VA Health Care

The Department of Veterans Affairs (VA) used a sound methodology to replace its cost-based system with a charge-based system that sets charges at the 80th percentile level and better resembles market prices for thousands of health procedures and hundreds of diagnosis groups. VA expects higher revenues from insurers as a result but it lacks adequate data to estimate the effect of reasonable charges on its revenue and corresponding insurer cost. However, reasonable charges will not affect veterans' copayment and per diem obligations. Reasonable charges are expected to play a key role in VA's plans to expand and improve veterans' health care without increasing appropriations through fiscal year 2002, but factors that could limit the contribution that reasonable charges make to its revenue collections include VA's inability to collect routinely from health maintenance organizations and Medicare and its overcoming past collection problems. To the extent that VA's method will set some reasonable charges below insurers' usual payments, VA will collect less than other providers. VA does not have standardized procedures to ensure that insurers' payments are appropriate if less than reasonable charges. GAO recommends (1) monitoring reasonable charges and identifying those that should be increased to conform with local market prices and (2) verifying the appropriateness of insurers' payments when they are less than VA's reasonable charge.

GAO noted that: (1) GAO believes VA's methodology provides a sound basis for setting reasonable charges and optimizing its collection revenues; (2) its methodology logically applies available data to set local market charges for each geographic area where VA provides care; (3) in cases where VA's charges are higher than the insurers' usual payments to other providers for the same care, insurers are permitted by law to pay VA these usual amounts rather than VA's billed charges; (4) however, if VA submits charges that are less than the insurers' usual payments, the insurers may pay the lower amounts; (5) therefore, if VA sets its charges below market prices, it will forego some of the revenue it could collect from private insurers; (6) VA is working with a contractor to establish a way to identify charges that need to be modified to better reflect market prices; (7) VA expects that the shift to reasonable charges will increase collections from private insurers, but it cannot accurately project the amount; (8) the potential revenue gain is dependent on the difference between the reasonable cost and reasonable charge payments and the volume of payments received from third-party payers; (9) however, VA does not have reliable data on either; (10) for example, VA data bases do not contain sufficient detail on the type of insurance coverage veterans have or the specific care provided to insured veterans in order to project revenue changes; (11) consequently, GAO agrees that the effect on VA's collections--and the corresponding effect on insurers' costs--cannot be accurately determined; (12) moreover, in cases where insurers exercise their option to pay their usual amounts instead of VA's proposed reasonable charge, VA faces the challenge of determining whether the payments it receives from insurers are in fact the appropriate amount; (13) VA has not established procedures to make this determination; and (14) while the effect of the shift to reasonable charges on VA revenue and insurers' costs is not precisely predictable, it should not have an appreciable effect on veterans because it does not change the copayment and per diem payments set by statute that are required of some veterans receiving VA care.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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