 

Organization 

and Functions 

Fee Basis Claim 

System 

VHA Methodology 

Background 

In the past, VA medical facilities have been responsible for all MCCF 

revenue operations. However, VHA established two regional CPACs to date 

and is in the process of establishing five additional CPACs throughout the 

United States to integrate and standardize business processes and to improve 

billing and collection activities. The MCCF third-party billing process has 

five functional areas. 

 Identifying veterans with billable insurance 

 Assigning codes to medical procedures 

 Conducting pre-authorization and utilization reviews 

 Billing 

 Collecting of revenue 

Under the CPAC model, VA medical facility staff code potential third-party 

insurance claims, while CPAC staff located either at the VA medical facility 

or at the central CPAC facility identify billable insurance, perform insurance 

verification, preauthorization and utilization reviews, and billing and revenue 

collection functions. 

The Fee Basis Claims System was developed to convert paper handling of 

fee claims into electronic data processing that allows for automated workload 

assignments, improved claim flow, and data capture for reporting. The CBO 

completed deployment of the Fee Basis Claims System to all fee payment 

sites, with the exception of Veterans Integrated Service Network (VISN) 6, 

in November 2010. VISN 6 uses a separate fee software system. We did 

not review Fee Basis Claims System or VISN 6’s software as part of our 

audit. The CBO initiated a 6-month pilot program in February 2011 to 

develop a report that identifies potentially billable claims. However, CBO 

has not issued policies and procedures for this report. 

The CBO establishes annual revenue collection goals each fiscal year for 

each VA medical facility using a statistically driven model, the Integrated 

Collections Forecasting Model. The CBO’s general expectation is to sustain 

and improve each prior year’s performance. The Integrated Collections 

Forecasting Model equation consists of three parts: projected annual 

workload, historical billing rate per workload unit, and historical collection 

rate per dollar billed. VHA’s Enrollee Health Care Projection Model 

projects annual workload. The projection model forecasts medical care costs 

for veteran enrollees using historical costs for both VA and fee care and a 

variety of other factors. 

The following figure shows FY 2010 revenue goals and collections for the 

eight sample VA medical facilities. 

VA Office of Inspector General 9 
Audit of the MCCF Billings for Non-VA Care 

Figure Third-Party Insurance Revenue Goals and Collections (FY 2010) 

$24.2 

$15.9 $15.9 

$50.0 

$19.2 $21.8 

$6.0 

$14.1 

$25.9 

$16.5 

$28.1 

$51.8 

$18.1 

$22.8 

$8.8 

$13.9 

Richmond, 

VA 

Anchorage, 

AK 

Mountain 

Home, TN 

Kansas City, 

MO 

Columbia, SC Cleveland, 

OH 

Prescott, AZ Temple, TX 

Collected Goal 

Source: VHA CBO Revenue Operations Business Information Office 

Note: Richmond, Mountain Home, and Columbia are medical facilities 

under CPACs. 

VA Office of Inspector General 10 
Audit of the MCCF Billings for Non-VA Care 

Appendix B 

Audit Scope 

Methodology 

Scope and Methodology 

We conducted our audit work from August 2010 through March 2011. Our 

review was limited to those activities relating to identification of potentially 

billable fee claims for third-party insurance billing. We did not assess the 

effectiveness of processes used by VHA to identify veterans’ insurance 

policies, such as self-reporting by veterans of their third-party insurance. 

We identified and reviewed applicable Federal laws, Federal regulations, 

previous OIG and Government Accountability Office audits, and VHA 

policies related to the MCCF Program. In addition, we interviewed CBO, 

VISN, and VA medical facility officials, and facility fee and revenue staff. 

We obtained relevant documentation at eight randomly selected VA medical 

facilities. We evaluated the processes and local procedures used to identify 

potentially billable third-party insurance and related controls. 

We selected a statistical sample of billable claims from our audit universe of 

all outpatient and inpatient fee claims over $250 paid from October 1, 2009, 

through March 31, 2010. We used cluster sampling to estimate missed 

revenue and to minimize the number of invoices reviewed at each site. The 

VA medical facility was the cluster and the sampling unit consisted of 

non-emergency outpatient and inpatient fee claims paid during our review 

period. We selected three CPAC sites and five nonconsolidated sites for our 

review. Table 2 lists the eight VA medical facilities. 

Table 2 Medical Facilities Selected 

Facility Name Facility Location CPAC Affiliation 

Hunter Holmes McGuire VA 

Medical Center Richmond, VA Mid-Atlantic CPAC 

Alaska VA Healthcare System Anchorage, AK Non-CPAC 

James H. Quillen VA Medical 

Center Mountain Home, TN Mid-South CPAC 

(as of 3/1/2010) 

Heartland Health Care System Kansas City, MO Non-CPAC 

William Jennings Bryan Dorn 

VA Medical Center Columbia, SC Mid-Atlantic CPAC 

Louis Stokes Cleveland VA 

Medical Center Cleveland, OH Non-CPAC 

Northern Arizona VA Health 

Care System Prescott, AZ Non-CPAC 

Central Texas Veterans Health 

Care System Temple, TX Non-CPAC 

Source: OIG 

VA Office of Inspector General 11 
Audit of the MCCF Billings for Non-VA Care 

Reliability of 

ComputerProcessed Data 

At each site, we reviewed a statistical sample of billable claims from our 

audit universe of all outpatient and inpatient fee claims paid during our 

review period. We based our definition of a billable claim on Title 38 of the 

United States Code §1729, which defines a veteran’s care as billable if the 

care was nonservice-connected and the care was covered under the veteran’s 

third-party insurance. 

To determine billable fee claims, we used a two-step methodology whereby 

we first determined whether the veteran had billable third-party insurance, 

and then we determined whether the veteran was service-connected for the 

episode of care. When we found claims where the veteran had 

third-party insurance and was nonservice-connected for the episode of care, 

we considered the fee claim to be billable. For each billable claim, we 

determined whether revenue staff had properly billed third-party insurers and 

the reasons revenue staff did not bill billable claims. To calculate missed 

revenue, we determined the Reasonable Charge for each treatment code 

identified in each station’s VistA ChargeMaster file. We then calculated 

VA’s expected reimbursement by multiplying the resulting charge by CBO’s 

FY 2010 average collection rate of 34.7 percent. 

We used computer-processed data from VistA to determine veteran 

service-connected condition, third-party insurance coverage, and fee billing 

information for a statistical sample of fee claims paid by eight VA medical 

facilities during the period from October 1, 2009, through March 31, 2010. 

To determine the reliability of data concerning veterans’ service-connected 

condition, we compared the service-connected condition information in our 

review of 40 sample claims to the veterans’ records maintained by the 

Veterans Benefits Administration. We found no significant discrepancies 

and concluded the service-connected data was sufficiently reliable for the 

audit objective. 

To determine the reliability of veterans’ insurance information used in our 

review, we assessed procedures used by revenue staff to verify veterans’ 

insurance policy coverage. We also compared veterans’ insurance data for 

40 sample claims with insurance documentation collected by the medical 

facilities. We found no significant discrepancies and concluded the 

insurance information was sufficiently reliable for the audit objective. As 

stated in the audit scope, we did not review how accurately veterans 

self-identified their third-party insurance. 

To determine the reliability of billing data, we relied on previous data testing 

of medical billing codes conducted as part of our Audit of Non-VA Inpatient 

Fee Care Program (Report No 09-03408-227, August 18, 2010). During the 

inpatient fee care audit, we tested the reliability of billing data of fee 

payments made from January 1 through June 30, 2009. We tested billing 

VA Office of Inspector General 12 
Audit of the MCCF Billings for Non-VA Care 

Government Audit 

Standards 

data, such as billed amounts and medical billing codes, in VistA Fee with 

791 original billing invoices. We found no significant discrepancies and 

concluded the billing data was sufficiently reliable for use on this audit. We 

took an additional step by interviewing CBO officials knowledgeable about 

this data and any limitations. We found that the processes and procedures 

for generating this data have not changed from our previous audit. 

Our assessment of internal controls focused on those controls relating to our 

audit objectives. We conducted this performance audit in accordance with 

generally accepted government auditing standards. These standards require 

that we plan and perform the audit to obtain sufficient, appropriate evidence 

to provide a reasonable basis for our findings and conclusions based on our 

audit objective. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objective. 

VA Office of Inspector General 13 
Audit of the MCCF Billings for Non-VA Care 

Appendix C 

Approach 

Population 

Sampling Design 

Projections and
 

Margins of Error
 

Statistical Sampling Methodology 

To evaluate the extent to which VHA effectively bills third-party health 

insurers for fee care costs, we selected a representative sample of outpatient 

and inpatient fee claims for review. VistA fee files did not identify whether 

the episode of care was related to the veteran’s service-connection or if the 

veteran had insurance. Therefore, we reviewed 7,700 claims to identify 

600 billable claims. We analyzed each of the 600 billable claims to 

determine whether VHA properly billed the claims. 

We considered the claim to be in error if the episode of care was not related 

to the veteran’s service-connected disability, the veteran had third-party 

insurance, and VA did not bill the third-party insurer. We reviewed each 

resulting error with revenue staff at each VA medical facility. The staff 

agreed with each error used to calculate our error rate and cost savings. 

The population consisted of more than 581,500 fee claims valued at 

approximately $1.3 billion. These claims were paid from October 1, 2009 

through March 31, 2010. 

We conducted a two-stage, stratified, random sample of all claims identified 

in our population. The first stage consisted of randomly selected VA 

medical facilities, and the second stage consisted of a billable paid fee claim 

within each VA medical facility selected. 

We selected a sample of eight medical facilities using probability 

proportional to the paid value of claims in each facility. We stratified 

medical facilities into two groups: those consolidated medical facilities in 

VISNs 6 and 7, and the nonconsolidated medical facilities in all other 

VISNs. We selected two medical facilities from the consolidated stratum 

and six from the nonconsolidated stratum with probability proportional to the 

paid value of claims in each facility. 

In the second stage of the sample, we selected a simple random sample of 

claims at each of the eight medical facilities selected in the first stage 

sample. We estimated that about 10 percent of claims would be billable. 

Our target sample size was 75 billable claims per medical facility. In order 

to achieve that sample size, we initially selected a sample of 1,000 claims to 

review. 

After sampling and data collection were completed, the distribution of the 

errors ranged from $0 to $100,000. We applied a post-stratification scheme 

within the original two strata by further segregating the population by 

expenditure amounts. The allocation of stratum ranges were arbitrarily set 

based on the paid invoice amount. We further refined the post-stratification 

VA Office of Inspector General 14 
Audit of the MCCF Billings for Non-VA Care 

Table 3 

technique to ensure that sample totals equaled known population values. 

Table 3 shows the distribution of the universe and sample size among the 

sample strata and post-strata. 

Post Stratification of Paid Amounts 

Number of 

Stations 

Selected 

Post-Stratum Name Universe 

Size 

Universe 

Sum Value 

($ million) 

Sample 

Size 

<$1,000 325,659 164.8 3,531 

Consolidated 

$1,000–$9,999 154,491 455.5 1,720 

$10,000–$24,999 16,053 239.8 183 

6 out of 113 $25,000–$49,999 4,335 147.1 52 

$50,000–$99,999 893 58.1 12 

> $100,000 214 31.5 2 

Non­ <$1,000 50,147 25.4 1,233 

Consolidated $1,000–$9,999 26,788 80.3 870 

2 out of 16 $10,000–$24,999 2,320 34.0 90 

$25,000–$49,999 598 25.2 7 

Source: VA OIG 

The margin of error and confidence interval are indicators of the precision of 

the projections. If we selected a large number of samples and we made 

estimates from each one, 90 percent of those estimates would fall within the 

confidence interval. For each estimate, we used the midpoint of the 

90 percent confidence interval. The first estimate is billable fee claims as a 

percent of all paid fee claims in the audit universe. Our review of 7,700 paid 

fee claims found 626 that were billable. Table 4, shows the estimated 

percent of all billable claims in the audited universe at 9.3 percent with a 

margin of error of 0.6 percent. 

VA Office of Inspector General 15 
Audit of the MCCF Billings for Non-VA Care 

Table 4 Estimate of Billable Fee Claims 

Claim Status Percent Margin of 

Error 

90% Confidence 

Interval Sample 

Lower Size 

Limit 

Upper 

Limit 

Not Billable 90.7 0.6 90.1 91.3 7,074 

Billable 9.3 0.6 8.8 9.9 626 

Total 100 7,700 

Source: OIG 

Of the 626 fee claims identified as billable, we did further work on the first 

600 (75 per VA medical facility) in the random order of sample selection to 

determine whether they were correctly billed. We identified 325 of 600 

billable fee claims with errors. Of the 325 claims, revenue offices did not 

bill 296 claims and they partially billed 29 claims. Table 5 below shows the 

estimation of the error rates. We calculated the overall error rate of 

approximately 46 percent by adding the sum of the estimates of not billed 

(40.8 percent) and partially billed (5.0 percent). 

Table 5 Summary of Error Rates 

Claim Status Percent Margin of 

Error 

90% Confidence 

Interval Number of 

Lower Errors 

Limit 

Upper 

Limit 

Not Billed 40.8 3.4 37.3 44.2 296 

Partly Billed 5.0 1.7 3.4 6.5 29 

Total 45.8 325 

Source: VA OIG 

The estimates in Table 6 are an extrapolation of the reasonable charges 

applied to each medical procedure code identified on the paid fee invoice of 

the 600 billable claims we reviewed. The 6-month projection column shows 

that VHA should have billed $331 million during the period and only billed 

$172 million. The unbilled amount of $159 million is the amount VHA 

should have billed but failed to do so. The FY 2010 projection column is our 

calculation of the potential monetary benefit. To make the estimate, we 

doubled the 6-month unbilled amount projection, and then applied the FY 

2010 average collection rate of 34.7 percent resulting in a potential monetary 

benefit of $110.4 million. 

VA Office of Inspector General 16 
Audit of the MCCF Billings for Non-VA Care 

Table 6 Summary of FY 2010 Projections (in millions) 

Claim Status 6-Month 

Projection 

Margin 

of Error 

90% Confidence 

Interval FY 2010 

Lower Projection 

Limit 

Upper 

Limit 

Billable 

Amount $331 $92 $239 $423 $229 

Billed 

Amount $172 $82 $89 $254 $119 

Unbilled 

Amount $159 $39 $120 $198 $110 

Source: VA OIG 

VA Office of Inspector General 17 
Audit of the MCCF Billings for Non-VA Care 

Appendix D Potential Monetary Benefits in Accordance With 

Inspector General Act Amendments 

Explanation of Better Use of Questioned Recommendation Benefits Funds Costs 

Improve business
 

process and
 

establish procedures
 

1–5	 and controls to $552 million $0 

increase third-party 

revenue over 5 

years. 

Total $552 million $0 

VA Office of Inspector General 18 
Audit of the MCCF Billings for Non-VA Care 

Appendix E Under Secretary for Health Comments 

Department of Memorandum Veterans Affairs 

Date:	 April 28, 2011 

From:	 Under Sectretary for Health (10) 

Subj:	 OIG Draft Report, Audit of VHA Medical Care Collection Fund Billings for Non-VA 

Care (VAIQ 7036066) 

To: Director, Seattle Audit Operations Division (52SE) 

1.	 I have reviewed the draft and concur with the report’s five recommendations. 

2.	 I also concur with the report’s estimate that the Veterans Health Administration could 

increase its revenue by approximately $110.4 million annually, or by as much as $552 

million over the next 5 years, by implementing an effective process for identifying 

billable fee claims and augmenting that process with a system of controls. Attached is 

the Veterans Health Administration’s corrective action plan for the report’s 

recommendations. 

3.	 Thank you for the opportunity to review the draft report. If you have any questions, 

please contact Linda H. Lutes, Director, Management Review Service (10B5) at (202) 

461-7014. 

Robert A. Petzel, M.D. 

Attachment 

VA Office of Inspector General 19 
Audit of the MCCF Billings for Non-VA Care 

VETERANS HEALTH ADMINISTRATION (VHA)
 

Action Plan
 

OIG Draft Report, Audit of VHA Medical Care Collection Fund Billings for Non-VA Care 

(VAIQ 7036066) 

Date of Draft Report: April 6, 2011 

Recommendations/ Status Completion 

Actions Date 

Recommendation 1. We recommend that the Under Secretary for Health reengineer and 

implement a standardized business process to ensure billable fee claims are identified. 

VHA Comments 

Concur 

The Veterans Health Administration (VHA) Chief Business Office (CBO) recognized the need 

to enhance business processes for identifying billable fee claims by establishing a pilot project at 

two facilities (Mountain Home, TN, and Huntington, WV) in February 2011. The pilot project 

includes implementing the following: 

 standard operating procedures for capturing fee workload for billing purposes 

 standardized reports from the Fee Basis Claims System to use in the billing process 

 standardized communications protocols between fee and revenue staff and performance 

metrics to monitor progress 

The pilot is intended to build upon revenue cycle performance evaluation by applying evidence 

based practices to fee billing in order to identify best-practice performers and opportunities for 

reengineering business processes to ensure consistent application of business processes. 

In Process	 July 31, 2011 

Upon completion of the pilot project in July 2011, reengineered business processes will be 

deployed nationally based on a schedule developed during the pilot. As part of the national 

deployment, there will be staff training provided to both fee and revenue staff outlining each step 

of the reengineered business processes. It is anticipated that national implementation will take 6 

to 9 months. 

In Process	 August 30, 2011 through 

March 31, 2012 

VA Office of Inspector General 20 
Audit of the MCCF Billings for Non-VA Care 

Recommendation 2. We recommend that the Under Secretary for Health publish 

management policies and procedures to ensure the business process for identifying billable 

fee claims is followed. 

VHA Comments 

Concur 

Following the completion of the pilot project described in response to Recommendation 1 and 

development of Standard Operating Procedures, CBO will update the Consolidated Patient 

Account Center (CPAC) functional area guidebooks and National Fee Program Office procedure 

guidebooks. 

In Process August 30, 2011 

CBO will conduct risk assessments and develop internal controls that mitigate the potential risk 

of having a non-standardized process. 

In Process October 31, 2011 

CBO will test and add internal monitors to annual revenue cycle monitoring plan. 

In Process March 31, 2012 

Recommendation 3. We recommend that the Under Secretary for Health provide training 

to Fee and Revenue staff to ensure they understand how to use the business process for 

identifying billable Fee claims. 

VHA Comments 

Concur 

CBO will add training modules for CPAC staff following the completion of the pilot to 

reengineer business processes. As facilities transition to CPACs, these processes and procedures 

will be included in functional area training programs. 

In Process November 30, 2011 

The National Fee Program Office will update the current procedure guide for claims processing 

to provide instructions to the field regarding identification of potentially billable claims. All fee 

claims that have been authorized and approved for payment will be referred to revenue for 

identification of billing opportunity. 

In Process September 30, 2011 

VA Office of Inspector General 21 
Audit of the MCCF Billings for Non-VA Care 

VHA’s Office of Compliance and Business Integrity (CBI) will collaborate with affected 

programs offices to develop and deliver joint education for CBI Officers/CPAC Liaisons on the 

fee basis process as it relates to billing and collection efforts. CBI’s targeted completion dates 

for staff education includes the following milestones: educational plan created by September 

2011; preliminary efforts to deliver education tested and refined by December 2011; and fully 

delivered by March 2012. 

In Process March 31, 2012 

Recommendation 4. We recommend that the Under Secretary for Health establish 

separate collection goals for Fee care third party revenue. 

VHA Comments 

Concur 

CBO will establish a fee-care portion of the third party revenue collection goals by facility using 

historical fee collections as a baseline to establish a ratio of fee collections compared to total 

third party collections. CBO will use the VHA Office of Policy & Planning Enrollee Health 

Care Projection Model to forecast workload at the facility level, and then apply the facility-level 

ratio of fee collections to total third party collections in order to establish a fee target or 

collection goal. Since Medical Care Collection Fund (MCCF) dollars from fee expenditures 

vary on an annual basis at the facility level, CBO will prototype fee collection goals in the Fiscal 

Year (FY) 2012 expected results process and will fully implement fee collection goals as a 

component of third party collections beginning in FY 2013. 

In Process September 30, 2012 

Recommendation 5. We recommend that the Under Secretary for Health establish a 

facility revenue monitoring program that periodically tests the reliability of the business 

process for identifying billable Fee claims. 

VHA Comments 

Concur 

The CPAC Program Management Office will develop a facility monitoring program to test 

reliability of re-engineered business processes. As part of this effort relevant baseline metrics 

which will be monitored will include: Aged Days-to-Bill (DTB); Third Party Fee Billing vs. Fee 

Dispersed Amount; and Collections vs. Fee Dispersed Amount. Metrics associated with the 

pilot project described in the reply to Recommendation 1 will be assessed between March and 

July 2011. 

In Process July 31, 2011 

VA Office of Inspector General 22 
Audit of the MCCF Billings for Non-VA Care 

Also, the metrics will then be deployed nationally and recorded in the CBO’s Performance and 

Web Enabled Reporting Plus Web site (POWER+) on a monthly basis beginning in November 

2011 using October FY 2012 data. Additionally, the CPAC Program Management Office will 

conduct ongoing risk assessment/internal control improvements for the CPAC Billing Functions 

for FEE beginning in November 2011. 

In Process November 30, 2011 

The VHA CBI office will create and implement a standardized tool and/or process for CBI 

Officers/CPAC Liaisons to test the reliability of the business process for identifying billable fee 

claims. CBI’s targeted completion dates for monitoring includes the following milestones: tool 

and/or process to be created by September 2011; tool and/or process tested and refined by 

December 2011; and fully implemented by March 2012. 

In Process March 31, 2012 

VA Office of Inspector General 23 
Audit of the MCCF Billings for Non-VA Care 

Department of Memorandum Veterans Affairs 

Date: May 10, 2011 

From:	 Under Sectretary for Health (10) 

Subj:	 OIG Draft Report, Audit of VHA Medical Care Collection Fund Billings for Non-VA 

Care (VAIQ 7036066) 

To: Director, Seattle Audit Operations Division (52SE) 

1.	 The Veterans Health Administration (VHA) has revised its response to 

Recommendation 4 of the Office of Inspector General (OIG) Draft Report, Audit of 

VHA Medical Care Collection Fund Billings for Non-VA Care. Attached is the 

revised action plan. 

2.	 If you have any questions, please contact Linda H. Lutes, Director, Management Review 

Service (10B5) at (202) 461-7014. 

Robert A. Petzel, M.D. 

Attachment 

VA Office of Inspector General 24 
Audit of the MCCF Billings for Non-VA Care 

VETERANS HEALTH ADMINISTRATION (VHA)
 

Action Plan (Revised May 4, 2011)
 

OIG Draft Report, Audit of VHA Medical Care Collection Fund Billings for Non-VA Care 

(VAIQ 7036066) 

Date of Draft Report: April 6, 2011 

Recommendations/ Status Completion 

Actions Date 

Recommendation 4. We recommend that the Under Secretary for Health establish 

separate collection goals for Fee care third party revenue. 

VHA Comments 

Concur 

The Veterans Health Administration (VHA) Chief Business Office (CBO) will establish a feecare portion of the third party revenue collection goals by facility using historical fee collections 

as a baseline to establish a ratio of fee collections compared to total third party collections. CBO 

will use the VHA Office of Policy & Planning Enrollee Health Care Projection Model to 

forecast workload at the facility level, and then apply the facility-level ratio of fee collections to 

total third party collections in order to establish a fee target or collection goal. Since Medical 

Care Collection Fund (MCCF) dollars from fee expenditures vary on an annual basis at the 

facility level, CBO will prototype fee collection goals in the Fiscal Year (FY) 2012 expected 

results process and will refine this framework to incorporate the FY 2012 experience for 

establishing future fee collection goals as a component of third party collections. This 

framework to establish fee collection goals will be completed by March 2012. 

In Process March 31, 2012 

VA Office of Inspector General 25 
Audit of the MCCF Billings for Non-VA Care 

Appendix F OIG Contact and Staff Acknowledgments
 

OIG Contact	 For more information about this report, please 

contact the Office of Inspector General at 

(202) 461-4720 

Acknowledgments	 Gary Abe, Director 

Chris Enders 

Lee Giesbrecht 

Todd Groothuis 

Sophia Mar 

Matt Rutter 

Ron Stucky 

Orlando Velásquez 

Sherry Ware 

Theresa Zoun 

VA Office of Inspector General 26 
Audit of the Medical Care Collection Fund Billings for Non-VA Care 

Appendix G Report Distribution 

VA Distribution 

Office of the Secretary
 

Veterans Health Administration
 

Veterans Benefits Administration
 

National Cemetery Administration
 

Assistant Secretaries
 

Office of General Counsel
 

Non-VA Distribution 

House Committee on Veterans’ Affairs 

House Appropriations Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

House Committee on Oversight and Government Reform 

Senate Committee on Veterans’ Affairs 

Senate Appropriations Subcommittee on Military Construction, Veterans 

Affairs, and Related Agencies 

Senate Committee on Homeland Security and Governmental Affairs 

National Veterans Service Organizations 

Government Accountability Office 

Office of Management and Budget 

This report will be available in the near future on the OIG’s Web site at 

http://www.va.gov/oig/publications/reports-list.asp. This report will remain 

on the OIG Web site for at least 2 fiscal years. 

VA Office of Inspector General 27