Military Treatment Facilities:

Improvements Needed to Increase DOD Third-Party Collections

GAO-04-322R: Published: Feb 20, 2004. Publicly Released: Mar 9, 2004.

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Like the private health care industry, the cost of providing health care services to the Department of Defense's (DOD) active duty personnel, their dependents, retirees, and survivors and their dependents has increased dramatically over the past decade. In fiscal year 2003, DOD reported that more than 8.7 million Military Health System beneficiaries were eligible to receive health care at a cost of about $27.2 billion per year--up from a reported 8.2 million eligible beneficiaries at a cost of $15.6 billion in fiscal year 1997. To the extent that DOD beneficiaries have private health insurance coverage, DOD is authorized to bill insurance companies under the Third Party Collections Program. As such, DOD has the opportunity to defray the rising cost of providing health care to an increasing number of eligible beneficiaries. In October 2002, we reported that the three military treatment facilities (MTFs) we visited did not always bill and collect from private insurers for care that was reimbursable to the government. At all three facilities, we identified control weaknesses that resulted in instances where these MTFs had not identified all patients with third-party insurance and sometimes did not bill those insurers even when they were aware such coverage existed. Consequently, opportunities to collect millions of dollars of reimbursements from insurers for medical services provided were forgone. Concerned that there were additional MTFs that also did not effectively bill and collect for reimbursable services, Congress requested that we expand our audit to provide some perspective on the amount of such services that were not billed and collected across all of DOD's MTFs. However, after determining that it was not feasible to develop a DOD-wide estimate of missed collection opportunities, as agreed and explained in more detail later, we are providing a perspective on the amount of services not billed and collected across all of DOD's MTFs based on work performed by DOD's service auditors at 35 of the largest MTFs reporting collections. This report also provides information on (1) specific control weaknesses and other issues that impair DOD's ability to increase collections, (2) the department's ongoing efforts to improve the third-party billings and collection function, and (3) our assessment of DOD's use of performance metrics to manage third-party collections at its MTFs.

Based on our previous audit work and our analysis of reports issued by the military service auditors, conservatively, tens of millions of dollars are not being collected each year because key information required to effectively bill and collect from third-party insurers is often not properly collected, recorded, or used by the MTFs. DOD's failure to effectively bill and collect from third-party insurers, in effect, reduces the amount third-party private sector insurance companies must pay out in benefits and unnecessarily adds to DOD's increasing health care budget--financed by taxpayers. While DOD has limited control over the burgeoning cost of providing health care benefits to DOD retirees and their dependents and active duty dependents, DOD has an opportunity to offset the impact of its rising health care costs by collecting amounts due from its Third Party Collections Program. However, because DOD does not maintain a reliable central database containing patient insurance information, which would facilitate sampling and thus the development of a statistically based projection across the entire universe of care provided by MTFs, neither the service auditors nor we could feasibly provide a comprehensive estimate of the total third-party collections shortfall across all MTFs. Further, DOD's current transition to a new billing methodology made it impractical for us to perform even limited sampling and testing at this time. Weaknesses throughout DOD's third-party billing and collection process, such as incomplete medical documentation and coding of care provided, insufficient monitoring of accounts receivable, and ineffective follow-up to collect accounts receivable, have all contributed to collection shortfalls. The single biggest obstacle to increasing collections, however, is inadequate identification of patients with third-party insurance. DOD does not have effective systems or processes for obtaining and updating insurance information for patients that have other health insurance coverage. This weakness dramatically reduces the possibility of collecting from third-party insurers and recouping the cost of providing reimbursable care. According to DOD officials, they have several process and system improvement initiatives planned or underway that are intended to address the weaknesses identified. Central to DOD's effort to improve the Third Party Collections Program overall and conform to industry best practices, DOD recently initiated a new itemized billing methodology for outpatient care. However, the new billing system resulted in significant start-up issues that, according to DOD officials, seriously affected third-party outpatient billings and collections in the short term. Consequently, total collections, including inpatient, outpatient, and ancillary reimbursements, in fiscal year 2003 were only about $92 million--down from previous years by about $30 million or 25 percent. DOD officials said that this is a temporary decline due to implementation issues with outpatient itemized billing and the impact of the Iraq mobilization on MTF operations. Officials expect collections to increase and exceed earlier levels as problems are resolved and new system enhancements are implemented. However, according to DOD officials, many of the system enhancements will not be fully operational until fiscal year 2005 and beyond. Although DOD monitors certain performance information related to MTF workload and third-party collections, little is done with this information in terms of managing DOD's Third Party Collections Program. Presently, the department lacks key information needed to establish performance goals for billings and collections functions to assess individual MTFs.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense for Health Affairs to implement a corrective action plan that includes time frames for addressing the start-up problems with outpatient itemized billing that have resulted in collections decreases in fiscal year 2003.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Department has developed and implemented its Third Party Collections Program (TPCP) improvement plan, which includes business process improvements in support of Outpatient Itemized Billing (OIB) and Military Treatment Facility (MTF) revenue cycle management to optimize TPCP billings and collections. Elements of the plan include: (1) Outpatient Itemized Billing, (2) Other Health Insurance, (3) MTF Revenue Cycle Management--Documentation and Coding, (4) MTF Revenue Cycle Management--Billing Operations, and (5) Performance Measures. GAO's efforts in bringing the third-party collections shortfalls issue to the attention of Congress has resulted in increased congressional oversight, and an increase in DOD's collections. In the fiscal years subsequent to GAO's work, DOD has reported a third-party collections increase totaling about $53.7 million. This increase in collections is, in part, due to GAO's efforts in bringing the third-party collections issue to the attention of Congress, which in turn directed DOD to improve its financial and business management practices.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense for Health Affairs to establish an effective performance management system that establishes realistic performance baselines or collections goals for each MTF and enables MTFs to identify collections shortfalls and improve their operations.

    Agency Affected: Department of Defense

    Status: Closed - Implemented

    Comments: The Department has been proactively involved in monitoring the Third Party Collections Program (TPCP) and has aggressively pursued business process improvements to optimize Military Treatment Facility (MTF) revenue cycle management in support of TPCP billing and collections. In support of TPCP, the Department has identified performance measures that target critical processes within the MTF revenue cycle. These performance indicators are captured at the MTF--level and reported and monitored up through MHS senior leadership within the Military Departments and the TRICARE Management Activity (TMA). Additionally, the TMA has conducted a financial study to analyze the centrally-reported TPCP billings and collections data and medical encounter data, review the currently reported performance measures, review industry best practices and benchmarks, and provide recommendations to the Department. The study addresses and recommends MTF-specific goals and corresponding metrics to gauge performance in obtaining revenue-generating goals. The initial study draft was reviewed in May 2004 and TMA provided comments to the contractor. In the interim, draft guidance was issued that establishes specific billing/collection goals for implementation in FY 04 based on FY 03 performance reports. The Study of the TPCP for Enhancing MHS Revenue Cycle was completed in December 2004. It resulted in the Charge Master Based Billing initiative. Requirements for the program have been identified and the project solicitation is anticipated for December 2005. The Air Force also evaluated central billing, determined it would be effective and awarded a contract in September 2004 and is billing/collecting centrally. Another recommendation from the study was for a reorganization of the UBO office. This reorganization has been implemented. Lastly, as recommended, the UBO manual has been updated and is in coordination for re-issue. The Department issued guidance to the Assistant Secretaries of the Military Departments for Manpower and Reserve Affairs (M&RA) on October 1, 2004. A copy was provided to GAO. The guidance outlines specific billing and collection goals by Service for implementation in FY 2005. The guidance also established specific inpatient and outpatient billing/collection and closed rates goals. GAO's efforts in bringing the third-party collections shortfalls issue to the attention of Congress has resulted in increased congressional oversight, and an increase in DOD's collections. In the fiscal years subsequent to GAO's work, DOD has reported a third-party collections increase totaling about $53.7 million. This increase in collections is, in part, due to GAO's efforts in bringing the third-party collections issue to the attention of Congress, which in turn directed DOD to improve its financial and business management practices.

    Recommendation: The Secretary of Defense should direct the Assistant Secretary of Defense for Health Affairs to establish an effective performance management system that establishes realistic performance baselines or collections goals for each MTF and enables MTFs to identify collections shortfalls and improve their operations.

    Agency Affected:

    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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