Military Treatment Facilities: Improvements Needed to Increase
DOD Third-Party Collections (20-FEB-04, GAO-04-322R).
Like the private health care industry, the cost of providing
health care services to the Department of Defense's (DOD) active
duty personnel, their dependents, retirees, and survivors and
their dependents has increased dramatically over the past decade.
In fiscal year 2003, DOD reported that more than 8.7 million
Military Health System beneficiaries were eligible to receive
health care at a cost of about $27.2 billion per year--up from a
reported 8.2 million eligible beneficiaries at a cost of $15.6
billion in fiscal year 1997. To the extent that DOD beneficiaries
have private health insurance coverage, DOD is authorized to bill
insurance companies under the Third Party Collections Program. As
such, DOD has the opportunity to defray the rising cost of
providing health care to an increasing number of eligible
beneficiaries. In October 2002, we reported that the three
military treatment facilities (MTFs) we visited did not always
bill and collect from private insurers for care that was
reimbursable to the government. At all three facilities, we
identified control weaknesses that resulted in instances where
these MTFs had not identified all patients with third-party
insurance and sometimes did not bill those insurers even when
they were aware such coverage existed. Consequently,
opportunities to collect millions of dollars of reimbursements
from insurers for medical services provided were forgone.
Concerned that there were additional MTFs that also did not
effectively bill and collect for reimbursable services, Congress
requested that we expand our audit to provide some perspective on
the amount of such services that were not billed and collected
across all of DOD's MTFs. However, after determining that it was
not feasible to develop a DOD-wide estimate of missed collection
opportunities, as agreed and explained in more detail later, we
are providing a perspective on the amount of services not billed
and collected across all of DOD's MTFs based on work performed by
DOD's service auditors at 35 of the largest MTFs reporting
collections. This report also provides information on (1)
specific control weaknesses and other issues that impair DOD's
ability to increase collections, (2) the department's ongoing
efforts to improve the third-party billings and collection
function, and (3) our assessment of DOD's use of performance
metrics to manage third-party collections at its MTFs.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-322R
ACCNO: A09346
TITLE: Military Treatment Facilities: Improvements Needed to
Increase DOD Third-Party Collections
DATE: 02/20/2004
SUBJECT: Financial management
Financial statement audits
Health care services
Internal controls
Strategic planning
Health insurance
Health care costs
Collection procedures
Performance measures
DOD Third Party Collections Program
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GAO-04-322R
United States General Accounting Office Washington, DC 20548
February 20, 2004
The Honorable Dennis J. Kucinich
Ranking Minority Member
Subcommittee on National Security, Emerging Threats and International
Relations Committee on Government Reform House of Representatives
The Honorable Janice D. Schakowsky House of Representatives
Subject: Military Treatment Facilities: Improvements Needed to Increase
DOD Third-Party Collections
Like the private health care industry, the cost of providing health care
services to the Department of Defense's (DOD) active duty personnel, their
dependents, retirees, and survivors and their dependents has increased
dramatically over the past decade. In fiscal year 2003, DOD reported that
more than 8.7 million Military Health System beneficiaries were eligible
to receive health care at a cost of about $27.2 billion per year-up from a
reported 8.2 million eligible beneficiaries at a cost of $15.6 billion in
fiscal year 1997. To the extent that DOD beneficiaries have private health
insurance coverage, DOD is authorized to bill insurance companies under
the Third Party Collections Program.1 As such, DOD has the opportunity to
defray the rising cost of providing health care to an increasing number of
eligible beneficiaries.
In October 2002, we reported to you that the three military treatment
facilities (MTFs) we visited did not always bill and collect from private
insurers for care that was reimbursable to the government.2 At all three
facilities, we identified control weaknesses that resulted in instances
where these MTFs had not identified all patients with third-party
insurance and sometimes did not bill those insurers even when they were
aware such coverage existed. Consequently, opportunities to collect
millions of dollars of reimbursements from insurers for medical services
provided were forgone.
1The statutory underpinning for the program is 10 U.S.C. S:1095.
2U.S. General Accounting Office, Military Treatment Facilities: Internal
Control Activities Need Improvement, GAO-03-168 (Washington, D.C.: Oct.
25, 2002). The three facilities we visited were Eisenhower Army Medical
Center, Augusta, Georgia; Naval Medical Center-Portsmouth, Portsmouth,
Virginia; and Wilford Hall Air Force Medical Center, San Antonio, Texas.
Concerned that there were additional MTFs that also did not effectively
bill and collect for reimbursable services, you requested that we expand
our audit to provide some perspective on the amount of such services that
were not billed and collected across all of DOD's MTFs. However, after
determining that it was not feasible to develop a DOD-wide estimate of
missed collection opportunities, as agreed to with your offices and
explained in more detail later, we are providing a perspective on the
amount of services not billed and collected across all of DOD's MTFs based
on work performed by DOD's service auditors at 35 of the largest MTFs
reporting collections. This report also provides information on (1)
specific control weaknesses and other issues that impair DOD's ability to
increase collections, (2) the department's ongoing efforts to improve the
third-party billings and collection function, and (3) our assessment of
DOD's use of performance metrics to manage third-party collections at its
MTFs.
We performed our work from April 2003 through December 2003 in accordance
with generally accepted government auditing standards. Details on our
objectives, scope and methodology are included in enclosure 1.
Results in Brief
Based on our previous audit work and our analysis of reports issued by the
military service auditors, conservatively, tens of millions of dollars are
not being collected each year because key information required to
effectively bill and collect from third-party insurers is often not
properly collected, recorded, or used by the MTFs. DOD's failure to
effectively bill and collect from third-party insurers, in effect, reduces
the amount third-party private sector insurance companies must pay out in
benefits and unnecessarily adds to DOD's increasing health care
budget-financed by taxpayers. While DOD has limited control over the
burgeoning cost of providing health care benefits to DOD retirees and
their dependents and active duty dependents, DOD has an opportunity to
offset the impact of its rising health care costs by collecting amounts
due from its Third Party Collections Program.
For fiscal years 2000 through 2002, DOD's Third Party Collections Program
generated on average about $122 million annually. However, the Army, Navy,
and Air Force service auditors at 35 of the largest 132 MTFs found that
collections from reimbursable health care costs could be increased by
approximately $44 million a year at these 35 facilities alone. These
findings along with our past and current work suggest that the billing and
collections problems we reported on previously are pervasive throughout
DOD. However, because DOD does not maintain a reliable central database
containing patient insurance information, which would facilitate sampling
and thus the development of a statistically based projection across the
entire universe of care provided by MTFs, neither the service auditors nor
we could feasibly provide a comprehensive estimate of the total
third-party collections shortfall across all MTFs. Further, DOD's current
transition to a new billing methodology made it impractical for us to
perform even limited sampling and testing at this time.
Weaknesses throughout DOD's third-party billing and collection process,
such as incomplete medical documentation and coding of care provided,
insufficient monitoring of accounts receivable, and ineffective follow-up
to collect accounts receivable, have all contributed to
collection shortfalls. The single biggest obstacle to increasing
collections, however, is inadequate identification of patients with
third-party insurance. DOD does not have effective systems or processes
for obtaining and updating insurance information for patients that have
other health insurance coverage. This weakness dramatically reduces the
possibility of collecting from third-party insurers and recouping the cost
of providing reimbursable care.
According to DOD officials, they have several process and system
improvement initiatives planned or underway that are intended to address
the weaknesses identified. Central to DOD's effort to improve the Third
Party Collections Program overall and conform to industry best practices,
DOD recently initiated a new itemized billing methodology for outpatient
care. However, the new billing system resulted in significant start-up
issues that, according to DOD officials, seriously affected third-party
outpatient billings and collections in the short term. Consequently, total
collections, including inpatient, outpatient, and ancillary
reimbursements, in fiscal year 2003 were only about $92 million-down from
previous years by about $30 million or 25 percent. DOD officials said that
this is a temporary decline due to implementation issues with outpatient
itemized billing and the impact of the Iraq mobilization on MTF
operations. Officials expect collections to increase and exceed earlier
levels as problems are resolved and new system enhancements are
implemented. However, according to DOD officials, many of the system
enhancements will not be fully operational until fiscal year 2005 and
beyond.
Although DOD monitors certain performance information related to MTF
workload and third-party collections, little is done with this information
in terms of managing DOD's Third Party Collections Program. Presently, the
department lacks key information needed to establish performance goals for
billings and collections functions to assess individual MTFs.
This letter includes recommendations to the Secretary of Defense to
implement a corrective action plan to address start-up problems with DOD's
outpatient itemized billing methodology and establish an effective
performance management system that establishes realistic collection goals
by MTF.
In its written comments, reprinted in enclosure II, DOD concurred with our
recommendations and acknowledged that additional funds could have been
recovered. DOD also included in its comments a comprehensive discussion of
its current and future initiatives aimed at improving its Third Party
Collections Program. However, DOD (1) took exception with our position
that additional collections could be used to offset the rising cost of
health care and (2) questioned our reliance on the work of other auditors
to provide some perspective on how much more could be collected annually
from third-party insurers. First, we recognize that there is a statutory
prohibition against DOD using third-party collections to reduce an
individual MTF's operating budget, and, as noted in this letter, that DOD
may use the collections to support the operations of the MTF instead of
depositing the collections in the General Fund of the Treasury. However,
our point, taking a broader view, is that every dollar recovered from
third-party insurers is one more dollar for the Congress to consider in
funding the government's operations. We reaffirm our position that DOD has
the opportunity, as well as a fiduciary responsibility to taxpayers, to
maximize its collection efforts under this program.
Second, the information in our letter on the potential amount of lost
collections is adequately supported. As detailed in this letter, DOD's
incomplete or flawed data prevented us from providing a more comprehensive
estimate of third-party collections shortfalls across all MTFs. Consistent
with generally accepted government auditing standards, we relied on prior
work performed by military service auditors at 35 MTFs, as well as our own
more recent assessments, to provide an estimate of lost collections.
Background
The military health system has three missions: (1) maintaining the health
of active-duty service personnel, (2) medically supporting military
operations, and (3) providing care to the dependents of active-duty
personnel, retirees and their families, and survivors and their
dependents. The military health care system has changed significantly
during the past decade. Along with substantial active duty force and
infrastructure reductions, medical personnel strength has decreased by 15
percent, and one-third of all military hospitals have been closed.
Further, the 1980s doubling of military health costs and increasing
beneficiary concerns about care access in military hospitals led DOD to
establish its nationwide managed care program, called TRICARE. In recent
years, the defense authorization act for fiscal year 20013 greatly
expanded the health care benefits available through DOD for
Medicare-eligible military retirees. In the past, these retirees were not
eligible for the TRICARE health care program and were able to get care
from MTFs only when space was available.
TRICARE covers inpatient services, outpatient services such as physician
visits and lab tests, and skilled nursing facility and other postacute
care. It also covers prescription drugs, which are available at MTFs,
through DOD's TRICARE Mail Order Pharmacy, and at civilian pharmacies.
TRICARE delivers care through (1) Army, Navy, and Air Force operated
medical centers, (2) community hospitals, (3) major clinics, known as
MTFs, that serve military installations, and (4) a network of civilian
providers managed by DOD's managed care support contractors. Eligible
beneficiaries can access care at the MTFs for free or at minimal cost.
However, if a beneficiary has other health insurance coverage, then the
care provided by the MTF may be reimbursable by private health insurers.
The government is authorized to collect the reimbursable amounts from
insurance companies under the Third Party Collections Program authorized
by 10 U.S.C. S:1095.4 Instead of depositing the collections in the
Treasury, DOD may use the collections to support the operations of the
MTF.
DOD's Third Party Collections Program is led by the TRICARE Management
Activity (TMA) in coordination with the Army Medical Command (MEDCOM), the
Navy's Bureau of Medicine and Surgery (BUMED), and the Air Force Medical
Service. TMA sets policy and provides program oversight and issue
resolution, and develops reimbursement rates. Service managers at each of
the service medical commands develop and execute service-specific
guidelines and provide oversight within their service for third-party
collection
3Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001,
Pub. L. No. 106-398, S: 712, 114
Stat. 1654, 1654A-176 (2000).
4The program was established pursuant to Public Law Number 99-272, 100
Stat. 82, 100 (1986).
operations. However, individual MTFs are responsible for executing policy,
training personnel, developing marketing plans, operating within
compliance guidelines, implementing best practice solutions, and
establishing internal controls. Consequently, individual MTFs have great
flexibility to determine how they will implement DOD policy and manage
their Third Party Collections Program.
Tens of Millions of Dollars Are Not Collected Each Year
Based on work performed by Army, Navy, and Air Force service auditors at
35 of the 132 largest MTFs, collections from reimbursable health care
costs could be increased substantially. Their audit work, some of which is
recent and fairly comprehensive and some of which is more limited in scope
and not completed recently, could be used to suggest that approximately
$44 million a year more could be colleted at these 35 facilities. While
some MTFs are performing better than others, service auditors found
collection shortfalls at all the MTFs visited. Because DOD does not
maintain a reliable central database containing patient insurance
information, which could facilitate sampling, neither the service auditors
nor we could feasibly provide a comprehensive estimate of third-party
collection shortfalls across all MTFs. In addition, DOD's current
transition to a new itemized billing methodology, which significantly
disrupted collections in fiscal year 2003, made it impractical for us to
perform even limit sampling and testing at this time because these
estimates would not be reflective of future years collections. Therefore,
even though there are differences in the service auditors' sampling
periods, scope of work, and sampling approaches that preclude us from
comparing the relative performance among Army, Navy, and Air Force MTFs,
these estimates provide the most comprehensive and current information
with respect to DOD's third-party collection shortfall.
o In March 2003, based on work performed at five of the Army's largest
MTFs, the Army Audit Agency reported that these five facilities could have
collected an additional $24.5 million more annually-doubling current
collections at those sites.5 Of all the service auditors, the Army
auditors provided the most recent and comprehensive assessment of
collections-providing audit coverage for all workloads or types of care
provided including inpatient, outpatient, ancillary services, pharmacy,
and ambulatory visits.
o Focusing only on reimbursable pharmaceutical collections, the Air
Force Audit Agency reported6 that for the 13 Air Force MTFs audited, these
facilities could have collected an additional $15.7 million annually.
o Based on work performed in 1996 at 17 Navy facilities and focusing
strictly on outpatient workload, the Naval Audit Service reported7 that
these MTFs could have collected an additional $3.4 million annually.
5U.S. Army Audit Agency, Third party Collection Program, U.S. Army Medical
Command, Audit Report A-
2003-0185-IMH (Mar. 10, 2003).
6Air Force Audit Agency, Third Party Collection Program-Pharmaceuticals,
Audit Report 01051015 (Aug. 8,
2001).
7Naval Audit Service, Recovery of Outpatient Health Care Costs From Third
Party Payers, Audit Report 01097 (Dec. 17, 1996).
Although the service auditors looked at different workloads and used
varying audit approaches, the conclusions were similar. All determined
that millions of dollars in reimbursable care were not being collected.
The auditors identified similar reasons for collections shortfalls: (1)
medical personnel often failed to identify patients with other health
insurance, (2) bills were not always prepared even when the information
was available, and (3) staff did not aggressively follow up on open claims
with private insurance companies. Generally, these findings are consistent
with our previous audit findings for the three MTFs we visited.8 Across
all the services, auditors have concluded that significant increases in
collections are possible at every MTF examined, and this condition likely
exists in varying degrees throughout DOD's MTFs.
Process Weaknesses Limit Collections
Weaknesses in DOD's third-party billing and collection processes and
systems impair DOD's ability to collect tens of millions of dollars each
year from third-party insurers. As shown by our prior work and confirmed
by earlier or more current service auditor reports, weaknesses throughout
the process, such as inadequate identification of patients with
third-party insurance, incomplete medical documentation and coding of care
provided, insufficient monitoring of accounts receivable, and ineffective
follow-up to collect accounts receivable, have all contributed to
collection shortfalls. According to DOD officials, they presently have
several initiatives planned and underway that are intended to address many
of the weaknesses identified. In particular, DOD is in the process of
implementing automated systems improvements, including a new DOD-wide
itemized billing methodology, intended to improve its billing processes
and increase collections.
DOD's billing and collections process cuts across five functional areas,
as shown in figure 1. In each functional area or phase of the process, DOD
must obtain and document key information in order to properly bill
third-party insurers and maximize collections. Each phase of the process
is therefore highly dependent on the completeness and accuracy of
information collected in prior phases. However, because MTFs do not always
properly collect, record, or utilize key information during each phase of
the process, the pool of potential third-party collections is diminished
with each control breakdown during the process.
Figure 1: Breakdowns Reduce DOD's Third-Party Collections
8GAO-03-168.
Starting with patient intake, our previous work as well as the service MTF
audits have shown that DOD does not have effective systems and processes
for obtaining and updating insurance information for patients who have
other health insurance coverage or for verifying the accuracy of the
information with the insurer. This weakness dramatically reduces the
possibility of collecting from third-party insurers and recouping the cost
of providing reimbursable care. For example, based on work performed by
Army service auditors at five MTFs, they found that while MTF records
identified 4.5 percent of the outpatients as having third-party insurance,
in fact about 9.8 percent of the outpatients had insurance, more than
doubling the number of patients with insurance and projected to include an
additional 96,000 patients. If the MTFs had accurate insurance information
for these patients, Army auditors estimated that they could have collected
an additional $8.7 million. At three MTFs where we tested internal
controls, we found these MTFs also were not identifying all patients with
third-party insurance coverage and frequently did not bill insurers even
when they knew the patients had insurance coverage, thereby losing
opportunities to collect millions of dollars in reimbursable care.
According to DOD officials, they are currently exploring the possibility
of outsourcing this function with the hope of establishing a
comprehensive, independently validated database of beneficiaries with
third-party health insurance.
During the medical documentation and coding phases, MTF physicians and
other health care providers must adequately document the health care
provided to the patient and medical records professionals must assign
complete and accurate diagnoses and procedure codes to ensure that
third-party insurers are billed appropriately. However, MTF physicians and
other health care providers often do not adequately document their
diagnosis or the specific procedures performed. For example, one
independent study9 conducted at 50 MTFs found that approximately 17
percent of the records reviewed did not contain documentation for the
specified date of the outpatient visit and about 34 percent to 47 percent
of the time, reviewers could not find documentation in the medical record
for the diagnosis or procedure performed.
In addition, care is sometimes coded inaccurately, as shown in one DOD
coding validation study; approximately 14 percent of the diagnosis and
procedure codes reviewed were in
10
error.
The completeness and accuracy of insurance and medical coding information
are extremely important since it is the sole basis used to identify
reimbursable care and create and send bills to third-party insurers.
However, because care is sometimes not coded or improperly coded, it is
either not identified as billable care, overbilled, underbilled, or
rejected from the billing system. In addition, as we reported
previously,11 even when this information was available, the staff often
did not send a bill for a variety of reasons including lack of staff
resources and clerical oversights. Finally, accounts receivable personnel
are responsible for processing payments from insurers and following up
with insurers on outstanding or denied bills. However, many MTFs do not
actively monitor and manage accounts receivable to ensure prompt
resolution of disputed claims and pursue collection of delinquent
accounts.
9The Iowa Foundation for Medical Care Information Systems, Outpatient
Database Coding Validation Audits,
2002.
10Defense Supply Service-Washington, Region 1 Coding Validation Study,
Overall Report: TRICARE
Management Activity Health Program Analysis and Evaluation, Contract
Number GS-35F-4694G, Order
Number DASW01-01-F-1053.
11GAO-03-168.
According to some DOD officials, heavy workloads, limited staff resources,
and the lack of legal support make it cost prohibitive for the MTFs to
resolve and pursue low dollar value claims. Thus far, however, DOD has not
performed any type of cost-benefit analysis to determine what claims it
should or should not pursue.
To address collection issues, the Army has initiated a process to
consolidate and document denied or disputed claims, grouping them by
insurer and the reason for denial, in an effort to cost effectively
resolve these claims. Specifically at 15 MTFs, after collections efforts
have been unsuccessful, the Army is using a contractor to attempt
collection, track accounts receivable by insurance company, and document
the government's case for reimbursement with the intent of putting the
Army in a better position to resolve disputed claims and demand payment or
initiate legal action.
Itemized Billing Methodology Results in Decreased Collections for Fiscal
Year 2003
DOD's implementation of a new outpatient itemized billing methodology
intended to improve its billing processes and increase collections has led
to a significant decrease in collections during fiscal year 2003. For
fiscal years 2000 through 2002, DOD's Third Party Collections Program has
generated an average of about $122 million in revenues a year. However, in
fiscal year 2003 total collections decreased by about $30 million to only
$92 million. According to DOD officials, the decline is temporary and is
attributable largely to start-up problems associated with the new itemized
billing methodology and to a lesser degree, the Iraqi mobilization.
In October 2002, in an effort to improve the Third Party Collections
Program, conform to industry best practices, and comply with standards for
the protection of electronic private health information set by the
Secretary of Health and Human Services,12 DOD transitioned to an itemized
billing methodology for outpatient care. Previously, DOD billed outpatient
care using a standard, all-inclusive rate based on the average cost of a
clinical visit. This entailed annual DOD calculations of the cost of
providing care by the type of outpatient visit, including physician care,
and ancillary costs such as pharmacy, laboratory, and other services,
typically associated with the clinical visit type. For example, as shown
in figure 2, under the all-inclusive rate, an insurer might have been
billed $150 for a visit to an MTF's family practice clinic, or $200 for a
patient visit to an MTF's cardiology clinic.
12The Health Insurance Portability and Accountability Act of 1996 required
the Secretary to adopt standards for financial and administrative
transactions to enable private health information to be exchanged
electronically. Public Law No. 104-191, S:262 (a), 110 Stat. 2024, 42
U.S.C. S:1320d-2.
Figure 2: Comparison of Bills Under All-inclusive Rate and Itemized
Billing
However, under itemized billing, because DOD bills third-party insurers
based on the specific services and procedures provided, including any
medications prescribed or laboratory or other ancillary care provided for
a particular clinical visit, several bills may have to be prepared.
A TMA study comparing MTF billings under the all-inclusive rate and
itemized billing methods concluded that, on average, the amount of
billings to insurers would be approximately the same under either billing
method. However TMA projected that under itemized billing, MTFs'
third-party collections should increase, as automation improvements would
help to more completely identify all reimbursable care for billing. In
addition, itemized billing, especially when electronic billing and other
system improvements are implemented, would result in MTF claims being in a
format more widely accepted by the insurers.
In implementing the new outpatient billing system, DOD officials
acknowledged that collections had declined in the first 2 quarters of
fiscal year 2003, but they expected that collections would catch up by the
end of the fiscal year. Instead, as shown in figure 3, we found that
collections did not recover by the end of fiscal year 2003.
Figure 3: MTF Inpatient and Outpatient Collections for Fiscal Year 2000 through
2003
The major reason for the collections drop off was recoveries for
outpatient care. As seen in figure 3, reimbursements for outpatient care,
billed under the new itemized billing system, decreased by more than 30
percent from peak collections in fiscal years 2001 and 2002 and inpatient
care collections declined by more than 20 percent-from a high of about $58
million in fiscal year 2001-to just over $44 million in fiscal year 2003.
According to DOD officials, incorrect or incomplete medical coding and
other system start-up problems have resulted in an unusually high number
of bills being rejected by the automated outpatient billing systems.
Consequently, in fiscal year 2003, many of the MTFs did not send numerous
bills to insurers for payment, and collections have fallen dramatically.
As discussed previously, MTF physicians and other health care providers
must adequately document the nature of health care provided to the
patient, and medical records professionals must assign complete and
accurate diagnoses and procedure codes to ensure that third-party insurers
are billed appropriately. Under the new itemized billing methodology, the
system requires more specificity and consistency among the diagnosis and
procedure codes and provider-related information in order to pass systems
edit checks and automatically generate a bill. This is a significant
cultural change that requires physician and other health care providers to
document more precisely the care they provide. However, according to DOD
officials, in some cases the cultural shift toward more complete
documentation of medical care has not taken hold yet. As a result,
administrative personnel are currently researching and manually correcting
coding errors and other rejected transactions on a bill-by-bill basis,
which is extremely labor intensive and has resulted in significant billing
backlogs.
In the long term, TMA expects MTF collections to increase as automation
enhancements, other systems improvements, and reengineered MTF business
practices are implemented,
resulting in the improved identification of all reimbursable care for
billing. For example, according to DOD officials, they plan to add
enhancements to the itemized billing system that will identify incomplete
or inaccurate information as the health care provider enters patient data
into the system. Planned automated systems edit features would alert
clinical staff when they enter inconsistent or incongruent information
into the system. This will allow clinical staff, familiar with the care
provided, to detect and correct missing or incorrect information at the
point of entry. However, this and many other system enhancements will not
be fully operational until fiscal year 2005 and beyond.
Performance Metrics Not Available
While DOD's Third Party Collections Program is led by TMA and managed by
Army, Navy, and Air Force medical commands, neither TMA nor the services
have an effective performance management system in place for establishing
performance goals, identifying collection shortfalls, and managing the
overall performance of DOD's Third Party Collections Program. TMA and the
services monitor certain performance information related to MTF workload
and collections. However, this information alone does not provide the
context needed to establish individual MTF baselines or goals against
which performance may be assessed. Key information needed to establish
credible performance expectations includes both quantitative and
qualitative information related to the patient population covered by other
health insurance and the type and amount of care provided by each MTF to
this population. Without this information, DOD is unable to determine
whether a particular MTF is maximizing collections.
The amount of money collected from third-party insurers varies widely from
MTF to MTF depending on the extent to which the patient population served
has third-party health insurance and the type and level of care provided
by the MTF. For example, a large military hospital providing specialty
care in a metropolitan area and serving a large retiree population with
third-party health insurance is much more likely to provide reimbursable
care which in turn should generate higher collections, than a military
clinic in a remote location offering basic medical care to a patient
population consisting mainly of active duty personnel and their
dependents. However, TMA and the services do not currently have visibility
over information such as the number and percentage of patients with
third-party heath insurance and therefore cannot use this and other
profile information to set collections performance expectations. According
to DOD officials, they plan to field a new centralized database in 2004
that will provide visibility over demographic information including the
beneficiary's age, gender, physical location, and whether the beneficiary
has third-party health insurance.
Collections can also vary dramatically over time at a single MTF for
reasons that are not readily apparent to TMA or the services. Our analysis
of collections data for fiscal years 2000 through 2002 showed that
collections for individual MTFs fluctuated widely from year to year for a
significant number of MTFs-fluctuating upward by as much as 784 percent
and downward by as much as 85 percent. Reasons provided by MTF officials
for increases include identifying and billing a previously unbilled
workload, hiring a new business manager, or increased support from
clinical staff or the MTF commander. Reasons for declines are not as
clear, but include systems problems, inadequate or inexperienced staff, or
the loss of key personnel. Although quarterly collections activity is
monitored by TMA or the services, little can be done with this information
in terms of managing DOD's Third Party Collections Program. Given the
absence of credible performance expectations for each MTF, it is not
possible to determine whether a particular MTF is maximizing its
collections.
Conclusion
Managed effectively, DOD's Third Party Collections Program could collect
tens of millions of dollars more each year to offset the cost of providing
health care to DOD retirees and their dependents and active duty
dependents. Because DOD is authorized to use revenue collected from
third-party insurers to supplement its defense health care appropriation
and improve MTF operations, DOD has an opportunity to reduce the budgetary
impact of the rising cost of providing health care services to DOD
beneficiaries. Start-up problems with DOD's new outpatient itemized
billing methodology further jeopardize DOD's ability to realize its
third-party collections potential in the near term and possibly into the
future as it expands its itemized billing methodology to the inpatient
workload. Lessons learned from DOD's current effort should provide
valuable insights as it expands the use of itemized billing. However,
addressing the current problems with itemized billing and maximizing
third-party collections will require sustained leadership and greater
visibility over individual MTF performance.
Recommendations for Executive Action
We recommend that the Secretary of Defense direct the Assistant Secretary
of Defense for Health Affairs to (1) implement a corrective action plan
that includes time frames for addressing the start-up problems with
outpatient itemized billing that have resulted in collections decreases in
fiscal year 2003, and (2) establish an effective performance management
system that establishes realistic performance baselines or collections
goals for each MTF and enables MTFs to identify collections shortfalls and
improve their operations.
Agency Comments and Our Evaluation
In its written comments, reprinted in enclosure II, DOD concurred with our
findings and recommendations and acknowledged that additional funds could
have been recovered. However, DOD (1) took exception with our position
that additional collections could be used to offset the rising cost of
health care and (2) questioned our reliance on the work of other auditors
to provide some perspective on how much more could be collected annually
from third-party insurers. In addition, DOD included in its comments a
comprehensive discussion of its current and future initiatives aimed at
improving its Third Party Collections Program.
First, with regard to the disposition of the third-party collections, we
recognize that there is a statutory prohibition against DOD using
third-party collections to reduce an individual MTF's operating budget.
Our letter clearly states that DOD is authorized to use the collections to
support the operations of the MTF and that these funds are a revenue
source that can be used to enhance the services provided by the MTFs. Our
point, taking a broader view, is that every dollar recovered from
third-party insurers is one more dollar for the Congress to consider in
funding the government's operations. We reaffirm our position that
DOD has the opportunity, as well as a fiduciary responsibility to
taxpayers, to maximize its collection efforts under this program.
Second, DOD expressed a concern that our evidence for the department's
missed collections opportunities was based solely upon previous services
audit reviews and that we did not provide an actual analysis to support
the statement. We disagree with DOD's comment and provide our perspective
based on the following three points.
o In accordance with generally accepted government auditing standards
(GAGAS),13 in planning an audit, auditors should determine whether other
auditors have previously done, or are doing, audits of the program or the
entity that operates it. If other auditors have recently performed work in
the area, as was the case on this audit, the availability of other
auditors' work may influence the selection of methodology, since the
auditors may be able to rely on that work to limit the extent of their own
testing. Also in accordance with GAGAS and as discussed the methodology
section of this report, we performed procedures regarding the specific
work to be relied on that provided a sufficient basis for that reliance.
Specifically, we obtained evidence concerning the other auditors'
qualifications and independence through prior experience, inquiry, and
review of the other auditors' external quality control review report. We
also determined the sufficiency, relevance, and competence of other
auditors' evidence by reviewing their reports and audit programs.14
o As detailed in our report, we analyzed the macro trend data on MTF
inpatient and outpatient collections for fiscal years 2000 through 2003.
These data showed that collections had fallen dramatically in fiscal year
2003 during its transition to a new outpatient billing system, providing
additional support for our finding that DOD had missed collections
opportunities. Further, our previous report15 on MTF internal control
activities, as referenced in this letter, corroborated the work of the
service auditors, as we reported that the three MTFs that we reviewed did
not have effective controls over third-party billings and collections and
therefore lost opportunities to collect millions of dollars of
reimbursements for services.
o As we discussed in this report, we selected our audit methodology and
decided to use the work of the service auditors for two reasons: (1) DOD
does not maintain a reliable central database containing patient insurance
information, which would have made providing a comprehensive estimate of
third-party collections shortfalls across all MTFs possible, and (2) DOD's
current transition to a new itemized billing methodology, which
significantly disrupted collections in fiscal year 2003, made it
impractical for us to perform even limited sampling and testing. As a
result of these issues, neither DOD nor we can quantify the amount of
possible collections under this program. While the total amount of
collection shortfalls is also unknown, it is likely
13U.S. General Accounting Office, Government Auditing Standards, 2003
Revision, GAO-03-673G
(Washington, D.C.: June 2003).
14Given the time elapsed, the audit program and quality control review
report for the NAS work was
unavailable.
15 GAO-03-168.
much higher than the amounts reported by the service auditors, as they
each performed limited reviews of selected MTFs and/or types of services.
Thus, we maintain that our finding of at least tens of millions of dollars
of forgone annual collections is adequately supported and that DOD needs
to continue to work towards managing its Third Party Collections Program
as efficiently and effectively as possible.
Finally, DOD cited ongoing and planned efforts in the areas of patient
health insurance information, medical documentation and coding, and the
billing and collections function. DOD also cited a financial study being
done this fiscal year to determine what metrics could be used to establish
MTF-specific revenue goals. The department expects that as milestones are
achieved over the next several years in the areas of business process
reengineering and other business and automated system enhancements,
collections will increase over the previous year's benchmark. While we
acknowledge DOD's efforts in this area, many of DOD's efforts will not be
fully operational until fiscal year 2005 and beyond. As a result, we
cannot assess the adequacy of DOD's planned actions and believe that it is
premature for DOD to assert the success of these efforts.
Unless you publicly announce its contents earlier, we will not distribute
this letter until 15 days from its date. At that time, we will send copies
to the Chairman of the Subcommittee on National Security, Emerging Threats
and International Relations, and the Chairman and Ranking Minority Member,
Subcommittee on Government Efficiency and Financial Management, House
Committee on Government Reform, as well as other congressional committees.
We are also sending copies to the Secretary of Defense; the Assistant
Secretary of Defense for Health Affairs; and the Surgeons General of the
military services. Copies will be made available to others upon request.
In addition, the letter will also be available at no charge on GAO's home
page at http://www.gao.gov.
Please contact me at (202) 512-9095 or by e-mail at [email protected] or Diane
Handley,
Assistant Director, at (404) 679-1986 or by e-mail at [email protected] if
you or your staffs
have any questions concerning this letter. Major contributors to this
letter were Mario
Artesiano, Carl Barden, Francis Dymond, James Haynes, Julie Matta, Terry
Richardson,
Gregory D. Kutz
Director, Financial Management and Assurance
Enclosures
Enclosure I
Scope and Methodology
We relied on existing work of Army Audit Agency (AAA), Air Force Audit
Agency (AFAA), and Naval Audit Service (NAS) to provide a perspective on
the extent and amounts of reimbursable care that is not being collected by
MTFs. We did not verify or retest the amounts reported by the service
auditors; however, we did obtain, review, and discuss with the auditors
the audit methodologies used by each of the services. We also obtained and
reviewed audit programs and quality control reports for the AAA and AFAA.
Given the elapsed time for the NAS work, their audit program and quality
control report were not available. We interviewed staff at TRICARE
Management Activity in Falls Church, Virginia; Army Medical Command
(MEDCOM) in San Antonio, Texas; the Navy's Bureau of Medicine and Surgery
(BUMED) in Washington, D.C.; the Air Force Medical Service (AFMS) in
Washington, DC; and the National Naval Medical Center in Bethesda,
Maryland.
As agreed with our requesters to provide a perspective on the amount of
such services that were not billed and collected across all of DOD's MTFs,
we reviewed audit reports of service auditors. While scope, timing, and
methodology differences in AAA, AFAA, and NAS estimates limit using these
estimates to arrive at a DOD-wide estimate, the estimates do provide a
perspective of collections shortfalls at various MTFs across DOD. We also
analyzed individual MTF collections from fiscal year 2001 through 2003 to
assess the extent and reasons for collections variances.
To identify the status of specific control weaknesses that resulted in
lost collections from third-party insurers, we reviewed the internal
control weaknesses identified by service auditors, those we had identified
in our earlier work, and DOD studies to identify the areas most likely to
affect collections.
To assess the performance information used by TMA and the services to
manage DOD's Third Party Collections Program we obtained and reviewed
information currently reported to TMA and the services by the MTFs and
inquired about the availability of other information not contained in the
information reported and inquired how these data were used to oversee MTF
billing and collections efforts. The Department of Defense provided
written comments on a draft to this letter. These comments are presented
and evaluated in the "Agency Comments and Our Evaluation" section of this
letter and reprinted in enclosure II. Although DOD's comments also
included four enclosures, their substance was generally included in the
comment letter and addressed as appropriate in our agency comment
response. Accordingly, we did not reprint all enclosures. We performed our
work from April 2003 through December 2003 in accordance with U.S.
generally accepted government auditing standards.
Enclosure II
Comments from the Department of Defense
(192093)
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