Department of Veterans Affairs 

Office of Inspector General 

Audit of Veterans Health Administration 

Noncompetitive Clinical 

Sharing Agreements 

Report No. 08-00477-211 September 29, 2008

VA Office of Inspector General 

Washington, DC 20420 
 

To Report Suspected Wrongdoing in VA Programs and Operations 

 Call the OIG Hotline – (800) 488-8244 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Contents 

Page 

Executive Summary .......................................................................................................i 

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

Purpose ............................................................................................................................... 1 

Background......................................................................................................................... 1 

Scope and Methodology ..................................................................................................... 3 

Results and Conclusions ............................................................................................ 6 

Issue 1. VHA Needs To Improve Controls Over Sharing Agreement Performance 

Monitoring ......................................................................................................................... 6 

Issue 2. VHA Needs To Ensure Contracting Officers Receive Training 

on Medicare Rates ............................................................................................................ 13

Appendixes 

A. Cost Estimate Methodologies ..................................................................................... 16 

B. Monetary Benefits in Accordance with IG Act Amendments.................................... 20 

C. Under Secretary for Health Comments....................................................................... 21 

D. OIG Contact and Staff Acknowledgments ................................................................. 25 

E. Report Distribution ..................................................................................................... 26 

VA Office of Inspector General 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Executive Summary 

Introduction 

The Office of Inspector (OIG) conducted this audit to evaluate the effectiveness of 

performance monitoring of noncompetitive clinical sharing agreements to specifically 

determine if Veterans Health Administration (VHA) controls over performance 

monitoring ensured that VA received the services it paid for. 

Sharing agreements are written contracts that allow VA to buy, sell, or exchange health 

care resources and services with non-VA facilities. Title 38 of the United States Code 

(USC), Section 8153, “Sharing of Health Care Resources,” authorizes VA to enter into 

noncompetitive sharing agreements with affiliated institutions and other entities 

associated with these affiliated institutions. In practice, many high cost sharing 

agreements are noncompetitive agreements through which VA buys clinical services 

from affiliated medical schools and entities associated with medical schools, such as 

university hospitals, clinical departments, and medical practice groups. 

At the end of fiscal year (FY) 2007, Veterans Integrated Service Networks (VISNs) 

reported having 669 noncompetitive clinical sharing agreements valued at $575 million. 

Of these 669 agreements, 178 (27 percent) agreements, each valued at $100,000 or more, 

were for surgical and anesthesiology services provided at VA medical centers and 

healthcare systems (referred to as VAMCs in this report). These 178 noncompetitive 

agreements had a total value of about $200.6 million and included three general types of 

agreements—121 agreements based on full-time equivalent employees (FTE) for which 

VA measures performance in terms of hours or days, 55 per-procedure agreements for 

which VA measures performance in terms of the number and types of procedures 

performed, and 2 capitation-based agreements for which VA measures performance in 

terms of the number of patients served. 

VA has two offices that provide policy direction to contracting activities. At the 

Department level, VA’s Office of Acquisition and Logistics develops policy for 

VA-wide acquisition activities. It manages VA’s Contracting Officer Certification 

Program and warrants all VA contracting officers. This office also manages other 

acquisition training, including continuing education for contracting staff. Within VHA, 

the Prosthetics and Clinical Logistics Office (PCLO) Medical Sharing Team provides 

“day-to-day” policy direction and technical assistance to the VISNs, where VHA’s 

contracting activities are located, and to the VAMCs, which receive and monitor the 

contracted services. 

VA Directive 1663, “Health Care Resources Contracting—Buying, Title 38 U.S.C. 

8153,” dated August 10, 2006, describes the major rules for buying health care resources 

and services. In addition, because sharing agreements are contracts, they must also 

VA Office of Inspector General i 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

comply with certain provisions of the Federal Acquisition Regulation (FAR) and VA 

Acquisition Regulation (VAAR). FAR and VAAR require contracting officers to ensure 

compliance with sharing agreement terms and allow contracting officers to appoint 

contracting officers’ technical representatives (COTRs) to monitor contractor 

performance and certify contractor invoices for payment. 

Our audit focused on surgical and anesthesiology noncompetitive clinical sharing 

agreements that were in effect on September 30, 2007. The surgical agreements included 

all surgical specialties, such as orthopedics, ophthalmology, urology, and cardiac surgery. 

We selected surgical and anesthesiology agreements because they represent the largest 

portion—in number and dollar value—of all clinical sharing agreements. We conducted 

onsite work at eight randomly selected VAMCs. At each VAMC, we reviewed all 

surgical and anesthesiology sharing agreements valued at $100,000 or more. In all, we 

reviewed a total of 58 agreements, including 34 FTE-based agreements and 

24 per-procedure agreements. None of the eight VAMCs used capitation-based 

agreements to acquire surgical or anesthesiology services. We limited our review to only 

those services that contractors provided onsite at VAMCs. We conducted our audit work 

from November 2007 through May 2008. 

Results 

VHA lacks reasonable assurance it received the services it paid for because performance 

monitoring controls over noncompetitive clinical sharing agreements are not effective. 

Strengthening controls over performance monitoring of noncompetitive clinical sharing 

agreements could save VHA about $9.5 million annually or $47.4 million over 5 years. 

Of the estimated savings, only about $96,000 in charges resulting from calculation errors 

may be recoverable because the terms of most of the sharing agreements we reviewed did 

not include provisions for adjusting payments. We found performance monitoring 

weaknesses for all 58 surgical and anesthesiology sharing agreements we reviewed at the 

8 VAMCs. As a result, for 30 (52 percent) of the 58 agreements, VAMCs overpaid 

contractors because COTRs did not verify that VAMCs received the services required at 

the prices specified. 

In addition to performance monitoring issues, we also found that during negotiations of 

per-procedure sharing agreements, VISN contracting officers agreed to pay at least full 

Medicare rates. However, the full Medicare rates include a practice component for 

overhead charges that contractors do not incur when they provide services at VAMCs. 

Excluding the Medicare practice component, as required by VA policy, could have saved 

VHA about $2.5 million annually or $12.4 million over 5 years.

VA Office of Inspector General ii 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Issue 1. VHA Needs To Improve Controls Over Sharing Agreement 

Performance Monitoring 

VHA needs to strengthen controls over sharing agreement performance monitoring to 

ensure VAMCs receive the services they purchase. Performance monitoring for all 

58 agreements at the 8 VAMCs needed improvement. As a result, for 30 sharing 

agreements (17 FTE-based and 13 per-procedure agreements), VAMCs overpaid 

contractors for services that were not provided, not needed, or incorrectly billed. For the 

FTE-based sharing agreements, COTRs did not monitor clinical staff levels provided, and 

for the per-procedure sharing agreements, COTRs did not always ensure that services 

were received or were needed, and they did not verify that contractors correctly 

calculated their Medicare-based charges. 

FTE-Based Sharing Agreement Monitoring. Inadequate monitoring of sharing 

agreements at the eight VAMCs resulted in overpayments of about $3.5 million for 

clinical services that were not provided in FY 2007. For the 34 FTE-based sharing 

agreements, COTRs generally ensured that monthly charges by the contractors 

conformed with contract prices, but they did not determine the actual amount of time 

contract providers had worked or whether the hours worked were meeting the hours that 

contractors were required to provide. Of the eight VAMCs, three had no monitoring 

procedures in place at all; three used clinical reports to determine contractor performance, 

but did not have procedures to reconcile the workload in clinical reports to the time 

requirements in the sharing agreements; and the other two used contractor time records to 

monitor sharing agreements, but did not have procedures to verify the accuracy of the 

time records. 

Per-Procedure Sharing Agreement Monitoring. Ineffective monitoring of per-procedure 

sharing agreements resulted in overpayments of about $682,000 for clinical services that 

were not provided, not needed, or incorrectly billed in FY 2007. While COTRs generally 

verified that contractors had performed the clinical services they billed for, two VAMCs 

paid about $586,000 for services not received or not needed. One VAMC paid for clinic 

treatments the contractor did not provide. Another VAMC paid for clinical services that 

the sharing agreement did not clearly require and the VAMC did not need. In addition, 

three VAMCs overpaid about $96,000 because contractors charged incorrect rates and the 

COTRs did not effectively review the charges before certifying contractor invoices. 

We attributed the sharing agreement monitoring deficiencies at the eight VAMCs to three 

factors: (1) sharing agreements did not specifically and accurately state performance 

requirements, (2) VISN officials did not adequately oversee COTR activities, and 

(3) COTRs did not have sufficient training to monitor clinical service sharing 

agreements. 

Sharing Agreements Did Not Specifically and Accurately State Performance 

Requirements. COTRs were unable to adequately monitor performance because the 

VA Office of Inspector General iii 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

performance requirements were not clearly specified in the sharing agreements. 

Contractor performance requirements should be detailed enough for COTRs, as well as 

contracting officers and contractors, to know at a minimum what types of services will be 

provided, who will provide the services, and the rates to be charged. In addition to the 

vague performance requirements, inaccurate performance requirements for FTE-based 

sharing agreements also negatively impacted the COTRs’ abilities to effectively monitor 

these agreements. Sharing agreement requirements that accurately reflect the service 

needs of the VAMC are especially important when agreements have no provisions 

allowing COTRs to adjust contractor payments based on the actual work performed.

VISN Officials Did Not Adequately Oversee COTR Activities. As part of their 

contract administration responsibilities, FAR and VAAR require contracting officers to 

ensure that contractors comply with the terms of agreements. Contracting officers may 

do this by delegating COTRs at the VAMCs to monitor contractor performance and 

certify invoices for payment. Ideally, sharing agreement performance monitoring should 

be a team effort between the contracting officer, the COTR, and VISN and VAMC 

management. For 57 of the 58 contracts we reviewed, VISN contracting officers had 

appointed COTRs. However, the contracting officers did not provide the COTRs clear 

guidance about their responsibilities, nor did they implement procedures to routinely 

review the COTRs’ monitoring activities to ensure they were effective. Furthermore, 

management officials at the VISNs did not establish any procedures to evaluate the 

effectiveness of sharing agreement performance monitoring activities. 

COTRs Did Not Have Sufficient Training To Monitor Clinical Sharing Agreements. 

COTRs at all eight VAMCs needed additional guidance and training on how to establish 

effective monitoring systems for FTE-based and per-procedure clinical service sharing 

agreements. Most of the COTRs had completed training on contract monitoring, but this 

training provided only general contract monitoring guidance and did not address clinical 

service sharing agreement monitoring in particular. COTRs were especially concerned 

about their lack of knowledge of Medicare-based charges commonly used in the perprocedure sharing agreements. None of the COTRs had received training on 

understanding and using Medicare rates. Without this knowledge and understanding, the 

COTRs’ abilities to detect billing errors, such as using the wrong rate for a particular 

procedure, are diminished. 

Issue 2. VHA Needs To Ensure Contracting Officers Receive Training on 

Medicare Rates 

The terms and conditions in 21 of the 24 per-procedure sharing agreements stated that the 

contractors would charge VAMCs 100 percent or more of Medicare Part B rates for each 

procedure performed. This means that under the terms of the sharing agreements, the 

VAMCs are required to pay for all three components of the procedures—work, 

malpractice, and practice. However, when VISN contracting officers negotiated the 

sharing agreements, it was not appropriate to agree to the full Medicare rates because 

VA Office of Inspector General iv 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

these rates include the practice component, which factors in costs for maintaining a 

practice, such as renting office space, buying supplies and equipment, and paying for 

other facility-related costs. The practice component is not applicable for services 

provided at VAMCs since the VAMCs, not the contractor, incur all facility-related costs 

included in this component. 

VA Directive 1663 explicitly requires VAMCs to exclude the practice component from 

reimbursements. Ensuring that VISN contracting officers negotiate per-procedure 

sharing agreement rates that exclude the Medicare Part B practice component could save 

VHA about $2.5 million annually or $12.4 million over 5 years. 

Conclusion 

Strengthening performance monitoring controls over noncompetitive clinical sharing 

agreements could save VHA about $9.5 million annually or $47.4 million over 5 years. 

In FY 2007, insufficient monitoring of surgical and anesthesiology sharing agreements 

resulted in VAMCs overpaying $4.1 million for services that were not received, not 

needed, or incorrectly billed. For the 34 FTE-based sharing agreements, most COTRs 

did not monitor clinical staff levels provided, and for 21 of the 24 per-procedure sharing 

agreements, COTRs did not verify that contractors correctly calculated Medicare-based 

charges prior to certifying contactor invoices for payment. Furthermore, strengthening 

procedures for negotiating per-procedure sharing agreements to ensure VAMCs are only 

required to pay for the Medicare Part B work and malpractice components—and not the 

practice component—could save VA about $2.5 million annually or $12.4 million over 

5 years. 

Recommendations 

1. We recommended that the Under Secretary for Health ensure that VISNs establish 

standardized written procedures for monitoring FTE-based and per-procedure clinical 

service sharing agreements. 

2. We recommended that the Under Secretary for Health establish VISN-level oversight 

controls to ensure that COTRs are effectively monitoring contractor performance 

under the terms of the sharing agreement before certifying invoices for payment. 

3. We recommended that the Under Secretary for Health implement procedures to 

ensure that COTRs verify that Medicare-based sharing agreement charges are 

accurately calculated prior to certifying contractor invoices. 

4. We recommended that the Under Secretary for Health coordinate with VA’s Office of 

Acquisition and Logistics to develop performance monitoring training for COTRs that 

specifically addresses clinical sharing agreements. 

VA Office of Inspector General v 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

5. We recommended that the Under Secretary for Health instruct the VISN contracting 

officers to initiate recovery of overpayments identified by our audit, as appropriate. 

6. We recommended that the Under Secretary for Health coordinate with VA’s Office of 

Acquisition and Logistics to develop training for VISN contracting officers on 

negotiating per-procedure sharing agreements with Medicare-based charges. 

7. We recommended that the Under Secretary for Health implement oversight 

mechanisms to ensure that per-procedure sharing agreements for onsite clinical 

services exclude the Medicare practice component charges from contract rates, as 

required by VA policy. 

Under Secretary for Health Comments 

The Under Secretary for Health agreed with the findings and recommendations of the 

report and provided acceptable implementation plans. The Under Secretary also agreed 

with the monetary benefits of $59.8 million. (See Appendix C, pages 21–24, for the full 

text of the Under Secretary’s comments.) In response to the audit recommendations, the 

Under Secretary agreed to establish standard procedures, VISN level oversight controls, 

and COTR training for sharing agreement monitoring. He also agreed to implement 

procedures that ensure the accuracy of Medicare-based charges is verified, to require 

VISN contracting officers to begin immediate recovery of the overpayments we 

identified, and to ensure that per-procedure sharing agreements for onsite clinical services 

exclude the Medicare practice component from contract rates. We will follow up on the 

implementation of the planned improvement actions. 

 (original signed by:)

BELINDA J. FINN 

Assistant Inspector General 

for Auditing 

VA Office of Inspector General vi 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Introduction 

Purpose 

The purpose of the audit was to evaluate the effectiveness of performance monitoring of 

noncompetitive clinical sharing agreements to specifically determine if VHA controls 

over performance monitoring ensured that VA received the services it paid for.

Background 

Sharing Agreement Authority. Sharing agreements are written contracts that allow VA 

to buy, sell, or exchange health care resources and services with non-VA facilities. 

Title 38, USC, Section 8153, “Sharing of Health Care Resources,” authorizes VA to enter 

into noncompetitive sharing agreements with affiliated institutions and other entities 

associated with these affiliated institutions. In practice, many high cost sharing 

agreements are noncompetitive agreements through which VA buys clinical services 

from affiliated medical schools and entities associated with medical schools, such as 

university hospitals, clinical departments, and medical practice groups. 

Number, Value, and Types of Sharing Agreements. At the end of FY 2007, VISNs 

reported having 1,714 clinical service sharing agreements valued at about $1.7 billion. 

Noncompetitive agreements accounted for 669 (39 percent) of the 1,714 agreements and 

had a total value of $575 million. Of these 669 noncompetitive agreements, 

178 (27 percent) agreements, each valued at $100,000 or more, were for surgical and 

anesthesiology services provided at VAMCs. These 178 noncompetitive agreements had 

a total value of about $200.6 million and included three general types of agreements: 

• FTE-Based Agreements. For these agreements, VA measures performance in terms 

of hours or other periods of time. Performance requirements for FTE-based sharing 

agreements are generally based on a specified number of hours of work at a specified 

rate. For example, a sharing agreement may call for 0.5 FTE orthopedic surgeons, 

which is equivalent to about 20 hours per week. Reimbursements should be based on 

the contractor meeting the time requirements specified. Of the 178 surgical and 

anesthesiology agreements, 121 were FTE-based. 

• Per-Procedure Agreements. For these agreements, VA measures performance in 

terms of the number and types of procedures completed. For per-procedure sharing 

agreements, the amount of work to be performed is variable, but the price for each 

type of clinical procedure completed is stated in the contract. All medical procedures 

are assigned a code, called a Current Procedural Terminology (CPT) code. Sharing 

agreements should identify the specific CPT codes and the estimated quantity that will 

be performed. Reimbursements are based on the numbers and types of procedures the 

contractor performs. Of the 178 surgical and anesthesiology agreements, 55 were 

per-procedure. 

VA Office of Inspector General 1 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

• Capitation-Based Agreements. For these agreements, VA measures performance in 

terms of the number of patients served. Sharing agreements should specify a cost per 

patient. Reimbursement is based on the number of patients the contractor treats. Of 

the 178 surgical and anesthesiology agreements, 2 were capitation-based. 

VA and VHA Program Office Responsibilities. VA has two offices that provide policy 

direction to contracting activities. At the Department level, VA’s Office of Acquisition 

and Logistics develops policy for VA-wide acquisition activities. It manages VA’s 

Contracting Officer Certification Program and warrants all VA contracting officers. This 

office also manages other acquisition training, including continuing education for 

procurement staff. Within VHA, the PCLO Medical Sharing Team provides “day-today” policy direction and technical assistance to VISNs and VAMCs with sharing 

agreements. 

In recent years, VHA has consolidated contracting activities at the VISNs. Under this 

structure, contracting officers are no longer employees of the VAMCs; instead, they are 

VISN employees. Some VISNs have centralized contracting activities at one location, 

while others have located contracting officers at the VAMCs they support, but the 

contracting officers are employed and supervised by the VISN. COTRs, who are 

appointed by contracting officers to monitor contractor performance, are typically 

VAMC employees. In most cases, they are the administrative officers of the VAMC 

clinical activities requiring the contracted services and monitor sharing agreement 

performance in addition to their primary duties. 

Sharing Agreement Policies and Procedures. VA Directive 1663, “Health Care 

Resources Contracting—Buying, Title 38 U.S.C. 8153,” dated August 10, 2006, 

describes the major rules for buying health care resources and services. In addition, 

because sharing agreements are contracts, they must also comply with certain provisions 

of the FAR and VAAR.

Performance Monitoring Responsibilities. FAR and VAAR require contracting officers 

to ensure compliance with the terms of contracts (including sharing agreements). They 

may designate COTRs to furnish technical advice or supervise the work performed under 

the contract. When a contracting officer delegates certain contract administration 

functions to the COTR, the legal responsibility for the contract remains with the 

contracting officer. The COTR functions as the “eyes and ears” of the contracting officer 

by monitoring technical performance, verifying and certifying contractor invoices, and 

reporting any potential or actual problems to the contracting officer. 

Performance Monitoring Controls. VA Directive 1663 requires contracting officers to 

ensure that effective controls are in place to monitor contractor performance. The 

VAMC or VISN must have a system in place for monitoring what work is being 

performed, which contract providers are performing the work, and a method for verifying 

that contractor charges are correct for work performed. Before certifying payments, the 

VA Office of Inspector General 2 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

COTR must verify by reviewing the appropriate documentation that VA has received the 

services called for under the sharing agreements. Whenever significant changes take 

place in the sharing agreement requirements or in the contractor's ability to meet the 

existing performance requirements, the COTR is responsible for reporting these 

conditions to the contracting officer, so that modifications or other appropriate actions 

can be undertaken. 

Prior OIG Reviews. In 2005, the OIG issued the Evaluation of VHA Sole-Source 

Contracts with Medical Schools and Other Affiliated Institutions (05-01318-85, 

February 16, 2005), which addressed numerous issues related to general contracting 

practices, contract pricing, and conflicts of interest and other legal issues. The evaluation 

concluded that acquisition planning and justifications for contracting out for services 

were inadequate, VA was overpaying affiliates for services, VA employees were 

violating conflict of interest laws, and solicitations for services were outside the scope of 

the sharing agreement authority. 

Scope and Methodology 

To address the audit objective, we identified applicable Federal regulations and VA and 

VHA policies and procedures related to sharing agreement administration and 

monitoring. We also interviewed responsible VA, VHA, and PCLO program officials 

about sharing agreement oversight processes and controls. We conducted our audit work 

from November 2007 through May 2008. 

We focused on surgical and anesthesiology noncompetitive clinical sharing agreements 

that were in effect on September 30, 2007. The surgical agreements included all surgical 

specialties, such as orthopedics, ophthalmology, urology, and cardiac surgery. We 

selected surgical and anesthesiology agreements because they represent the largest 

portion—in number and dollar value—of all clinical sharing agreements. We conducted 

onsite work at eight randomly selected VAMCs. At each VAMC, we reviewed all 

surgical and anesthesiology sharing agreements valued at $100,000 or more. In all, we 

reviewed a total of 58 agreements. We limited our review to only those services that 

were provided onsite at VAMCs. 

We selected eight VAMCs using a probability proportional to size statistical sampling 

approach. The measure of size we used was the number of surgical and anesthesiology 

sharing agreements that were in effect on September 30, 2007 at each VAMC site. This 

methodology ensured that VAMCs with more contracts would have a higher probability 

of being selected into the sample while still allowing all VAMCs to have a known, nonzero probability of selection. We then reviewed all 58 surgical and anesthesiology 

sharing agreements that were in effect on September 30, 2007 at the eight VAMCs. The 

total annual cost of these 58 agreements was $30.0 million. Table 1 shows the VAMCs 

we visited and the number and types of agreements we reviewed at each site. 

VA Office of Inspector General 3 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Table 1. VAMCs and Agreements Reviewed 

Sharing Agreements Reviewed 

VAMC Location 

FTEBased PerProcedure Total 

Miami VA Healthcare System Miami, FL 6 3 9 

Minneapolis VA Medical Center Minneapolis, MN 11 3 14 

Richard L. Roudebush VA Medical 

Center Indianapolis, IN 6 0 6 

South Texas Veterans Health Care 

System San Antonio, TX 3 2 5 

VA Long Beach Healthcare System Long Beach, CA 2 0 2 

VA Nebraska Western Iowa Health 

Care System Omaha, NE 1 13 14 

VA Puget Sound Health Care System Seattle, WA 4 2 6 

VA Sierra Nevada Health Care System Reno, NV 1 1 2

Total Agreements 34 24 58 

For each sharing agreement in our sample, we evaluated how the agreement was 

monitored, whether the statement of work was clear and adequately supported, and 

whether VA received the services paid for at the rates provided in the sharing agreement 

terms. We interviewed the contracting officers and COTRs, as well as other clinical and 

administrative staff who were involved in requesting, justifying, or preparing the 

agreements. We reviewed workload reports, including operating room (OR) logs, 

anesthesiology logs, and clinic schedules; work schedules and time and attendance 

records; patient treatment records; and other documents used to monitor contractor 

performance. We also interviewed selected clinicians who worked at the VAMCs under 

the terms of the agreements. 

To identify all clinical sharing agreements, we obtained a database of clinical services 

agreements from the PCLO. However, when we attempted to verify the number of 

agreements in the PCLO database for one VISN, we found that the database was missing 

many agreements. Therefore, we developed our own database by contacting each VISN 

directly and requesting a list of all active clinical service agreements. Once we received 

the lists, we reviewed them for completeness, and we made follow-up telephone calls and 

sent follow-up emails to VISN officials on missing data elements until we were satisfied 

we could properly identify most agreements that fell within our scope. We were unable 

to verify with certainty that our database identified all possible agreements administered 

by VAMCs nationwide. Therefore, we may have underestimated our projected cost 

savings. We relied on the database we developed to identify the universe of 

178 noncompetitive surgical and anesthesiology sharing agreements. 

VA Office of Inspector General 4 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

During the audit, we relied on computer-processed data to determine clinical workload 

for the sharing agreements we reviewed. We assessed the reliability of workload 

information obtained from Veterans Information System and Technology Architecture 

(VistA) by comparing it with work schedules and interviews with clinical staff. Based on 

these tests and assessments, we concluded the data were sufficiently reliable to meet the 

audit objective. 

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

objective. 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 5 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Results and Conclusions 

Issue 1. VHA Needs To Improve Controls Over Sharing 

Agreement Performance Monitoring 

Finding 

VHA lacks reasonable assurance it received the services it paid for because performance 

monitoring controls over noncompetitive clinical sharing agreements are not effective. 

Strengthening controls over performance monitoring could save VHA about $9.5 million 

annually or $47.4 million over 5 years. Of the estimated savings, only about $96,000 in 

charges resulting from calculation errors may be recoverable, because the terms of most 

of the sharing agreements we reviewed did not include provisions for adjusting payments. 

FAR and VAAR require contracting officers to ensure compliance with sharing 

agreement terms and allow them to appoint COTRs to monitor contractor performance 

and certify contractor invoices for payment. Our review of 58 surgical and 

anesthesiology sharing agreements at 8 VAMCs found that controls over contract 

performance monitoring for all 58 agreements needed strengthening. As a result, for 

30 (52 percent) of the 58 agreements, VAMCs overpaid contractors because COTRs did 

not verify that VAMCs received the services required at the prices specified. For the 

34 FTE-based sharing agreements, COTRs did not monitor clinical staff levels provided. 

For the 24 per-procedure agreements, COTRs did not always ensure that all services 

charged were received or were needed, and COTRs did not verify that contractors 

correctly calculated Medicare-based charges. 

FTE-Based Sharing Agreement Monitoring. Inadequate monitoring of sharing 

agreements at the eight VAMCs resulted in overpayments of about $3.5 million for 

clinical services that were not provided or not needed during FY 2007. Performance 

requirements for FTE-based sharing agreements are generally based on contract providers 

working a specified number of hours at specified rates. Most of the FTE-based sharing 

agreements we reviewed required contractors to provide a certain level of FTE, where 

1.0 FTE generally equated to a minimum of 40 hours of work per week, or 2,080 hours 

per year. The amount of time specified in these FTE-based sharing agreements is fixed 

for the periods the sharing agreements are in effect, except when provisions authorizing 

adjustments of work requirements are included in the agreements, or unless the sharing 

agreements are modified to change the FTE levels. 

For the 34 FTE-based sharing agreements at the 8 VAMCs, most COTRs ensured that the 

rates billed by the contractors on monthly invoices conformed to contract prices, but they 

did not determine the amount of time contract providers had actually worked or whether 

the hours worked met the FTE levels that contractors needed to provide. Of the eight 

VAMCs, three had no monitoring procedures, three used clinical reports to determine 

VA Office of Inspector General 6 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

contractor performance, and the other two used contract providers’ time records to 

monitor sharing agreements, as described on the next page. 

No Monitoring Performed. COTRs at VAMCs Seattle, Omaha, and Reno did not have 

procedures for monitoring contract providers’ work times for their six FTE-based sharing 

agreements. COTRs did not identify shortages in the hours worked in FY 2007 for three 

agreements because they did not compare the time worked by contract providers to the 

sharing agreement requirements. The following example illustrates the impact of not 

having monitoring procedures. 

Anesthesiology at VAMC Seattle. This sharing agreement required the 

affiliate to provide 2.7 FTE in anesthesiology services. An administrative 

officer who acted as the COTR, but was not officially delegated this 

authority, certified all contractor invoices for payment without verifying the 

hours worked. As a result, the administrative officer did not identify that 

the actual time provided by the contract anesthesiologists only equated to 

about 2.4 FTE. The contractor charges that exceeded the actual time 

worked during FY 2007 were $106,843. 

Monitoring Clinical Work. At VAMCs Miami, San Antonio, and Indianapolis, COTRs 

stated that while they periodically reviewed clinical performance to determine if contract 

providers were providing the required services, they did not monitor the contract 

providers’ time for their 15 FTE-based sharing agreements. Periodic reviews of clinical 

performance measures, such as the number of surgeries performed and the number of 

clinic visits, do not measure FTE-based performance. Instead, the COTRs should have 

implemented procedures to systematically determine the actual time that contract 

providers spent at VA in surgery, in clinics, and providing other services, as required 

under the terms and conditions of the sharing agreement. Because they did not monitor 

the time worked by contract providers, the COTRs did not identify significant shortfalls 

in the actual hours providers worked in FY 2007 for 9 of the 15 FTE-based agreements, 

as illustrated in the following example. 

Peripheral Vascular Surgery at VAMC Indianapolis. This sharing 

agreement required the contractor to provide 2.0 FTE peripheral vascular 

surgeons for clinical services during FY 2007. Our review determined that 

the time worked during the year only accounted for about 1.14 of the 

2.0 FTE, resulting in an overpayment of $333,030. The COTR stated that 

she reviewed the various clinical workload reports, such as the OR log and 

clinic appointments, and believed the contract surgeons were meeting their 

requirements, but she did not monitor their time. 

Monitoring Contractor Time Records. COTRs monitored contract providers’ time 

records, such as sign-in/sign-out sheets, but did not ensure they were complete and 

accurate for the 13 FTE-based sharing agreements at VAMCs Minneapolis and Long 

VA Office of Inspector General 7 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Beach. At VAMCs Minneapolis and Long Beach, the terms of the FTE-based sharing 

agreements allowed the VAMCs to adjust payments according to the hours the contract 

providers actually worked. The COTRs generally reviewed the providers’ time records 

that were maintained at the VAMC before certifying contractor invoices for payment and 

based the amounts they certified on the time the providers had documented. However, 

the COTRs generally did not have procedures for ensuring that the contract providers’ 

entries were accurate. The following example illustrates this problem. 

Ophthalmology Services at VAMC Minneapolis. For this 1.0 FTE 

sharing agreement, the COTR used timesheets she obtained from the 

contract provider each month to determine the amount to be paid to the 

contractor. Believing that the provider was working more than 40 hours 

per week, the COTR authorized the provider's supervisor to allow 

20 additional days of leave that exceeded the terms of the agreement. 

However, the COTR never tested the accuracy of the provider's timesheets. 

Our review of the provider's timesheets and the work he performed showed 

that the timesheets were not always accurate and that the hours he worked 

were not exceeding his FTE requirements. The cost to the VAMC for the 

additional leave was $24,000. 

Per-Procedure Sharing Agreement Monitoring. Ineffective monitoring of perprocedure sharing agreements resulted in overpayments of about $682,000 for clinical 

services that were not provided, not needed, or incorrectly billed in FY 2007. 

Performance requirements for per-procedure sharing agreements are based on the number 

and types of procedures contract providers complete. 

For most of the per-procedure sharing agreements we reviewed, contractors calculated 

their charges using the same method the Medicare program uses to reimburse physicians 

for outpatient services (commonly referred to as Medicare Part B). Under this method, 

all medical procedures are assigned a standard code, called a CPT code. Each procedure 

designated by a CPT code is comprised of three components or relative value units 

(RVUs)—work, malpractice, and practice. The work component reflects the time and 

intensity of a procedure in relation to other procedures. The practice component reflects 

the costs associated with maintaining a practice, such as renting office space, buying 

supplies and equipment, and maintaining staff and is appropriate for services provided at 

contractor locations. The malpractice component represents costs related to maintaining 

malpractice insurance. 

To calculate a charge for a CPT code based on Medicare Part B rates, the contractor 

multiplies each component by a geographic index to adjust for regional differences in the 

costs for each component. The work component is also multiplied by a budget neutrality 

factor before applying the work geographic index. The total values for each geographic 

adjusted component are added together to arrive at a total RVU. This total RVU is 

multiplied by a dollar conversion factor to arrive at the total charge for the procedure. 

VA Office of Inspector General 8 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Ineffective monitoring practices by the COTRs resulted in two VAMCs overpaying 

contractors for services that were not provided or not needed and three VAMCs paying 

for incorrectly calculated Medicare-based charges. In addition, one VAMC paid for 

charges that exceeded an agreement’s daily per-procedure cap. Each type of payment 

error is explained below 

Monitoring Per-Procedure Services. While COTRs generally verified that contract 

providers performed the clinical services charged, the monitoring procedures for one 

sharing agreement did not prevent payments for clinical services that were not needed. 

For VAMC San Antonio's urology sharing agreement, the contractor provided oversight 

of VA staff physician assistants (PAs) that was not required under the terms of the 

agreement or necessary under VA standards for PA supervision. The cost of the 

unnecessary oversight in FY 2007 was $557,954. (See pages 10–11 for more detail on 

this sharing agreement.) 

For VAMC Miami's hand surgery sharing agreement, the COTR did not ensure that all 

services charged had been provided before certifying invoices for payment. This 

agreement required contract surgeons to perform surgeries at Medicare-based perprocedure rates and to treat patients at VAMC clinics at negotiated fixed rates. 

Hand Surgery at VAMC Miami. For clinic services, this sharing 

agreement established a fixed price of $11,232 per month for 100–120 

clinic visits, but did not specify a rate for fewer than 100 clinic visits per 

month. During FY 2007, the actual number of clinic visits reached 100 per 

month only twice during the year and averaged 79 per month. Although the 

COTR monitored the number of clinic visits, she did not notify the 

contracting officer that the clinic work was not meeting the number of 

clinic visits provided for in the sharing agreement or determine what the 

appropriate rate of payment should be. The cost of clinic visits that fell 

below 100 visits per month during the year was $28,192. 

Monitoring Medicare Rate Calculations. For 11 per-procedure sharing agreements at 

VAMCs Omaha, Minneapolis, and Reno, contractors charged the wrong Medicare rates. 

Overcharges due to errors in calculating Medicare rates totaled $88,627. None of the 

VAMCs had developed effective procedures for verifying the accuracy of Medicarebased per-procedure charges. The following two examples illustrate this problem. 

Neurosurgery at VAMC Reno. The contractor overcharged $12,614 for 

services provided during FY 2007 because it used the wrong Medicare rates 

for numerous CPT codes. During the year the contractor billed the VAMC 

for 83 procedures with the CPT code 95999, "neurological procedure" at a 

rate of $135 each, for a total of $11,537. However, Medicare listed that 

CPT code as a no-charge item. The COTR certified the charges without 

verifying the rates. 

VA Office of Inspector General 9 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

General Surgery at VAMC Omaha. During FY 2007, the contractor 

charged the VAMC for 31 clinical procedures based on CPT codes 

reimbursed at the Medicare rate. For all 31 procedures the contractor 

charged, the Medicare rates used by the contractor differed from the rates 

applicable for Omaha posted at the Medicare website. The total difference 

was $1,022. The contractor confirmed the overcharge and attributed the 

errors to a new commercial software tool that had recently been 

implemented. The COTR did not review the charges prior to certifying 

them for payment because he had insufficient knowledge of Medicare rate 

computation. 

Monitoring Procedure Charges with Daily Caps. One VAMC Minneapolis sharing 

agreement established limits on the amount of per-procedure work that could be charged 

each day. However, the COTR’s monitoring procedures did not prevent overpayments 

for charges exceeding the daily cap. 

Ophthalmology at VAMC Minneapolis. This per-procedure sharing 

agreement had a daily cap of $1,700 for procedures performed in 

ophthalmology clinics. Because the COTR did not consistently review the 

invoices by the day, she did not determine that the contractor had exceeded 

the daily clinic cap on three invoices, for a total overpayment of $7,040. 

Reasons for Sharing Agreement Monitoring Weaknesses 

We attributed the sharing agreement monitoring deficiencies, discussed in the previous 

sections, at the eight VAMCs to three factors: (1) sharing agreements did not specifically 

and accurately state performance requirements, (2) VISN officials did not adequately 

oversee COTR activities, and (3) COTRs did not have sufficient training to monitor 

clinical sharing agreements. 

Sharing Agreements Did Not Specifically and Accurately State Performance 

Requirements. For COTRs to effectively monitor contractor performance, the sharing 

agreement should contain specific and accurate performance measurements, and the 

COTRs must fully understand and implement these requirements. Contractor 

performance requirements should be detailed enough for the COTR, as well as the 

contracting officer and contractors, to know at a minimum what types of services will be 

provided, who will provide the services, how performance will be measured (for 

example, by days, hours, or number of procedures), and the rates to be charged. The 

following example illustrates how sharing agreement monitoring was impaired by vague 

performance requirements. 

Urology at VAMC San Antonio. This sharing agreement required 

contract urologists to “provide appropriate level of guidance” to VA PAs 

who ran daily urology clinics. About 90 percent of the contract urologists’ 

VA Office of Inspector General 10 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

work with the PAs consisted of reading and approving patient notes, rather 

than providing direct patient care. However, the sharing agreement did not 

specify either the number of PA notes the contract urologists should review 

or the rate of payment applicable to that service. The Chief of Urology, 

who was a contract provider, determined that the contract urologists should 

review all PA notes, even though this was neither a VA requirement nor a 

customary practice. Using a random sample of clinic visits, we determined 

that the VAMC overpaid the contractor approximately $557,954 during 

FY 2007 for these services.1

The overpayments for Medicare-based charges discussed on page 9 also illustrate the 

need for the sharing agreements to clearly show the applicable rates that will be charged 

for per-procedure agreements. Clearly showing these rates would enable individuals 

without Medicare billing experience to compute and verify the rates charged for each 

procedure. A schedule of the rates to be paid for each CPT code could help improve 

sharing agreement monitoring and prevent payment errors. 

In addition to the sharing agreements with vague performance requirements, inaccurate 

performance requirements for FTE-based sharing agreements also contributed to the 

monitoring weaknesses. Sharing agreement requirements that accurately reflect the 

service needs of the VAMC are especially important when agreements have no 

provisions allowing COTRs to adjust contractor payments based on the actual work 

performed. The following example illustrates how inaccurate performance requirements 

affected monitoring. 

Cardiothoracic (CT) Surgery at VAMC Miami. This sharing agreement 

required the University of Miami to provide 1.5 FTE CT surgeons during 

the period December 1, 2005 through November 30, 2007. During 

FY 2007, the university provided a 1.0 FTE CT surgeon to the VAMC but 

not the remaining 0.5 FTE. Neither the COTR nor the contracting officer 

could explain why the 0.5 FTE was needed in the first place, and no 

workload analysis justifying the 1.5 FTE was identified. Furthermore, the 

number of CT surgeries performed during FY 2007 was much lower than 

expected and only accounted for about 0.6 FTE contract surgeon's time. 

However, the COTR certified payments to pay the university the full annual 

agreement amount, which included $521,037 for services the VAMC did 

not receive in FY 2007. 

VISN Officials Did Not Adequately Oversee COTR Activities. As part of their 

contract administration responsibilities, FAR and VAAR require contracting officers to 

 

1

To estimate the total amount the VAMC should have paid for the allowable procedures, we identified all of the 

procedures performed by VAMC physician assistants and randomly selected 100 of those procedures for review. 

For each sample clinic note, we determined if the physician had the required patient contact. We used the cost of 

each sample procedure to project the sample results to the universe. 

VA Office of Inspector General 11 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

ensure that contractors comply with the terms of agreements. They may do this by 

delegating COTRs at the VAMCs to monitor contractor performance and certify invoices 

for payment. Ideally, sharing agreement performance monitoring should be a team effort 

between the contracting officer, the COTR, and VISN and VAMC management. For 

57 of the 58 contracts we reviewed, VISN contracting officers had appointed COTRs. 

However, the contracting officers did not provide the COTRs clear guidance about their 

responsibilities, nor did they implement procedures to routinely review the COTRs’ 

monitoring activities to ensure they were effective. Furthermore, management officials at 

the VISNs and VAMCs did not establish any procedures to evaluate the effectiveness of 

sharing agreement performance monitoring activities. 

Clear Guidance Not Provided. To effectively monitor contractor performance, COTRs 

must fully understand their responsibilities, as well as the terms and conditions of the 

sharing agreement. For seven of the eight VAMCs, VISN contracting officers did not 

provide COTRs specific guidance or instructions on how to effectively monitor 

contractor performance. Therefore, each COTR determined what monitoring procedures 

to use. For example, VAMC Miami's COTR appointment letters required, “Monitoring 

the contractor's performance of the technical requirements of the contract to assure that 

performance is strictly within the scope of the contract.” However, the letters did not 

provide specific guidance as to what procedures or information the COTRs should use to 

monitor “the contractor’s performance of the technical requirements.” 

VAMC Minneapolis was the exception—the COTR appointment letters at this VAMC 

did provide COTRs specific monitoring instructions. The appointment letters required 

COTRs to monitor contract provider time and attendance logs, to periodically review 

actual performance versus scheduled performance, to inform the contracting officer of 

any adverse conditions noted or of any failure of the contractor to comply with any of the 

terms of the contract, and to verify the number and types of providers charged to the 

contract. In our opinion, while these detailed letters did not entirely prevent monitoring 

problems at VAMC Minneapolis, they did contribute to generally stronger monitoring 

procedures than what we found at other VAMCs. 

Regular Monitoring Did Not Occur. VISN contracting officers at all eight VAMCs did 

not oversee the monitoring activities of the COTRs, and VISN officials had not 

established any procedures to evaluate the effectiveness of performance monitoring 

activities. In our opinion, to strengthen monitoring of clinical service sharing 

agreements, VISNs should establish COTR monitoring procedures and documentation 

requirements. VISNs should also implement a review program in which VISN staff 

determine the procedures COTRs are using; whether the procedures meet VISN 

requirements; and whether they ensure that sharing agreement requirements are accurate, 

that VA is receiving the specified services, and that contractors are charging rates 

provided in the agreements. 

VA Office of Inspector General 12 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

COTRs Did Not Have Sufficient Training To Monitor Clinical Sharing Agreements. 

COTRs at all eight VAMCs needed additional guidance and training on how to establish 

effective monitoring procedures for FTE-based and per-procedure clinical services 

sharing agreements and how to ensure VAMCs received all the agreed upon services 

before certifying contractor invoices. Most of the COTRs had completed training on 

contract monitoring, but this training provided only general contract monitoring guidance 

and did not address clinical service sharing agreement monitoring in particular. 

Of particular concern to the COTRs was their lack of knowledge of Medicare-based 

charges, which are commonly used in the per-procedure sharing agreements. None of the 

COTRs had received training on understanding and using Medicare rates. They were 

unfamiliar with the components that make up Medicare Part B rates and how the 

Medicare-based charges are determined. Without this knowledge, COTRs do not have 

the information they need to effectively identify incorrect Medicare charges, especially 

when combined with poorly specified sharing agreement requirements. 

Issue 2. VHA Needs To Ensure Contracting Officers Receive 

Training on Medicare Rates

The terms of 21 of the 24 per-procedure sharing agreements stated that the contractors 

would charge VAMCs 100 percent or more of Medicare Part B rates for each procedure 

performed. This means that under the terms of the sharing agreements, the VAMCs were 

required to pay for all three components of the procedures—work, malpractice, and 

practice. However, full Medicare rates were not appropriate, since they include a practice 

component. The Medicare practice component is not applicable for services provided at 

VAMCs, since the VAMCs, not the contractor, incur all facility-related costs included in 

this component. Furthermore, VA Directive 1663 explicitly requires VAMCs to exclude 

the practice component from reimbursements, as described in the following excerpt. 

“If the per-procedure Health Care Resources contract involves the 

physician performing the procedure at VA, then the rate of reimbursement 

is for the work and malpractice component of the Medicare Part B rate 

only. The overhead (practice) component of Medicare Part B rates will be 

excluded from the per-procedure price paid.” 

This policy reinforces an earlier requirement in the now rescinded VHA Directive 

96-039, “Scarce Medical Specialist and/or Specialized Medical Resource Sharing 

Agreements with Affiliates,” dated May 30, 1996. That directive instructed contracting 

officers not to use the Medicare practice component for sharing agreement pricing for 

professional services performed at VAMCs, as shown in the following excerpt. 

“... if only professional services are being purchased by VA to be 

performed at a VA facility, reimbursement rates should be benchmarked 

VA Office of Inspector General 13 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

against the Medicare rate less the portion attributable to office support staff 

or similar overhead.” 

Most contracting officers we interviewed were unfamiliar with Medicare Part B 

components and Medicare rate calculations. As a result, when they negotiated the 

sharing agreements, they were generally not aware that the agreed upon rates included 

charges for facility-related costs the contractor did not incur. In FY 2007, VAMCs paid 

about $1.4 million for per-procedure charges that included the Medicare practice 

component for the 21 sharing agreements. Ensuring that VISN contracting officers 

negotiate per-procedure sharing agreement rates that exclude the Medicare Part B 

practice component could save VHA about $2.5 million annually or $12.4 million over 

5 years. 

Conclusion 

Strengthening performance monitoring controls over noncompetitive clinical sharing 

agreements could save VHA about $9.5 million annually or $47.4 million over 5 years. 

In FY 2007, insufficient monitoring of surgical and anesthesiology sharing agreements 

resulted in VAMCs overpaying $4.1 million for services that were not received, not 

needed, or incorrectly billed. For the 34 FTE-based sharing agreements, most COTRs 

did not monitor clinical staff levels provided. For the 24 per-procedure agreements, 

COTRs did not always ensure that all services charged were received or were needed, 

and COTRs did not verify that contractors correctly calculated Medicare-based charges. 

Furthermore, strengthening procedures for negotiating per-procedure sharing agreements 

to ensure VAMCs are only required to pay for the Medicare Part B work and malpractice 

components—and not the practice component—could save VA about $2.5 million 

annually or $12.4 million over 5 years. Because the terms of most of the sharing 

agreements we reviewed did not include provisions for adjusting payments, recovery of 

FY 2007 overpayments from contractors may be limited to incorrectly calculated perprocedure charges of about $96,000. 

Recommendations 

1. We recommended that the Under Secretary for Health ensure that VISNs establish 

standardized written procedures for monitoring FTE-based and per-procedure clinical 

service sharing agreements. 

2. We recommended that the Under Secretary for Health establish VISN-level oversight 

controls to ensure that COTRs are effectively monitoring contractor performance 

under the terms of the sharing agreement before certifying invoices for payment. 

3. We recommended that the Under Secretary for Health implement procedures to 

ensure that COTRs verify that Medicare-based sharing agreement charges are 

accurately calculated prior to certifying contractor invoices. 

VA Office of Inspector General 14 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

4. We recommended that the Under Secretary for Health coordinate with VA’s Office of 

Acquisition and Logistics to develop performance monitoring training for COTRs that 

specifically addresses clinical sharing agreements. 

5. We recommended that the Under Secretary for Health instruct the VISN contracting 

officers to initiate recovery of overpayments identified by our audit, as appropriate. 

6. We recommended that the Under Secretary for Health coordinate with VA’s Office of 

Acquisition and Logistics to develop training for VISN contracting officers on 

negotiating per-procedure sharing agreements with Medicare-based charges. 

7. We recommended that the Under Secretary for Health implement oversight 

mechanisms to ensure that per-procedure sharing agreements for onsite clinical 

services exclude the Medicare practice component charges from contract rates, as 

required by VA policy. 

Under Secretary for Health Comments 

The Under Secretary for Health agreed with the findings and recommendations of the 

report and provided acceptable implementation plans. The Under Secretary also agreed 

with the monetary benefits of $59.8 million. (See Appendix C, pages 21–24, for the full 

text of the Under Secretary’s comments.) In response to the audit recommendations, the 

Under Secretary agreed to establish standard procedures, VISN level oversight controls, 

and COTR training for sharing agreement monitoring. He also agreed to develop 

procedures that ensure the accuracy of Medicare-based charges is verified, to require 

VISN contracting officers to begin immediate recovery of the overpayments we 

identified, and to ensure that per-procedure sharing agreements for onsite clinical services 

exclude the Medicare practice component from contract rates. We will follow up on the 

implementation of the planned improvement actions. 

VA Office of Inspector General 15 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements

Appendix A 

Cost Estimate Methodologies 

This appendix explains how we calculated our cost savings estimates that VHA could 

achieve by improving controls over performance monitoring of noncompetitive sharing 

agreements and providing training to contracting officers on Medicare rates to strengthen 

negotiations for per-procedure sharing agreements. 

Estimated Savings Related to Performance Monitoring 

Calculation of Overpayments for the Sampled Sharing Agreements. Because of the 

different requirements and monitoring procedures needed for the two types of 

agreements, we used different methodologies to estimate overpayments. 

FTE-Based Agreements. For the FTE-based agreements, we verified the time worked by 

contract providers during FY 2007 and compared it to the time charged on contractor 

invoices. To verify the time worked by contract providers, we used the following 

approach: 

• First, we reviewed any contract time records, such as sign-in/sign-out sheets, for the 

period to determine if they were reliable enough to be used to determine the time 

contract providers actually worked. 

• We also analyzed appropriate workload data, including OR logs, patient encounter 

data, and clinic appointments, and, in consultation with clinical staff at the VAMCs, 

we estimated the time required to perform this workload. For example, to estimate 

providers’ time in the OR, we used the actual in and out times for each procedure and 

added an allowance for pre-and post-operation time. To estimate clinic time, we 

subtracted the start time of the first appointment from the end time of the last 

appointment and added additional time for post-clinic activities. 

• Through interviews and review of other available documentation, we then determined 

the time contract providers spent performing consults, rounds, research, and 

administrative activities. We included administrative, research, leave, conferences, 

holidays, and any other allowable activities in the sharing agreement. We then 

compared the total time worked based on this methodology to the total time paid. 

Per-Procedure Agreements. For per-procedure contracts we verified that the invoiced 

procedures had been performed by comparing contractor charges with appropriate 

VAMC OR, clinic, and patient encounter records. We also determined whether the rates 

charged were correct by comparing the amount charged for each CPT code on contractor 

invoices for FY 2007 with the rate provided in the contract. Sharing agreements basing 

charges on Medicare rates typically referred to the Centers for Medicare and Medicaid 

Services (CMS) website to determine the applicable charges. We therefore calculated the 

VA Office of Inspector General 16 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements

Appendix A 

Medicare rates applicable to CPT codes billed using the formula and values from the 

CMS website. 

Estimate of Annual VHA-Wide Potential Savings. Our sample consisted of 58 sharing 

agreements with a total FY 2007 cost of $30 million. We combined the results of our 

review of FTE-based and per-procedure agreements discussed above to arrive at a single 

total cost savings/better use of funds amount valued at $4.1 million. 

Our estimation of cost savings and better use of funds for the population of 178 sharing 

agreements is based on the above results. For each sharing agreement in the population, 

we verified the total FY 2007 cost. The total FY 2007 actual cost for all 178 sharing 

agreements in our population was $95.3 million. To estimate the potential cost savings 

for all surgical and anesthesiology agreements nationwide, we applied cluster sampling 

estimation procedures to project the cost savings of $4.1 million for all 58 contracts to the 

universe. We estimated potential cost savings of $9.5 million per year for improved 

monitoring of sharing agreements. Ninety percent of all possible samples would give us 

a projection within the range of between $3.2 million and $15.8 million. The sample 

weights were post-stratified so that the sample estimate of the total 2007 charges summed 

to equal the known population total of $95,295,447.47. The post-stratification improved 

the precision of the sample estimates by reducing the variance of the sample based on the 

known value for the population. 

Table 2 on the following page shows the estimated overpayments resulting from 

inadequate monitoring of 30 sharing agreements. The table shows the sharing 

agreements by VAMC, service, and sharing agreement type (FTE-based or 

per-procedure), and type of monitoring error. 

Estimated Savings Related to Negotiation of Medicare-Based Rates 

For each per-procedure contract that based its charges on Medicare rates, we referred to 

the CMS website to determine the applicable Medicare rates. For each procedure charged 

by the contractor, we calculated the Medicare rate for the work, malpractice, and practice 

components using the formula and values from the CMS website and then compared the 

total amount we calculated to the total amount charged for each medical procedure listed 

in contractor invoices. We determined that the practice component had been charged for 

all 21 sharing agreements. Table 3 on page 19 shows the amounts that the VAMCs could 

have saved if their sharing agreements had been negotiated to exclude the practice 

component from the Medicare-based charges. 

VA Office of Inspector General 17 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements

Appendix A 

Table 2. Overpayments Related to Performance Monitoring 

By VAMC and Sharing Agreement 

VAMC Service Description 

Sharing 

Agreement 

Type 

Amount 

Overpaid 

Reason 

Code 

Amount 

Recoverable 

1 Indianapolis Neurosurgery FTE-based $165,450 A 

2 Indianapolis Vascular Surgery FTE-based $333,030 A 

3 Indianapolis Orthopedic Surgery FTE-based $280,125 A 

4 Indianapolis Urology FTE-based $168,093 A 

5 Miami Cardiothoracic Surgery FTE-based $521,037 A 

6 Miami Otolaryngology FTE-based $272,495 A 

7 Miami Neurosurgery FTE-based $233,380 A 

8 Miami Gynecologic Surgery FTE-based $83,025 A 

9 Miami Orthopedic Surgery FTE-based $266,742 A 

10 Miami Hand Surgery Per-procedure $28,192 A 

11 Minneapolis Neurosurgery FTE-based $59,515 A 

12 Minneapolis Ophthalmology FTE-based $8,461 A 

13 Minneapolis Ophthalmology FTE-based $24,000 A 

14 Minneapolis Urology FTE-based $72,201 A 

15 Minneapolis Orthopedic Surgery FTE-based $29,988 A 

16 Minneapolis Ophthalmology Per-procedure $41,809 B, C $41,809

17 Omaha Anesthesiology FTE-based $799,821 A 

18 Omaha Plastic Surgery Per-procedure $2,395 B $2,395

19 Omaha Orthopedic Surgery Per-procedure $2,824 B $2,824

20 Omaha General Surgery Per-procedure $1,022 B $1,022

21 Omaha Neurosurgery Per-procedure $2,374 B $2,374

22 Omaha Neurosurgery Per-procedure $6,090 B $6,090

23 Omaha Neurosurgery Per-procedure $9,678 B $9,678

24 Omaha Neurosurgery Per-procedure $6,474 B $6,474

25 Omaha Otolaryngology Per-procedure $5,028 B $5,028

26 Omaha Ophthalmology Per-procedure $5,358 B $5,358

27 Reno Neurosurgery Per-procedure $12,614 B $12,614

28 San Antonio Urology Per-procedure $557,954 A 

29 Seattle Anesthesiology FTE-based $106,843 A 

30 Seattle Ophthalmology FTE-based $35,455 A 

Total Overpayments $4,141,473 $95,666

Reason Codes: 

A - Contracted Service Was Not Received/Needed 

B - Errors in Computing Medicare Charges 

C - Charges Exceeded Daily Cap 

VA Office of Inspector General 18 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements

Appendix A 

Table 3. Potential Savings Resulting from 

Excluding the Medicare Part B Practice Component 

VAMC Service Description 

Potential 

Savings 

1 Miami Hand Surgery $126,537 

2 Miami Urology $209,230 

3 Miami Colorectal Surgery $104,506 

4 Minneapolis Ophthalmology $27,800 

5 Minneapolis Cardiothoracic Surgery $90,876 

6 Minneapolis Vascular Surgery $67,521 

7 Omaha Podiatry $43,475 

8 Omaha Plastic Surgery $50,939 

9 Omaha Orthopedic Surgery $46,345 

10 Omaha Orthopedic Surgery $109,331 

11 Omaha General Surgery $2,200 

12 Omaha General Surgery $4,218 

13 Omaha Neurosurgery $83,319 

14 Omaha Neurosurgery $23,727 

15 Omaha Neurosurgery $32,011 

16 Omaha Neurosurgery $29,153 

17 Omaha Otolaryngology $53,991 

18 Omaha Otolaryngology $63,343 

19 Omaha Ophthalmology $126,742 

20 Reno Neurosurgery $33,266 

21 Seattle Orthopedic Surgery $76,594 

Total Potential Savings $1,405,124 

VA Office of Inspector General 19 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Appendix B 

Monetary Benefits in Accordance with 

IG Act Amendments 

Recommendations Explanation of Benefits

Better Use of 

Funds

Questioned 

Costs

1–4 Strengthen controls over 

clinical sharing agreement 

performance monitoring. 

$47.4 million 2

5 Initiate recovery of sharing 

agreement overpayments 

identified by this audit. 

$95,666 

6, 7 Provide contracting officers 

training and implement 

oversight mechanisms to 

ensure that per-procedure 

sharing agreements exclude 

the Medicare practice 

component. 

$12.4 million 

 Total $59.8 million $95,666 

 

2

Most of the sharing agreements did not include provisions for reducing payments if less services were provided 

than anticipated. Therefore, we classified these costs as better use of funds and not questioned costs. 

VA Office of Inspector General 20 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Appendix C 

Under Secretary for Health Comments 

VA Office of Inspector General 21 

Department of Memorandum 

Veterans Affairs 

Date: 

From: Under Secretary for Health (10) 

Subj: OIG Draft Report, Audit of Veterans Health Administration Noncompetitive 

Clinical Sharing Agreements, Project No.: 2008-00477-R8-0033 

(WebCIMS 411947)

To: Assistant Inspector General for Audit (52)

1. I have reviewed the draft report, and I concur with the report findings, 

recommendations and the monetary benefits estimate. I agree that strengthened 

controls over sharing agreement monitoring are essential to ensure that the 

contracted clinical services rendered at VHA facilities are accurately compensated. 

In fact, VHA's Medical Sharing Office is in the process of establishing a contract to 

provide clinical pricing services to support Veterans Integrated Service Networks 

(VISN) staff responsible for developing and monitoring medical sharing contracts. 

Development of performance monitoring training for Contracting Officer's 

Technical Representatives (COTRs) that specifically addresses clinical sharing 

agreements, and training for VISN contracting officers on per-performance sharing 

agreements with Medicare-based charges, will provide useful instruction and 

criteria in monitoring clinical sharing agreements. 

2. Thank you for the opportunity to review the draft report. Attached is an action 

plan that outlines measures planned to implement the recommendations. If you 

have any questions, please contact Margaret M. Seleski, Director, Management 

Review Service (10B5) at (202) 461-8470. 

Michael J. Kussman, MD, MS, MACP 

Attachments 

 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

VA Office of Inspector General 22 

OIG Draft Report, Audit of Veterans Health Administration Noncompetitive Clinical 

Sharing Agreements

Project No.: 2008-00477-R8-0033 

Date of Report: August 18, 2008 

__________________________________________________________________ 

Recommendations/Actions Status Completion Date 

__________________________________________________________________

Recommendation 1. We recommend that the Under Secretary for Health ensure that 

VISNs establish standardized written procedures for monitoring FTE-based and perprocedure clinical service sharing agreements. 

Concur 

The Medical Sharing Program Office within VHA’s Office of Procurement and Logistics will 

develop standardized written procedures for monitoring FTE-based and per-procedure clinical 

service sharing agreements. Pending rewrite of the directive a memorandum will be processed 

outlining these requirements. 

 In process December 30, 2008 

Recommendation 2. We recommend that the Under Secretary for Health establish VISNlevel oversight controls to ensure that COTRs are effectively monitoring contractor 

performance under the terms of the sharing agreement before certifying invoices for 

payment. 

Concur 

The Medical Sharing Program Office within VHA’s Office of Procurement and Logistics will 

work with Network Contract Managers to establish VISN level oversight controls to ensure 

that COTRs are effectively monitoring contractor performance under the terms of the sharing 

agreement before certifying invoices for payment. 

 In process March 31, 2009 

Recommendation 3. We recommend that the Under Secretary for Health implement 

procedures to ensure that COTRs verify that Medicare-based sharing agreement charges 

are accurately calculated prior to certifying contractor invoices. 

Concur 

The Medical Sharing Office is establishing a contract to provide clinical pricing services that 

will be available to support all VISN staff responsible for developing and monitoring medical 

sharing contracts. Part of the clinical pricing services will include validation of Medicarebased rates. The procedures developed for providing quality control monitoring requirements 

will include a control function for certification of the Medicare rates being used. The 

contractor hired will be responsible for certifying the Medicare rates are accurate and correctly 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

VA Office of Inspector General 23 

 applied to the services provided before invoices are certified. 

 In process October 30, 2009 

Recommendation 4. We recommend that the Under Secretary for Health coordinate with 

VA’s Office of Acquisition and Logistics to develop performance monitoring training for 

COTRs that specifically addresses clinical sharing agreements. 

Concur 

VHA will collaborate with VA’s Office of Acquisition and Logistics to develop performance 

monitoring training for COTRs that specifically addresses clinical sharing agreements. 

 In process March 31, 2009 

Recommendation 5. We recommend that the Under Secretary for Health instruct the 

VISN contracting officers to initiate recovery of overpayments identified by our audit, as 

appropriate. 

Concur 

The Deputy Under Secretary for Health for Operations and Management (DUSHOM) will send 

a memorandum to field Network Directors instructing them to require the identified VISN 

Contracting Officers to begin immediate recovery of overpayments via appropriate 

mechanisms available to them. 

 In process December 30, 2008 

Recommendation 6. We recommend that the Under Secretary for Health coordinate with 

VA’s Office of Acquisition and Logistics to develop training for VISN contracting officers 

on negotiating per-procedure sharing agreements with Medicare-based charges. 

Concur 

VHA will collaborate with VA’s Office of Acquisition and Logistics to develop training for 

VISN contracting officers on negotiating per-procedure sharing agreements with Medicarebased charges. 

 In process March 31, 2009 

Recommendation 7. We recommend that the Under Secretary for Health implement 

oversight mechanisms to ensure that per-procedure sharing agreements for onsite clinical 

services exclude the Medicare practice component charges from contract rates, as 

required by VA policy. 

Concur 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

VA Office of Inspector General 24 

The Medical Sharing Program Office within VHA’s Office of Procurement and Logistics will 

work with Network Contract Managers to implement oversight mechanisms to ensure that perprocedure sharing agreements for onsite clinical services exclude the Medicare practice 

component charges from contract rates, as required by VA policy. 

 In process March 31, 2009 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements 

Appendix D 

OIG Contact and Staff Acknowledgments 

OIG Contact Claire McDonald (206) 220-6651 

Acknowledgments Ron Stucky 

Sherry Ware 

Barry Johnson 

Randy Alley 

Kevin Day 

Maria Foisey 

Matthew Rutter 

Orlando Velasquez 

VA Office of Inspector General 25 
Audit of Veterans Health Administration Noncompetitive Clinical Sharing Agreements

Appendix E 

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 after it is issued. 

VA Office of Inspector General 26