VA Medical Centers: Internal Control Weaknesses Impair		 
Third-Party Collections (21-JUL-04, GAO-04-967T).		 
                                                                 
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-04-967T					        
    ACCNO:   A11022						        
  TITLE:     VA Medical Centers: Internal Control Weaknesses Impair   
Third-Party Collections 					 
     DATE:   07/21/2004 
  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				 

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GAO-04-967T

United States Government Accountability Office

                                 GAO Testimony

Before the Subcommittee on Oversight and Investigations, Committee on
Veterans' Affairs, House of Representatives

For Release on Delivery Expected at 10:00 a.m. EDT Wednesday, July 21,
2004

VA MEDICAL CENTERS

          Internal Control Weaknessess Impair Third-Party Collections

Statement of McCoy Williams,
Director, Financial Management and Assurance

                                       a

GAO-04-967T

Highlights of GAO-04-967T, a testimony before the 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's report on this issue, GAO-04739, released concurrently with this
testimony, makes five recommendations to augment actions already underway
to facilitate more timely billings and improve collection operations.

July 2004

VA MEDICAL CENTERS

Internal Control Weaknesses Impair Third-Party Collections

VA has continued to take actions to reduce billing times and increase
thirdparty collections. VA reported that its collections of third-party
payments 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-04-967T.

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].

Mr. Chairman:

I am pleased to be here today to discuss internal controls over VHA's
thirdparty billings and collections.

First, I would like to recognize VA's continued efforts to increase
thirdparty collections, which have increased from $540 million in fiscal
year 2001 to $804 million in fiscal year 2003. However, in the face of
growing demand for veterans' health care, GAO and the Department of
Veterans Affairs Office of Inspector General have raised concerns about
the Veterans Health Administration's (VHA) ability to maximize its
third-party collections to supplement its medical care appropriation. 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 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 designed and implemented effectively. Our report on this
issue is being released today at this hearing.4

1U.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).

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

3U.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).

4U.S. General Accounting Office, VA Medical Centers: Further Operational
Improvements Could Enhance Third-Party Collections, GAO-04-739
(Washington, D.C.: July 19, 2004).

You also asked that we review internal control activities in three areas
of operation at selected VHA medical centers--accountability over personal
property, drugs returned for credit, and part-time physician time and
attendance. That report is also being issued today. At your request we
also reviewed VHA's purchase card program for fiscal year 2002 and our
report was issued June 7, 2004.

In my testimony today, I will discuss 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. The scope
of our work, which was performed from March 2004 through June 2004 in
accordance with generally accepted government auditing standards, is
detailed in the report being released today.

Heads of agencies are required to establish systems of internal control
consistent with our Standards for Internal Control in the Federal
Government. 5 Effective internal controls are the first line of defense in
safeguarding assets and in preventing and detecting fraud. In addition,
they help to ensure that actions are taken to address risks and are an
integral part of an entity's accountability for the stewardship of
government resources.

As I will discuss in my testimony, we found at the three medical centers
visited that internal controls were not designed to provide reasonable
assurance that medical centers billed insurance companies in a timely
manner or consistently complied with follow-up procedures for collections.
We focused on billing transactions that occurred in the first quarter of
fiscal year 2004 at the Cincinnati, OH; Tampa, FL; and Washington, D.C.
medical centers.

I will first discuss the results of our review over billing timeliness.
Then I will discuss control weaknesses in collection activities that
hamper VA's ability to collect all monies due to the agency from
third-party insurance companies for veterans' care. And finally, I will
highlight some of VA's initiatives to increase collections from
third-party insurance companies.

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

  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, from patient intake, to medical
documentation of treatment, to coding the treatment accurately prior to
billing. 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.

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 goals6 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 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 performance
standard then in effect 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.

6Billing 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.

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 do not always
provide current 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 this way.

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 and found:

o 	Cincinnati with 765 bills per day, 13 coders, and a ratio of 59 bills
to 1 coder,

o 	Washington, D.C., with 1,075 bills per day, 8 coders, and a ratio of
134 bills to 1 coder, and

o 	Tampa, with 3,207 bills per day, 16 coders, and a ratio of 200 bills to
1 coder.

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

due to the agency from third-party insurance companies for veterans'
care.Collections Need We found that the three medical centers we visited
did not always pursue Strengthening 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.7 Also, in 2003, the VHA's Chief Business Office
issued the Accounts Receivable Third-Party Guidebook that lays out more
detailed procedures.8 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

7VA Handbook 4800.14, Medical Care Debts, Department of Veterans Affairs,
(Washington, D.C.: Dec. 8, 2003).

8Accounts Receivable Third-Party Guidebook, Department of Veterans
Affairs, 2003.

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 Medical Care Collection Fund (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 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
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 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 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 Paid Claims Reduces the Possibility of
Collecting Additional Revenue

During our review of the 90 selected cases, we noted wide variances
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 insurance company for the residual
amount. Conversely, for Medicare patients who have secondary insurance
(i.e., Medigap or Medicare Supplemental insurance), VA is entitled to
receive payment only from the secondary insurance company because Medicare
is generally not required to and thus does not pay VA. However, VA has not
been able to determine the residual amount that the secondary insurance
company is responsible for paying because it lacks processes and
procedures for calculating the amount that would be paid based on
post-Medicare payment information (i.e., deductible and co-insurance
amounts). 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 wrote down the unpaid
balance to zero. Because the medical centers do not have the post-Medicare
information needed to pursue collection of the unpaid amounts, VA may not
be collecting 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
be 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 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, 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.9 The
contractor has certified staff for coding and billing and must meet 12
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 Office 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

9An encounter is defined as a single medical treatment.

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.10

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 Patient Financial Services System 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.

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 intermediary11 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.

10As 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.

11A private company that contracts with Medicare to pay Medicare Part A
and some Part B bills.

Therefore, it is too early to determine whether the Plan will successfully
address operational problems and increase collections when fully
implemented.

In closing, Mr. Chairman, we believe 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 VA's Revenue Action Plan works as
contemplated, these additional controls are needed to maximize VA revenues
to the fullest extent for enhancing its medical care budget.

Our report, which is being released at this hearing, makes five
recommendations to strengthen internal controls that will facilitate more
timely billings and improve collection operations.

This concludes my statement. I would be happy to answer any questions you
or other members of the subcommittee may have.

  Contacts and Acknowledgments

(195051)

For information about this statement, please contact McCoy Williams,
Director, Financial Management and Assurance, at (202) 512-6906, or Alana
Stanfield, Assistant Director, at (202) 512-3197. You may also reach them
by e-mail at [email protected] or [email protected]. Individuals who
made key contributions to this testimony include Lisa Crye, Jeff Isaacs,
and Sharon Loftin.

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