VA Health Care: VA Has Not Sufficiently Explored Alternatives for Optimizing Third-Party Collections

Statement of Stephen P. Backhus
Director, Health CareVeterans' and Military Health Care Issues

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the Department of Veterans Affairs (VA) continuing efforts to increase its collections from veterans private health insurers. VA has the authority to bill and retain all collections from these third-party insurers for any health care it provides to veterans for non-service-connected conditions. Collections from third-party insurers are VAs largest source of revenue and are used to supplement its medical care appropriations.

Over the past several years, concerns have been raised about VAs ability to optimize its third-party revenues. For example, in 1997 we reported that VA was billing for medical care that it could not expect to collect. In 1998, a national VA review found process inefficiencies, significant errors resulting in rework, and ineffective use of available automation. In the same year, VAs Office of the Inspector General indicated that VA was not billing all appropriate episodes of care and not aggressively pursuing unpaid bills. And in 1999, we testified on our concerns about declining VA collections and its uneven management improvements across facilities.

While these and other assessments recognize a number of largely uncontrollable factors that limit VAs potential revenue such as the declining number of veterans and smaller bills associated with VAs shift from inpatient to outpatient care they all found that VAs process for collecting payments from third-party payers has limited the amount of revenue it has generated.

In 1999, VA submitted a business plan to the Congress that called for an evaluation of two major alternatives for improving revenue operations and collections. Both alternatives called for each network to consolidate portions of the revenue operations, but one alternative called for using in-house staff while the other would have used contractor staff. My testimony today will focus on the status of VAs collections this past year and VAs progress in pursuing its business plan. To assess VAs efforts, we visited revenue operations at four facilities and one network; surveyed all facilities and networks and interviewed headquarters officials; obtained and analyzed private sector benchmarks; and reviewed relevant VA studies and plans, including its September 2001 Revenue Cycle Improvement Plan.

In summary, this fiscal year, for the first time since fiscal year 1995, VA has reversed the general decline in its third-party collections. However, the fiscal year 2001 increase appears to be largely the result of VAs implementation of a new system, known as the reasonable charges billing system, which allowed VA to move from a flat-rate billing system to one that itemizes charges for the care it provides to veterans. However, longstanding problems in VAs revenue operations appear to persist, and when compared to private sector standards, VAs collections performance is poor. For example, VA takes 14 times longer to bill, on average, than a benchmark for private sector hospitals. Moreover, VAs various attempts to try consolidation using either in-house or contractor staff have provided little basis for selecting the best alternative to address VAs collections problems. For example, VA initiated a pilot to test the relative cost effectiveness of contracting out or using in-house staff, but as a result of changes in the pilots design for contracting, this test is unlikely to yield data needed to compare the two alternatives and determine which option is best. In addition, VAs recent 2001 Revenue Cycle Improvement Plan does not call for a comprehensive comparison of alternatives nor does it focus on net revenues collections minus operations costs. To collect the most funds for veterans medical care at the lowest cost, VA needs to develop a business plan and detailed implementation approach that will provide useful data for choosing the best alternative for optimizing net revenues from third-party payments.