VA Health Care: Collections Fall Short of Expectations (Testimony,
09/23/1999, GAO/T-HEHS-99-196).

Pursuant to a congressional request, GAO discussed the Department of
Veterans Affairs' (VA) efforts to increase revenues from alternative
sources as a way to supplement its medical care appropriations, focusing
on trends in third-party collections.

GAO noted that: (1) VA's third-party collections have declined in each
of the past 3 fiscal years and may decline again by the end of fiscal
year (FY) 1999; (2) in FY 1998, VA collected $442 million from
third-party insurers for care provided to veterans for
non-service-connected conditions, down from $523 million in FY 1995; (3)
in FY 1999, as of August 31, VA had collected about $388 million from
third-party insurers; (4) unless VA's September collections exceed by
$19 million its average monthly collections of $35 million, the annual
decline in third-party collections will continue for the fourth year in
a row; (5) next fiscal year, VA will experience its first full year of
billing insurers on a reasonable-charges basis rather than a
reasonable-cost basis; (6) however, data are insufficient to predict
whether this will reverse the declining collections trend; (7) VA has
tried to reverse the decline in its collections from third-party
insurers; (8) three factors limit VA's ability to increase the amount it
collects from private insurers--the increasing number of veterans whose
primary insurance is Medicare, increasing health maintenance
organization penetration, and its own efforts to increase the emphasis
on outpatient care; (9) nevertheless, VA can enhance its chances of
increasing collections if it ensures that the management improvements
that are being implemented at some facilities are implemented throughout
VA; and (10) these include overall improvements in VA medical
facilities' use of good business management practices, as well as
specific improvements in how facilities collect insurance information,
document the appropriateness and medical necessity of care being billed,
and pursue unpaid bills.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-HEHS-99-196
     TITLE:  VA Health Care: Collections Fall Short of Expectations
      DATE:  09/23/1999
   SUBJECT:  Insurance companies
	     Government collections
	     Claims processing
	     Managed health care
	     Patient care services
	     Health care programs
	     Health insurance cost control
	     Cost sharing (finance)
	     Veterans benefits
IDENTIFIER:  Medicare Program
	     VA Medical Care Collections Fund

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Cover
================================================================ COVER

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

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

VA HEALTH CARE - COLLECTIONS FALL
SHORT OF EXPECTATIONS

Statement of Stephen P.  Backhus, Director
Veterans' Affairs and Military Health Care Issues
Health, Education, and Human Services Division

GAO/T-HEHS-99-196

GAO/HEHS-99-196T

(406175)

Abbreviations
=============================================================== ABBREV

  BBA - Balanced Budget Act of 1997
  HCFA - Health Care Financing Administration
  HMO - health maintenance organization
  MCCF - Medical Care Collections Fund
  NJHCS - New Jersey Health Care System
  VA - Department of Veterans Affairs'

VA HEALTH CARE:  COLLECTIONS FALL
SHORT OF EXPECTATIONS
============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

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

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

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

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

--------------------
\1 VA Medical Care:  Increasing Recoveries From Private Health
Insurers Will Prove Difficult (GAO/HEHS-98-4, Oct.  17, 1997). 

\2 The New Jersey Health Care System is part of Veterans Integrated
Service Network (VISN) 3, based in the Bronx, New York.  The Houston
Medical Center is part of VISN 16, based in Jackson, Mississippi. 

   BACKGROUND
---------------------------------------------------------- Chapter 0:1

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

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

BBA also gave VA authority to change its basis for billing
third-party insurers from reasonable costs to reasonable charges.
Under reasonable costs, VA based its billing of insurers on its
average cost to provide care--for example, a flat fee of $229 for
veterans' outpatient visits in fiscal year 1999.  For inpatient
visits, VA billed insurers a per diem based on patients' locations in
the hospital.  For example, VA charged $2,079 per day of care in a
surgical bed section in fiscal year 1999.  Under reasonable charges,
VA will base its bills to insurers on market prices.  VA expects that
it will help increase third-party collections.  However, we concluded
that the effect of reasonable charges on VA's collections could not
be accurately determined.\3

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

--------------------
\3 VA Health Care:  Third-Party Charges Based on Sound Methodology;
Implementation Challenges Remain (GAO/HEHS-99-124, June 11, 1999). 

   COLLECTIONS FROM THIRD-PARTY
   INSURERS ARE DECLINING
---------------------------------------------------------- Chapter 0:2

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

      THIRD-PARTY COLLECTIONS
      CONTINUE TO DECLINE
-------------------------------------------------------- Chapter 0:2.1

In fiscal year 1995, VA collected $523 million from third-party
insurers.  Since then, the amount collected has declined every fiscal
year and may decline again in the current fiscal year.  Collections
declined from $523 million in fiscal year 1995 to $495 million in
fiscal year 1996, $450 million in fiscal year 1997, and $442 million
in fiscal year 1998.  As of August 31, 1999, VA had collected $388
million during fiscal year 1999.  VA's average collections are about
$35 million per month, but it will have to collect $54 million in
September to equal fiscal year 1998's collections. 

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

      OVERPAYMENT REFUNDS ARE
      STILL A POTENTIAL PROBLEM,
      ALTHOUGH CURRENT COLLECTIONS
      HAVE NOT BEEN SIGNIFICANTLY
      AFFECTED
-------------------------------------------------------- Chapter 0:2.2

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

Based on data provided by VA's Office of General Counsel, actual
refunds to insurers have been relatively small compared with
potential liabilities.  Specifically, at the time of our review, VA
officials estimated that total repayments would probably not exceed
$100 million and told us that they had repaid approximately $19
million.  However, unknown refunds have been paid by individual
medical facilities, and claims for about an additional $29 million
are pending.  For example, NJHCS recently agreed to pay an insurer
approximately $286,000 after the insurer audited NJHCS bills.  At the
Houston Medical Center, we found one repayment in fiscal year 1999
for about $35,000. 

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

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

--------------------
\4 HCFA produces these statements, which provide an explanation of
the Medicare allowable charges and the portion of the billed charges
Medicare will pay.  The statements are provided to insurers who pay
secondary to Medicare. 

   VA HAS TAKEN INITIATIVES TO
   IMPROVE COLLECTIONS, BUT COULD
   DO MORE
---------------------------------------------------------- Chapter 0:3

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

      THE BUSINESS MODEL CONCEPT
      HAS NOT BEEN FULLY
      IMPLEMENTED
-------------------------------------------------------- Chapter 0:3.1

In its 1998 report, Coopers and Lybrand pointed out that only 25
percent of the 24 VA sites it visited incorporated the various
functions of the medical care collections program under a centralized
management structure--what it calls the business model. According
to Coopers and Lybrand, this type of organization is characteristic
of successful private-sector hospital operations.  As of June 30,
1999, about half of VA's facilities had implemented this concept.  In
our site visits, VA officials supported moving to this concept
because it enables them to better control the quality of their
medical documentation.  For example, NJHCS is considering
reorganizing under such a structure so that all coders and billers
would come under the system's Medical Administration Service instead
of being in several different sections. 

      BETTER IDENTIFICATION AND
      ACCURACY OF VETERANS'
      INSURANCE ARE NEEDED
-------------------------------------------------------- Chapter 0:3.2

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

Because veterans have little incentive to provide insurance
information, VA is trying to educate both veterans and staff about
the importance of obtaining such information.\5 Specifically, VA has
brochures explaining the need for this information.  In addition,
some VA facilities have emphasized the need for facility staff to
obtain insurance information when veterans enroll in the VA health
care system.  NJHCS officials stressed that their goal is to ensure
that all required information--including employment and insurance
information--is obtained when a veteran first comes in contact with
NJHCS.  This contact may occur during one of NJHCS' enrollment
outreach events or when the veteran first visits one of its medical
facilities.  NJHCS' medical care collections coordinator told us that
his office focuses a lot of attention on obtaining accurate insurance
information and trying to obtain this information during enrollment
rather than during preregistration.  NJHCS staff told us that in
instances in which a veteran or spouse is employed but does not
report having insurance, staff contact the employer to verify whether
the veteran has insurance.  Also, VISN 3 has contracted with a
company that has an insurance information database and has identified
additional insured veterans for NJHCS.  This has led to additional
billings of and collections from insurers.  The Houston VA Medical
Center has recently contracted with the same company to provide
similar services, but results are not yet available. 

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

--------------------
\5 VA is currently working against the perceptions of average
veterans that they are entitled to free health care and therefore
do not need to provide private insurance information.  In January
1998, Coopers and Lybrand reported that many veterans are unaware of
or unable or unwilling to provide insurance information. 

      DOCUMENTATION AND BILLING OF
      VA MEDICAL CARE NEEDS
      IMPROVEMENT
-------------------------------------------------------- Chapter 0:3.3

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

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

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

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

--------------------
\6 VA required that reasonable charge rates be used to bill insurers
for care provided on or after September 1, 1999. 

      MORE AGGRESSIVE ACTION IS
      NEEDED TO FOLLOW UP ON DEBT
      COLLECTION
-------------------------------------------------------- Chapter 0:3.4

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

RELATED GAO PRODUCTS
=========================================================== Appendix 1

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

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

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

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

*** End of document. ***