VA Health Care: Ineffective Controls over Medical Center Billings and Collections Limit Revenue from Third-Party Insurance Companies
Published: 2008-06-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GAO previously reported that continuing problems in billing and collection processes at the Department of Veterans Affairs (VA) impaired VA's ability to maximize revenue from private (third-party) insurance companies. VA has undertaken several initiatives to address these weaknesses. GAO was asked to perform a follow-up audit to (1) evaluate VA billing controls, (2) assess VA-wide controls for collections, (3) determine the effectiveness of VA-wide oversight, and (4) provide information on the status of key VA improvement initiatives. GAO performed case study analyses of the third-party billing function, statistically tested controls over collections, and reviewed current oversight policies and procedures. GAO also reviewed and summarized VA information on the status of key management initiatives to enhance third-party revenue.
section_title: What GAO Found
paragraphs: GAO's case study analysis of unbilled patient encounters at 18 medical centers, including 10 medical centers with low billing performance and 8 medical centers under VA's Consolidated Patient Account Centers (CPAC) initiative considered to be high performers, found documentation, coding, and billing errors and inadequate management oversight for approximately $1.7 billion deemed unbillable in fiscal year 2007. Although some medical services are unbillable, such as service-connected treatment, management has not validated reasons for related unbilled amounts of about $1.4 billion to assure that all billable costs are charged to third-party insurers. Because insurers will not accept improperly coded bills and they generally will not pay bills received more than 1 year after the date that medical services were provided, it is important that coding for medical services is accurate and timely. The 10 case study medical centers reported average days to bill ranging from 109 days to 146 days in fiscal year 2007 and significant coding and billing errors and other problems that accounted for over $254 million, or 21 percent, of the $1.2 billion in unbilled medical services costs. Although GAO determined that CPAC officials performed a more thorough review of billings, GAO's analysis of unbilled amounts for the 8 CPAC centers found problems that accounted for $37.5 million, or about 7 percent, of the $508.7 million in unbilled medical services costs. In addition, GAO's VA-wide statistical tests of collections follow-up on unpaid third-party bills of $250 or more identified significant control failures related to timely follow-up and documentation of contacts with third-party insurers on outstanding receivables. VA guidance requires medical center accounts receivable staff to make up to three follow-up contacts, as necessary, on outstanding third-party receivables. GAO's tests identified high failure rates VA-wide as well as for CPAC and non-CPAC medical centers related to the requirement for timely follow up with third-party insurers on unpaid amounts. GAO's tests also found high failure rates associated with the lack of documentation of follow-up contacts. VA lacks policies and procedures and a full range of standardized reports for effective management oversight of VA-wide third-party billing and collection operations. Further, although VA management has undertaken several initiatives to enhance third-party revenue, many of these initiatives are open-ended or will not be implemented for several years. Until these shortcomings are addressed, VA will continue to fall short of its goal to maximize third-party revenue, thereby placing a higher burden on taxpayers.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) provides health care to eligible  veterans through a system of Veterans Health Administration (VHA)  medical facilities that comprise one of the largest health care systems in  the world. Over the past several years, we have reported that continuing  weaknesses in VA billing processes and controls have impaired VA’s  ability to maximize the amount of dollars received by private insurance  companies, commonly referred to as third-party insurers. VA third-party  billing and collection operations are carried out through a nationwide  network of 153 medical centers, 877 outpatient clinics, and 135 nursing  homes, residential rehabilitation treatment programs, and readjustment  counseling centers. During fiscal year 2007, about 5.6 million people  received treatment in VA health care facilities for service-related as well as  nonservice-related conditions and VA collections for health care services  totaled nearly $2.2 billion.
In September 2001, we testified that problems in VA’s collection  operations, including inadequate patient intake procedures for gathering  insurance information, insufficient physician documentation of specific  medical care provided, a shortage of qualified coders, and a lack of  automated information, diminished VA’s collections. In May 2003, we  testified that VA had made improvements in these areas but operational  problems, such as unpaid accounts receivable, missed billing  opportunities, and billing backlogs, continued to limit the amount VA  collects. In July 2004, we reported that VA had increased collections of  third-party insurer payments by 49 percent from $540 million in fiscal year  2001 to $804 million in fiscal year 2003. However, we also found  continuing weaknesses in the billing and collection processes at the three  medical centers we visited that impaired VA’s ability to maximize the  amount of dollars paid by third-party insurance companies.
Over the past several years, Congress has provided funding for VHA  medical information management system improvements. In fiscal year  2006, Congress directed VA to allocate $10 million from its Medical  Administration lump-sum appropriation of about $2.86 billion to initiate a  pilot program for comprehensive restructuring of the medical revenue  cycle, including cash management and accounts receivable related to  third-party billing and collection functions. One of VA’s initiatives to  improve billing and collection functions was the establishment of a  Consolidated Patient Account Center (CPAC) pilot program covering eight  medical centers in Veterans Integrated Service Network (VISN) 6.
This report responds to your request that we perform a follow-up audit of  controls over VA’s third-party billing and collection processes, including  (1) an evaluation of the effectiveness of VA medical center billing  processes at selected locations, (2) an assessment of VA controls for  performing timely follow-up on outstanding third-party receivables, and  (3) a determination of the adequacy of VA oversight of billing and  collection processes. You also asked us to summarize the status of  management initiatives currently underway at VA to improve third-party  billing and collection processes.
To achieve our first objective, we used a case study approach to assess  billing controls because VA does not have centralized data on third-party  billings. For our case studies, we selected the 10 medical centers with the  highest numbers of days to bill (lowest billing performance) and the 8  medical centers under the CPAC management initiative for regionalized  billing and collection activity that were expected to be high performers. To  achieve the second objective, we tested controls for timely collection  follow-up and documentation of contacts on third-party bills using a VA- wide statistical sample, and stratified subsets of our VA-wide sample for  CPAC medical centers and medical centers that were not under the CPAC  initiative. Because you were interested in learning whether medical  centers under CPAC had more effective controls over third-party billings  and collections, we separately analyzed CPAC billing controls and  separately tested third-party collection controls for CPAC medical centers.  To address our third objective on VA management oversight capability, we  reviewed management reports generated by key VA systems and  interviewed medical center and VHA officials about their oversight  procedures. We also obtained information on the status and targeted  implementation dates of key management improvement initiatives,  including two initiatives that were recently completed and six initiatives  that were under way at the end of our field work.
In conducting our work, we interviewed management officials and  reviewed applicable laws, regulations, and VA policies and procedures. We  performed appropriate procedures to assure the reliability of data used in  our work including data analysis, interviews of key officials, and review of  VA procedures for assuring the reliability of data generated by key  automated systems. We conducted our work from January 2007 through  May 2008 in accordance with generally accepted government auditing  standards. Those 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 objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. A detailed discussion of  our objectives, scope, and methodology is included in appendix I.
subsections: section_title: Background
paragraphs: VA’s mission is to serve America’s veterans and their families and to be  their principal advocate in ensuring that they receive medical care,  benefits, and social support in recognition of their service to our nation.  VA, headquartered in Washington, D.C., is the second largest federal  department and operates the largest health care system in the United  States. VA reported that as of September 30, 2007, it employed  approximately 230,000 staff nationwide, including physicians, nurses,  counselors, statisticians, computer specialists, architects, and attorneys.  VA carries out its mission through three major line organizations – Veterans Health Administration (VHA), Veterans Benefits Administration,  and National Cemetery Administration–and field facilities throughout the  United States. During fiscal year 2007, VA provided health care services  and benefits through a nationwide network of 153 medical centers, 877  outpatient clinics, and 135 nursing homes.
subsections: section_title: Third-Party Collections Authorized for Medical Care Related to Nonservice-related Conditions
paragraphs: The Veterans’ Health Care Eligibility Reform Act of 1996 authorized VA to  provide certain medical services not previously available to veterans with  nonservice-related conditions. While VA in 1996 had authority to recover  some of the cost of providing these additional benefits through billing and  collecting payments from veterans’ private health insurers (third-party  collections), it was not authorized to keep these collections. The Veterans  Reconciliation Act of 1997, which was enacted as part of the Balanced  Budget Act of 1997, changed this by authorizing VA to collect and deposit  third-party health insurance payments in its Medical Care Collections  Fund, which VA could then use to supplement its medical care  appropriations. As part of VA’s 1997 strategic plan, VA predicted that  collections of payments from third-party insurance companies, along with  veteran copayments for medications, would cover the majority of costs of  care for veterans with nonservice-related conditions. During fiscal year  2007, almost 5.6 million people received care in VA health care facilities,  and VA collections for health care services totaled nearly $2.2 billion.
As illustrated in figure 1, VA does not bill for health care services provided  to veterans who have Medicare coverage only or veterans who have no  private health insurance. For veterans who are covered by both Medicare  and private health insurance, VA prepares claims according to Medicare  guidelines and sends the bill to a Medicare fiscal intermediary (contractor)  who calculates the Medicare/patient responsibility and sends the bill to the  private insurer for adjudication and payment. If the veteran is not eligible  for health benefits under Medicare, but has private health insurance  coverage, VA bills the third-party insurance company. In some situations,  VA may not recognize that a veteran is eligible for Medicare benefits and  sends the bill directly to the third-party insurance company. In these  situations, the third-party insurer would determine that the veteran is  eligible for Medicare coverage and would reject the bill and send it back to  VA. VA updates the patient’s file and then sends the bill to the Medicare  contractor.
section_title: VA Third-Party Revenue Cycle
paragraphs: Similar to most health care providers, VA uses a fee schedule consisting of  “reasonable charges” for medical services based on diagnoses and  procedures. The fee schedule allows VA to more accurately bill for care  provided. Documenting and coding the care provided and processing bills  for each episode of care are critical to preparing accurate bills for  submission to third-party insurers. As illustrated in figure 2, VA uses a  process consisting of four key functions to collect from third-party  insurance companies. The four functions cover the following actions.
Patient intake, which involves gathering insurance information and  verifying that information with the insurance company as well as  collecting demographic data on the veteran.
Utilization review, which involves precertification of care in compliance  with the veteran’s insurance policy, including continued stay reviews to  determine medical necessity.
Billing functions include properly documenting the health care services  provided to patients by physicians and other health care providers. Based  on physician documentation, the diagnoses and medical procedures  performed are coded. VA then creates and sends bills to insurance  companies based on the insurance and coding information obtained.
Accounts receivable and collections, which involves processing payments  from insurance companies and following up on outstanding or denied bills.  In accordance with VA Handbook 4800.14, Medical Care Debts, VA  accounts receivable staff at each medical center or other health care  facility are required to follow up on unpaid reimbursable insurance cases.  For bills of $250 or more, the first telephone or online follow-up is to be  made within 45 days after the initial bill was generated. If necessary, a  second follow-up should be initiated within 21 days of the first follow-up.  If a third follow-up is necessary, it should be initiated within 14 days of the  second follow-up. When a telephone or online follow-up is made, a  comment briefly summarizing the contact with an appropriate follow-up  date should be entered in the third-party joint inquiry menu in VHA’s  Veterans Health Information Systems and Technology Architecture (VistA)  system.
If no payment is received within 7 days of the third follow-up, accounts  receivable personnel are to refer the bill to the VA medical center senior  management official responsible for collection of the bill, generally the  facility revenue manager. This official will determine the next appropriate  action, including, after exhausting all required recovery efforts, possible  referral to the VA regional counsel of jurisdiction for review and advice as  to how to handle collection procedures. The regional counsel may forward  problem cases to VA’s General Counsel to review for possible litigation.  Under guidance issued to VA by the Department of Justice (DOJ), VA may  refer cases to DOJ for possible litigation.
section_title: VA Actions on Previously Reported Weaknesses in Third-Party Billings and Collections
paragraphs: Our July 2004 report documented continuing weaknesses in billing  processes at the three medical centers tested that impaired VA’s ability to  maximize the amount of dollars paid by third-party insurance companies.  For example, the medical centers did not always bill insurance companies  in a timely manner and they did not always perform follow-up on unpaid  receivables in accordance with VA policy. We identified insufficient  resources and a lack of performance standards as major causes of these  problems. Our 2004 report included several recommendations directed at  improving billing and collection functions.
To improve the third-party billing function, we recommended that VA   (1) perform a workload analysis of the medical center’s coding and billing  staff and (2) based on the workload analysis, consider making necessary  resource adjustments. To address these recommendations, VA formed a  work group and performed in-depth surveys at 148 medical facilities to  determine whether the medical facilities had established and implemented  productivity and accuracy standards that were recommended by VHA in  2002. The work group reported that the majority of the 148 facilities  surveyed had implemented coding productivity standards and these  standards were fairly consistent. In addition, the work group made several  recommendations directed at maximizing coding productivity and assuring  data quality. For example, the work group recommended that only  qualified, competent coders be used and that noncoding duties related to  assembly, analysis, preparation of coding records, and release of  information be assigned to other staff. The work group also recommended  that all coding must be completed through the national encoder software.  In November 2007, VA issued Handbook, 1907.03, Health Information  Management, Clinical Coding Program Procedures, which established a  minimum bill coding accuracy standard of 95 percent and minimum  standards (time frames) for coding productivity.
Our 2004 report also made three recommendations directed at improving  the third-party collection function. Specifically, we recommended that VA  (1) reinforce to accounts receivable staff that they should perform the first  follow-up on unpaid claims within 30 days of the billing date, as required  by VA Handbook 4800.14, Medical Care Debts, and establish procedures  for monitoring compliance; (2) reinforce the requirement for accounts  receivable staff to enter insurance company contact information and  follow-up dates to better document follow-up actions; and (3) augment VA  Handbook 4800.14 by specifying a date or providing instructions for  determining an appropriate date for conducting second follow-up calls to  insurance companies on unpaid amounts. To address these  recommendations, VA modified and reissued VA Handbook 4800.14 to  explain requirements for performing and documenting the first, second,  and third follow-ups with third-party insurers. For example, for third-party  accounts receivable greater than $250, the reissued Handbook now  requires the first follow-up to be made within 45 days after the initial bill  is generated. The second follow-up is to be made within 21 days after the  first follow-up and the third follow-up is to be made within 14 days of the  second follow-up. VA also provided training to staff on the policies  included in VA Handbook 4800.14, which included the need for timely  follow-up on outstanding third-party receivables as well as follow-up  documentation requirements.
section_title: Case Study Medical Centers Had Billing Errors and Inadequate Oversight and Accountability
paragraphs: Our case study analysis of unbilled patient encounters at 18 medical  centers, including 10 medical centers with low billing performance (based  on reported days to bill) and 8 centers under VA’s CPAC initiative that  were expected to have high billing performance, found billing delays;  coding, billing, and documentation errors; and a lack of adequate  management oversight and accountability over approximately $1.7 billion  deemed to be unbillable in fiscal year 2007 by coding and billing staff.  Although there are valid reasons why some medical services are not  billable, including $1.4 billion in service-connected treatment, Medicare  coverage, and the lack of private health insurance coverage, medical  center management did not validate the reasons for the related unbilled  amounts. Further, because third-party insurers will not accept improperly  coded amounts and in many cases have national and regional contracts  with VA that bar insurer liability for payment of bills received after more  than a specified period of time, usually 1 year, after the date that medical  services were provided, it is important that coding for medical services is  accurate and timely. Our analysis of VA billing data showed that VA has  improved its average overall days to bill third-party insurance companies  from 93 days in fiscal year 2003 to 64 days in fiscal year 2007. However,  most of the 18 case study medical centers we audited exceeded VA’s fiscal  year 2007 goal of 60 average days to bill. In addition, our analysis found  that coding and billing errors, omissions in documentation, and other  undefined reasons for unbilled amounts accounted for hundreds of  millions of dollars that were not billed to third-party insurance companies.  Moreover, case study medical centers did not effectively use available  management reports to monitor trends and performance metrics, such as  increases or decreases in unbilled amounts.
subsections: section_title: Ten Medical Centers Had Billing Delays and Errors and Little or No Oversight of Their Billing Functions
paragraphs: The 10 medical centers with low billing performance included in our case  study analysis reported average days to bill ranging from 109 days to 146  days in fiscal year 2007, compared to VA’s goal of 60 days. The 10 centers  also had a total of $1.2 billion in unbilled medical services costs. To  analyze case study medical center billing data by unbilled reason codes,  we obtained medical center Reasons Not Billable reports and grouped  unbillable reasons by major categories. Medical center Reasons Not  Billable reports included over 100 reason codes and inconsistent reporting  of other, undefined reasons. We discussed our groupings by category with  VHA managers and obtained their agreement on our assignment of  unbillable reasons by category. As illustrated in figure 3, our analysis of  reasons not billable data for the 10 case study medical centers identified  significant unbilled amounts for fiscal year 2007.
There are valid reasons why VA does not bill for all medical services it  provides. For example, VA’s legal authority to seek reimbursement from  third-party insurers for the cost of medical services does not extend to  services provided to veterans who have medical conditions that are   (1) service-connected, (2) covered only by Medicare, or (3) not covered  under a private or other applicable health insurance plan. Of the total  $1.2 billion in unbilled medical services costs at the 10 medical centers,  service-connected (nonbillable) medical care accounted for nearly $116  million, or 10 percent, and nonservice-related not billable amounts totaled  $835.3 million, or 69 percent, including $170 million recorded as medical  procedures performed for uninsured veterans and $433 million recorded  as attributable to medical services that were not covered by veterans’  private health insurance. Managers at the 10 case study medical centers  did not perform adequate reviews of the encounters assigned to these  categories to ensure that billing clerks appropriately classified them.  Coding and billing errors ($48.3 million), documentation errors ($10.4  million), and undefined other reasons ($195.4 million) accounted over  $254 million, or 21 percent, of the $1.2 billion in total unbilled medical  services costs at the 10 medical centers. Coding and billing errors include  incorrect clinical service codes and late filing of claims. The largest group  of billing errors included $25 million for which the billing time frame had  expired. According to a VA official, VA has entered into national and  regional contracts with many third-party insurance companies that bar  insurer liability for payment of bills received after a specified period of  time, usually 1 year, but sometimes as little as 6 months, after medical  services were provided. In addition, documentation errors accounted for  more than $10 million in unbilled amounts at the 10 medical centers.  Documentation errors include the failure of certification personnel to  provide documentation of physician and other health care provider  certifications; health care provider errors, such as physicians failing to  submit documentation of their services for coding; and veterans refusing  to sign Authorization for Release of Protected Health Information forms.  Insurance companies will not pay for services unless they receive  documentation that the physicians and health care providers are certified.  The largest groups of documentation errors related to veterans not signing  Release of Information forms due to privacy concerns ($2.0 million) and  insufficient or missing medical services documentation ($6.4 million).
section_title: Eight Medical Centers under CPAC Had Better Billing Performance and Performed More Oversight of Unbilled Amounts
paragraphs: The CPAC centers’ fiscal year 2007 average days to bill ranged from 39  days to 68 days, compared to VA’s goal of 60 days. In fiscal year 2007, the  eight CPAC centers accounted for over $508.7 million in unbilled amounts.  As illustrated in figure 4, service-connected reasons accounted for about  $65 million, or 13 percent, and nonservice-related, unbillable reason codes  accounted for the largest portion—about $406.2 million, or 80 percent, of  the total $508.7 million unbilled third-party amounts for the 8 medical  centers under CPAC. Coding and billing errors, documentation errors, and  other reasons accounted for $37.5 million, or about 7 percent, of medical  services costs that were not billed to third-party insurance companies.  CPAC officials told us they perform some analysis of unbillable amounts.  For example, CPAC officials stated that they review unbillable codes they  consider to be at high risk of error. If a particular unbillable code  increased from month-to-month, they investigated the cause of the  increase and took appropriate action to mitigate the problem. A detailed  discussion of CPAC management oversight is presented later in this  report.
section_title: Medical Centers Have Not Followed VA Policy for Timely Follow-up and Documentation on Unpaid Third-Party Receivables
paragraphs: Our analysis of VA’s accounts receivable aging data as of September 25,  2007, showed that VA had approximately $600 million in outstanding third- party receivables of which over $148 million, or about 25 percent, was  more than 120 days old. It is important that VA actively pursue unpaid  amounts by making timely follow-up contacts with third-party insurance  companies because the older a receivable, the less likely it is to be  collected. Moreover, uncollected third-party receivables place an added  burden on taxpayers because additional amounts would need to be  covered by annual appropriations to support the same level of service to  veterans. In addition, our statistical tests found high internal control  failure rates related to medical centers’ lack of adherence to VHA  requirements for timely, properly documented follow-up on unpaid bills  that had been sent to third-party insurance companies. Management  officials at several of the medical centers tested in our statistical sample  attributed their high follow-up failure rate to inadequate staffing. However,  we found that a lack of management oversight at the medical centers as  well as at the VHA management level contributed to the control  weaknesses we identified.
subsections: section_title: VA Has Hundreds of Millions of Dollars in Uncollected Receivables from Third-Party Insurers
paragraphs: Our analysis of VA’s accounts receivable aging data as of September 25,  2007, identified approximately $600 million in outstanding third-party  receivables. As shown in figure 5, about $295 million of this total was less  than 45 days old. Of the remaining $305 million, over $148 million, or 49  percent, was more than 120 days old. We focused our analysis on bills of  $250 or more—the largest category of third-party receivables. For  example, uncollected receivables related to bills of $250 or more  represented over $426 million, or 71 percent, of the approximately $600  million in outstanding receivables at the end of fiscal year 2007. Although  about $227 million of the over $426 million in receivables related to bills of  $250 or more were less than 45 days old and did not yet require initial  follow-up, the remaining $199 million, or 47 percent, was subject to VA  follow-up action on unpaid amounts, and nearly $84 million had remained  uncollected for 120 days from the date of the initial bill. Timely follow-up  is critical because the older a receivable, the less likely it is to be collected.  As was the case with billings, we found that the case study medical centers  had limited procedures in place to monitor the collections process.  Further, the lack of follow-up documentation undermines the reliability of  trend information needed to effectively manage third-party receivables.
Our analysis of accounts receivable aging data showed that $37.5 million  of the total $600 million in receivables as of the end of fiscal year 2007 was  over 1 year old, including $17 million related to bills of $250 or more.
section_title: VA Medical Centers Failed Control Tests for Timely Follow-up on Unpaid Receivables
paragraphs: Our statistical tests of VA-wide data on controls for follow-up by accounts  receivable personnel on unpaid amounts of $250 or more billed to third- party insurers found significantly high failure rates. VA Handbook 4800.14,  Medical Care Debts, requires follow-up on unpaid accounts receivable, as  necessary, to collect unpaid third-party receivables. The first follow-up  for debts of $250 or more is required within 45 days after the initial bill  was generated. If necessary, the second follow-up is to be made within 21  days of the initial follow-up and the third follow-up is required within 14  days of the second follow-up. The follow-up requirement does not apply  once a receivable is either collected in full, partially paid and contractually  adjusted to a zero balance, or contractually adjusted to zero with no  payment. Our test of timely follow-ups considered a bill to be closed and  no longer subject to follow-up on the date the bill was paid in full or  decreased to zero. We randomly selected a sample of 260 third-party  insurer bills from a population of $547.8 million in fiscal year 2007 billings  for medical services. Of the $547.8 million, our analysis showed that VA  collected $260.1 million, or about 47 percent.
We generally report our statistical results as point estimates that fall  within confidence intervals. Our 95 percent confidence interval means that  if you were to determine an estimate for 100 different random samples, 95  out of 100 times, the estimate would fall within the confidence interval. In  other words, the true value is between the lower and upper limits of the  confidence interval 95 percent of the time. Point estimates provide a useful  indicator of the effectiveness of controls for our VA-wide tests, which  included a total of 260 bills. However, our tests of CPAC and non-CPAC  medical subsets of our sample involved fewer bills and the confidence  intervals were much wider. When this is the case, we generally focus on  the lower bound of our confidence interval as a more conservative  estimate of the effectiveness of controls. Our point estimates for each of  our tests and the upper and lower bounds of our confidence intervals are  included in appendix I. The following discussion focuses on conservative  estimates of our test results based on the lower bound of our 95 percent  confidence intervals.
For example, table 1 shows that conservative estimates, based on the  lower bound of our confidence intervals, indicate that VA controls for  timely follow-up were ineffective. For example, the conservative approach  for our VA-wide tests shows that medical center collections staff failed the  control for timely initial follow-up after 45 days from the bill date at least  69 percent of the time. Similarly, our conservative estimate indicates that  CPAC medical center personnel failed this control test for timely initial  follow-up based on 60 bills in our sample subset at least 36 percent of the  time and non-CPAC medical center personnel failed this control test based  on 200 bills in this subset at least 71 percent of the time.
Because the universe of unpaid bills subject to requirements for second  and third follow-ups was smaller, the confidence intervals for these tests  were greater. However, the same conservative approach for our estimates  of control failures for the second and third follow-ups continues to show  significant failure rates. For example, based on our tests, we estimate that  VA-wide control failures related to required second and third follow-ups  on unpaid third-party bills were at least 44 percent (based on a subset of  109 bills) and 20 percent (based on a subset of 55 bills), respectively. We  estimate that CPAC medical center control failures related to required  second and third follow-ups on unpaid third-party bills were at least 23  percent (based on a subset of 40 bills) and 22 percent (based on a subset  of 21 bills), respectively. In addition, we estimate that non-CPAC medical  center control failures related to required second and third follow-ups on  unpaid third-party bills were at least 45 percent (based on a subset of 69  bills) and 17 percent (based on a subset of 34 bills), respectively.
Our analysis of our actual test results for the third-party insurer bills  included in our statistical sample showed that results varied by medical  center. For example, for several medical centers all, or nearly all, of the  bills in our statistical sample failed control tests for timely first follow-up  on unpaid amounts within 45 days. Conversely, there were several medical  centers in our sample that performed timely first follow-up on all of the  bills we tested. The actual test results for the first follow-up for all of the  bills in our statistical sample are presented by VISN in appendix III.
In our interviews of management officials at several of the medical centers  included in our statistical sample, the officials attributed their high follow- up failure rate to inadequate staffing. As noted previously, in response to  recommendations in our 2004 report, VA shifted nonrevenue functions  from billing and collections staff to other medical center personnel to  provide greater focus on the revenue function.
section_title: VA Medical Centers Failed Control Tests for Recording Details of Follow-up Contacts
paragraphs: Our statistical tests of VA-wide data on controls for documenting details of  follow-up contacts on unpaid amounts billed to third-party insurers also  found significantly high failure rates. VA Handbook 4800.14, Medical Care  Debts, requires medical center accounts receivable staff to document a  summary of their contacts with third-party insurance companies as well as  the first and last name of the insurance company representative and the  representative’s title, position, and phone number. Documentation of  contact detail is important because it enables VA to quickly identify billing  problems and take appropriate action to resolve them. However, for  several of the bills in our sample, accounts receivable personnel just noted  “AR follow-up,” or they left this data field blank.
As shown in table 2, our test results based on the lower bound of our  confidence intervals indicate that controls for proper documentation of  follow-up contacts on unpaid amounts with third-party insurers were  ineffective. For example, using this conservative approach for our VA-wide  tests, we estimate that medical center collections staff failed the control  test for proper documentation of first follow-up contacts at least 72  percent of the time based on a sample of 97 bills. Similarly, our  conservative estimate indicates that CPAC medical center personnel failed  this control at least 38 percent of the time (based on 36 bills in this subset)  and non-CPAC medical center personnel failed this control test at least 74  percent of the time (based on 61 bills in this subset). Table 2 shows that  conservative estimates of contact documentation failures related to the  second and third follow-ups are also significantly high, indicating that  controls for all of our related tests were ineffective. Our tests of the  requirement for documenting the second follow-up contact were based on  41 bills VA-wide, 14 bills for CPAC medical centers, and 27 bills for non- CPAC medical centers. Our tests of the documentation requirement for the  third follow-up were based on 18 bills VA-wide, 8 bills for CPAC medical  centers, and 10 bills for non-CPAC medical centers.
In addition to documenting the details of follow-up contacts, collections  personnel are required to adequately document the reasons for  adjustments to decrease billed amounts in order to perform proper  monitoring and oversight of accounts receivable personnel and to assess  whether these adjustments were appropriate. Specifically, VHA Handbook  4800.14, Write-Offs, Decreases, And Termination of Medical Care  Collections Fund Accounts Third-Party Receivable Balances, requires  that accounts receivable staff provide an explanation for adjustments  made to decrease third-party bills. The Handbook requires that the  explanation provide clear and unambiguous reasons for the decrease  adjustment and provides several suggested comments that are considered  adequate explanations for the adjustments.
Our tests of whether accounts receivable personnel adequately  documented reasons for adjustments to decrease billed amounts found a  VA-wide failure rate of 44 percent, as shown in table 3. Although the upper  bound of our 95 percent, 2-sided confidence interval indicates that VA- wide estimated control failures could be over 50 percent, a conservative  analysis based on the lower bound of our 2-sided confidence interval  indicates that controls were ineffective for all categories of our tests in  this area. Our tests for this control included a sample of 260 bills VA-wide,  60 bills for CPAC medical centers, and 200 bills for non-CPAC medical  centers. Decreases made without appropriate explanations leave no audit  trail or explanation of the reasons why an account receivable was  decreased to zero. As a result, VA medical center management has limited  data available to determine whether the adjustment was appropriate or if  further collection action is needed. Moreover, without this information,  medical center management cannot perform necessary oversight to assure  that third-party revenues are maximized.
section_title: VA Lacks Policies and Procedures for Assuring Adequate Oversight of Third- Party Billings and Collections
paragraphs: Our review of VA and VHA policies and procedures, process walk- throughs, and interviews of VHA Chief Business Office (CBO) officials  and management officials at our case study medical centers determined  that there are no formal policies and procedures for oversight of the third- party insurer billing and collection processes by medical centers or VHA.  In addition, we found that medical centers and VHA have few standardized  management reports to facilitate oversight. Because VA’s health care  billing and collection systems operate as stand-alone systems at each  medical center, VA-wide reporting is dependent on numerous individual  queries and data calls. As a result, we found little or no monitoring and  oversight of the third-party billing and collection processes. This raises  concerns about adequacy of oversight over the $1.7 billion in unbilled  amounts at the 18 case study medical centers, including the hundreds of  millions of dollars in unbilled amounts related to coding, billing, and  documentation errors, and other undefined reasons. The lack of formal VA  policies for management oversight of third-party billings and collections  also raises VA-wide concerns.
Enhanced oversight would permit VHA and medical center management to  monitor trends and performance metrics, such as increases or decreases  in unbillable amounts.
subsections: section_title: Case Study Medical Centers Performed Little or No Monitoring of Third- Party Insurer Billing and Collection Activity
paragraphs: Although VA has not established formal policies and procedures for  oversight of third-party insurer billings and collections, officials at the 18  case study medical centers told us they perform some oversight. For  example, officials at all 10 of the case study medical centers with low  billing performance indicated that they perform limited oversight of  unbilled amounts with no documentation and insufficient documentation  reason codes. None of the officials we interviewed provided us  documentation of their monitoring or oversight procedures. According to  our interviews, oversight procedures varied by medical center. For  example, one medical center official told us that she performs a monthly  review of the insufficient documentation and no documentation reason  codes. A second medical center official told us that a review of the codes  had not yet been performed in fiscal year 2008, but that quarterly reviews  usually have been performed. Another medical center official told us that  she randomly selects between three and six bills per coder that were  designated as unbillable for documentation reasons and reviews them for  accuracy. Further, an official at a fourth medical center told us that she  sees a potential risk that a billing clerk could clear out a billing backlog by  inappropriately assigning reasons not billable codes to medical procedures  waiting to be billed. While it is unlikely that this would occur, such a  problem would only be detected if proper reviews were being performed  by medical center management. None of the officials at the 10 medical  centers indicated that their reviews included any of the other reasons not  billable, such as service-connected medical services or medical services  not covered by third-party insurance companies. As illustrated previously  in figure 3, documentation errors, the focus of the 10 medical centers we  reviewed, made up only 1 percent of the total amount not billed by the 10  medical centers during fiscal year 2007. Without reviewing all of the  patient services deemed to be unbillable, the 10 medical centers do not  have reasonable assurance that their unbilled amounts are accurate and  appropriate. Further, officials at three case study medical centers that  were also in our VA-wide sample for testing collection follow-up told us  they performed little or no monitoring of collection follow-up activity  because existing management reports did not facilitate their oversight.
Although CPAC also lacked formalized policies and procedures for  management oversight of unbilled amounts, CPAC officials told us that  they reviewed unbilled amounts assigned to reason codes they consider to  have a high risk of error. However, CPAC officials did not provide us any  documentation of their oversight and monitoring procedures. For  example, CPAC officials told us that they perform weekly reviews of  unbilled amounts assigned to the service-connected reason not billable  code. If doubt exists as to whether the patient’s condition is actually  service-connected, quality assurance personnel send the medical services  record to the facility where the bill was generated for further review. This  provides management assurance that the encounters not billed for that  reason are appropriately classified. The officials said they also prepare  trend analyses for three types of documentation errors—no  documentation, insufficient documentation, and not a billable provider.  The officials said they also do some review of coding and billing errors.  CPAC officials stated that if a particular unbillable code is increasing from  month-to-month, they investigated the cause of the increase and took  appropriate action to mitigate the problem. According to CPAC officials,  experienced medical coders in their Quality Assurance Division review the  diagnosis codes for service-connected patient encounters for  reasonableness and documentation of the medical condition.
At the eight CPAC medical centers, oversight of the collection process  consists of supervisory reviews. For example, supervisors in the  collections follow-up department perform quality reviews of clerks. A  clerk is tested every 2 weeks until the clerk receives two consecutive  reviews with no exceptions. The clerk is then reviewed monthly. The  reviews involve testing five claims for proper follow-up.
We found that medical centers have few standardized management reports  to facilitate oversight. Our analysis of medical center Reasons Not Billable  reports found that these reports consist of a list of over 100 reason codes  for unbillable amounts that are not summarized by major categories, such  as the five categories we identified, to facilitate management review and  decision making.
section_title: VA Lacks Policies and Procedures and Reporting Mechanisms for Oversight of Third-Party Billings and Collections
paragraphs: Our review of VA and VHA policies and procedures and our interviews  with CBO officials determined that VA lacked formal policies and  procedures for oversight of the billing and collections processes related to  third-party insurers. In addition, we found that VA and VHA have few  standardized management reports to facilitate oversight. For example, our  review of CBO reports found that these reports generally consist of data  on VA-wide days to bill, accounts receivable, and collections. VHA CBO  does not generate detailed performance reports by medical center, and it  does not review unbilled amounts.
Limitations in management reporting relate to VHA systems design. For  example, VistA operates as a stand-alone system at each medical center.  As a result, VHA’s CBO does not have direct access to medical center data,  and it would need to use data calls to obtain medical center data for  monitoring and oversight. Consequently, VHA developed the Performance  and Operations Web-Enabled Reports (POWER) system as a data  warehouse for VistA data and information to provide some additional  management information capability. However, as a data warehouse  POWER does not provide a full range of standard management reports  needed for oversight, and obtaining management information from  POWER for oversight and monitoring purposes would necessitate  numerous individual management queries and data compilations.
section_title: VHA Has Undertaken Several Initiatives to Increase Third-Party Revenue
paragraphs: In response to long-standing weaknesses in third-party billing and  collection processes, VA undertook several initiatives aimed at increasing  revenue from third-party billings and collections. According to VA  documentation, the improvement initiatives were developed by engaging  key VHA leaders and other stakeholders in a comprehensive review of  revenue cycle business process activities, from patient intake and  insurance verification through billing and collection as well as planning  and implementation efforts. As discussed previously, we assessed controls  for coding and billing accuracy and collection follow-up for medical  centers under the CPAC pilot initiative. However, we did not evaluate the  six ongoing initiatives, some of which are open ended or will not be  completed for several years. Effective management oversight and  implementation will be key to the success of these initiatives. The  following section summarizes recently completed VA initiatives, including  improvements in recruitment and retention of coders and updates of key  VHA policy guidance. Ongoing initiatives include six key strategic  initiatives for increasing third-party revenue.
subsections: section_title: Recently Completed Revenue Enhancement Initiatives
paragraphs: The following two VHA initiatives to enhance third-party revenue were  completed in 2006 and 2007.
Recruitment and Retention of Coders and Health Information  Managers. Over the past several years, VHA has pursued improvements in  the capture of medical charges and clinical documentation to enhance  third-party collections. The first of three improvements, completed in  December 2006, resulted in implementation of a plan to improve  recruitment and retention of coders and health information managers  within VHA through reclassification of employee positions in Office of  Personnel Management occupation series 675, medical record technicians,  and series 669, medical record administrators, from regular civil service  positions to unique hybrid health-care civil service positions. The position  reclassifications, which were effective on December 6, 2006, removed  many hiring delays and provided opportunities for employee special  advancement for professional achievement while in VA service. As of  October 2007, VHA had 2,024 employees in the 675 medical record  technician job series and 430 employees in the 669 medical record  administrator job series.
Updated VHA Policy Guidance. VHA updated its policy guidance on  coding staff qualifications, accurate coding and documentation of medical  services, and closing dates for reporting these data for performance  measures and corporate management reporting. The updated guidance  was incorporated in the following VHA policy documents during 2006 and  2007.
VHA Directive 2006-026, Patient Care Data Capture, dated May 5, 2006,  contains requirements for capture of all outpatient encounters, inpatient  appointments in outpatient clinics, and inpatient billable services. This  directive also requires that each clinic is set up with appropriate Decision  Support System identifiers to help ensure the accuracy of coding for  patient care encounters.
VHA Directive 2006-035, Surgical Case Coding, dated May 30, 2006,  provides policy for surgical code assignments based on International  Classification of Diseases (9th Revision) Clinical Modification and Current  Procedural Terminology (4th Edition). The policy also notes recent  software changes and reiterates VHA policy on accurate capture of coded  data within the surgical package, including requirements for qualified  coding staff, accurate source documentation, and timely and accurate  entry of codes. In addition, the directive makes VISN directors responsible  for ensuring that the Surgery Version 3.0 software patch is installed on all  medical centers’ VistA systems in accordance with nationally distributed  software packages. The directive also makes medical center directors  responsible for ensuring that surgical coding is conducted by qualified  staff using the Update/Verify Procedure/Diagnosis Codes option within the  surgery package or using an encoder that is interfaced with the surgery  package for entry of coded procedures and diagnoses for all surgeries.
VHA Directive 2007-030, Closeout of Veterans Health Administration  Corporate Patient Data Files, Including Quarterly Inpatient Census,  dated September 27, 2007, changed the close out date to ensure that all  corporate data are available when extracted for performance measures  and other corporate reporting needs. Accordingly, this directive requires  inpatient coding to be completed no later than the 14th day following  patient discharge and outpatient coding to be completed no later than 14  days after the outpatient visit.
VHA Handbook 1907.03, Health Information Management, Clinical  Coding Program Procedures, dated November 2, 2007, as previously  discussed, establishes minimum standards for coding productivity,  including specific time frames for completing bill coding for various  medical services, and a minimum 95 percent coding accuracy standard.  The Handbook also includes suggested coding staffing requirements,  coding staff qualifications, coding contract services, and coding function  efficiencies.
section_title: VA Has Six Key Strategic Initiatives Under Way To Enhance Third-Party Revenue
paragraphs: In October 2005, VHA’s Revenue Optimization Plan Enhancement (ROPE)  work group identified six key strategic initiatives for improving revenue  performance. Many of these initiatives represented continuing actions that  were previously initiated under VHA’s Revenue Action Plan (RAP)—the  predecessor to ROPE. The first initiative is targeted for completion in May  2008. As of the end of our field work in April 2008, VA had not provided  target dates for full implementation of the other five initiatives. A brief  overview of the six initiatives and their current status follow.
Revenue Improvement Demonstration Project (RIDP). The RIDP  (outlined in congressional reports discussing the fiscal year 2006  appropriation for VHA’s medical administration account) was established  to further advance revenue performance within a single VISN and develop  a comprehensive national revenue model by integrating contractor- supported process modeling and business reengineering efforts. According  to VA documents, CPAC was selected to be the host of this demonstration  project because the objective was seen as a complimentary effort to the  CPAC initiative that was already under way. The RIDP initiative was  divided into two major phases. The first phase was an operational  assessment of revenue cycle functions in order to create additional cash  flow and to assist with the development of a model that could be  replicated nationally. The second phase of RIDP has two parts – Parts A  and B. Part A, which was completed during fiscal year 2007, covered phase  1 implementation and benefit realization. Under Part A, a revenue cycle  processing environment was established, staff and leadership received  training in new processes and techniques, and transition and permanence  activities were completed. Part B, which was scheduled to be completed in  May 2008, covers transition monitoring and sustainability.
Clinical Data Entry(CDE). According to VA officials, CDE was  developed to improve the currently existing Clinical Indicators Data  Capture (CIDC) VistA software. CIDC was not implemented nationally  because of concerns related to the provider-patient interaction and  provider productivity. However, functional requirements and software  design were to be revisited so that expanded clinician involvement could  be included. According to VA, the expected outcome of CDE is twofold— first, to recommend software that can be designed to automatically  capture clinical data as a by-product of the clinical encounter instead of as  an extra step, and second, to accommodate revenue capture of high- volume/dollar procedures that are being performed, but not billed in VistA.  CDE was targeted for completion in May 2007. However, upon extensive  work with clinicians, the project team concluded that a fundamental  change was required in the Computerized Patient Record System (CPRS)  in order to effectively accomplish the project goal. According to VA  information technology officials, the CDE design recommendations and  accompanying business flow diagrams will be included as a part of  Computerized Patient Record System Reengineering, referred to as CPRS- R. An implementation date for this initiative has not yet been determined.
National Revenue Contracts Office. According to VA, the National  Revenue Contracts Office initiative is designed to leverage VHA’s size and  financial purchasing power to develop national relationships for both  payer agreements and contracts for vendors who provide support for  revenue cycle activities. The National Payer Relations Office (NPRO) is  currently pursuing strategies to effectively manage relationships with  third-party insurance companies. VHA’s first national payer agreement,  with Aetna, was completed in 2007 and a second national agreement with  United Healthcare is expected to be effective May 2008. According to VA  officials, the National Payer Relations Office has completed 78 regional  agreements and is currently working on negotiating an additional 10  agreements.
According to VA officials, a Revenue Contracts Program component was  established under NPRO to improve management of vendors used to  support VHA revenue cycle activities by developing better rates and  consistency in payment terms, expectations, and performance standards.  VA hopes that this Program will ensure more consistent terms and  conditions for frequently used revenue cycle contracts. For example, VA  established national Blanket Purchase Agreements (BPA) for both coding  and insurance identification/verification products and services. According  to VA officials, the Revenue Contracts Program is currently working on  establishing BPAs for third-party billing and accounts receivable follow- up. As of the end of our field work in April 2008, VA had not provided us  with a target date for completing BPAs for third-party billing and accounts  receivable follow-up.
Revenue Improvements and Systems Enhancement (RISE) Plan. A  major driver in VA’s revenue optimization strategy is a Patient Financial  Services System (PFSS) project directed by Congress, which seeks to  remedy significant business process and technology issues in VA’s  revenue-related financial systems. Building on the initial PFSS project  and to continue ongoing improvement efforts, the VHA CBO chartered a  RISE project team. RISE is part of the VistA modernization action  program. The primary objective of RISE is to provide comprehensive tools  for seamless sharing of required administrative and clinical information to  support billing and related revenue activities across the enterprise. The  four goals of the RISE plan are (1) defining a clear vision for revenue cycle  activities across VHA, (2) replacing or enhancing aspects of current  integrated billing and accounts receivable systems, (3) improving all  related business processes by implementing structured IT support systems  while delivering automated tools to improve revenue cycle efficiency, and  (4) identifying process improvements for VHA that drive improvement in  revenue cycle activities while leveraging enhanced IT support systems.
According to VA officials, the RISE team is currently developing detailed  short- and long-term business process and technology strategies in all  areas of the revenue program. The RISE team is also developing  accompanying documentation that defines end-to-end processes and that  will form the requirements for the framework of the overall system  improvement initiative. This document will include (1) a vision and scope  document which defines services and capabilities required from the future  state revenue system and (2) a business case, which incorporates process  definitions; a program governance structure to oversee operations; a  communications plan for the business program; and definitions to identify  requirements for a new end-to-end revenue system. As of the end of our  field work in April 2008, VA had not provided us with a targeted  implementation date for this initiative.
Revenue Cycle Enhancement Reviews. VHA has implemented an  initiative to identify opportunities to further enhance revenue potential  using Revenue Cycle Enhancement Teams (RCET). On-site reviews and  development of corrective action plans are ongoing. The objective of this  initiative is to identify available operational opportunities and provide  recommendations to improve overall cash flow. A review team consists of  VHA subject matter experts who are deployed to lower performing  facilities to assess core revenue cycle functions, including patient intake  and insurance verification, utilization review, coding, billing, and accounts  receivable. The methodology employed by the team in completing reviews  includes a combination of data analysis and on-site observation of  activities.
Following the on-site review, the team provides an action plan to the  facility that outlines tasks that need to be completed within the next 90  days and participates in conference calls to ensure completion of all  identified action items. VHA CBO reported that it had completed reviews  at 30 facilities (through January 2008) and that those facilities have  generally increased revenue collections following these reviews. As of the  end of our field work in April 2008, VA did not have a list of planned visits,  and it had not provided us with a targeted implementation date for this  initiative.
Consolidated Patient Account Centers (CPAC). CPAC is based on a  private sector model that is tailored for VHA’s specific requirements. The  CPAC model consists of a stand-alone, regionalized billing and collection  activity supported by remote utilization review, data validation, and  customer service functions that are organizationally aligned with the  consolidated center. CPAC is being developed in three phases. Phase I,  which focused on designing a work flow model and new organizational  structure within a pilot VISN–VISN 6, operating as CPAC–was completed  September 30, 2006. In fiscal year 2006, CPAC reported that it achieved 99  percent of its targeted collections, increasing total VISN 6 collections by   approximately $10 million over fiscal year 2005. In fiscal year 2007, CPAC  reported that it achieved 110 percent of its targeted collection, increasing  total VISN 6 collections by $23 million over fiscal year 2006.
Phases II and III address expansion of the CPAC pilot program. Phase II,  which includes moving the consolidated center into a new physical plant  to support workflow models developed in Phase I as well as expansion of  existing operations to service an additional VISN and is scheduled for  completion by the end of fiscal year 2008. Phase III addresses national  expansion. VHA is currently working on a VA-wide implementation  strategy based on experiences from the CPAC pilot in VISN 6. As of the  end of our field work in April 2008, VA had not provided us with targeted  implementation dates for Phase III.
section_title: Conclusions
paragraphs: Although VA has made some progress in improving policy guidance and  processes for billing and collecting medical care receivables from third- party insurers, medical centers have significant, continuing weaknesses in  controls over coding, billing, and collections follow-up that prevent VA  from maximizing hundreds of millions of dollars in potential revenue from  third-party insurance companies. The fundamental weaknesses are a lack  of proper processing of billing information, inadequate follow-up on  unpaid third-party accounts receivable, and inadequate management  oversight by medical center and VA management. Unless VA effectively  addresses these weaknesses, it will continue to use higher amounts of  appropriations from the General Fund of Treasury to provide medical care  to the nation’s veterans than otherwise would be necessary, thereby  placing a higher burden on taxpayers.
section_title: Recommendations
paragraphs: We recommend that the Secretary of Veterans Affairs require the medical  centers to take the following seven actions to maximize revenue from  third-party insurer billings and collections.
First, to assure that all amounts that should be billed to third-party  insurers are billed in an accurate and timely manner, we recommend that  the Secretary take the following two actions.
Establish procedures requiring medical center management to perform  and document detailed monthly reviews of patient encounters determined  to be nonbillable by coding staff to ensure they are properly coded.
Establish procedures requiring medical center management to develop  and use management reports on medical center performance with respect  to accuracy and timeliness of billing performance and take appropriate  corrective action.
Second, to assure timely follow-up and documentation of unpaid third- party billings, we recommend that the Secretary take the following three  actions.
Establish a process requiring medical centers to monitor their accounts  receivable staffs’ adherence to the requirement in VA Handbook 4800.14,  Medical Care Debts, to follow-up on outstanding third-party accounts  receivable within specified time frames.
Establish a mechanism requiring medical centers to monitor their  accounts receivable staff adherence to VA Handbook 4800.14, Medical  Care Debts, which requires documenting a brief summary of all follow-up  contacts, including information on when a payment will be made or why a  payment was not made.
Establish a process requiring medical centers to confirm that accounts  receivable staff are following the requirement in VHA Handbook 4800.14,  Write-Offs, Decreases, And Termination of Medical Care Collections  Fund Accounts Third-Party Receivable Balances, to provide a specific  explanation for any adjustments to decrease third party accounts  receivable from third-party insurers.
Third, to assure effective VA-wide oversight of billings and collections  with regard to third-party insurers, we recommend that the Secretary take  the following two actions.
Require VHA to establish a formal VA-wide process for managing and  overseeing medical center billing performance, including development of  standardized reports on unbilled amounts by category.
Establish procedures requiring periodic VHA-wide assessments by the  Chief Business Office to document whether medical center staff are  performing timely and accurately documented follow-up on outstanding  third-party accounts receivable, as required in VHA Handbook 4800.14.
section_title: Agency Comments and Our Evaluation
paragraphs: On May 22, 2008, the Secretary of Veterans Affairs provided written  comments on a draft of this report. VA officials concurred with all seven of  our recommendations and provided information on steps it is taking to  address them. However, VA’s letter stated that our report overstated  findings related to the potential for lost revenue to the government and  inadequate levels of oversight. VA’s letter also stated that our conclusion  on collections improvement minimizes the significant gains VA has made  and that several improvement initiatives were so successful that they have  been designated as ongoing.
With regard to VA’s comment that we overstated findings related to the  potential for lost revenue to the government, we added language to our  report to indicate that $1.4 billion of the $1.7 billion in unbilled medical  services at the 18 case study medical centers were classified as service- connected, Medicare coverage, or lack of private health insurance  coverage. However, as noted in our report, although certain medical  services are not billable, such as service-connected treatment, VA  management has not validated reasons for these unbilled amounts to  assure that all billable costs are charged to third-party insurers. Further,  we focused on unbilled amounts related to coding, billing, and  documentation errors and other undefined problems as a basis for making  recommendations for increasing third-party revenues. In this regard, we  identified $291.5 million in unbilled amounts due to errors at the 18 case  study medical centers.
With regard to VA’s statement that it has established significant levels of  oversight, our report noted that VA has agencywide data on days to bill,  accounts receivable, and collections. However, we found that VA has not  established policies and procedures for management oversight of unbilled  amounts or compliance with follow-up requirements for outstanding third- party receivables. Further, although POWER generates metrics for several  performance indicators, these metrics do not provide VA with the full  range of management reports needed to adequately monitor unbilled  amounts and compliance with follow-up procedures. VA concurred with  our recommendation to establish oversight of unbilled amounts and  compliance with follow-up procedures and described systems  enhancements and improved monitoring activities that it expects will  address the problems related to billings, collections, and oversight we  identified.
With regard to VA’s comment that it made significant gains in collecting  third-party revenue since fiscal year 2004, there are a number of factors  that need to be considered to measure the extent of VA’s success. For  example, VA also experienced an increase of 500,000 patients that were  treated at VA medical centers during the 4-year period. In addition, the  rate of inflation for medical care over the last 4 fiscal years and changes in  inpatient and outpatient mix would need to be considered. Further, VA’s  efforts to address billing backlogs over the 4-year period could have also  contributed to the increased revenue. This type of analysis was outside the  scope of our audit and would require further study to determine the  impact of these factors on VA’s collection gains. Despite VA’s increased  third-party collections, our work showed there is a significant opportunity  to increase revenue from third-party insurers by (1) correcting errors that  have prevented appropriate billings to third-party insurers and   (2) performing timely and effective follow-up on unpaid receivables.
VA’s statement that several initiatives to enhance third-party revenue were  so successful that they have been designated as ongoing implies that target  dates for completion are not necessary. We support the concept of  ongoing efforts for continuous improvement in operations. However, three  of the six initiatives were begun in 2002 and have encountered significant  slippage and refocusing under revised management plans. For example,  initiatives related to Clinical Data Entry, the National Revenue Contracts  Office, and CPAC began under the Revenue Action Plan (RAP), which was  approved in July 2002.  These initiatives were later incorporated under the  Revenue Optimization Plan Enhancement (ROPE) plan in 2005. In  addition, the RISE plan for revenue-related system enhancements was  initiated under ROPE. Targeted implementation dates and milestones will  be key to assisting management in overseeing these initiatives to assure  that intended goals are accomplished within reasonable time frames.
Finally, VA officials informed us at the conclusion of our audit that they  revised their follow-up requirements for third-party receivables to require  increased focus on unpaid high-dollar amounts and provide more  flexibility in follow-up time frames for smaller dollar amounts. For  example, VA’s revised policy will focus on collection follow-up for  amounts of $1,500 and above within 45 days of the billing date. However,  the revised policy would extend the date for the first follow-up for bills  from $250 to $1,500 to be within 60 days of the initial bill. Going forward, it  will be important for VA to oversee and monitor the implementation of the  new policy as part of its management oversight process in order to  determine if the new policy is achieving intended results and, if not, to  perform additional analysis and make appropriate policy changes to  assure effective follow-up on unpaid third-party bills.
VA also provided technical comments and corrections which we have  addressed in our report, as appropriate. VA’s comments are reprinted in  appendix II.
As agreed with your offices, unless you announce its contents earlier, we  will not distribute this report until 30 days from its date. At that time we  will send copies of this report to interested congressional committees; the  Secretary of Veterans Affairs; the Acting Secretary of Health, Veterans  Health Administration; the VHA Chief Business Officer; and the Director of  the Office of Management and Budget. We will make copies available to  others upon request. In addition, this report will be available at no charge  on the GAO Web site at http://www.gao.gov.
Please contact me at (202) 512-9095 or dalykl@gao.gov, if you or your staff  have any questions concerning this report. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. Major contributors to this report are acknowledged in  appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Pursuant to requests from the Chairman and Ranking Minority Member of  the House Committee on Veterans’ Affairs and the Chairman and Ranking  Minority Member of the Subcommittee on Oversight and Investigations,  we performed a follow-up audit of controls over VA’s third-party billing  and collection processes, including (1) an evaluation of the effectiveness  of VA medical center billing processes at selected locations, (2) an  assessment of medical centers’ adherence to VA policies for performing  timely follow-up on unpaid accounts receivable and proper documentation  of follow-up contacts, and (3) a determination of the adequacy of VA  oversight of billing and collection processes. In addition, we summarized  the status of management initiatives undertaken to improve third-party  billing and collection processes.
We used as our criteria applicable law and VA policy, as well as our  Standards for Internal Control in the Federal Government and our  Internal Control Management and Evaluation Tool. To assess the  control environment at our test locations, we obtained an understanding  of VA processes and controls over the third-party revenue cycle. We  performed walk-throughs of these processes at several medical centers.  We interviewed management officials at selected medical centers about  their management oversight and accountability procedures over third- party billings and collections. We also reviewed applicable VA program  guidance and local policies and procedures at selected test locations and  interviewed officials about their billing and collection processes and  controls. In addition, to assure the reliability of data and information used  in this report, we reviewed VA documentation and interviewed key  officials. We also reviewed VA procedures for assuring the reliability of  data and information generated by key VA systems used in the third-party  billing and collection processes, including VHA’s Veterans Health  Information Systems and Technology Architecture (VistA) and  Performance and Operations Web-Enabled Reports (POWER) systems.
To determine if the third-party revenue offices at our 18 case study  locations had adequate management oversight and accountability for  assuring timely and accurate billings, we obtained and reviewed  management reports , including (1) Reasons Not Billable Summary and  Detailed reports and (2) Elapsed Days to Bill performance reports. We  compiled data from the Reasons Not Billable reports into a database and  established categories of reasons not billed for further analysis. We  coordinated with VHA officials on the identification of reasons not billed  categories. We interviewed medical center revenue officials at the 10 case  study medical centers with low billing performance and at CPAC, for the 8  CPAC case study medical centers, about their management oversight and  accountability procedures. Table 4 shows the two groups of case study  medical centers we examined and performance data on days to bill and  unbilled amounts for each location.
We selected a VA-wide statistical sample of billing records to assess  whether medical center accounts receivable personnel were adhering to  VA policy for timely follow-up with private insurance companies on  unpaid third-party receivables. From the universe of fiscal year 2007  collections activity, we stratified the billing records into one stratum for  bills from CPAC and one stratum from all other VA medical centers. We  randomly selected 60 bills from the CPAC stratum and 200 from the  stratum for the rest of VA. We designed this sample for control testing with  a 5 percent tolerable error rate so that if there were no errors in one of the  strata, we would be able to conclude with 95 percent confidence that the  billing records for that stratum were statistically compliant.
Our random sample of 260 bills included medical centers from each of the  21 VISNs. We used our statistical sample to assess the population of  follow-up contacts for receivables greater than $250 that were outstanding  for at least 45 days at any point during fiscal year 2007. We explain the  results of our statistical sample in terms of control attributes related to  adherence to VA policy guidance for (1) performing timely initial and  subsequent follow-up, as appropriate, on unpaid amounts, (2) whether  accounts receivable personnel properly documented follow-up contacts,  and (3) whether accounts receivable staff properly documented reasons  why adjustments to decrease billed amounts were made. We present our  statistical results as (1) our projection of the estimated error overall  (failure rate) and for each control attribute as point estimates and (2) the  95 percent, two-sided, confidence intervals for control failure rates. Our 95  percent confidence interval means that if you were to determine an  estimate for 100 different random samples, 95 out of 100 times, the  estimate would fall within the confidence interval. In other words, the true  value is between the lower and upper limits of the confidence interval 95  percent of the time. We generally report our statistical results as point  estimates that fall within confidence intervals. However, because  confidence intervals varied widely for our various control tests, we  focused on the lower bound of our confidence intervals as a conservative  estimate of our test results. As additional information, we present our  detailed test results below, including the point estimate and the upper and  lower bound of our 95 percent confidence intervals. Table 5 shows our  detailed test results for timely follow-up on unpaid third-party bills totaling  $250 or more.
Table 6 shows the detailed results of our tests of VA-wide controls for  documenting the details of follow-up contacts made with third-party  insurers.
Our tests of whether accounts receivable personnel adequately  documented reasons for adjustments to decrease billed amounts found a  VA-wide failure rate of 44 percent, as shown in table 7.
To assess VA management oversight of third-party billing and collection  processes, we interviewed medical center and CPAC management officials  at our case study locations and reviewed available data and reports used  by these managers. Three of our 10 case study locations with low billing  performance and CPAC were also included in our statistical tests of  collection follow-up procedures. We also reviewed related VA and VHA  policies and available VHA CBO management reports. In addition, we  interviewed VHA officials about their oversight procedures, including  limitations in systems reporting capabilities.
To follow up on management initiatives undertaken to improve third-party  billings and collections, we obtained and reviewed information and  interviewed VA managers on the objectives, status, and targeted  completion dates for eight major initiatives. We did not evaluate the  initiatives or independently assess the information provided by VA  officials. However, we evaluated billing controls and tested compliance  with controls for accounts receivable follow-up for the medical centers  under the CPAC pilot initiative.
We briefed VA managers at our test locations and VA headquarters,  including VA medical center directors, VA headquarters information  resource management and property management officials, and VHA’s  Chief Business Officer on the details of our audit, including our findings  and their implications. On April 30, 2008, we requested comments on a  draft of this report. We received comments on May 22, 2008, and have  summarized those comments in the Agency Comments and Our Evaluation  section of this report. We conducted our audit work from January 2007  through May 2008 in accordance with generally accepted government  auditing standards. Those 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 objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Veterans Affairs
section_title: Appendix III: Actual Test Results for Timely First Follow-up on Unpaid Bills with Third- Party Insurers
paragraphs: Table 8 lists our actual test results for timely first follow-up on unpaid  third-party billings by medical centers within each VISN. As noted at the  end of the table, 183 of the 260 bills in our stratified random sample failed  this control test.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Gayle L. Fischer, Assistant  Director; F. Abe Dymond, Assistant General Counsel; Carl S. Barden;  Deyanna J. Beeler; Francine DelVecchio; Lauren S. Fassler; Jason Kelly;  Amanda K. Miller; Matthew L. Wood; and MatthewP. Zaun made key  contributions to this report.