VA Health Care: Collections Fall Short of Expectations

Published by the Government Accountability Office on 1999-09-23.

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

                               United States General Accounting Office

GAO                            Testimony
                               Before the Subcommittee on Oversight and Investigations,
                               Committee on Veterans’ Affairs, House of Representatives

For Release on Delivery
Expected at 10:00 a.m.
Thursday, September 23, 1999
                               VA HEALTH CARE

                               Collections Fall Short of
                               Statement of Stephen P. Backhus, Director
                               Veterans’ Affairs and Military Health Care Issues
                               Health, Education, and Human Services Division

VA Health Care: Collections Fall Short of

               Mr. Chairman and Members of the Subcommittee:

               We are pleased to be here today to discuss the Department of Veterans
               Affairs’ (VA) efforts to increase revenues from alternative sources as a way
               to supplement its medical care appropriations. My remarks today will
               focus on VA’s management of its efforts to increase collections from
               third-party insurers, because this area represents the largest source of
               alternative revenue. Specifically, I will discuss trends in third-party
               collections and VA’s efforts to increase its collections.

               My testimony is based on an update of our 1997 report on VA’s third-party
               program.1 To update that report, we reviewed (1) reports on VA’s medical
               care collections program by VA’s Inspector General and Coopers and
               Lybrand and (2) VA’s internal reports, including its Three Tier report,
               regarding implementation of medical care collections activities. We also
               interviewed officials at VA’s Central Office and at two VA facilities—the
               New Jersey Health Care System (NJHCS), which includes the VA Medical
               Centers in East Orange and Lyons, New Jersey, and the Houston, Texas, VA
               Medical Center.2 We selected NJHCS because it had the highest medical care
               collections from October 1998 through July 1999 and the Houston Medical
               Center because it had a greater workload than NJHCS but had collected
               considerably less money during the same period.

               In summary, VA’s third-party collections have declined in each of the past 3
               fiscal years and may decline again by the end of fiscal year 1999. In fiscal
               year 1998, VA collected $442 million from third-party insurers for care
               provided to veterans for non-service-connected conditions, down from
               $523 million in fiscal year 1995. In fiscal year 1999, as of August 31, VA had
               collected about $388 million from third-party insurers. Unless VA’s
               September collections exceed by $19 million its average monthly
               collections of $35 million, the annual decline in third-party collections will
               continue for the fourth year in a row. Next fiscal year, VA will experience
               its first full year of billing insurers on a reasonable-charges basis rather
               than a reasonable-cost basis. However, data are insufficient to predict
               whether this will reverse the declining collections trend.

               VA has tried to reverse the decline in its collections from third-party
               insurers. Three factors limit VA’s ability to increase the amount it collects

                VA Medical Care: Increasing Recoveries From Private Health Insurers Will Prove Difficult
               (GAO/HEHS-98-4, Oct. 17, 1997).
                The New Jersey Health Care System is part of Veterans Integrated Service Network (VISN) 3, based in
               the Bronx, New York. The Houston Medical Center is part of VISN 16, based in Jackson, Mississippi.

               Page 1                                                                         GAO/T-HEHS-99-196
             VA Health Care: Collections Fall Short of

             from private insurers—the increasing number of veterans whose primary
             insurance is Medicare, increasing health maintenance organization (HMO)
             penetration, and its own efforts to increase the emphasis on outpatient
             care. Nevertheless, VA can enhance its chances of increasing collections if
             it ensures that the management improvements that are being implemented
             at some facilities are implemented throughout VA. These include overall
             improvements in VA medical facilities’ use of good business management
             practices, as well as specific improvements in how facilities collect
             insurance information, document the appropriateness and medical
             necessity of care being billed, and pursue unpaid bills.

             VA’s health care system—the nation’s largest direct health care
Background   provider—serves about 15 percent of the nation’s 25 million veterans. VA
             has more than 600 delivery locations to provide services such as primary
             care, specialized medical care, mental health care, geriatrics care, and
             extended care.

             In 1986, the Congress gave VA authority to bill private insurers for care
             provided to insured veterans who did not have service-connected
             disabilities. In 1990, this authority was expanded to allow VA to collect for
             the treatment of veterans with service-connected disabilities, if the
             treatment was for a non-service-connected medical condition. With the
             enactment of the Balanced Budget Act of 1997 (BBA), the Congress
             changed the third-party program into one designed to supplement VA’s
             medical care appropriations by allowing VA to retain all third-party
             collections. The law established the Medical Care Collections Fund (MCCF)
             to receive third-party collections and some other revenues (such as
             veterans’ copayments and deductibles). VA can use these funds to provide
             medical care to veterans and to pay for its medical care collection
             expenses. Before the MCCF was established, VA was allowed to keep
             enough collections to fund its collection activities but deposited the
             remainder in the U.S. Treasury.

             BBA  also gave VA authority to change its basis for billing third-party
             insurers from “reasonable costs” to “reasonable charges.” Under
             reasonable costs, VA based its billing of insurers on its average cost to
             provide care—for example, a flat fee of $229 for veterans’ outpatient visits
             in fiscal year 1999. For inpatient visits, VA billed insurers a per diem based
             on patients’ locations in the hospital. For example, VA charged $2,079 per
             day of care in a surgical bed section in fiscal year 1999. Under reasonable
             charges, VA will base its bills to insurers on market prices. VA expects that

             Page 2                                                       GAO/T-HEHS-99-196
                          VA Health Care: Collections Fall Short of

                          it will help increase third-party collections. However, we concluded that
                          the effect of reasonable charges on VA’s collections could not be accurately

                          In January 1997, VA proposed a 5-year plan to operate within an
                          appropriation of $17 billion per year through fiscal year 2002. By the end
                          of fiscal year 2002, VA planned to reduce its average health care costs per
                          patient by 30 percent, serve 20 percent more veterans, and obtain 10
                          percent of its funding from “alternative revenue streams.” These revenue
                          streams were to include, in addition to third-party insurance collections,
                          collections of veterans’ copayments and deductibles, collections from the
                          Medicare program, and proceeds from sharing agreements under which VA
                          would sell services to other providers such as the Department of Defense
                          and private hospitals. VA’s fiscal year 2000 budget acknowledges that it will
                          not meet the 10-percent goal, in part because the Congress has not
                          authorized Medicare payments to VA. VA estimates that it will have
                          obtained 4.3 percent ($772 million) of its medical care funding from
                          “alternative” sources by the end of fiscal year 1999, increasing to 7.6
                          percent (about $1.4 billion) in fiscal year 2002.

                          To help serve more veterans and enhance services, VA had planned on
Collections From          increasing collections from third-party insurers to supplement its medical
Third-Party Insurers      care appropriations but has been unable to achieve projected amounts. In
Are Declining             fact, VA’s collections have decreased in each of the past 3 fiscal years and
                          may decrease again by the end of fiscal year 1999. In our 1997 report, we
                          identified a number of factors that limit VA’s ability to collect from
                          insurers. We believe these factors will continue to limit VA’s collections
                          potential, although quantifying the magnitude of the effect is difficult
                          because the necessary data are not available. However, one factor that we
                          identified—refunds of overpayments by private insurers—has not had a
                          major effect on VA’s ability to increase collections. Such refunds could
                          affect future collections if private insurers continue to discover more
                          instances of overpayments for care provided after July 1997 and request
                          refunds from VA.

Third-Party Collections   In fiscal year 1995, VA collected $523 million from third-party insurers.
Continue to Decline       Since then, the amount collected has declined every fiscal year and may
                          decline again in the current fiscal year. Collections declined from

                          VA Health Care: Third-Party Charges Based on Sound Methodology; Implementation Challenges
                          Remain (GAO/HEHS-99-124, June 11, 1999).

                          Page 3                                                                   GAO/T-HEHS-99-196
                             VA Health Care: Collections Fall Short of

                             $523 million in fiscal year 1995 to $495 million in fiscal year 1996,
                             $450 million in fiscal year 1997, and $442 million in fiscal year 1998. As of
                             August 31, 1999, VA had collected $388 million during fiscal year 1999. VA’s
                             average collections are about $35 million per month, but it will have to
                             collect $54 million in September to equal fiscal year 1998’s collections.

                             In our 1997 report, we analyzed several factors that limit VA’s potential to
                             collect more from private insurers. First, an increasing percentage of
                             veterans are older than 65 and eligible for Medicare, which by law does
                             not pay for care furnished by VA. VA has estimated that in 1999, 38 percent
                             of the veteran population is older than 65, up from 32 percent in 1994.
                             Second, more veterans are enrolling in HMOs and other managed care
                             plans. For example, according to data provided by VA, total HMO enrollment
                             in the general population increased from 25.8 million in December 1986 to
                             58.8 million in January 1997. Because VA is not a participating provider, it
                             typically cannot collect from such plans. Third, VA’s shift in emphasis from
                             hospital care to outpatient care has resulted in more episodes of less
                             expensive outpatient care and fewer episodes of more expensive inpatient
                             care. This in turn has a tendency to decrease the amount that can be billed
                             to insurers. Between fiscal years 1995 and 1998, the annual number of VA
                             inpatient episodes dropped from 879,000 to 617,000, while outpatient
                             episodes rose from 26.5 million to 33.4 million.

Overpayment Refunds Are      In 1997, we reported that VA might have to refund as much as $600 million
Still a Potential Problem,   in overpayments to some insurers. These overpayments were made by
Although Current             insurers whose policies contain provisions making their coverage
                             secondary to Medicare when policyholders become eligible for Medicare.
Collections Have Not Been    VA’s bills did not specify that these insurers were expected to pay as a
Significantly Affected       secondary, rather than a primary, payer. Thus, some insurers whose
                             policies contain such provisions have paid VA as the primary payer. Some
                             of these insurers are seeking refunds of previous payments to VA or are
                             reducing current payments. VA’s position is that it will refund
                             overpayments to insurers whose claims are timely and well grounded.

                             Based on data provided by VA’s Office of General Counsel, actual refunds
                             to insurers have been relatively small compared with potential liabilities.
                             Specifically, at the time of our review, VA officials estimated that total
                             repayments would probably not exceed $100 million and told us that they
                             had repaid approximately $19 million. However, unknown refunds have
                             been paid by individual medical facilities, and claims for about an
                             additional $29 million are pending. For example, NJHCS recently agreed to

                             Page 4                                                      GAO/T-HEHS-99-196
                         VA Health Care: Collections Fall Short of

                         pay an insurer approximately $286,000 after the insurer audited NJHCS bills.
                         At the Houston Medical Center, we found one repayment in fiscal year
                         1999 for about $35,000.

                         Most of VA’s refunds have come from an account in the Treasury, not from
                         VA’s medical care funds, because most overpayments occurred before
                         July 1997, when VA was still required to deposit excess collections in the
                         Treasury. Of the $19 million in refunds reported by VA’s Office of General
                         Counsel, all but about $800,000 was paid from the Treasury account. Also,
                         all but about $86,000 of the $286,000 refund by NJHCS came from the
                         Treasury account. All the $35,000 refund by the Houston Medical Center
                         came from its current medical care account.

                         To prevent this type of overpayment in the future, VA is working with the
                         Health Care Financing Administration (HCFA) to develop a facsimile of the
                         Medicare remittance advice that would provide information on the
                         secondary payer’s share of billed charges for VA’s use in billing insurers.4
                         However, according to a VA official, HCFA has delayed this because of
                         higher-priority computer programming needs. In the interim, VA has
                         instructed medical facilities to annotate bills, when applicable, to state
                         that the insurer is billed as a secondary, not primary, payer. VA expects
                         that this interim step will help ensure that insurers who should be paying
                         VA as secondary payers are not paying as first-party payers. VA also expects
                         that its ability to provide HCFA Medicare remittance advice documents will
                         help overcome VA’s difficulty in collecting from some Medicare
                         supplemental insurers. These insurers refuse to pay VA because it neither
                         bills such insurers the way HCFA does for non-VA patients nor provides
                         them with Medicare remittance advices along with each bill. VA is currently
                         in litigation with some Medicare supplemental insurers over this issue.

                         VA has several initiatives under way to improve its third-party collections.
VA Has Taken             These initiatives address the entire process of collecting from
Initiatives to Improve   insurers—from the initial identification of an insured veteran through the
Collections, but Could   identification of billable care to the payment by the insurer. The initiatives
                         are intended to address problems identified in the past by VA’s Inspector
Do More                  General, Coopers and Lybrand, and us that adversely affect collections
                         such as ineffective management, inadequate information on veterans’
                         insurance coverage, inaccurate billing, and inadequate follow-up of
                         outstanding bills. The initiatives are a step in the right direction but must

                          HCFA produces these statements, which provide an explanation of the Medicare allowable charges
                         and the portion of the billed charges Medicare will pay. The statements are provided to insurers who
                         pay secondary to Medicare.

                         Page 5                                                                         GAO/T-HEHS-99-196
                            VA Health Care: Collections Fall Short of

                            be effectively implemented throughout VA to improve its potential for
                            increasing collections from third-party insurers.

The Business Model          In its 1998 report, Coopers and Lybrand pointed out that only 25 percent of
Concept Has Not Been        the 24 VA sites it visited incorporated the various functions of the medical
Fully Implemented           care collections program under a centralized management
                            structure—what it calls the “business model.” According to Coopers and
                            Lybrand, this type of organization is characteristic of successful
                            private-sector hospital operations. As of June 30, 1999, about half of VA’s
                            facilities had implemented this concept. In our site visits, VA officials
                            supported moving to this concept because it enables them to better
                            control the quality of their medical documentation. For example, NJHCS is
                            considering reorganizing under such a structure so that all coders and
                            billers would come under the system’s Medical Administration Service
                            instead of being in several different sections.

Better Identification and   Having accurate information on third-party insurance, such as the type of
Accuracy of Veterans’       policy and the types of services covered, patient copayments and
Insurance Are Needed        deductibles, and preadmission certification requirements, is key to VA’s
                            medical care collections program. Yet only 54 percent of VA facilities
                            reported that their collection of health insurance information was
                            thorough by June 1999. Without adequate information on veterans with
                            insurance and the provisions of that insurance, VA could miss
                            opportunities to bill insurers for non-service-connected care provided to
                            veterans or inappropriately bill insurers when a veteran’s policy did not
                            cover the care provided. Sixty-five percent of VA’s facilities reported that
                            they periodically verified and maintained their insurance files.

                            Because veterans have little incentive to provide insurance information, VA
                            is trying to educate both veterans and staff about the importance of
                            obtaining such information.5 Specifically, VA has brochures explaining the
                            need for this information. In addition, some VA facilities have emphasized
                            the need for facility staff to obtain insurance information when veterans
                            enroll in the VA health care system. NJHCS officials stressed that their goal is
                            to ensure that all required information—including employment and
                            insurance information—is obtained when a veteran first comes in contact
                            with NJHCS. This contact may occur during one of NJHCS’ enrollment

                             VA is currently working against the perceptions of average veterans that they are entitled to “free”
                            health care and therefore do not need to provide private insurance information. In January 1998,
                            Coopers and Lybrand reported that many veterans are unaware of or unable or unwilling to provide
                            insurance information.

                            Page 6                                                                           GAO/T-HEHS-99-196
                            VA Health Care: Collections Fall Short of

                            outreach events or when the veteran first visits one of its medical
                            facilities. NJHCS’ medical care collections coordinator told us that his office
                            focuses a lot of attention on obtaining accurate insurance information and
                            trying to obtain this information during enrollment rather than during
                            preregistration. NJHCS staff told us that in instances in which a veteran or
                            spouse is employed but does not report having insurance, staff contact the
                            employer to verify whether the veteran has insurance. Also, VISN 3 has
                            contracted with a company that has an insurance information database
                            and has identified additional insured veterans for NJHCS. This has led to
                            additional billings of and collections from insurers. The Houston VA
                            Medical Center has recently contracted with the same company to provide
                            similar services, but results are not yet available.

                            Some facilities are taking additional steps to verify the accuracy of
                            insurance information. For example, the Houston Medical Center has two
                            staff members whose primary task is to verify insurance coverage. They
                            receive lists of veterans identified as having insurance and then contact
                            insurers to verify coverage. Also, Houston has a system in which each
                            patient’s insurance must be reverified every 90 days.

Documentation and Billing   VA’s ability to accurately document the non-service-connected care
of VA Medical Care Needs    provided to insured veterans and assign the appropriate codes for billing
Improvement                 purposes is essential to Veterans Health Administration’s (VHA)
                            third-party collections program. VA can bill only for non-service-connected
                            care, and VA staff told us that sometimes the explanations provided for
                            veterans’ service-connected disabilities are not specific enough to help
                            physicians determine whether the care they provide is related to
                            service-connected conditions. About 20 percent of medical facilities did
                            not report having procedures to validate whether treatment was for a
                            non-service-connected disability, and less than 70 percent had reported
                            that they trained their staffs in converting the explanation of care provided
                            into codes used to bill insurers.

                            Failure to properly document care can lead to missed opportunities to bill
                            for care, overpayments by insurers, or denials of VA bills. Also, with the
                            implementation of reasonable charge billing, VA will have to meet the
                            stringent documentation standards imposed on private sector providers by
                            HCFA and private insurers.6

                             VA required that reasonable charge rates be used to bill insurers for care provided on or after
                            September 1, 1999.

                            Page 7                                                                           GAO/T-HEHS-99-196
                            VA Health Care: Collections Fall Short of

                            VA is trying to improve its medical documentation and billing practices to
                            meet HCFA and private insurer standards. Both of the VA medical facilities
                            we visited are training clinical staff and coders in documenting and coding
                            medical care by HCFA’s standards. For example, the Houston Medical
                            Center has obtained assistance from the Baylor College of Medicine to
                            train clinical staff in this area.

                            Many insurers require that care be precertified (that is, the insurer’s
                            approval must be obtained before care is rendered). One of the important
                            services that utilization review staff at medical facilities perform is to
                            obtain in advance from insurers the type and amount of care for which
                            they will pay. Doing this helps increase VA’s likelihood of collecting from
                            insurers. VA has trained utilization review staff—many of whom are
                            nurses—on obtaining precertifications from insurers. For example, VA held
                            a national conference for utilization review staff in August 1999.
                            Ninety-eight percent of VA medical facilities reported that they had a
                            precertification process by the third quarter of fiscal year 1999.

More Aggressive Action Is   Experience suggests that, in general, the longer VA waits to follow up on
Needed to Follow Up on      delinquent bills, the less likely it is to collect on them. As of May 1999,
Debt Collection             about 75 percent of its delinquent receivables for billed care were more
                            than 90 days old. In June 1998, VA contracted with a collection agency,
                            Transworld Systems, Inc., to assist facilities in collecting third-party bills
                            that are outstanding for more than 90 days. By the third quarter of fiscal
                            year 1999, 48 percent of VA facilities were using the Transworld contract.
                            The facilities send delinquent third-party bills to Transworld, which sends
                            out letters to the insurers on VA’s behalf, requesting payment. Both of the
                            facilities we visited use VA’s contract with Transworld Systems (the
                            Houston VAMC was a pilot facility for this initiative), which costs VA $4.75
                            per bill. VA reported collections of more than $9.7 million as a result of this
                            contract at a cost of less than $800,000.

                            Page 8                                                       GAO/T-HEHS-99-196
Page 9   GAO/T-HEHS-99-196
Related GAO Products

              Veterans’ Affairs: Progress and Challenges in Providing Care to Veterans
              (GAO/T-HEHS-99-158, July 15, 1999).

              VAHealth Care: Third-Party Charges Based on Sound Methodology;
              Implementation Challenges Remain (GAO/HEHS-99-124, June 11, 1999).

              Veterans’ Affairs: Progress and Challenges in Transforming Health Care
              (GAO/T-HEHS-99-109, Apr. 15, 1999).

              VAMedical Care: Increasing Recoveries From Private Health Insurers Will
              Prove Difficult (GAO/HEHS-98-4, Oct. 17, 1997).

(406175)      Page 10                                                   GAO/T-HEHS-99-196
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