VA Medical Centers: Further Operational Improvements Could	 
Enhance Third-Party  Collections (19-JUL-04, GAO-04-739).	 
                                                                 
In the face of growing demand for veterans' health care, GAO and 
the Department of Veterans Affairs Office of Inspector General	 
(OIG) have raised concerns about the Veterans Health		 
Administration's (VHA) ability to maximize its third-party	 
collections to supplement its medical care appropriation. GAO has
testified that inadequate patient intake procedures, insufficient
documentation by physicians, a shortage of qualified billing	 
coders, and insufficient automation diminished VA's collections. 
In turn, the OIG reported that VA missed opportunities to bill,  
had billing backlogs, and did inadequate follow-up on bills.	 
While VA has made improvements in these areas, GAO was asked to  
review internal control activities over third-party billings and 
collections at selected medical centers to assess whether they	 
were designed and implemented effectively.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-739 					        
    ACCNO:   A11030						        
  TITLE:     VA Medical Centers: Further Operational Improvements     
Could Enhance Third-Party  Collections				 
     DATE:   07/19/2004 
  SUBJECT:   Billing procedures 				 
	     Collection procedures				 
	     Debt collection					 
	     Government collections				 
	     Health care costs					 
	     Health care programs				 
	     Health care services				 
	     Health insurance					 
	     Insurance companies				 
	     Internal controls					 
	     Veterans benefits					 
	     Veterans hospitals 				 
	     Timeliness 					 
	     VA Revenue Action Plan				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-04-739

United States Government Accountability Office

GAO	Report to the Chairman, Subcommittee on Oversight and Investigations,

            Committee on Veterans' Affairs, House of Representatives

July 2004

VA MEDICAL CENTERS

     Further Operational Improvements Could Enhance Third-Party Collections

                                       a

GAO-04-739

Highlights of GAO-04-739, a report to the Chairman, Subcommittee on
Oversight and Investigations, Committee on Veterans' Affairs, House of
Representatives

In the face of growing demand for veterans' health care, GAO and the
Department of Veterans Affairs Office of Inspector General (OIG) have
raised concerns about the Veterans Health Administration's (VHA) ability
to maximize its thirdparty collections to supplement its medical care
appropriation. GAO has testified that inadequate patient intake
procedures, insufficient documentation by physicians, a shortage of
qualified billing coders, and insufficient automation diminished VA's
collections. In turn, the OIG reported that VA missed opportunities to
bill, had billing backlogs, and did inadequate follow-up on bills. While
VA has made improvements in these areas, GAO was asked to review internal
control activities over third-party billings and collections at selected
medical centers to assess whether they were designed and implemented
effectively.

GAO is making five recommendations to augment actions already underway to
facilitate more timely billings and improve collection operations. In
responding to our draft report, VA agreed with our conclusions and
expressly concurred with the recommendations and reported that it is
developing an action plan to implement them.

July 2004

VA MEDICAL CENTERS

Further Operational Improvements Could Enhance Third-Party Collections

VA has continued to take actions to reduce billing times and increase
thirdparty collections. Collections of third-party payments have increased
from $540 million in fiscal year 2001 to $804 million in fiscal year 2003.
However, at the three medical centers visited, GAO found continuing
weaknesses in the billings and collections processes that impair VA's
ability to maximize the amount of dollars paid by third-party insurance
companies. For example, the three medical centers did not always bill
insurance companies in a timely manner. Medical center officials stated
that inability to verify and update patients' third-party insurance,
inadequate documentation to support billings, manual processes and
workload continued to affect billing timeliness.

The detailed audit work at the three facilities GAO visited also revealed
inconsistent compliance with follow-up procedures for collections. For
example, collections were not always pursued in a timely manner and
partial payments were accepted as payments in full, particularly for
Medicare secondary insurance companies, rather than pursuing additional
collections.

VA's current Revenue Action Plan (Plan) includes 16 actions designed to
increase collections by improving and standardizing collections processes.
Several of these actions are aimed at reducing billing times and backlogs.
Specifically, medical centers are updating and verifying patients'
insurance information and improving health care provider documentation.
Further, hiring contractors to code and bill old cases is reducing
backlogs. In addition to actions taken, VA has several other initiatives
underway. For example, VA is taking action to enable Medicare secondary
insurance companies to determine the correct reimbursement amount, which
will strengthen VA's position to follow up on partial payments that it
deems incorrect. Although implementation of the Plan could improve VA's
operations and increase collections, many of its actions will not be
completed until at least fiscal year 2005. As a result, it is too early to
determine the extent to which actions in the Plan will address operational
problems and increase collections.

www.gao.gov/cgi-bin/getrpt?GAO-04-739.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact McCoy Williams at (202)
512-6906 or [email protected].

Contents

  Letter

Results in Brief
Background
Scope and Methodology
Opportunities Exist for Improving Timeliness of Billings and

Collection Activities Conclusions Recommendations Agency Comments and Our
Evaluation

1 2 4 7

9 18 19 19

Appendixes                                                             
               Appendix I:    Comments from the Department of Veterans     21 
                                              Affairs                     
              Appendix II:     GAO Contacts and Staff Acknowledgments      23 
                                            GAO Contacts                   23 
                                          Acknowledgments                  23 
                            Table 1: Third Party Billing Timeliness for       
     Tables                            Selected Transactions               11
                            Table 2: Ratio of Bills Issued to the Number  
                                         of Coders Per Day                
                                        January-March, 2004                12 
                               Figure 1: VA's MCCF Revenue Cycle for          
    Figures                Third-Party Collections Figure 2: Third-Party  
                                      Collections in Millions             5 7
                             Figure 3: Four Functional Areas of Billing    10 

Contents

Abbreviations

CBO Chief Business Office
MCCF Medical Care Collection Fund
OIG Office of Inspector General
PFSS Patient Financial Services System
VA Department of Veterans Affairs
VHA Veterans Health Administration

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

A

United States Government Accountability Office Washington, D.C. 20548

July 19, 2004

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 through medical facilities managed by its Veterans Health
Administration (VHA). Under certain circumstances, VA is authorized to
collect reasonable charges from veterans' health insurance companies to
offset the cost of medical care and medications for treatment of
nonservice-connected conditions. Specifically, VA may bill insurance
companies for treatment of conditions that are not a result of injuries or
illnesses incurred or aggravated during military service. VA is not
authorized to bill for health care conditions that result from military
service, nor is it generally authorized to collect from Medicare and
Medicaid. In fiscal year 2003, VA collected $804 million in insurance
payments, also known as third-party collections. These collections
provided VA the largest source of revenue to supplement its $25 billion
medical care appropriation in fiscal year 2003, and they helped pay for
costs associated with growing health care demands for veterans.

Over the past several years, we and the VA Office of the Inspector General
(OIG) have raised concerns about VA's ability to maximize its third-party
collections to enhance revenue. In September 2001, we testified that
problems in VA's collection operations-such as inadequate patient intake
procedures to gather insurance information, insufficient physician
documentation of the specific care provided, a shortage of qualified
coders,
and insufficient automation-diminished VA's collections.1 In February
2002, the VA OIG reported that VA missed billing opportunities, had
billing

1 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).

backlogs, and did inadequate follow-up on accounts receivable in fiscal
years 2000 and 2001.2 In May 2003 we testified that VA had made
improvements in these areas but that operational problems, such as unpaid
accounts receivable, missed billing opportunities, and billing backlogs
continued to limit the amount VA collects.3

In conjunction with this revenue-enhancing responsibility, you asked us to
review internal control activities over third-party billings and
collections at selected VHA medical centers to assess whether internal
controls are now designed and implemented effectively.

To gain an understanding of VHA's policies and procedures and the related
internal controls and to assess the design effectiveness of those
controls, we obtained and reviewed VA and VHA directives, handbooks, and
other policy guidance, and previous reports issued by VA's OIG. We also
conducted interviews and walkthroughs with VHA personnel and reviewed our
previous reports. To assess whether key control activities for billings
and collections were effectively implemented, we used a case study
approach, reviewing transaction documentation at three VA medical centers.
We conducted our review from March 2004 through June 2004 in accordance
with U.S. generally accepted government auditing standards.

Results in Brief	VA has continued to take actions to reduce billing times
and increase thirdparty collections. Collections of third-party payments
have increased 49 percent from $540 million in fiscal year 2001 to $804
million in fiscal year 2003. At the same time, at the three medical
centers we visited, we found continuing weaknesses in the billings and
collections processes that impair VA's ability to maximize the amount of
dollars paid by third-party insurance companies. For example, the three
medical centers did not always bill insurance companies in a timely
manner. Medical center officials told us that inability to verify and
update patients' third-party insurance, inadequate documentation to
support billings, manual processes and workload continued to affect
billing timeliness. For instance, we were told

2 VA Office of Inspector General, Audit of the Medical Care Collection
Fund Program, Report No. 01-00046-65 (Washington, D.C.: Feb. 26, 2002).

3 U.S. General Accounting Office, VA Health Care: VA Increases Third-Party
Collections as It Addresses Problems in Its Collections Operations,
GAO-03-740T (Washington, D.C.: May 7, 2003).

that insufficient treatment documentation by physicians and other health
care providers continued to cause delays in coding bills. The cumulative
effect of this intertwined set of issues results in late or incomplete
bills and lost revenue.

The detailed audit work at the three facilities we visited also revealed
inconsistent compliance with follow-up procedures for collections. For
example, collections were not always pursued in a timely manner and
partial payments were accepted as payments in full, particularly for
Medicare secondary insurance companies, rather than pursuing additional
collections.

VA's current Revenue Action Plan (Plan) includes 16 actions designed to
increase collections by improving and standardizing collections processes.
Several of these actions are aimed at reducing billing times and backlogs.
Specifically, medical centers are updating and verifying patients'
insurance information and improving health care provider documentation.
Further, hiring contractors to code and bill old cases is reducing
backlogs. In addition to actions already taken, VA has several other
initiatives underway. For example, VA is taking action to enable Medicare
secondary insurance companies to determine the correct reimbursement
amount, which will strengthen VA's position to follow-up on partial
payments that it deems incorrect. However, the Plan has not yet been fully
implemented. Therefore, it is too early to determine the extent to which
actions in the Plan will address operational problems and increase
collections.

Because the Plan does not address all facets of the operational issues, we
are making five recommendations to augment those actions currently
underway. In commenting on a draft of this report the Secretary of
Veterans Affairs concurred with our conclusions and recommendations and
reported that the department is developing an action plan to implement
them. For additional information see the Agency Comments and Our
Evaluation section of this report and appendix I.

Background	The Veterans' Health Care Eligibility Reform Act of 19964
authorized VA to provide certain medical services not previously available
to veterans with non-service connected conditions. The Balanced Budget Act
of 19975 authorized VA to use third-party health insurance payments to
supplement its medical care appropriations. As part of VA's 1997 strategic
plan, VA expected that collections from third-party payments and
co-payments would cover the majority of costs of care for these veterans,
some of which VA has determined to have higher incomes. For fiscal year
2002, about a quarter of VA's user population were higher income veterans.

In September 1999, VA adopted a new fee schedule, called "reasonable
charges," which are itemized fees based on diagnoses and procedures.6 This
schedule allows VA to more accurately bill for the care provided. By
linking charges to the care provided, VA created new bill-processing
demands-particularly in the areas of documenting care, coding that care,
and processing bills per episode of care. First, VA must be prepared to
provide the insurance company with supporting medical documentation for
itemized charges. Second, VA must accurately assign medical diagnoses and
procedure codes to set appropriate charges, a task that requires coders to
search through medical documentation and various databases to identify all
billable care. Third, VA must prepare a separate bill for each health care
provider involved in the patient's care and an additional bill when a
hospital facility charge applies.

To collect from health insurance companies, VA uses a four function
process to manage the information needed to bill and collect third-party
payments-also known as the Medical Care Collection Fund (MCCF) Revenue
Cycle (see fig. 1). First, the patient intake function involves gathering
insurance information and verifying that information with the insurance
company as well as collecting demographic data on the veteran. Second,
utilization review involves precertification of care in compliance with
the veteran's insurance policy, including continued stay reviews to
determine medical necessity. Third, billing functions involve properly
documenting the health care provided to patients by physicians and other

4 Pub. L. No. 104-262, S: 101, 110 Stat. 3177, 3178 (Oct. 1996), codified
at 38 U.S.C. S: 1710.

5 Pub. L. No. 105-33, S: 8023, 111 Stat. 251, 665 (Aug. 5, 1997), codified
at 38 U.S.C. S: 1729A.

6 Reasonable charges are defined as amounts that insurance companies would
pay private sector health care providers in the same geographic area for
the same services.

health care providers. Based on the physician documentation, the diagnoses
and medical procedures performed are coded. VA then creates and sends
bills to insurance companies based on the insurance and coding information
obtained. And fourth, the collections or accounts receivable function
includes processing payments from insurance companies and following up on
outstanding or denied bills.

Figure 1: VA's MCCF Revenue Cycle for Third-Party Collections

I. Intake

Source: VA.

As discussed in prior OIG and GAO reports, reasons for untimely thirdparty
billings were heavy caseloads and backlogs for cases to be coded. VA was
unprepared to bill under reasonable charges initially in fiscal year 2000,
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 of its medical centers developed billing backlogs.

In January 2003, we reported7 that after initially being unprepared in
fiscal year 2000 to bill reasonable charges, VA began improving its
implementation of the processes necessary to increase its third-party
billings and collections. In fiscal year 2002, VA submitted over 8 million
third-party insurance bills that constituted a 54 percent increase over
the number in fiscal year 2001. VA officials attributed increased
third-party billings to, among other reasons, reductions in billing
backlogs and an increasing number of patients with billable insurance. We
also reported that collections could be increased by addressing
operational problems such as unpaid accounts receivable and missed billing
opportunities due to insufficient identification of insured patients,
inadequate documentation to support billings, coding problems, and billing
backlogs.

To address these issues and further increase collections, VA has several
initiatives under way and is continuing to develop additional ones. In
September 2001, VA introduced its Veterans Health Administration Revenue
Cycle Improvement Plan. This plan initially included 24 actions to improve
revenue performance. After the establishment of the Chief Business Office
(CBO) in May 2002, VA issued the Revenue Action Plan (Plan) that
superceded the 2001 plan and includes 16 objectives. With the
implementation of several actions in the Plan, VA has reported increases
in the number of billings. For example, in fiscal year 2003, VA submitted
10 million bills, a 25 percent increase over the number of bills in fiscal
year 2002 and a 160 percent increase over fiscal year 2000. VA also
reported that its collections of third-party payments over the past few
years continue to increase as shown in figure 2. For fiscal year 2003, VA
reported that it collected third-party payments of $804 million, a 6
percent increase over the $760 million collected in 2002 and a 49 percent
increase over the $540 million collected in fiscal year 2001.

7 U.S. General Accounting Office, VA Health Care: Third-Party Collections
Rising as VA Continues to Address Problems in Its Collections Operations,
GAO-03-145 (Washington, D.C.: January 31, 2003).

                Figure 2: Third-Party Collections (in millions)

                                      900

To gain an understanding of VHA's policies and procedures and the related
internal controls for the billings and collections, to identify key
control activities, and to assess the design effectiveness of those
controls, we obtained and reviewed VA and VHA directives, handbooks, and
other policy guidance, and previous reports issued by VA's OIG. We also
conducted interviews and walkthroughs with VHA personnel and reviewed
previous GAO reports. To assess whether key control activities for the two
areas of operation were effectively implemented, we used a case study
approach, reviewing transaction documentation at three VA medical centers.
We selected medical centers with varying success in meeting established
performance goals and other factors. Because we used a case study approach
the results of our study cannot be projected beyond the transactions we
reviewed.

To determine whether key internal controls for billings were effectively
implemented, we discussed billing requirements and procedures with VHA
headquarters and medical center personnel. Because billing records were
not in a usable format and time constraints did not permit us to put them
in

                                      800

                                      700

                                      600

                                      500

                                      400

                                      300

                                      200

                                     100 0

2000 2001 2002 2003

Years Source: GAO analysis based on VA Performance and Accountability
Report for fiscal year 2003.

  Scope and Methodology

a usable format, we could not select a statistical sample. Instead, we
made a non-statistical selection of 30 patients from each of the three
medical center's inpatient and outpatient billing records to perform tests
to assess compliance with policies and procedures and to determine the
number of days to bill third-party insurance companies.

To determine whether key internal controls for collections were
effectively implemented, we discussed requirements and procedures with VHA
headquarters and medical center personnel. At each medical center we
visited, we used the same 30 patients chosen for our billing tests to also
assess compliance with accounts receivable policies and procedures,
including VA Handbook 4800.14, Medical Care Debts (Handbook) and the
Accounts Receivable Third-Party Guidebook.

We reviewed and used as guides, the Standards for Internal Control in the
Federal Government 8 and the Internal Control Management and Evaluation
Tool. 9 The Comptroller General issued these internal control standards to
provide the overall framework for establishing and maintaining internal
control. According to these standards, internal control, also referred to
as management control, comprises the plans, methods and procedures used to
meet the missions, goals, and objectives of an organization. Internal
control also serves as the first line of defense in safeguarding assets
and preventing and detecting errors and fraud.

We performed our work at VA medical centers in Cincinnati, Ohio; Tampa,
Florida; and Washington, D.C., and at the VHA's Chief Business Office in
Washington, D.C. We conducted our review from March 2004 through June 2004
in accordance with U.S. generally accepted government auditing standards.

We requested comments on a draft of this report from the Secretary of
Veterans Affairs or his designee. Written comments were received from the
Secretary of Veterans Affairs and are reprinted in appendix I.

8 U.S. General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

9 U.S. General Accounting Office, Internal Control Management and
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001).

  Opportunities Exist for Improving Timeliness of Billings and Collection
  Activities

Although VA has decreased the number of days it takes to bill for patient
services and has increased its collections from third-party insurance
companies since 2000, problems remain. At the three medical centers we
visited, we found continuing weaknesses in the billings and collections
processes that impair VA's ability to maximize the amount of dollars paid
by third-party insurance companies. For example, medical centers did not
always bill insurance companies in a timely manner. According to medical
center officials, timeliness of billing is affected by, among other
things, (1) VA's ability to verify and update a patient's third-party
insurance information, (2) whether physicians and other health care
providers properly document the patient's treatment so a bill can be coded
appropriately, (3) the extent of manual intervention to process the bill,
and (4) workload. We believe that improvements could be made in each of
these areas.

Further, the three medical centers we visited did not always pursue
collections of accounts receivable in a timely manner or follow up on
certain partially paid claims. Weaknesses in VA's collection activities
hamper its ability to collect all monies due to the agency from
third-party insurance companies to pay for veterans' growing demand for
care.

VA's current Plan to implement and sustain effective collections
operations is in process. However, the Plan has not been fully
implemented. Therefore, it is too early to determine the extent to which
it will address operational problems and increase collections.

    Operational Enhancements Could Improve Timeliness of Billings

While VA reported that it has decreased the average number of days it
takes to bill for patient services, we found that medical centers could
further improve billing timeliness by continuing to address operational
problems that slow down the process. These operational problems include,
among other things, delays in verifying and updating patient insurance
information, incomplete or inaccurate documentation of patient care by
health care providers, manual intervention, and workload. VA's billing
process cuts across four functional areas, as shown in figure 3. Each
phase of the billing process is dependent on the completeness and accuracy
of information collected in the prior phases. Breakdowns occurring during
any part of the process can affect the timeliness of billings.

Figure 3: Four Functional Areas of Billing

Source: GAO analysis.

VA's policies and procedures do not specify the number of days for a bill
to be issued once health care services are rendered. In fiscal year 2003,
VA's Business Oversight Board established performance goals10 that were
incorporated into the network and medical directors' performance
contracts. The goal for sending a bill within a set number of days was
reduced periodically during fiscal year 2004. During the time of our
review, the performance goal for billing third party insurance companies
was an average of 50 days from the date of patient discharge. As of the
end of the first quarter of fiscal year 2004, the cumulative average days
to bill third parties for Tampa, Washington, D.C. and Cincinnati were 73,
69, and 44 respectively.

At each of the three medical centers visited, we made a non-representative
selection of 30 patients billed during the first quarter of fiscal year
2004. In evaluating the timeliness of billing, we used the then-in-effect
performance standard of 50 days after patient discharge. We recognize that
the cumulative billing times for the 90 cases selected do not represent
the average days to bill, which VHA uses to measure each medical center's
performance. However, cases billed more than 50 days after patient
discharge are illustrative of problematic issues that can delay billings.
For the 90 cases selected, the number of days to bill at the three medical
centers we visited ranged from 5 to 332 days, with almost 30 percent
billed after 50 days. A summary of our results is shown in table 1.

10 Billing performance goals (e.g. 50 days from the date of patient
discharge) are computed as averages for designated time frames. Days to
bill are calculated from the billing date back to the date when the
patient was discharged.

Table 1: Third Party Billing Timeliness for Selected Transactions

                               Billed within                      Total bills 
             Medical Center          50 days  Billed > 50 days         tested 
                 Cincinnati               23                  7 
                      Tampa               22                  8 
           Washington, D.C.               19                 11 
                      Total               64                 26 

Source: GAO analysis.

Promptly invoicing insurance companies for care provided is a sound
business practice and should result in improved cash flow for VA.
Officials at each of the three medical centers cited verifying and
updating patients' third-party insurance information as a continuing
impediment to billing third-party insurance companies in a timely manner.
They told us that this occurs because, among other reasons, some patients
are reluctant to provide insurance information for fear that their
insurance premiums will increase. Patients delay providing insurance
information until well after commencement of treatment, and patients do
not always provide current insurance information. Thus, additional time is
required to research and verify the patients' insurance coverage.

Medical center officials also told us that incomplete or inaccurate
documentation from health care providers continues to cause delays in
billing third parties. If the coders do not have sufficient data from the
provider to support a bill, the coding process can be delayed, thus
hampering timely billing of third-party insurance companies. Further,
without complete data on the actual health care services provided, the
coders may also miscode the treatment, which could result in lost revenue.

Another impediment to timely billing is that the billing process is not
fully automated and manual intervention is required. For example, in
certain cases, the medical diagnosis is transcribed onto a worksheet to be
used for coding rather than being electronically transmitted.
Additionally, before the coders can begin the coding process, they must
first electronically download the listing of potential billable patients.
Then the coders review the electronic medical records and assign
diagnostic and procedure codes before a bill is generated. Further, due to
system limitations, bills that exceed a certain dollar amount or number of
medical procedure codes must be printed and mailed rather than transmitted
electronically. For

example, in Cincinnati bills greater than $100,000 or that have six or
more medical procedure codes must be processed in this manner.

Another contributing factor may be the workload levels at the medical
centers. During the second quarter of fiscal year 2004, Cincinnati
submitted 45,883 bills and had a staff of 13 coders. Concurrently, Tampa
submitted 192,407 bills and had 16 coders and Washington D.C. issued
64,474 bills and had 8 coders. VHA data indicated that Cincinnati's
average billing time was under 50 days for the quarter and had the lowest
bill to coder ratio. Conversely, Tampa and Washington, D.C. exceeded the
50-day performance goal and had a much higher bill to coder ratio.
Assuming 60 workdays per quarter, we calculated the ratio of bills issued
per day to the number of coders as shown in table 2.

 Table 2: Ratio of Bills Issued to the Number of Coders Per Day January-March,
                                      2004

                                     Number of    Number       Ratio of Bills 
              Medical Center     Bills/Per Day  of Coders           to Coders 
                  Cincinnati               765           13              59:1 
            Washington, D.C.             1,075            8             134:1 
                       Tampa             3,207           16             200:1 

Source: GAO analysis.

We recognize that other factors such as the number of billable encounters
per bill and coder productivity may affect the billing workload. However,
given the wide diversity of the bill to coder ratios, staffing may also be
a contributing factor affecting days to code and issue bills.

VA's Controls over Weaknesses in collection activities hamper VA's ability
to collect all monies Collections Need due to the agency from third-party
insurance companies for veterans' care. Strengthening We found that the
three medical centers we visited did not always pursue

collections of accounts receivable in a timely manner or follow up on
certain partially paid insurance claims. These two factors could
negatively affect third-party collections.

Accounts Receivable Not Pursued in a Timely Manner

VA's Handbook sets forth the requirements for collection of third-party
accounts receivables.11 Also, in 2003, the VHA's Chief Business Office
issued the Accounts Receivable Third-Party Guidebook that lays out more
detailed procedures.12 Both documents require that once a claim has been
sent to the insurance company, staff should follow up on unpaid
reimbursable insurance cases as follows:

o 	The first telephone follow-up is to be initiated within 30 days after
the initial bill is generated. All telephone follow-ups are to be
documented to include, at a minimum, the name, position, title and
telephone number of the person contacted, the date of contact, appropriate
second follow-up date if payment is not received, and a brief summary of
the conversation.

o 	A second telephone follow-up on unresolved outstanding receivables is
to be made on an appropriate (but unspecified) date and documented.

o 	A third follow-up call is to be made within 14 days of the second
contact and documented with a summary of the conversation and an
appropriate, but not specified, follow-up date.

o 	If no payment has been received by the next follow-up date, the case
may be referred by the MCCF Coordinator to regional counsel for further
action.

We tested compliance with these policies for the same 30 cases selected
for our billing tests at each of the three medical centers we visited.
Regarding the first follow-up procedure, initial follow-up calls were made
within 30 days for only 14, or about 22 percent, of the 64 cases for which
billings had not been collected within 30 days.

Second follow-up phone calls were not made in a timely manner either. We
considered 15 days after the initial follow-up of 30 days to be an
appropriate time frame since the third follow-up is to be made within 14
days after the second follow-up and cases are to be referred to collection
agencies after 60 days. Delays in making second follow-up calls increase

11 VA Handbook 4800.14, Medical Care Debts, Department of Veterans
Affairs, (Washington, D.C.: Dec. 8, 2003).

12 Accounts Receivable Third-Party Guidebook, Department of Veterans
Affairs, 2003.

the risk that payments will not be collected. Within our selected cases,
four second follow-up calls were either made more than 15 days after the
first follow-up call or not at all. These bills had not been paid within
120 days after the bill was sent to the insurance company.

Both the first and second follow-up calls require that staff document the
contact's name, title, telephone number, and expected follow-up date in
the official records. However, we found that staff did not consistently do
so. For example, for the 14 cases where a follow-up call was made during
the first 30 days after the initial billing, only seven specified a
follow-up date. Entering a follow-up date would serve as a reminder to
make the second follow-up call. Further, we found that an unclear
collection policy may have contributed to VA's untimely second follow-up
efforts. Specifically, VA's Handbook requires that second follow-up
telephone calls on unresolved outstanding receivables be made on an
"appropriate date," but that date is not specified (i.e., the number of
days elapsed since the first contact). Specifying a follow-up date (i.e.,
15 days after the first follow-up) or providing criteria for selecting an
appropriate follow-up date would clarify this requirement and provide a
benchmark on which compliance could be measured.

Medical center officials at the three sites we visited told us that staff
shortages and a heavy workload contributed to noncompliance with follow-up
procedures. For example, Tampa officials told us that the accounts
receivable staff typically have over 1,000 cases needing follow-up at any
one time. The Cincinnati Medical Care Collection Fund (MCCF) supervisor
told us that if two additional staff were available, they would be
dedicated to following up on delinquent payments.

Not Following Up on Partially During our review of the 90 selected cases,
we noted wide variances

Paid Claims Reduces the Possibility of Collecting Additional Revenue

between the amounts billed and amounts received for patients who were
eligible for Medicare benefits. For example, in one of our selected cases,
VA billed the secondary insurance company for $60,994 but received only
$5,205, or about 9 percent.

In non-Medicare cases, when the patient has primary and secondary
insurance, VHA bills the primary insurance company and, depending on the
amount collected, bills the secondary insurer for the residual amount. For
Medicare patients who have secondary insurance (i.e., Medigap or Medicare
Supplemental insurance), VA is generally entitled to receive payment only
from the secondary insurance company. Thus far, VA has not been able to
provide post-Medicare payment information (i.e., deductible

and co-insurance amounts) to other insurance companies because Medicare is
generally not required to pay and thus does not pay VA. Lacking
information on what Medicare would pay if required to do so, VA does not
know what amount to bill the secondary insurance companies because it does
not know the residual amount. In such cases, VA bills the secondary
insurance company for the full amount associated with the care
provided-the amount that would be reimbursable by Medicare as well as the
amount not covered by Medicare.

The secondary insurance companies have been using a variety of
methodologies for reimbursing VA and some do not pay because they are
unable to determine the proper amount of reimbursement. As a result, in
certain cases, VA receives very little, if any, reimbursement from the
secondary insurance companies for such billings.

The Handbook describes procedures for following up on partial payments
from insurance companies. It states that payment by a third-party
insurance company of an amount which is claimed to be the full amount
payable under the terms of the applicable insurance policy or other
agreement will normally be accepted as payment in full. The unpaid balance
is to be written down to zero. However, if there is a considerable
difference between the amount collected and the amount billed, the
Handbook directs staff to take various actions to pursue potential
additional revenue. At each of the three medical centers, we found that
accounts receivable staff typically accepted partial payments from
secondary insurance companies as payment in full and adjust the unpaid
balance to zero. Because the medical centers do not have the post-Medicare
information needed to pursue collection of the unpaid amounts, there may
be failure to collect millions of dollars because partial payments are
accepted as payment in full.

VA reported that as of September 2003, the median age of all living
veterans was 58 years, with the number of veterans 85 years of age and
older totaling nearly 764,000. As these veterans age, the demand for care
will increase as will the number of veterans eligible for Medicare. To be
able to offset the cost of care through third-party collections, it will
become even more imperative in the coming years for VA to collect the
maximum amount possible from secondary insurance companies.

    VA Initiatives Are Under Way to Address Operational Problems

VA's current Revenue Action Plan includes 16 actions designed to increase
collections by improving and standardizing the collections processes.
Several of these actions are aimed at reducing billing times and backlogs,
many of which have already been implemented. Specifically, medical centers
are updating and verifying patients' insurance information and improving
health care provider documentation. In addition, hiring contractors to
code and bill old cases is reducing backlogs. Further, the introduction of
performance measures into managers' performance contracts has provided an
incentive for increased billings and collections. In addition to those
actions already taken, VA has other initiatives under way such as
automating the billing process by implementing the Patient Financial
Services System (PFSS) and determining the amounts billable to Medicare
secondary insurance companies through the use of an electronic Medicare
Remittance Advice.

To assist in updating and verifying patients' insurance information, a
problematic issue discussed earlier in our report, each site now has staff
dedicated to (1) verify that insurance reported by the veteran is current,
(2) determine insurance coverage if the patient does not declare any, (3)
acquire pre-certifications of patient admissions, and (4) obtain
authorization of procedures from the patient's insurance company.
Additionally, medical centers have taken actions to update demographic
information on file, including insurance. These efforts help to reduce
insurance denials, produce more accurate bills, and ensure that VA
receives reimbursement for services provided.

To assist in improving medical documentation, which we reported as a
continuing operational issue, VA mandated physician use of the
Computerized Patient Record System in December 2001 and reinforced its use
through a VHA Directive in May 2003. The coders use the electronic medical
records to determine what treatment each patient received and to document
the diagnostic codes. In addition, the medical centers have been educating
the physicians about the importance of completing the records.

To reduce billing backlogs, VHA entered into an agreement with four
vendors to code and assist with backlogs. The Washington, D.C. medical
center hired a contractor to handle a backlog of 15,000 encounters.13 The
contractor has certified staff for coding and billing and must meet 12

13An encounter is defined as a single medical treatment.

performance measures. The revenue officer told us that the backlog was
eliminated in May 2004. In addition, in December 2003, VHA was given
authority by the Office of Personnel Management to directly hire
credentialed coders at industry-compatible salaries.

In fiscal year 2003, VHA's Chief Business Officer implemented
industrybased performance metrics and reporting capabilities to identify
and compare overall VA revenue program performance. Metrics were
introduced to measure collections, days to bill, gross days revenue
outstanding, and accounts receivable over 90 days. For both network and
medical center directors, the metrics and associated performance targets
were incorporated into annual performance contracts effective fiscal year
2003. VHA officials attribute much of the decrease in days to bill and
increased billings and collections to these performance measures. For
example, VA reported that nationally the average days to bill insurance
companies for the first half of fiscal year 2004 was about 74 days, which
is an improvement from their fiscal year 2000 average days to bill of 117
days. However, VHA's average days to bill for that period exceeded the
performance goals of 50 days and 47 days for the first and second quarters
of fiscal year 2004, respectively. The industry standard is 10 days.14

In addition to actions already taken, VA's Plan has several other
initiatives under way for improving billing times and increasing
collections. For example, the PFSS is designed to integrate the health
care billing and accounts receivable software systems to replace VA's
current legacy system. The system is intended to increase staff efficiency
through a streamlined, standardized, re-engineered process; create more
accurate bills; and shorten bill lag times through automation. VA
officials believe that this initiative, when implemented, will reduce
manual intervention noted earlier in our report as a reason for delayed
billings. However, implementation is behind schedule.

14As we noted in our 2003 report, 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. By comparison, private sector hospitals may only bill for
facility charges.

Another effort under way, the electronic Medicare Remittance Advice
project, helps to address obtaining allowable payments from secondary
insurance companies, rather than accepting partial payments that are
significantly lower than billed amounts as full payment. This project
involves the electronic submission of claims to a fiscal intermediary15 to
receive remittance advice on how Medicare would have paid the claim if it
were legally bound to pay VA for care. The remittance advice, which will
be attached to VA health care claims, will enable secondary insurance
companies to determine the correct amount to reimburse VA. Further, VA
believes it will be able to more accurately reflect the amount of its
outstanding receivables and be in a strengthened position to follow up on
partial payments, which it deems incorrect. The completion date for this
project was November 2003 but has been delayed due to software issues. VA
officials told us they plan to roll out the new system beginning in August
2004.

Although the Plan provides another step forward in potentially improving
operations and increasing collections, it is still in progress and many of
the actions are not scheduled for implementation until at least fiscal
year 2005. Therefore, it is too early to determine whether the Plan will
successfully address operational problems and increase collections when
fully implemented.

Conclusions	The growing demands for veterans' health care increase VA's
responsibility to supplement, as much as possible, its medical care
appropriations with collections from insurance companies for treatment of
non-serviceconnected conditions. VA is making progress in developing and
implementing procedures to identify patients who can be billed for
services, to bill for services correctly and in a timely manner, and to
pursue collections. VA's Plan to further improve billing and collection
operations, however, is still a work in progress and could benefit from
the performance of a workload analysis. In the interim, strengthening
internal controls such as clarifying billing and claims follow-up
procedures and consistently implementing policies and procedures could
help reduce billing times and increase collections. Even assuming that its
Plan works as contemplated, these additional controls are needed to
maximize VA revenues to enhance its medical care budget.

15A private company that contracts with Medicare to pay Medicare Part A
and some Part B bills.

Recommendations	We are making five recommendations to facilitate more
timely billings and improve collection operations. The Secretary of
Veterans Affairs should direct the Under Secretary for Health to:

o 	Perform a workload analysis of the medical centers' coding and billing
staff, and

o 	Based on the workload analysis, consider making the necessary resource
adjustments.

o 	Reinforce to accounts receivable staff that they should perform the
first follow-up on unpaid claims within 30 days of the billing date, as
directed by VA Handbook 4800.14, Medical Care Debts, and establish
procedures for monitoring compliance.

o 	Reinforce the requirement for accounts receivable staff to enter the
insurance company contact's name, title and phone number and the follow-up
date when making follow-up phone calls.

o 	Augment VA Handbook 4800.14, Medical Care Debts, by either specifying a
date or providing instructions for determining an appropriate date for
conducting second follow-up calls to insurance companies.

  Agency Comments and Our Evaluation

VA provided written comments on a draft of this report. In its response,
VA agreed with our conclusions and recommendations and reported that it is
developing an action plan to implement them. Additionally, VA's response
stated that VHA is pursuing a number of strategies to improve overall
performance toward achieving industry benchmarks. VA believes that the
development of the Patient Financial Services System will address current
billing system limitations and manual intervention and that the Medicare
Remittance Advice project will assist VHA in pursuing partially paid
claims.

Also, in its response letter, VA included some technical comments that we
have addressed in finalizing our report where appropriate. VA's written
comments are presented in appendix I.

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, the Under Secretary for Health, interested
congressional committees, and other interested parties. We will also make
copies available to others upon request. In addition, the report will be
available at no charge on GAO's Web site at http://www.gao.gov. Should you
or your staff have any questions on matters discussed in this report,
please contact me at (202) 512-6906 or [email protected]; or Alana
Stanfield, Assistant Director, at (202) 512-3197 or [email protected].
Major contributors to this report are acknowledged in appendix II.

Sincerely yours,

McCoy Williams Director, Financial Management and Assurance

Appendix I

Comments from the Department of Veterans Affairs

Appendix IComments from the Department of VeteransAffairs

Appendix II

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	McCoy Williams, (202) 512-6906 Alana Stanfield, (202)
512-3197

Acknowledgments	In addition to those named above, the following
individuals made important contributions to this report: Teressa
Broadie-Gardner, Lisa Crye, Jeffrey Isaacs, Sharon Loftin, Donell Ries,
and Patricia Summers.

GAO's Mission	The Government Accountability Office, the audit, evaluation
and investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

Obtaining Copies of The fastest and easiest way to obtain copies of GAO
documents at no cost

is through GAO's Web site (www.gao.gov). Each weekday, GAO postsGAO
Reports and newly released reports, testimony, and correspondence on its
Web site. To Testimony have GAO e-mail you a list of newly posted products
every afternoon, go to

www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone	The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order by Phone:	Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

  To Report Fraud, Contact:
  Waste, and Abuse in Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: [email protected] Programs Automated answering system: (800)
424-5454 or (202) 512-7470

Congressional	Gloria Jarmon, Managing Director, [email protected] (202)
512-4400 U.S. Government Accountability Office, 441 G Street NW, Room 7125

Relations Washington, D.C. 20548

Public Affairs	Jeff Nelligan, Managing Director, [email protected] (202)
512-4800 U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548

            Presorted StandardPostage & Fees PaidGAOPermit No. GI00

United StatesGovernment Accountability OfficeWashington, D.C. 20548-0001

Official BusinessPenalty for Private Use $300

Address Service Requested
*** End of document. ***