oversight

VA Health Care: Third-Party Collections Rising as VA Continues to Address Problems in Its Collections Operations

Published by the Government Accountability Office on 2003-01-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States General Accounting Office

GAO            Report to the Chairman, Subcommittee
               on Oversight and Investigations,
               Committee on Veterans’ Affairs, House
               of Representatives

January 2003
               VA HEALTH CARE

               Third-Party
               Collections Rising as
               VA Continues to
               Address Problems in
               Its Collections
               Operations




GAO-03-145
                                               January 2003


                                               VA HEALTH CARE

                                               Third-Party Collections Rising as VA
Highlights of GAO-03-145, a report to the      Continues to Address Problems in Its
Chairman, Subcommittee on Oversight
and Investigations, Committee on               Collections Operations
Veterans' Affairs, House of
Representatives




The Department of Veterans Affairs             VA's fiscal year 2002 third-party collections rose by 32 percent, continuing an
(VA) collects health insurance                 upward trend that began in fiscal year 2001. The increase in collections
payments, known as third-party                 reflected VA's improved ability to manage the larger billing volume and more
collections, for veterans’ health              itemized bills required under its new fee schedule. Billings increased mainly
care conditions it treats that are             due to a reduction of billing backlogs and improved collections processes—
not a result of injuries or illnesses
incurred or aggravated during
                                               such as better medical documentation prepared by physicians, more
military service. In September                 complete identification of billable care by coders, and more bills prepared
1999, VA adopted a new fee                     per biller—according to VA managers in three regional health care networks.
schedule, called “reasonable                   However, VA continues to address operational problems, such as missed
charges,” that it anticipated would            billing opportunities, that limit the amount VA collects.
increase revenues from third-party
collections.                                   To address operational problems and further increase collections, VA has
                                               several initiatives under way and is developing additional ones. VA has been
In 2001, GAO testified that                    implementing initiatives in its 2001 improvement plan that was designed to
problems in VA’s collections                   address operational problems, such as unidentified insurance for some
operations diminished VA’s                     patients, insufficient documentation of services for billing, shortages of
collections. For this report, GAO
was asked to examine VA’s third-
                                               coding staff, and insufficient pursuit of accounts receivable. VA’s last formal
party collections and problems in              status report in May 2002 designated only 8 of the plan’s 15 initiatives
collections operations for fiscal              scheduled for completion by that time as having been completed. VA
year 2002 as well as its initiatives to        continues implementation of this plan and is also developing new initiatives,
improve collections.                           such as an automated financial system to better serve billing needs. It is too
                                               early to evaluate the extent to which VA’s full implementation of its 2001
                                               plan and new initiatives will be able to address operational problems and
                                               further increase third-party collections. In commenting on a draft of this
                                               report, VA generally agreed with our findings

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




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

To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Cynthia A.
Bascetta at (202) 512-7101.
Contents


Letter                                                                                    1
              Results in Brief                                                            2
              Background                                                                  3
              Collections Are Increasing, but Operational Problems Limit
                Insurance Payments                                                        5
              VA Is Implementing Planned Actions and Developing Other
                Initiatives to Address Problems in Collections Operations                9
              Concluding Observations                                                   14
              Agency Comments and Our Evaluation                                        14

Appendix I    Scope and Methodology                                                     16



Appendix II   Comments from the Department of Veterans
              Affairs                                                                   18



Table
              Table 1: Percentage Increases in Collections for Networks Selected
                       for Study, October 2000 through February 2001 Compared
                       to October 2001 through February 2002                            17


Figures
              Figure 1: VA’s Third-Party Collections Processes                            4
              Figure 2: VA’s Third-Party Collections, Fiscal Years 1997 through
                       2002                                                               6
              Figure 3: Improvement Plan’s Actions Designated as Completed by
                       VA, as of May 25, 2002                                           11




              Abbreviations

              HMO           health maintenance organization
              PFSS          Patient Financial Services System
              VA            Department of Veterans Affairs
              VHA           Veterans Health Administration



              Page i                                  GAO-03-145 VA Third-Party Collections
United States General Accounting Office
Washington, DC 20548




                                   January 31, 2003

                                   The Honorable Steve Buyer
                                   Chairman
                                   Subcommittee on Oversight and Investigations
                                   Committee on Veterans’ Affairs
                                   House of Representatives

                                   Dear Mr. Chairman:

                                   The Department of Veterans Affairs (VA) provides health care to eligible
                                   veterans and, under certain circumstances, VA is authorized to collect
                                   reasonable charges from their health insurers. Specifically, VA can bill
                                   insurers for treatment of conditions that are not a result of injuries or
                                   illnesses incurred or aggravated during military service.1 VA cannot bill for
                                   health care conditions that result from military service, nor is it generally
                                   authorized to collect from Medicare and Medicaid. In fiscal year 2002, VA
                                   collected $687 million in insurance payments, which are known as third-
                                   party collections. These collections were VA’s largest source of revenue to
                                   supplement its $21 billion medical care appropriation, and they helped pay
                                   for veterans’ growing demand for care. The total number of veterans VA
                                   treated has increased from 2.6 million in fiscal year 1996 to 3.8 million in
                                   fiscal year 2001, and VA predicts continuing growth in its patient
                                   workload.2

                                   Over the past several years, we and others have raised concerns about
                                   VA’s ability to maximize its third-party collections to enhance revenue. For
                                   example, a VA Inspector General report stated that VA missed billing
                                   opportunities, had billing backlogs, and did inadequate follow-up on
                                   accounts receivable in fiscal years 2000 and 2001.3 We testified in
                                   September 2001 that problems in VA’s collections operations—such as
                                   inadequate patient intake procedures to gather insurance information,


                                   1
                                    VA cannot collect payments from certain insurers. For example, VA cannot collect
                                   payments from health maintenance organizations (HMOs) when VA is not a participating
                                   provider.
                                   2
                                    According to VA’s estimate, there were about 25 million veterans in 2001.
                                   3
                                   VA Office of Inspector General, Audit of the Medical Care Collection Fund Program,
                                   Report No. 01-00046-65 (Washington, D.C.: Feb. 26, 2002).



                                   Page 1                                             GAO-03-145 VA Third-Party Collections
                   insufficient physician documentation, a shortage of qualified coders, and
                   insufficient automation—diminished VA’s collections.4

                   At your request, we have examined VA’s progress with third-party
                   collections since September 2001. In this report, we are providing an
                   update on (1) VA’s third-party collections and problems in collections
                   operations for fiscal year 2002 and (2) VA’s initiatives to improve
                   collections. To conduct our review, we examined VA’s collections data for
                   fiscal years 2001 and 2002; reviewed relevant VA documents, such as its
                   2001 collections improvement plan; and interviewed officials in VA
                   headquarters and in 3 of VA’s 21 health care networks5—Network 2
                   (Albany), Network 9 (Nashville), and Network 22 (Long Beach)—to better
                   understand the reasons for increased collections. Our work was
                   performed from February 2002 through January 2003 in accordance with
                   generally accepted government auditing standards. For more details on
                   our scope and methodology, see appendix I.


                   VA’s third-party collections for fiscal year 2002 totaled $687 million, 32
Results in Brief   percent more than for fiscal year 2001. VA’s increased collections have
                   resulted from VA’s submitting more insurance bills and receiving more
                   payments than in the prior year. Billings increased mainly due to a
                   reduction of billing backlogs and improved collections processes—such as
                   better medical documentation prepared by physicians, more complete
                   identification of billable care by coders, and more bills prepared per
                   biller—according to VA managers in three health care networks. Although
                   VA reported improvements, we found that operational problems, such as
                   missed billing opportunities, continued to limit collections. As a result, VA
                   lacks a reliable estimate of uncollected dollars and therefore does not
                   have the basis to assess its systemwide operational effectiveness.

                   To further improve collections, VA has several initiatives under way and is
                   developing additional ones. In September 2001, VA produced its Veterans
                   Health Administration Revenue Cycle Improvement Plan that included 24
                   actions to improve collections by addressing problems, such as



                   4
                    U.S. General Accounting Office, VA Health Care: VA Has Not Sufficiently Explored
                   Alternatives for Optimizing Third-Party Collections, GAO-01-1157T (Washington, D.C.:
                   Sept. 20, 2001).
                   5
                    The management of VA’s hospitals and other health care facilities is decentralized to 21
                   regional networks.




                   Page 2                                             GAO-03-145 VA Third-Party Collections
             unidentified insurance for some patients and gaps in the automated
             capture of billing data. However, VA’s last formal status report in May 2002
             designated only 8 of these actions as completed, although 15 were
             scheduled for completion by that time. The plan is scheduled for full
             implementation by the end of 2003. In May 2002 VA also established the
             Chief Business Office in its Veterans Health Administration (VHA) to
             direct VHA’s Revenue Office and to develop a new approach for VA’s
             collections activity. VA officials told us that the new approach will
             combine the improvement plan’s actions with additional initiatives, such
             as the development of an automated financial system that better serves
             billing needs. The new approach is also intended to establish additional
             performance measures and standards for oversight of collections units’
             performance and to strengthen VA’s understanding of how to improve
             collections. However, it is too early to evaluate the extent to which VA will
             be able to address operational problems and further increase collections
             by fully implementing its 2001 plan and new approach.

             In commenting on a draft of this report, VA generally agreed with our
             findings. VA suggested that our title should emphasize its effort to build
             infrastructure for effective collections operations rather than its
             continuing effort to address problems in collections operations. We
             believe that our title is accurate because VA continues to address
             problems that we and others have identified in VA’s collections operations.


             Although VA has been authorized to collect third-party health insurance
Background   payments since 1986, it was not allowed to use these funds to supplement
             its medical care appropriations until enactment of the Balanced Budget
             Act of 1997. Part of VA’s 1997 strategic plan was to increase health
             insurance payments and other collections to help fund an increased health
             care workload. The potential for increased workload occurred in part
             because the Veterans’ Health Care Eligibility Reform Act of 1996
             authorized VA to provide certain medical care services not previously
             available to veterans without service-connected disabilities or low
             incomes. VA expected that collections from third-party payments,
             copayments, and deductibles would cover the majority of costs for higher-
             income veterans without service-connected disabilities. These veterans
             increased from about 4 percent of all veterans treated in fiscal year 1996 to
             about 20 percent in fiscal year 2001.

             To collect from health insurers, as shown in figure 1, VA uses five related
             processes to manage the information needed to bill and collect. The
             patient intake process involves gathering insurance information and


             Page 3                                    GAO-03-145 VA Third-Party Collections
                                         verifying that information with the insurer. The medical documentation
                                         process involves properly documenting the health care provided to
                                         patients by physicians and other health care providers. The coding process
                                         involves assigning correct codes for the diagnoses and medical procedures
                                         based on the documentation. Next the billing process serves to create and
                                         send bills to insurers based on the insurance and coding information.
                                         Finally, the accounts receivable process includes processing payments
                                         from insurers and following up with insurers on outstanding or denied
                                         bills.

Figure 1: VA’s Third-Party Collections Processes




                                         In 1999, VA adopted a new fee schedule, called “reasonable charges,”
                                         which are itemized fees based on diagnoses and procedures, and the new
                                         schedule allows VA to bill in a way that more accurately captures the care
                                         provided. Previously, VA had nine charges for inpatient care and one
                                         charge for outpatient care. These charges were not specific to the care
                                         provided. For example, VA had charged the same per diem rate for any
                                         patient in a surgical bed section regardless of the care provided. In
                                         addition, before adopting the new fee schedule, VA had billed all
                                         outpatient visits, including surgery, based on VA’s average outpatient cost
                                         of $229, a single rate that had limited VA’s ability to collect higher amounts
                                         for more expensive care. In contrast, when the reasonable charges fee
                                         schedule was adopted in September 1999, an outpatient hernia surgery
                                         charge increased to about $6,500; and an office visit charge for an
                                         established patient decreased to a range of about $22 to $149, depending
                                         on the care given.6




                                         6
                                          These amounts reflected the national average charges in September 1999 for the services
                                         specified. To reflect the amounts charged by other local providers, the charges that VA
                                         actually bills vary by the locality in which VA services are provided.




                                         Page 4                                           GAO-03-145 VA Third-Party Collections
                          By linking charges to the care provided, VA created new bill-processing
                          demands—particularly in the three areas of documenting care, coding that
                          care, and processing bills per episode of care. First, VA must be prepared
                          to provide an insurer supporting medical documentation for the itemized
                          charges. Second, VA must accurately assign medical diagnoses and
                          procedure codes to set appropriate charges, a task which requires coders
                          to search through medical documentation and various databases to
                          identify all billable care. Third, in contrast to a single bill for an episode of
                          care under the previous fee schedule, under reasonable charges VA must
                          prepare a separate bill for each provider involved in the care and an
                          additional bill if a hospital facility charge applies.


                          For fiscal year 2002, VA collected third-party payments of $687 million, a
Collections Are           32 percent increase over its fiscal year 2001 collections. The increased
Increasing, but           collections in fiscal year 2002 resulted from VA’s submitting and collecting
                          for more bills than previously. According to three network revenue
Operational Problems      managers we interviewed, billings increased mainly because of a reduction
Limit Insurance           of billing backlogs and improvements in the processes necessary to collect
                          under the new reasonable charges fee schedule. Nevertheless, VA’s ability
Payments                  to collect was limited by problems such as missed billing opportunities.
                          VA does not know how many dollars remain uncollected because of such
                          limitations.


Third-Party Collections   For fiscal year 2002, VA collected $687 million, up 32 percent compared to
Increased                 the $521 million collected during fiscal year 2001. The increased
                          collections reflected VA’s processing a higher volume of bills than it did in
                          the prior fiscal year. VA processed and received payments for over 50
                          percent more bills in fiscal year 2002 than in fiscal year 2001. VA’s
                          collections grew at a lower percentage rate than the number of paid bills
                          because the average payment per paid bill dropped 18 percent compared
                          to the prior fiscal year. Average payments dropped primarily because a
                          rising proportion of VA’s paid bills were for outpatient care rather than
                          inpatient care. Since the charges for outpatient care were much lower on
                          average, the payment amounts were typically lower as well.

                          VA had difficulties establishing the collections processes to bill under a
                          new fee schedule, processes which were necessary to achieve the
                          increased billing and collections in fiscal year 2002. Although VA
                          anticipated that the shift to reasonable charges would yield higher
                          collections, collections dropped in fiscal year 2000 after implementing the
                          new fee schedule in September 1999. VA attributed that drop to its being


                          Page 5                                       GAO-03-145 VA Third-Party Collections
unprepared to bill under reasonable charges, particularly because of its
lack of proficiency in developing medical documentation and coding to
appropriately support a bill. As a result, VA reported that many VA medical
centers developed billing backlogs after initially suspending billing for
some care.

As shown in figure 2, VA’s third-party collections increased in fiscal year
2001—reversing fiscal year 2000’s drop in collections—and increased
again in fiscal year 2002. After initially being unprepared in fiscal year 2000
to bill reasonable charges, VA began improving its implementation of the
processes necessary to bill and increase its collections. According to VA,
by the summer of 2000, facilities had sufficiently implemented processes
to move forward with billing under reasonable charges. By the end of
fiscal year 2001, VA had submitted 37 percent more bills to insurers than in
fiscal year 2000. VA submitted even more in fiscal year 2002, over 8 million
bills that constituted a 54 percent increase over the number in fiscal year
2001.

Figure 2: VA’s Third-Party Collections, Fiscal Years 1997 through 2002




Page 6                                        GAO-03-145 VA Third-Party Collections
                            VA officials cited various sources for an increased number of bills in fiscal
                            year 2002. Managers we spoke with in three networks—Network 2
                            (Albany), Network 9 (Nashville), and Network 22 (Long Beach)—mainly
                            attributed the increased billing to reductions in billing backlogs. They also
                            cited an increased number of patients with billable insurance as a factor
                            for the increased billing. In addition, a May 2001 change in the reasonable-
                            charges fee schedule for medical evaluations allowed billing for a facility
                            charge in addition to billing for the professional service charges, a change
                            that contributed to the higher volume of bills in fiscal year 2002.

                            Increased collections for fiscal year 2002 reflected VA’s improved ability to
                            manage the volume and billing processes required to produce multiple
                            bills under reasonable charges, according to three network revenue
                            managers. Networks 2 (Albany) and 9 (Nashville) reduced backlogs, in
                            part by hiring more staff, contracting for staff, or using overtime to
                            process bills and accounts receivable. Network 2 (Albany), for instance,
                            managed an increased billing volume through mandatory overtime for
                            billers. Managers we interviewed in all three networks noted better
                            medical documentation provided by physicians to support billing. In
                            Network 22 (Long Beach) and Network 9 (Nashville), revenue managers
                            reported coders were getting better at identifying all professional services
                            that can be billed under reasonable charges.7 In addition, the revenue
                            manager in Network 2 (Albany) said that billers’ productivity had risen
                            from 700 to 2,500 bills per month over a 3-year period, as a result of
                            gradually increasing productivity standards and a streamlining of their
                            jobs to focus solely on billing.


Operational Problems        Studies have suggested that operational problems—missed billing
Limit Collections, but VA   opportunities, billing backlogs, and inadequate pursuit of accounts
Lacks an Estimate of        receivable—limited VA’s collections in the years following the
                            implementation of reasonable charges. After examining activities in fiscal
Uncollected Dollars         years 2000 and 2001, a VA Inspector General report estimated that VA
                            could have collected over $500 million more than it did.8 About 73 percent
                            of this uncollected amount was attributed to a backlog of unbilled medical



                            7
                             The revenue manager in Network 9 (Nashville) said that coders were getting better at the
                            manual searching that is required to find billable professional services and laboratory tests.
                            During fiscal year 2001, coders missed some billable care because of inadequate searches
                            through the various sources of information that document services and tests.
                            8
                            VA Office of Inspector General, Report No. 01-00046-65.




                            Page 7                                              GAO-03-145 VA Third-Party Collections
care; most of the rest was attributed to insufficient pursuit of delinquent
bills. Another study, examining only professional-service charges in a
single network, estimated that $4.1 million out of $4.7 million of potential
collections was unbilled for fiscal year 2001.9 Of that unbilled amount, 63
percent was estimated to be unbillable primarily because of insufficient
documentation. In addition, the study found coders often missed services
that should have been coded for billing.

According to the Director of the Revenue Office, VA could increase
collections by working on operational problems. These problems included
unpaid accounts receivable and missed billing opportunities due to
insufficient identification of insured patients, inadequate documentation
to support billing, and coding problems that result in unidentified care.
During April through June 2002, three network revenue managers told us
about backlogs and processing issues that persisted into fiscal year 2002.
For example, although Network 9 (Nashville) had above average increases
in collections for both inpatient and outpatient care, it still had coding
backlogs in four of six medical centers. According to Network 9’s
(Nashville) revenue manager, eliminating the backlogs for outpatient care
would increase collections by an estimated $4 million for fiscal year 2002,
or 9 percent.10 Additional increases might come from coding all inpatient
professional services, but the revenue manager did not have an estimate
because the extent to which coders are capturing all billable services was
unknown. Moreover, although all three networks reported that physicians’
documentation was improving for billing, they reported a continuing need
to improve physicians’ documentation. In addition, Network 22 (Long
Beach) reported that accounts receivable staff had difficulties keeping up
with the increased volume of bills because it had not hired additional staff
or contracted help for accounts receivable.

As a result of these operational limitations, VA lacks a reliable estimate of
uncollected dollars, and therefore does not have the basis to assess its
systemwide operational effectiveness.11 Some uncollected dollars resulting


9
 Economic Systems, Inc. and AdvanceMed, Professional Fee Backlog Assistance: Final
Technical Report, a report prepared for the Department of Veterans Affairs, March 5, 2002.
10
  In September 2002, the revenue manager anticipated that the backlog would be reduced
to $2 million by the end of fiscal year 2002 because the medical centers had hired new
coders and the network had created a central pool of seven coders.
11
 In addition, VA does not know the net impact of actual third-party collections on
supplementing its annual appropriation for medical care. This is because, according to VA
officials, VA does not have a way to routinely capture its full collections costs.




Page 8                                            GAO-03-145 VA Third-Party Collections
                           from currently missed billing opportunities—such as billable care missed
                           in coding—are not readily quantified. Other uncollected dollars—such as
                           those from backlogged bills and uncollected accounts receivable—are
                           either only partially quantifiable or their potential contribution to total
                           collections is uncertain. For example, even though the uncollected dollars
                           in older accounts receivable can be totaled, the yield in payments through
                           more aggressive pursuit of accounts receivable is uncertain. This is
                           because, according to VA officials, some portion of the billed dollars is not
                           collectable due to VA inappropriately billing for services not covered by
                           the insurance policy, billing against a terminated policy, or not closing out
                           the accounts receivable after an insurer paid the bill.12


                           VA continues to implement its 2001 improvement plan and is planning
VA Is Implementing         more improvements. Although the improvement plan could potentially
Planned Actions and        improve operations and increase collections, it is not scheduled for full
                           implementation until December 2003. In May 2002, VA created a new
Developing Other           office in VHA, the Chief Business Office, in part to address collections
Initiatives to Address     issues. According to VA officials, this office is developing a new approach
                           to improvements, which will include initiatives beyond those in the
Problems in                improvement plan.
Collections
Operations

2001 Plan to Improve       VA’s improvement plan was designed to increase collections by improving
Collections Is Partially   and standardizing its collections processes. The plan’s 24 actions are to
Implemented                address known operational problems affecting revenue performance.
                           These problems include unidentified insurance for some patients,
                           insufficient documentation for billing, shortages of coding staff, gaps in
                           the automated capture of billing data, insufficient pursuit of accounts
                           receivable, and uneven performance across collections sites.

                           The plan seeks increased collections through standardization of policy and
                           processes in the context of decentralized management, in which VA’s 21
                           network directors and their respective medical center directors have


                           12
                             VA’s accounts receivable totals are larger than what is collectible, in part, because VA
                           includes the entire amount of charges for veterans covered by Medicare, when those
                           veterans have Medicare supplemental insurance. Although VA cannot generally collect
                           from Medicare, it includes the total as part of its billing process to the supplemental
                           insurers to determine the proportion of charges the supplemental insurers will pay.




                           Page 9                                              GAO-03-145 VA Third-Party Collections
responsibility for the collections process. Since management is
decentralized, collections procedures can vary across sites. For example,
sites’ procedures can specify a different number of days waited until first
contacting insurers about unpaid bills and can vary on whether to contact
by letter, telephone, or both. The plan intends to create greater process
standardization, in part, by requiring certain collections processes, such as
the use of electronic medical records to provide coders better access to
documentation and legible records.

When fully implemented, the plan’s actions can improve collections to the
extent that they can reduce operational problems such as missed billing
opportunities. For example, two of the plan’s actions—requiring patient
contacts prior to scheduled appointments to gather insurance information
and electronically linking VA to major insurers to identify patients’
insurance—are intended to increase the number of patients identified with
insurance. A recent study estimated that 23.8 percent of VA patients in
fiscal year 2001 had billable care, but VA actually billed for the care of only
18.3 percent of patients.13 This finding suggests that VA could have billed
for 30 percent more patients than it actually billed.

VA has implemented some of the improvement plan’s 24 actions, which
were scheduled for completion at various times through 2003, but is
behind the plan’s original schedule. The plan had scheduled 15 of the 24
actions for completion through May 25, 2002, but, as shown in figure 3, VA
had designated only 8 as completed, as of the last formal status report on
the plan in May 2002.14




13
 T. Michael Kashner, Ph.D., J.D., et al., Final Report: Veterans Affairs Patient Health
Insurance Survey (VAPHIS), a survey funded by the Department of Veterans Affairs,
February 16, 2002. The Chief Business Officer told us that his office plans to do another
survey to confirm its results.
14
  A Chief Business Office official stated in September 2002 that the office plans to develop a
status report that includes the improvement plan as well as other actions in its new
approach.




Page 10                                             GAO-03-145 VA Third-Party Collections
Figure 3: Improvement Plan’s Actions Designated as Completed by VA, as of May 25, 2002




                                       Page 11                                      GAO-03-145 VA Third-Party Collections
                          a
                           Certain actions are mandated in the plan, that is, are required, but these actions are not legal or
                          regulatory mandates.
                          b
                           VA designated the electronic billing project, shown here as “17a,” as completed. However, this
                          indicated only partial completion of action 17, which includes an additional project.


                          Some of the plan’s actions that VA has designated as completed needed
                          additional work. For example, although VA designated electronic billing as
                          completed in the May 2002 report, in August 2002 a VA official indicated
                          that 20 hospitals were still working on a step required to transmit bills to
                          all payers. In other cases, VA has designated an action completed by
                          mandating it in a memorandum or directive. However, mandating an
                          action in the past has not necessarily ensured its full implementation. For
                          example, although an earlier 1998 directive required patient
                          preregistration, the 2001 improvement plan reported that preregistration
                          was not implemented consistently across VA and thus mandated its use.15


VA Is Developing Other    Officials in VHA’s new Chief Business Office told us that this office is
Improvement Initiatives   developing a new approach for improving third-party collections.
                          According to the Chief Business Officer, the Under Secretary of Health
                          proposed, and the Secretary approved, the establishment of the Chief
                          Business Office to underscore the importance of revenue, patient
                          eligibility, and enrollment functions; and to give strategic focus to
                          improving these functions. He said the new approach can help increase
                          revenue collections by further revising processes and providing a new
                          business focus on collections.

                          Officials in this office told us that the new approach will combine these
                          and other actions with the actions in the improvement plan. For example,
                          the Chief Business Office’s improvement strategy incorporates electronic
                          transmission of bills and of third-party payments, which are part of the
                          2001 improvement plan. The new approach also encompasses initiatives
                          beyond the improvement plan, such as the one in the Under Secretary of
                          Health’s May 2002 memorandum that directed all facilities to refer
                          accounts receivable older than 60 days to a collection agency, unless a
                          facility can document a better in-house process. According to the Deputy
                          Chief Business Officer, this initiative has shown some sign of success—
                          with outstanding accounts receivables dropping from $1,378 million to




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




                          Page 12                                                   GAO-03-145 VA Third-Party Collections
$1,317 million from the end of May to the end of July 2002, a reduction of
about $61 million or 4 percent.

Another initiative in the new approach is the Patient Financial Services
System (PFSS). PFSS is an automated financial system focused on patient
accounts, which is intended to overcome operational problems in VA’s
current automated billing system. For example, VA’s automated system for
clinical information was not designed to provide all of the episode-of-care
information, such as the health care provider and diagnoses, that are
required for billing. The development of PFSS is tied to a demonstration
project of a financial system, which is now being designed for Network 10
(Cincinnati).16 According to the Deputy Chief Business Officer, VA
anticipates awarding a PFSS contract by April 1, 2003. The Chief Business
Office’s plan is to install this financial system in other facilities and
networks if it is successfully implemented in the Network 10 (Cincinnati)
demonstration.

The Chief Business Office also intends to improve collections by
developing better performance measures, which will be similar to those
used in the private sector.17 For example, the office intends to use the
measure of gross days revenue outstanding, which indicates the pace of
collections relative to the amount of accounts receivable. During fiscal
year 2003, the office plans to hold network and facility directors
accountable for collections through standards that are tied to these
performance measures. In addition, the Chief Business Officer said that
tracking performance with these measures could help identify further
opportunities for collections improvements.

The Chief Business Office is developing the new initiatives, which it had
not formalized into a planning document as of August 2002. Certain key
decisions were under consideration. For example, the Chief Business


16
  In the conference report accompanying its fiscal year 2002 appropriation, VA was directed
to begin a demonstration project of a contractor-installed and operated patient financial
services system. H.R. Conf. Rep. No. 107-272, at 56 (2001).
17
  As we noted in our 2001 testimony, VA’s performance does not compare favorably to
some industry benchmarks, such as the number of days required to bill. However,
comparisons between VA and the private sector should take into account how VA’s
processes differ from those in the private sector. For instance, VA has the additional step of
determining whether the care is service-connected, and VA bills for both facility and
physician charges whereas private sector hospitals may only bill for facility charges. To
make comparisons with industry benchmarks more relevant, VA is considering adjustments
to its new measures.




Page 13                                             GAO-03-145 VA Third-Party Collections
                     Officer was considering whether to centralize some processes at the
                     network or national level and was developing the performance standards
                     that would be required for holding network and facility directors
                     accountable. Moreover, according to the Chief Business Officer,
                     implementing PFSS will require the office to resolve some issues,
                     including making its existing systems provide sufficient data to support
                     the new financial system.


                     As VA faces increased demand for medical care, third-party collections for
Concluding           nonservice-connected conditions remain an important source of
Observations         alternative revenue to supplement VA’s resources. Our work and VA’s
                     continuing initiatives to improve collections suggest that VA could collect
                     additional supplemental revenues because it has not collected all third-
                     party payments that it could in fiscal year 2002. However, VA does not
                     have an estimate of the amount of uncollected dollars, which it needs to
                     assess the effectiveness of its current processes.

                     VA has been improving its billing and collecting under the new fee
                     schedule established in 1999, but VA has not completed its efforts to
                     address problems in collections operations. In this regard, fully
                     implementing VA’s 2001 improvement plan could help VA maximize future
                     collections by addressing problems such as missed billing opportunities.
                     However, the plan’s reliance on directives, in some cases, to achieve
                     increased collections is not enough to ensure full implementation and
                     optimal performance. The Chief Business Office’s new approach could
                     also enhance collections. VA’s new Chief Business Office’s challenge is to
                     ensure such performance by identifying root causes of problems in
                     collections operations, providing a focused approach to addressing the
                     root causes, establishing performance measures, and holding responsible
                     parties accountable for achieving the performance standards. However, it
                     is too early to evaluate the extent to which VA will be able to address
                     operational problems and further increase collections by fully
                     implementing its 2001 plan and new approach.


                     The Department of Veterans Affairs provided written comments on a draft
Agency Comments      of this report, which are found in appendix II. VA generally agreed with
and Our Evaluation   our findings that it continues to make improvements in increased
                     collections and VHA’s Business Office is developing new initiatives to
                     further enhance collections. In addition, VA clarified that it may, under
                     limited circumstances, collect from Medicare although generally it may not
                     do so. We changed our report accordingly.


                     Page 14                                  GAO-03-145 VA Third-Party Collections
VA also suggested that our title was misleading because it stated that VA
continues to address problems in its collections operations rather than
stating that VA is building infrastructure to implement effective collections
operations. We believe that our title is accurate because VA continues to
address problems that we and others have identified in VA’s collections
operations. VA has acknowledged such problems in the past, including
unidentified insurance for some patients, insufficient documentation for
billing, and shortages of coding staff. VA continues to implement the 2001
improvement plan that it developed to address these and other problems.
VA’s new initiatives also address problems, such as gaps in automated
capture of billing data, that have been previously identified.


As arranged with your office, unless you release its contents earlier, we
plan no further distribution of this report until 30 days after its issuance
date. At that time, we will send copies of this report to the Secretary of
Veterans Affairs, interested congressional committees, and other
interested parties. We will also make copies available to others upon
request. In addition, this report will be available at no charge on GAO’s
Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please call me at
(202) 512-7101. James Musselwhite and Terry Hanford also contributed to
this report.

Sincerely yours,




Cynthia A. Bascetta
Director, Health Care—Veterans’
 Health and Benefits Issues




Page 15                                     GAO-03-145 VA Third-Party Collections
             Appendix I: Scope and Methodology
Appendix I: Scope and Methodology


             To assess the Department of Veterans Affairs’ (VA’s) progress with
             collections in fiscal year 2002, we obtained and examined data on VA’s
             third-party bills and collections. We also interviewed officials in VA
             headquarters and in three VA health care networks to understand the
             reasons for the increased collections compared to fiscal year 2001 as well
             as any operational problems. To provide information on VA’s 2001
             improvement plan and its emerging new approach to improvements, we
             reviewed relevant VA documents and interviewed VA officials.

             We conducted interviews from April through June 2002 with managers in
             three networks concerning collections.1 In addition, we gathered data on
             third-party bills and collections for fiscal years 2001 and 2002. Our review
             of the improvement plan’s implementation started with its completion
             status in March 2002 and ended with its status through May 2002, which
             was the date of VA’s last formal report on the plan’s status. An official in
             the Chief Business Office told us in September 2002 that a new status
             report for the 2001 plan was planned but not yet available. During August
             through October 2002, we gathered information from officials in the Chief
             Business Office about additional improvement initiatives.

             To better understand the increased collections in fiscal year 2002 and any
             limitations to those collections, we judgmentally selected three networks
             for more detailed study. These networks provided different examples of
             above- and below-average growth in collections, considered separately for
             inpatient care and outpatient care. (See table 1.) Based on available data at
             the time of selection, Network 9 (Nashville) had above-average collections
             increases for both inpatient care and outpatient care bills. Network 2
             (Albany) exceeded average collections increases for only outpatient care
             bills, whereas Network 22 (Long Beach) had above-average collections
             increases for only inpatient care bills.




             1
              We spoke with revenue managers in the three networks. At the suggestion of the revenue
             manager in Network 22 (Long Beach), we also spoke with the facility’s business manager,
             who headed the network’s collections committee. Moreover, we had limited follow-up
             discussions during September 2002 with the Network 9 (Nashville) revenue manager.




             Page 16                                          GAO-03-145 VA Third-Party Collections
                                        Appendix I: Scope and Methodology




Table 1: Percentage Increases in Collections for Networks Selected for Study, October 2000 through February 2001
Compared to October 2001 through February 2002

                                                                       Collections
                                  Inpatient care                     Outpatient care                           Total
                           Percentage Relation to             Percentage     Relation to            Percentage   Relation to
                           increase      average              increase       average                increase     average
Systemwide averages                 20 Not applicable                    54 Not applicable                    35 Not applicable
Network 2 (Albany)                   3 Below                             79 Above                             32 Below
Network 9 (Nashville)               43 Above                           102 Above                              71 Above
Network 22 (Long Beach)             60 Above                             34 Below                             50 Above

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


                                        Although we did not verify VA data on collections and bills, we used the
                                        data reported by VA’s Revenue Office in its analyses of third-party
                                        collections. The data source is VA’s Veterans Health Information Systems
                                        and Technology Architecture National Database. This database includes
                                        data for collections from various sources—including third-party payments,
                                        patient copayments, and proceeds from sharing agreements in which VA
                                        sells services to the Department of Defense and other providers.




                                        Page 17                                             GAO-03-145 VA Third-Party Collections
             Appendix II: Comments from the Department
Appendix II: Comments from the Department
             of Veterans Affairs



of Veterans Affairs




(290169)
             Page 18                                     GAO-03-145 VA Third-Party Collections
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