Government Loses Revenue Because of Low Medical Care Charges to Liable Third Parties

AFMD-82-2: Published: Dec 16, 1981. Publicly Released: Dec 16, 1981.

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The Government is authorized by the Federal Medical Care Recovery Act to recover the cost of care provided or paid for when any of its beneficiaries require medical treatment because of the negligent actions of a third party. GAO conducted a review to determine if the Department of Defense (DOD) and the Veterans Administration (VA) were complying with the rate-setting provision of the Act.

Millions are being lost because the rates charged liable third parties do not cover the cost of care provided in DOD and VA hospitals. Both DOD and VA annually compute recovery rates for the coming fiscal year based on estimated hospital costs and patient workloads. From October 1, 1978, to May 11, 1981, however, the rates charged to third parties were set substantially below the budgeted rates. The lower rates were put into effect in an attempt to hold down the rise in hospital costs. If the budgeted rates were used during this period, the Government could have increased its claims against third parties by almost $8 million and its recoveries by almost $4 million. GAO found no evidence that cost containment rates limited the increases in medical care costs and, at the urging of GAO, the cost containment rates were discontinued on May 11, 1981. Budgeted rates are now being used to recover hospital costs from liable third parties. However, the Government can substantially increase its claims and collections by insuring that rates charged third parties more closely approximate the actual cost of hospital care. The Office of Management and Budget (OMB) has been delegated the authority to set medical care recovery rates, and it generally accepts the budgeted in-patient and out-patient medical recovery rates recommended by DOD and VA. To provide for full cost recovery as authorized by the Act and as required by OMB, the agencies need to develop more accurate budgeted recovery rates by devoting more attention to setting and monitoring rates.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Defense and the Administrator of Veterans Affairs should develop, for the Office of Management and Budget, medical care recovery rates to be charged liable third parties which more accurately reflect the actual cost of care provided in their hospitals. To this end, as cost and workload data become available during the year: (1) actual costs per in-patient day and per out-patient visit should be developed and compared with amounts being charged; (2) variances should be determined and analyzed; and (3) recovery rates should be adjusted during the year to conform to actual results.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Defense and the Administrator of Veterans Affairs should develop, for the Office of Management and Budget, medical care recovery rates to be charged liable third parties which more accurately reflect the actual cost of care provided in their hospitals. To this end, as cost and workload data become available during the year: (1) actual costs per in-patient day and per out-patient visit should be developed and compared with amounts being charged; (2) variances should be determined and analyzed; and (3) recovery rates should be adjusted during the year to conform to actual results.

    Agency Affected: Veterans Administration

  3. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Director of the Office of Management and Budget should monitor the development of the medical care recovery rates to be charged liable third parties and revise recovery rates accordingly, if he believes that the rates are reasonable.

    Agency Affected: Executive Office of the President: Office of Management and Budget

 

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