VA Health Care:

Third-Party Charges Based on Sound Methodology; Implementation Challenges Remain

HEHS-99-124: Published: Jun 11, 1999. Publicly Released: Jun 11, 1999.

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Pursuant to a legislative requirement, GAO provided information on the Department of Veterans Affairs' (VA) third party charges, focusing on: (1) the soundness of VA's methodology for setting reasonable charges for inpatient facility, skilled nursing, outpatient facility, physician, and nonphysician services; and (2) potential effects of the new charge-based system on VA, insurers, and veterans.

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 for Executive Action

  1. Status: Closed - Implemented

    Comments: VA is planning to revise its charges to make them more precisely reflect local markets. Inpatient facility charges are to be based on 3-digit zip-code areas rather than by larger metropolitan statistical areas (MSAs) because average charges can vary considerably across areas found in the larger MSAs. In this way, VA will more adequately assure that it does not forego some of the amount that insurers usually pay other providers for the same service in the same locality, which would occur if VA set its charges too low for that locality. On August 13, 2003, VA reported that it continues to update its charges to be more reflective of local markets. The last rate increase was published in the Federal Register in April 2003, and the next version is expected in October 2003.

    Recommendation: To help ensure that VA does not forego some of the amount that insurers usually pay other providers for the same service in the same locality, the Secretary of Veterans Affairs should establish and implement policy and procedures to monitor reasonable charges and identify those that should be increased to conform with local market prices.

    Agency Affected: Department of Veterans Affairs

  2. Status: Closed - Implemented

    Comments: VA concurred with the recommendations. On August 13, 2003, VA reported that it has begun to implement a payer relations program to ensure that health plan payments are made according to federal regulations. The program will be rolled out by the end of fiscal year 2003. Health plans may pay either 100 percent of billed charges or an amount paid to other providers for the same services.

    Recommendation: To help ensure that VA does not forego some of the amount that insurers usually pay other providers for the same service in the same locality, the Secretary of Veterans Affairs should establish and implement policy and procedures to verify the appropriateness of insurers' payments when they pay an amount less than VA's reasonable charge.

    Agency Affected: Department of Veterans Affairs

 

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