Report to the Chairman, Subcommittee 

on Oversight and Investigations, 

Committee on Veterans’ Affairs, House 

of Representatives 

United States General Accounting Office

GAO 

January 2003 VA HEALTH CARE 

Third-Party 

Collections Rising as 

VA Continues to 

Address Problems in 

Its Collections 

Operations 

GAO-03-145 
VA's fiscal year 2002 third-party collections rose by 32 percent, continuing an 

upward trend that began in fiscal year 2001. The increase in collections 

reflected VA's improved ability to manage the larger billing volume and more 

itemized bills required under its new fee schedule. Billings increased mainly 

due to a reduction of billing backlogs and improved collections processes—

such as better medical documentation prepared by physicians, more 

complete identification of billable care by coders, and more bills prepared 

per biller—according to VA managers in three regional health care networks. 

However, VA continues to address operational problems, such as missed 

billing opportunities, that limit the amount VA collects. 

To address operational problems and further increase collections, VA has 

several initiatives under way and is developing additional ones. VA has been 

implementing initiatives in its 2001 improvement plan that was designed to 

address operational problems, such as unidentified insurance for some 

patients, insufficient documentation of services for billing, shortages of 

coding staff, and insufficient pursuit of accounts receivable. VA’s last formal 

status report in May 2002 designated only 8 of the plan’s 15 initiatives 

scheduled for completion by that time as having been completed. VA 

continues implementation of this plan and is also developing new initiatives, 

such as an automated financial system to better serve billing needs. It is too 

early to evaluate the extent to which VA’s full implementation of its 2001 

plan and new initiatives will be able to address operational problems and 

further increase third-party collections. In commenting on a draft of this 

report, VA generally agreed with our findings 

VA’s Third-Party Collections, Fiscal Years 1997 through 2002 

VA HEALTH CARE 

Third-Party Collections Rising as VA 

Continues to Address Problems in Its 

Collections Operations 

www.gao.gov/cgi-bin/getrpt?GAO-03-145.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Cynthia A. 

Bascetta at (202) 512-7101. 

Highlights of GAO-03-145, a report to the 

Chairman, Subcommittee on Oversight 

and Investigations, Committee on 

Veterans' Affairs, House of 

Representatives 

January 2003 

The Department of Veterans Affairs 

(VA) collects health insurance 

payments, known as third-party 

collections, for veterans’ health 

care conditions it treats that are 

not a result of injuries or illnesses 

incurred or aggravated during 

military service. In September 

1999, VA adopted a new fee 

schedule, called “reasonable 

charges,” that it anticipated would 

increase revenues from third-party 

collections. 

In 2001, GAO testified that 

problems in VA’s collections 

operations diminished VA’s 

collections. For this report, GAO 

was asked to examine VA’s thirdparty collections and problems in 

collections operations for fiscal 

year 2002 as well as its initiatives to 

improve collections. 
Page i GAO-03-145 VA Third-Party Collections 

Letter 1

Results in Brief 2

Background 3

Collections Are Increasing, but Operational Problems Limit 

Insurance Payments 5

VA Is Implementing Planned Actions and Developing Other 

Initiatives to Address Problems in Collections Operations 9

Concluding Observations 14

Agency Comments and Our Evaluation 14

Appendix I Scope and Methodology 16 

Appendix II Comments from the Department of Veterans 

Affairs 18 

Table 

Table 1: Percentage Increases in Collections for Networks Selected 

for Study, October 2000 through February 2001 Compared 

to October 2001 through February 2002 17

Figures 

Figure 1: VA’s Third-Party Collections Processes 4

Figure 2: VA’s Third-Party Collections, Fiscal Years 1997 through 

2002 6

Figure 3: Improvement Plan’s Actions Designated as Completed by 

VA, as of May 25, 2002 11

Abbreviations 

HMO health maintenance organization 

PFSS Patient Financial Services System 

VA Department of Veterans Affairs 

VHA Veterans Health Administration 

Contents 
Page 1 GAO-03-145 VA Third-Party Collections 

January 31, 2003 

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 and, under certain circumstances, VA is authorized to collect 

reasonable charges from their health insurers. Specifically, VA can bill 

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

illnesses incurred or aggravated during military service.1

 VA cannot bill for 

health care conditions that result from military service, nor is it generally 

authorized to collect from Medicare and Medicaid. In fiscal year 2002, VA 

collected $687 million in insurance payments, which are known as thirdparty collections. These collections were VA’s largest source of revenue to 

supplement its $21 billion medical care appropriation, and they helped pay 

for veterans’ growing demand for care. The total number of veterans VA 

treated has increased from 2.6 million in fiscal year 1996 to 3.8 million in 

fiscal year 2001, and VA predicts continuing growth in its patient 

workload.2

Over the past several years, we and others have raised concerns about 

VA’s ability to maximize its third-party collections to enhance revenue. For 

example, a VA Inspector General report stated that VA missed billing 

opportunities, had billing backlogs, and did inadequate follow-up on 

accounts receivable in fiscal years 2000 and 2001.3

 We testified in 

September 2001 that problems in VA’s collections operations—such as 

inadequate patient intake procedures to gather insurance information, 

 1

VA cannot collect payments from certain insurers. For example, VA cannot collect 

payments from health maintenance organizations (HMOs) when VA is not a participating 

provider. 

2

According to VA’s estimate, there were about 25 million veterans in 2001. 

3

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

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

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-145 VA Third-Party Collections 

insufficient physician documentation, a shortage of qualified coders, and 

insufficient automation—diminished VA’s collections.4

At your request, we have examined VA’s progress with third-party 

collections since September 2001. In this report, we are providing an 

update on (1) VA’s third-party collections and problems in collections 

operations for fiscal year 2002 and (2) VA’s initiatives to improve 

collections. To conduct our review, we examined VA’s collections data for 

fiscal years 2001 and 2002; reviewed relevant VA documents, such as its 

2001 collections improvement plan; and interviewed officials in VA 

headquarters and in 3 of VA’s 21 health care networks5

—Network 2 

(Albany), Network 9 (Nashville), and Network 22 (Long Beach)—to better 

understand the reasons for increased collections. Our work was 

performed from February 2002 through January 2003 in accordance with 

generally accepted government auditing standards. For more details on 

our scope and methodology, see appendix I. 

VA’s third-party collections for fiscal year 2002 totaled $687 million, 32 

percent more than for fiscal year 2001. VA’s increased collections have 

resulted from VA’s submitting more insurance bills and receiving more 

payments than in the prior year. Billings increased mainly due to a 

reduction of billing backlogs and improved collections processes—such as 

better medical documentation prepared by physicians, more complete 

identification of billable care by coders, and more bills prepared per 

biller—according to VA managers in three health care networks. Although 

VA reported improvements, we found that operational problems, such as 

missed billing opportunities, continued to limit collections. As a result, VA 

lacks a reliable estimate of uncollected dollars and therefore does not 

have the basis to assess its systemwide operational effectiveness. 

To further improve collections, VA has several initiatives under way and is 

developing additional ones. In September 2001, VA produced its Veterans 

Health Administration Revenue Cycle Improvement Plan that included 24 

actions to improve collections by addressing problems, such as 

 4

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). 

5

The management of VA’s hospitals and other health care facilities is decentralized to 21 

regional networks. 

Results in Brief 
Page 3 GAO-03-145 VA Third-Party Collections 

unidentified insurance for some patients and gaps in the automated 

capture of billing data. However, VA’s last formal status report in May 2002 

designated only 8 of these actions as completed, although 15 were 

scheduled for completion by that time. The plan is scheduled for full 

implementation by the end of 2003. In May 2002 VA also established the 

Chief Business Office in its Veterans Health Administration (VHA) to 

direct VHA’s Revenue Office and to develop a new approach for VA’s 

collections activity. VA officials told us that the new approach will 

combine the improvement plan’s actions with additional initiatives, such 

as the development of an automated financial system that better serves 

billing needs. The new approach is also intended to establish additional 

performance measures and standards for oversight of collections units’ 

performance and to strengthen VA’s understanding of how to improve 

collections. However, it is too early to evaluate the extent to which VA will 

be able to address operational problems and further increase collections 

by fully implementing its 2001 plan and new approach. 

In commenting on a draft of this report, VA generally agreed with our 

findings. VA suggested that our title should emphasize its effort to build 

infrastructure for effective collections operations rather than its 

continuing effort to address problems in collections operations. We 

believe that our title is accurate because VA continues to address 

problems that we and others have identified in VA’s collections operations. 

Although VA has been authorized to collect third-party health insurance 

payments since 1986, it was not allowed to use these funds to supplement 

its medical care appropriations until enactment of the Balanced Budget 

Act of 1997. Part of VA’s 1997 strategic plan was to increase health 

insurance payments and other collections to help fund an increased health 

care workload. The potential for increased workload occurred in part 

because the Veterans’ Health Care Eligibility Reform Act of 1996 

authorized VA to provide certain medical care services not previously 

available to veterans without service-connected disabilities or low 

incomes. VA expected that collections from third-party payments, 

copayments, and deductibles would cover the majority of costs for higherincome veterans without service-connected disabilities. These veterans 

increased from about 4 percent of all veterans treated in fiscal year 1996 to 

about 20 percent in fiscal year 2001. 

To collect from health insurers, as shown in figure 1, VA uses five related 

processes to manage the information needed to bill and collect. The 

patient intake process involves gathering insurance information and 

Background 
Page 4 GAO-03-145 VA Third-Party Collections 

verifying that information with the insurer. The medical documentation 

process involves properly documenting the health care provided to 

patients by physicians and other health care providers. The coding process 

involves assigning correct codes for the diagnoses and medical procedures 

based on the documentation. Next the billing process serves to create and 

send bills to insurers based on the insurance and coding information. 

Finally, the accounts receivable process includes processing payments 

from insurers and following up with insurers on outstanding or denied 

bills. 

Figure 1: VA’s Third-Party Collections Processes 

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

which are itemized fees based on diagnoses and procedures, and the new 

schedule allows VA to bill in a way that more accurately captures the care 

provided. Previously, VA had nine charges for inpatient care and one 

charge for outpatient care. These charges were not specific to the care 

provided. For example, VA had charged the same per diem rate for any 

patient in a surgical bed section regardless of the care provided. In 

addition, before adopting the new fee schedule, VA had billed all 

outpatient visits, including surgery, based on VA’s average outpatient cost 

of $229, a single rate that had limited VA’s ability to collect higher amounts 

for more expensive care. In contrast, when the reasonable charges fee 

schedule was adopted in September 1999, an outpatient hernia surgery 

charge increased to about $6,500; and an office visit charge for an 

established patient decreased to a range of about $22 to $149, depending 

on the care given.6

 6

These amounts reflected the national average charges in September 1999 for the services 

specified. To reflect the amounts charged by other local providers, the charges that VA 

actually bills vary by the locality in which VA services are provided. 
Page 5 GAO-03-145 VA Third-Party Collections 

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

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

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

to provide an insurer supporting medical documentation for the itemized 

charges. Second, VA must accurately assign medical diagnoses and 

procedure codes to set appropriate charges, a task which requires coders 

to search through medical documentation and various databases to 

identify all billable care. Third, in contrast to a single bill for an episode of 

care under the previous fee schedule, under reasonable charges VA must 

prepare a separate bill for each provider involved in the care and an 

additional bill if a hospital facility charge applies. 

For fiscal year 2002, VA collected third-party payments of $687 million, a 

32 percent increase over its fiscal year 2001 collections. The increased 

collections in fiscal year 2002 resulted from VA’s submitting and collecting 

for more bills than previously. According to three network revenue 

managers we interviewed, billings increased mainly because of a reduction 

of billing backlogs and improvements in the processes necessary to collect 

under the new reasonable charges fee schedule. Nevertheless, VA’s ability 

to collect was limited by problems such as missed billing opportunities. 

VA does not know how many dollars remain uncollected because of such 

limitations. 

For fiscal year 2002, VA collected $687 million, up 32 percent compared to 

the $521 million collected during fiscal year 2001. The increased 

collections reflected VA’s processing a higher volume of bills than it did in 

the prior fiscal year. VA processed and received payments for over 50 

percent more bills in fiscal year 2002 than in fiscal year 2001. VA’s 

collections grew at a lower percentage rate than the number of paid bills 

because the average payment per paid bill dropped 18 percent compared 

to the prior fiscal year. Average payments dropped primarily because a 

rising proportion of VA’s paid bills were for outpatient care rather than 

inpatient care. Since the charges for outpatient care were much lower on 

average, the payment amounts were typically lower as well. 

VA had difficulties establishing the collections processes to bill under a 

new fee schedule, processes which were necessary to achieve the 

increased billing and collections in fiscal year 2002. Although VA 

anticipated that the shift to reasonable charges would yield higher 

collections, collections dropped in fiscal year 2000 after implementing the 

new fee schedule in September 1999. VA attributed that drop to its being 

Collections Are 

Increasing, but 

Operational Problems 

Limit Insurance 

Payments 

Third-Party Collections 

Increased 
Page 6 GAO-03-145 VA Third-Party Collections 

unprepared to bill under reasonable charges, 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 VA medical 

centers developed billing backlogs after initially suspending billing for 

some care. 

As shown in figure 2, VA’s third-party collections increased in fiscal year 

2001—reversing fiscal year 2000’s drop in collections—and increased 

again in fiscal year 2002. After initially being unprepared in fiscal year 2000 

to bill reasonable charges, VA began improving its implementation of the 

processes necessary to bill and increase its collections. According to VA, 

by the summer of 2000, facilities had sufficiently implemented processes 

to move forward with billing under reasonable charges. By the end of 

fiscal year 2001, VA had submitted 37 percent more bills to insurers than in 

fiscal year 2000. VA submitted even more in fiscal year 2002, over 8 million 

bills that constituted a 54 percent increase over the number in fiscal year 

2001. 

Figure 2: VA’s Third-Party Collections, Fiscal Years 1997 through 2002 
Page 7 GAO-03-145 VA Third-Party Collections 

VA officials cited various sources for an increased number of bills in fiscal 

year 2002. Managers we spoke with in three networks—Network 2 

(Albany), Network 9 (Nashville), and Network 22 (Long Beach)—mainly 

attributed the increased billing to reductions in billing backlogs. They also 

cited an increased number of patients with billable insurance as a factor 

for the increased billing. In addition, a May 2001 change in the reasonablecharges fee schedule for medical evaluations allowed billing for a facility 

charge in addition to billing for the professional service charges, a change 

that contributed to the higher volume of bills in fiscal year 2002. 

Increased collections for fiscal year 2002 reflected VA’s improved ability to 

manage the volume and billing processes required to produce multiple 

bills under reasonable charges, according to three network revenue 

managers. Networks 2 (Albany) and 9 (Nashville) reduced backlogs, in 

part by hiring more staff, contracting for staff, or using overtime to 

process bills and accounts receivable. Network 2 (Albany), for instance, 

managed an increased billing volume through mandatory overtime for 

billers. Managers we interviewed in all three networks noted better 

medical documentation provided by physicians to support billing. In 

Network 22 (Long Beach) and Network 9 (Nashville), revenue managers 

reported coders were getting better at identifying all professional services 

that can be billed under reasonable charges.7

 In addition, the revenue 

manager in Network 2 (Albany) said that billers’ productivity had risen 

from 700 to 2,500 bills per month over a 3-year period, as a result of 

gradually increasing productivity standards and a streamlining of their 

jobs to focus solely on billing. 

Studies have suggested that operational problems—missed billing 

opportunities, billing backlogs, and inadequate pursuit of accounts 

receivable—limited VA’s collections in the years following the 

implementation of reasonable charges. After examining activities in fiscal 

years 2000 and 2001, a VA Inspector General report estimated that VA 

could have collected over $500 million more than it did.8

 About 73 percent 

of this uncollected amount was attributed to a backlog of unbilled medical 

 7

The revenue manager in Network 9 (Nashville) said that coders were getting better at the 

manual searching that is required to find billable professional services and laboratory tests. 

During fiscal year 2001, coders missed some billable care because of inadequate searches 

through the various sources of information that document services and tests. 

8

VA Office of Inspector General, Report No. 01-00046-65. 

Operational Problems 

Limit Collections, but VA 

Lacks an Estimate of 

Uncollected Dollars 
Page 8 GAO-03-145 VA Third-Party Collections 

care; most of the rest was attributed to insufficient pursuit of delinquent 

bills. Another study, examining only professional-service charges in a 

single network, estimated that $4.1 million out of $4.7 million of potential 

collections was unbilled for fiscal year 2001.9 Of that unbilled amount, 63 

percent was estimated to be unbillable primarily because of insufficient 

documentation. In addition, the study found coders often missed services 

that should have been coded for billing. 

According to the Director of the Revenue Office, VA could increase 

collections by working on operational problems. These problems included 

unpaid accounts receivable and missed billing opportunities due to 

insufficient identification of insured patients, inadequate documentation 

to support billing, and coding problems that result in unidentified care. 

During April through June 2002, three network revenue managers told us 

about backlogs and processing issues that persisted into fiscal year 2002. 

For example, although Network 9 (Nashville) had above average increases 

in collections for both inpatient and outpatient care, it still had coding 

backlogs in four of six medical centers. According to Network 9’s 

(Nashville) revenue manager, eliminating the backlogs for outpatient care 

would increase collections by an estimated $4 million for fiscal year 2002, 

or 9 percent.10 Additional increases might come from coding all inpatient 

professional services, but the revenue manager did not have an estimate 

because the extent to which coders are capturing all billable services was 

unknown. Moreover, although all three networks reported that physicians’ 

documentation was improving for billing, they reported a continuing need 

to improve physicians’ documentation. In addition, Network 22 (Long 

Beach) reported that accounts receivable staff had difficulties keeping up 

with the increased volume of bills because it had not hired additional staff 

or contracted help for accounts receivable. 

As a result of these operational limitations, VA lacks a reliable estimate of 

uncollected dollars, and therefore does not have the basis to assess its 

systemwide operational effectiveness.11 Some uncollected dollars resulting 

 9

Economic Systems, Inc. and AdvanceMed, Professional Fee Backlog Assistance: Final 

Technical Report, a report prepared for the Department of Veterans Affairs, March 5, 2002. 

10In September 2002, the revenue manager anticipated that the backlog would be reduced 

to $2 million by the end of fiscal year 2002 because the medical centers had hired new 

coders and the network had created a central pool of seven coders. 

11In addition, VA does not know the net impact of actual third-party collections on 

supplementing its annual appropriation for medical care. This is because, according to VA 

officials, VA does not have a way to routinely capture its full collections costs. 
Page 9 GAO-03-145 VA Third-Party Collections 

from currently missed billing opportunities—such as billable care missed 

in coding—are not readily quantified. Other uncollected dollars—such as 

those from backlogged bills and uncollected accounts receivable—are 

either only partially quantifiable or their potential contribution to total 

collections is uncertain. For example, even though the uncollected dollars 

in older accounts receivable can be totaled, the yield in payments through 

more aggressive pursuit of accounts receivable is uncertain. This is 

because, according to VA officials, some portion of the billed dollars is not 

collectable due to VA inappropriately billing for services not covered by 

the insurance policy, billing against a terminated policy, or not closing out 

the accounts receivable after an insurer paid the bill.12

VA continues to implement its 2001 improvement plan and is planning 

more improvements. Although the improvement plan could potentially 

improve operations and increase collections, it is not scheduled for full 

implementation until December 2003. In May 2002, VA created a new 

office in VHA, the Chief Business Office, in part to address collections 

issues. According to VA officials, this office is developing a new approach 

to improvements, which will include initiatives beyond those in the 

improvement plan. 

VA’s improvement plan was designed to increase collections by improving 

and standardizing its collections processes. The plan’s 24 actions are to 

address known operational problems affecting revenue performance. 

These problems include unidentified insurance for some patients, 

insufficient documentation for billing, shortages of coding staff, gaps in 

the automated capture of billing data, insufficient pursuit of accounts 

receivable, and uneven performance across collections sites. 

The plan seeks increased collections through standardization of policy and 

processes in the context of decentralized management, in which VA’s 21 

network directors and their respective medical center directors have 

 12VA’s accounts receivable totals are larger than what is collectible, in part, because VA 

includes the entire amount of charges for veterans covered by Medicare, when those 

veterans have Medicare supplemental insurance. Although VA cannot generally collect 

from Medicare, it includes the total as part of its billing process to the supplemental 

insurers to determine the proportion of charges the supplemental insurers will pay. 

VA Is Implementing 

Planned Actions and 

Developing Other 

Initiatives to Address 

Problems in 

Collections 

Operations 

2001 Plan to Improve 

Collections Is Partially 

Implemented 
Page 10 GAO-03-145 VA Third-Party Collections 

responsibility for the collections process. Since management is 

decentralized, collections procedures can vary across sites. For example, 

sites’ procedures can specify a different number of days waited until first 

contacting insurers about unpaid bills and can vary on whether to contact 

by letter, telephone, or both. The plan intends to create greater process 

standardization, in part, by requiring certain collections processes, such as 

the use of electronic medical records to provide coders better access to 

documentation and legible records. 

When fully implemented, the plan’s actions can improve collections to the 

extent that they can reduce operational problems such as missed billing 

opportunities. For example, two of the plan’s actions—requiring patient 

contacts prior to scheduled appointments to gather insurance information 

and electronically linking VA to major insurers to identify patients’ 

insurance—are intended to increase the number of patients identified with 

insurance. A recent study estimated that 23.8 percent of VA patients in 

fiscal year 2001 had billable care, but VA actually billed for the care of only 

18.3 percent of patients.13 This finding suggests that VA could have billed 

for 30 percent more patients than it actually billed. 

VA has implemented some of the improvement plan’s 24 actions, which 

were scheduled for completion at various times through 2003, but is 

behind the plan’s original schedule. The plan had scheduled 15 of the 24 

actions for completion through May 25, 2002, but, as shown in figure 3, VA 

had designated only 8 as completed, as of the last formal status report on 

the plan in May 2002.14

 13T. Michael Kashner, Ph.D., J.D., et al., Final Report: Veterans Affairs Patient Health 

Insurance Survey (VAPHIS), a survey funded by the Department of Veterans Affairs, 

February 16, 2002. The Chief Business Officer told us that his office plans to do another 

survey to confirm its results. 

14A Chief Business Office official stated in September 2002 that the office plans to develop a 

status report that includes the improvement plan as well as other actions in its new 

approach. 
Page 11 GAO-03-145 VA Third-Party Collections 

Figure 3: Improvement Plan’s Actions Designated as Completed by VA, as of May 25, 2002 
Page 12 GAO-03-145 VA Third-Party Collections 

a

Certain actions are mandated in the plan, that is, are required, but these actions are not legal or 

regulatory mandates. 

b

VA designated the electronic billing project, shown here as “17a,” as completed. However, this 

indicated only partial completion of action 17, which includes an additional project. 

Some of the plan’s actions that VA has designated as completed needed 

additional work. For example, although VA designated electronic billing as 

completed in the May 2002 report, in August 2002 a VA official indicated 

that 20 hospitals were still working on a step required to transmit bills to 

all payers. In other cases, VA has designated an action completed by 

mandating it in a memorandum or directive. However, mandating an 

action in the past has not necessarily ensured its full implementation. For 

example, although an earlier 1998 directive required patient 

preregistration, the 2001 improvement plan reported that preregistration 

was not implemented consistently across VA and thus mandated its use.15

Officials in VHA’s new Chief Business Office told us that this office is 

developing a new approach for improving third-party collections. 

According to the Chief Business Officer, the Under Secretary of Health 

proposed, and the Secretary approved, the establishment of the Chief 

Business Office to underscore the importance of revenue, patient 

eligibility, and enrollment functions; and to give strategic focus to 

improving these functions. He said the new approach can help increase 

revenue collections by further revising processes and providing a new 

business focus on collections. 

Officials in this office told us that the new approach will combine these 

and other actions with the actions in the improvement plan. For example, 

the Chief Business Office’s improvement strategy incorporates electronic 

transmission of bills and of third-party payments, which are part of the 

2001 improvement plan. The new approach also encompasses initiatives 

beyond the improvement plan, such as the one in the Under Secretary of 

Health’s May 2002 memorandum that directed all facilities to refer 

accounts receivable older than 60 days to a collection agency, unless a 

facility can document a better in-house process. According to the Deputy 

Chief Business Officer, this initiative has shown some sign of success—

with outstanding accounts receivables dropping from $1,378 million to 

 15VA issued a 2002 directive to reemphasize the administrative mandate. 

VA Is Developing Other 

Improvement Initiatives 
Page 13 GAO-03-145 VA Third-Party Collections 

$1,317 million from the end of May to the end of July 2002, a reduction of 

about $61 million or 4 percent. 

Another initiative in the new approach is the Patient Financial Services 

System (PFSS). PFSS is an automated financial system focused on patient 

accounts, which is intended to overcome operational problems in VA’s 

current automated billing system. For example, VA’s automated system for 

clinical information was not designed to provide all of the episode-of-care 

information, such as the health care provider and diagnoses, that are 

required for billing. The development of PFSS is tied to a demonstration 

project of a financial system, which is now being designed for Network 10 

(Cincinnati).16 According to the Deputy Chief Business Officer, VA 

anticipates awarding a PFSS contract by April 1, 2003. The Chief Business 

Office’s plan is to install this financial system in other facilities and 

networks if it is successfully implemented in the Network 10 (Cincinnati) 

demonstration. 

The Chief Business Office also intends to improve collections by 

developing better performance measures, which will be similar to those 

used in the private sector.17 For example, the office intends to use the 

measure of gross days revenue outstanding, which indicates the pace of 

collections relative to the amount of accounts receivable. During fiscal 

year 2003, the office plans to hold network and facility directors 

accountable for collections through standards that are tied to these 

performance measures. In addition, the Chief Business Officer said that 

tracking performance with these measures could help identify further 

opportunities for collections improvements. 

The Chief Business Office is developing the new initiatives, which it had 

not formalized into a planning document as of August 2002. Certain key 

decisions were under consideration. For example, the Chief Business 

 16In the conference report accompanying its fiscal year 2002 appropriation, VA was directed 

to begin a demonstration project of a contractor-installed and operated patient financial 

services system. H.R. Conf. Rep. No. 107-272, at 56 (2001). 

17As we noted in our 2001 testimony, 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 whereas private sector hospitals may only bill for facility charges. To 

make comparisons with industry benchmarks more relevant, VA is considering adjustments 

to its new measures. 
Page 14 GAO-03-145 VA Third-Party Collections 

Officer was considering whether to centralize some processes at the 

network or national level and was developing the performance standards 

that would be required for holding network and facility directors 

accountable. Moreover, according to the Chief Business Officer, 

implementing PFSS will require the office to resolve some issues, 

including making its existing systems provide sufficient data to support 

the new financial system. 

As VA faces increased demand for medical care, third-party collections for 

nonservice-connected conditions remain an important source of 

alternative revenue to supplement VA’s resources. Our work and VA’s 

continuing initiatives to improve collections suggest that VA could collect 

additional supplemental revenues because it has not collected all thirdparty payments that it could in fiscal year 2002. However, VA does not 

have an estimate of the amount of uncollected dollars, which it needs to 

assess the effectiveness of its current processes. 

VA has been improving its billing and collecting under the new fee 

schedule established in 1999, but VA has not completed its efforts to 

address problems in collections operations. In this regard, fully 

implementing VA’s 2001 improvement plan could help VA maximize future 

collections by addressing problems such as missed billing opportunities. 

However, the plan’s reliance on directives, in some cases, to achieve 

increased collections is not enough to ensure full implementation and 

optimal performance. The Chief Business Office’s new approach could 

also enhance collections. VA’s new Chief Business Office’s challenge is to 

ensure such performance by identifying root causes of problems in 

collections operations, providing a focused approach to addressing the 

root causes, establishing performance measures, and holding responsible 

parties accountable for achieving the performance standards. However, it 

is too early to evaluate the extent to which VA will be able to address 

operational problems and further increase collections by fully 

implementing its 2001 plan and new approach. 

The Department of Veterans Affairs provided written comments on a draft 

of this report, which are found in appendix II. VA generally agreed with 

our findings that it continues to make improvements in increased 

collections and VHA’s Business Office is developing new initiatives to 

further enhance collections. In addition, VA clarified that it may, under 

limited circumstances, collect from Medicare although generally it may not 

do so. We changed our report accordingly. 

Concluding 

Observations 

Agency Comments 

and Our Evaluation 
Page 15 GAO-03-145 VA Third-Party Collections 

VA also suggested that our title was misleading because it stated that VA 

continues to address problems in its collections operations rather than 

stating that VA is building infrastructure to implement effective collections 

operations. We believe that our title is accurate because VA continues to 

address problems that we and others have identified in VA’s collections 

operations. VA has acknowledged such problems in the past, including 

unidentified insurance for some patients, insufficient documentation for 

billing, and shortages of coding staff. VA continues to implement the 2001 

improvement plan that it developed to address these and other problems. 

VA’s new initiatives also address problems, such as gaps in automated 

capture of billing data, that have been previously identified. 

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, interested congressional committees, and other 

interested parties. We will also make copies available to others upon 

request. In addition, this report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please call me at 

(202) 512-7101. James Musselwhite and Terry Hanford also contributed to 

this report. 

Sincerely yours, 

Cynthia A. Bascetta 

Director, Health Care—Veterans’ 

 Health and Benefits Issues 
Appendix I: Scope and Methodology 

Page 16 GAO-03-145 VA Third-Party Collections 

To assess the Department of Veterans Affairs’ (VA’s) progress with 

collections in fiscal year 2002, we obtained and examined data on VA’s 

third-party bills and collections. We also interviewed officials in VA 

headquarters and in three VA health care networks to understand the 

reasons for the increased collections compared to fiscal year 2001 as well 

as any operational problems. To provide information on VA’s 2001 

improvement plan and its emerging new approach to improvements, we 

reviewed relevant VA documents and interviewed VA officials. 

We conducted interviews from April through June 2002 with managers in 

three networks concerning collections.1

 In addition, we gathered data on 

third-party bills and collections for fiscal years 2001 and 2002. Our review 

of the improvement plan’s implementation started with its completion 

status in March 2002 and ended with its status through May 2002, which 

was the date of VA’s last formal report on the plan’s status. An official in 

the Chief Business Office told us in September 2002 that a new status 

report for the 2001 plan was planned but not yet available. During August 

through October 2002, we gathered information from officials in the Chief 

Business Office about additional improvement initiatives. 

To better understand the increased collections in fiscal year 2002 and any 

limitations to those collections, we judgmentally selected three networks 

for more detailed study. These networks provided different examples of 

above- and below-average growth in collections, considered separately for 

inpatient care and outpatient care. (See table 1.) Based on available data at 

the time of selection, Network 9 (Nashville) had above-average collections 

increases for both inpatient care and outpatient care bills. Network 2 

(Albany) exceeded average collections increases for only outpatient care 

bills, whereas Network 22 (Long Beach) had above-average collections 

increases for only inpatient care bills. 

 1

We spoke with revenue managers in the three networks. At the suggestion of the revenue 

manager in Network 22 (Long Beach), we also spoke with the facility’s business manager, 

who headed the network’s collections committee. Moreover, we had limited follow-up 

discussions during September 2002 with the Network 9 (Nashville) revenue manager. 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 17 GAO-03-145 VA Third-Party Collections 

Table 1: Percentage Increases in Collections for Networks Selected for Study, October 2000 through February 2001 

Compared to October 2001 through February 2002 

Collections 

Inpatient care Outpatient care Total 

Percentage 

increase 

Relation to 

average 

 Percentage 

increase 

Relation to 

average 

 Percentage 

increase 

Relation to 

average 

Systemwide averages 20 Not applicable 54 Not applicable 35 Not applicable 

Network 2 (Albany) 3 Below 79 Above 32 Below 

Network 9 (Nashville) 43 Above 102 Above 71 Above 

Network 22 (Long Beach) 60 Above 34 Below 50 Above 

Source: VA Monthly Revenue Office Report: February 2002 Data. 

Although we did not verify VA data on collections and bills, we used the 

data reported by VA’s Revenue Office in its analyses of third-party 

collections. The data source is VA’s Veterans Health Information Systems 

and Technology Architecture National Database. This database includes 

data for collections from various sources—including third-party payments, 

patient copayments, and proceeds from sharing agreements in which VA 

sells services to the Department of Defense and other providers. 
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 18 GAO-03-145 VA Third-Party Collections 

Appendix II: Comments from the Department 

of Veterans Affairs 

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