VA Health Care: Guidance Needed for Determining the Cost to Collect from Veterans and Private Health Insurers
Published: 2004-07-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: During a May 2003 congressional hearing, questions were raised about the accuracy of the Department of Veterans Affairs' (VA) reported costs for collecting payments from veterans and private health insurers for its Medical Care Collections Fund (MCCF). Congress also had questions about VA's practice of using third-party collections to satisfy veterans' first-party debt. GAO's objectives were to determine: (1) the accuracy of VA's reported cost for collecting first- and third-party payments from veterans and private health insurers, and (2) how VA's practice of satisfying first-party debt with third-party payments affects the collections process.
section_title: What GAO Found
paragraphs: VA has not provided guidance to its Chief Business Office and Veterans Integrated Service Networks (VISN) for accounting for the costs associated with collecting payments from veterans and private health insurers. As a result, GAO found that the Chief Business Office and VISNs excluded some costs associated with collecting first- and third-party payments. In addition, GAO found inconsistencies in the way VISNs allocate these costs. Consequently, VA's reported costs to collect are inaccurate. VA's practice of satisfying--or paying for--first-party, or veterans' copayment debt, with collections from third-party insurers has resulted in a reduction in overall collections and increased administrative expenses due to the reconciliation process. VA has taken the position that payments made from third-party insurers should be used to satisfy veterans' first-party debt. The law and legislative history are not clear on whether third-party collections can be used for this purpose.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) pays and provides for the  service-connected and nonservice-connected health care needs of eligible  veterans. In general, for nonservice-connected care, that is, for disabilities  that are not a result of injuries or illnesses incurred or aggravated during  military service, VA bills and collects copayments from veterans.  Additionally, some veterans maintain other health insurance and VA bills  and collects funds from these insurers for nonservice-connected care.  Health care costs recovered from veterans (first-party collections) and  insurers (third-party collections) totaled about $682 million and $804  million, respectively, in fiscal year 2003. These payments were VA’s largest  source of revenue to supplement its $25.5 billion medical care  appropriation in that year.
During your May 2003 hearing on VA’s third-party collection efforts you  expressed concern about the accuracy of reported costs for collecting  payments from veterans and private health insurers for VA’s Medical Care  Collections Fund (MCCF). You also had questions about VA’s practice of  using third-party collections to satisfy—or pay for—a veteran’s first-party  debt. Our objectives were to determine: (1) the accuracy of VA’s reported  cost for collecting first- and third-party payments from veterans and  private health insurers, and (2) how VA’s practice of satisfying first-party  debt with third-party payments affects the collections process.
To conduct our review, we examined VA’s collections data for fiscal year  2003; reviewed relevant VA documents, such as MCCF organizational and  flow charts; interviewed financial officers for large private sector hospital  systems; and consulted with the Healthcare Financial Management  Association to identify industry practices for calculating the cost for  collecting first- and third-party payments. We also interviewed officials in  VA’s central office and all of its Veteran Integrated Service Networks  (VISN) to better understand the resources expended to collect first- and  third-party revenue and the use of third-party revenue to satisfy first-party  debt. Our work was performed from June 2003 through June 2004 in  accordance with generally accepted government auditing standards. For  more details on our scope and methodology, see appendix I.
subsections: section_title: Background
paragraphs: VA operates one of the nation’s largest health care systems to provide care  to approximately 5.2 million veterans who receive health care through 158  VA medical centers (VAMC) and almost 900 outpatient clinics nationwide.  The VA health care system also consists of nursing homes, residential  rehabilitation treatment programs, and readjustment counseling centers.
In 1986 Congress authorized VA to collect payments from third-party  health insurers for the treatment of veterans with nonservice-connected  disabilities, and it also established copayments from veterans for this  care. Funds collected were deposited into the U.S. Treasury as  miscellaneous receipts and were not made specifically available to VA to  supplement its medical care appropriations. The Balanced Budget Act of  1997 established a new fund in the U.S. Treasury, the Department of  Veterans Affairs Medical Care Collections Fund, and authorized VA to use  funds in this account to supplement its medical care appropriations. As  part of VA’s 1997 strategic plan, VA expected that collections from first-  and third-party payments would cover the majority of the cost of care  provided to veterans for nonservice-connected disabilities. VA has  determined that some of these veterans, about 25 percent of VA’s user  population in fiscal year 2002, were required to pay a copayment because  of their income levels.
In September 1999, VA adopted a fee schedule, called “reasonable  charges,” which are itemized fees based on diagnoses and procedures.  This schedule allows VA to more accurately bill for the care provided. To  implement this, VA created additional bill-processing functions— particularly in the areas of documenting care, coding the care, and  processing bills for each episode of care.
To collect from health insurers, VA uses a four-function process with 13  activities to manage the information needed to bill and collect third-party  payments—also known as the MCCF revenue cycle (see fig. 1). First, the  intake revenue cycle function involves gathering insurance information on  the patient and verifying that information with the insurer as well as  collecting demographic data on the veteran. Second, the utilization review  function involves precertification of care in compliance with the veteran’s  insurance policy, including continued stay reviews to obtain authorization  from third-party insurers for payment. Third, the billing function involves  properly documenting the health care provided to patients by physicians  and other health care providers. Based on the physician documentation,  the diagnoses and medical procedures performed are coded. VA then  creates and sends bills to insurers based on the insurance and coding  information obtained. Finally, the collections, or accounts receivable,  function includes processing payments from insurers and following up on  outstanding or denied bills. See appendix II for a description of the  activities that take place within each of the four functions.
VA’s Chief Business Office utilizes a performance measure—an efficiency  rating it refers to as “cost to collect”—that reflects VA’s cost to collect one  dollar from first- and third-parties. To calculate the efficiency rating VA  divides the costs of generating a bill and collecting payments from  veterans and private health insurers by the actual revenue received from  these sources. To measure the cost, cost data are extracted from two  financial accounts, or cost centers, which are intended to capture field  office costs and central office costs. Specifically, cost centers are used for  classifying costs related to each of the 13 functional activities and the  organizations that support these activities.
According to an official with the Healthcare Financial Management  Association, because business practices differ among entities, there are  many variables that entities include in their calculations of the cost for  collecting funds from first and third parties. Thus, a comparison of  collection efficiency—the cost to collect one dollar—between different  entities would be difficult. However, according to the official, it is  reasonable to expect that business practices within the same organization  such as the VA can be standardized, which would facilitate such a  comparison internally.
The VA health care system has unique rules and regulations governing its  billing practices. For instance, VA is generally not authorized to bill  Medicare or Medicaid for care provided to Medicare- or Medicaid-eligible  veterans. VA must pay for all inpatient and outpatient care associated with  a service-connected disability—it cannot collect copayments or bill third- party insurers for this care.
VA uses third-party collections to satisfy veterans’ first-party debt.  Specifically, if VA treats an insured veteran for a nonservice-connected  disability, and the veteran is also determined by VA to have copayment  responsibilities, VA will apply each dollar collected from the insurer to  satisfy the veteran’s copayment debt related to that treatment. As we  stated in a previous report to Congress, the statutes governing VA  recoveries from private health insurers and veteran copayments do not  clearly specify the relationship between the two provisions. In the absence  of definitive guidance in the law, VA’s General Counsel has determined  that insurance recoveries should be used to satisfy veterans’ copayment  debt. The law and the relevant legislative history are not clear on whether  third-party collections can be used for this purpose.
section_title: Lack of Guidance Results in Inaccurate Reporting of Costs
paragraphs: VA has not provided guidance to the Chief Business Office or VISNs for  accounting for the costs associated with collecting payments from  veterans and private health insurers. As a result, we found that VA’s Chief  Business Office and VISNs did not allocate certain costs associated with  activities related to collecting first- and third-party payments to the two  cost centers used in the calculation of cost to collect. In addition, we  found inconsistencies in the way VISNs allocated these costs to the field  office cost center. Consequently, reported costs to collect are inaccurate.
We found that some costs incurred by VA’s central office as part of its  efforts for collecting first- and third-party payments were not allocated to  the central office cost center. For example, the following activities are  costs incurred by organizations that support the Chief Business Office, but  are not included in the central office cost center:    Staff at the Health Eligibility Center spend a portion of their time  determining veterans’ copayment status.
Staff at the Health Revenue Center processed first-party refunds resulting  from a settlement with a third-party payer regarding claims submitted  from January 1995 through December 2001. VA reported that about 15 full- time staff members are dedicated to this effort.
Staff assigned to Health Informatics assisted with contractor-developed  software to review third-party claims for accuracy.
Some costs incurred by field locations also were not always allocated to  the field office cost center. Cost allocation differences occur because VA  does not provide guidance to its field locations on which costs to allocate  to specific cost centers. Thus, each of VA’s health care VISNs makes a  determination as to which cost center to use when allocating costs for  specific revenue cycle functions—such as patient intake and registration  and utilization review. Figure 2 shows inconsistencies among VISNs in the  way they allocate costs to some of the activities within the revenue cycle  functions. For example, for precertification and certification activities  within the utilization review function, 13 VISNs allocated all of the cost, 3  VISNs allocated some costs, and 5 VISNs allocated none of the cost to the  field office cost center. In addition, the following are examples of costs  that are related to collection activities but were not included in the costs  for collecting payments:    A veteran call center in VISN 8 (Bay Pines, Florida)—staffing resources  valued at about $635,000 designed to assist veterans with questions about  bills they receive and, if necessary, the arrangement of payment plans.
Two service contracts in VISN 2 (Albany, New York)—approximately  $470,000 in contract expenses for collecting third-party payments and a  service contract estimated at $104,000 for insurance verification.
Two service contracts in VISN 10 (Cincinnati, Ohio)—approximately  $100,000 in contract expenses to use a software package that reviews  claims sent to third-party insurers for technical accuracy. Also not  included was an estimated $425,000 to license the use of insurance  identification and verification software.
In an attempt to standardize how MCCF staff carry out the revenue cycle  functions and to instill fiscal discipline throughout its entire health system,  VA is piloting the Patient Financial Services System (PFSS) in VISN 10  (Cincinnati, Ohio). PFSS is a financial software package that contains  individual patient accounts for billing purposes. According to the Chief  Business Office, the system is a key element to standardize MCCF  operations throughout the entire VA health care system. PFSS is expected  to improve first- and third-party collections by capturing and consolidating  inpatient and outpatient billing information. However, PFSS is not  currently designed to capture the cost of staff time for these activities—a  key element for assessing the efficiency of VA’s collection efforts.
section_title: Satisfying First-Party Debt with Third-Party Payments Limits Overall Collections
paragraphs: VA’s practice of satisfying veterans’ copayment debt with collections from  third-party insurers has reduced overall collections and increased  administrative expenses. VA does not quantify the lost revenue from  veterans’ copayments that is not collected and could be used to  supplement its medical care appropriation. Based on interviews with  network officials and site visits to individual medical facilities, we did not  discover any locations that track the volume of first-party debt that is not  collected and its relative dollar value. Hence, the exact dollar value of  first-party revenue that was not collected is unknown.
Seventeen of the 21 network officials we interviewed stated that  considerable administrative time is dedicated to the process required to  satisfy first-party debt with third-party collections—resources that could  be invested elsewhere if the practice did not exist. One facility official  estimated that approximately 5 full-time equivalent staff are used to satisfy  first-party debt. Furthermore, one VISN official estimated that its medical  facilities use approximately 11 full-time equivalent staff on this process.
Collections staff routinely receive insurance payments that include  voluminous reports that detail each claim. For example, one medical  center provided us with a report that contained approximately 1,000 line  items, each representing a pharmaceutical reimbursement. Staff at the  medical center must sort through each line item and manually match it to  a claim in the veteran’s file to determine if the veteran was charged a  copayment for the pharmaceutical. In those cases where VA receives a  reimbursement and the veteran was charged a copayment, VA will issue a  credit or refund to the veteran—in the case of pharmaceuticals this  amount can be up to $7.
VA will delay billing copayments to veterans with private health insurance  for 90 days to allow time for the insurer to reimburse VA. However, when  insurers reimburse VA after the 90-day period, VA must absorb the cost of  additional staff time for processing a refund if the veteran has already paid  the bill.
In our 1997 report, we discussed that VA’s practice of satisfying  copayment debt with recoveries made from third-party insurers has  resulted in reduced overall cost recoveries and increased administrative  expense. In the report we suggested that Congress consider clarifying the  cost recovery provisions of title 38 of the U.S. Code to direct VA to collect  copayments from patients regardless of any amounts recovered from  private health insurance except in instances where the insurer pays the  full cost of VA care.
section_title: Conclusions
paragraphs: VA does not provide guidance to its Chief Business Office and VISNs for  accounting for the costs associated with collecting payments from private  health insurers and veterans. As a result, VA’s Chief Business Office and  VISNs did not allocate certain costs associated with activities related to  collecting first- and third-party payments to the two cost centers used by  the Chief Business Office in its calculation of cost to collect. In addition,  we found inconsistencies in the way VISNs allocated these costs to the  field office cost center. Consequently, VA’s reported cost-to-collect  measure is inaccurate. Furthermore, VA has determined that it should use  collections from private health insurers to satisfy veteran copayment debt.  The law is silent on this point. VA’s determination has resulted in  increased administrative expenses and reduced overall collections, thus  making fewer dollars available for veteran health care. We believe our  previous suggestion to Congress—that it consider clarifying the cost  recovery provisions of title 38 of the U.S. Code to direct VA to collect  copayments from patients regardless of any amounts recovered from  private health insurance except in instances where the insurer pays the  full cost of VA care—is still valid. Such action would reduce the  administrative burden on VA staff, reduce VA administrative expenses, and  allow VA to maximize collections to help meet its costs for providing  health care.
section_title: Recommendation for Executive Action
paragraphs: To accurately determine and report the cost to collect first- and third-party  payments, we recommend that the Secretary of Veterans Affairs direct the  Under Secretary for Health to provide guidance for standardizing and  consistently applying across VA the accounting of costs associated with  collecting payments from veterans and private health insurers.
section_title: Agency Comments
paragraphs: We provided a draft of this report to VA for comment. In oral comments,  an official in VA’s Office of Congressional and Legislative Affairs informed  us that VA concurred with our recommendation.
We are sending copies of this report to the Secretary of Veterans Affairs,  interested congressional committees, and other interested parties. We will  also make copies available to others upon request. In addition, this report  will be available at no charge on GAO’s Web site at http://www.gao.gov/.
If you or your staff have any questions about this report, please call me at  (202) 512-7101 or Michael T. Blair, Jr., at (404) 679-1944. Michael Tropauer  and Aditi Shah Archer contributed to this report.
section_title: Appendix I: Scope and Methodology
paragraphs: To do our work, we reviewed our prior work and Department of Veterans  Affairs (VA) Office of Inspector General reports on VA’s first- and third- party revenue collection for the Medical Care Collections Fund (MCCF).  We obtained and reviewed copies of VA policies and regulations governing  these collection activities. Also, we reviewed statements by the Federal  Accounting Standards and Advisory Board on managerial cost accounting  concepts and standards for the federal government.
We interviewed officials at VA’s Chief Business Office, which provides  policy guidance to MCCF field staff, and obtained information on what  they consider to be direct expenses of collecting first- and third-party  revenue and documentation on how they calculate the cost to collect first-  and third-party revenue. This information was validated through telephone  interviews of key officials at each of VA’s 21 networks and site visits to 4  medical facilities. Also, we obtained information on the organizational  structure for each network and its medical facilities and obtained the  views of VISN and medical facility officials on the accuracy of the Chief  Business Office’s cost reporting. In addition, we obtained information  from the Healthcare Financial Management Association on other health  care industry practices for reporting the cost to collect first- and third- party payments.
Regarding the practice of satisfying first-party debt with third-party  revenue, we reviewed past opinions and decisions by VA’s Office of  General Counsel, applicable laws and regulations, and existing GAO  matters for consideration. We also discussed the implementation of VA’s  Office of General Counsel’s decisions with staff from VA’s Chief Business  Office and medical facilities.
section_title: Appendix II: Medical Care Collections Fund Revenue Cycle Activities
paragraphs: In 1986, Congress authorized VA to collect payments from third-party  health insurers for the treatment of veterans with nonservice-connected  disabilities, and it also established copayments for this care. Funds  collected were deposited into the U.S. Treasury as miscellaneous receipts  and not made specifically available to the VA to supplement its medical  care appropriations. The Balanced Budget Act of 1997 established a new  fund in the U.S. Treasury, the Department of Veterans Affairs Medical Care  Collections Fund, and authorized VA to use funds in this account to  supplement its medical care appropriations. To collect from health  insurers, VA uses a four-function process with the following 13 activities to  bill and collect third-party payments.   1.  Patient Registration: Collecting patient demographic information,  determining eligibility for health care benefits, ascertaining financial  status, and obtaining consent for release of medical information.  2.  Insurance Identification: Obtaining insurance information from  veteran, spouse, or employer.  3.  Insurance Verification: Confirming patient insurance information  and contacting third-party insurer for verification of coverage and  benefit structure.  4.  Precertification and Certification: Contacting third-party insurer to  obtain payment authorization for VA-provided care.  5.  Continued Stay Reviews: Reviewing clinical information and  obtaining payment authorization from third-party insurer for  continuation of care.  6.  Coding and Documentation: Reviewing and assigning appropriate  codes to document diagnosis of patient ailment and treatment  procedures and validating information documented by the physician.  7.  Bill Creation: Gathering pertinent data for bills; authorizing and  generating bills; and submitting bills to payers.  8.  Claims Correspondence and Inquiries: Providing customer service  for veterans, payers, Congress, and VA Regional Counsel.  9.  Establishment of Receivables: Reviewing outstanding claims sent to  third-party insurers and identifying amount of payment due to VA for  collection follow-up work.  10.  Payment Processing: Reviewing, posting, and reconciling payment  received.  11.  Collection Correspondence and Inquiries: Following up with  payers; resolving first-party bankruptcies, hardships and waivers;  processing refund requests, repayment plans, and returned checks;  referring claims to utilization review; and generating probate action.  12.  Referral of Indebtedness: Referring delinquent first-party debt to  the U.S. Treasury for collection against any future government  payment to the veteran, such as reducing an income tax refund by the  amount of the first-party debt.  13.  Appeals: Receiving notification of partial or nonpayment from the  third-party insurer, reviewing documentation, initiating an appeal to  the third-party insurer for payment, and following up for appropriate  payment.
section_title: Related GAO Products
paragraphs: VA Health Care: VA Increases Third-Party Collections as It Addresses  Problems in Its Collections Operations. GAO-03-740T. Washington, D.C.:  May 7, 2003.
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.
VA Medical Care: Increasing Recoveries From Private Health Insurers  Will Prove Difficult. GAO/HEHS-98-4. Washington, D.C.: October 17, 1997.
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