VA Health Care: Third-Party Collections Rising as VA Continues to
Address Problems in Its Collections Operations (31-JAN-03,	 
GAO-03-145).							 
                                                                 
The Department of Veterans Affairs (VA) collects health insurance
payments, known as third-party collections, for veterans' health 
care conditions it treats that are not a result of injuries or	 
illnesses incurred or aggravated during military service. In	 
September 1999, VA adopted a new fee schedule, called "reasonable
charges," that it anticipated would increase revenues from	 
third-party collections. In 2001, GAO testified that problems in 
VA's collections operations diminished VA's collections.  For	 
this report, GAO was asked to examine VA's third-party		 
collections and problems in collections operations for fiscal	 
year 2002 as well as its initiatives to improve collections.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-145 					        
    ACCNO:   A05968						        
  TITLE:     VA Health Care: Third-Party Collections Rising as VA     
Continues to Address Problems in Its Collections Operations	 
     DATE:   01/31/2003 
  SUBJECT:   Collection procedures				 
	     Debt collection					 
	     Health insurance					 
	     Veterans benefits					 

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GAO-03-145

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

United States General Accounting Office

GAO

January 2003 VA HEALTH CARE Third- Party Collections Rising as VA
Continues to Address Problems in Its Collections Operations

GAO- 03- 145

VA's fiscal year 2002 third- party collections rose by 32 percent,
continuing an upward trend that began in fiscal year 2001. The increase in
collections reflected VA's improved ability to manage the larger billing
volume and more itemized bills required under its new fee schedule.
Billings increased mainly

due to a reduction of billing backlogs and improved collections processes*
such as better medical documentation prepared by physicians, more complete
identification of billable care by coders, and more bills prepared per
biller* according to VA managers in three regional health care networks.
However, VA continues to address operational problems, such as missed
billing opportunities, that limit the amount VA collects.

To address operational problems and further increase collections, VA has
several initiatives under way and is developing additional ones. VA has
been implementing initiatives in its 2001 improvement plan that was
designed to address operational problems, such as unidentified insurance
for some patients, insufficient documentation of services for billing,
shortages of coding staff, and insufficient pursuit of accounts
receivable. VA*s last formal status report in May 2002 designated only 8
of the plan*s 15 initiatives scheduled for completion by that time as
having been completed. VA

continues implementation of this plan and is also developing new
initiatives, such as an automated financial system to better serve billing
needs. It is too early to evaluate the extent to which VA*s full
implementation of its 2001 plan and new initiatives will be able to
address operational problems and further increase third- party
collections. In commenting on a draft of this report, VA generally agreed
with our findings

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

VA HEALTH CARE

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

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 145. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Cynthia A. Bascetta at (202) 512- 7101. Highlights of
GAO- 03- 145, a report to the

Chairman, Subcommittee on Oversight and Investigations, Committee on
Veterans' Affairs, House of

Representatives

January 2003

The Department of Veterans Affairs (VA) collects health insurance
payments, known as third- party collections, for veterans* health

care conditions it treats that are not a result of injuries or illnesses
incurred or aggravated during military service. In September 1999, VA
adopted a new fee schedule, called *reasonable

charges,* that it anticipated would increase revenues from third- party
collections. In 2001, GAO testified that problems in VA*s collections
operations diminished VA*s collections. For this report, GAO was asked to
examine VA*s thirdparty

collections and problems in collections operations for fiscal year 2002 as
well as its initiatives to improve collections.

Page i GAO- 03- 145 VA Third- Party Collections Letter 1 Results in Brief
2 Background 3 Collections Are Increasing, but Operational Problems Limit

Insurance Payments 5 VA Is Implementing Planned Actions and Developing
Other Initiatives to Address Problems in Collections Operations 9
Concluding Observations 14 Agency Comments and Our Evaluation 14 Appendix
I Scope and Methodology 16

Appendix II Comments from the Department of Veterans Affairs 18

Table

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

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

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

Page 1 GAO- 03- 145 VA Third- Party Collections

January 31, 2003 The Honorable Steve Buyer Chairman Subcommittee on
Oversight and Investigations Committee on Veterans* Affairs House of
Representatives

Dear Mr. Chairman: The Department of Veterans Affairs (VA) provides health
care to eligible veterans and, under certain circumstances, VA is
authorized to collect reasonable charges from their health insurers.
Specifically, VA can bill

insurers for treatment of conditions that are not a result of injuries or
illnesses incurred or aggravated during military service. 1 VA cannot bill
for health care conditions that result from military service, nor is it
generally authorized to collect from Medicare and Medicaid. In fiscal year
2002, VA collected $687 million in insurance payments, which are known as
thirdparty

collections. These collections were VA*s largest source of revenue to
supplement its $21 billion medical care appropriation, and they helped pay
for veterans* growing demand for care. The total number of veterans VA
treated has increased from 2.6 million in fiscal year 1996 to 3.8 million
in fiscal year 2001, and VA predicts continuing growth in its patient
workload. 2 Over the past several years, we and others have raised
concerns about

VA*s ability to maximize its third- party collections to enhance revenue.
For example, a VA Inspector General report stated that VA missed billing
opportunities, had billing backlogs, and did inadequate follow- up on
accounts receivable in fiscal years 2000 and 2001. 3 We testified in
September 2001 that problems in VA*s collections operations* such as
inadequate patient intake procedures to gather insurance information,

1 VA cannot collect payments from certain insurers. For example, VA cannot
collect payments from health maintenance organizations (HMOs) when VA is
not a participating provider.

2 According to VA*s estimate, there were about 25 million veterans in
2001. 3 VA Office of Inspector General, Audit of the Medical Care
Collection Fund Program,

Report No. 01- 00046- 65 (Washington, D. C.: Feb. 26, 2002).

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 145 VA Third- Party Collections

insufficient physician documentation, a shortage of qualified coders, and
insufficient automation* diminished VA*s collections. 4 At your request,
we have examined VA*s progress with third- party

collections since September 2001. In this report, we are providing an
update on (1) VA*s third- party collections and problems in collections
operations for fiscal year 2002 and (2) VA*s initiatives to improve
collections. To conduct our review, we examined VA*s collections data for
fiscal years 2001 and 2002; reviewed relevant VA documents, such as its
2001 collections improvement plan; and interviewed officials in VA
headquarters and in 3 of VA*s 21 health care networks 5 *Network 2
(Albany), Network 9 (Nashville), and Network 22 (Long Beach)* to better
understand the reasons for increased collections. Our work was performed
from February 2002 through January 2003 in accordance with generally
accepted government auditing standards. For more details on our scope and
methodology, see appendix I.

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

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

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

Page 3 GAO- 03- 145 VA Third- Party Collections

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

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

Although VA has been authorized to collect third- party health insurance
payments since 1986, it was not allowed to use these funds to supplement
its medical care appropriations until enactment of the Balanced Budget Act
of 1997. Part of VA*s 1997 strategic plan was to increase health insurance
payments and other collections to help fund an increased health care
workload. The potential for increased workload occurred in part

because the Veterans* Health Care Eligibility Reform Act of 1996
authorized VA to provide certain medical care services not previously
available to veterans without service- connected disabilities or low
incomes. VA expected that collections from third- party payments,
copayments, and deductibles would cover the majority of costs for
higherincome veterans without service- connected disabilities. These
veterans increased from about 4 percent of all veterans treated in fiscal
year 1996 to about 20 percent in fiscal year 2001.

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

Page 4 GAO- 03- 145 VA Third- Party Collections

verifying that information with the insurer. The medical documentation
process involves properly documenting the health care provided to patients
by physicians and other health care providers. The coding process involves
assigning correct codes for the diagnoses and medical procedures based on
the documentation. Next the billing process serves to create and send
bills to insurers based on the insurance and coding information.

Finally, the accounts receivable process includes processing payments from
insurers and following up with insurers on outstanding or denied bills.

Figure 1: VA*s Third- Party Collections Processes

In 1999, VA adopted a new fee schedule, called *reasonable charges,* which
are itemized fees based on diagnoses and procedures, and the new schedule
allows VA to bill in a way that more accurately captures the care
provided. Previously, VA had nine charges for inpatient care and one
charge for outpatient care. These charges were not specific to the care
provided. For example, VA had charged the same per diem rate for any

patient in a surgical bed section regardless of the care provided. In
addition, before adopting the new fee schedule, VA had billed all
outpatient visits, including surgery, based on VA*s average outpatient
cost of $229, a single rate that had limited VA*s ability to collect
higher amounts for more expensive care. In contrast, when the reasonable
charges fee schedule was adopted in September 1999, an outpatient hernia
surgery charge increased to about $6,500; and an office visit charge for
an established patient decreased to a range of about $22 to $149,
depending on the care given. 6 6 These amounts reflected the national
average charges in September 1999 for the services

specified. To reflect the amounts charged by other local providers, the
charges that VA actually bills vary by the locality in which VA services
are provided.

Page 5 GAO- 03- 145 VA Third- Party Collections

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

For fiscal year 2002, VA collected third- party payments of $687 million,
a 32 percent increase over its fiscal year 2001 collections. The increased
collections in fiscal year 2002 resulted from VA*s submitting and
collecting for more bills than previously. According to three network
revenue managers we interviewed, billings increased mainly because of a
reduction of billing backlogs and improvements in the processes necessary
to collect

under the new reasonable charges fee schedule. Nevertheless, VA*s ability
to collect was limited by problems such as missed billing opportunities.
VA does not know how many dollars remain uncollected because of such
limitations.

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

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

Increasing, but Operational Problems Limit Insurance Payments

Third- Party Collections Increased

Page 6 GAO- 03- 145 VA Third- Party Collections

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

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

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

Page 7 GAO- 03- 145 VA Third- Party Collections

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

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

Studies have suggested that operational problems* missed billing
opportunities, billing backlogs, and inadequate pursuit of accounts
receivable* limited VA*s collections in the years following the
implementation of reasonable charges. After examining activities in fiscal
years 2000 and 2001, a VA Inspector General report estimated that VA

could have collected over $500 million more than it did. 8 About 73
percent of this uncollected amount was attributed to a backlog of unbilled
medical

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

Limit Collections, but VA Lacks an Estimate of Uncollected Dollars

Page 8 GAO- 03- 145 VA Third- Party Collections

care; most of the rest was attributed to insufficient pursuit of
delinquent bills. Another study, examining only professional- service
charges in a single network, estimated that $4.1 million out of $4.7
million of potential collections was unbilled for fiscal year 2001. 9 Of
that unbilled amount, 63 percent was estimated to be unbillable primarily
because of insufficient documentation. In addition, the study found coders
often missed services that should have been coded for billing.

According to the Director of the Revenue Office, VA could increase
collections by working on operational problems. These problems included
unpaid accounts receivable and missed billing opportunities due to
insufficient identification of insured patients, inadequate documentation
to support billing, and coding problems that result in unidentified care.
During April through June 2002, three network revenue managers told us

about backlogs and processing issues that persisted into fiscal year 2002.
For example, although Network 9 (Nashville) had above average increases in
collections for both inpatient and outpatient care, it still had coding
backlogs in four of six medical centers. According to Network 9*s
(Nashville) revenue manager, eliminating the backlogs for outpatient care
would increase collections by an estimated $4 million for fiscal year
2002, or 9 percent. 10 Additional increases might come from coding all
inpatient professional services, but the revenue manager did not have an
estimate because the extent to which coders are capturing all billable
services was unknown. Moreover, although all three networks reported that
physicians* documentation was improving for billing, they reported a
continuing need to improve physicians* documentation. In addition, Network
22 (Long Beach) reported that accounts receivable staff had difficulties
keeping up with the increased volume of bills because it had not hired
additional staff or contracted help for accounts receivable.

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

9 Economic Systems, Inc. and AdvanceMed, Professional Fee Backlog
Assistance: Final Technical Report, a report prepared for the Department
of Veterans Affairs, March 5, 2002. 10 In September 2002, the revenue
manager anticipated that the backlog would be reduced to $2 million by the
end of fiscal year 2002 because the medical centers had hired new coders
and the network had created a central pool of seven coders.

11 In addition, VA does not know the net impact of actual third- party
collections on supplementing its annual appropriation for medical care.
This is because, according to VA officials, VA does not have a way to
routinely capture its full collections costs.

Page 9 GAO- 03- 145 VA Third- Party Collections

from currently missed billing opportunities* such as billable care missed
in coding* are not readily quantified. Other uncollected dollars* such as
those from backlogged bills and uncollected accounts receivable* are
either only partially quantifiable or their potential contribution to
total collections is uncertain. For example, even though the uncollected
dollars in older accounts receivable can be totaled, the yield in payments
through more aggressive pursuit of accounts receivable is uncertain. This
is because, according to VA officials, some portion of the billed dollars
is not collectable due to VA inappropriately billing for services not
covered by the insurance policy, billing against a terminated policy, or
not closing out the accounts receivable after an insurer paid the bill. 12
VA continues to implement its 2001 improvement plan and is planning

more improvements. Although the improvement plan could potentially improve
operations and increase collections, it is not scheduled for full
implementation until December 2003. In May 2002, VA created a new office
in VHA, the Chief Business Office, in part to address collections issues.
According to VA officials, this office is developing a new approach to
improvements, which will include initiatives beyond those in the
improvement plan.

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

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

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

Developing Other Initiatives to Address Problems in Collections Operations

2001 Plan to Improve Collections Is Partially Implemented

Page 10 GAO- 03- 145 VA Third- Party Collections responsibility for the
collections process. Since management is decentralized, collections
procedures can vary across sites. For example, sites* procedures can
specify a different number of days waited until first

contacting insurers about unpaid bills and can vary on whether to contact
by letter, telephone, or both. The plan intends to create greater process
standardization, in part, by requiring certain collections processes, such
as the use of electronic medical records to provide coders better access
to documentation and legible records.

When fully implemented, the plan*s actions can improve collections to the
extent that they can reduce operational problems such as missed billing
opportunities. For example, two of the plan*s actions* requiring patient
contacts prior to scheduled appointments to gather insurance information

and electronically linking VA to major insurers to identify patients*
insurance* are intended to increase the number of patients identified with
insurance. A recent study estimated that 23.8 percent of VA patients in
fiscal year 2001 had billable care, but VA actually billed for the care of
only 18.3 percent of patients. 13 This finding suggests that VA could have
billed for 30 percent more patients than it actually billed.

VA has implemented some of the improvement plan*s 24 actions, which were
scheduled for completion at various times through 2003, but is behind the
plan*s original schedule. The plan had scheduled 15 of the 24 actions for
completion through May 25, 2002, but, as shown in figure 3, VA had
designated only 8 as completed, as of the last formal status report on the
plan in May 2002. 14 13 T. Michael Kashner, Ph. D., J. D., et al., Final
Report: Veterans Affairs Patient Health

Insurance Survey (VAPHIS), a survey funded by the Department of Veterans
Affairs, February 16, 2002. The Chief Business Officer told us that his
office plans to do another survey to confirm its results.

14 A Chief Business Office official stated in September 2002 that the
office plans to develop a status report that includes the improvement plan
as well as other actions in its new approach.

Page 11 GAO- 03- 145 VA Third- Party Collections Figure 3: Improvement
Plan*s Actions Designated as Completed by VA, as of May 25, 2002

Page 12 GAO- 03- 145 VA Third- Party Collections a Certain actions are
mandated in the plan, that is, are required, but these actions are not
legal or regulatory mandates.

b VA designated the electronic billing project, shown here as *17a,* as
completed. However, this indicated only partial completion of action 17,
which includes an additional project.

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

was not implemented consistently across VA and thus mandated its use. 15
Officials in VHA*s new Chief Business Office told us that this office is
developing a new approach for improving third- party collections.
According to the Chief Business Officer, the Under Secretary of Health
proposed, and the Secretary approved, the establishment of the Chief
Business Office to underscore the importance of revenue, patient
eligibility, and enrollment functions; and to give strategic focus to
improving these functions. He said the new approach can help increase
revenue collections by further revising processes and providing a new
business focus on collections.

Officials in this office told us that the new approach will combine these
and other actions with the actions in the improvement plan. For example,
the Chief Business Office*s improvement strategy incorporates electronic
transmission of bills and of third- party payments, which are part of the

2001 improvement plan. The new approach also encompasses initiatives
beyond the improvement plan, such as the one in the Under Secretary of
Health*s May 2002 memorandum that directed all facilities to refer
accounts receivable older than 60 days to a collection agency, unless a
facility can document a better in- house process. According to the Deputy
Chief Business Officer, this initiative has shown some sign of success*
with outstanding accounts receivables dropping from $1,378 million to

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

Improvement Initiatives

Page 13 GAO- 03- 145 VA Third- Party Collections $1,317 million from the
end of May to the end of July 2002, a reduction of about $61 million or 4
percent.

Another initiative in the new approach is the Patient Financial Services
System (PFSS). PFSS is an automated financial system focused on patient
accounts, which is intended to overcome operational problems in VA*s
current automated billing system. For example, VA*s automated system for
clinical information was not designed to provide all of the episode- of-
care information, such as the health care provider and diagnoses, that are
required for billing. The development of PFSS is tied to a demonstration
project of a financial system, which is now being designed for Network 10

(Cincinnati). 16 According to the Deputy Chief Business Officer, VA
anticipates awarding a PFSS contract by April 1, 2003. The Chief Business
Office*s plan is to install this financial system in other facilities and
networks if it is successfully implemented in the Network 10 (Cincinnati)
demonstration.

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

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

16 In the conference report accompanying its fiscal year 2002
appropriation, VA was directed to begin a demonstration project of a
contractor- installed and operated patient financial services system. H.
R. Conf. Rep. No. 107- 272, at 56 (2001).

17 As we noted in our 2001 testimony, VA*s performance does not compare
favorably to some industry benchmarks, such as the number of days required
to bill. However, comparisons between VA and the private sector should
take into account how VA*s processes differ from those in the private
sector. For instance, VA has the additional step of determining whether
the care is service- connected, and VA bills for both facility and
physician charges whereas private sector hospitals may only bill for
facility charges. To make comparisons with industry benchmarks more
relevant, VA is considering adjustments to its new measures.

Page 14 GAO- 03- 145 VA Third- Party Collections Officer was considering
whether to centralize some processes at the network or national level and
was developing the performance standards that would be required for
holding network and facility directors

accountable. Moreover, according to the Chief Business Officer,
implementing PFSS will require the office to resolve some issues,
including making its existing systems provide sufficient data to support
the new financial system.

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

VA has been improving its billing and collecting under the new fee
schedule established in 1999, but VA has not completed its efforts to
address problems in collections operations. In this regard, fully
implementing VA*s 2001 improvement plan could help VA maximize future
collections by addressing problems such as missed billing opportunities.
However, the plan*s reliance on directives, in some cases, to achieve
increased collections is not enough to ensure full implementation and

optimal performance. The Chief Business Office*s new approach could also
enhance collections. VA*s new Chief Business Office*s challenge is to
ensure such performance by identifying root causes of problems in
collections operations, providing a focused approach to addressing the
root causes, establishing performance measures, and holding responsible
parties accountable for achieving the performance standards. However, it
is too early to evaluate the extent to which VA will be able to address
operational problems and further increase collections by fully
implementing its 2001 plan and new approach.

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

Observations Agency Comments and Our Evaluation

Page 15 GAO- 03- 145 VA Third- Party Collections VA also suggested that
our title was misleading because it stated that VA continues to address
problems in its collections operations rather than

stating that VA is building infrastructure to implement effective
collections operations. We believe that our title is accurate because VA
continues to address problems that we and others have identified in VA*s
collections operations. VA has acknowledged such problems in the past,
including unidentified insurance for some patients, insufficient
documentation for billing, and shortages of coding staff. VA continues to
implement the 2001 improvement plan that it developed to address these and
other problems. VA*s new initiatives also address problems, such as gaps
in automated capture of billing data, that have been previously
identified.

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

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

Sincerely yours, Cynthia A. Bascetta Director, Health Care* Veterans*

Health and Benefits Issues

Appendix I: Scope and Methodology Page 16 GAO- 03- 145 VA Third- Party
Collections To assess the Department of Veterans Affairs* (VA*s) progress
with collections in fiscal year 2002, we obtained and examined data on
VA*s

third- party bills and collections. We also interviewed officials in VA
headquarters and in three VA health care networks to understand the
reasons for the increased collections compared to fiscal year 2001 as well
as any operational problems. To provide information on VA*s 2001
improvement plan and its emerging new approach to improvements, we

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

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

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

Appendix I: Scope and Methodology Page 17 GAO- 03- 145 VA Third- Party
Collections Table 1: Percentage Increases in Collections for Networks
Selected for Study, October 2000 through February 2001 Compared to October
2001 through February 2002

Collections Inpatient care Outpatient care Total Percentage increase
Relation to

average Percentage increase Relation to

average Percentage increase Relation to

average

Systemwide averages 20 Not applicable 54 Not applicable 35 Not applicable
Network 2 (Albany) 3 Below 79 Above 32 Below Network 9 (Nashville) 43
Above 102 Above 71 Above Network 22 (Long Beach) 60 Above 34 Below 50
Above

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

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

sells services to the Department of Defense and other providers.

Appendix II: Comments from the Department of Veterans Affairs

Page 18 GAO- 03- 145 VA Third- Party Collections Appendix II: Comments
from the Department of Veterans Affairs

(290169)

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