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Need Improvement' which was released on May 31, 2013. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

May 2013: 

VA Health Care: 

Management and Oversight of Fee Basis Care Need Improvement: 

GAO-13-441: 

GAO Highlights: 

Highlights of GAO-13-441, a report to congressional requesters. 

Why GAO Did This Study: 

While VA treats the majority of veterans in VA-operated facilities, in 
some instances it must obtain the services of non-VA providers to 
ensure that veterans are provided timely and accessible care. These 
non-VA providers are commonly reimbursed by VA using a fee-for-service 
arrangement known as fee basis care. VA’s fee basis care program has 
grown rapidly in recent years-—rising from about 8 percent of VA’s 
total health care services budget in fiscal year 2005 to about 11 
percent in fiscal year 2012. GAO was asked to review fee basis care 
program spending and utilization and factors that influence VAMC fee 
basis utilization. This report examines how fee basis care spending 
and utilization changed from fiscal year 2008 to fiscal year 2012, 
factors that contribute to the use of fee basis care, and VA’s 
oversight of fee basis care program spending and utilization. 

GAO reviewed relevant laws and regulations, VA policies, and fee basis 
spending and utilization data from fiscal year 2008 through fiscal 
year 2012. In addition, GAO reviewed the fee basis care operations of 
six selected VAMCs that varied in size, services offered, and 
geographic location. 

What GAO Found: 

The Department of Veterans Affairs’ (VA) fee basis care spending 
increased from about $3.04 billion in fiscal year 2008 to about $4.48 
billion in fiscal year 2012. The slight decrease in fiscal year 2012 
spending from the fiscal year 2011 level was due to VA’s adoption of 
Medicare rates as its primary payment method for fee basis providers. 
VA’s fee basis care utilization also increased from about 821,000 
veterans in fiscal year 2008 to about 976,000 veterans in fiscal year 
2012. 

Figure: Total VA Fee Basis Care Spending, Fiscal Years 2008 through 
2012: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
Spending: $3.04 billion. 

Fiscal year: 2009; 
Spending: $3.81 billion. 

Fiscal year: 2010; 
Spending: $4.40 billion. 

Fiscal year: 2011; 
Spending: $44.56 billion. 

Fiscal year: 2012; 
Spending: $4.48 billion. 

Source: GAO (analysis); VA (data). 

[End of figure] 

GAO found that several factors affect VA medical centers’ (VAMC) 
utilization of fee basis care—-including veteran travel distances to 
VAMCs and goals for the maximum amount of time veterans should wait 
for VAMC-based appointments. VAMCs that GAO reviewed reported that 
they often use fee basis care to provide veterans with treatment 
closer to their homes-—particularly for veterans who are not eligible 
for travel reimbursement. In addition, VAMC officials reported that 
veterans are often referred to fee basis providers to ensure that VAMC-
based clinics that would otherwise treat them can meet established VA 
wait time goals for how long veterans wait for an appointment. 
However, GAO found that VA has not established goals for and does not 
track how long veterans wait to be seen by fee basis providers. 
VA’s monitoring of fee basis care spending is limited because fee 
basis data do not currently include a claim number or other identifier 
that allows all charges from a single office visit with a fee basis 
provider or an inpatient hospital stay to be analyzed together. GAO 
found that without the ability to analyze spending in this way, VA is 
limited in its ability to assess the cost of fee basis care and verify 
that fee basis providers were paid appropriately. 

What GAO Recommends: 

GAO recommends that VA revise its beneficiary travel requirements to 
allow reimbursement for veterans seeking similar care from a fee basis 
provider, apply the same wait time goals to fee basis care as VAMC-
based care, and ensure fee basis data includes a claim number. VA 
generally concurred with the GAO’s conclusions and recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-13-441]. For more 
information, contact Randall Williamson at (202) 512-7114 or 
williamsonr@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

VA Fee Basis Care Spending and Utilization Increased from Fiscal Year 
2008 to Fiscal Year 2012, with the Majority of Spending and 
Utilization in Outpatient Care: 

Three Main Factors Influence Fee Basis Care Utilization, and VAMCs We 
Reviewed Used Several Methods to Reduce Fee Basis Spending and 
Utilization: 

VA's Processes for Overseeing the Fee Basis Care Program Lack Critical 
Data Needed to Effectively Track and Monitor Fee Basis Spending and 
Utilization: 

VA Is Currently Implementing a Short-Term Corrective Action Plan for 
the Fee Basis Care Program, but Longer-Term Strategy Is Still in 
Development: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: VA Spending and Utilization by Fee Basis Care Category: 

Appendix II: VA Outpatient and Inpatient Spending and Utilization by 
Fee Basis Care Category: 

Appendix III: Comments from the Department of Veterans Affairs: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Status of Short-Term Improvement Goals, March 2013: 

Table 2: VA Spending and Utilization by Fee Basis Care Category, 
Fiscal Years 2008 through 2012: 

Table 3: Outpatient Spending and Utilization by VA Fee Basis Care 
Category, Fiscal Years 2008 through 2012: 

Table 4: Inpatient Spending and Utilization by VA Fee Basis Care 
Category, Fiscal Years 2008 through 2012: 

Figures: 

Figure 1: VA Medical Center (VAMC) Fee Basis Preauthorization Process 
Steps: 

Figure 2: Veterans Integrated Service Network (VISN) or VA Medical 
Center (VAMC) Fee Basis Claims Processing Steps: 

Figure 3: Veterans Health Administration (VHA) Chief Business Office 
(CBO) Oversight of Fee Basis Care: 

Figure 4: Total VA Fee Basis Care Spending in Dollars, Fiscal Years 
2008 through 2012: 

Figure 5: Number of Unique Veterans Who Received Care from Fee Basis 
Providers, Fiscal Years 2008 through 2012: 

Figure 6: VA Fee Basis Care Spending by Inpatient and Outpatient Care 
in Dollars, Fiscal Years 2008 through 2012: 

Figure 7: Number of Unique Veterans Who Received Care from Inpatient 
and Outpatient Fee Basis Providers, Fiscal Years 2008 through 2012: 

Abbreviations: 

CBO: Chief Business Office: 

DOD: Department of Defense: 

HCPCS: Healthcare Common Procedure Coding System: 

MS-DRG: Medicare Severity Diagnosis Related Group: 

OIG: Office of Inspector General: 

VA: Department of Veterans Affairs: 

VAMC: VA medical center: 

VHA: Veterans Health Administration: 

VISN: Veterans Integrated Service Network: 

[End of section] 

United States Government Accountability Office: 
GAO: 
441 G St. N.W. 
Washington, DC 20548: 

May 31, 2013: 

Congressional Requesters: 

The Department of Veterans Affairs (VA) treats the majority of 
eligible veterans it serves in VA-operated facilities, such as VA 
medical centers (VAMC).[Footnote 1] However, in some instances, VA 
must obtain the services of non-VA providers to help ensure that 
veterans are provided timely and accessible care. These non-VA 
providers treat veterans in non-VA facilities, such as physicians' 
offices or hospitals in the community.[Footnote 2] Non-VA providers 
are commonly paid by VA using a fee-for-service arrangement--known as 
fee basis care.[Footnote 3] VA's fee basis care program has grown 
rapidly--in fiscal year 2005 VA's total spending on fee basis care was 
about $1.6 billion and represented about 8 percent of VA's total 
health care services budget, while in fiscal year 2012 VA's total 
spending on fee basis care was about $4.5 billion and represented 
about 11 percent of VA's total health care services budget.[Footnote 4] 

Although VA would prefer to deliver care to veterans within its own 
health care system operated by the Veterans Health Administration 
(VHA), officials recognize that it is necessary to use fee basis 
providers to help ensure that veterans are provided timely and 
accessible care.[Footnote 5] For example, VA utilizes fee basis care 
when a VAMC is unable to provide certain specialty care services, such 
as cardiology or orthopedics, or when veterans must travel long 
distances to obtain specialty care from VA providers. 

Congressional requesters have raised questions about the rising costs 
of fee basis care and issues with VA's management and oversight of its 
fee basis care program as highlighted in reports by the VA Office of 
Inspector General (OIG) and the National Academy of Public 
Administration.[Footnote 6] These issues include a lack of internal 
controls for payment of fee basis providers and ineffective management 
and oversight of the fee basis care program by local and VA Central 
Office officials. VA has also acknowledged that while the fee basis 
program has seen marked growth in the number of veterans it serves, 
the management and support systems used to administer the program have 
not matured in a similar manner. In this report we examine: (1) how 
fee basis care spending and utilization have changed from fiscal year 
2008 through fiscal year 2012; (2) factors that contribute to the use 
of fee basis care and steps some VAMCs are taking to reduce fee basis 
care; (3) VA's oversight of fee basis care program spending and 
utilization; and (4) VA's plans and strategies to improve the fee 
basis care program. 

To examine how fee basis care spending and utilization have changed 
from fiscal year 2008 through fiscal year 2012, we reviewed fee basis 
data and interviewed officials from VA Central Office. Specifically, 
we reviewed four separate files of fee basis program data--inpatient 
records, inpatient ancillary records, outpatient records, and pharmacy-
only records--for each fiscal year from 2008 through 2012. We analyzed 
these files separately and together to be able to report fee basis 
utilization and spending by fiscal year and across all 5 fiscal years. 
[Footnote 7] We analyzed fee basis data for fiscal years 2008 through 
2012 to determine: (1) the spending associated with inpatient and 
outpatient fee basis care, (2) how many veterans received inpatient 
and outpatient care from fee basis providers, and (3) the breakdown of 
fee basis care spending and utilization by fee basis category. Our 
final analysis of fee basis data included all records of fee basis 
care except those for pharmacy-only fee basis payments. We excluded 
pharmacy-only fee basis care because: it (1) represents a very small 
portion of fee basis care spending ($0.002 billion for fiscal years 
2008 through 2012), (2) represents a very small portion of fee basis 
care utilization (11,750 unique veterans for fiscal years 2008 through 
2012),[Footnote 8] (3) applies only to reimbursements of veterans for 
medications that they paid for as part of emergency care that was 
reimbursed by VA, and (4) could not be separated out into service-
connected and non-service-connected emergency care categories. 
[Footnote 9] To ensure the reliability of these data, we interviewed 
VA Central Office officials responsible for maintaining and analyzing 
fee basis data and conducted automated checks of data fields to ensure 
that they contained complete information. Following these actions, we 
found information in this dataset to be sufficiently reliable for the 
purposes of this report. 

To examine the factors that contribute to the use of fee basis care 
and the steps some VAMCs are taking to reduce fee basis care, we spoke 
with VAMC officials at selected VAMCs about the factors that influence 
fee basis care usage at these facilities and how officials at these 
facilities have reduced fee basis care spending and utilization. We 
selected six VAMCs that varied in terms of size, services offered, and 
geographic location, given that all VAMCs offer veterans fee basis 
care. These six VAMCs were located in Durham and Salisbury, North 
Carolina; Alexandria, Louisiana; Biloxi, Mississippi; Las Vegas, 
Nevada; and Loma Linda, California. We also spoke with officials in 
the three Veterans Integrated Service Networks (VISN) responsible for 
managing these six selected VAMCs.[Footnote 10] Information obtained 
from these VISNs and VAMCs cannot be generalized to all VISNs and 
VAMCs. Finally, we reviewed relevant VA policies and procedures 
related to methods discussed by VAMC officials during these interviews. 

To examine VA's oversight of fee basis care program spending and 
utilization, we spoke with VA Central Office staff responsible for 
monitoring the program. In addition, we assessed the content and 
structure of VA Central Office databases used to monitor the fee basis 
care program. 

To examine VA's plans and strategies to improve the fee basis care 
program, we spoke with VA Central Office staff responsible for 
developing planned improvements. We also reviewed documentation of 
these planned improvements. 

We conducted our performance audit from September 2012 to May 2013 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. 

Background: 

Fee Basis Care Authorization Process: 

The two main fee basis care delivery methods--preauthorized care and 
emergency care--are approved using two different processes.[Footnote 
11] Preauthorizing fee basis care involves a multistep process 
conducted by the VAMC that regularly serves a veteran.[Footnote 12] 
The preauthorization process is initiated by a VA provider who submits 
a request for fee basis care to the VAMC's fee basis care unit, which 
is an administrative department within each VAMC that processes VA 
providers' fee basis care requests and verifies that fee basis care is 
necessary.[Footnote 13] Once approved by the VAMC Chief of Staff or 
his or her designee, the veteran is notified of the approval and can 
choose any fee basis provider willing to accept VA payment at 
predetermined rates.[Footnote 14] (See figure 1.) 

Figure 1: VA Medical Center (VAMC) Fee Basis Preauthorization Process 
Steps: 

[Refer to PDF for image: process illustration] 

VA provider: 
Submits fee basis care request. 

Fee basis care unit: 
Reviews request and determines if other options for care are available. 

Chief of Staff or designee: 
Approves fee basis care requests. 

Fee basis care unit: 
Notifies veteran of fee basis care approval. 

Veteran: 
Chooses a fee basis provider and schedules appointment[A]. 

Source: GAO. 

[A] In some VAMCs, the fee basis care unit may assist veterans in 
setting up their appointments with the fee basis provider of their 
choice. 

[End of figure] 

In addition to preauthorizing fee basis care, VA also pays for fee 
basis care in certain emergency situations. For veterans with service-
connected conditions, VA is required to pay for emergency care 
provided by non-VA facilities for service-connected conditions, medical 
conditions associated with or aggravating a service-connected condition, 
or for any condition if VA classifies the veteran as permanently and 
totally disabled due to their service-connected condition.[Footnote 15] 
For veterans without service-connected conditions, VA must pay for 
emergency fee basis care if the veteran is enrolled in the VA healthcare 
system and has received VA care within the last 2 years, has no other 
health coverage, and satisfies certain other requirements.[Footnote 16],
[Footnote 17] 

Fee Basis Care Payment Process: 

Regardless of whether a veteran's fee basis care was preauthorized or 
the result of an emergency, the steps for processing payments to fee 
basis providers are the same. Specifically, the fee basis provider 
submits a bill with a list of charges--commonly referred to as a claim-
-to either the VISN or VAMC for payment following the veteran's 
treatment. In some VISNs, claims processing activities are centralized 
in a VISN-level fee basis claims processing unit that is responsible 
for reviewing fee basis provider claims, obtaining copies of medical 
records for veterans' fee basis care, and approving payment to fee 
basis providers. In other VISNs, these claims-processing activities 
are decentralized and are the responsibility of individual VAMCs. 
After VAMC or VISN officials review the claims for accuracy, fee basis 
providers are reimbursed by VA. (See figure 2.) 

Figure 2: Veterans Integrated Service Network (VISN) or VA Medical 
Center (VAMC) Fee Basis Claims Processing Steps: 

[Refer to PDF for image: process illustration] 

Fee basis provider: 
Submits a claim and medical records for care provided to a veteran. 

VISN or VAMC claims processing unit: 
Reviews claim for accuracy, determines reimbursement rate, and 
authorizes payment. 

VA: 
Reimburses fee basis provider. 

Source: GAO. 

[End of figure] 

Fee Basis Payment Rates: 

Prior to 2011, VA paid fee basis providers' claims using its own 
internally developed fee schedule or other local agreements.[Footnote 
18] In February 2011, VA began using applicable Medicare rates as its 
basis for reimbursing fee basis providers for all inpatient and 
outpatient services.[Footnote 19] Medicare rates are generally lower 
than rates VA previously used to reimburse fee basis providers. 
[Footnote 20] However, with the move to Medicare rates, some fee basis 
claims are paid at non-Medicare rates; specifically, if VA has a 
sharing or negotiated agreement with a fee basis provider that 
includes a non-Medicare rate, VA will pay that amount instead of the 
Medicare rate.[Footnote 21] These rates are specific to each 
individual agreement and can be higher or lower than the Medicare 
rate. For example, some VAMCs currently provide dialysis treatments to 
veterans through preauthorized fee basis care using a multi-VISN 
negotiated rate that exceeds the Medicare reimbursement rate. Some 
VAMCs pay these higher reimbursement rates for fee basis dialysis care 
because the major fee basis dialysis providers did not agree to 
provide dialysis treatment to veterans at the Medicare reimbursement 
rate. In addition, many sharing agreements between VAMCs and DOD 
medical facilities allow VA to reimburse DOD for care it provides to 
veterans at a lower rate than Medicare. 

VA Oversight of Fee Basis Care: 

VA Central Office has primary responsibility for overseeing VISNs' and 
VAMCs' fee basis care operations and manages the fee basis care 
program through the Veterans Health Administration (VHA) Chief 
Business Office (CBO).[Footnote 22] According to VHA CBO officials, 
VHA CBO relies on three main methods for overseeing fee basis spending 
and utilization: 

* Reports from VISNs and VAMCs. VISNs and VAMCs submit monthly reports 
that include information on their progress meeting several performance 
measures related to claims processing--including the total number of 
claims processed by each fee basis unit, the number of claims 
processed in 30 days or less, the number of claims processed in more 
than 30 days, and the number of appeals for payment of denied fee 
basis claims submitted by veterans.[Footnote 23] 

* Management reviews of VISN and VAMC operations. VHA CBO staff 
conduct periodic site visits to examine a VISN or VAMC fee basis 
unit's claims processing functions and program monitoring to identify 
areas where the facility could improve. At the conclusion of these 
site visits, the VHA CBO staff that conducted the site visit prepares 
a formal report on the findings of the visit, including 
recommendations to improve processes, and provides training to the 
facility if needed. 

* Analysis of fee basis data. VHA CBO staff regularly analyze fee 
basis claims data to gain a system-wide view of the fee basis care 
program. Specifically, they conduct retroactive reviews of fee basis 
data to identify cases of fraud, waste, and abuse; provide updates to 
VA stakeholders, including other key officials within VA Central 
Office, on the status of the fee basis care program; and independently 
verify findings from external reviews, including VA OIG audits. 

According to VHA CBO officials, the Program Oversight and Informatics 
division is responsible for analyzing fee basis data to review overall 
trends and identify outliers in payments made to fee basis providers 
and the Program Administration division is responsible for conducting 
periodic reviews of VISN and VAMC fee basis operations and reviewing 
reports from VISNs and VAMCs on fee basis utilization. (See figure 3.) 

Figure 3: Veterans Health Administration (VHA) Chief Business Office 
(CBO) Oversight of Fee Basis Care: 

[Refer to PDF for image: organization hierarchy] 

Top level: 
VHA Chief Business Officer. 

Second level, reporting to VHA Chief Business Officer: 
Deputy Chief Business Officer Purchased Care. 

Third level, reporting to Deputy Chief Business Officer Purchased Care: 
Program Oversight and Informatics; 
Program Administration. 

Source: GAO. 

[End of figure] 

VA Fee Basis Care Spending and Utilization Increased from Fiscal Year 
2008 to Fiscal Year 2012, with the Majority of Spending and 
Utilization in Outpatient Care: 

VA Fee Basis Care Spending and Utilization Increased from Fiscal Year 
2008 to Fiscal Year 2012: 

VA's fee basis care spending increased from about $3.04 billion in 
fiscal year 2008 to about $4.48 billion in fiscal year 2012.[Footnote 
24] VA's fee basis care spending hit its highest level of about $4.56 
billion in fiscal year 2011. Across the 5 fiscal years we reviewed, VA 
spent a total of about $20.29 billion on fee basis care. (See figure 
4.) 

Figure 4: Total VA Fee Basis Care Spending in Dollars, Fiscal Years 
2008 through 2012: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
Spending: $3.04 billion. 

Fiscal year: 2009; 
Spending: $3.81 billion. 

Fiscal year: 2010; 
Spending: $4.40 billion. 

Fiscal year: 2011; 
Spending: $44.56 billion. 

Fiscal year: 2012; 
Spending: $4.48 billion. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis spending in this figure does not include pharmacy-
only fee basis care. Pharmacy-only fee basis care consists of 
reimbursements to veterans for medications that they paid for as part 
of emergency care that was reimbursed by VA under 38 U.S.C. § 1728 
(emergency care generally for service-connected conditions) or 38 
U.S.C. § 1725 (Veterans Millennium Health Care and Benefits Act 
emergency care for non-service-connected conditions). Total 
spending for pharmacy-only fee basis care was $0.002 billion for 
fiscal years 2008 through 2012. 

Spending totals in this figure have been rounded. 

[End of figure] 

The overall increase in fee basis care spending from fiscal year 2008 
to fiscal year 2012 can be attributed to increases in the number of 
veterans who received fee basis care. The slight decline in fee basis 
care spending between fiscal year 2011 and fiscal year 2012 is likely 
due to VA's adoption of Medicare rates for its fee basis care program. 
Medicare reimbursement rates are typically lower for most health care 
services than VA's previous fee basis care reimbursement rates. 
[Footnote 25] 

VA's fee basis care utilization also increased from fiscal year 2008 
to fiscal year 2012--although the number of unique veterans receiving 
care from fee basis providers has increased less rapidly for the last 
3 fiscal years.[Footnote 26] A total of about 2.45 million unique 
veterans received care from fee basis providers from fiscal year 2008 
to fiscal year 2012.[Footnote 27] Total fee basis care utilization hit 
its highest point of the 5-year period in fiscal year 2012 when about 
976,000 unique veterans received care from fee basis providers, about 
155,000 more veterans than in fiscal year 2008. (See figure 5.) 
According to VA officials, the increase in the number of unique 
veterans receiving care from fee basis providers from fiscal year 2008 
to fiscal year 2012 was likely due to VA's use of fee basis care to 
meet goals for the maximum amount of time veterans wait for VAMC-based 
appointments. 

Figure 5: Number of Unique Veterans Who Received Care from Fee Basis 
Providers, Fiscal Years 2008 through 2012: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
Unique veterans: 821,000. 

Fiscal year: 2009; 
Unique veterans: 919,000. 

Fiscal year: 2010; 
Unique veterans: 945,000. 

Fiscal year: 2011; 
Unique veterans: 964,000. 

Fiscal year: 2012; 
Unique veterans: 976,000. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis utilization in this figure does not include pharmacy-
only fee basis care. Pharmacy-only fee basis care consists of 
reimbursements to veterans for medications that they paid for as part
of emergency care that was reimbursed by VA under 38 U.S.C. § 1728 
(emergency care generally for service-connected conditions) or 38 
U.S.C. § 1725 (Veterans Millennium Health Care and Benefits Act 
emergency care for non-service-connected conditions). A total of 
11,750 unique veterans received such reimbursement from fiscal year 
2008 through fiscal year 2012. 

To determine the fee basis utilization numbers in this figure, we 
counted each individual veteran once per fiscal year by identifying 
the number of unique Social Security numbers present in each fiscal 
year's fee basis data. Utilization totals in this figure have been 
rounded to the nearest thousand veterans. 

[End of figure] 

In addition, fee basis care spending and utilization also varied by 
fee basis care category. (See appendix I for more information.) 

Outpatient Services Accounted for the Majority of VA Fee Basis Care 
Spending and Utilization from Fiscal Year 2008 through Fiscal Year 
2012: 

VA spent about $11.22 billion on outpatient fee basis care and about 
$9.07 billion on inpatient fee basis care from fiscal year 2008 
through fiscal year 2012. During this 5-year period, inpatient fee 
basis care spending increased steadily from about $1.41 billion in 
fiscal year 2008 to about $2.15 billion in fiscal year 2012, while 
outpatient fee basis care spending declined in fiscal year 2012. As a 
result, by fiscal year 2012, the difference in inpatient and 
outpatient fee basis care spending was only about $180 million, 
compared to a $590 million disparity in fiscal year 2011 when 
outpatient fee basis care spending was at its highest level. (See 
figure 6.) 

Figure 6: VA Fee Basis Care Spending by Inpatient and Outpatient Care 
in Dollars, Fiscal Years 2008 through 2012: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
Inpatient: $1.41 billion; 
Outpatient: $1.63 billion. 

Fiscal year: 2009; 
Inpatient: $1.69 billion; 
Outpatient: $2.13 billion. 

Fiscal year: 2010; 
Inpatient: $1.83 billion; 
Outpatient: $2.56 billion. 

Fiscal year: 2011; 
Inpatient: $1.98 billion; 
Outpatient: $2.57 billion. 

Fiscal year: 2012; 
Inpatient: $2.15 billion; 
Outpatient: $2.33 billion. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis spending in this figure does not include pharmacy-
only fee basis care. Pharmacy-only fee basis care consists of 
reimbursements to veterans for medications that they paid for as part 
of emergency care that was reimbursed by VA under 38 U.S.C. § 1728 
(emergency care generally for service-connected conditions) or 38 
U.S.C. § 1725 (Veterans Millennium Health Care and Benefits Act of 
1999 emergency care for non-service-connected conditions). Total 
spending for pharmacy-only fee basis care was $0.002 billion for 
fiscal years 2008 through 2012. 

Spending totals in this figure have been rounded. 

[End of figure] 

Significantly more veterans received care from outpatient fee basis 
care providers than from inpatient fee basis care providers. 
Specifically, from fiscal year 2008 through fiscal year 2012, a total 
of about 2.35 million unique veterans received care from outpatient 
fee basis providers and a total of about 472,000 unique veterans 
received care from inpatient fee basis providers.[Footnote 28] (See 
figure 7.) 

Figure 7: Number of Unique Veterans Who Received Care from Inpatient 
and Outpatient Fee Basis Providers, Fiscal Years 2008 through 2012: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2008; 
Inpatient: 119,000; 
Outpatient: 775,000. 

Fiscal year: 2009; 
Inpatient: 133,000; 
Outpatient: 871,000. 

Fiscal year: 2010; 
Inpatient: 143,000; 
Outpatient: 893,000. 

Fiscal year: 2011; 
Inpatient: 153,000; 
Outpatient: 907,000. 

Fiscal year: 2012; 
Inpatient: 169,000; 
Outpatient: 912,000. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis utilization in this figure does not include pharmacy-
only fee basis care. Pharmacy-only fee basis care consists of 
reimbursements to veterans for medications that they paid for as part 
of emergency care that was reimbursed by VA under 38 U.S.C. § 1728 
(emergency care generally for service-connected conditions) or 38 
U.S.C. § 1725 (Veterans Millennium Health Care and Benefits Act of 
1999 emergency care for non-service-connected conditions). A total of 
11,750 unique veterans received such reimbursement from fiscal year 
2008 through fiscal year 2012. 

Utilization amounts in this figure may not match utilization totals 
cited previously in text, as some veterans may have received both 
inpatient and outpatient fee basis care during the same fiscal year. 
To determine the inpatient fee basis utilization numbers in this 
figure, we counted each individual veteran once per fiscal year by 
identifying the number of unique Social Security numbers present in 
inpatient fee basis data. To determine the outpatient fee basis 
utilization numbers in this figure, we counted each individual veteran 
once per fiscal year by identifying the number or unique Social 
Security numbers present in outpatient fee basis data. These fee basis 
utilization totals have been rounded. 

[End of figure] 

Preauthorized fee basis care accounted for the majority of outpatient 
fee basis spending and utilization from fiscal year 2008 through 
fiscal year 2012--about $7.36 billion and about 80 percent of unique 
veterans receiving outpatient fee basis care. VA spent the least on 
outpatient fee basis care for compensation and pension exams and 
emergency care for service-connected veterans.[Footnote 29] In 
addition, preauthorized fee basis care accounted for the majority of 
inpatient fee basis care spending from fiscal year 2008 through fiscal 
year 2012. Preauthorized inpatient fee basis care accounted for about 
$4.60 billion and about 57 percent of unique veterans receiving 
inpatient fee basis care. VA spent the least on inpatient fee basis 
care associated with emergency care for service-connected veterans. 
(See appendix II.) 

Three Main Factors Influence Fee Basis Care Utilization, and VAMCs We 
Reviewed Used Several Methods to Reduce Fee Basis Spending and 
Utilization: 

During our review of six VAMCs, we identified three common factors 
that affected these facilities' utilization of fee basis care--
clinical service availability, veteran travel distances, and VA wait 
time goals. In addition, officials from the six VAMCs reported several 
methods they use to reduce either the cost of referring veterans to 
fee basis providers or the number of veterans their facilities refer 
to fee basis providers. 

Limited Availability of Clinical Services, Veteran Travel Distances, 
and Wait Times Goals Influence Fee Basis Care Utilization: 

Limited Availability of Clinical Services: 

VAMCs have limitations on the services they can offer due to a variety 
of factors, including the size of their facilities and the types of 
providers they can recruit, which can affect fee basis care 
utilization. VA officials from the six VAMCs we examined reported that 
the types of clinical services offered at their facilities affected 
veterans' utilization of fee basis care. For example, officials from 
the Alexandria VAMC explained that their facility does not meet VA's 
requirements for providing orthopedic surgery services to veterans and 
does not provide these services. As a result, they refer veterans who 
need these services to fee basis providers. Similarly, officials from 
the Biloxi VAMC explained that they do not have the ability to offer 
radiation therapy for cancer treatment at their medical center. As a 
result, they refer veterans who need radiation therapy to fee basis 
providers and reported that their VAMC has little control over 
increases in fee basis spending for these services. 

In some cases, a VAMC may not be able to provide some services to 
veterans because they do not have the right mix of clinical 
specialists to accommodate complications that may arise during 
surgery. For example, for a VAMC to offer joint replacement surgery, 
the facility must be equipped with an orthopedic specialist capable of 
performing the surgery and a number of additional providers to assist 
in the event of an emergency complication during surgery. For joint 
replacement surgeries, these additional providers include a thoracic 
surgeon and a neurologist who both must be available within 15 minutes 
by phone or 60 minutes in person, if needed. If these criteria for 
additional providers are not met, the VAMC is not authorized to 
perform joint replacement surgeries even if the VAMC has an orthopedic 
specialist capable of performing the surgery. When VAMCs are unable to 
provide services due to these requirements, they may rely on fee basis 
care to obtain these services for veterans. 

In other cases, VAMCs are unable to recruit specialists and as a 
result cannot offer some clinical services to veterans. When such 
recruiting challenges arise, VAMCs may rely on fee basis care to 
ensure veterans can receive medical services. For example, officials 
from the Las Vegas VAMC explained that they have difficulty recruiting 
several types of specialists--including vascular surgeons, 
pulmonologists, and gastroenterologists. These officials explained 
that they are exploring ways to provide relocation incentives to help 
recruit specialists; however, they noted recruiting is difficult 
because recent medical school graduates often want the opportunity to 
conduct medical research in addition to patient care and the Las Vegas 
VAMC does not have a research program. 

Veteran Travel Distances to VAMCs: 

The distance that veterans have to travel to receive medical care is 
also a critical factor influencing whether they are treated in VAMCs 
or referred to fee basis providers. Traveling long distances for 
medical care is often impractical for veterans, particularly those 
receiving ongoing outpatient medical care, such as dialysis or 
radiation therapy for cancer. The decision about whether a veteran can 
physically tolerate the travel to a VAMC or should be referred to a 
fee basis provider in the community is a clinical judgment VA 
providers make in consultation with VAMC fee basis care unit staff. 
Officials from all six of the VAMCs we reviewed reported that 
utilization of fee basis care was affected by the distance that 
veterans must travel to receive VAMC-based care. For example, the 
Biloxi VAMC serves veterans from four states along the Gulf Coast, 
including many who live more than 300 miles from the facility. 
Officials from the Biloxi VAMC explained that the significant travel 
distance that some veterans face when traveling from their homes to 
the VAMC for care is burdensome and may not be appropriate for all 
veterans. As a result, these officials said that their VAMC frequently 
refers veterans to fee basis providers within the veterans' own 
communities to reduce this burden. Similarly, officials from the 
Alexandria VAMC explained that many times they also refer veterans to 
fee basis providers in veterans' own communities to lessen the travel 
burden. 

Another related factor that can increase fee basis utilization 
involves whether veterans referred to fee basis providers are eligible 
for reimbursement for travel costs through VA's beneficiary travel 
program. VA's beneficiary travel program reimburses eligible veterans 
for travel from their home to either their primary VAMC, another VAMC, 
or to a fee basis provider that can provide the care they need. 
[Footnote 30] Under VA's beneficiary travel program regulations, 
veterans are eligible for travel reimbursement only if they meet one 
of several criteria--including having a service-connected disability 
rating of 30 percent or more, or an annual income below a specified 
threshold.[Footnote 31] Therefore, veterans who do not meet these 
criteria cannot receive reimbursement for travel costs to another VAMC 
for treatment. Under these circumstances, veterans may see a fee basis 
provider closer to their residences, according to VA officials, even 
though fee basis care may cost VA considerably more than the cost of 
treatment in a VAMC. The Secretary of Veterans Affairs has authority 
under the beneficiary travel authorizing statute to provide travel 
reimbursement to additional categories of veterans. However, VAMCs 
only have the authority to reimburse veterans who meet the eligibility 
requirements of the beneficiary travel program as outlined in VA 
regulations.[Footnote 32] In order to allow VAMCs to reimburse 
additional veterans for travel, VA would need to revise its 
regulations to include additional categories of veterans. 

Officials from one VAMC and a few VISNs we reviewed told us they often 
send veterans who are not eligible for travel reimbursement to fee 
basis providers instead of referring them to other VAMCs that can 
provide the care because VA cannot compensate them for their travel to 
another VA facility. For example, officials from the Biloxi VAMC 
explained that the Houston VAMC is able to provide veterans with high-
quality interventional cardiology services, such as cardiac 
catheterization and cardiothoracic surgery, which are not available at 
the Biloxi VAMC. However, if a veteran is not eligible for beneficiary 
travel, the Biloxi VAMC will refer them to a fee basis provider to 
lessen the financial burden on the veteran even though, in some cases, 
care from a fee basis provider may cost the Biloxi VAMC $30,000 to 
$40,000 more than if the veteran were treated at the Houston VAMC. 
Biloxi VAMC officials said that they have asked their VISN to allow 
them to reimburse additional veterans for travel to the Houston VAMC 
for services that facility can provide, but they were informed that 
VA's beneficiary travel regulations do not permit them to offer travel 
reimbursements to veterans not eligible for beneficiary travel benefits. 

As part of the fee basis preauthorization process, VAMC or VISN 
officials do not evaluate whether it would be less expensive to send 
veterans to another VAMC for treatment rather than sending them to a 
fee basis provider. In requesting authorization for a veteran to see a 
fee basis provider, VAMC providers do not currently include 
information on the likely costs of the fee basis care.[Footnote 33] 

VA Wait Time Goals: 

The amount of time veterans wait for VAMC-based appointments for 
health care also may be a significant factor that increases VA's 
utilization of fee basis care. In fiscal year 2012, VA performance 
goals for VAMC-based care wait times called for VAMCs to complete 
veterans' primary care appointments within 7 days of their desired 
appointment date and schedule veterans' specialty care appointments 
within 14 days of their desired appointment date.[Footnote 34] These 
performance goals are included in VISN and VAMC directors' annual 
performance contracts and are a part of the scores used to determine 
the amount of performance pay they are awarded each fiscal 
year.[Footnote 35] According to VA officials responsible for 
developing these performance contracts, wait times for care received 
from fee basis providers are excluded from these performance measures 
and VISN and VAMC directors' performance contracts do not include 
specific goals for wait times for fee basis care. 

VA officials from all six VAMCs we reviewed reported that they 
routinely refer veterans to fee basis providers to help ensure that 
veterans receive timely care and that their facilities meet 
performance goals for wait times for VAMC-based care. For example, 
Biloxi VAMC officials said they refer veterans to fee basis providers 
to avoid having longer wait times for veterans in VAMC-based clinics 
that would cause the Biloxi VAMC to fall short of its performance goal 
for VAMC-based care wait times. Similarly, officials from the 
Alexandria VAMC explained that their medical center sends veterans to 
fee basis providers solely to meet the wait time goals for the VAMC. 
They said that veterans needing treatment in several specialties--
including audiology, cardiology, and ophthalmology--are referred to 
fee basis providers to help the Alexandria VAMC meet its goals for 
VAMC-based clinic wait times. 

While serving veterans in a timely way is important and sending them 
to fee basis providers may provide veterans more timely service, VA 
does not track how long it takes veterans to be seen by fee basis 
providers at all VAMCs.[Footnote 36] For example, officials from the 
Alexandria VAMC explained that they often refer veterans to fee basis 
providers when the Alexandria VAMC's wait times are too long, but fee 
basis providers in their community also face capacity limitations and 
may not be able to schedule appointments for veterans any sooner than 
the VAMC-based provider. Since VA does not require all VAMCs to track 
wait times for fee basis providers, little is known about how often 
veterans' wait times for fee basis care appointments exceed VAMC-based 
appointment wait time goals. Because VA has no data on wait times for 
veterans treated by fee basis providers, it is not possible to 
determine if veterans are receiving comparable access to fee basis 
providers as veterans receiving care from VAMC-based providers. 
[Footnote 37] 

VAMC Officials Reported Three Areas with the Potential to Reduce Fee 
Basis Spending and Utilization: 

Expanding VAMC Capacity: 

Efforts to provide either increased capacity or additional VAMC-based 
health care services have helped VAMCs reduce their utilization of fee 
basis care, according to officials from all six VAMCs we reviewed. For 
example, Durham VAMC officials explained that they recently completed 
an operating room expansion at their facility, which has allowed them 
to bring more surgical services back into the VAMC and reduce their 
reliance on fee basis surgical services. These officials also said 
that the Durham VAMC is preparing to expand its inpatient psychiatric 
unit by adding six additional inpatient beds, which will reduce their 
reliance on fee basis providers for treating veterans when VAMC-based 
psychiatric beds are at capacity. Durham VAMC officials reported that 
the operating room expansion saves an estimated $18 million annually 
and the additional six VAMC-based psychiatric unit beds saves the 
facility an estimated $3.4 million annually. In another case, Biloxi 
VAMC officials reported that in 2010 they reduced their reliance on 
fee basis providers for pulmonary function tests by purchasing 
additional equipment and hiring an additional technician to increase 
the VAMC-based capacity to provide these tests. As a result, officials 
have seen a drop in the number of veterans referred to fee basis 
providers for this service and fee basis costs for pulmonary function 
tests decreased by about $112,000 between fiscal years 2010 and 2012. 

Such expansions require a careful analysis of the benefits and costs 
of the expansion. Before a VAMC expands its capacity, VA requires 
VAMCs to develop a business case for the expansion as part of VA's 
annual consideration of capital investments.[Footnote 38] These 
business cases must address several elements--including a financial 
analysis and safety issues. For example, Durham VAMC officials 
explained that to make these decisions about expanding its operating 
room and inpatient psychiatric bed capacity they reviewed weekly fee 
basis reports that included cost and volume information on the most 
common services that their VAMC provided through fee basis care and 
used these reports to make decisions about which Durham VAMC-based 
services should be expanded. 

However, some VAMC officials noted that it may not always be more cost 
effective for VAMCs to provide these services. For example, officials 
from the Salisbury VAMC explained that they planned to build a VAMC-
based dialysis unit to reduce the number of veterans they referred to 
fee basis providers for dialysis treatments. However, when they 
compared the cost of building a dialysis unit to the cost of providing 
veterans dialysis treatments through fee basis providers, they 
determined that fee basis care was as cost-effective as building a 
dialysis unit. 

Sharing Agreements with DOD: 

DOD medical facilities colocated with nearby VAMCs offer an 
alternative to veterans receiving care from more costly community-
based fee basis providers. Currently, VA and DOD have a policy that 
allows the departments to charge one another at least 10 percent less 
for clinical services than they would in locations without sharing 
agreements.[Footnote 39] As of June 2012, there are nearly 200 active 
sharing agreements in place between VA and DOD that range in 
complexity and scope from sharing a single service to agreements that 
govern the sharing of multiple services.[Footnote 40] 

Two of the six VAMCs we reviewed--located in Las Vegas and Biloxi--
share resources with neighboring DOD health care facilities to provide 
lower-cost care to veterans.[Footnote 41] The Las Vegas VAMC has a 
sharing agreement with Nellis Air Force Base for some health care 
services, including cardiac and radiation oncology services. 
Similarly, the Biloxi VAMC has several sharing agreements with Air 
Force and Navy medical facilities along the Gulf Coast for some health 
care services. Officials from both these VAMCs reported that they 
refer veterans to these DOD facilities before sending them to fee 
basis providers in the community because the reimbursement rate for 
services provided in DOD medical facilities is lower than the Medicare 
rates used to reimburse fee basis providers. Officials from both the 
Las Vegas and Biloxi VAMCs explained that they first explore whether 
care is available through sharing agreements with nearby DOD medical 
facilities before referring the veterans to fee basis providers. 

Transferring Veterans Back to VAMC-based Inpatient Care: 

Another critical factor affecting fee basis care spending and 
utilization is the timely transfer of veterans receiving inpatient 
care from fee basis providers back to VAMC-based care. This is 
particularly relevant because, as we discussed earlier, VA has spent 
almost $1.3 billion over the last 5 years on emergency inpatient 
services for veterans through the Millennium Act and about $4.6 
billion on preauthorized inpatient fee basis care. (See appendix II.) 
As a result, it is important that VAMC staff closely monitor the 
conditions of veterans receiving inpatient care from fee basis 
providers to ensure that they are transferred to VAMCs once their 
conditions stabilize. Officials from all six VAMCs we examined 
reported that transferring veterans being treated by fee basis 
providers back to VAMC-based care when appropriate can be a way of 
reducing the cost of inpatient fee basis care. According to officials 
at two VAMCs, this is because VAMC inpatient bed capacity limitations 
that required a veteran to be referred to an inpatient fee basis 
provider can change during the course of a veteran's hospital stay in 
non-VA facilities. 

While officials from all six VAMCs we reviewed noted that transferring 
veterans back to inpatient VAMC-based care can help reduce fee basis 
utilization and spending, we found some VAMCs have more robust 
monitoring methods than other VAMCs for tracking veterans being 
treated by fee basis providers through their utilization management 
programs.[Footnote 42] Specifically, we found the following: 

* Three of the VAMCs we reviewed had a more formal approach that was 
integrated with their utilization management programs to actively 
identify circumstances when veterans being treated as inpatients by 
fee basis providers could return to the VAMC to complete their 
inpatient care. For example, the Salisbury VAMC has a transfer 
coordinator program specifically designated to actively identify such 
circumstances. The Salisbury VAMC employs a nurse case manager who 
visits veterans during their inpatient stays with fee basis providers 
and identifies changes in veterans' conditions that will allow them to 
return to the VAMC, and coordinates veterans' transitions back into 
VAMC-based care. According to Salisbury VAMC officials, this program 
has allowed them to transfer veterans back to the VAMC to complete 
their care once the veterans' conditions have stabilized. 

* In contrast, the other three VAMCs we reviewed had a more passive 
approach that was limited to tracking veterans' progress through 
information given to them by the veterans' inpatient fee basis 
providers. For example, the Alexandria VAMC's transfer coordinator 
monitors veterans' inpatient fee basis care; however, this information 
is rarely used to transfer veterans back to the VAMC to complete their 
treatment. 

Although ensuring that VAMCs are incorporating fee basis care into 
their utilization management programs would enable VA to more 
efficiently identify when opportunities exist for some veterans to be 
transferred back to lower-cost VAMC-based care, VA does not currently 
require all VAMCs to conduct such review.[Footnote 43] Specifically, 
VA's current utilization management policy does not require VAMCs to 
incorporate reviews of inpatient fee basis care into their VAMC-based 
utilization management programs.[Footnote 44] VA Central Office has 
not provided guidance to all VAMCs on how to most effectively track 
veterans receiving inpatient care from fee basis providers, which has 
allowed VAMC programs to take a variety of forms. Ultimately, without 
guidance and standardized procedures provided by VA Central Office, 
some VAMCs may not be monitoring veterans receiving inpatient care 
from fee basis providers in the community closely enough to prevent 
prolonged and unnecessary stays for veterans in inpatient fee basis 
care and may be missing other opportunities to reduce fee basis care 
spending. 

VA's Processes for Overseeing the Fee Basis Care Program Lack Critical 
Data Needed to Effectively Track and Monitor Fee Basis Spending and 
Utilization: 

One of VHA CBO's three primary methods for monitoring fee basis care 
spending and utilization is its review of fee basis data. According to 
VHA CBO officials, these reviews are primarily focused on examining 
fee basis care utilization and spending--including VISN fee basis care 
utilization and significant high-cost areas, such as dialysis 
treatment. Analysis of fee basis data is an important aspect of 
monitoring that allows VHA CBO staff to look for outliers in spending 
and utilization, mistakes in fee basis claims data, potential lost 
opportunities to reduce spending and utilization, and to assess more 
long-term considerations--such as adjusting the level of fee basis 
care services or assessing potential areas for VAMC-based service 
expansion. However, the usefulness of this monitoring method as an 
oversight tool is significantly limited due to the way fee basis data 
are collected and reported to the VHA CBO. 

Currently, VA's data system collects claims data for each individual 
service provided by a fee basis provider--such as the physician's 
time, surgical procedures, hospital rooms, and laboratory tests--
rather than the total cost of a veteran's office visit or inpatient 
stay. VA's current data system cannot group these individual services 
by episode of care--a combined total of all care provided to a veteran 
during a single office visit or inpatient stay.[Footnote 45],[Footnote 
46] For example, during an office visit to an orthopedic surgeon for a 
joint replacement evaluation, an X-ray for the affected joint may be 
ordered, the veteran may be given a blood test, and the veteran may 
receive a physical evaluation from the orthopedic surgeon. The fee 
basis provider would submit a bill to VA for the office visit and 
separate bills would be submitted by the radiologist that X-rayed the 
affected joint and the lab that performed the veteran's blood test. 
Each of these bills would include charges under different medical 
billing codes.[Footnote 47] The VISN or VAMC-based fee basis clerk 
processing this claim would record these charges in VA's fee basis 
claims processing software and request payment for these fee basis 
providers. However, the fee basis data system used by VHA CBO to review 
these payments would not be able to link the charges for these three 
treatments together as a single episode of care for this veteran's 
office visit with an orthopedic surgeon. 

Not being able to group charges from fee basis providers by episode of 
care has the following disadvantages in terms of monitoring fee basis 
care and potentially reducing costs: 

* Monitoring challenges. From a monitoring perspective, not having 
data by episode of care prevents VA from efficiently identifying areas 
of utilization growth or unusually high spending. For example, VA-wide 
episode of care monitoring would allow VHA CBO to assess whether 
opportunities for strategic expansion of VAMC-based services--such as 
the Durham VAMC operating room expansion and the Biloxi VAMC addition 
of pulmonary function test equipment mentioned earlier--would be 
possible in more VAMCs. Episode of care monitoring would more 
effectively allow VA to make more consistent strategic decisions about 
such service expansions. 

* Cost analysis limitations. From a cost perspective, not having fee 
basis data on an episode of care basis prevents VA from efficiently 
assessing whether fee basis providers were reimbursed appropriately. 
Without the ability to monitor fee basis spending by episodes of care, 
VHA CBO cannot conduct retrospective reviews of VISN and VAMC claims 
to determine if the appropriate rate was applied for the care provided 
by fee basis providers. For example, VHA CBO staff cannot verify that 
fee basis care that should be paid using Medicare "bundled" 
reimbursement rates were in fact paid using these bundled rates 
because all individual charges from a veteran's episode of care cannot 
be reliably linked. Since VA uses Medicare rates to reimburse fee 
basis providers for most services, VAMCs and VISNs, like Medicare, use 
bundled reimbursement rates for some procedures that provide a single 
payment for closely related services in some cases. Bundled rates are 
designed to give providers an incentive to furnish care more 
efficiently as providers retain the difference if the bundled payment 
exceeds the cost of care.[Footnote 48] Bundled rates provide a 
financial incentive for delivering care more efficiently by making 
providers accountable if a patient's treatment costs exceeded the 
bundled rate. 

To effectively conduct these retrospective reviews, VHA CBO would need 
to change its claims processing methods and ensure that the VISN or 
VAMC fee basis clerks processing each provider's claims assign a claim 
number to each payment made to a fee basis provider for an episode of 
care. This claim number would serve as a linkage among the individual 
service line items in VA's fee basis data system and allow VHA CBO to 
group together all payments made for a single episode of care and 
assess the total cost of that episode of care.[Footnote 49] 

VA Is Currently Implementing a Short-Term Corrective Action Plan for 
the Fee Basis Care Program, but Longer-Term Strategy Is Still in 
Development: 

In September 2012, VA outlined both short-and long-term plans for 
improving the fee basis care program following problems highlighted by 
several OIG audits and a recent congressional hearing. The short-term 
corrective action plan is made up of a series of tasks to be completed 
in fiscal year 2013 across six key areas--(1) foundational activities, 
(2) achieving a sustainable decrease in fee basis care improper 
payments, (3) recovery and recapture of fee basis care overpayments, 
(4) building a culture of accountability within the fee basis care 
program, (5) enhancing internal controls and data integrity, and (6) 
training and educating VISNs and VAMCs. 

We found that VA has taken a number of steps to better ensure the 
completion of its short-term corrective action plan in fiscal year 
2013.[Footnote 50] Specifically, VA has identified clear leadership 
for tasks, created teams to accomplish tasks that include 
representatives from across VA operations, sought the input of 
internal stakeholders--such as VISN and VAMC fee basis unit staff--
and external stakeholders--including the VA OIG, set clear target 
dates for the completion of tasks, and identified methods for 
assessing whether or not tasks had the desired effect on the fee basis 
care program. While it is still too early to determine if the efforts 
included in the short-term corrective action plan will produce 
meaningful improvements in the fee basis care program, it represents 
an important first step in increasing accountability for the outcomes 
of the fee basis care program. (See table 1.) 

Table 1: Status of Short-Term Improvement Goals, March 2013: 

Foundational activities: 

Short-term improvement goals: 
* Complete realignment of regulations to applicable statutes and 
revise applicable handbooks and directives; 
Estimated completion date: December 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Implement a national contracting strategy; 
Estimated completion date: June 2013; 
Completion progress: in progress. 

Achieve a sustainable decrease in improper payments: 

Short-term improvement goals: 
* Implement new care coordination initiative; 
Estimated completion date: September 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Implement cost estimation process improvements; 
Estimated completion date: March 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Evaluate the effectiveness of fee basis provider outreach efforts; 
Estimated completion date: September 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Validate the effectiveness of new Medicare-based fee schedule and 
software updates to help fee basis claims processing clerks identify 
the appropriate payment rate for claims; 
Estimated completion date: March 2013; 
Completion progress: completed. 

Recover and recapture overpayments: 

Short-term improvement goals: 
* Initiate recapture activities as appropriate with a former contract 
service provider found to overpay fee basis providers; 
Estimated completion date: March 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Assess recapture management approach and create a stronger 
partnership with VISN and VAMC Chief Financial Officers; 
Estimated completion date: June 2013; 
Completion progress: in progress. 

Build a culture of accountability: 

Short-term improvement goals: 
* Initiate communication with senior leaders--including VA Central 
Office officials, VISN leadership, and VAMC-based fee basis unit 
managers; 
Estimated completion date: December 2012; 
Completion progress: completed. 

Short-term improvement goals: 
* Define roles and responsibilities for the fee basis care program; 
Estimated completion date: June 2013; 
Completion progress: in progress. 

Enhance internal controls and data integrity: 

Short-term improvement goals: 
* Visit the 30 lowest-performing fee basis care units and develop 
action plans for improvement; 
Estimated completion date: September 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Assess fee basis care web-based performance management tools and 
ensure these tools provide a clear picture of the program's 
performance; 
Estimated completion date: March 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Increase communication to VISN and VAMC fee basis care units; 
Estimated completion date: December 2012; 
Completion progress: completed. 

Short-term improvement goals: 
* Implement predictive auditing to provide near-real time projections 
of fee basis care improper payments; 
Estimated completion date: March 2013; 
Completion progress: in progress. 

Train and educate the field: 

Short-term improvement goals: 
* Create a high performing education initiative that promotes learning 
and training on improper payment risks and control issues; 
Estimated completion date: March 2013; 
Completion progress: in progress. 

Short-term improvement goals: 
* Mandate appropriate training courses; 
Estimated completion date: No date specified[A]; 
Completion progress: in progress. 

Short-term improvement goals: 
* Update fee basis training courses to reflect the content of a new 
competency model developed for fee basis staff; 
Estimated completion date: September 2013; 
Completion progress: in progress. 

Source: GAO. 

[A] In February 2013, VHA CBO informed us that these training mandates 
are currently being discussed with VA's labor relations partners and 
they did not have an estimated completion date for these discussions. 

[End of table] 

VA is also in the process of developing a long-term strategy for 
improving its fee basis care program. This long-term strategy includes 
efforts to develop and implement a new organizational structure for 
the fee basis care program, consolidate claims processing functions in 
fewer locations, develop comprehensive guidance for the fee basis care 
program, implement a new competency-based personnel model, and 
implement new claims processing software efforts. To date, progress on 
the development of this long-term strategy has been limited to the 
development of new claims processing software and initial discussions 
of the new organizational structure. In February 2013, VA officials 
told us that the long-term strategy is still in development. 

Conclusions: 

VA's fee basis care program is a critical means for providing 
accessible health care to veterans. VA has acknowledged that fee basis 
care is a necessary tool for veterans when a VAMC does not have an 
available clinical specialist or when veterans face long travel 
distances to obtain care from VAMC-based providers. VA has also made 
concerted efforts in recent years to improve the fee basis care 
program by implementing a number of initiatives designed to improve 
the program--including new software packages for VISN and VAMC fee 
basis claims processing units, a new care coordination program, and 
initiating a program to better coordinate with fee basis providers. 

Moving forward, we believe it is critical that VA address four areas 
as potential ways to more effectively manage and monitor the fee basis 
care program. First, veterans' eligibility for travel reimbursement 
may affect whether they are referred to fee basis care or to another 
VAMC. Some veterans who qualify for travel reimbursement under VA's 
beneficiary travel program might elect to seek care at another VAMC 
without incurring personal travel expenses in lieu of being treated by 
a fee basis provider. In some cases, this could result in VA paying 
less for their care than it would if the veteran were treated through 
the fee basis care program. Should the Secretary of Veterans Affairs 
exercise his ability to revise the beneficiary travel eligibility 
requirements to allow for the use of beneficiary travel in cases where 
it is both more cost-effective for VA and in the veteran's best 
interest to receive care at another VAMC instead of a fee basis 
provider, it could be possible to lower overall fee basis care 
utilization and spending. In addition, VA does not currently require 
VAMCs to assess either the cost-effectiveness of reimbursing veterans 
for travel to another VAMC when determining whether to preauthorize 
fee basis care in veterans' local communities. 

Second, VA should better manage fee basis care wait times and costs. 
VA currently does not include fee basis care wait times in the 
measures it uses to assess VISN and VAMC directors' performance and 
does not track the amount of time veterans wait to see a fee basis 
provider. As a result, the VAMCs we reviewed are referring veterans to 
fee basis providers to ensure they meet the wait time performance 
goals for VAMC-based clinics. Having data on wait times for veterans 
referred to fee basis providers would help VA better determine if 
veterans are receiving comparable access to fee basis providers and 
VAMC-based providers. 

Third, VA may be missing an opportunity to reduce the cost of 
inpatient fee basis care by not requiring VAMC-based utilization 
management programs designed to regularly assess VAMC capacity to 
consider veterans being treated by non-VA inpatient fee basis 
providers. Incorporating veterans treated by non-VA inpatient fee 
basis providers into ongoing VAMC utilization management programs 
would allow VAMCs to identify situations when they no longer have 
capacity limitations and can complete a veteran's treatment in-house 
at a lower cost than the fee basis provider. 

Finally, VA can also improve its capability to more effectively 
monitor the fee basis care program. VA Central Office's monitoring 
efforts are limited by the inability to analyze fee basis care data by 
episode of care. Because information that would allow VA to pull 
together all services with a single office visit or inpatient stay is 
not available, VA Central Office cannot effectively monitor the 
payments made by fee basis care units or ensure that fee basis 
providers are billing VA appropriately for care. 

Recommendations for Executive Action: 

To effectively manage fee basis care spending, we recommend that the 
Secretary of Veterans Affairs take the following action: 

* Revise the beneficiary travel eligibility regulations to allow for 
the reimbursement of travel expenses for veterans to another VAMC to 
receive needed medical care when it is more cost-effective and 
appropriate for the veteran than seeking similar care from a fee basis 
provider. 

To effectively manage fee basis care wait times and spending, we 
recommend that the Secretary of Veterans Affairs direct the Under 
Secretary for Health to take the following three actions: 

* Require during the fee basis authorization process that VA providers 
and fee basis officials determine the cost-effectiveness of 
reimbursing medically stable veterans eligible for beneficiary travel 
for travel to another VAMC rather than referring them to a fee basis 
provider for similar care. 

* Analyze the amount of time veterans wait to see fee basis providers 
and apply the same wait time goals to fee basis care that are used as 
VAMC-based wait time performance measures. 

* Establish guidance for VAMCs that specifies how fee basis care 
should be incorporated with other VAMC utilization management efforts. 

To ensure that VA Central Office effectively monitors fee basis care, 
we recommend that the Secretary of Veterans Affairs direct the Under 
Secretary for Health to take the following action: 

* Ensure that fee basis data include a claim number that will allow 
for VA Central Office to analyze the episode of care costs for fee 
basis care. 

Agency Comments and Our Evaluation: 

VA provided written comments on a draft of this report, which we have 
reprinted in appendix III. In its comments, VA generally agreed with 
our conclusions, concurred with our five recommendations, and 
described the agency's plans to implement each of our recommendations. 
VA also provided technical comments, which we have incorporated as 
appropriate. 

In its plan, VA stated that to address our first recommendation, VHA 
CBO will consider including provisions related to veterans' travel 
reimbursement to another VAMC to receive needed medical care when it 
is more cost-effective and appropriate during a planned upcoming 
revision to the agency's beneficiary travel regulations. 

To address our second recommendation, VA noted that it is working to 
revise procedures for both its new fee basis care administration 
model, referred to as Non-VA Care Coordination, and the beneficiary 
travel program to ensure that the cost-effectiveness of a veterans' 
travel to another VAMC or to a non-VA care provider is reviewed as 
part of the authorization of fee basis care and is included in 
standard operating procedures and training. 

To address our third recommendation, VA noted that VHA CBO is 
completing requirements for a national consolidated monthly wait time 
indicator to measure performance for fee basis care referrals. 
However, VA did not acknowledge whether or not the wait time 
indicators used in this monthly indicator would be the same as those 
used for VAMC-based care, as we recommended. We support VA's decision 
to set wait time goals for fee basis care, but we believe the agency 
should ensure that wait time goals used for fee basis care are the 
same as those applied to VAMC-based care. 

To address our fourth recommendation, VA stated that the new fee basis 
care administration model, Non-VA Care Coordination, includes a 
template for managing information transfers from non-VA providers to 
VA staff that will support the utilization management practices of 
VAMCs. We support VA's efforts to standardize this information 
exchange in its fee basis care administration practices, but encourage 
the agency to also clarify its utilization management policies to 
ensure that VAMC utilization management staff regularly coordinate 
with VAMC fee basis management staff to receive this information from 
non-VA providers. 

Finally, to address our fifth recommendation, VA noted that the agency 
agrees that analyzing episode of care costs is an important part of 
the agency's fee basis monitoring activities. VA outlined its plan to 
analyze existing data systems and determine the most cost-effective 
method for monitoring episode of care costs. 

We are sending copies of this report to the Secretary of Veterans 
Affairs, the Under Secretary for Health, appropriate congressional 
committees, and other interested parties. In addition, the report is 
available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-7114 or at williamsonr@gao.gov. Contact points 
for our Offices of Congressional Relations and Public Affairs may be 
found on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix IV. 

Signed by: 

Randall B. Williamson: 
Director, Health Care: 

List of Requesters: 

The Honorable Patty Murray: 
Chairman: 
Committee on the Budget: 
United States Senate: 

The Honorable Bernie Sanders: 
Chairman: 
The Honorable Richard Burr: 
Ranking Member: 
Committee on Veterans' Affairs: 
United States Senate: 

The Honorable Jeff Miller: 
Chairman: 
The Honorable Michael Michaud: 
Ranking Member: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Mike Coffman: 
Chairman: 
Subcommittee on Oversight and Investigations: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Bill Johnson: 
House of Representatives: 

[End of section] 

Appendix I: VA Spending and Utilization by Fee Basis Care Category: 

This appendix provides additional results from our analysis of 
Department of Veterans Affairs (VA) fee basis data from fiscal years 
2008 through 2012. Specifically, the table below provides additional 
information on how much VA spent on fee basis care and how many unique 
veterans received care from fee basis providers by fee basis care 
categories. 

Table 2: VA Spending and Utilization by Fee Basis Care Category, 
Fiscal Years 2008 through 2012: 

VA fee basis care category: Preauthorized outpatient; 
Spending: $7.36 billion; 
Percentage of total fee basis spending: 36.28%; 
Utilization (by number of unique veterans)[B]: 1,871,984; 
Percentage of total fee basis utilization[C]: 76.50%. 

VA fee basis care category: Preauthorized inpatient; 
Spending: $4.60 billion; 
Percentage of total fee basis spending: 22.68%; 
Utilization (by number of unique veterans)[B]: 268,763; 
Percentage of total fee basis utilization[C]: 10.98%. 

VA fee basis care category: Home health; 
Spending: $2.69 billion; 
Percentage of total fee basis spending: 13.28%; 
Utilization (by number of unique veterans)[B]: 327,514; 
Percentage of total fee basis utilization[C]: 13.38%. 

VA fee basis care category: Community nursing home; 
Spending: $2.50 billion; 
Percentage of total fee basis spending: 12.33%; 
Utilization (by number of unique veterans)[B]: 63,714; 
Percentage of total fee basis utilization[C]: 2.60%. 

VA fee basis care category: Millennium Act[D]; 
Spending: $1.79 billion; 
Percentage of total fee basis spending: 8.83%; 
Utilization (by number of unique veterans)[B]: 373,738; 
Percentage of total fee basis utilization[C]: 15.27%. 

VA fee basis care category: Emergency care for veterans with service-
connected conditions[E]; 
Spending: $0.91 billion; 
Percentage of total fee basis spending: 4.50%; 
Utilization (by number of unique veterans)[B]: 161,359; 
Percentage of total fee basis utilization[C]: 6.59%. 

VA fee basis care category: Dental; 
Spending: $0.36 billion; 
Percentage of total fee basis spending: 1.77%; 
Utilization (by number of unique veterans)[B]: 151,419; 
Percentage of total fee basis utilization[C]: 6.19%. 

VA fee basis care category: Compensation and pension exams; 
Spending: $0.07 billion; 
Percentage of total fee basis spending: 0.33%; 
Utilization (by number of unique veterans)[B]: 142,212; 
Percentage of total fee basis utilization[C]: 5.81%. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis spending and utilization in this table does not 
include pharmacy-only fee basis care. Pharmacy-only fee basis care 
consists of reimbursements to veterans for medications that they paid 
for as part of emergency care that was reimbursed by VA under 38 
U.S.C. § 1728 (emergency care generally for service-connected 
conditions) or 38 U.S.C. § 1725 (Veterans Millennium Health Care and 
Benefits Act of 1999 emergency care for non-service-connected 
conditions). Total spending for pharmacy-only fee basis care was 
$0.002 billion for fiscal years 2008 through 2012. A total of 11,750 
unique veterans received such reimbursement from fiscal year 2008 
through fiscal year 2012. 

[A] Spending amounts may not sum to spending totals cited previously 
in text due to rounding. 

[B] Utilization amounts may not match utilization totals cited 
previously in text, as veterans may have received care in multiple 
categories during fiscal years 2008 through 2012. To determine the fee 
basis utilization numbers in this table, we counted each individual 
veteran once per fee basis care category by identifying the number of 
unique Social Security numbers present in fee basis data for fiscal 
years 2008 through 2012. 

[C] Utilization percentages may not add to 100 percent due to rounding 
and because some veterans may have received fee basis care in multiple 
categories. 

[D] Millennium Act care refers to services provided to veterans under 
the 1999 Veterans Millennium Health Care and Benefits Act. Under this 
act, VA is authorized to pay emergency care costs for some veterans' 
non-service-connected conditions, among other things. See 38 U.S.C. § 
1725. 

[E] Emergency care for veterans with service-connected conditions 
refers to fee basis care that meets the eligibility requirements for 
emergency care under 38 U.S.C. § 1728. Under this statute, VA is 
required to pay for emergency care provided by non-VA facilities for 
service-connected conditions, non-service-connected conditions 
associated with and aggravating a service-connected condition, any 
condition if the veteran is classified by VA as permanently and 
totally disabled from a service-connected condition, and any condition 
for veterans participating in a vocational rehabilitation program who 
need care to participate in a course of training. 

[End of table] 

[End of section] 

Appendix II: VA Outpatient and Inpatient Spending and Utilization by 
Fee Basis Care Category: 

This appendix provides additional results from our analysis of 
Department of Veterans Affairs (VA) fee basis data from fiscal years 
2008 through 2012. 

* Table 3 provides additional information on how much VA spent on 
outpatient fee basis care and how many unique veterans received care 
from outpatient fee basis providers by fee basis care categories. 

* Table 4 provides additional information on how much VA spent on 
inpatient fee basis care and how many unique veterans received care 
from inpatient fee basis providers by fee basis care categories. 

Table 3: Outpatient Spending and Utilization by VA Fee Basis Care 
Category, Fiscal Years 2008 through 2012: 

VA fee basis care category: Preauthorized; 
Outpatient spending: $7.36 billion; 
Percentage of total outpatient spending[A]: 65.59%; 
Outpatient utilization (by number of unique veterans)[B]: 1,871,984; 
Percentage of total outpatient utilization[C]: 79.57%. 

VA fee basis care category: Home health; 
Outpatient spending: $2.69 billion; 
Percentage of total outpatient spending[A]: 24.01%; 
Outpatient utilization (by number of unique veterans)[B]: 327,514; 
Percentage of total outpatient utilization[C]: 13.92%. 

VA fee basis care category: Millennium Act[D]; 
Outpatient spending: $0.49 billion; 
Percentage of total outpatient spending[A]: 4.41%; 
Outpatient utilization (by number of unique veterans)[B]: 311,199; 
Percentage of total outpatient utilization[C]: 13.23%. 

VA fee basis care category: Dental; 
Outpatient spending: $0.36 billion; 
Percentage of total outpatient spending[A]: 3.20%; 
Outpatient utilization (by number of unique veterans)[B]: 151,419; 
Percentage of total outpatient utilization[C]: 6.44%. 

VA fee basis care category: Emergency care for veterans with service-
connected conditions[E]; 
Outpatient spending: $0.25 billion; 
Percentage of total outpatient spending[A]: 2.20%; 
Outpatient utilization (by number of unique veterans)[B]: 126,896; 
Percentage of total outpatient utilization[C]: 5.39%. 

VA fee basis care category: Compensation and pension exams; 
Outpatient spending: $0.07 billion; 
Percentage of total outpatient spending[A]: 0.60%; 
Outpatient utilization (by number of unique veterans)[B]: 142,212; 
Percentage of total outpatient utilization[C]: 6.04%. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis spending and utilization in this table does not 
include pharmacy-only fee basis care. Pharmacy-only fee basis care 
consists of reimbursements to veterans for medications that they paid 
for as part of emergency care that was reimbursed by VA under 38 
U.S.C. § 1728 (emergency care generally for service-connected 
conditions) or 38 U.S.C. § 1725 (Veterans Millennium Health Care and 
Benefits Act of 1999 emergency care for non-service-connected 
conditions). Total spending for pharmacy-only fee basis care was 
$0.002 billion for fiscal years 2008 through 2012. A total of 11,750 
unique veterans received such reimbursement from fiscal year 2008 
through fiscal year 2012. 

[A] Spending percentages may not sum to 100 percent due to rounding. 

[B] Utilization amounts may not match utilization totals cited 
previously in text, as veterans may have received care in multiple 
categories during fiscal years 2008 through 2012. To determine the fee 
basis utilization numbers in this table, we counted each individual 
veteran once per fee basis care category by identifying the number of 
unique Social Security numbers present in outpatient fee basis data 
for fiscal years 2008 through 2012. 

[C] Utilization percentages may not add to 100 percent due to rounding 
and because some veterans may have received fee basis care in multiple 
categories. 

[D] Millennium Act care refers to services provided to veterans under 
the 1999 Veterans Millennium Health Care and Benefits Act. Under this 
act, VA is authorized to pay emergency care costs for some veterans' 
non-service-connected conditions, among other things. See 38 U.S.C. § 
1725. 

[E] Emergency care for veterans with service-connected conditions 
refers to fee basis care that meets the eligibility requirements for 
emergency care under 38 U.S.C. § 1728. Under this statute, VA is 
required to pay for emergency care provided by non-VA facilities for 
service-connected conditions, non-service-connected conditions 
associated with and aggravating a service-connected condition, any 
condition if the veteran is classified by VA as permanently and 
totally disabled from a service-connected condition, and any condition 
for veterans participating in a vocational rehabilitation program who 
need care to participate in a course of training. 

[End of table] 

Table 4: Inpatient Spending and Utilization by VA Fee Basis Care 
Category, Fiscal Years 2008 through 2012: 

VA fee basis care category: Preauthorized; 
Inpatient spending: $4.60 billion; 
Percentage of total inpatient spending: 50.76%; 
Inpatient utilization (by number of unique veterans)[A]: 268,763; 
Percentage of total inpatient utilization[B]: 56.96%. 

VA fee basis care category: Community nursing home; 
Inpatient spending: $2.50 billion; 
Percentage of total inpatient spending: 27.58%; 
Inpatient utilization (by number of unique veterans)[A]: 63,714; 
Percentage of total inpatient utilization[B]: 13.50%. 

VA fee basis care category: Millennium Act[C]; 
Inpatient spending: $1.30 billion; 
Percentage of total inpatient spending: 14.30%; 
Inpatient utilization (by number of unique veterans)[A]: 163,647; 
Percentage of total inpatient utilization[B]: 34.68%. 

VA fee basis care category: Emergency care for veterans with service-
connected conditions[D]; 
Inpatient spending: $0.67 billion; 
Percentage of total inpatient spending: 7.36%; 
Inpatient utilization (by number of unique veterans)[A]: 65,309; 
Percentage of total inpatient utilization[B]: 13.84%. 

Source: GAO (analysis); VA (data). 

Notes: Fee basis spending and utilization in this table does not 
include pharmacy-only fee basis care. Pharmacy-only fee basis care 
consists of reimbursements to veterans for medications that they paid 
for as part of emergency care that was reimbursed by VA under 38 
U.S.C. § 1728 (emergency care generally for service-connected 
conditions) or 38 U.S.C. § 1725 (Veterans Millennium Health Care and 
Benefits Act emergency care for non-service-connected conditions). 
Total spending for pharmacy-only fee basis care was $0.002 billion 
for fiscal years 2008 through 2012. A total of 11,750 unique veterans 
received such reimbursement from fiscal year 2008 through fiscal year 
2012. 

[A] Utilization amounts may not match utilization totals cited 
previously in text, as veterans may have received care in multiple 
categories during fiscal years 2008 through 2012. To determine the fee 
basis utilization numbers in this table, we counted each individual 
veteran once per fee basis care category by identifying the number of 
unique Social Security numbers present in inpatient fee basis data for 
fiscal years 2008 through 2012. 

[B] Utilization percentages may not add to 100 percent due to rounding 
and because some veterans may have received fee basis care in multiple 
categories. 

[C] Millennium Act care refers to services provided to veterans under 
the 1999 Veterans Millennium Health Care and Benefits Act. Under this 
act, VA is authorized to pay emergency care costs for some veterans' 
non-service-connected conditions, among other things. See 38 U.S.C. § 
1725. 

[D] Emergency care for veterans with service-connected conditions 
refers to fee basis care that meets the eligibility requirements for 
emergency care under 38 U.S.C. § 1728. Under this statute, VA is 
required to pay for emergency care provided by non-VA facilities for 
service-connected conditions, non-service-connected conditions 
associated with and aggravating a service-connected condition, any 
condition if the veteran is classified by VA as permanently and 
totally disabled from a service-connected condition, and any condition 
for veterans participating in a vocational rehabilitation program who 
need care to participate in a course of training. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Veterans Affairs: 

Department of Veterans Affairs: 
Washington DC 20420 

May 16, 2013: 

Mr. Randall Williamson: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Williamson: 

The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, "VA Health Care: 
Management and Oversight of Fee Basis Care Need Improvement" (GA0-13-
441) and generally agrees with GAO's conclusions and concurs with 
GAO's five recommendations to the Department. 

The enclosure specifically addresses GAO's five recommendations and 
provides an action plan for each, VA appreciates the opportunity to 
comment on your draft report. 

Sincerely, 

Signed by: 

Jose D. Riojas: 
Interim Chief of Staff: 

Enclosure: 

Department of Veterans Affairs (VA) Comments to Government 
Accountability Office (GAO) Draft Report "VA Health Care: Management 
and Oversight of Fee Basis Care Need improvement" (GA0-13-441): 

GAO Recommendation: To effectively manage fee basis care spending, we
recommend that the Secretary of Veterans Affairs take the following 
action: 

Recommendation 1: Revise the beneficiary travel eligibility 
regulations to allow for the reimbursement of travel expenses for 
veterans to another VAMC to receive needed medical care when it is 
more cost-effective and appropriate for the veteran than seeking 
similar care from a fee basis provider. 

VA Comment: Concur. The Veterans Health Administration's (VHA) Chief 
Business Office (CBO) will consider including provisions related to 
reimbursement of travel expenses for Veterans to another VA medical 
center (VAMC) to receive needed medical care when it is more cost-
effective and appropriate in conjunction with the planned revision of 
VA's beneficiary travel regulations. Relevant decision making will 
take into account Veteran's choice as to place of care; medical 
condition(s); ability to travel; required family support; and other 
relevant circumstances. 

GAO Recommendation: To effectively manage fee basis care wait times 
and spending, we recommend that the Secretary of Veterans Affairs 
direct the Under Secretary for Health to take the following three 
actions: 

Recommendation 2: Require during the fee basis authorization process 
that VA providers and fee basis officials determine the cost-
effectiveness of reimbursing medically stable veterans eligible for 
beneficiary travel for travel to another VAMC rather than referring 
them to a fee basis provider for similar care. 

VA Comment: Concur. VHA's Non-VA Care Coordination (NVCC)[Footnote 1] 
and Beneficiary Travel teams are working together to revise procedures 
and ensure that the cost-effectiveness of a Veteran's travel to 
another VAMC or to a non-VA care provider is reviewed as part of the 
NVCC consult/authorization activity, and is part of standard operating 
procedures and training. 

Recommendation 3: Analyze the amount of time veterans wait to see fee 
basis providers and apply the same wait time goals to fee basis care 
that are used as VAMC-based wait time performance measures. 

VA Comment: Concur. VHA's CBO is completing requirements for building 
a national-level, consolidated monthly wait time indicator report for 
measuring performance for non-VA medical care purchases. Anticipated 
completion date: September 30, 2013. 

Recommendation 4: Establish guidance for VAMCs that specifies how fee 
basis care should be incorporated with other VAMC utilization 
management efforts. 

VA Comment: Concur. VHA's CBO is in the process of fully implementing 
NVCC. Once NVCC is fully implemented, the utilization of standardized 
template progress notes titled "Non-VA Care Hospital Notification" and 
"Non-VA Care Coordination Note" will support utilization management 
practices. Anticipated completion date: September 30, 2013. 

GAO Recommendation: To ensure that VA Central Office effectively 
monitors fee basis care, we recommend that the Secretary of Veterans 
Affairs direct the Under Secretary for Health to take the following 
action: 

Recommendation 5: Ensure that fee basis data include a claim number 
that will allow VA Central Office to analyze the episode of care costs 
for fee basis care. 

VA Comment: Concur. VHA concurs with analyzing episodes of care cost, 
however, incorporating the claim number in Fee Basis Claim System 
(FBCS) is not the best long-term solution for gathering episode of 
care cost data. To address the issue of analyzing episode of care 
cost, CBO is taking the following actions: 

CBO is in the process of completing the analysis of data from the 
Corporate Data Warehouse and Program Integrity Tool that will allow 
for analysis of episode of care costs. Upon completion of the 
analysis, VA will decide the most cost effective method for monitoring 
episodes of care costs. Anticipated completion date: August 1, 2013. 

* CBO plans to implement the Healthcare Claims Processing (HCP) 
system, which will also allow for episodes of care cost analysis. HCP 
is VHA's future state claims processing system and it is currently 
under development. VHA-wide implementation will take approximately 9 
months to a year and is expected to start around December of 2014. 
Anticipated completion date: October 1, 2015. 

* Since the GAO audit, Patch 22 (Program Integrity Tool) in the FBCS 
has been implemented. The patch now provides a method of integrating, 
sending and receiving, tracking and managing claims so that analysis 
of the episode of care costs can be completed for claims that are 
processed through FBCS. Patch 22 also assigns a unique claim key 
number (similar to a claim number) to all claims associated with an 
episode of care within the FBCS. This unique claim key number can be 
used to monitor episode of care costs. 

Appendix III Footnote: 

[1] Non-VA Care Coordination (NVCC) is a nationwide effort to improve 
and standardize non-VA care (Fee Basis) coordination processes across 
VHA. 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Randall B. Williamson, (202) 512-7114 or williamsonr@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Marcia A. Mann, Assistant 
Director; Kathleen Diamond; Krister Friday; Katherine Nicole 
Laubacher; Daniel K. Lee; Lisa Motley; Rebecca Rust Williamson; and 
Malissa G. Winograd made key contributions to this report. 

[End of section] 

Footnotes: 

[1] VA's health care system includes 152 VAMCs. VA also provides care 
to veterans in VA-operated community-based outpatient clinics, 
community living centers (nursing homes), residential rehabilitation 
treatment programs, and comprehensive home care programs. 

[2] VA obtains the services of non-VA providers in non-VA facilities 
under the following statutory authorities: 38 U.S.C. §§ 1703, 1725, 1728, 
8111, and 8153. VA also has authority to employ providers on a fee basis 
to provide care in VA-operated facilities. See 38 U.S.C. § 7405(a)(2). 
This type of fee basis care is outside the scope of our report. 

[3] While we refer to this program as fee basis care in this report, 
VA has renamed it non-VA medical care. VA administers its fee basis 
care program under the following statutory authorities: 38 U.S.C. § 
1703, 38 U.S.C. § 1725, 38 U.S.C. § 1728, 38 U.S.C. § 8111, and 38 
U.S.C. § 8153. 

[4] These fee basis spending figures include all fee basis care for 
veterans provided by non-VA providers in non-VA facilities. 

[5] Fee basis care can be delivered by different types of health care 
providers--including physicians, chiropractors, physical therapists, 
and psychologists. This care is often preapproved by the VAMC the 
veteran most frequently visits; however in certain circumstances, fee 
basis care can be used to provide emergency care to veterans. 

[6] See Department of Veterans Affairs Office of Inspector General, 
Audit of Veterans Health Administration's Non-VA Outpatient Fee Care 
Program, 08-02901-185 (Washington D.C.: Aug. 3, 2009). This report 
found that in fiscal year 2008 VA made a significant number of 
improper payments--approximately 37 percent of paid claims. These 
improper payments included duplicate payments and payments processed 
for incorrect amounts. The VA OIG also concluded that VA needed to 
take immediate action to strengthen controls over the fee basis care 
program to ensure that payments were accurate and proper. See also 
National Academy of Public Administration, Veterans Health 
Administration Fee Care Program (Washington, D.C.: September 2011). 
This report was completed at VA's request and found that there were 
several challenges associated with the fee basis care program. 

[7] In addition, we combined inpatient records and inpatient ancillary 
records together in order to conduct analyses on all inpatient data. 

[8] Unique veterans refers to individual veterans treated by fee basis 
providers during the period of analysis. 

[9] VA pays for emergency care provided by non-VA facilities under 38 
U.S.C. § 1728 (emergency care generally for service-connected conditions) 
or 38 U.S.C. § 1725 (Veterans Millennium Health Care and Benefits Act 
emergency care for non-service-connected conditions). Separating fee 
basis care emergency spending under each of these separate authorities 
was a necessary component of our analysis. VA can also authorize and 
pay for emergency care provided by non-VA facilities under 38 U.S.C. 
§ 1703. However, in our report emergency care paid for under this 
authority is accounted for under categories such as preauthorized 
inpatient and outpatient care rather than emergency care categories. 
Emergency care provided by fee basis providers is deemed preauthorized 
if the providers provide notification of a veteran’s admission within 
72 hours, and this care can be paid under 38 U.S.C. § 1703. VA does not 
categorize payments for emergency care made under 38 U.S.C. § 1703 
separately from other types of fee basis care paid under this authority 
in its fee basis data. 

[10] VISNs oversee the day-to-day functions of VAMCs that are within 
their network. Each VAMC is assigned to a single VISN. 

[11] Preauthorized fee basis care comprises the majority, about 60 
percent, of fee basis care. 

[12] VA uses this same preauthorization process for nonemergency 
inpatient and outpatient care, dental care, nursing home care, 
compensation and pension exams, and most pharmacy expenses paid for 
through the fee basis care program. 

[13] Most inpatient, outpatient, nursing home, dental, and pharmacy 
services provided through the fee basis care program are preauthorized. 

[14] VA uses this process to preauthorize fee basis care from a number 
of different types of fee basis providers, including community-based 
hospitals and Department of Defense (DOD) medical facilities that 
collaborate with VAMCs to provide some veterans' care. 

[15] Under 38 U.S.C. § 1728, VA is required to pay for emergency care 
provided by non-VA facilities for service-connected conditions, non-
service-connected conditions associated with and aggravating a 
service-connected condition, any condition if VA classifies the 
veteran as permanently and totally disabled due to a service-connected 
condition, and any condition for veterans participating in a 
vocational rehabilitation program who need care to participate in a 
course of training. 

[16] Under 38 U.S.C. § 1725, as added by the 1999 Veterans Millennium 
Health Care and Benefits Act, VA is required to pay for emergency care 
provided by non-VA facilities for certain veterans that are not 
eligible for non-VA emergency care under section 1728. In order for a 
veteran's non-service-connected emergency conditions to be covered, 
veterans must be personally liable for the emergency care and must be 
active VA health care participants. To be an active VA health care 
participant, a veteran must be enrolled in the VA health care system 
and must have received VA care within the 2 years prior to receiving 
the emergency care. To be personally liable, a veteran must (1) be 
financially liable for the emergency care he or she receives; (2) have 
no entitlement or health care coverage under another health plan, such 
as Medicare or private health insurance; (3) have no other contractual 
or legal recourse against a third party that would in whole extinguish 
liability to the emergency care provider, such as insurance claims for 
car accidents; and (4) not be eligible under section 1728. The 
emergency care provided must be in response to a medical emergency, be 
provided when a VA or other federal facility was not feasibly 
available to provide the emergency care, and is limited to the 
services needed until transfer to a VA facility could be arranged. In 
addition, VA's regulations under the statute provide that the veteran 
must be treated in a hospital emergency department or similar 
facility; and the provider or the veteran must file a claim with VA 
within 90 days of providing the veteran's treatment, date of death, or 
the date the veteran exhausted, without success, action to obtain 
third-party payment. See 38 C.F.R. §§ 17.1000-17.1008. 

[17] VA can also authorize and pay for emergency care provided by non-VA 
facilities under 38 U.S.C § 1703. However, in our report emergency care 
paid for under this authority is accounted for under categories such as 
preauthorized inpatient and outpatient care rather than emergency care 
categories. Emergency care provided by fee basis providers is deemed 
preauthorized if the providers provide notification of a veteran’s 
admission within 72 hours, and this care can be paid under 38 U.S.C. 
§ 1703. VA does not categorize payments for emergency care made under 
38 U.S.C. § 1703 separately from other types of fee basis care paid 
under this authority in its fee basis data. 

[18] According to VA officials, prior to 2011, some VISNs and VAMCs 
had agreements with fee basis providers to pay claims at either 
applicable Medicare rates or other negotiated rates and fee basis 
hospital services were already paid at rates similar to Medicare 
rates. See 38 C.F.R. § 17.55. 

[19] See 75 Fed. Reg. 78.901 (Dec. 17, 2010) (amending 38 C.F.R. §§ 
17.52, 17.56). In December 2010, VA amended its regulations to apply 
Medicare rates, set by the Centers for Medicare & Medicaid Services, 
to all inpatient and outpatient care delivered by fee basis providers 
under 38 U.S.C. § 1703 and 38 U.S.C. § 1728. Emergency treatment 
provided to non-service-connected veterans under 38 U.S.C. § 1725 
(Millennium Act) is reimbursed according to 38 C.F.R. § 17.1005, which 
specifies that reimbursement for care provided under the Millennium 
Act is reimbursed at the lesser of two payment options: (1) the amount 
for which the veteran is personally liable or (2) 70 percent of the 
amount specified in the applicable Medicare fee schedule for such 
treatment. 

[20] Medicare pays for services such as those provided by physicians, 
inpatient hospitals, and dialysis facilities based on predetermined 
rates that are adjusted based on provider characteristics, 
geographical differences in market conditions, and other factors. 

[21] See 38 C.F.R. § 17.56(a)(1). 

[22] Within VA, VHA is the organization responsible for providing 
health care to veterans at medical facilities across the country. 

[23] According to VHA CBO officials, VA Central Office set a goal for 
all VISN and VAMC fee basis units to process fee basis provider claims 
within 30 days of receipt. 

[24] Fee basis spending in this report does not include pharmacy-only 
fee basis care. Pharmacy-only fee basis care consists of reimbursements 
to veterans for medications that they paid for as part of emergency care 
that was reimbursed by VA under 38 U.S.C. § 1728 (emergency care generally 
for service-connected conditions) or 38 U.S.C. § 1725 (Veterans Millennium 
Health Care and Benefits Act emergency care for non-service-connected 
conditions). Total spending for pharmacy-only fee basis care was $0.002 
billion for fiscal years 2008 through 2012. 

[25] See GAO, VA Health Care: Methodology for Estimating and Process 
for Tracking Savings Need Improvement, [hyperlink, 
http://www.gao.gov/products/GAO-12-305] (Washington, D.C.: Feb. 27, 2012). 
VA began using Medicare reimbursement rates for its fee basis program in 
February 2011. By reimbursing fee basis providers at the Medicare rate 
for the care they provide veterans, VA estimated that it would be able 
to save $315 million in fiscal year 2012 and $362 million in fiscal year 
2013. In addition, some savings would have been achieved during fiscal 
year 2011 as a result of these rates being used for 7 months of fiscal 
year 2011. 

[26] Fee basis utilization in this report does not include pharmacy-only 
fee basis care. Pharmacy-only fee basis care consists of reimbursements 
to veterans for medications that they paid for as part of emergency care 
that was reimbursed by VA under 38 U.S.C. § 1728 (emergency care generally 
for service-connected conditions) or 38 U.S.C. § 1725 (Veterans Millennium 
Health Care and Benefits Act emergency care for non-service-connected 
conditions). A total of 11,750 unique veterans received such reimbursement 
from fiscal year 2008 through fiscal year 2012. 

[27] Unique veterans refers to individual veterans treated during the 
period of analysis and ensures that the number of veterans served by 
the fee basis care program is not overstated due to some veterans 
being treated by fee basis providers more than once. To determine the 
total number of unique veterans who received care from fee basis 
providers (about 2.45 million), we counted each individual veteran 
only once for the 5-year period by identifying the number of unique 
Social Security numbers present in fee basis data. 

[28] To determine the number of unique veterans who received care from 
outpatient fee basis providers (2.35 million), we counted each 
individual veteran only once for the 5-year period by identifying the 
number of unique Social Security numbers present in outpatient fee 
basis data. To determine the number of unique veterans who received 
care from inpatient fee basis providers (472,000), we counted each 
individual veteran only once for the 5-year period by identifying the 
number of unique Social Security numbers present in inpatient fee 
basis data. These fee basis utilization figures have been rounded. 

[29] Emergency care for service-connected veterans refers to fee basis 
care that meets the eligibility requirements for emergency care under 
38 U.S.C. § 1728. Under this statute, VA is required to pay for emergency 
care provided by non-VA facilities for service-connected conditions, 
non-service-connected conditions associated with and aggravating a 
service-connected condition, any condition if the veteran is classified 
by VA as permanently and totally disabled from a service-connected 
condition, and any condition for veterans participating in a vocational 
rehabilitation program who need care to participate in a course of 
training. 

[30] See Veterans Health Administration, Beneficiary Travel, Handbook 
1601B.05 (July 23, 2010). Through VA's beneficiary travel program 
eligible veterans may receive reimbursement for travel expenses for 
any distance if it is financially favorable to the government. 

[31] Under 38 U.S.C. § 111, VA is authorized but not required to pay 
travel expenses for veterans. However, if VA exercises its authority 
to reimburse travel expenses, VA must pay travel expenses for 
specified categories of veterans and may reimburse travel expenses for 
any other veterans receiving medical care. Currently, VA's regulations 
for the beneficiary travel program designate as eligible the 
categories of veterans specifically mentioned in 38 U.S.C. § 111. See 
38 C.F.R. § 70.10. Specifically, veterans must meet at least one of 
the following criteria: (1) have a service-connected disability rating 
of 30 percent or more; (2) be receiving care related to their service-
connected disability if their service-connected disability rating is 
less than 30 percent; (3) be receiving VA pension benefits; (4) have 
an annual income below the maximum applicable annual rate of pension 
for all conditions ($12,465 for a veteran with no dependents in fiscal 
year 2013); (5) present clear evidence that they are unable to defray 
the cost of travel; or (6) be traveling to receive an exam to qualify 
them for VA compensation and pension. Veterans traveling for certain 
emergency situations may be eligible for transportation expenses under 
separate authority. See 38 U.S.C. § 1725; 38 C.F.R. §§ 17.1000-
17.1008. Persons specifically mentioned in other VA statutes as 
eligible for payment for beneficiary travel are also eligible, such as 
certain family members of veterans. See 38 C.F.R. § 70.10. Not all 
veterans eligible for fee basis care are eligible for beneficiary 
travel benefits at VA. 

[32] Currently, VA's beneficiary travel regulations limit eligibility 
for beneficiary travel to only those categories of veterans 
specifically mentioned in the beneficiary travel statute. See 38 
U.S.C. § 111, 38 C.F.R. § 70.10. 

[33] VA does require VA providers referring a veteran to a fee basis 
provider to enter one of five preprogrammed justifications in the 
request for fee basis care. These justifications include: (1) the VA 
facility does not provide the required service, (2) the veteran cannot 
safely travel to a VA facility due to a medical reason which must be 
specified, (3) the veteran cannot travel to a VA facility due to 
geographical inaccessibility, (4) the VA facility cannot provide the 
required service in a timely manner, or (5) "other" reasons, which 
must be specified. VA fee basis care units processing these referrals 
will not approve the veteran's fee basis care without one of these 
justifications from the VA provider. 

[34] VA's policy for determining the desired appointment date is 
unclear. A veteran's desired appointment date is the date on which the 
patient or provider wants the patient to be seen. In the case of a 
veteran new to the system, the desired appointment date should be 
determined based on the veteran's preferred appointment date. See GAO, 
VA Health Care: Reliability of Reported Outpatient Medical Appointment 
Wait Times and Scheduling Oversight Need Improvement, 
[hyperlink, http://www.gao.gov/products/GAO-13-130] (Washington, D.C.: 
Dec. 21, 2012). 

[35] Performance contracts for VISN directors are referred to as 
Network Director Performance Plans and performance contracts for VAMC 
directors are referred to as Facility Director Performance Plans. 
These documents include a number of performance measures with goals 
that VISN and VAMC directors are responsible for assuring their VISN 
or VAMC obtain. Performance pay for VISN and VAMC directors is 
determined based on their performance against these performance 
measures. 

[36] VAMCs that have already transitioned to VA's new fee basis care 
administration model, referred to as Non-VA Care Coordination, are 
required to track the average number of days between when the VA 
provider entered a request for fee basis care into a veteran's medical 
record and the date the veteran is seen by a fee basis provider. VA 
set a goal for VAMCs to average 25 days or less for this to occur. 
However, according to VA officials, not all VAMCs are currently 
participating in Non-VA Care Coordination. 

[37] See GAO, Standards for Internal Control in the Federal 
Government, [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1] 
(Washington, D.C.: November 1999). Standards for internal control in 
the federal government state that agencies should design internal 
controls that assure ongoing monitoring occurs in the course of 
normal operations, is continually performed, and is ingrained in 
agency operations. 

[38] See Department of Veterans Affairs, Strategic Capital Investment 
Planning Process, VA Handbook 0011 (Aug. 8, 2011). If a VAMC-based 
service expansion involves major or minor construction, VA requires 
VAMC officials to make a business case for the construction during 
VA's annual strategic capital investment process. Business cases must 
address a series of VA-wide criteria that address priorities such as 
safety, financial analysis, and client and customer access--in order 
to be considered for funding. VA reevaluates these criteria on a 
yearly basis to ensure it continually adapts to changes in 
demographics and health care delivery. After business cases are 
submitted, VA evaluates and prioritizes them for funding based on how 
well the suggested expansion addresses the criteria. 

[39] In fiscal year 2003, a memorandum of understanding between VA and 
DOD established a policy for reimbursement for health care services 
that they share. This memorandum of understanding allows VA and DOD 
collaborating facilities to use at least a 10 percent discount from 
the standard allowable charge for clinical services and certain 
specialty services. VA uses the fee basis care claims process to 
reimburse DOD medical facilities for the care they provide veterans 
through sharing agreements. DOD is reimbursed for services provided to 
veterans using the same process as fee basis providers, but their 
services are reimbursed at rates specified in each individual sharing 
agreement. 

[40] For more information, see GAO, VA and DOD Health Care: 
Department-Level Actions Needed to Assess Collaboration Performance, 
Address Barriers, and Identify Opportunities, [hyperlink, 
http://www.gao.gov/products/GAO-12-992] (Washington, D.C.: Sept. 
28, 2012). In September 2012, we recommended that the Secretaries 
of Veterans Affairs and Defense further develop a systematic process 
for identifying and furthering collaboration opportunities, such as 
sharing agreements. Both VA and DOD generally concurred with this 
recommendation but stressed the importance of local leaders in the 
development of collaboration because these local officials have the 
best sense of their health care markets. 

[41] Both the Las Vegas and Biloxi VAMCs participate in 2 of 10 joint 
ventures with DOD facilities in place throughout the country. Joint 
ventures allow VA and DOD to share multiple health care services and 
sometimes share facilities and give VA and DOD increased flexibility 
to determine reimbursement rates than with sharing agreements alone. 

[42] See Veterans Health Administration, Utilization Management 
Program, VHA Directive 2010-021 (May 14, 2010). VA policy requires 
that all VAMCs have a utilization management program in place. These 
programs are a key tool for managing the daily inpatient flow of a 
VAMC and ensuring that veterans receiving care at the VAMC are 
receiving the appropriate services based on their clinical needs; that 
information is gathered to inform decision making related to patient 
care management and discharge coordination; and that delays in 
services are identified. Utilization management often results in 
improved operational efficiencies, such as decreased lengths-of-stay 
at the VAMC and enhanced access for veterans. 

[43] VAMCs that have already transitioned to VA's new fee basis care 
administration model, referred to as Non-VA Care Coordination, have 
processes in place to coordinate with non-VA facilities and gather 
information needed to determine if transferring veterans back to the 
VAMC for continued treatment is possible and place this information 
in the fee basis care coordination system and veterans' medical records. 
These processes include documenting VA bed availability, the medical 
necessity of the treatment veterans are receiving in a non-VA facility, 
and when the veteran is stable enough for transfer. However, these 
VAMCs follow local transfer procedures to determine whether or not 
veterans receiving care from inpatient fee basis providers in the 
community will be transferred back to the VAMC and not all VAMCs are 
currently participating in Non-VA Care Coordination. 

[44] See [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 
Standards for internal control in the federal government state that 
management and employees should establish and maintain an environment 
throughout the organization that sets a positive and supportive 
attitude toward internal control and conscientious management. 

[45] See GAO, Medicare: Private Sector Initiatives to Bundle Hospital 
and Physician Payments for an Episode of Care, [hyperlink, 
http://www.gao.gov/products/GAO-11-126R] (Washington, D.C.: Jan. 31, 
2011). 

[46] In March 2013, VHA CBO officials told us that for inpatient 
claims they could construct a program to group inpatient and inpatient 
ancillary claims together by linking all the records of individual 
services provided to veterans during a particular date range. However, 
this method relies on correct local VISN and VAMC data entry into VA's 
fee basis data system and correct information to be provided by 
providers. VHA CBO officials acknowledged that there is no way to link 
outpatient services together to create a record of a single outpatient 
episode of care. 

[47] Fee basis providers bill for their services using individual 
Healthcare Common Procedure Coding System (HCPCS) codes or Medicare-
Severity Diagnosis-Related Group (MS-DRG) codes, which are the 
standard medical billing codes for outpatient and inpatient medical 
care, to account for various treatments that are provided during the 
same office or clinic visit or inpatient stay. HCPCS is a collection 
of standardized codes that represent medical procedures, supplies, 
products, and services. The system contains two types of codes--level 
I codes (also referred to as current procedural terminology codes) 
that consist of five numeric digits, and level II codes that consist 
of a letter followed by four numeric digits. MS-DRG codes classify 
inpatient stays according to both patients' clinical conditions and 
the services patients receive. 

[48] See [hyperlink, http://www.gao.gov/products/GAO-11-126R]. 

[49] VHA CBO staff use data extracted from the fee basis claims 
processing software and other databases to monitor the fee basis care 
program. The fee basis claims processing software includes many data 
fields that are not transferred to VHA CBO for analysis. In September 
2012, VHA CBO fee basis data management officials reported that VA 
plans to incorporate a claim number into its fee basis claims 
processing software package used by VISN and VAMC-based fee basis 
claims processing clerks to review and authorize payments to fee basis 
providers. Without ensuring VHA CBO staff have access to this claim 
number, these officials said they will not be able to analyze and 
track fee basis care spending and utilization by episodes of care. 

[50] GAO, Executive Guide: Effectively Implementing the Government 
Performance and Results Act, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: June 
1996). When other leading public-sector organizations are engaged in 
efforts to improve their performance and help their organizations 
become more effective--similar to VA's goals for the short-term 
corrective action plan--we found that these organizations commonly 
take three steps: (1) define a clear mission and goals, (2) measure 
performance to gauge progress toward achieving goals, and (3) use 
performance information as a basis for decision making. 

[End of section] 

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