United States General Accounting Office Report to the Chairman, Subcommittee GAO on Readiness, Committee on Armed Services, House of Representatives April 1990 MILITARY HEALTH CARE Recovery of Medical Costs From Liable Third Parties Can Be Improved --. GAO/NSIAD-9049 @&I!0 z.tztE;~~lgce , a* National Security and Internati0nal AfYairs Division B-237224 April 19,199O The Honorable Earl Hutto Chairman, Subcommittee on Readiness Committee on Armed Services House of Representatives Dear Mr. Chairman: This report responds to the former Chairman’s request that we evaluate the effectiveness of the Department of Defense’smedical cost recovery in third party liability cases. As arranged with your office, unless you publicly announceits contents earlier, we plan no further distribution of this report until 15 days from its date. At that time, we will send copies to the Chairmen of the House and SenateGxumittees on Armed Servicesand on Appropriations and the Secretaries of Defense,the Army, the Air Force, and the Navy. We will also make copies available to others upon request. This report was prepared under the direction of Richard Davis, Director, Army Issues,who may be reached on (202) 275-4141 if you or your staff have any questions. Other major contributors are listed in appendix I. Sincerely yours, Frank C. Conahan Assistant Comptroller General Executive Summ~ The Department of Defense’s(DOD) military health care system provides Purpose medical care to active duty and retired military personnel and their dependents. DOD is entitled to recover the cost of medical care provided or paid for by the military services from liable third parties in accident, negligence,and wrongful act cases.Recovery activities associatedwith these casesprovide the potential for millions of dollars in annual sav- ings to the government. The former Chairman of the Subcommittee on Readiness,House Committee on Armed Services,asked GAO to examine the systems used by the Army, the Navy, and the Air Force to recover these costs.Specifi- cally, GAO sought to determine whether l military medical activities are effectively identifying and reporting potential third party liability casesand . the Judge Advocates General are performing effective recovery efforts on casesdetermined to have third party liability potential. Active duty personnel are entitled to receive health care at military Background medical facilities and at civilian facilities in an emergency. Nonactive beneficiaries are eligible to receive care at military facilities when space and professional services are available. When care is not available, they may use the Civilian Health and Medical Program of the Uniformed Services (CHAAPUS). private organizations are under contract to CHAMPUS to pay claims submitted by civilian health care providers for services provided to beneficiaries under this program. Military regulations require military service medical facilities, private organizations under contract to CHAMPUS, and military offices authoriz- ing payment for care in civilian facilities to identify and report to Judge Advocates General legal offices those casesthat have potential for third party liability recovery. Military service regulations require that all inpatient caseswith this potential be reported, but service requirements for reporting outpatient casesvary. After determining which casesactu- ally have recovery potential, the services’ legal offices are responsible for asserting claims and recovering medical costs. Approximately 90 percent of all third party liability recoveries involve injuries sus- tained as the result of motor vehicle accidents. GAO believes that third party liability cost recovery could be doubled. In Results in Brief fiial year 1987, this would have resulted in recoveries totaling about Pyre2 GAO/NSIADM49 Milituy Hedth Care $50 million. Recoveriescould be increased through (1) better identifica- tion and reporting of potential casesby medical facilities, (2) improve- ments in service legal office effectiveness, and (3) better internal controls over third party liability cases. Principal Findings Many Third Party At 8 of the 13 medical facilities GAO visited, more than half of the poten- Liability CasesAre Not tial third party liability casesGAO reviewed had not been identified and reported to service legal offices for the following reasons: Identified and Reported . Army and Navy medical facilities do not have standard procedures for identifying and reporting third party liability cases,causing wide varia- tion in their identification and reporting effectiveness. . Military service regulations set minimum cost thresholds for reporting outpatient casesas high as $670. Many lower cost casestherefore go unreported, and someArmy and Navy medical facilities report few out- patient casesunless they also involve inpatient care. Someof the Air Force and Navy installations GAO visited also failed to identify and report casesinvolving treatments at civilian facilities. Potentially significant CHAMPUS medical costs are not being reported to service legal offices for the following reasons: The ~HAMP~S cost threshold for reporting outpatient casesis $500, which excludes many caseswith potential for cost recovery. Private organizations under contract to CHAMPUS are allowed to exclude caseswith certain diagnostic codesfrom review for third party liability potential. However, GAO found that someexcluded diagnostic codesare for injuries that can occur as the result of automobile accidents and therefore have potential for cost recovery. Inconsistent Regulations The service legal offices GAO visited appeared to be conducting third party liability recoveries in accordancewith regulations. However, mili- and No-Fault Insurance tary service regulations regarding the minimum cost threshold for Laws Hamper Recovery attempting recovery on outpatient treatments are inconsistent, causing someservices to pursue casesthat are discarded in others. P8ge3 GAO- Military Health Care The Federal Medical Care Recovery Act (42 USC. 2651-53) requires that fault be established in order to conduct third party liability recov- ery. However, somestates have subsequently passedno-fault insurance laws that generally allow for recovery by individuals from their own insurance companies irrespective of fault. Since no-fault laws by defini- tion do not establish an at-fault or liable party, DOD’s legal ability to con- duct recoveries under this statute varies according to the no-fault statutes in these states. Limited Incentive to Service legal offices and military medical facilities have little incentive to devote scarceresourcesto third party liability activities. Recovered Recover Costs funds are deposited into the general fund of the U.S. Treasury. Third party liability activities thus receive limited command emphasis and are often inadequately staffed. Weak Internal Controls Six of the 13 facilities GAO visited had inadequate or incomplete records for indicating which potential third party caseshad been sent to service legal offices. Private organizations under contract to CHAMPUS are not required to record whether the potential third party casesthey identify have been forwarded to service legal offices. The Army and Navy legal offices GAO visited also did not maintain records of the potential third party casesreported to them, and none of the service legal offices were adequately recording the reasonsthat potential caseshad been dis- carded without asserting claims. This lack of internal controls prevents accurate overall evaluation of service legal office recovery effectiveness. We recommend that the Congressenact legislation to allow DOD to retain Recommendations to a portion of the recovered third party liability medical care costs in cir- the Congress cumstancescreating a tort liability. This should both provide DOD with the incentive and funding to increase recoveries and result in increased Treasury receipts. However, these funds should be restricted to support- ing third party liability activities at military medical facilities and Judge Advocates General claims offices. GAO furtherrecommendsthat the Congressenact legislation to enable recovery by the government in states with no-fault automobile insur- ance laws. Pyre 4 GAO/NS~M Military Health Care Exesutive Summary GAO recommendsthat the Secretariesof the Army, the Navy, and the Air Recommendations Force take the following actions: . Modify military service regulations to set a consistent, cost-effective minimum cost threshold for reporting outpatient caseswith potential third party liability to service legal offices. . Direct the service Judge Advocates General to establish better internal controls for third party liability cases.Specifically, in addition to main- taining current records, service legal offices need to record the potential third party liability casesthey receive, the casesthey discard, and the reasonsthey are discarded. GAO recommendsthat the Secretariesof the Army and the Navy develop and implement standard procedures for medical facilities to identify and quickly report potential third party liability cases. GAO recommendsthat the Secretary of Defensedirect the Assistant Secretary of Defense(Health Affairs) to take the following actions: . Determine at what cost CHAMPUS outpatient casesare economical for the government to recover and reach an agreement with the service Judge Advocates General regarding the minimum cost of outpatient casesthat private organizations under contract to CHAMPUS should be required to report to service legal offices. . Determine which diagnostic codesthese private organizations should be allowed to exclude in determining which claims should be reviewed for third party liability potential. Other recommendations, including recommendations to improve internal controls, are contained in chapters 2,3, and 4. DOD orally concurred with the findings and recommendations contained Agency Comments in this report. The Department acknowledged that the administrative improvements and legislative changesrecommendedby GAO should result an estimated $26 million annual savings to the government. Page 5 Contents Executive Summary Chapter 1 Introduction Sourcesof Medical Care 8 Certain Medical Care Costs May Be RecoverableFrom 9 Liable Third Parties Objective, Scope,and Methodology 10 Chapter 2 13 Weaknessesin Many Potential Third Party CasesAre Not Being 13 Reported by Medical Treatment Facilities Identifying CasesWith Civilian Treatment CasesNot Reported 21 Recovery Potential The Effectiveness of CHAMPUS Third Party Liability 23 Activities Is Unclear Conclusions and Recommendations 26 Agency Comments 27 Chapter 3 28 JAG Recovery JAG Regulations Differ on Outpatient Claims Recovery 28 RecoveriesAre Hindered by Insufficient Staff- 29 Effectiveness Can Be RecoveriesAre Limited in States With NeFault Insurance 31 Improved Laws Conclusions and Recommendations 31 Agency Comments 32 - Chapter 4 33 Third Party Liability Army and Navy Medical Facilities Need Better Third 33 Party Liability Records Activities Need Better Recordsof CHAMPUS CasesSent to JAGSAre Incomplete 34 Internal Controls orLacking JAG RecordsPreclude a Detailed Evaluation of Potential -34 Third Party Liability Cases Conclusions and Recommendations 35 Agency Comments 36 Appendix Appendix I: Major Contributors to This Report 38 Tables Table 2.1: Motor Vehicle Accident Inpatient Admissions 15 During Fiscal Year 1987 P8ge 8 GAo/wam@o4 Milituy Be&h cue Contents Table 2.2: Treatment Costsof Inpatient Motor Vehicle 16 Accident CasesDuring F’iscalYear 1987 Table 2.3: Completenessof Office of Medical Affairs 22 Questionnaires Abbreviations AWESS Automated Quality of Care Evaluation Support System CHAMPUS Civilian Health and Medical Program of the Uniformed Services DOD Department of Defense GAO General Accounting Office JAG Judge Advocate General p-7 Chapter 1 Introduction The Department of Defense(DOD) health care system provides medical care to active duty military personnel and to nonactive duty benefi- ciaries, such as dependentsof active duty personnel and military retir- eesand their dependents.Annual expenditures for military medical activities have risen from $4.1 billion in 1979 to $11.5 billion in 1987, a~ increase of 180 percent. Military medical care is provided either directly through the military’s Sourcesof Medical own treatment facilities or indirectly through civilian facilities. Active Care duty personnel are entitled to receive health care at military medical facilities and in some instances at civilian facilities. Nonactive duty ben- eficiaries are eligible to receive health care at military facilities when spaceand professional services are available. When care is not availa- ble, nonactive duty beneficiaries under age 66 may use the Civilian Health and Medical Program of the Uniformed Services(CHAMPUS), a separate program administered by DOD that helps pay for medical care at civilian facilities. The military’s direct care system consists of over 500 medical treatment facilities, These range in size from small clinics with limited capabilities to large hospitals with extensive capabilities and medical teaching pro- grams. The medical facilities include 168 military hospitals, 129 of which are located in the United States. According to DOD, approximately 9.1 million people are eligible for care in military medical facilities: 2.4 million active duty members, 2.9 mil- lion dependentsof active duty members, and over 3.8 million retirees and dependents of retired or deceasedmembers. Active duty members do not pay for care obtained in military facilities. Nonactive duty benefi- ciaries pay a small daily fee for inpatient care received at military facili- ties but pay nothing for outpatient care. When nonactive duty beneficiaries under age 66 cannot obtain needed medical care from a military medical facility or do not live within 40 miles of one, they may obtain medical care from civilian providers under CHAMPUS. Beneficiaries older than 66 years are eligible for Medi- care and therefore ineligible for CHAMPUS. CHAMPUS pays for a substantial portion of the medical care provided by hospitals, physicians, and other civilian providers. Private organizations called “fiscal intermediaries” are under contract to DOD to pay claims submitted by hospitals, physi- cians, and other health care providers for services provided to benefi- ciaries under CHAMPUS. The Office of CHAMPUS, located at Fitzsimmons Page 8 GAo/Iw3IADw Military Health care Chapter 1 Introduction Army Medical Center near Denver, Colorado, is responsible for adminis- tering CHAMPUS. The Office of CHAMPUS is under the policy direction of the Office of the Assistant Secretary of Defense(Health Affairs). According to a CongressionalBudget Office study, annual CHAMPCS out- lays for health care have risen even faster than expenditures for the overall military health care system: from $485 million in 1979 to $2.3 billion in 1987. This represents an increase of 374 percent versus 180 percent for the overall system. In certain circumstances,the federal government is entitled by law to Certain Medical Care recover the cost of the medical care it provides. First, under the Federal Costs May Be Medical Care Recovery Act,* DOD may bring tort actions against liable Recoverable From third parties to recover the cost of medical care provided or paid for by DOD in accident, negligence,and wrongful act cases.Recovery of such Liable Third Parties costs is called “third party liability recovery.” When service membersor other beneficiaries are injured as the result of the actions of others, the military service Judge Advocates General (JAG) normally attempt to recover medical treatment costs from liable persons or their insurance companies.Amounts recovered are deposited in the Treasury. If these efforts are unsuccessful or the accident was causedby the service mem- ber, the JAGS may recover costs through the medical payment and per- sonal injury protection provisions of automobile insurance policies held by service members. The JAGS processthese casesas a part of third party liability recovery. Under the Consolidated Omnibus Budget Reconciliation Act of 1985,’ DOD may also require beneficiaries who carry health or other insurance to pay for the care covered by their policies. This type of recovery is called “coordination of benefits.” Finally, when eligible beneficiaries are injured at private sector places of employment, DOD may sometimes recover the cost of the medical care it provides from state workers’ com- pensation insurance. A recent amendment to this law provides that recovered funds be returned to the appropriation for maintenance and operation of the medical facility.3 Military regulations or contracts require service medical commands, CHAMPUS fiscal intermediaries, and military service offices that authorize ‘42u.s.c. 2661-63(1982). 2wfied at 10 U.S.C.1096(Supp. iv, 1986). aPublicLaw 101-189,November29, 1989. Page 9 GAO/NSIALMO~ Mllitar~ Health Care ch&pterl Introdmtion payment for care in civilian facilities to identify and report to JAG offices those casesthat may have potential for third party recovery. The JAGS are responsible for determining which of these caseshave potential for recovery, asserting claims, and recovering costs.JAG offi- cials told us that approximately 90 percent of all third party liability recoveries involve injuries sustained as a result of motor vehicle accidents. Identifying and reporting potential third party liability casesare essen- tial to the medical cost recovery process.The JAGS cannot effectively initiate medical recovery claims unless the service medical treatment facilities, CHAMPUS fiscal intermediaries, and military payment offices inform them of casesthat might have recovery potential. Effective JAG recovery efforts are equally important to the recovery process.Medical cost recovery is becoming increasingly important due to the rapidly ris- ing levels of DOD health expenditures. The former Chairman of the Subcommittee on Readiness,House Objective, Scope,and Committee on Armed Services,requested that we evaluate the effective Methodology nessof DOD'S recovery efforts in third party liability cases.To do this we 9 evaluated CHAMPUS and military service procedures and activities for identifying medical treatment caseswith third party liability potential and reporting them to the service JAGS, . evaluated JAG procedures and activities for conducting third party liabil- ity recovery, and . identified changesneededto make third party liability recovery efforts more effective. We limited our audit to an evaluation of third party liability recovery because(1) DOD'S coordination of benefits recovery efforts had not been under way long enough when we began this review to produce sufficient reliable data for evaluation and (2) the potential amounts that can be recovered under workers’ compensation appear to be relatively minor compared to those that can be recovered through third party liability or coordination of benefits. We interviewed officials and reviewed records associatedwith third party liability identification and recovery activities at Headquarters, U.S. Air Force, U.S. Army, and U.S. Navy; the Army Health Services Command; the Offices of the Army, the Navy, and the Air Force Judge P8gelO GAO/NSLADgOagMilltaryHealthCare chapter 1 Introduction Advocates General; and the Office of CHAMPUS. We also interviewed offi- cials from DOD’S Office of Health Affairs and the American Hospital Association. We collected and analyzed selectedthird party liability medical and claims data and reviewed military medical facility, CHAMPUS, and JAG organization and procedures for third party liability caseidentification and recovery. To evaluate the effectiveness of potential third party lia- bility caseidentification and recovery efforts, we obtained listings of motor vehicle accident casesthat occurred in fiscal year 1987 and resulted in inpatient admissions.These listings were provided by the Automated Quality of Care Evaluation Support System or other systems for the medical facilities we visited. We then tested how well military medical facilities were reporting potential third party liability casesby comparing fiscal year 1987 motor vehicle accident inpatient admission records to medical facility third party liability records and/or reports and JAG records. We selected fiscal year 1987 data for this analysis so that adequate time would have passedfor the reviewed casesto be identified by military medical facilities or CHAMPUS fiscal intermediaries and to be processed by the responsible JAG offices. We also reviewed some aspectsof motor vehicle accidents occurring between 1987 and 1989 that involved outpa- tient treatment at military facilities and noDpaid inpatient treatment at civilian facilities. Although potential third party liability casescan result from other causes,we limited our analysis to motor vehicle accidents becauseJAG officials told us that these accident cases(1) make up about 90 percent of all third party liability recoveries and (2) have greater potential for recovery than other types of cases.Both JAG and military hospital offi- cials concurred that motor vehicle accident casesshould always be con- sidered as potentially recoverable and therefore should be reported to the JAGS. We reviewed the identification and reporting of potential third party lia- bility casesat the following 13 military medical facilities: the Naval Hospital Portsmouth, Portsmouth, Virginia; the Naval Hospital Charleston, Charleston, South Carolina; the Naval Hospital Beaufort, Beaufort, South Carolina; the Naval Hospital Patuxent River, Patuxent River, Maryland; the National Naval Medical Center, Bethesda, Maryland; Kimbrough Army Community Hospital, Ft. Meade,Maryland; Dewitt Army Community Hospital, Ft. Eklvoir, Virginia; Darnall Army Page 11 GAO/NSuD~ Military Health Care Chapter 1 Introduction Community Hospital, Ft. Hood, Texas; Madigan Army Medical Center, Ft. Lewis, Washington; Walter ReedArmy Medical Center, Washington, D.C.; Wilford Hall Medical Center, Lackland Air Force Base,Texas; Robert L. Thompson Hospital, Carswell Air Force Base,Texas; and the 96th Strategic Hospital, DyessAir Force Base,Texas. We also reviewed CHAMPUS third party liability identification and reporting at Blue Cross/ Blue Shield of South Carolina, Columbia, South Carolina, and Wisconsin Physicians Service, Madison, Wisconsin. We reviewed JAG third party liability recovery activities at Naval Legal Service Offices at Charleston Navy Base,Charleston, South Carolina; Washington Navy Yard, Washington, D.C., and Norfolk Navy Base, Norfolk, Virginia; and at the Offices of the Staff Judge Advocate at Ft. Meade,Maryland; Ft. Belvoir, Virginia; Ft. Hood, Texas; Ft. Lewis, Washington; Ft. Stewart, Georgia; Walter ReedArmy Medical Center, Washington, DC.; Lackland Air Force Base,Texas; Carswell Air Force Base,Texas; and DyessAir Force Base,Texas. We conducted this review from July 1988 to July 1989 in accordancewith generally acceptedgov- ernment auditing standards. Pyle 12 GAO/NSIADBMB Military Health Care Weaknessesin Identifying CasesWith Recovery Potential Many potential third party liability casesare not being identified and reported to the JAGS. For example, most of the military treatment facili- ties we visited were identifying fewer than half of the inpatient cases most likely to have recovery potential. We noted similar problems with third party liability casesinvolving payments to civilian hospitals by military payment offices. With respect to CHAMPUS, we found that one of the fiscal intermediaries we visited was not submitting many potential third party casesto the JAGS becauseits selection criteria excluded cer- tain types of casesfrom consideration. Also, the minimum dollar amounts established by CHAMPUS for reporting outpatient potential third party casesare too high, causing underreporting of these cases. By not effectively identifying third party liability cases,DOD has lost the opportunity to recover millions of dollars annually. We were unable to project the total value of DOD third party liability casesthat had not been identified and reported to the JAGS for recovery action becauseof the varying work loads and variety of services rendered by military treatment facilities, the wide disparity in the effectiveness of third party liability activities, and internal control weaknesses(these are dis- cussedin chapter 4). However, the consensusamong the JAGS we visited was that improvements in third party liability recovery activities could double the approximately $25 million recovered annually from these cases.our analysis tends to support the JAG estimate. Army, Navy, and Air Force regulations require medical treatment facili- Many Potential Third ties to identify caseswith potential for cost recovery and to report them Party CasesAre Not to designated JAG offices. However, during fiscal year 1987,8 of the 13 Being Reported by military hospitals we visited appeared to have identified and reported only about half or fewer of their inpatient caseswith third party recov- Medical Treatment ery potential. Many outpatient motor vehicle accident caseswere also Facilities not reported. Caseswere not identified and reported for the following reasons: l Third party liability activities often receive little command emphasis. . Military service regulations differ on requirements for reporting outpa- tient potential third party cases. . Many military medical facilities lack a systemized approach and do not effectively use computerized data in identifying potential third party cases. Page 13 GAo/NfmDma Mllltary Herlth care Chapter 2 Weaknessesin Identifying CasesWith Recovery PotenthI Army, Navy, and Air Force regulations require that all inpatient cases involving potential third party liability be reported to the JAGS. Report- ing requirements for outpatient casesinvolving potential third party lia- bility vary among the services, depending on cost and other factors. Our review focused on inpatient motor vehicle accident casesbecause (1) about 90 percent of all third party liability casesinvolve motor vehi- cle accidents and (2) both JAG and medical facility officials agreedthat all inpatient motor vehicle accident casesare potential third party liabil- ity casesand should be reported to the JAGS. DOD currently uses the Automated Quality of Care Evaluation Support System (AQCESS) for hospital administrative purposes. We found that for most locations DOD could program AQCESSto identify and list fiscal year 1987 inpatient admissions to military medical facilities that involved motor vehicle accidents. With assistancefrom the services, we devel- oped computer programs to extract this information. We developed the same information manually at some military medical facilities. We eval- uated how well individual medical facilities were reporting these cases to the JAGS by comparing our AQCEE and manual lists of inpatient admis- sions involving motor vehicle accidents with medical facility and JAG records of the casesactually reported. The identification and reporting of inpatient motor vehicle accident casesappeared generally adequate at the three Air Force medical facili- ties we visited. Air Force regulations require individual clinics within these facilities to report daily to the JAGS all casestreated (both inpa- tient and outpatient) and to identify which ones might have third party potential. However, we found that 29 inpatient potential third party casesinvolving $107,940 had been omitted from these reports by the Robert L. Thompson Hospital at Carswell Air Force Baseduring April 1987 through February 1989. We also found that sometimes these reports had not been submitted. For example, the 96th Strategic Hospital at Dyess Air Force Base did not submit them for 32 days from November 1988 to January 1989. The Robert L. Thompson Hospital also did not submit these reports for 6 days during fiscal years 1987 through 1988. We did not determine how many potential inpatient and outpa- tient caseshad not been reported due to these omitted reports because of the time and resourcessuch an evaluation would have required. Air Force officials could not explain why these reports had not been submitted. The reporting of inpatient motor vehicle accident caseswas less effec- tive at most of the Army and Navy medical facilities we visited. As a Page 14 GAO/lVS~9O-49 Military Health Care Chapter 2 W-illIdcn~~With Becovery Potendal result, many potential third party caseshad not been detected or reported. Army and Navy regulations do not specify how their facilities should identify potential third party cases.Consequently, individual medical facilities in these services had designedtheir own third party identification procedures. Tables 2.1 and 2.2 show the numbers and costs of the motor vehicle acci- dent inpatient admissions we reviewed and the numbers and costs of those that had been identified and reported during fiscal year 1987 by the Army and Navy medical facilities we visited. Table 2.1: Motor Vehicle Accident Inpatient Admission8 During Fiscal Year Number of case8 Percentage of 1967 Number of cases aervker case8 senficw gervkelfacilitv we reviewed idenuned identified Navy Portsmouth 203 199 98 Charleston 136 39 29 Beaufort 43 15 35 Bethesda 124 58 47 Patuxent 9 3 33 Armv -----I Ft. Belvoir 50 Unknowna Unknowna Ft. Lewis 253 85 34 Ft. Meade 115 35 30 Ft. Hood 143 l16b 81 IA/alter ReedC 141 34 23 %ewitt Hospital did not have any records indicating the number and amount of third party liability cases forwarded to the JAG during fiscal year 1987. bwe could not determine whether Darnall Hospital had identified an additional 26 cases because hospi- tal records for these cases were missing. Third party recovery activities at Walter Reed Army Medical Center have bean revised and improved over those in effect during fiscal year 1987. ldentiition rates for this facility are therefore likely to have changed since fiscal year 1987. Page 16 Chapter 2 Wealmessesin Ident@ing CsaeaWith l&covery Potential Table 2.2: Treatment Costs or Inpatient Motor Vehicle Accident Cases During Cost ot cases Percentage ot Fiscal Year 1987 Cost of cases we services costs services Service/facility reviewed identified identified Navy Portsmouth $1,068,685 $1047,730 98 Charleston 600,920 155,135 26 Beaufort 174,530 46,366 27 Bethesda 1.043.473 592.087 57 Patuxent 12,476 1,451 12 Armv -“‘., Ft. Belvoir 192,888 Unknowna Unknowna Ft. Lewis 1,185,592 368,676 31 Ft. Meade 603,692 76,780 13 Ft. Hood 755,874 638,127 84 Walter Reed 2,460,051 474,601 19 Note: We determlned case costs by multiplying the number of patient days in the hospital by the fiscal year 1987 inpatient rate of $441 per day. aDewitt Hospital did not have any records lndicatrng the number and amount of third party Ilability cases forwarded to the JAG during fiscal year 1987. Although military medical facilities had primary responsibility for iden- tifying and reporting these casesto the JAGS, some of the casesnot reported were subsequently identified by the JAGS through other means. For example, casesinvolving civilian as well as military treatment costs were sometimes identified as a result of reports submitted by CHAMFTJS fiscal intermediaries or military payment offices, and somecaseswere reported to the JAGS by civilian attorneys, individual service members, and other sources. The effectiveness of these other efforts varied by installation. Our review of JAG files revealed that from 0 to 28 percent of total reviewed casecosts had subsequently been identified as a result of these efforts. For example, at Fort Lewis, Washington, JAG staff identified unreported potential third party liability casesinvolving $196,430, about 17 percent of the $1,186,592 in inpatient costs for motor vehicle accident cases treated by Madigan Army Medical Center in fiscal year 1987. However, medical facility and JAG records together still could not account for many of the caseswe reviewed. Combined JAG and medical facility efforts accounted for more than 75 percent of total casecost at only 2 of the 10 medical facilities and for only 19 percent or less of total casecost at 3 locations. P8ge 16 GAO/MLUHM9 Military Health Care W&emeAl &I Identifying caaea with RecoveryPotentid Third Party Liability Officials at nearly all the medical facilities we visited said that third CasesAre Given Little party activities received little command emphasis and consequently were assigneda low priority. These officials said that their resources Emphasis at Military were barely adequate for carrying out their primary mission of provid- Medical Facilities ing health care and that therefore only limited support could be given to third party activities. Somemilitary hospital officials also said that they had little incentive to devote scarceresourcesto third party activities becausenone of the costs recovered were returned to the medical facili- ties incurring these costs. We did not study the adequacy of the staffing and other resources assignedto third party liability activities at the medical facilities we vis- ited. However, officials at 6 of the 13 facilities we visited told us that staffing shortages were hindering third party liability activities. We noted that 6 medical facilities were experiencing casereporting backlogs or difficulty in processingcaseloadsand that only 4 of the 13 had any staff assignedto third party liability activities on a full-time basis. We also noted that military medical facilities and JAG offices that place only modest emphasis on third party liability activities tend to have much more effective recovery. For example, at the Naval Hospital Portsmouth, Portsmouth, Virginia, the hospital commander had placed the third party liability clerk in charge of a separate office with one additional full-time and one part-time staff member. This office coordi- nated closely with the local JAG legal office, was using computers to rec- ord third party liability information, and identified and reported about 98 percent of the fiial year 1987 potential inpatient third party liabil- ity caseswe reviewed. However, at the National Naval Medical Center, Bethesda, Maryland, where little command emphasis was placed on third party liability activities, the third party clerk was part of the Patient Administration Office staff, worked alone under minimal super- vision, was not using computerized records, maintained poor coordina- tion with the JAGS, and identified and reported only 47 percent of the third party liability caseswe reviewed. Systemized Methods and The Army and Navy medical facilities we visited did not have common, systemized methods for identifying third party casesand reporting them Better Use of to the JAGS. Conditions varied by service and by installation, but medical Computerized Data Would facility procedures and the use of computerized information systems for Improve Recovery Efforts identifying and reporting potential third party caseswere limited at many of the installations we visited. Page17 GAO/NfUD4&48 Military Health Care Chpter2 Waessea in Identifying Casea With RecoveryPotential Air Force regulations require treatment clinics within Air Force medical facilities to complete a standard form, which requires that each patient treated be listed and that potential third party liability casesbe identi- fied. These regulations also require that these forms be forwarded to the JAG daily. The three Air Force medical facilities we visited were gener- ally complying with the regulations. They were therefore using a timely, consistent, and documented method for identifying, recording, and reporting potential third party cases.This method involved the direct participation of all clinics performing treatments as well as of the third party liability clerk. Army and Navy regulations do not specify how their medical facilities should identify potential third party cases.The third party liability clerks at Army and Navy medical facilities had designedtheir own methods of doing this. The effectiveness of third party identification and reporting at these medical facilities was therefore largely dependent on the effectiveness of the third party liability clerk. Individual clinics in Army and Navy medical facilities often did not help identify third party cases,although clinic personnel such as doctors, nurses, and their assistants were in direct contact with patients and therefore often in positions to know whether third party liability was likely to be involved. Instead, Army and Navy third party liability clerks usually identified potential third party casesthrough their own subsequentreview of indi- vidual clinic records. They often did not attempt to identify potential third party casesin clinics other than the emergency room becauseof their work loads, the part-time nature of this work, and the low empha- sis placed on third party liability. We believe that the identification of potential third party casesis more effective when clinic personnel iden- tify these casesat the time the treatment is provided. Army and Navy third party liability clerks also often did not identify and report third party liability casesin a timely fashion. While Air Force potential third party caseswere being reported to the JAG on a daily basis, the caseswe reviewed at five of the Army and Navy instal- lations required an average of 138 days to reach the JAG. JAG officials told us that delays in processingpotential casesoften result in reduced recoveries. They said that locating service members and obtaining detailed information from them becomesmore difficult with the passage of time and that delays increase the potential for casesettlement by the service member and other parties prior to the JAG'S involvement in the case.We therefore found that the systemized approach used by the Air Force is generally more effective in identifying and reporting potential third party liability cases. Pyle18 GAO/NSLALjW Military Health Care chpt-2 wednemes in Identlfying~ with Beeovvy Potentid We also found that most of the medical facilities we visited were making only limited, if any, use of computerized information systems to help identify third party liability cases.Third party clerks usually reviewed clinic treatment records manually. We believe that the failure to use computerized data results in the identification of fewer cases.The large volume of treatments involved and the part-time nature of most third party clerk efforts make manual identification of casesextremely diffi- cult. Even when computerized third party liability information was available, it sometimes was unusable. For example, at one location, med- ical facility staff had been erroneously entering data into computerized patient information systems in ways that causedthe computer to indi- cate that third party liability was never involved. We believe that more potential third party caseswould be identified if procedures were stan- dardized, computerized, and initiated at the clinics. We believe that DODcould use the AQCESs program we developed or a similar program to help identify potential third party liability casesand to verify whether they are being reported to the JAGS.We provided cop ies of this program to JAGand medical facility officials. Use of this or a similar program could simplify and improve military medical facilities’ efforts to identify and report potential third party liability caseswhile at the same time reducing third party liability staffing requirements. DODofficials told us that DODmay replace AQCESS with a new patient information system called the ‘Composite Health Care System.” They believe that one of the functions this system could perform is to identify potential third party casesand serve as an internal control for recovery activities. DODis currently testing this system at 12 military medical facilities and plans to decide on whether to implement it worldwide in August 1990. Service Regulations Differ Our review focused primarily on inpatient third party liability cases. on Requirements for However, we also found that military medical facilities were not consist- ently reporting potential outpatient third party casesto the JAGS.Outpa- Reporting Outpatient tient casereporting is limited by variances among the services’ reporting G;aseS regulations as well as by the limited emphasis and lack of systemized and computerized identification and reporting methods that affect third party liability activities in general. Army, Navy, and Air Force regula- tions establish selection criteria to be used by medical facilities and mili- tary payment offices in deter-mining which potential third party cases will be reported to the JAGS.While the services’ regulations generally P4e 19 GAO/3ISIADW Military He&h Care mpter2 We&n-InIdentifyingCasea Witb EecoveryPot.ential require all inpatient potential third party liability casesto be reported regardless of cost, they differ on reporting outpatient cases. For example, Air Force regulations require medical facilities to report all outpatient treatments that result from motor vehicle accidents,faulty products, or the actions of another person. Navy regulations are contra- dictory. Navy Medical Command regulations do not require medical facilities to report outpatient injuries unless it appears that the patient plans legal action or it appears that 10 or more outpatient treatments (costing $670 or more at the 1989 DOD rate) will result. However, Navy JAG regulations state that outpatient caseswill not be reported unless more than seven treatments will result. Army regulations do not address outpatient reporting requirements. We believe that the overall degreeto which medical facilities report out- patient caseshas been significantly reduced becauseof these differences in service regulations. The Air Force facilities we visited were attempt- ing to report all outpatient potential third party casesto the JAGS. The third party clerks at 8 of the 10 Army and Navy facilities we visited told us that they reported few outpatient casesto the JAGS from clinics other than the emergency room. Often, outpatient treatments were reported only if they were known to be associatedwith inpatient cases.However, someJAG officials told us that recovery attempts on small-dollar-value casessuch as those often associatedwith outpatient care were very suc- cessful becauseinsurance companiestended not to resist paying on these cases. We did not determine the extent to which medical facilities had identi- fied and reported outpatient treatment caseswith potential for third party recovery. Outpatient treatment records were far more voluminous and more difficult to evaluate for third party potential than inpatient records, and the time and resourcessuch an evaluation would have required made it impractical. However, the recovery of third party costs associatedwith outpatient treatments could have a major impact becauseof the large number of outpatient treatments performed by medical facilities (32.2 million treatments costing over $1.8 billion were performed in fiial year 1987). DOD therefore needsto set a standard, costeffective threshold for reporting outpatient third party caseswith recovery potential. P8ge20 Chapter 2 Weaknesaeain Identifying CasesWith Recovery Potential Problems in identifying and reporting casesin which treatment was Civilian Treatment received in civilian medical facilities are also hindering third party lia- CasesNot Reported bility recovery activities. Navy procedures for reporting civilian treat- ment casesto the JAGS are weak and likely to result in missed recoveries, and two of the Air Force baseswe visited were not reporting significant numbers of these casesto the JAGS. Active duty service membersoccasionally receive treatment from civil- ian health care providers. For example, when emergencycare is needed, a service member may be treated at a civilian hospital. Civilian hospitals or other health care providers may also be asked to render treatment or conduct tests a military medical facility is unable to perform. The ser- vice member’s bill for such services is usually paid by a medical facility payment office in the Army and the Air Force and by the Office of Medical Affairs in the Navy. Often these casesinvolve large dollar amounts. Officials at the Navy Legal Service Offices (the JAG offices) we visited said that they depend on the Navy Medical Command’sOffice of Medical Affairs to notify them of civilian treatment caseswith third party potential. However, this office’s procedures for identifying and report- ing potential third party casesto the JAGS are weak and likely to result in missed recoveries. Upon receipt of civilian care billings from service members, the Office of Medical Affairs sendsthe service member a questionnaire that requests only limited information, such as the causeof the injury, and-if the care is related to a motor vehicle accident-the name of the driver(s) involved, the insurance company, and the policy number. Upon receiv- ing this information, the office forwards the casesidentified as involv- ing motor vehicle accidents to the appropriate JAG office with a copy of the questionnaire attached. However, while the Navy encouragesservice members to complete and return this questionnaire, it cannot legally require them to do so as a condition of paying their claim. JAG officials also told us that this questionnaire does not provide enough informa- tion; it needsto be redesignedor replaced with a more detailed JAG questionnaire. The lack of sufficient information submitted with casesby the Office of Medical Affairs usually requires the legal services offices to send out their own questionnaires to obtain the information they need to decide whether to pursue these cases.However, JAG officials told us that, by this time, it is often difficult to contact the service members concerned Page 21 GAO/NSL4BBO4 Military Health Care Chapter 2 We&n- in Identifying Caae~With Recovery Potential becausethey have been reassigned,deployed, or separated from the service. We reviewed the motor vehicle accident casesthat had beenreferred by the Office of Medical Affairs and were awaiting processingat the three Navy JAG offices we visited. At one JAG office, 32 percent of these cases did not have questionnaires attached. Also, many of the questionnaires submitted to all three JAG offices were missing neededinsurance infor- mation such as the name of the other insurance company involved and the policy number. Table 2.3 shows data on the number of question- naires sent and the completenessof the information provided. Tablo 2.3: Completenerr of Office of Medlcal Attain Quertlonnaires Insumnce Policy NavyL al Cases we Amount Ca8ea wlth number SOWiCe Ytt ice reviewed involved questionnaires I%#3 identlfled Norfolk 124 $262,996 84 53 28 Washington 45 70,790 45 28 20 Charleston 22 15,447 21 11 7 We believe that recovery for these types of caseswould be more effec- tive if service members were asked to submit more detailed JAG ques- tionnaires with their initial claim packages,rather than being sent questionnaires after claims are filed. Air Force regulations require medical facility payment offices to report to third party liability clerks all injury casesfor which medical treat- ment payments are made to civilian health care facilities. Third party liability clerks are required to forward these casesto the JAGS for deter- mination of third party liability recovery potential. At two of the three Air Force facilities we visited, these payment offices were not identifying and reporting to third party liability clerks or to the JAGS all potential third party liability casesinvolving treatment at civilian health care facilities. For example, at the Air Force’s Wilford Hall Medical Center at Lackland Air Force Base, Texas, 86 motor vehicle accident injury casesinvolving $75,683 in civilian health care reim- bursements had not been identified or reported to the JAG during fiscal years 1987 to 1988 becauseof poor procedures and becausemedical facility officials were not familiar with the applicable regulations. Dur- ing the same period, the Robert L. Thompson Hospital at Carswell Air Force Base,Texas, had not identified or reported 103 potential third Page 22 Chapter 2 WeaknemesinIdentEj4ngCasesWitb RecoveryPotential party casescosting $124,307 becauseofficials at this hospital were una- ware that Air Force regulations required them to do so. We did not review Civilian Payment Office activities at most of the Army facilities we visited becausevariances in their procedures made comparison difficult and becauseof the time and resourcessuch an eval- uation would have required. A Potentially significant medical costs paid by CHAMPUS are not being iden- The Effectiveness of tified and reported to the JAGS for collection primarily becausethe CHAMPUS Third CHAMPUS cost threshold for reporting outpatient caseswith potential Party Liability third party liability precludes recovery in many cases.Also, one fiscal intermediary’s exclusion of certain types of inpatient casesfrom third Activities Is Unclear party review precluded recoveries. CHAMPUS and How It A substantial portion of DOD'S military health care is provided through CHAMPUS. In fiscal year 1987, CHAMPUS paid over $2 billion for medical Works care provided to beneficiaries. Of this, about $130 million was for claims having the potential for third party liability. Private organizations called “fiscal intermediaries” are under contract to DOD to pay claims submitted by hospitals, physicians, and other health care providers for services provided to beneficiaries under CHMFJUS and to report to the JAGS those claims that might have potential for third party liability. JAG officials at nearly all the installations we visited told us that they believed that many CHAMPUS caseswith potential for third party liability were not being identified and reported. We reviewed third party identifi- cation and reporting at the Office of CHAMPUS and at two of the five CHAMPUS fiscal intermediaries-Blue Cross/Blue Shield of South Carolina and Wisconsin Physicians Service. a u.sp” tient Cost The Office of CHAMFYJS does not require fiscal intermediaries to submit hold CausesLimited outpatient third party liability claims to JAGS if the amount is less than $600, unless requested by JAG officials. We asked Office of CHAMPUS offi- Heporting of Potential cials why the threshold had been established at $500 compared to the Third Party Cases lower thresholds used by service medical treatment facilities. They told Page23 Chapter2 WeaknesseeinIdentifyingCa8esWit.b RecoveryPotential us that this level had evolved as the result of discussionswith repre- sentatives of the service JAGS. However, neither CHAMPUS nor JAG offi- cials could provide documentation concerning this agreement,nor could they recall why the threshold had been set at $500. JAG officials told us that they conduct cost-effective recoveries at far lower casecost levels. They believe that the $500 threshold is too high and that potential third party casesare therefore underreported. We agree that the $500 thresh- old is probably too high becausethe JAGS are conducting effective recov- eries at much lower cost levels for casestreated in military medical facilities and in civilian hospitals when CHAMPUS is not involved. How- ever, we could not determine at what level the CHAMPUS threshold should be set. A reduction in the $500 threshold could substantially increase CHAMPUS third party liability recoveries. According to CHAMPUS officials, they received 250,000 potential third party claims that were under the $500 threshold during the first 6 months of fiscal year 1988. The value of these claims totaled $18.2 million. CHAMPUS officials believe that most of these claims involve less than $100 each and indicated that the cost- effectiveness of recovering them is questionable. At the time of our review, CHAMPUS was unable to determine accurately the total value of casesfalling below $100 or any other dollar breakout below $500. We believe that CHAMPUS needsto review the cost threshold for reporting potential outpatient third party casesand set it at a level that the JAGS agree is economical for the government to pursue. Potential Recovery Cases We evaluated the two fiial intermediaries’ reviews of injury casesto Were Excluded From determine whether those with third party potential were being identi- fied. We found that both fiscal intermediaries were accurately identify- Review - _ for _ Third Party ing potential third party casesin accordancewith their established Potential criteria. However, Blue Cross/Blue Shield of South Carolina’s third party identification criteria excluded many caseswith third party potential. Both fiial intermediaries determine which CHAMPUS claims to review for third party liability by reviewing the diagnostic codesassignedto cases. Third party review is normally done for claims with codes800 through 999. These codesrepresent various types of traumatic injuries. How- ever, the Office of CHAMPUS allows fiscal intermediaries to exclude cer- tain codeswithin this range that the fiscal intermediaries consider as having limited potential for third party liability. For example, insect Page24 GAO/NSLUb@&S Military Health Care Chapter 2 Weakneageain Identifying CaseaWith Recovery Potential bites are coded within this range but do not normally have potential for third party liability. Wisconsin Physicians Service excluded 14 diagnostic codesin the 800 to 999 range. We concurred that these codeshad little third party poten- tial. However, Blue Cross/Blue Shield of South Carolina was excluding a total of 79 codes,or about 42 percent of the 188 diagnostic codesused in the 800 to 999 range. We believe that many of the excluded codeshave high third party potential. For example, one of the excluded codeswas for sprains and strains. A JAG official said that automobile accidents not involving broken bonesusually resulted in sometype of sprain or strain injury. During fiscal year 1987, the government paid $10.9 million on potential third party liability claims processedby Blue Cross/Blue Shield with these excluded diagnostic codes.These unreported claims constituted about 32 percent of the total amount paid on potential third party liability claims processedby this fiscal intermediary. JAG officialssaid that they were conducting successfulrecoveries on casessubmitted by Wisconsin Physicians Service that involved the diag- nostic codesexcluded by Blue Cross/Blue Shield. Of 367 claims we sam- pled at Wisconsin Physicians, 94, or 26 percent, had the diagnostic codes that were excluded by Blue Cross/Blue Shield. Wisconsin Physicians determined that 40 of the 94 had third party potential and referred them to the JAGS. We were unable to determine the monetary impact of excluding these diagnostic codesbecauseit is unclear how successfulthe JAGS might have been in recovering government costs for these claims. We did not review whether similar exclusions were occurring at other fiscal intermediaries, After we informed the Office of CHAMPUS of these exclu- sions, they instructed all fiscal intermediaries to review all claims with diagnostic codesin the 800 to 999 range pending a change in the CHAMPUS Operations Manual for Fiscal Intermediaries. The weaknesseswe found in the identification and reporting of potential Conclusions and third party liability casesat medical treatment facilities, military pay- Recommendations ment offices, and CHAMPUS resulted in many cases’not being identified and reported to the JAGS. The JAGS cannot conduct effective recovery activities unless they are informed of which caseshave potential for third party liability. Improvements in these areas are therefore critical to DOD medical cost recovery efforts. Page 25 GAO/NSIAD8O4 Military Health Care Chapter 2 Wm in Identifyin chea Wttb Recovery Potential We recommend that the Secretariesof the Army, the Navy, and the Air Force take the following actions: l Modify military service regulations to set a consistent, cost-effective minimum cost threshold for reporting outpatient caseswith potential third party liability to the JAGS. . Instruct medical treatment facilities to make maximum use of computer- ized patient information systems to help identify potential third party casesand to ensure that these casesare reported to the JAGS.The Automated Quality of Care and Evaluation Support System could be used for this purpose for inpatient motor vehicle accidents until better systems becomeavailable. We recommend that the Secretary of the Navy take the following actions: 9 Instruct the Naval Medical Command to develop and implement proce dures for medical facilities to identify and report potential third party cases.These procedures should require hospital clinic participation in the identification process. = Instruct the Naval Medical Command to review the adequacy of Office of Medical Affairs questionnaires and encourageservice members to submit them to the Office of Medical Affairs at the sametime that they request payment of civilian health care provider charges. We recommend that the Secretary of the Air Force ensure that regula- tions are followed regarding the reporting to JAGSof injury casesinvolv- ing payment for treatment in civilian health care facilities. We recommend that the Secretary of the Army direct the Health ServicesCommand to develop and implement procedures for medical facilities to use in identifying and reporting potential third party liabil- ity cases.These procedures should require hospital clinic participation in the identification process. We recommend that the Secretary of Defensedirect the Assistant Secretary of Defense(Health Affairs) to take the following actions: l Determine at what cost CIUMPUS outpatient casesare economical for the government to recover and reach an agreement with the JAGSregarding the minimum cost of outpatient casesthat CHAMPUS fiscal intermediaries should be required to report to JAGclaims offices. Page 26 GA0/TvsIAD80-4@Military Health care chapter 2 Wenkneaeeein IdenMying CaseeWith Becovery Potential l Determine which diagnostic codesfiscal intermediaries should be allowed to exclude in determining which claims should be reviewed for third party potential. DOD generally concurred with the recommendationscontained in this Agency Comments chapter. In orally commenting on a draft of this report, it stated that the military services have agreed to eliminate arbitrary minimum cost thresholds for reporting outpatient caseswith third party liability potential to JAG offices. New service regulations will require that service medical facilities report all such casesregardless of the monetary amount involved. WD also agreed that a.neffective cost level neededto be determined for reporting CHAMPUS outpatient claims with third party potential. DOD suggestedthat it could perform a cost-benefit analysis to determine this cost level, since a decreasein the cost threshold for reporting these claims will increase the time and cost required for processing and increase the number of casesreported to the Judge Advocates General. In its comments, DOD also stated that the exclusion criteria used by Blue Cross/Blue Shield of South Carolina for reporting potential third party caseshad been established without the knowledge or approval of the Office of CHAMPUS. According to DOD, all fiscal intermediaries have been directed to ceaseany automated exclusions of procedure codes,and the Program Operations Division of the Office of CHAMPUS has been tasked with monitoring this requirement on an ongoing basis. A review of diag- nostic codesthat need not be reported is being performed and will be included in the CHAMPUS Operations Manual for Fiscal Intermediaries within 6 months. Page 27 GAO/NSLUMO-49MilitaryHealthCare JAG Chapter 3 Recovery Effectiveness Can Be Improved JAG offices at the installations we visited appeared to be pursuing third party liability casesin accordancewith regulations. However, we found that JAG third party recovery efforts were adversely affected by incon- sistencies in military service regulations, a lack of staff, and a legal problem affecting recovery in states with no-fault automobile insurance. In chapter 2, we discussedthe necessity of the proper identification and timely reporting of potential third party claims to the JAGS. Of equal importance to the third party liability recovery processis how well the JAG claims offices assert and recover claims once they becomeaware of them. Overall, the JAGS recover about half or less of the amounts they assert on third party liability claims they decide to pursue. From fiscal years 1985 through 1988, on average the Air Force recovered 52 per- cent, the Army 47 percent, and the Navy 37 percent of the amounts asserted on these claims. We could not fully evaluate the JAG'S recovery effectiveness due to internal control conditions at the JAGS (see chapter 4). However, JAG officials acknowledged that many medical costs involving third party liability are not being recovered by DOD. They estimated that the resolution of these problems and those affecting the reporting of potential third party casesby medical facilities and CHAMPUS should increase annual recovery from the current level of $25 million to $50 million. The services’ JAG regulations require that all inpatient caseswith poten- JAG Regulations tial for third party liability be pursued, regardless of cost. However, on Differ on Outpatient outpatient cases,the regulations are not consistent. For example, Navy Claims Recovery JAG regulations state that claims involving seven or fewer outpatient treatments (costing $469 or less at the 1989 rate) need not be reported or pursued. Army JAG regulations state that outpatient casesamounting to less than $250 need not be pursued unless collection is economically feasible. Air Force JAG regulations state that outpatient casesunder $100 should not be pursued unless there is clear liability and minimal collection efforts will be involved, Chapter 2 identifies similar inconsis- tencies regarding which potential third party casesshould be reported to the JAGS by medical facilities and CHAMPUS fiscal intermediaries. Someof the JAG offices we visited were pursuing third party claims regardless of the amounts involved. For example, JAG officials at Fort Meade and Walter ReedArmy Medical Center told us that recovery was usually economically effective regardless of the amount involved and that many of their recoveries were associatedwith small-dollar-value cases.JAG officials told us that they believed that the time and cost Page 28 GAO/NSL4D9O-49MUitm-yHeakhCare Chapter 3 JAG Recovery Effectiveness Can Be Improved involved in asserting claims for the smaller caseswere nominal, particu- larly if form letter assertions were used. JAG officials also said that lia- ble third parties tended to be less resistant to paying small claims than to paying large ones. We could not determine a minimum cost at which third party recovery efforts would becomecost-effective. However, the levels established by service JAG regulations for pursuing third party casesshould be both consistent and coordinated with the cost levels used by CHAMPUS and medical facilities for reporting potential third party cases.We believe that, becauseof the current variety of levels used for identifying, reporting, and attempting recovery on third party liability cases,sub- stantial opportunities for recoveries are as yet unrealized. JAG staff at the installations we visited appeared to be conducting third Recoveries Are party recovery in accordancewith regulations. However, JAG officials Hindered by told us that their staff resourceswere limited and that other areas,such Insufficient Staffing as military justice, had a higher priority than third party liability. They also said that there was little incentive to emphasizethird party recov- ery since all recovered costs are deposited into the general fund of the U.S. Treasury. Therefore, JAG officials sometimes make consciousdeci- sions to de-emphasizethird party recovery in order to devote adequate resourcesto activities with higher priorities. Limited Staffing At eight of the JAG offices we visited, only one or two people were processingthird party claims. Often, these individuals were performing third party duties on a part-time basis. Staffing shortages and caseload levels causedsomeof the JAG offices we visited to increase the minimum claim amount they would attempt to recover or to curtail recovery efforts. For example, one JAG office that had not previously employed a minimum dollar amount for pursuing third party liability casesrecently had established a minimum claim value of $150 for pursuing these cases.Officials at another JAG office told us that they no longer attempted to follow up on unpaid initial assertions against insurance companies or liable parties unless the government’s claim involved at least $500. A third JAG office was abandoning recovery attempts on third party casesif difficulties were encountered in obtaining insurance information on the liable third party. As a result, current third party liability recovery levels appeared to have more to do with staff availa- bility and caseloadthan they did with the cost level at which it was economical for the government to attempt recovery. Page 29 GAO/NSIAD-W Military Health Care Chapter 3 JAG Recovery Effectivenese Can Be Lmproved JAG officials believe that assigning additional personnel to third party liability would result in significant increasesin the amounts recovered. For example, at one installation they estimated that assigningonly one additional clerical staff member to third party liability caseswould increase that office’s annual third party recovery from approximately $1.7 million to $3 million. At another installation, JAG officials estimated that the addition of one additional clerical staff member would double the $374,000 being recovered annually. Using Recovered Funds to As previously discussed,third party recovery activities are hindered by Bolster Third Party a lack of resourcesand incentive at both the medical facilities and the JAGS. These hindrances occur largely because,in accordancewith Activities. Could Increase 31 U.S.C.3302(b)(1982), JAG third party recoveries are deposited into Kecoveries the general fund of the U.S. Treasury rather than a military account. We believe that medical cost recoveries could best be increased if the Congressenacted legislation to allow DOD to retain a portion of the recovered funds and earmark them for providing the resourcesneeded to perform effective medical cost recovery activities. These funds would then provide the resourcesand incentives neededby military medical facilities and JAGS to conduct effective recovery activities. Alternatively, DOD could contract out medical recovery activities to pri- vate contractors. Section 3718(d) of title 31 of the U.S. Code allows gov- ernment agenciesto use a portion of the funds recovered to compensate the contractor. DOD officials told us that DOD has already contracted out workers’ compensation recovery activities in one state since 1983 and has recently expanded this effort to include two additional states. Either method should result in increased deposits to the Treasury. JAG officials estimated that the resolution of problems with staffing recov- ery efforts and with CHAMPUS and medical facility reporting of potential third party casesshould double annual JAG medical cost recoveries. This increase should be sufficient to fund an enhancedmilitary recovery effort or to pay private contractors while still increasing third party lia- bility deposits to the Treasury well above current levels. Page 30 chapter3 JAG Recovery Ef?ectiveneaaCm Bermproved The Federal Medical Care Recovery Act allows recovery for medical Recoveries Are expensesincurred by DOD for the treatment of service members,retirees, Limited in States With and dependents. However, the statute requires the establishment of No-Fault Insurance third party tort liability for conducting recovery actions. This statute was passedbefore the advent of nofault insurance laws affecting auto- Laws mobile accidents. Since no-fault laws by definition do not establish an at- fault, or liable, party, recoveries cannot legally be conducted under this statute in some states with nofault laws. For example, if a person operated an automobile in a manner that caused a collision with another automobile and both parties received injuries, in a no-fault state each could recover medical costs associated with the accident from his or her own insurance company regardless of which party was at fault. However, if one of the parties involved was a service member, the member’s insurance company could refuse to pay the cost of care received in a military hospital on the grounds that the Federal Medical Care Recovery Act entitles the government to recover only when third party tort liability has been established. JAG officials told us that someinsurance companies had denied payment on these grOl.lNiS. According to Army JAG officials, a total of 21 states, the District of Columbia, and Puerto Rico all have versions of no-fault insurance laws. The impact of these laws on third party recovery varies but particularly inhibits DOD third party liability recovery efforts in six states. In 1985, a bill (H.R. 441) was submitted in the Houseof Representativesto remove the tort requirement from the Medical Care Recovery Act, but it was not enacted. We believe that the government should have the same right to recover medical care costs that anyone else has in such situations. A legislative change to remove the tort requirement for recovery in states with no- fault automobile insurance laws would provide the government that right. We believe that this could be best accomplished by enacting legis- lation that would give DOD separate third party collections authority, which would include no-fault automobile insurance policies and other appropriate payers. The JAGS we visited appeared to be conducting third party liability Conclusions and activities according to regulations. However, overall JAG effectiveness is Recommendations limited by inadequate staffing, inconsistent regulations regarding mini- mum claim cost thresholds for attempting recovery, and the relatively Page 31 GAO/NSIAb904 Military Health Cue Chapter3 JAG Recovery Efktivenese Can Be Improved low priority and incentive often associatedwith third party liability claims. Amendments to existing statutes are also neededto improve recovery effectiveness. Improvements in these areas are essential to ensuring the maximum recovery of DOD’S medical costs. We recommend that the Secretariesof the Army, the Navy, and the Air Force direct the service Judge Advocates General to modify JAG regula- tions governing third party recovery so as to establish consistent and cost-effective minimum amounts for claims assertions. We recommend that the Secretary of Defenseeither direct the military services to increase the resources(personnel and/or equipment) assignedto conducting third party liability recovery activities at mili- tary medical facilities and JAG offices or explore the feasibility of con- tracting out third party liability recovery activities. We also recommend that the Congressenact legislation to allow DOD to retain a portion of the recovered medical care costs. This should both provide DOD with the incentive and funding to increase recoveries and result in increased Treasury receipts. However, these funds should be restricted to supporting third party liability activities at military medi- cal facilities and JAG claims offices. We further recommend that the Congressenact legislation to enable recovery by the government in states with no-fault automobile insur- ance laws. DOD agreed to modify Judge Advocate General regulations so as to estab- Agency Comments lish consistent and cost-effective minimum amounts for claims asSertiOIlS. DOD also agreed that the principles embodied in the Federal Medical Care Recovery Act need to be updated to accommodatethird party liability recovery involving no-fault automobile insurance and to allow DOD to retain a portion of third party liability recoveries. In commenting on this report, DOD suggestedthat the neededchangescould be accomplished by revising 10 U.S.C. 1095 so as to make DOD'S statutory authorities com- parable to those of other government agencies.It also suggestedthat this recovery activity be added to other DOD recovery activities now cov- ered by procedures in place for collecting from third parties. Page 32 Chapter 4 Third Party Liability Activities Need Better Internal Controls Internal control weaknessesin both the identification and reporting processes for potential third party liability cases preclude an accurate overall evaluation of the performance of the various offices and activi- ties involved in these activities. Military treatment facilities, payment offices, and fiscal intermediaries often did not keep adequate records of which cases had been identified and which ones had been referred to the JAGS. We also could not fully evaluate JAG recovery effectiveness becausethe JAGS did not keep records indicating why many potential third party caseshad been discarded. Establishing and maintaining internal controls are important manage- ment responsibilities. Good internal controls are essential to proper cost recovery with full accountability for the funds involved. They also serve as checks and balancesagainst undesired actions and provide information neededto make good managementdecisions.The Federal Managers’ Financial Integrity Act of 1982 requires the heads of federal executive agencies annually to evaluate their agencies’internal control systems and submit statements on the status of these systems to the President and the Congress. Many of the Army and Navy facilities we visited could not readily deter- Army and Navy mine which potential third party casesthey had identified and sent to Medical Facilities the JAGS. However, the casesidentified and reported by medical facili- Need Better Third ties were well documented at all the Air Force installations we visited. Caseswere welI documented becauseAir Force regulations require indi- Party Liability vidual military treatment facilities and specialty clinics to log in all Records treatments on a standard form (AF 1488), indicate on the form whether third party liability might be involved, and submit copies of these forms to the JAGS daily through the third party liability clerk. By retaining copies of these logs, Air Force medical facilities had good records and internal controls over which caseshad been identified and reported. As discussedin chapter 2, Army and Navy regulations do not specify how their medical facilities should identify third party cases.Third party liability clerks at Army and Navy medical facilities consequently had designed their own procedures. The quality and effectiveness of medical facility internal controls for ensuring the adequacy of third party liability caseidentification and reporting therefore also varied widely. For example, of the 10 Army and Navy facilities we visited, only l31 U.S.C. 3512 (1982), as implemented by Office of Management and Budget Circular 10 .I-123. August 4,19&Y Page 33 GAO/NSIAD9049 Military Health Care Chapter4 ThirdPartyLirbilityActivitiesNeedEktter Internal Ckmtrols 7 had sometype of log or record for fiscal year 1987 showing which potential third party caseshad been sent to the JAGS, and 3 of these either were incomplete, contained omissions, or had other design prob- lems. Six of these facilities therefore could not readily determine which third party caseshad been identified or whether they had been reported to the JAGS. Internal control weaknessesalso limited our evaluation of the perform- Records of CHAMPUS ante of CHAMPUS fiscal intermediaries. The fiscal intermediaries we vis- CasesSent to JAGS ited did not have complete or accurate records to show that the Are Incomplete or potential recovery casesthey identified had actually been sent to the JAGS. Lacking CHAMPUS regulations do not require fiscal intermediaries to keep records showing which potential third party casesare referred to the JAGS for recovery. The fiscal intermediaries we visited could determine which third party caseshad been identified by reviewing their files. However, we were unable to determine whether the fiscal intermediaries were actually reporting all identified casesbecausethey had not maintained adequate records of which casesthey actually sent to the JAGS. For example, Wisconsin Physicians does not keep any log of third party casesreported, making it impossible to determine whether this fiscal intermediary actua.Uysent all of its potential third party casesto the JAGS. Blue Cross/Blue Shield maintains a manual log of potential third party casessent to the JAGS. We reviewed this log for 148 claims for fiscal year 1987: all 148 involved diagnostic codes800 through 999 and had billed amounts in excessof $600. We determined that 29 of these claims (20 percent) were potential third party cases.Of the 29, we were able to locate only 14 in the Blue Cross/Blue Shield log. We could not determine whether the log was being improperly maintained or whether the missing caseswere never forwarded. We attempted to evaluate JAG recovery effectiveness for the inpatient JAG Records Preclude motor vehicle accident caseswe reviewed at medical facilities. However, a Detailed Evaluation JAG offices normally do not keep records on all the potential third party of Potential Third casesreferred to them by medical facilities, CHAMPUS, or other sources. Instead, the JAGS usually opened casefiles only for casesin which they Party Liability Cases expected to assert claims. Therefore, we could not determine how many of the caseswe reviewed had been received by the JAGS or why they had page34 GA0/NSLAD9049MilitaryHealthCarr Clmpter4 ThirdPartyLinbilityActivitie~NeedBetter Intend Catrole not pursued many of these cases.JAG officials told us that many poten- tial third party caseshad been discarded because,in their judgment, these caseshad little or no potential for recovery. As previously dis- cussed,overall, the JAGS recover about half or less of the amounts they assert on third party liability claims they decide to pursue. At someJAG offices, casedocumentation was insufficient to explain important facets of claims resolution, such as why someopened claims had been later discarded or settled for less than the full amount of the medical costs involved. For example, Navy JAG headquarters officials told us that each casefile should have a summary or chronology indicat- ing what recovery actions had been taken to resolve the claim. However, many of the files we reviewed at Navy JAG offices did not have adequate summaries. We also found somecasesin which all medical costs had not been included in the claim amount asserted. Documentation of what actions JAG officials had taken regarding these caseswas often either absent or in the form of informal notes. Determination of what actions the JAGS had taken and the reasonsfor those actions at these locations was therefore often dependent on the recollection of the JAG officials involved and sometimescould not be determined. The absenceof adequate internal controls at the Army and Navy medi- Conclusions and cal facilities, the CHAMFYJSfiscal intermediaries, and the JAG offices we Recommendations visited prevented an accurate determination of the resolution of many potential third party liability cases.Internal control problems also pre vented an accurate determination of the extent to which the government had lost the opportunity to recover medical costs associatedwith these cases.DOD therefore needsto improve the internal controls associated with third party liability recovery activities. We recommend that the Secretary of the Army instruct the Health ServicesCommand to establish effective internal controls for monitoring the identification and timely reporting of potential third party liability cases.These controls should include a requirement for medical treat- ment facilities (including civilian payment offices) to keep standardized logs of all casesidentified and reported to the JAGS. We recommend that the Secretary of the Navy instruct the Navy Medical Command to establish similar internal controls for third party liability identification and reporting to the JAGS by Navy medical activities. P8ge36 GAO/NW Military lhkb Care Chapter 4 ThirdPartyLiabilityActivitie~NeedBetter Internal Controls We recommend that the Secretary of Defensedirect the Assistant Secretary of Defense(Health Affairs) to require that CHAMPUS fiscal intermediaries maintain logs of potential third party liability casesactu- ally reported to the JAGS. We recommend that the Secretariesof the Army, the Navy, and the Air Force direct the service Judge Advocates General to establish better internal controls for the evaluation of claims resolution effectiveness. Specifically, JAG claims offices need to record the potential third party liability casesthey receive, the casesthey discard, and the reasonsfor discarding them. DOD generally agreed with our recommendations. It stated that CHAMPUS Agency Comments fiscal intermediaries will be required to maintain logs of the casesand claims they refer to the Judge Advocates General. Also, the Departments of the Army and the Navy will ensure that standard proce- dures for medical facility identification and reporting of potential third party casesare implemented and that effective internal controls are established for monitoring these activities. DOD also said that the Secre- taries of the Army, the Navy, and the Air Force will ensure that the internal controls we recommend for evaluating claims resolution effec- tiveness are made operational. We originally recommendedthat the Sec- retary of Defensedirect these actions. However, DOD stated that the Secretary of Defenseneed not do so, since the Secretariesof the Army, the Navy, and the Air Force and the service Judge Advocates General would ensure that these procedures and internal controls are made oper- ational. We have modified our recommendations accordingly. The draft of this report that was submitted to DOD for comment also contained a recommendation that the Secretary of Defensedirect the Secretaries of the Army, the Navy, and the Air Force to include reviews of the internal control weaknessesdiscussedin this report in their next Federal Managers’ Financial Integrity Act Assessment.In commenting on this report, DOD stated that these internal control weaknesseswould be corrected without resorting to the act. We have consequently with- drawn this recommendation. Page 36 GAO/NSIABBO-49MilituyHealthCare P8ge 37 GAO/NW Mllitmy Health Care Appendix I Major Contributors to This Report Edward M. Balderson, Assistant Director National Security and William W. Cawood, Evaluator-in-Charge International Affairs Edward A. Waytel, Evaluator Division, Washington, Patricia A. Grove, Evaluator DC. Robert P. Pickering, Evaluator Denver Regional Alan J. Dominicci, Evaluator Office (393307) Page 38 GAO/NSIAD9&49 Military Health Care Requests for copies of GAO reports should be sent to: U.S. General Accounting Office Post Office Box 6015 Gaithersburg, Maryland 20877 Telephone 202-275-6211 The first five copies of each report are free. Additional copies are $2.00 each. There is a 25”0 discount on orders for 100 or more copies mailed to a single address. Orders must be prepaid by cash or by check or money order made out to the Superintendent of Documents.
Military Health Care: Recovery of Medical Costs From Liable Third Parties Can Be Improved
Published by the Government Accountability Office on 1990-04-19.
Below is a raw (and likely hideous) rendition of the original report. (PDF)