VA Health Care: VA Increases Third-Party Collections as It Addresses Problems in Its Collections Operations
Published: 2003-05-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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 January 2003, GAO reported on VA's third-party collection efforts and problems in collections operations for fiscal year 2002 as well as VA's initiatives to improve collections (VA Health Care: Third-Party Collections Rising as VA Continues to Address Problems in Its Collections Operations, ( GAO-03-145 , Jan. 31, 2003)). GAO was asked to discuss its findings and update third-party collection amounts and agency plans to improve collections.
section_title: What GAO Found
paragraphs: VA's fiscal year 2002 third-party collections rose by 32 percent over fiscal year 2001 collections, to $687 million, and available data for the first half of fiscal year 2003 show that $386 million has been collected so far. The increase in collections reflects VA's improved ability to manage the larger billing volume and more itemized bills required under its new fee schedule. VA managers in three regional health care networks attributed billings increases 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. Although collections are increasing, operational problems, such as missed billing opportunities, persist and continue to limit the amount VA collects. VA has been implementing the action items in its Revenue Cycle Improvement Plan of September 2001 that are designed to address operational problems, such as unidentified insurance for some patients, insufficient documentation of services for billing, shortages of billing staff, and insufficient pursuit of accounts receivable. VA reported in April 2003 that 10 of 24 action items are complete; 7 are scheduled for implementation by the end of 2003; and the remaining actions will begin in 2004 with full implementation expected in 2005 or 2006. These dates are behind VA's original schedule. In addition, the Chief Business Office, established in May 2002, has developed a new approach that combines the action items with additional initiatives. Given the growing demand for care, especially from higher-income veterans, it is important that VA resolve its operational problems and sustain its commitment to maximizing third-party collections. It is also important for VA to develop a reliable estimate of uncollected dollars and a complete measure of its collections costs. Without this information, VA cannot evaluate its effectiveness in supplementing its medical care appropriation with third-party dollars.

section_title: Letter
paragraphs: I am pleased to be here today to discuss the Department of Veterans  Affairs’ (VA) progress in collecting insurance payments for care provided  at VA facilities from eligible veterans’ private health insurers. Known as  third-party collections, these collections are VA’s largest source of revenue  to supplement its medical care appropriation, and they help 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 4.3 million in  fiscal year 2002, and VA predicts continuing growth in its patient  workload. Higher income veterans or those without service-connected  disabilities have comprised a significant portion of this growth, and third- party collections are intended to help pay for the cost of their care.
Over the past several years, concerns have been raised about VA’s ability  to maximize its third-party collections to enhance revenues. We testified in  September 2001 that problems in VA’s collections operations—such as  inadequate patient intake procedures to gather insurance information,  insufficient physician documentation, a shortage of qualified coders, and  insufficient automation—diminished VA’s collections. Concerned about  these issues you asked that we report on (1) trends in VA’s third-party  collections, (2) problems in collections operations, and (3) VA’s approach  for improving collections. My comments today are based on a report we  issued to this subcommittee on January 31, 2003. For that work, we  examined VA’s collections data for fiscal years 2001 and 2002 and available  data for 2003; reviewed relevant VA documents, such as the Veterans  Health Administration’s (VHA) Revenue Cycle Improvement Plan of  September 2001; and interviewed officials in VA headquarters and in 3 of  VA’s 21 health care networks—Network 2 (Albany), Network 9  (Nashville), and Network 22 (Long Beach). At your request, we updated  information in that report on third-party collection amounts and agency  plans to improve collections. We did our work in accordance with  generally accepted government auditing standards.
In summary, VA’s third-party collections for fiscal year 2002 totaled   $687 million, 32 percent more than for fiscal year 2001, and available data  for the first half of fiscal year 2003 show that $386 million has been  collected so far. Although VA reported an increase in collections, 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. In May 2002, VA established the Chief Business  Office (CBO) in VHA to develop a new approach for VA’s collections  activity. VA officials told us that CBO’s approach would combine the VHA  Revenue Cycle Improvement Plan of September 2001 (2001 Improvement  Plan) with additional initiatives, such as the development of an automated  financial system that better serves billing needs and additional  performance measures and standards for overseeing collection units’  activities. Since the introduction of the 2001 Improvement Plan, VA has  made some progress in resolving operational problems, such as fully  implementing electronic billing, mandating the use of electronic medical  records, and using preregistration software. However, given today’s tight  budget environment, it is important that VA resolve its operational  problems and sustain its attention and commitment to maximizing third- party collections.
subsections: section_title: Background
paragraphs: 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 higher-income veterans or those without service-connected  disabilities. VA expected that the majority of the costs of their care would  be covered by collections from third-party payments, copayments, and  deductibles. These veterans increased from about 4 percent of all veterans  treated in fiscal year 1996 to about a quarter of VA’s total patient workload  in fiscal year 2002.
VA can bill insurers for treatment of conditions that are not a result of  injuries or illnesses incurred or aggravated during military service.  However, VA cannot bill them for health care conditions that result from  military service, nor is it generally authorized to collect from Medicare or  Medicaid, or from health maintenance organizations when VA is not a  participating provider.
To collect from health insurers, VA uses five related processes to manage  the information needed to bill and collect. The patient intake process  involves gathering insurance information and 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 creates and sends 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.
In September 1999, VA adopted a fee schedule, called “reasonable  charges.” Reasonable charges are itemized fees based on diagnoses and  procedures. This schedule allows VA to more accurately bill for the care  provided. However, by making these changes, VA created additional bill- processing demands—particularly in the areas of documenting care,  coding that care, and processing bills per episode of care. First, VA must  accurately assign medical diagnoses and procedure codes to set  appropriate charges, a task that requires coders to search through medical  documentation and various databases to identify all billable care. Second,  VA must be prepared to provide an insurer supporting medical  documentation for the itemized charges. Third, in contrast to a single bill  for all the services provided during 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.
subsections: section_title: Third-Party Collections Increased
paragraphs: For fiscal year 2002, VA collected $687 million in insurance payments, up  32 percent compared to the $521 million collected during fiscal year 2001.  Collections through the first half of fiscal year 2003 total $386 million in  third-party payments. The increased collections in fiscal year 2002  reflected that VA processed 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.
Although VA anticipated that the shift to reasonable charges in 1999 would  yield higher collections, collections had dropped in fiscal year 2000. VA  attributed that drop to its being 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 1, 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. 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, as over 8 million  bills—a 54 percent increase over the number in fiscal year 2001—were  submitted to insurers.
Managers we spoke with in three networks—Network 2 (Albany),  Network 9 (Nashville), and Network 22 (Long Beach)—mainly attributed  the increased billings to reductions in the billing backlogs. 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. 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 that coders were getting better at identifying  all professional services that can be billed under reasonable charges. 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 the network’s productivity  standards and streamlining their jobs to focus solely on billing.
VA officials cited other reasons for the increased number of bills  submitted to insurers. An increased number of patients with billable  insurance was one reason for the increased billing. In addition, a May 2001  change in the reasonable-charges fee schedule for medical evaluations  allowed separate bills for facility charges and professional service charges,  a change that contributed to the higher volume of bills in fiscal year 2002.
section_title: Operational Problems Limit Collections, but VA Lacks an Estimate of Uncollected Dollars
paragraphs: 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. For example, a study completed  last year 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. This finding suggests that VA could have billed for 30 percent  more patients than it actually billed. Further, 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. About 73  percent of this uncollected amount was attributed to a backlog of unbilled  medical 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. Of that unbilled  amount, 63 percent was estimated to be unbillable primarily because of  insufficient documentation. In addition, the study found that coders often  missed services that should have been coded for billing.
According to a CBO official, 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. From 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, or 9 percent, for  fiscal year 2002. 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 for billing was improving, they also  reported a continuing need to improve physicians’ documentation. In  addition, Network 22 (Long Beach) reported that its accounts receivable  staff had difficulties keeping up with the increased volume of bills because  it had not hired additional staff members or contracted help on 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. For example, some uncollected  dollars result from billing backlogs and billable care missed in coding. In  addition, VA does not know the net impact of actual third-party collections  on supplementing its annual appropriation for medical care. For example,  CBO relies on reported cost data from central office and field staff directly  involved in billing and collection functions. However, these costs do not  include all costs incurred by VA in the generation of revenue. According to  a CBO official, VA does not include in its collections cost the investments  it has made in information technology or resources used in the  identification of other health insurance during the enrollment process.
section_title: 2001 Plan to Improve Collections Is Partially Implemented; Other Initiatives Being Developed
paragraphs: VA continues to implement its 2001 Improvement Plan, which is designed  to increase collections by improving and standardizing VA’s 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, coding staff shortages, gaps in the automated capture of billing  data, and insufficient pursuit of accounts receivable. The plan also  addresses uneven performance across collection 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  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 by all networks to provide coders  better access to documentation and legible records.
When fully implemented, the plan’s actions are intended to improve  collections by reducing operational problems, such as missed billing  opportunities. For example, two of the plan’s actions—requiring patient  contacts to gather insurance information prior to scheduled appointments  and electronically linking VA to major insurers to identify patients’  insurance—are intended to increase VA’s awareness of its patients who  have other health insurance.
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 of that date VA had  only completed 8 of the actions. Information obtained from CBO in April  2003 indicates that 10 are complete and 7 are scheduled for  implementation by the end of 2003. Implementation of the remaining  actions will begin in 2004 as part of a financial system pilot with full  implementation expected in 2005 or 2006. (Appendix I lists the actions  and those VA reports as completed through April 28, 2003.)
In May 2002, VHA established its CBO to underscore the importance of  revenue, patient eligibility, and enrollment and to give strategic focus to  improving these functions. Officials in the office told us that they have  developed a new approach for improving third-party collections that can  help increase revenue collections by further revising processes and  providing a new business focus on collections.
For example, the CBO’s strategy incorporates improvements to the  electronic transmission of bills and initiation of a system to receive and  process third-party payments electronically. CBO’s new approach also  encompasses initiatives beyond the improvement plan, such as the one in  the Under Secretary for 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, the use of collection  agencies has shown some signs of success—with outstanding accounts  receivables dropping from $1,378 million to $1,317 million from the end of  May to the end of July 2002, a reduction of about $61 million or 4 percent.
CBO is in the process of acquiring a standardized Patient Financial  Services System (PFSS) that could be shared across VA. VA’s goal with  PFSS is to implement a commercial off-the-shelf health care billing and  accounts receivable software system. Under PFSS, a unique record will be  established for each veteran. Patient information will be standardized— including veteran insurance data, which will be collected, managed, and  verified. Receipts of health care products and services will be added to the  patient records as they are provided or dispensed. And PFSS will  automatically extract needed data for billing, with the majority of billings  sent to payers without manual intervention. After the system is acquired,  VA will conduct a demonstration project in Network 10 (Cincinnati).
According to the Deputy Chief Business Officer, in May 2003 VA  anticipates awarding a contract for the development and implementation  of PFSS. CBO’s plan is to install this automated financial system in other  facilities and networks if it is successfully implemented in the pilot site.
CBO is taking action on a number of other initiatives to improve  collections, including the following:    Planning and developing software upgrades to facilitate the health care  service review process and electronically receive and respond to requests  from insurers for additional documentation.
Establishing the Health Revenue Center to centralize preregistration,  insurance identification and verification, and accounts receivable  activities. For example, during a preregistration pilot in Network 11 (Ann  Arbor), the Health Revenue Center made over 246,000 preregistration  telephone calls to patients to verify their insurance information. According  to VA, over 23,000 insurance policies were identified, resulting in   $4.8 million in collections.
Assessing its performance based on private sector performance metrics,  including measuring the pace of collections relative to the amount of  accounts receivable.
section_title: Concluding Observations
paragraphs: As VA faces increased demand for medical care, particularly from higher- income veterans, third-party collections for nonservice-connected  conditions remain an important source of revenue to supplement VA’s  appropriations. VA has been improving its billing and collecting under a  reasonable-charges fee schedule it established in 1999, but VA has not  completed its efforts to address problems in collections operations. In this  regard, fully implementing the 2001 Improvement Plan could help VA  maximize future collections by addressing problems such as missed billing  opportunities. CBO’s initiatives could further enhance collections 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.
Our work and VA’s continuing initiatives to improve collections indicate  that VA has not collected all third-party payments to which it is entitled. In  this regard, it is important that VA develop a reliable estimate of  uncollected dollars. VA also does not have a complete measure of its full  collections costs. Consequently, VA cannot determine how effectively it  supplements its medical care appropriation with third-party collections.
Mr. Chairman, this concludes my prepared remarks. I will be pleased to  answer any questions you or other members of the subcommittee may  have.
section_title: Contact and Acknowledgments
paragraphs: For further information regarding this testimony, please contact   Cynthia A. Bascetta at (202) 512-7101. Michael T. Blair, Jr. and Michael  Tropauer also contributed to this statement.
section_title: Appendix I: 2001 Improvement Plan Status as of April 28, 2003
paragraphs: Certain actions are mandated in the plan, that is, are required, but these actions are not legal or  regulatory mandates.
One action item was cancelled but its intended improvements will be incorporated into an automated  financial system initiative.
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.
section_title: Related GAO Products
paragraphs: VA Health Care: Third Party Collections Rising as VA Continues to  Address Problems in Its Collections Operations. GAO-03-145. Washington,  D.C.: January 31, 2003.
VA Health Care: VA Has Not Sufficiently Explored Alternatives for  Optimizing Third-Party Collections. GAO-01-1157T. Washington, D.C.:  September 20, 2001.
VA Health Care: Third-Party Charges Based on Sound Methodology;  Implementation Challenges Remain. GAO/HEHS-99-124. Washington,  D.C.: June 11, 1999.
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