This is the accessible text file for GAO report number GAO-08-714 
entitled 'VA HEALTH CARE: Ineffective Controls over Medical Center 
Billings and Collections Limit Revenue from Third-Party Insurance 
Companies' which was released on July 11, 2008. 

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GAO Highlights: 

Highlights of GAO-08-675, a report to congressional requesters. 

Why GAO Did This Study: 

GAO previously reported that continuing problems in billing and 
collection processes at the Department of Veterans Affairs (VA) 
impaired VAs ability to maximize revenue from private (third-party) 
insurance companies. VA has undertaken several initiatives to address 
these weaknesses. GAO was asked to perform a follow-up audit to (1) 
evaluate VA billing controls, (2) assess VA-wide controls for 
collections, (3) determine the effectiveness of VA-wide oversight, and 
(4) provide information on the status of key VA improvement 
initiatives. GAO performed case study analyses of the third-party 
billing function, statistically tested controls over collections, and 
reviewed current oversight policies and procedures. GAO also reviewed 
and summarized VA information on the status of key management 
initiatives to enhance third-party revenue. 


What GAO Found: 

GAOs case study analysis of unbilled patient encounters at 18 medical 
centers, including 10 medical centers with low billing performance and 
8 medical centers under VAs Consolidated Patient Account Centers 
(CPAC) initiative considered to be high performers, found 
documentation, coding, and billing errors and inadequate management 
oversight for approximately $1.7 billion deemed unbillable in fiscal 
year 2007. Although some medical services are unbillable, such as 
service-connected treatment, management has not validated reasons for 
related unbilled amounts of about $1.4 billion to assure that all 
billable costs are charged to third-party insurers. Because insurers 
will not accept improperly coded bills and they generally will not pay 
bills received more than 1 year after the date that medical services 
were provided, it is important that coding for medical services is 
accurate and timely. The 10 case study medical centers reported average 
days to bill ranging from 109 days to 146 days in fiscal year 2007 and 
significant coding and billing errors and other problems that accounted 
for over $254 million, or 21 percent, of the $1.2 billion in unbilled 
medical services costs. Although GAO determined that CPAC officials 
performed a more thorough review of billings, GAOs analysis of 
unbilled amounts for the 8 CPAC centers found problems that accounted 
for $37.5 million, or about 7 percent, of the $508.7 million in 
unbilled medical services costs. 

In addition, GAOs VA-wide statistical tests of collections follow-up 
on unpaid third-party bills of $250 or more identified significant 
control failures related to timely follow-up and documentation of 
contacts with third-party insurers on outstanding receivables. VA 
guidance requires medical center accounts receivable staff to make up 
to three follow-up contacts, as necessary, on outstanding third-party 
receivables. As shown in the table, GAOs tests identified high failure 
rates VA-wide as well as for CPAC and non-CPAC medical centers related 
to the requirement for timely follow up with third-party insurers on 
unpaid amounts. GAOs tests also found high failure rates associated 
with the lack of documentation of follow-up contacts. 

Table: Estimated Control Failures on Timely Follow-up on Unpaid Bills 
of $250 or More: 

Required follow up: Initial; 
VA-wide centers: 69%; 
CPAC centers: 36%; 
Non-CPAC centers: 71%. 

Required follow up: Second; 
VA-wide centers: 44%; 
CPAC centers: 23%; 
Non-CPAC centers: 45%. 

Required follow up: Third; 
VA-wide centers: 20%; 
CPAC centers: 22%; 
Non-CPAC centers: 17%. 

Source: GAO tests of a VA-wide random probability sample. 

[End of table] 

VA lacks policies and procedures and a full range of standardized 
reports for effective management oversight of VA-wide third-party 
billing and collection operations. Further, although VA management has 
undertaken several initiatives to enhance third-party revenue, many of 
these initiatives are open-ended or will not be implemented for several 
years. Until these shortcomings are addressed, VA will continue to fall 
short of its goal to maximize third-party revenue, thereby placing a 
higher burden on taxpayers. 

What GAO Recommends: 

GAO makes seven recommendations to improve VAs third-party billing and 
collection processes, including actions to improve (1) third-party 
billings, (2) follow up on unpaid amounts, and (3) management oversight 
of billing and collections. VA concurred with all seven recommendations 
and noted steps it is taking to address them. VA also expressed 
concerns with how GAO characterized its revenue enhancement and 
management oversight. GAO continues to believe its report overall 
fairly characterizes VAs actions to date. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-675]. For more 
information, contact Kay Daly, Acting Director, at (202) 512-9095 or 
dalykl@gao.gov. 

[End of section] 

Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

June 2008: 

Va Health Care: 

Ineffective Controls over Medical Center Billings and Collections Limit 
Revenue from Third-Party Insurance Companies: 

VA Health Care: 

GAO-08-675: 

Contents: 

Letter: 

Results in Brief: 

Background: 

Case Study Medical Centers Had Billing Errors and Inadequate Oversight 
and Accountability: 

Medical Centers Have Not Followed VA Policy for Timely Follow-up and 
Documentation on Unpaid Third-Party Receivables: 

VA Lacks Policies and Procedures for Assuring Adequate Oversight of 
Third-Party Billings and Collections: 

VHA Has Undertaken Several Initiatives to Increase Third-Party Revenue: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Veterans Affairs: 

Appendix III: Actual Test Results for Timely First Follow-up on Unpaid 
Bills with Third-Party Insurers: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Estimated Failure Rates for Controls on Timely Follow-up on 
Unpaid Third-Party Insurer Receivables Totaling $250 or More: 

Table 2: Estimated Failure Rates for Documenting Details of Follow-up 
Contacts on Unpaid Third-Party for Bills of $250 or More: 

Table 3: Estimated Failure Rates for Controls over Decreases in Billed 
Amounts of $250 or More with No Explanation or an Ambiguous 
Explanation: 

Table 4: Medical Centers Covered in Examination of Third-Party Billing 
Processes: 

Table 5: Estimated Failure Rates for Controls on Timely Follow-up on 
Unpaid Third-Party Insurer Receivables Totaling $250 or More: 

Table 6: Estimated Failure Rates for Documenting Details of Follow-up 
Contacts on Unpaid Third-Party Bills of $250 or More: 

Table 7: Failure Rates for Controls over Decrease Adjustments with No 
Explanation or an Ambiguous Explanation: 

Table 8: Actual Control Test Results Related to the Requirement for 
Initial Collections Follow-up: 

Figures: 

Figure 1: Overview of VA's Third-Party Billing Process: 

Figure 2: VA Third-Party Billing and Collection Process: 

Figure 3: Fiscal Year 2007 Unbilled Amounts by Reason for Ten Medical 
Centers with the Largest Elapsed Days to Bill: 

Figure 4: Fiscal Year 2007 Unbilled Amounts by Reason for Eight Medical 
Centers under CPAC: 

Figure 5: Analysis of VA's Third-Party Accounts Receivable as of 
September 25, 2007: 

Abbreviations: 

AR: accounts receivable: 

BPA: blanket purchase agreement: 

CBOVHA Chief Business Office: 

CDE: Clinical Data Entry: 

CIDC: Clinical Indicators Data Capture: 

CPAC: Consolidated Patient Account Center: 

CPRS: Computerized Patient Record System: 

CPRS-R: Computerized Patient Record System- Reengineering: 

DOJ: Department of Justice: 

IT: information technology: 

NPRO: National Payer Relations Office: 

PFSS: Patient Financial Services System: 

POWER: Performance and Operations Web-Enabled Reports: 

RAP: Revenue Action Plan: 

RCET: Revenue Cycle Enhancement Team: 

RIDP: Revenue Improvement Demonstration Project: 

RISE: Revenue Improvements and Systems Enhancement: 

ROPE: Revenue Optimization Plan Enhancement: 

USC: United States Code: 

VA: Department of Veterans Affairs: 

VHA: Veterans Health Administration: 

VISN: Veterans Integrated Service Network: 

VistA: Veterans Health Information Systems and Technology Architecture: 

United States Government Accountability Office: 

Washington, DC 20548: 

June 10, 2008: 

The Honorable Bob Filner: 
Chairman: 
The Honorable Steve Buyer: 
Ranking Member: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Harry E. Mitchell: 
Chairman: 
The Honorable Ginny Brown- Waite: 
Ranking Member: 
Subcommittee on Oversight and Investigations: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Department of Veterans Affairs (VA) provides health care to 
eligible veterans through a system of Veterans Health Administration 
(VHA) medical facilities that comprise one of the largest health care 
systems in the world. Over the past several years, we have reported 
that continuing weaknesses in VA billing processes and controls have 
impaired VA's ability to maximize the amount of dollars received by 
private insurance companies, commonly referred to as third-party 
insurers. VA third-party billing and collection operations are carried 
out through a nationwide network of 153 medical centers, 877 outpatient 
clinics, and 135 nursing homes, residential rehabilitation treatment 
programs, and readjustment counseling centers. During fiscal year 2007, 
about 5.6 million people received treatment in VA health care 
facilities for service-related as well as nonservice-related conditions 
and VA collections for health care services totaled nearly $2.2 
billion. 

In September 2001, we testified that problems in VA's collection 
operations, including inadequate patient intake procedures for 
gathering insurance information, insufficient physician documentation 
of specific medical care provided, a shortage of qualified coders, and 
a lack of automated information, diminished VA's collections.[Footnote 
1] In May 2003, we testified that VA had made improvements in these 
areas but operational problems, such as unpaid accounts receivable, 
missed billing opportunities, and billing backlogs, continued to limit 
the amount VA collects.[Footnote 2] In July 2004, we reported that VA 
had increased collections of third-party insurer payments by 49 percent 
from $540 million in fiscal year 2001 to $804 million in fiscal year 
2003.[Footnote 3] However, we also found continuing weaknesses in the 
billing and collection processes at the three medical centers we 
visited that impaired VA's ability to maximize the amount of dollars 
paid by third-party insurance companies. 

Over the past several years, Congress has provided funding for VHA 
medical information management system improvements. In fiscal year 
2006, Congress directed VA to allocate $10 million from its Medical 
Administration lump-sum appropriation of about $2.86 billion to 
initiate a pilot program for comprehensive restructuring of the medical 
revenue cycle, including cash management and accounts receivable 
related to third-party billing and collection functions.[Footnote 4] 
One of VA's initiatives to improve billing and collection functions was 
the establishment of a Consolidated Patient Account Center (CPAC) pilot 
program covering eight medical centers in Veterans Integrated Service 
Network (VISN) 6.[Footnote 5] 

This report responds to your request that we perform a follow-up audit 
of controls over VA's third-party billing and collection processes, 
including (1) an evaluation of the effectiveness of VA medical center 
billing processes at selected locations, (2) an assessment of VA 
controls for performing timely follow-up on outstanding third-party 
receivables, and (3) a determination of the adequacy of VA oversight of 
billing and collection processes. You also asked us to summarize the 
status of management initiatives currently underway at VA to improve 
third-party billing and collection processes. 

To achieve our first objective, we used a case study approach to assess 
billing controls because VA does not have centralized data on third- 
party billings. For our case studies, we selected the 10 medical 
centers with the highest numbers of days to bill (lowest billing 
performance) and the 8 medical centers under the CPAC management 
initiative for regionalized billing and collection activity that were 
expected to be high performers. To achieve the second objective, we 
tested controls for timely collection follow-up and documentation of 
contacts on third-party bills using a VA-wide statistical sample, and 
stratified subsets of our VA-wide sample for CPAC medical centers and 
medical centers that were not under the CPAC initiative. Because you 
were interested in learning whether medical centers under CPAC had more 
effective controls over third-party billings and collections, we 
separately analyzed CPAC billing controls and separately tested third- 
party collection controls for CPAC medical centers. To address our 
third objective on VA management oversight capability, we reviewed 
management reports generated by key VA systems and interviewed medical 
center and VHA officials about their oversight procedures. We also 
obtained information on the status and targeted implementation dates of 
key management improvement initiatives, including two initiatives that 
were recently completed and six initiatives that were under way at the 
end of our field work. 

In conducting our work, we interviewed management officials and 
reviewed applicable laws, regulations, and VA policies and procedures. 
We performed appropriate procedures to assure the reliability of data 
used in our work including data analysis, interviews of key officials, 
and review of VA procedures for assuring the reliability of data 
generated by key automated systems. We conducted our work from January 
2007 through May 2008 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. A 
detailed discussion of our objectives, scope, and methodology is 
included in appendix I. 

Results in Brief: 

Although VA has made some progress in improving third-party billings 
and collections since our 2004 report, our audit of VA fiscal year 2007 
controls over third-party billings and collections found significant 
internal control weaknesses and inadequate management oversight that 
limited VA's ability to maximize third-party revenue. Our case study 
analysis of unbilled patient encounters at 18 case study medical 
centers found excessive average days to bill, coding and billing 
errors, and a lack of management oversight which raise questions about 
$1.7 billion in unbilled amounts at the 18 locations. Although there 
are valid reasons why some medical services are not billable, including 
$1.4 billion related to service-connected treatment, Medicare coverage, 
and the lack of private health insurance coverage,[Footnote 6] medical 
center management did not always validate the reasons for these 
unbilled amounts. Further, because insurers will not accept improperly 
coded amounts and in many cases have national or regional contracts 
with VA that bar insurer liability for payment of bills received after 
a specified period of time, usually 1 year, but sometimes as little as 
6 months, after the date that medical services were provided, it is 
important that coding for medical services is accurate and timely. The 
10 medical centers we identified as having low billing performance 
reported average days to bill ranging from 109 days to 146 days in 
fiscal year 2007, compared to VA's goal of 60 days. We also found these 
centers had significant documentation, coding, and billing errors and 
performed little or no management oversight of the billing function. 
The use of inaccurate clinical service codes, late filing of claims, 
omissions in documentation, and other undefined reasons accounted for 
over $254 million, or 21 percent, of the $1.2 billion in total unbilled 
medical services costs at the 10 medical centers. The largest group of 
billing errors included $25 million for which the billing time frame 
had expired. Our case study analysis of the eight medical centers under 
the CPAC initiative found that CPAC officials performed a more thorough 
review of the billing function. Our analysis of fiscal year 2007 
unbilled amounts for the eight CPAC centers showed that CPAC centers' 
average days to bill ranged from 39 days to 68 days, compared to VA's 
2007 goal of 60 days. CPAC centers' coding and billing errors, 
documentation errors, and other undefined reasons accounted for $37.5 
million, or about 7 percent, of medical services costs that were not 
billed to third-party insurance companies. 

In addition, our VA-wide statistical tests of collection follow-up on 
unpaid third-party bills of $250 or more identified significant 
problems related to timely follow-up and documentation of contacts with 
third-party insurance companies on actions to collect outstanding 
receivables. VA policy[Footnote 7] requires medical center accounts 
receivable staff to make up to three follow-up contacts, as necessary, 
on outstanding third-party receivables. Our statistical tests[Footnote 
8] of a stratified random sample of 260 fiscal year 2007 third-party 
bills identified a 69 percent failure rate VA-wide related to the 
requirement that accounts receivable staff perform the first follow-up 
on unpaid amounts within 45 days after the initial bill is generated. 
VA-wide failure rates for bills meeting the requirements for the second 
and third follow-ups were 44 percent and 20 percent, respectively. CPAC 
centers had a 36 percent failure rate for the required first follow-up, 
and a 23 percent and 22 percent failure rate for bills meeting the 
requirements for second and third follow-ups, respectively. The failure 
to make timely follow-up contacts and delays in initiating contacts 
with third-party insurance companies on unpaid amounts increase the 
risk that payments will not be collected, or that payments will be 
substantially delayed. Of the population of fiscal year 2007 billings 
valued at $547.8 million that were used for our stratified random 
sample, VA collected $260.1 million, or about 47 percent. Our analysis 
of accounts receivable aging data showed that $37.5 million of the 
total $600 million in receivables as of the end of fiscal year 2007 was 
over 1 year old. Further, VA policy[Footnote 9] requires that accounts 
receivable staff include a comment for any adjustments[Footnote 10] to 
decrease outstanding third-party bills. The policy requires that the 
explanation be clear and unambiguous and state the particular reason 
for the adjustment. Our tests of whether accounts receivable personnel 
adequately documented reasons for adjustments to decrease a bill found 
a failure rate of 38 percent VA-wide. Without clear documentation of 
the reasons for billing adjustments, VA management lacks the ability to 
monitor the validity of the adjustments. Further, documentation quality 
concerns undermine the reliability of trend information that is 
critical for effective management of third-party receivables. 

Our review of VA and VHA policies and procedures, process walk- 
throughs, and interviews with VHA Chief Business Office (CBO)[Footnote 
11] officials and management officials at our case study medical 
centers determined that there were no formal VA policies and procedures 
for oversight of the third-party billing and collection processes. In 
addition, we found that VHA and medical centers have few standardized 
management reports to facilitate oversight. Because VA's health care 
billing and collection systems operate as stand-alone systems at each 
medical center, VA-wide reporting is dependent on numerous individual 
queries and data calls. These conditions contributed to inadequate 
monitoring and oversight of the third-party billing and collection 
processes. This raises concerns about adequacy of oversight over the 
$1.7 billion in unbilled amounts at the 18 case study medical centers, 
including the hundreds of millions of dollars in unbilled amounts 
related to coding, billing, and documentation errors, and other 
reasons. The lack of formal VA policies for management oversight of 
third-party billings and collections also raises VA-wide concerns. 
Enhanced oversight would permit VA and medical center management to 
monitor trends and performance metrics, such as increases or decreases 
in unbillable amounts, and take appropriate management actions to help 
ensure that revenue from third-party insurers is maximized. 

Since our July 2004 report, VA management has undertaken several 
initiatives to strengthen processes and controls over third-party 
billings and collections. For example, VA recently completed 
initiatives for (1) recruitment and retention of coders and health 
information managers and (2) updating VHA policy guidance related to 
third-party revenue. In addition, VA has six key strategic initiatives 
under way to enhance revenue from third-party insurers, including CPAC, 
a private-sector approach to revenue management that included 
consolidation of billing, collections, and payer analysis for eight 
medical centers in VISN 6. VA also initiated development of systems 
enhancements to improve medical procedure coding by capturing clinical 
data as a byproduct of the medical service encounter rather than 
capturing this information in a separate step. Further, VA has an 
effort under way to define current and end-to-end business processes in 
the revenue cycle as a basis for improving related systems and 
processes. VA also is attempting to negotiate national contracts with 
major insurance companies to standardize billing information to 
facilitate collections. For example, VA established national blanket 
purchase agreements (BPA) for both coding and insurance identification 
and verification products and services. According to VA officials, the 
Revenue Contracts Program is currently working to establish BPAs for 
third-party billing and accounts receivable follow-up. Many of these 
initiatives are not yet fully implemented and others are open-ended 
without targeted implementation dates to help ensure that actions are 
completed and intended goals are met. Effective management oversight 
and implementation will be key to the success of these initiatives. 

This report contains seven recommendations to VA aimed at strengthening 
key internal control activities over third-party billings and 
collections and improving management oversight. In comments on a draft 
of this report, VA concurred with all seven of our recommendations and 
provided information on steps it is taking to address them. VA also 
expressed concerns with how we characterized key findings related to 
revenue enhancement and emphasized significant progress it has made on 
third-party collections since 2004 as well as progress from management 
improvement initiatives. We believe our overall characterization of the 
potential for lost revenue as a result of our findings is accurate. 
However, we added clarifying language to indicate that $1.4 billion of 
the $1.7 billion in unbilled medical services at the 18 case study 
medical centers was classified as service-connected, Medicare coverage, 
or lack of private health insurance coverage. As discussed in our 
report, VA management has not validated whether the cited reasons for 
these unbilled amounts are properly supported to assure that all 
billable costs are charged to third-party insurers. In addition, VA 
stated that it has established significant levels of management 
oversight. Our report recognizes that VA has agency reporting 
requirements and data on days to bill, accounts receivable, and 
collections. However, we found that VA has not established policies and 
procedures for management oversight actions related to unbilled amounts 
and compliance with follow-up requirements for outstanding third-party 
receivables. We clarified issues raised by VA in its letter and 
addressed VA technical comments, as appropriate. VA's comments and our 
analysis are discussed in the Agency Comments and Our Evaluation 
section of this report. VA's comments are reprinted in appendix II. 

Background: 

VA's mission is to serve America's veterans and their families and to 
be their principal advocate in ensuring that they receive medical care, 
benefits, and social support in recognition of their service to our 
nation. VA, headquartered in Washington, D.C., is the second largest 
federal department and operates the largest health care system in the 
United States. VA reported that as of September 30, 2007, it employed 
approximately 230,000 staff nationwide, including physicians, nurses, 
counselors, statisticians, computer specialists, architects, and 
attorneys. VA carries out its mission through three major line 
organizations -Veterans Health Administration (VHA), Veterans Benefits 
Administration, and National Cemetery Administration-and field 
facilities throughout the United States. During fiscal year 2007, VA 
provided health care services and benefits through a nationwide network 
of 153 medical centers, 877 outpatient clinics, and 135 nursing homes. 

Third-Party Collections Authorized for Medical Care Related to 
Nonservice-related Conditions: 

The Veterans' Health Care Eligibility Reform Act of 1996[Footnote 12] 
authorized VA to provide certain medical services not previously 
available to veterans with nonservice-related conditions. While VA in 
1996 had authority to recover some of the cost of providing these 
additional benefits through billing and collecting payments from 
veterans' private health insurers (third-party collections), it was not 
authorized to keep these collections.[Footnote 13] The Veterans 
Reconciliation Act of 1997, which was enacted as part of the Balanced 
Budget Act of 1997,[Footnote 14] changed this by authorizing VA to 
collect and deposit third-party health insurance payments in its 
Medical Care Collections Fund, which VA could then use to supplement 
its medical care appropriations. As part of VA's 1997 strategic plan, 
VA predicted that collections of payments from third-party insurance 
companies, along with veteran copayments for medications, would cover 
the majority of costs of care for veterans with nonservice-related 
conditions. During fiscal year 2007, almost 5.6 million people received 
care in VA health care facilities, and VA collections for health care 
services totaled nearly $2.2 billion.[Footnote 15] 

As illustrated in figure 1, VA does not bill for health care services 
provided to veterans who have Medicare coverage only or veterans who 
have no private health insurance.[Footnote 16] For veterans who are 
covered by both Medicare and private health insurance, VA prepares 
claims according to Medicare guidelines and sends the bill to a 
Medicare fiscal intermediary (contractor) who calculates the Medicare/ 
patient responsibility and sends the bill to the private insurer for 
adjudication and payment. If the veteran is not eligible for health 
benefits under Medicare, but has private health insurance coverage, VA 
bills the third-party insurance company. In some situations, VA may not 
recognize that a veteran is eligible for Medicare benefits and sends 
the bill directly to the third-party insurance company. In these 
situations, the third-party insurer would determine that the veteran is 
eligible for Medicare coverage and would reject the bill and send it 
back to VA. VA updates the patient's file and then sends the bill to 
the Medicare contractor. 

Figure 1: Overview of VA's Third-Party Billing Process: 

This figure is a flowchart of an overview of VA's third-part billing 
process. 

[See PDF for image] 

Source: GAO analysis of VA policies, procedures, processes, and related 
law. 

[End of figure] 

VA Third-Party Revenue Cycle: 

Similar to most health care providers, VA uses a fee schedule 
consisting of "reasonable charges" for medical services based on 
diagnoses and procedures.[Footnote 17] The fee schedule allows VA to 
more accurately bill for care provided. Documenting and coding the care 
provided and processing bills for each episode of care are critical to 
preparing accurate bills for submission to third-party insurers. As 
illustrated in figure 2, VA uses a process consisting of four key 
functions to collect from third-party insurance companies. The four 
functions cover the following actions. 

* Patient intake, which involves gathering insurance information and 
verifying that information with the insurance company as well as 
collecting demographic data on the veteran. 

* Utilization review, which involves precertification of care in 
compliance with the veteran's insurance policy, including continued 
stay reviews to determine medical necessity. 

* Billing functions include properly documenting the health care 
services provided to patients by physicians and other health care 
providers. Based on 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. 

* Accounts receivable and collections, which involves processing 
payments from insurance companies and following up on outstanding or 
denied bills. In accordance with VA Handbook 4800.14, Medical Care 
Debts, VA accounts receivable staff at each medical center or other 
health care facility are required to follow up on unpaid reimbursable 
insurance cases.[Footnote 18] For bills of $250 or more, the first 
telephone or online follow-up is to be made within 45 days after the 
initial bill was generated. If necessary, a second follow-up should be 
initiated within 21 days of the first follow-up. If a third follow-up 
is necessary, it should be initiated within 14 days of the second 
follow-up. When a telephone or online follow-up is made, a comment 
briefly summarizing the contact with an appropriate follow-up date 
should be entered in the third-party joint inquiry menu in VHA's 
Veterans Health Information Systems and Technology Architecture (VistA) 
system.[Footnote 19] 

If no payment is received within 7 days of the third follow-up, 
accounts receivable personnel are to refer the bill to the VA medical 
center senior management official responsible for collection of the 
bill, generally the facility revenue manager. This official will 
determine the next appropriate action, including, after exhausting all 
required recovery efforts, possible referral to the VA regional counsel 
of jurisdiction for review and advice as to how to handle collection 
procedures. The regional counsel may forward problem cases to VA's 
General Counsel to review for possible litigation. Under guidance 
issued to VA by the Department of Justice (DOJ), VA may refer cases to 
DOJ for possible litigation. 

Figure 2: VA Third-Party Billing and Collection Process: 

This figure is a flowchart of VA third-party billing and collection 
processes. 

[See PDF for image] 

Source: GAO walkthroughs of medical center billing and collection 
processes and review of related policies and procedures. 

[End of figure] 

VA Actions on Previously Reported Weaknesses in Third-Party Billings 
and Collections: 

Our July 2004[Footnote 20] report documented continuing weaknesses in 
billing processes at the three medical centers tested that impaired 
VA's ability to maximize the amount of dollars paid by third-party 
insurance companies. For example, the medical centers did not always 
bill insurance companies in a timely manner and they did not always 
perform follow-up on unpaid receivables in accordance with VA policy. 
We identified insufficient resources and a lack of performance 
standards as major causes of these problems. Our 2004 report included 
several recommendations directed at improving billing and collection 
functions. 

To improve the third-party billing function, we recommended that VA (1) 
perform a workload analysis of the medical center's coding and billing 
staff and (2) based on the workload analysis, consider making necessary 
resource adjustments. To address these recommendations, VA formed a 
work group and performed in-depth surveys at 148 medical facilities to 
determine whether the medical facilities had established and 
implemented productivity and accuracy standards that were recommended 
by VHA in 2002. The work group reported that the majority of the 148 
facilities surveyed had implemented coding productivity standards and 
these standards were fairly consistent. In addition, the work group 
made several recommendations directed at maximizing coding productivity 
and assuring data quality. For example, the work group recommended that 
only qualified, competent coders be used and that noncoding duties 
related to assembly, analysis, preparation of coding records, and 
release of information be assigned to other staff. The work group also 
recommended that all coding must be completed through the national 
encoder software. In November 2007, VA issued Handbook, 1907.03, Health 
Information Management, Clinical Coding Program Procedures, which 
established a minimum bill coding accuracy standard of 95 percent and 
minimum standards (time frames) for coding productivity.[Footnote 21] 

Our 2004 report also made three recommendations directed at improving 
the third-party collection function. Specifically, we recommended that 
VA (1) reinforce to accounts receivable staff that they should perform 
the first follow-up on unpaid claims within 30 days of the billing 
date, as required by VA Handbook 4800.14, Medical Care Debts, and 
establish procedures for monitoring compliance; (2) reinforce the 
requirement for accounts receivable staff to enter insurance company 
contact information and follow-up dates to better document follow-up 
actions; and (3) augment VA Handbook 4800.14 by specifying a date or 
providing instructions for determining an appropriate date for 
conducting second follow-up calls to insurance companies on unpaid 
amounts. To address these recommendations, VA modified and reissued VA 
Handbook 4800.14 to explain requirements for performing and documenting 
the first, second, and third follow-ups with third-party insurers. For 
example, for third-party accounts receivable greater than $250, the 
reissued Handbook now requires the first follow-up to be made within 45 
days[Footnote 22] after the initial bill is generated. The second 
follow-up is to be made within 21 days after the first follow-up and 
the third follow-up is to be made within 14 days of the second follow- 
up. VA also provided training to staff on the policies included in VA 
Handbook 4800.14, which included the need for timely follow-up on 
outstanding third-party receivables as well as follow-up documentation 
requirements. 

Case Study Medical Centers Had Billing Errors and Inadequate Oversight 
and Accountability: 

Our case study analysis of unbilled patient encounters at 18 medical 
centers, including 10 medical centers with low billing performance 
(based on reported days to bill) and 8 centers under VA's CPAC 
initiative that were expected to have high billing performance, found 
billing delays; coding, billing, and documentation errors; and a lack 
of adequate management oversight and accountability over approximately 
$1.7 billion deemed to be unbillable in fiscal year 2007 by coding and 
billing staff. Although there are valid reasons why some medical 
services are not billable, including $1.4 billion in service-connected 
treatment, Medicare coverage, and the lack of private health insurance 
coverage,[Footnote 23] medical center management did not validate the 
reasons for the related unbilled amounts. Further, because third-party 
insurers will not accept improperly coded amounts and in many cases 
have national and regional contracts with VA that bar insurer liability 
for payment of bills received after more than a specified period of 
time, usually 1 year, after the date that medical services were 
provided, it is important that coding for medical services is accurate 
and timely. Our analysis of VA billing data showed that VA has improved 
its average overall days to bill third-party insurance companies from 
93 days in fiscal year 2003 to 64 days in fiscal year 2007. However, 
most of the 18 case study medical centers we audited exceeded VA's 
fiscal year 2007 goal of 60 average days to bill. In addition, our 
analysis found that coding and billing errors, omissions in 
documentation, and other undefined reasons for unbilled amounts 
accounted for hundreds of millions of dollars that were not billed to 
third-party insurance companies. Moreover, case study medical centers 
did not effectively use available management reports to monitor trends 
and performance metrics, such as increases or decreases in unbilled 
amounts. 

Ten Medical Centers Had Billing Delays and Errors and Little or No 
Oversight of Their Billing Functions: 

The 10 medical centers with low billing performance included in our 
case study analysis reported average days to bill ranging from 109 days 
to 146 days in fiscal year 2007, compared to VA's goal of 60 days. The 
10 centers also had a total of $1.2 billion in unbilled medical 
services costs. To analyze case study medical center billing data by 
unbilled reason codes, we obtained medical center Reasons Not Billable 
reports and grouped unbillable reasons by major categories. Medical 
center Reasons Not Billable reports included over 100 reason codes and 
inconsistent reporting of other, undefined reasons. We discussed our 
groupings by category with VHA managers and obtained their agreement on 
our assignment of unbillable reasons by category. As illustrated in 
figure 3, our analysis of reasons not billable data for the 10 case 
study medical centers identified significant unbilled amounts for 
fiscal year 2007. 

Figure 3: Fiscal Year 2007 Unbilled Amounts by Reason for Ten Medical 
Centers with the Largest Elapsed Days to Bill: 

This figure is a flowchart showing fiscal year 2007 unbilled amounts by 
reason for ten medical centers with the largest elapsed days to bill. 

Nonservice-related not billable: 69%: $835.3 million; 
Service-connected: 10%: $115.8 million; 
Coding and billing errors: 4%: $48.3 million; 
Documentation errors: 1%: $10.4 million; 
Other: 16%: $195.4 million. 

[See PDF for image] 

Source: GAO analysis of 10 case study medical centers' Reasons Not 
Billable data. 

[End of figure] 

There are valid reasons why VA does not bill for all medical services 
it provides. For example, VA's legal authority to seek reimbursement 
from third-party insurers for the cost of medical services does not 
extend to services provided to veterans who have medical conditions 
that are (1) service-connected, (2) covered only by Medicare, or (3) 
not covered under a private or other applicable health insurance 
plan.[Footnote 24] Of the total $1.2 billion in unbilled medical 
services costs at the 10 medical centers, service-connected 
(nonbillable) medical care accounted for nearly $116 million, or 10 
percent, and nonservice- related not billable amounts totaled $835.3 
million, or 69 percent, including $170 million recorded as medical 
procedures performed for uninsured veterans and $433 million recorded 
as attributable to medical services that were not covered by veterans' 
private health insurance. Managers at the 10 case study medical centers 
did not perform adequate reviews of the encounters assigned to these 
categories to ensure that billing clerks appropriately classified them. 
Coding and billing errors ($48.3 million), documentation errors ($10.4 
million), and undefined other reasons ($195.4 million) accounted over 
$254 million, or 21 percent, of the $1.2 billion in total unbilled 
medical services costs at the 10 medical centers. Coding and billing 
errors include incorrect clinical service codes and late filing of 
claims. The largest group of billing errors included $25 million for 
which the billing time frame had expired. According to a VA official, 
VA has entered into national and regional contracts with many third- 
party insurance companies that bar insurer liability for payment of 
bills received after a specified period of time, usually 1 year, but 
sometimes as little as 6 months, after medical services were 
provided.[Footnote 25] In addition, documentation errors accounted for 
more than $10 million in unbilled amounts at the 10 medical centers. 
Documentation errors include the failure of certification personnel to 
provide documentation of physician and other health care provider 
certifications; health care provider errors, such as physicians failing 
to submit documentation of their services for coding; and veterans 
refusing to sign Authorization for Release of Protected Health 
Information forms.[Footnote 26] Insurance companies will not pay for 
services unless they receive documentation that the physicians and 
health care providers are certified. The largest groups of 
documentation errors related to veterans not signing Release of 
Information forms due to privacy concerns ($2.0 million) and 
insufficient or missing medical services documentation ($6.4 million). 

Eight Medical Centers under CPAC Had Better Billing Performance and 
Performed More Oversight of Unbilled Amounts: 

The CPAC centers' fiscal year 2007 average days to bill ranged from 39 
days to 68 days, compared to VA's goal of 60 days. In fiscal year 2007, 
the eight CPAC centers accounted for over $508.7 million in unbilled 
amounts. As illustrated in figure 4, service-connected reasons 
accounted for about $65 million, or 13 percent, and nonservice-related, 
unbillable reason codes accounted for the largest portion--about $406.2 
million, or 80 percent, of the total $508.7 million unbilled third- 
party amounts for the 8 medical centers under CPAC. Coding and billing 
errors, documentation errors, and other reasons accounted for $37.5 
million, or about 7 percent, of medical services costs that were not 
billed to third-party insurance companies. CPAC officials told us they 
perform some analysis of unbillable amounts. For example, CPAC 
officials stated that they review unbillable codes they consider to be 
at high risk of error. If a particular unbillable code increased from 
month-to-month, they investigated the cause of the increase and took 
appropriate action to mitigate the problem. A detailed discussion of 
CPAC management oversight is presented later in this report. 

Figure 4: Fiscal Year 2007 Unbilled Amounts by Reason for Eight Medical 
Centers under CPAC: 

This figure is a pie chart showing fiscal year 2007 unbilled amounts by 
reason for eight medical centers under CPAC. 

Nonservice-related not billable: 80%: $406.2 million; 
Service-connected: 13%: $65.0 million; 
Coding and billing errors: 4%: $21.4 million; 
Documentation errors: 1%: $4.2 million; 
Other: 2%: $11.9 million. 

[See PDF for image] 

Source: GAO analysis of 10 case study medical centers' Reasons Not 
Billable data. 

[End of figure] 

Medical Centers Have Not Followed VA Policy for Timely Follow-up and 
Documentation on Unpaid Third-Party Receivables: 

Our analysis of VA's accounts receivable aging data as of September 25, 
2007, showed that VA had approximately $600 million in outstanding 
third-party receivables of which over $148 million, or about 25 
percent, was more than 120 days old. It is important that VA actively 
pursue unpaid amounts by making timely follow-up contacts with third- 
party insurance companies because the older a receivable, the less 
likely it is to be collected. Moreover, uncollected third-party 
receivables place an added burden on taxpayers because additional 
amounts would need to be covered by annual appropriations to support 
the same level of service to veterans. In addition, our statistical 
tests found high internal control failure rates related to medical 
centers' lack of adherence to VHA requirements for timely, properly 
documented follow-up on unpaid bills that had been sent to third-party 
insurance companies. Management officials at several of the medical 
centers tested in our statistical sample attributed their high follow- 
up failure rate to inadequate staffing. However, we found that a lack 
of management oversight at the medical centers as well as at the VHA 
management level contributed to the control weaknesses we identified. 

VA Has Hundreds of Millions of Dollars in Uncollected Receivables from 
Third-Party Insurers: 

Our analysis of VA's accounts receivable aging data as of September 25, 
2007, identified approximately $600 million in outstanding third-party 
receivables. As shown in figure 5, about $295 million of this total was 
less than 45 days old. Of the remaining $305 million, over $148 
million, or 49 percent, was more than 120 days old. We focused our 
analysis on bills of $250 or more--the largest category of third-party 
receivables. For example, uncollected receivables related to bills of 
$250 or more represented over $426 million, or 71 percent, of the 
approximately $600 million in outstanding receivables at the end of 
fiscal year 2007. Although about $227 million of the over $426 million 
in receivables related to bills of $250 or more were less than 45 days 
old and did not yet require initial follow-up, the remaining $199 
million, or 47 percent, was subject to VA follow-up action on unpaid 
amounts, and nearly $84 million had remained uncollected for 120 days 
from the date of the initial bill. Timely follow-up is critical because 
the older a receivable, the less likely it is to be collected. As was 
the case with billings, we found that the case study medical centers 
had limited procedures in place to monitor the collections process. 
Further, the lack of follow-up documentation undermines the reliability 
of trend information needed to effectively manage third-party 
receivables. 

Figure 5: Analysis of VA's Third-Party Accounts Receivable as of 
September 25, 2007: 

This figure is a flowchart of analysis of VA's third-party accounts 
receivable as of September 25, 2007. 

[See PDF for image] 

Source: GAO analysis of VA third-party accounts receivable aging data 
maintained in VistA. 

[End of figure] 

Our analysis of accounts receivable aging data showed that $37.5 
million of the total $600 million in receivables as of the end of 
fiscal year 2007 was over 1 year old, including $17 million related to 
bills of $250 or more. 

VA Medical Centers Failed Control Tests for Timely Follow-up on Unpaid 
Receivables: 

Our statistical tests of VA-wide data on controls for follow-up by 
accounts receivable personnel on unpaid amounts of $250 or more billed 
to third-party insurers found significantly high failure rates. VA 
Handbook 4800.14, Medical Care Debts, requires follow-up on unpaid 
accounts receivable, as necessary, to collect unpaid third-party 
receivables.[Footnote 27] The first follow-up for debts of $250 or more 
is required within 45 days after the initial bill was generated. If 
necessary, the second follow-up is to be made within 21 days of the 
initial follow-up and the third follow-up is required within 14 days of 
the second follow-up. The follow-up requirement does not apply once a 
receivable is either collected in full, partially paid and 
contractually adjusted to a zero balance, or contractually adjusted to 
zero with no payment. Our test of timely follow-ups considered a bill 
to be closed and no longer subject to follow-up on the date the bill 
was paid in full or decreased to zero. We randomly selected a sample of 
260 third-party insurer bills from a population of $547.8 million in 
fiscal year 2007 billings for medical services. Of the $547.8 million, 
our analysis showed that VA collected $260.1 million, or about 47 
percent. 

We generally report our statistical results as point estimates that 
fall within confidence intervals. Our 95 percent confidence interval 
means that if you were to determine an estimate for 100 different 
random samples, 95 out of 100 times, the estimate would fall within the 
confidence interval. In other words, the true value is between the 
lower and upper limits of the confidence interval 95 percent of the 
time. Point estimates provide a useful indicator of the effectiveness 
of controls for our VA-wide tests, which included a total of 260 bills. 
However, our tests of CPAC and non-CPAC medical subsets of our sample 
involved fewer bills and the confidence intervals were much wider. When 
this is the case, we generally focus on the lower bound of our 
confidence interval as a more conservative estimate of the 
effectiveness of controls. Our point estimates for each of our tests 
and the upper and lower bounds of our confidence intervals are included 
in appendix I. The following discussion focuses on conservative 
estimates of our test results based on the lower bound of our 95 
percent confidence intervals. 

For example, table 1 shows that conservative estimates, based on the 
lower bound of our confidence intervals, indicate that VA controls for 
timely follow-up were ineffective. For example, the conservative 
approach for our VA-wide tests shows that medical center collections 
staff failed the control for timely initial follow-up after 45 days 
from the bill date at least 69 percent of the time. Similarly, our 
conservative estimate indicates that CPAC medical center personnel 
failed this control test for timely initial follow-up based on 60 bills 
in our sample subset at least 36 percent of the time and non-CPAC 
medical center personnel failed this control test based on 200 bills in 
this subset at least 71 percent of the time. 

Because the universe of unpaid bills subject to requirements for second 
and third follow-ups was smaller, the confidence intervals for these 
tests were greater. However, the same conservative approach for our 
estimates of control failures for the second and third follow-ups 
continues to show significant failure rates. For example, based on our 
tests, we estimate that VA-wide control failures related to required 
second and third follow-ups on unpaid third-party bills were at least 
44 percent (based on a subset of 109 bills) and 20 percent (based on a 
subset of 55 bills), respectively. We estimate that CPAC medical center 
control failures related to required second and third follow-ups on 
unpaid third-party bills were at least 23 percent (based on a subset of 
40 bills) and 22 percent (based on a subset of 21 bills), respectively. 
In addition, we estimate that non-CPAC medical center control failures 
related to required second and third follow-ups on unpaid third-party 
bills were at least 45 percent (based on a subset of 69 bills) and 17 
percent (based on a subset of 34 bills), respectively. 

Table 1: Estimated Failure Rates for Controls on Timely Follow-up on 
Unpaid Third-Party Insurer Receivables Totaling $250 or More: 

Required follow-up: Initial, 45 days; 
VA-wide medical centers: 69%; 
CPAC medical centers: 36%; 
Non-CPAC medical centers: 71%. 

Required follow-up: Second, 21 days after 1st contact; 
VA-wide medical centers: 44%; 
CPAC medical centers: 23%; 
Non-CPAC medical centers: 45%. 

Required follow-up: Third, 14 days after 2nd contact; 
VA-wide medical centers: 20%; 
CPAC medical centers: 22%; 
Non-CPAC medical centers: 17%. 

Source: GAO tests of VA-wide random probability sample of third-party 
accounts receivable data. 

Note: Failure rates are based on the lower bound of our two-sided, 95 
percent confidence interval. 

[End of table] 

Our analysis of our actual test results for the third-party insurer 
bills included in our statistical sample showed that results varied by 
medical center. For example, for several medical centers all, or nearly 
all, of the bills in our statistical sample failed control tests for 
timely first follow-up on unpaid amounts within 45 days. Conversely, 
there were several medical centers in our sample that performed timely 
first follow-up on all of the bills we tested. The actual test results 
for the first follow-up for all of the bills in our statistical sample 
are presented by VISN in appendix III. 

In our interviews of management officials at several of the medical 
centers included in our statistical sample, the officials attributed 
their high follow-up failure rate to inadequate staffing. As noted 
previously, in response to recommendations in our 2004 report, VA 
shifted nonrevenue functions from billing and collections staff to 
other medical center personnel to provide greater focus on the revenue 
function. 

VA Medical Centers Failed Control Tests for Recording Details of Follow-
up Contacts: 

Our statistical tests of VA-wide data on controls for documenting 
details of follow-up contacts on unpaid amounts billed to third-party 
insurers also found significantly high failure rates. VA Handbook 
4800.14, Medical Care Debts, requires medical center accounts 
receivable staff to document a summary of their contacts with third- 
party insurance companies as well as the first and last name of the 
insurance company representative and the representative's title, 
position, and phone number.[Footnote 28] Documentation of contact 
detail is important because it enables VA to quickly identify billing 
problems and take appropriate action to resolve them. However, for 
several of the bills in our sample, accounts receivable personnel just 
noted "AR follow-up," or they left this data field blank. 

As shown in table 2, our test results based on the lower bound of our 
confidence intervals indicate that controls for proper documentation of 
follow-up contacts on unpaid amounts with third-party insurers were 
ineffective. For example, using this conservative approach for our VA- 
wide tests, we estimate that medical center collections staff failed 
the control test for proper documentation of first follow-up contacts 
at least 72 percent of the time based on a sample of 97 bills. 
Similarly, our conservative estimate indicates that CPAC medical center 
personnel failed this control at least 38 percent of the time (based on 
36 bills in this subset) and non-CPAC medical center personnel failed 
this control test at least 74 percent of the time (based on 61 bills in 
this subset). Table 2 shows that conservative estimates of contact 
documentation failures related to the second and third follow-ups are 
also significantly high, indicating that controls for all of our 
related tests were ineffective. Our tests of the requirement for 
documenting the second follow-up contact were based on 41 bills VA- 
wide, 14 bills for CPAC medical centers, and 27 bills for non-CPAC 
medical centers. Our tests of the documentation requirement for the 
third follow-up were based on 18 bills VA-wide, 8 bills for CPAC 
medical centers, and 10 bills for non-CPAC medical centers. 

Table 2: Estimated Failure Rates for Documenting Details of Follow-up 
Contacts on Unpaid Third-Party for Bills of $250 or More: 

Required comment: Initial, 45 days; 
VA-wide medical centers: 72%; 
CPAC medical centers: 38%; 
Non-CPAC medical centers: 74%. 

Required comment: Second, 21 days after 1st contact; 
VA-wide medical centers: 59%; 
CPAC medical centers: 42%; 
Non-CPAC medical centers: 58%. 

Required comment: Third, 14 days after 2nd contact; 
VA-wide medical centers: 35%; 
CPAC medical centers: 47%; 
Non-CPAC medical centers: 26%. 

Source: GAO tests of VA-wide random probability sample of third-party 
accounts receivable data. 

Note: Failure rates are based on the lower bound of our two-sided, 95 
percent confidence interval. 

[End of table] 

In addition to documenting the details of follow-up contacts, 
collections personnel are required to adequately document the reasons 
for adjustments to decrease billed amounts in order to perform proper 
monitoring and oversight of accounts receivable personnel and to assess 
whether these adjustments were appropriate. Specifically, VHA Handbook 
4800.14, Write-Offs, Decreases, And Termination of Medical Care 
Collections Fund Accounts Third-Party Receivable Balances, requires 
that accounts receivable staff provide an explanation for adjustments 
made to decrease third-party bills.[Footnote 29] The Handbook requires 
that the explanation provide clear and unambiguous reasons for the 
decrease adjustment and provides several suggested comments that are 
considered adequate explanations for the adjustments. 

Our tests of whether accounts receivable personnel adequately 
documented reasons for adjustments to decrease billed amounts found a 
VA-wide failure rate of 44 percent, as shown in table 3. Although the 
upper bound of our 95 percent, 2-sided confidence interval indicates 
that VA-wide estimated control failures could be over 50 percent, a 
conservative analysis based on the lower bound of our 2-sided 
confidence interval indicates that controls were ineffective for all 
categories of our tests in this area. Our tests for this control 
included a sample of 260 bills VA-wide, 60 bills for CPAC medical 
centers, and 200 bills for non-CPAC medical centers. Decreases made 
without appropriate explanations leave no audit trail or explanation of 
the reasons why an account receivable was decreased to zero. As a 
result, VA medical center management has limited data available to 
determine whether the adjustment was appropriate or if further 
collection action is needed. Moreover, without this information, 
medical center management cannot perform necessary oversight to assure 
that third-party revenues are maximized. 

Table 3: Estimated Failure Rates for Controls over Decreases in Billed 
Amounts of $250 or More with No Explanation or an Ambiguous 
Explanation: 

Test results: Estimated failure rates; 
VA-wide medical centers: 38%; 
CPAC medical centers: 16%; 
Other medical centers: 39%. 

Source: GAO tests of VA-wide random probability sample of third-party 
accounts receivable data. 

Note: Failure rates are based on the lower bound of our two-sided, 95 
percent confidence interval. 

[End of table] 

VA Lacks Policies and Procedures for Assuring Adequate Oversight of 
Third-Party Billings and Collections: 

Our review of VA and VHA policies and procedures, process walk- 
throughs, and interviews of VHA Chief Business Office (CBO)[Footnote 
30] officials and management officials at our case study medical 
centers determined that there are no formal policies and procedures for 
oversight of the third-party insurer billing and collection processes 
by medical centers or VHA. In addition, we found that medical centers 
and VHA have few standardized management reports to facilitate 
oversight. Because VA's health care billing and collection systems 
operate as stand-alone systems at each medical center, VA-wide 
reporting is dependent on numerous individual queries and data calls. 
As a result, we found little or no monitoring and oversight of the 
third-party billing and collection processes. This raises concerns 
about adequacy of oversight over the $1.7 billion in unbilled amounts 
at the 18 case study medical centers, including the hundreds of 
millions of dollars in unbilled amounts related to coding, billing, and 
documentation errors, and other undefined reasons. The lack of formal 
VA policies for management oversight of third-party billings and 
collections also raises VA-wide concerns. 

Enhanced oversight would permit VHA and medical center management to 
monitor trends and performance metrics, such as increases or decreases 
in unbillable amounts. 

Case Study Medical Centers Performed Little or No Monitoring of Third- 
Party Insurer Billing and Collection Activity: 

Although VA has not established formal policies and procedures for 
oversight of third-party insurer billings and collections, officials at 
the 18 case study medical centers told us they perform some oversight. 
For example, officials at all 10 of the case study medical centers with 
low billing performance indicated that they perform limited oversight 
of unbilled amounts with no documentation and insufficient 
documentation reason codes. None of the officials we interviewed 
provided us documentation of their monitoring or oversight procedures. 
According to our interviews, oversight procedures varied by medical 
center. For example, one medical center official told us that she 
performs a monthly review of the insufficient documentation and no 
documentation reason codes. A second medical center official told us 
that a review of the codes had not yet been performed in fiscal year 
2008, but that quarterly reviews usually have been performed. Another 
medical center official told us that she randomly selects between three 
and six bills per coder that were designated as unbillable for 
documentation reasons and reviews them for accuracy. Further, an 
official at a fourth medical center told us that she sees a potential 
risk that a billing clerk could clear out a billing backlog by 
inappropriately assigning reasons not billable codes to medical 
procedures waiting to be billed. While it is unlikely that this would 
occur, such a problem would only be detected if proper reviews were 
being performed by medical center management. None of the officials at 
the 10 medical centers indicated that their reviews included any of the 
other reasons not billable, such as service-connected medical services 
or medical services not covered by third-party insurance companies. As 
illustrated previously in figure 3, documentation errors, the focus of 
the 10 medical centers we reviewed, made up only 1 percent of the total 
amount not billed by the 10 medical centers during fiscal year 2007. 
Without reviewing all of the patient services deemed to be unbillable, 
the 10 medical centers do not have reasonable assurance that their 
unbilled amounts are accurate and appropriate. Further, officials at 
three case study medical centers that were also in our VA-wide sample 
for testing collection follow-up told us they performed little or no 
monitoring of collection follow-up activity because existing management 
reports did not facilitate their oversight. 

Although CPAC also lacked formalized policies and procedures for 
management oversight of unbilled amounts, CPAC officials told us that 
they reviewed unbilled amounts assigned to reason codes they consider 
to have a high risk of error. However, CPAC officials did not provide 
us any documentation of their oversight and monitoring procedures. For 
example, CPAC officials told us that they perform weekly reviews of 
unbilled amounts assigned to the service-connected reason not billable 
code. If doubt exists as to whether the patient's condition is actually 
service-connected, quality assurance personnel send the medical 
services record to the facility where the bill was generated for 
further review. This provides management assurance that the encounters 
not billed for that reason are appropriately classified. The officials 
said they also prepare trend analyses for three types of documentation 
errors--no documentation, insufficient documentation, and not a 
billable provider. The officials said they also do some review of 
coding and billing errors. CPAC officials stated that if a particular 
unbillable code is increasing from month-to-month, they investigated 
the cause of the increase and took appropriate action to mitigate the 
problem. According to CPAC officials, experienced medical coders in 
their Quality Assurance Division review the diagnosis codes for service-
connected patient encounters for reasonableness and documentation of 
the medical condition. 

At the eight CPAC medical centers, oversight of the collection process 
consists of supervisory reviews. For example, supervisors in the 
collections follow-up department perform quality reviews of clerks. A 
clerk is tested every 2 weeks until the clerk receives two consecutive 
reviews with no exceptions. The clerk is then reviewed monthly. The 
reviews involve testing five claims for proper follow-up. 

We found that medical centers have few standardized management reports 
to facilitate oversight. Our analysis of medical center Reasons Not 
Billable reports found that these reports consist of a list of over 100 
reason codes for unbillable amounts that are not summarized by major 
categories, such as the five categories we identified, to facilitate 
management review and decision making. 

VA Lacks Policies and Procedures and Reporting Mechanisms for Oversight 
of Third-Party Billings and Collections: 

Our review of VA and VHA policies and procedures and our interviews 
with CBO officials determined that VA lacked formal policies and 
procedures for oversight of the billing and collections processes 
related to third-party insurers. In addition, we found that VA and VHA 
have few standardized management reports to facilitate oversight. For 
example, our review of CBO reports found that these reports generally 
consist of data on VA-wide days to bill, accounts receivable, and 
collections. VHA CBO does not generate detailed performance reports by 
medical center, and it does not review unbilled amounts. 

Limitations in management reporting relate to VHA systems design. For 
example, VistA operates as a stand-alone system at each medical center. 
As a result, VHA's CBO does not have direct access to medical center 
data, and it would need to use data calls to obtain medical center data 
for monitoring and oversight. Consequently, VHA developed the 
Performance and Operations Web-Enabled Reports (POWER) system as a data 
warehouse for VistA data and information to provide some additional 
management information capability. However, as a data warehouse POWER 
does not provide a full range of standard management reports needed for 
oversight, and obtaining management information from POWER for 
oversight and monitoring purposes would necessitate numerous individual 
management queries and data compilations. 

VHA Has Undertaken Several Initiatives to Increase Third-Party Revenue: 

In response to long-standing weaknesses in third-party billing and 
collection processes, VA undertook several initiatives aimed at 
increasing revenue from third-party billings and collections. According 
to VA documentation, the improvement initiatives were developed by 
engaging key VHA leaders and other stakeholders in a comprehensive 
review of revenue cycle business process activities, from patient 
intake and insurance verification through billing and collection as 
well as planning and implementation efforts. As discussed previously, 
we assessed controls for coding and billing accuracy and collection 
follow-up for medical centers under the CPAC pilot initiative. However, 
we did not evaluate the six ongoing initiatives, some of which are open 
ended or will not be completed for several years. Effective management 
oversight and implementation will be key to the success of these 
initiatives. The following section summarizes recently completed VA 
initiatives, including improvements in recruitment and retention of 
coders and updates of key VHA policy guidance. Ongoing initiatives 
include six key strategic initiatives for increasing third-party 
revenue. 

Recently Completed Revenue Enhancement Initiatives: 

The following two VHA initiatives to enhance third-party revenue were 
completed in 2006 and 2007. 

Recruitment and Retention of Coders and Health Information Managers. 
Over the past several years, VHA has pursued improvements in the 
capture of medical charges and clinical documentation to enhance third- 
party collections. The first of three improvements, completed in 
December 2006, resulted in implementation of a plan to improve 
recruitment and retention of coders and health information managers 
within VHA through reclassification of employee positions in Office of 
Personnel Management occupation series 675, medical record technicians, 
and series 669, medical record administrators, from regular civil 
service positions to unique hybrid health-care civil service positions. 
The position reclassifications, which were effective on December 6, 
2006, removed many hiring delays and provided opportunities for 
employee special advancement for professional achievement while in VA 
service. As of October 2007, VHA had 2,024 employees in the 675 medical 
record technician job series and 430 employees in the 669 medical 
record administrator job series. 

Updated VHA Policy Guidance. VHA updated its policy guidance on coding 
staff qualifications, accurate coding and documentation of medical 
services, and closing dates for reporting these data for performance 
measures and corporate management reporting. The updated guidance was 
incorporated in the following VHA policy documents during 2006 and 
2007. 

* VHA Directive 2006-026, Patient Care Data Capture, dated May 5, 2006, 
contains requirements for capture of all outpatient encounters, 
inpatient appointments in outpatient clinics, and inpatient billable 
services. This directive also requires that each clinic is set up with 
appropriate Decision Support System identifiers to help ensure the 
accuracy of coding for patient care encounters.[Footnote 31] 

* VHA Directive 2006-035, Surgical Case Coding, dated May 30, 2006, 
provides policy for surgical code assignments based on International 
Classification of Diseases (9th Revision) Clinical Modification and 
Current Procedural Terminology (4th Edition). The policy also notes 
recent software changes and reiterates VHA policy on accurate capture 
of coded data within the surgical package, including requirements for 
qualified coding staff, accurate source documentation, and timely and 
accurate entry of codes. In addition, the directive makes VISN 
directors responsible for ensuring that the Surgery Version 3.0 
software patch is installed on all medical centers' VistA systems in 
accordance with nationally distributed software packages. The directive 
also makes medical center directors responsible for ensuring that 
surgical coding is conducted by qualified staff using the Update/Verify 
Procedure/Diagnosis Codes option within the surgery package or using an 
encoder that is interfaced with the surgery package for entry of coded 
procedures and diagnoses for all surgeries.[Footnote 32] 

* VHA Directive 2007-030, Closeout of Veterans Health Administration 
Corporate Patient Data Files, Including Quarterly Inpatient Census, 
dated September 27, 2007, changed the close out date to ensure that all 
corporate data are available when extracted for performance measures 
and other corporate reporting needs. Accordingly, this directive 
requires inpatient coding to be completed no later than the 14th day 
following patient discharge and outpatient coding to be completed no 
later than 14 days after the outpatient visit.[Footnote 33] 

VHA Handbook 1907.03, Health Information Management, Clinical Coding 
Program Procedures, dated November 2, 2007, as previously discussed, 
establishes minimum standards for coding productivity, including 
specific time frames for completing bill coding for various medical 
services, and a minimum 95 percent coding accuracy standard. The 
Handbook also includes suggested coding staffing requirements, coding 
staff qualifications, coding contract services, and coding function 
efficiencies.[Footnote 34] 

VA Has Six Key Strategic Initiatives Under Way To Enhance Third-Party 
Revenue: 

In October 2005, VHA's Revenue Optimization Plan Enhancement (ROPE) 
work group identified six key strategic initiatives for improving 
revenue performance. Many of these initiatives represented continuing 
actions that were previously initiated under VHA's Revenue Action Plan 
(RAP)--the predecessor to ROPE. The first initiative is targeted for 
completion in May 2008. As of the end of our field work in April 2008, 
VA had not provided target dates for full implementation of the other 
five initiatives. A brief overview of the six initiatives and their 
current status follow. 

Revenue Improvement Demonstration Project (RIDP). The RIDP (outlined in 
congressional reports discussing the fiscal year 2006 appropriation for 
VHA's medical administration account)[Footnote 35] was established to 
further advance revenue performance within a single VISN and develop a 
comprehensive national revenue model by integrating contractor- 
supported process modeling and business reengineering efforts. 
According to VA documents, CPAC was selected to be the host of this 
demonstration project because the objective was seen as a complimentary 
effort to the CPAC initiative that was already under way. The RIDP 
initiative was divided into two major phases. The first phase was an 
operational assessment of revenue cycle functions in order to create 
additional cash flow and to assist with the development of a model that 
could be replicated nationally. The second phase of RIDP has two parts 
- Parts A and B. Part A, which was completed during fiscal year 2007, 
covered phase 1 implementation and benefit realization. Under Part A, a 
revenue cycle processing environment was established, staff and 
leadership received training in new processes and techniques, and 
transition and permanence activities were completed. Part B, which was 
scheduled to be completed in May 2008, covers transition monitoring and 
sustainability. 

Clinical Data Entry(CDE). According to VA officials, CDE was developed 
to improve the currently existing Clinical Indicators Data Capture 
(CIDC) VistA software. CIDC was not implemented nationally because of 
concerns related to the provider-patient interaction and provider 
productivity. However, functional requirements and software design were 
to be revisited so that expanded clinician involvement could be 
included. According to VA, the expected outcome of CDE is twofold-- 
first, to recommend software that can be designed to automatically 
capture clinical data as a by-product of the clinical encounter instead 
of as an extra step, and second, to accommodate revenue capture of high-
volume/dollar procedures that are being performed, but not billed in 
VistA. CDE was targeted for completion in May 2007. However, upon 
extensive work with clinicians, the project team concluded that a 
fundamental change was required in the Computerized Patient Record 
System (CPRS) in order to effectively accomplish the project goal. 
According to VA information technology officials, the CDE design 
recommendations and accompanying business flow diagrams will be 
included as a part of Computerized Patient Record System Reengineering, 
referred to as CPRS-R. An implementation date for this initiative has 
not yet been determined. 

National Revenue Contracts Office. According to VA, the National 
Revenue Contracts Office initiative is designed to leverage VHA's size 
and financial purchasing power to develop national relationships for 
both payer agreements and contracts for vendors who provide support for 
revenue cycle activities. The National Payer Relations Office (NPRO) is 
currently pursuing strategies to effectively manage relationships with 
third-party insurance companies. VHA's first national payer agreement, 
with Aetna, was completed in 2007 and a second national agreement with 
United Healthcare is expected to be effective May 2008. According to VA 
officials, the National Payer Relations Office has completed 78 
regional agreements and is currently working on negotiating an 
additional 10 agreements. 

According to VA officials, a Revenue Contracts Program component was 
established under NPRO to improve management of vendors used to support 
VHA revenue cycle activities by developing better rates and consistency 
in payment terms, expectations, and performance standards. VA hopes 
that this Program will ensure more consistent terms and conditions for 
frequently used revenue cycle contracts. For example, VA established 
national Blanket Purchase Agreements (BPA) for both coding and 
insurance identification/verification products and services. According 
to VA officials, the Revenue Contracts Program is currently working on 
establishing BPAs for third-party billing and accounts receivable 
follow-up. As of the end of our field work in April 2008, VA had not 
provided us with a target date for completing BPAs for third-party 
billing and accounts receivable follow-up. 

Revenue Improvements and Systems Enhancement (RISE) Plan. A major 
driver in VA's revenue optimization strategy is a Patient Financial 
Services System (PFSS) project directed by Congress, which seeks to 
remedy significant business process and technology issues in VA's 
revenue-related financial systems.[Footnote 36] Building on the initial 
PFSS project and to continue ongoing improvement efforts, the VHA CBO 
chartered a RISE project team. RISE is part of the VistA modernization 
action program. The primary objective of RISE is to provide 
comprehensive tools for seamless sharing of required administrative and 
clinical information to support billing and related revenue activities 
across the enterprise. The four goals of the RISE plan are (1) defining 
a clear vision for revenue cycle activities across VHA, (2) replacing 
or enhancing aspects of current integrated billing and accounts 
receivable systems, (3) improving all related business processes by 
implementing structured IT support systems while delivering automated 
tools to improve revenue cycle efficiency, and (4) identifying process 
improvements for VHA that drive improvement in revenue cycle activities 
while leveraging enhanced IT support systems. 

According to VA officials, the RISE team is currently developing 
detailed short-and long-term business process and technology strategies 
in all areas of the revenue program. The RISE team is also developing 
accompanying documentation that defines end-to-end processes and that 
will form the requirements for the framework of the overall system 
improvement initiative. This document will include (1) a vision and 
scope document which defines services and capabilities required from 
the future state revenue system and (2) a business case, which 
incorporates process definitions; a program governance structure to 
oversee operations; a communications plan for the business program; and 
definitions to identify requirements for a new end-to-end revenue 
system. As of the end of our field work in April 2008, VA had not 
provided us with a targeted implementation date for this initiative. 

Revenue Cycle Enhancement Reviews. VHA has implemented an initiative to 
identify opportunities to further enhance revenue potential using 
Revenue Cycle Enhancement Teams (RCET). On-site reviews and development 
of corrective action plans are ongoing. The objective of this 
initiative is to identify available operational opportunities and 
provide recommendations to improve overall cash flow. A review team 
consists of VHA subject matter experts who are deployed to lower 
performing facilities to assess core revenue cycle functions, including 
patient intake and insurance verification, utilization review, coding, 
billing, and accounts receivable. The methodology employed by the team 
in completing reviews includes a combination of data analysis and on- 
site observation of activities. 

Following the on-site review, the team provides an action plan to the 
facility that outlines tasks that need to be completed within the next 
90 days and participates in conference calls to ensure completion of 
all identified action items. VHA CBO reported that it had completed 
reviews at 30 facilities (through January 2008) and that those 
facilities have generally increased revenue collections following these 
reviews. As of the end of our field work in April 2008, VA did not have 
a list of planned visits, and it had not provided us with a targeted 
implementation date for this initiative. 

Consolidated Patient Account Centers (CPAC). CPAC is based on a private 
sector model that is tailored for VHA's specific requirements. The CPAC 
model consists of a stand-alone, regionalized billing and collection 
activity supported by remote utilization review, data validation, and 
customer service functions that are organizationally aligned with the 
consolidated center. CPAC is being developed in three phases. Phase I, 
which focused on designing a work flow model and new organizational 
structure within a pilot VISN-VISN 6, operating as CPAC-was completed 
September 30, 2006. In fiscal year 2006, CPAC reported that it achieved 
99 percent of its targeted collections, increasing total VISN 6 
collections by: 

approximately $10 million over fiscal year 2005. In fiscal year 2007, 
CPAC reported that it achieved 110 percent of its targeted collection, 
increasing total VISN 6 collections by $23 million over fiscal year 
2006. 

Phases II and III address expansion of the CPAC pilot program. Phase 
II, which includes moving the consolidated center into a new physical 
plant to support workflow models developed in Phase I as well as 
expansion of existing operations to service an additional VISN and is 
scheduled for completion by the end of fiscal year 2008. Phase III 
addresses national expansion. VHA is currently working on a VA-wide 
implementation strategy based on experiences from the CPAC pilot in 
VISN 6. As of the end of our field work in April 2008, VA had not 
provided us with targeted implementation dates for Phase III. 

Conclusions: 

Although VA has made some progress in improving policy guidance and 
processes for billing and collecting medical care receivables from 
third-party insurers, medical centers have significant, continuing 
weaknesses in controls over coding, billing, and collections follow-up 
that prevent VA from maximizing hundreds of millions of dollars in 
potential revenue from third-party insurance companies. The fundamental 
weaknesses are a lack of proper processing of billing information, 
inadequate follow-up on unpaid third-party accounts receivable, and 
inadequate management oversight by medical center and VA management. 
Unless VA effectively addresses these weaknesses, it will continue to 
use higher amounts of appropriations from the General Fund of Treasury 
to provide medical care to the nation's veterans than otherwise would 
be necessary, thereby placing a higher burden on taxpayers. 

Recommendations: 

We recommend that the Secretary of Veterans Affairs require the medical 
centers to take the following seven actions to maximize revenue from 
third-party insurer billings and collections. 

First, to assure that all amounts that should be billed to third-party 
insurers are billed in an accurate and timely manner, we recommend that 
the Secretary take the following two actions. 

* Establish procedures requiring medical center management to perform 
and document detailed monthly reviews of patient encounters determined 
to be nonbillable by coding staff to ensure they are properly coded. 

* Establish procedures requiring medical center management to develop 
and use management reports on medical center performance with respect 
to accuracy and timeliness of billing performance and take appropriate 
corrective action. 

Second, to assure timely follow-up and documentation of unpaid third- 
party billings, we recommend that the Secretary take the following 
three actions. 

* Establish a process requiring medical centers to monitor their 
accounts receivable staffs' adherence to the requirement in VA Handbook 
4800.14, Medical Care Debts, to follow-up on outstanding third-party 
accounts receivable within specified time frames. 

* Establish a mechanism requiring medical centers to monitor their 
accounts receivable staff adherence to VA Handbook 4800.14, Medical 
Care Debts, which requires documenting a brief summary of all follow-up 
contacts, including information on when a payment will be made or why a 
payment was not made. 

* Establish a process requiring medical centers to confirm that 
accounts receivable staff are following the requirement in VHA Handbook 
4800.14, Write-Offs, Decreases, And Termination of Medical Care 
Collections Fund Accounts Third-Party Receivable Balances, to provide a 
specific explanation for any adjustments to decrease third party 
accounts receivable from third-party insurers. 

Third, to assure effective VA-wide oversight of billings and 
collections with regard to third-party insurers, we recommend that the 
Secretary take the following two actions. 

* Require VHA to establish a formal VA-wide process for managing and 
overseeing medical center billing performance, including development of 
standardized reports on unbilled amounts by category. 

* Establish procedures requiring periodic VHA-wide assessments by the 
Chief Business Office to document whether medical center staff are 
performing timely and accurately documented follow-up on outstanding 
third-party accounts receivable, as required in VHA Handbook 4800.14. 

Agency Comments and Our Evaluation: 

On May 22, 2008, the Secretary of Veterans Affairs provided written 
comments on a draft of this report. VA officials concurred with all 
seven of our recommendations and provided information on steps it is 
taking to address them. However, VA's letter stated that our report 
overstated findings related to the potential for lost revenue to the 
government and inadequate levels of oversight. VA's letter also stated 
that our conclusion on collections improvement minimizes the 
significant gains VA has made and that several improvement initiatives 
were so successful that they have been designated as ongoing. 

With regard to VA's comment that we overstated findings related to the 
potential for lost revenue to the government, we added language to our 
report to indicate that $1.4 billion of the $1.7 billion in unbilled 
medical services at the 18 case study medical centers were classified 
as service-connected, Medicare coverage, or lack of private health 
insurance coverage. However, as noted in our report, although certain 
medical services are not billable, such as service-connected treatment, 
VA management has not validated reasons for these unbilled amounts to 
assure that all billable costs are charged to third-party insurers. 
Further, we focused on unbilled amounts related to coding, billing, and 
documentation errors and other undefined problems as a basis for making 
recommendations for increasing third-party revenues. In this regard, we 
identified $291.5 million in unbilled amounts due to errors at the 18 
case study medical centers. 

With regard to VA's statement that it has established significant 
levels of oversight, our report noted that VA has agencywide data on 
days to bill, accounts receivable, and collections. However, we found 
that VA has not established policies and procedures for management 
oversight of unbilled amounts or compliance with follow-up requirements 
for outstanding third-party receivables. Further, although POWER 
generates metrics for several performance indicators, these metrics do 
not provide VA with the full range of management reports needed to 
adequately monitor unbilled amounts and compliance with follow-up 
procedures. VA concurred with our recommendation to establish oversight 
of unbilled amounts and compliance with follow-up procedures and 
described systems enhancements and improved monitoring activities that 
it expects will address the problems related to billings, collections, 
and oversight we identified. 

With regard to VA's comment that it made significant gains in 
collecting third-party revenue since fiscal year 2004, there are a 
number of factors that need to be considered to measure the extent of 
VA's success. For example, VA also experienced an increase of 500,000 
patients that were treated at VA medical centers during the 4-year 
period. In addition, the rate of inflation for medical care over the 
last 4 fiscal years and changes in inpatient and outpatient mix would 
need to be considered. Further, VA's efforts to address billing 
backlogs over the 4-year period could have also contributed to the 
increased revenue. This type of analysis was outside the scope of our 
audit and would require further study to determine the impact of these 
factors on VA's collection gains. Despite VA's increased third-party 
collections, our work showed there is a significant opportunity to 
increase revenue from third-party insurers by (1) correcting errors 
that have prevented appropriate billings to third-party insurers and 
(2) performing timely and effective follow-up on unpaid receivables. 

VA's statement that several initiatives to enhance third-party revenue 
were so successful that they have been designated as ongoing implies 
that target dates for completion are not necessary. We support the 
concept of ongoing efforts for continuous improvement in operations. 
However, three of the six initiatives were begun in 2002 and have 
encountered significant slippage and refocusing under revised 
management plans. For example, initiatives related to Clinical Data 
Entry, the National Revenue Contracts Office, and CPAC began under the 
Revenue Action Plan (RAP), which was approved in July 2002. These 
initiatives were later incorporated under the Revenue Optimization Plan 
Enhancement (ROPE) plan in 2005. In addition, the RISE plan for revenue-
related system enhancements was initiated under ROPE. Targeted 
implementation dates and milestones will be key to assisting management 
in overseeing these initiatives to assure that intended goals are 
accomplished within reasonable time frames. 

Finally, VA officials informed us at the conclusion of our audit that 
they revised their follow-up requirements for third-party receivables 
to require increased focus on unpaid high-dollar amounts and provide 
more flexibility in follow-up time frames for smaller dollar amounts. 
For example, VA's revised policy will focus on collection follow-up for 
amounts of $1,500 and above within 45 days of the billing date. 
However, the revised policy would extend the date for the first follow- 
up for bills from $250 to $1,500 to be within 60 days of the initial 
bill. Going forward, it will be important for VA to oversee and monitor 
the implementation of the new policy as part of its management 
oversight process in order to determine if the new policy is achieving 
intended results and, if not, to perform additional analysis and make 
appropriate policy changes to assure effective follow-up on unpaid 
third-party bills. 

VA also provided technical comments and corrections which we have 
addressed in our report, as appropriate. VA's comments are reprinted in 
appendix II. 

As agreed with your offices, unless you announce its contents earlier, 
we will not distribute this report until 30 days from its date. At that 
time we will send copies of this report to interested congressional 
committees; the Secretary of Veterans Affairs; the Acting Secretary of 
Health, Veterans Health Administration; the VHA Chief Business Officer; 
and the Director of the Office of Management and Budget. We will make 
copies available to others upon request. In addition, this report will 
be available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

Please contact me at (202) 512-9095 or dalykl@gao.gov, if you or your 
staff have any questions concerning this report. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Major contributors to this report are 
acknowledged in appendix IV. 

Signed by: 

Kay L. Daly: 

Acting Director Financial Management and Assurance: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Pursuant to requests from the Chairman and Ranking Minority Member of 
the House Committee on Veterans' Affairs and the Chairman and Ranking 
Minority Member of the Subcommittee on Oversight and Investigations, we 
performed a follow-up audit of controls over VA's third-party billing 
and collection processes, including (1) an evaluation of the 
effectiveness of VA medical center billing processes at selected 
locations, (2) an assessment of medical centers' adherence to VA 
policies for performing timely follow-up on unpaid accounts receivable 
and proper documentation of follow-up contacts, and (3) a determination 
of the adequacy of VA oversight of billing and collection processes. In 
addition, we summarized the status of management initiatives undertaken 
to improve third-party billing and collection processes. 

We used as our criteria applicable law and VA policy, as well as our 
Standards for Internal Control in the Federal Government[Footnote 37] 
and our Internal Control Management and Evaluation Tool.[Footnote 38] 
To assess the control environment at our test locations, we obtained an 
understanding of VA processes and controls over the third-party revenue 
cycle. We performed walk-throughs of these processes at several medical 
centers. We interviewed management officials at selected medical 
centers about their management oversight and accountability procedures 
over third-party billings and collections. We also reviewed applicable 
VA program guidance and local policies and procedures at selected test 
locations and interviewed officials about their billing and collection 
processes and controls. In addition, to assure the reliability of data 
and information used in this report, we reviewed VA documentation and 
interviewed key officials. We also reviewed VA procedures for assuring 
the reliability of data and information generated by key VA systems 
used in the third-party billing and collection processes, including 
VHA's Veterans Health Information Systems and Technology Architecture 
(VistA) and Performance and Operations Web-Enabled Reports (POWER) 
systems. 

To determine if the third-party revenue offices at our 18 case study 
locations had adequate management oversight and accountability for 
assuring timely and accurate billings, we obtained and reviewed 
management reports , including (1) Reasons Not Billable Summary and 
Detailed reports and (2) Elapsed Days to Bill performance reports. We 
compiled data from the Reasons Not Billable reports into a database and 
established categories of reasons not billed for further analysis. We 
coordinated with VHA officials on the identification of reasons not 
billed categories. We interviewed medical center revenue officials at 
the 10 case study medical centers with low billing performance and at 
CPAC, for the 8 CPAC case study medical centers, about their management 
oversight and accountability procedures. Table 4 shows the two groups 
of case study medical centers we examined and performance data on days 
to bill and unbilled amounts for each location. 

Table 4: Medical Centers Covered in Examination of Third-Party Billing 
Processes: 

Medical center location: Ten medical centers with largest number of 
days to bill: North Texas Health Care System; 
Average number of days to bill as of September 30, 2007: 109; 
Unbilled: amount as of: September 30, 2007 (in millions): $ 233.3. 

Medical center location: Ten medical centers with largest number of 
days to bill: West Los Angeles, California; 
Average number of days to bill as of September 30, 2007: 110; 
Unbilled: amount as of: September 30, 2007 (in millions): 139.4. 

Medical center location: Ten medical centers with largest number of 
days to bill: Washington, D.C; 
Average number of days to bill as of September 30, 2007: 110; 
Unbilled: amount as of: September 30, 2007 (in millions): 167.0. 

Medical center location: Ten medical centers with largest number of 
days to bill: San Francisco, California; 
Average number of days to bill as of September 30, 2007: 116; 
Unbilled: amount as of: September 30, 2007 (in millions): 123.4. 

Medical center location: Ten medical centers with largest number of 
days to bill: South Texas Health Care System; 
Average number of days to bill as of September 30, 2007: 121; 
Unbilled: amount as of: September 30, 2007 (in millions): 156.8. 

Medical center location: Ten medical centers with largest number of 
days to bill: Columbus, Ohio; 
Average number of days to bill as of September 30, 2007: 122; 
Unbilled: amount as of: September 30, 2007 (in millions): 34.7. 

Medical center location: Ten medical centers with largest number of 
days to bill: Marion, Indiana; 
Average number of days to bill as of September 30, 2007: 122; 
Unbilled: amount as of: September 30, 2007 (in millions): 56.2. 

Medical center location: Ten medical centers with largest number of 
days to bill: Northern California Health Care System; 
Average number of days to bill as of September 30, 2007: 123; 
Unbilled: amount as of: September 30, 2007 (in millions): 151.2. 

Medical center location: Ten medical centers with largest number of 
days to bill: Lebanon, Pennsylvania; 
Average number of days to bill as of September 30, 2007: 134; 
Unbilled: amount as of: September 30, 2007 (in millions): 119.2. 

Medical center location: Ten medical centers with largest number of 
days to bill: Pacific Islands; 
Average number of days to bill as of September 30, 2007: 146; 
Unbilled: amount as of: September 30, 2007 (in millions): 23.4. 

Medical center location: Subtotal; 
Average number of days to bill as of September 30, 2007: [Empty]; 
Unbilled: amount as of: September 30, 2007 (in millions): $1,205.3. 

Medical center location: Eight medical centers under CPAC: Asheville, 
North Carolina; 
Average number of days to bill as of September 30, 2007: 46; 
Unbilled: amount as of: September 30, 2007 (in millions): $ 39.8. 

Medical center location: Eight medical centers under CPAC: Beckley, 
West Virginia; 
Average number of days to bill as of September 30, 2007: 37; 
Unbilled: amount as of: September 30, 2007 (in millions): 16.3. 

Medical center location: Eight medical centers under CPAC: Durham, 
North Carolina; 
Average number of days to bill as of September 30, 2007: 68; 
Unbilled: amount as of: September 30, 2007 (in millions): 66.5. 

Medical center location: Eight medical centers under CPAC: 
Fayetteville, North Carolina; 
Average number of days to bill as of September 30, 2007: 47; 
Unbilled: amount as of: September 30, 2007 (in millions): 24.4. 

Medical center location: Eight medical centers under CPAC: Hampton, 
Virginia; 
Average number of days to bill as of September 30, 2007: 49; 
Unbilled: amount as of: September 30, 2007 (in millions): 39.4. 

Medical center location: Eight medical centers under CPAC: Richmond, 
Virginia; 
Average number of days to bill as of September 30, 2007: 54; 
Unbilled: amount as of: September 30, 2007 (in millions): 175.9. 

Medical center location: Eight medical centers under CPAC: Salem, 
Virginia; 
Average number of days to bill as of September 30, 2007: 49; 
Unbilled: amount as of: September 30, 2007 (in millions): 81.3. 

Medical center location: Eight medical centers under CPAC: Salisbury, 
North Carolina; 
Average number of days to bill as of September 30, 2007: 55; 
Unbilled: amount as of: September 30, 2007 (in millions): 65.0. 

Medical center location: Subtotal; 
Average number of days to bill as of September 30, 2007: [Empty]; 
Unbilled: amount as of: September 30, 2007 (in millions): $508.7. 

Medical center location: Total; 
Average number of days to bill as of September 30, 2007: [Empty]; 
Unbilled: amount as of: September 30, 2007 (in millions): $1,714.0. 

Source: GAO analysis of medical center billing performance data. 

[End of table] 

We selected a VA-wide statistical sample of billing records to assess 
whether medical center accounts receivable personnel were adhering to 
VA policy for timely follow-up with private insurance companies on 
unpaid third-party receivables. From the universe of fiscal year 2007 
collections activity, we stratified the billing records into one 
stratum for bills from CPAC and one stratum from all other VA medical 
centers. We randomly selected 60 bills from the CPAC stratum and 200 
from the stratum for the rest of VA. We designed this sample for 
control testing with a 5 percent tolerable error rate so that if there 
were no errors in one of the strata, we would be able to conclude with 
95 percent confidence that the billing records for that stratum were 
statistically compliant. 

Our random sample of 260 bills included medical centers from each of 
the 21 VISNs. We used our statistical sample to assess the population 
of follow-up contacts for receivables greater than $250 that were 
outstanding for at least 45 days at any point during fiscal year 2007. 
We explain the results of our statistical sample in terms of control 
attributes related to adherence to VA policy guidance for (1) 
performing timely initial and subsequent follow-up, as appropriate, on 
unpaid amounts, (2) whether accounts receivable personnel properly 
documented follow-up contacts, and (3) whether accounts receivable 
staff properly documented reasons why adjustments to decrease billed 
amounts were made. We present our statistical results as (1) our 
projection of the estimated error overall (failure rate) and for each 
control attribute as point estimates and (2) the 95 percent, two-sided, 
confidence intervals for control failure rates. Our 95 percent 
confidence interval means that if you were to determine an estimate for 
100 different random samples, 95 out of 100 times, the estimate would 
fall within the confidence interval. In other words, the true value is 
between the lower and upper limits of the confidence interval 95 
percent of the time. We generally report our statistical results as 
point estimates that fall within confidence intervals. However, because 
confidence intervals varied widely for our various control tests, we 
focused on the lower bound of our confidence intervals as a 
conservative estimate of our test results. As additional information, 
we present our detailed test results below, including the point 
estimate and the upper and lower bound of our 95 percent confidence 
intervals. Table 5 shows our detailed test results for timely follow-up 
on unpaid third-party bills totaling $250 or more. 

Table 5: Estimated Failure Rates for Controls on Timely Follow-up on 
Unpaid Third-Party Insurer Receivables Totaling $250 or More: 

Required: follow-up: Initial, 45 days; 
VA-Wide: Estimated failure rate and 95%, 2-sided confidence interval: 
75%; (69% to 80%); 
CPAC medical centers: Estimated failure rate and 95%, 2-sided 
confidence interval: 48%; 
(36% to 61%); 
Non-CPAC medical centers: Estimated failure rate and 95%, 2-sided 
confidence interval: 77%; (71% to 83%). 

Required: follow-up: Second, 21 days after 1st contact; 
VA-Wide: Estimated failure rate and 95%, 2-sided confidence interval: 
54%; (44% to 64%); 
CPAC medical centers: Estimated failure rate and 95%, 2-sided 
confidence interval: 38%; (23% to 54%); 
Non-CPAC medical centers: Estimated failure rate and 95%, 2-sided 
confidence interval: 57%; (45% to 68%). 

Required: follow-up: Third, 14 days after 2nd contact; 
VA-Wide: Estimated failure rate and 95%, 2-sided confidence interval: 
34%; (20% to 50%); 
CPAC medical centers: Estimated failure rate and 95%, 2-sided 
confidence interval: 43%; (22% to 66%); 
Non-CPAC medical centers: Estimated failure rate and 95%, 2-sided 
confidence interval: 32%; (17% to 51%). 

Source: GAO tests of a VA-wide random probability sample of third-party 
accounts receivable data. 

Notes: Failure rates for the second and third follow-up contacts 
exclude bills that were paid before the dates required for these follow-
up contacts. These follow-up contacts represent subsets of our sample; 
thus, the confidence interval (margin of statistical error) is wider. 
Similarly, CPAC and non-CPAC medical center results represent subsets 
of our VA-wide sample and also have wider margins of statistical error. 

[End of table] 

Table 6 shows the detailed results of our tests of VA-wide controls for 
documenting the details of follow-up contacts made with third-party 
insurers. 

Table 6: Estimated Failure Rates for Documenting Details of Follow-up 
Contacts on Unpaid Third-Party Bills of $250 or More: 

Required comment: Initial, 45 days; 
VA-wide: Estimated failure rate and 95 percent, 2-sided confidence 
interval: 81%; (72% to 89%); 
CPAC medical centers: Estimated failure rate and 95 percent, 2-sided 
confidence interval: 56%; (38% to 72%); 
Non-CPAC medical center: Estimated failure rate and 95 percent, 2-sided 
confidence interval: 85%; (74% to 93%). 

Required comment: Second, 21 days after 1st contact; 
VA-wide: Estimated failure rate and 95 percent, 2-sided confidence 
interval: 77%; (59% to 90%); 
CPAC medical centers: Estimated failure rate and 95 percent, 2- sided 
confidence interval: 71%; (42% to 92%); 
Non-CPAC medical center: Estimated failure rate and 95 percent, 2-sided 
confidence interval: 78%; (58% to 91%). 

Required comment: Third, 14 days after 2nd contact; 
VA-wide: Estimated failure rate and 95 percent, 2-sided confidence 
interval: 65%; (35% to 88%); 
CPAC medical centers: Estimated failure rate and 95 percent, 2- sided 
confidence interval: 88%; (47% to 99.7%); 
Non-CPAC medical center: Estimated failure rate and 95 percent, 2-sided 
confidence interval: 60%; (26% to 88%). 

Source: GAO tests of a VA-wide random probability sample of third-party 
accounts receivable data. 

Notes: Failure rates for the second and third follow-up contacts 
exclude bills that were paid before the dates required for these follow-
up contacts. These follow-up contacts represent subsets of our sample; 
thus, the confidence interval (margin of statistical error) is wider. 
Similarly, CPAC and non-CPAC medical center results represent subsets 
of our VA-wide sample and also have wider margins of statistical error. 

[End of table] 

Our tests of whether accounts receivable personnel adequately 
documented reasons for adjustments to decrease billed amounts found a 
VA-wide failure rate of 44 percent, as shown in table 7. 

Table 7: Failure Rates for Controls over Decrease Adjustments with No 
Explanation or an Ambiguous Explanation: 

Test results: Estimated failure rate; 
VA-wide: 44%; 
CPAC medical centers: 25%; 
Other medical centers: 46%. 

Test results: 95 percent, 2-sided confidence interval; 
VA-wide: (38% to 51%); 
CPAC medical centers: (15% to 38%); 
Other medical centers: (39% to 52%). 

Source: GAO tests of VA-wide random probability sample of third-party 
accounts receivable data. 

Notes: Tests for CPAC and non-CPAC medical center results represent 
subsets of our VA-wide sample and, therefore, have wider margins of 
statistical error in our confidence intervals: 

[End of table] 

To assess VA management oversight of third-party billing and collection 
processes, we interviewed medical center and CPAC management officials 
at our case study locations and reviewed available data and reports 
used by these managers. Three of our 10 case study locations with low 
billing performance and CPAC were also included in our statistical 
tests of collection follow-up procedures. We also reviewed related VA 
and VHA policies and available VHA CBO management reports. In addition, 
we interviewed VHA officials about their oversight procedures, 
including limitations in systems reporting capabilities. 

To follow up on management initiatives undertaken to improve third- 
party billings and collections, we obtained and reviewed information 
and interviewed VA managers on the objectives, status, and targeted 
completion dates for eight major initiatives. We did not evaluate the 
initiatives or independently assess the information provided by VA 
officials. However, we evaluated billing controls and tested compliance 
with controls for accounts receivable follow-up for the medical centers 
under the CPAC pilot initiative. 

We briefed VA managers at our test locations and VA headquarters, 
including VA medical center directors, VA headquarters information 
resource management and property management officials, and VHA's Chief 
Business Officer on the details of our audit, including our findings 
and their implications. On April 30, 2008, we requested comments on a 
draft of this report. We received comments on May 22, 2008, and have 
summarized those comments in the Agency Comments and Our Evaluation 
section of this report. We conducted our audit work from January 2007 
through May 2008 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Department of Veterans Affairs: 

The Secretary Of Veterans Affairs: 
Washington: 

May 22, 2008: 

Ms. Kay L. Daly: 
Acting Director: 
Financial Management and Assurance Team: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Ms. Daly: 

The Department of Veterans Affairs has reviewed your draft report, VA 
Health Care: Ineffective Controls over Medical Center Billings and 
Collections Limit Revenue from Third-Party Insurance Companies (GAO-08-
675) and concurs with your recommendations. 

We believe the report's "Highlights" page does not adequately explain 
to the reader that 83 percent ($1.42B) of the $1.7B reviewed as 
unbillable for these 18 medical centers is for care that is either 
service-connected or cannot be billed because of the type of insurance 
policy (HMO, Medicare) or type of visit. For the 10 test sites aside 
from the Consolidated Patient Accounts Center (CPAC), 79 percent 
($951.1M) of the $1.2B reviewed as unbillable is for care that is 
either service-connected or cannot be billed to an insurance because of 
the type of insurance policy (HMO, Medicare) or type of visit. For the 
CPAC, 93 percent ($471.2M) of the $508.7M reviewed as unbillable is for 
care that is either service- connected or cannot be billed to an 
insurance carrier because of the type of insurance policy or visit. We 
believe this lack of information leads to the overstated conclusion 
about potential lost revenue to the government. 

Contrary to GAO's determination that "VA has not yet established 
effective management oversight of VA-wide third-party billing and 
collection operations," VA has established significant levels of such 
oversight operations. Specifically, VA has established industry 
standard performance metrics for senior level oversight (Gross Days 
Revenue Outstanding, Days to Bill, Accounts Receivable over 90 Days and 
Total Collections), which are reported on a monthly basis to VA's 
senior managers during the Monthly Performance Review. Additionally, VA 
facility and network directors have performance standards they must 
meet for revenue cycle metrics. Facility Compliance and Business 
Integrity Office (CBI) programs complement oversight monitoring by 
providing independent validation of existing controls. VHA Directive 
1030, Compliance and Business Integrity (CBI) Program, requires CBI to 
evaluate and assess policies, procedures, systems, and control 
environments the VHA Chief Business Office has established. 

GAO's conclusion regarding collections improvement minimizes the 
significant gains VA has made. Specifically, since fiscal year (FY) 
2004, VA's Medical Care Cost Fund (MCCF) total collections increased 
from $1.7B to $2.2B in FY 2007 (a 29.4 percent increase), and the third-
party component of these collections increased from $960,000 to $1.26M 
(a 31.3 percent increase). During this same time period, VA's national 
third-party average days to bill improved from 68.7 to 63.9 days. 
Finally, VA has continued to improve its management of accounts 
receivable as evidenced by the fact that only 28 percent of accounts 
receivable are over 90 days compared to 31.2 percent at the end of FY 
2007. 

Several initiatives to enhance third-party revenue were so successful 
that they have been designated as ongoing; however, GAO's report 
summarizes these efforts as open-ended or not to be implemented for 
several years. In particular, revenue assist team visits and national 
payer relations efforts have dramatically improved revenues and, 
therefore, VA will continue them for subsequent years. Other 
initiatives such as the Revenue Improvements and Systems Enhancement 
project and Consolidated Patients Accounts Centers are longer term 
initiatives due to their large scope involving funding, systems changes 
and organizational impact. 

The enclosure provides more detailed comments to your draft report, 
action plans to implement the recommendations, and needed technical 
corrections. Thank you for the opportunity to comment on your draft 
report. 

Sincerely yours, 

Signed by: 

James B. Peake, M.D.: 
Enclosure: 

Department Of Veterans Affairs (VA) Comments To Government 
Accountability Office (Gao) Draft Report: 

VA Health Care: Ineffective Controls over Medical Center Billings and 
Collections Limit Revenue from Third-Party Insurance Companies GAO-08-
675:  

To assure that all amounts that should be billed to third-party 
insurers are billed in an accurate and timely manner, GAO recommends 
that the Secretary take the following two actions: 

* Establish procedures requiring medical center management to perform 
and document detailed monthly reviews of patient encounters determined 
to be non-billable by coding staff to ensure they are properly coded. 

* Establish procedures requiring medical center management to develop 
and use management reports on medical center performance with respect 
to accuracy and timeliness of billing performance and take appropriate 
corrective action. 

Concur: Amounts billed to third-party payers should be performed in an 
accurate and timely manner including reviewing patient accounts 
determined to be non- billable and using reports to monitor accuracy 
and timeliness of billing performance. 

* Review of Encounters Determined to Be Non-Billable In November 2007, 
the Veterans Health Administration (VHA) issued VHA Handbook 1907.03, 
Health Information Management, Clinical Coding Program Procedures that 
established minimum bill coding accuracy standards and provided 
procedures for conducting coding reviews for many different purposes 
including coding for third-party billing. VA will supplement this 
guidance by developing new procedures for specifically monitoring 
reasons not billable codes due to documentation and coding that are 
entered into the billing system. 

* Timeliness and Accuracy of Billing Performance With regard to the 
accuracy of billing, VA has a systems enhancement in progress to 
standardize reason not billable codes that staff uses when reviewing 
episodes of care. When complete, this systems enhancement will prohibit 
facilities from adding locally developed reason codes, which make 
monitoring billing compliance difficult for managers. To monitor more 
effectively medical center management's accuracy of billing, VA will 
also publish guidance for supervisors to review the reasons not 
billable report on a monthly basis and take appropriate actions to 
ensure accurate use of the reasons not billable codes. 

To assure timely follow-up and documentation of unpaid third-party 
billings, GAO recommends that the Secretary take the following three 
actions: 

* Establish a process requiring medical centers to monitor their 
accounts receivable staffs' adherence to the requirement in VA Handbook 
4800.14, Medical Care Debts, to make follow-ups on outstanding third-
party accounts receivable within specified timeframes.

* Establish a mechanism requiring medical centers to monitor their 
accounts receivable staff adherence to VA Handbook 4800.14, Medical 
Care Debts, which requires documenting a brief summary of all follow-up 
contacts, including information on when a payment will be made or why a 
payment was not made. 

* Establish a process requiring medical centers to confirm that 
accounts receivable staff are following the requirement in VHA Handbook 
4800.14, Write-Offs, Decreases, And Termination of Medical Care 
Collections Fund Accounts Third-Party Receivable Balances, to provide a 
specific explanation for any adjustments to decrease accounts 
receivable from third-party insurers. 

Concur: In an effort to understand low compliance rates with follow-up 
standards, VA researched industry norms and conducted a review of its 
current third-party accounts receivable portfolio, including 
stratification by age and dollar amount of the receivable, to determine 
the average age at time of first collection as well as average dollar 
amount collected. This analysis, plus the estimated cost to generate a 
bill and perform the necessary follow-up activities to collect 
outstanding receivables indicated that changes were necessary to 
current follow- up guidelines to ensure they are both reasonable and 
consistent with industry practice. Moreover, VA believes it is 
important to focus efforts on higher-dollar, more collectible claims. 
As a result of the above analysis, VA proposed new guidelines that 
include more stringent follow-up standards on the highest-dollar 
claims, which are the smallest number of outstanding receivables, but 
represent the largest dollar amount of outstanding receivables. 
Additionally, these new standards provide more flexibility relative to 
follow-up for low-dollar claims, which represent the highest number of 
outstanding receivables. The rationale for this stratification is to 
ensure claims that normally process within a certain period of time are 
not targeted for follow-up prior to normal processing cycles and that 
follow-up resources are spent on receivables that will produce the 
maximum return on the time invested. Based on this review and with 
approval of senior management, VA issued revised guidance for third-
party follow-up to the field on April 28, 2008. VA believes this 
revised guidance, which we shared with GAO prior to publication of its 
report, should assist facilities in meeting follow-up standards based 
on prioritizing follow-up first on higher dollar receivables and then 
on those accounts with lower values. 

* Monitoring of Accounts Receivable Follow-up: 

VA agrees that a standard process and mechanism to monitor staff 
adherence to accounts receivable follow-up requirements is necessary. 
Therefore, VA has developed several system enhancements, which when 
complete, will assist field staff in thoroughly monitoring both the 
timeliness and accuracy of accounts receivable follow-up according to 
published guidelines. As part of these systems enhancements, reports 
will be generated on follow-up actions to determine staff compliance 
with requirements. In FY 2008, Financial Quality Assurance Managers 
located in each Veterans Integrated Service Network (VISN) began 
monthly audits of follow-up based on a sample of accounts receivable 
and provide this information to facility management in an effort to 
track compliance and take corrective actions as needed. 

* Monitoring of Account Adjustments: 

VA agrees it is critical to ensure processes are in place to monitor 
staff adherence with guidelines to performing adjustments on accounts 
receivable. VA recently published instructions to field supervisors 
requiring them to conduct monthly reviews in order to ensure these 
transactions are accurate and appropriately documented. Supervisors are 
required to share the review with facility Compliance Officers for 
monitoring and appropriate action. 

To help assure effective VA-wide oversight of billings and collections 
with regard to third-party insurers, GAO recommends the Secretary take 
the following two actions: 

* Require VHA to establish a formal VA-wide process for managing and 
overseeing medical center billing performance, including development of 
standardized reports on unbilled amounts by category. 

* Establish procedures requiring periodic VHA-wide assessments by the 
Chief Business Office to document whether medical center staff are 
performing timely, accurately documented follow-up on outstanding third-
party accounts receivable, as required in VHA Handbook 4800.14. 

Concur: VA agrees with the need to ensure oversight of third-party 
billings and collections and has several activities already in-
progress. As described in the response to recommendation number one 
above, VA is developing a systems enhancement to implement a standard 
list of reasons not billable for staff to use when reviewing and 
processing potentially billable episodes of care. Additionally, this 
systems enhancement will prohibit facilities from adding locally 
developed reason codes, which make monitoring billing compliance 
difficult for managers. Second, VA will publish guidance for 
supervisors to review the reasons not billable report on a monthly 
basis and take appropriate actions to ensure accurate use of the 
reasons not billable codes. Finally, VA will implement a periodic data 
call to review the use of the reasons not billable at a national level 
in order to take necessary corrective actions. 

With regard to compliance with published follow-up guidelines for 
accounts receivable, as noted under recommendation 2 above, VA 
Financial Quality Assurance Managers located in each VISN conduct 
monthly audits of follow-up based on a sample of accounts receivable 
and provide this information to VA- wide management in an effort to 
track compliance and take corrective actions as needed. 

A joint work group of the VHA business program offices, comprised of 
the Chief Business Office (CBO), Chief Finance Office, Chief Compliance 
and Business Integrity Office (CBI), and Health Information Management 
was established in January 2007 and meets routinely to address jointly 
business quality improvement, business integrity, and strengthening of 
internal control environments. Further, these offices all participate 
in national level business improvement activities through the National 
Leadership Board Business Performance Improvement Committee (NLB BPIC) 
established in 2007 by the VHA Under Secretary for Health. Through 
these forums and others, CBI and CBO continue to collaborate to enhance 
the control environment for business operations.

[End of section] 

Appendix III: Actual Test Results for Timely First Follow-up on Unpaid 
Bills with Third-Party Insurers: 

Table 8 lists our actual test results for timely first follow-up on 
unpaid third-party billings by medical centers within each VISN. As 
noted at the end of the table, 183 of the 260 bills in our stratified 
random sample failed this control test. 

Table 8: Actual Control Test Results Related to the Requirement for 
Initial Collections Follow-up: 

[See PDF for image] 

Source: GAO tests of VA-wide data on the requirement for medical center 
accounts receivable personnel to perform initial follow-up on unpaid 
third-party receivables. 

[End of table] 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kay Daly, (202) 512-9095, or dalykl@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Gayle L. Fischer, Assistant 
Director; F. Abe Dymond, Assistant General Counsel; Carl S. Barden; 
Deyanna J. Beeler; Francine DelVecchio; Lauren S. Fassler; Jason Kelly; 
Amanda K. Miller; Matthew L. Wood; and Matthew P. Zaun made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] GAO, VA Health Care: VA Has Not Sufficiently Explored Alternatives 
for Optimizing Third-Party Collections, GAO-01-1157T (Washington, D.C.: 
Sept. 20, 2001). 

[2] GAO, 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.) 

[3] GAO, VA Medical Centers: Further Operational Improvements Could 
Enhance Third-Party Collections, GAO-04-739 (Washington, D.C.: July 19, 
2004). 

[4] H.R. Rep. No. 109-95, at 56 (May 23, 2005). See also H.R. Conf. 
Rep. No. 109-305, at 43 (Nov. 18, 2005); Military Quality of Life and 
Veterans Affairs Appropriations Act, 2006, Pub. L. No. 109-114, tit. 
II, 110 Stat. 2372, 2384-85 (Nov. 30, 2005). 

[5] VHA has 21 VISNs that oversee medical center activities within 
their area, which may cover one or more states. VISN 6 covers North 
Carolina, parts of southern Virginia, and eastern West Virginia. 

[6] Under 38 U.S.C.  1729, VA is not authorized to collect these 
amounts from third-party insurers. 

[7] VA Handbook 4800.14, Medical Care Debts, Section 4 (b) (1). 

[8] Our statistical tests were based on a 95 percent, 2-sided 
confidence interval. Because confidence intervals varied widely for our 
various control tests, we used a conservative estimate of our test 
results that is based on the lower bound of our confidence intervals. 

[9] VHA Handbook 4800.14, Write-Offs, Decreases, and Termination of 
Medical Care Collections Fund Accounts Third-Party Receivable Balances, 
Appendix B. 

[10] Accounts receivable staff reduce third-party receivables for a 
variety of reasons including, but not limited to, partial payments when 
the amount received is the full amount expected from the insurance 
carrier, the amount of payment received is the usual and customary 
amount received from the insurance company, or medical services are not 
covered under the insurance policy. 

[11] VHA's CBO was established in April 2002 as the single accountable 
authority for the development of administrative processes, policy, 
regulations, and directives associated with the delivery of VA health 
benefit programs. VHA's CBO is composed of independent offices in the 
field that are dedicated to health benefits administration and revenue- 
related programs. 

[12] Pub. L. No. 104-262,  101, 110 Stat. 3177, 3178 (Oct. 
9,1996)(codified at 38 U.S.C.  1710). 

[13] See Veterans' Health-Care Amendments of 1986, Pub. L. No. 99-272, 
tit. XI,  19013, 100 Stat. 372, 382 (Apr. 7, 1986)(codified, as 
amended, at 38 U.S.C.  1729). The 1986 statute authorized VA to seek 
reimbursement from third-party health insurance companies for the cost 
it incurred in providing medical care to insured veterans with 
nonservice-related conditions. Without specific authority to retain the 
third-party insurance payments it collected, however, VA was required 
to deposit these third-party collections in the General Fund of the 
U.S. Treasury. 

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

[15] VA collections for health care services include third-party 
collections as well as patient copayments for medical services. 

[16] 38 U.S.C.  1729. VA is subrogated to the rights of veterans for 
payments from third-party payers who are obligated to provide for (or 
pay the expenses of) the veterans' health services under a health plan 
contract. In addition to excluding uninsured veterans, this authority 
excludes veterans covered only by Medicare because the statutory 
definition for third-party payers specifically excludes Medicare, but 
does not exclude Medicare supplemental insurance policies obtained from 
private insurers. 

[17] 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. 

[18] VA Handbook 4800.14, Section 4b, "Third-Party Receivables, Claims 
Follow-up." 

[19] VistA is a comprehensive medical records system. VistA includes an 
accounts receivable module that supports third-party billings and 
collections. 

[20] GAO, VA Medical Centers: Further Operational Improvements Could 
Enhance Third-Party Collections, GAO-04-739 (Washington, D.C.: July 19, 
2004). 

[21] VA Handbook 1907.03, Sections 3 and 12. 

[22] According to VA officials, the initial VA Handbook revision 
included the 30-day follow-up. However, with implementation of the 
Medicare verification process, and an evaluation of the third-party 
accounts receivable portfolio, VA determined that 45 days provided a 
more reasonable time for payment processing. 

[23] Under 38 U.S.C.  1729, VA is not authorized to collect these 
amounts from third-party insurers. 

[24] 38 U.S.C.  1729. 

[25] By law, VA has a right to seek reimbursement from third-party 
insurance companies for up to 6 years after it provided medical 
services to veterans with nonservice-connected conditions. 38 U.S.C.  
1729(b)(2)(C). However, according to a VA official, VA has entered into 
contracts with many insurers agreeing to a shorter recovery period in 
return for other health care provider contractual benefits, such as a 
higher reimbursement level. We did not independently verify the 
contractually limited billing periods for particular services provided 
or whether the billing periods had expired for the billable amounts 
associated with those services. 

[26] The Health Insurance Portability and Accountability Act of 1996 
(HIPAA), as implemented by the HIPAA Privacy Rule, establishes federal 
privacy standards for the use and disclosure of an individual's 
protected health information. See Pub. L. No. 104-191, 

 264, 110 Stat. 1936, 2033-34 (Aug. 21, 1996); 45 C.F.R. pt. 164 
subpt. E ("privacy of individually identifiable health information"). 
To comply with HIPAA, health care providers and health insurance 
companies often require patients to sign release forms authorizing 
limited use and disclosure of the protected health information for 
specified purposes, such as payment for health care. 

[27] VA Handbook, 4800.14, Section 4, "Third-Party Receivables Under 
Fiscal Activity Jurisdiction." 

[28] VHA Handbook, 4800.14, Section 4 (b) (2). 

[29] VHA Handbook 4800.14, Appendix B. 

[30] CBO was established in April 2002 as the single accountable 
authority for the development of administrative processes, policy, 
regulations, and directives associated with the delivery of VA health 
benefit programs. CBO is composed of independent offices in the field 
that are dedicated to health benefits administration and revenue- 
related programs. 

[31] VHA Directive 2006-026, Sections 1 and 2. 

[32] VHA Directive 2006-035, Sections 1 through 4. 

[33] VHA Directive 2007-030, Sections 2 and 4. 

[34] VA Handbook 1907.03, Sections 12, 13, and 5, respectively. 

[35] See H.R. Conf. Rep. No. 109-305, at 43 (Nov. 18, 2005); H.R. Rep. 
No. 109-95, at 56 (May 23, 2005); Military Quality of Life and Veterans 
Affairs Appropriations Act, 2006, Pub. L. No. 109-114, tit. II, 110 
Stat. 2372, 2384-85 (Nov. 30, 2005). 

[36] In the conference report accompanying its fiscal year 2002 
appropriation, VA was directed to begin a demonstration project of a 
patient financial services system installed and operated by a 
contractor. H.R. Conf. Rep. No. 107-272, at 56 (Nov. 6, 2001); see also 
H.R. Rep. No 107-159, at 11 (July 25, 2001). 

[37] GAO, Standards for Internal Control in the Federal Government, 
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999). This document was 
prepared to fulfill our statutory requirement under 31 U.S.C. 3512 (c), 
(d), commonly known as the Federal Managers' Financial Integrity Act of 
1982, to issue standards that provide the overall framework for 
establishing and maintaining internal control. 

[38] GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G 
(Washington, D.C.: August 2001). This document was prepared to assist 
agencies in maintaining or implementing effective internal control and, 
when needed, to help determine what, where, and how improvements can be 
implemented. Although this tool is not required to be used, it is 
intended to provide a systematic, organized, and structured approach to 
assessing the internal control structure. 

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