B-166870, JUN. 12, 1970

B-166870, JUN. 12, 1970

TO MR. JOHNSON:

THIS IS IN REPLY TO YOUR LETTER OF NOVEMBER 12, 1969, IN WHICH YOU REQUESTED OUR ADVICE AS TO WHETHER YOUR PRESENT METHOD OF FIXING RATES FOR REIMBURSEMENT OF MEDICAL RESOURCES WITH OTHER HOSPITALS OR MEDICAL SCHOOLS OR OTHER MEDICAL INSTALLATIONS HAVING HOSPITAL FACILITIES NEGOTIATED PURSUANT TO SECTION 5053 OF TITLE 38, U.S.C. MEETS THE REQUIREMENTS OF SUBSECTION 5053(B) OF TITLE 38, UNITED STATES CODE.

AS YOU WERE PREVIOUSLY INFORMED, REPRESENTATIVES OF THIS OFFICE HAVE BEEN WORKING CLOSELY WITH REPRESENTATIVES OF YOUR CONTROLLER'S OFFICE IN THE PREPARATION OF A REPORT FOR UTILIZATION IN THE FORMULATION OF OUR REPLY. THAT REPORT HAS NOW BEEN RECEIVED. OUR DECISION IS BASED UPON THE INFORMATION FURNISHED IN YOUR LETTER AS SUPPLEMENTED BY THE INFORMATION CONTAINED IN THE REPORT.

SUBSECTIONS 5053(A) AND 5053(B) OF TITLE 38, U.S.C. PROVIDE:

"(A) TO SECURE CERTAIN SPECIALIZED MEDICAL RESOURCES WHICH OTHERWISE MIGHT NOT BE FEASIBLY AVAILABLE, OR TO EFFECTIVELY UTILIZE CERTAIN OTHER MEDICAL RESOURCES, THE ADMINISTRATOR MAY, WHEN HE DETERMINES IT TO BE IN THE BEST INTEREST OF THE PREVAILING STANDARDS OF THE VETERANS' ADMINISTRATION MEDICAL CARE PROGRAM, MAKE ARRANGEMENTS, BY CONTRACT OR OTHER FORM OF AGREEMENT, AS SET FORTH IN PARAGRAPHS (1) AND (2) BELOW, BETWEEN VETERANS' ADMINISTRATION HOSPITALS AND OTHER HOSPITALS (OR MEDICAL SCHOOLS OR OTHER MEDICAL INSTALLATIONS HAVING HOSPITAL FACILITIES) IN THE MEDICAL COMMUNITY:

"(1) FOR THE EXCHANGE OF USE OF SPECIALIZED MEDICAL RESOURCES WHEN SUCH AN AGREEMENT WILL OBVIATE THE NEED FOR A SIMILAR RESOURCE TO BE PROVIDED IN A VETERANS' ADMINISTRATION FACILITY; OR

"(2) FOR THE MUTUAL USE, OR EXCHANGE OF USE, OF SPECIALIZED MEDICAL RESOURCES IN A VETERANS' ADMINISTRATION FACILITY, WHICH HAVE BEEN JUSTIFIED ON THE BASIS OF VETERANS' CARE, BUT WHICH ARE NOT UTILIZED TO THEIR MAXIMUM EFFECTIVE CAPACITY.

"THE ADMINISTRATOR MAY DETERMINE THE GEOGRAPHICAL LIMITATIONS OF A MEDICAL COMMUNITY AS USED IN THIS SECTION.

"(B) ARRANGEMENTS ENTERED INTO UNDER THIS SECTION SHALL PROVIDE FOR RECIPROCAL REIMBURSEMENT BASED ON A CHARGE WHICH COVERS THE FULL COST OF SERVICES RENDERED, SUPPLIES USED, AND INCLUDING NORMAL DEPRECIATION AND AMORTIZATION COSTS OF EQUIPMENT. ANY PROCEEDS TO THE GOVERNMENT RECEIVED THEREFROM SHALL BE CREDITED TO THE APPLICABLE VETERANS' ADMINISTRATION MEDICAL APPROPRIATION."

IN THE FIXING OF A CHARGE WHICH COVERS THE FULL COST AS REQUIRED BY THE STATUTE WE BELIEVE THAT THERE SHOULD BE CONSIDERED (1) DEPRECIATION OF BUILDINGS AND EQUIPMENT (2) THE MEDICAL ADMINISTRATION EXPENSES OF THE DEPARTMENT OF MEDICINE AND SURGERY IN THE VA CENTRAL OFFICE AND (3) INTEREST ON VA'S NET CAPITAL INVESTMENT. THE METHOD OF COMPUTING INTEREST AND THE RATES TO BE USED ARE DESCRIBED IN TITLE 2, CHAPTER 2, SUBSECTION 16.8(E) OF THE GENERAL ACCOUNTING OFFICE POLICY AND PROCEDURES MANUAL FOR GUIDANCE OF FEDERAL AGENCIES AND NEED NOT BE REPEATED HERE.

UNDER YOUR PRESENT PROCEDURE, BILLINGS FOR SERVICES RENDERED BY THE VETERANS ADMINISTRATION HAVE BEEN DETERMINED AS FOLLOWS:

1. CHARGES FOR INPATIENT SERVICES ARE BASED ON PER DIEM RATES ESTABLISHED BY THE BUREAU OF THE BUDGET FOR UNIFORM APPLICATION FOR ALL FEDERAL AGENCIES MAKING CHARGES FOR MEDICAL SERVICES RENDERED TO NONFEDERAL BENEFICIARIES.

2. CHARGES FOR OUTPATIENT SERVICES ARE BASED ON STATE MEDICAL FEE SCHEDULES OR, WHERE SERVICES PROVIDED ARE NOT LISTED IN STATE MEDICAL FEE SCHEDULES, CHARGES ARE ESTABLISHED SO AS NOT TO EXCEED THOSE CUSTOMARILY CHARGED THE GENERAL PUBLIC IN THE COMMUNITY.

3. CHARGES FOR RENAL DIALYSIS ARE BASED ON A CENTRAL OFFICE DIRECTIVE.

4. CHARGES FOR SHARING OF EQUIPMENT AND SUPPLIES WHERE PERSONAL SERVICES ARE NOT PROVIDED BY THE VA, ARE COMPUTED LOCALLY, BASED ON THE FULL COST OF SUPPLIES AND THE ANNUAL DEPRECIATION CHARGE FOR EQUIPMENT PLUS AN AMOUNT FOR ANNUAL MAINTENANCE COST.

EACH OF THESE CLASSES OF CHARGES WILL BE SEPARATELY DISCUSSED.

INPATIENT PER DIEM CHARGES

VA'S MEDICAL CARE COST ACCOUNTING SYSTEM PROVIDES AN AVERAGE DAILY COST OF INPATIENT CARE AT EACH HOSPITAL FOR EACH OF THE THREE MAJOR TYPES OF PATIENTS--MEDICAL, SURGICAL, AND PSYCHIATRIC--AS WELL AS 10 CATEGORIES OF MEDICAL PATIENTS, TWO CATEGORIES OF SURGICAL PATIENTS, AND TWO CATEGORIES OF PSYCHIATRIC PATIENTS. BECAUSE THE PER DIEM COSTS FOR THE DIFFERENT CATEGORIES OF PATIENTS ESTABLISHED BY THE COST ACCOUNTING SYSTEM DO NOT INCLUDE DEPRECIATION OF BUILDINGS AND EQUIPMENT, VA CENTRAL OFFICE MEDICAL ADMINISTRATION EXPENSES, OR INTEREST ON VA'S NET CAPITAL INVESTMENT, COST FACTORS FOR THESE ITEMS WOULD HAVE TO BE ADDED TO THE APPROPRIATE PER DIEM COST TO OBTAIN THE FULL COST OF PATIENT CARE. THE PER DIEM COST OF MEDICAL OR SURGICAL PATIENTS CAN BE SUBSTANTIALLY HIGHER OR LOWER THAN THE ESTABLISHED BUREAU OF THE BUDGET RATE. FOR EXAMPLE IT IS REPORTED THAT THE PER DIEM COST OF PROVIDING TUBERCULOSIS TREATMENT AT THE INDIANAPOLIS VA HOSPITAL IS $31.18. THE PER DIEM COST OF INTENSIVE SURGICAL CARE AT THE SAME HOSPITAL IS $116.26. THE RATE ESTABLISHED BY THE BUREAU OF THE BUDGET IS $49.

UPON ADDITION OF FACTORS FOR DEPRECIATION OF BUILDINGS AND EQUIPMENT, VA CENTRAL OFFICE MEDICAL ADMINISTRATION EXPENSES, AND INTEREST ON VA'S NET CAPITAL INVESTMENT, THE PER DIEM COSTS FOR THE VARIOUS CATEGORIES OF INPATIENTS AT EACH HOSPITAL AS PROVIDED BY VA'S PRESENT MEDICAL CARE COST ACCOUNTING SYSTEM, WOULD MORE CLOSELY RELATE TO FULL COSTS THAN THE RATES ESTABLISHED BY THE BUREAU OF THE BUDGET AND SHOULD BE USED INSTEAD OF THOSE RATES.

OUTPATIENT CHARGES

VA DOES NOT HAVE A COST ACCOUNTING SYSTEM FOR DETERMINING THE COSTS OF ITS OUTPATIENT MEDICAL SERVICES. WE BELIEVE, HOWEVER, THAT THE USE OF THE STATE MEDICAL FEE SCHEDULES ON OUTPATIENT CARE FOR OTHER THAN SPECIALIZED SERVICES IS ADEQUATE AT THIS TIME BECAUSE STATE MEDICAL FEE SCHEDULES FOR PAYMENTS BY VA TO PRIVATE PHYSICIANS ARE INTENDED TO COVER COSTS AND PROFESSIONAL FEES OF THE PHYSICIANS. WE BELIEVE THAT SUCH FEES SHOULD NOT BE FAR OUT OF LINE WITH VA'S COST OF PROVIDING THESE SERVICES. MOREOVER, THESE SERVICES, OTHER THAN SPECIALIZED SERVICES, RENDERED BY VA UNDER SHARING AGREEMENTS COMPRISED ONLY 5 PERCENT OF THE TOTAL COSTS FOR FISCAL YEAR 1969. SHOULD THERE BE A MATERIAL INCREASE IN SHARING AGREEMENT OUTPATIENT ACTIVITY RELATIVE TO OTHER THAN SPECIALIZED SERVICES, WE BELIEVE THAT VA SHOULD UNDERTAKE TO STUDY THESE COSTS AND ESTABLISH CHARGES BASED ON COST FINDING TECHNIQUES OR A MORE REFINED COST ACCOUNTING SYSTEM.

CHARGES FOR INPATIENT AND OUTPATIENT SPECIALIZED SERVICES

REGARDING ALL SPECIALIZED SERVICES, EXCEPT FOR RENAL DIALYSIS, RATES ARE ESTABLISHED ON THE BASIS OF METHODS FOR DETERMINING INPATIENT AND OUTPATIENT SERVICES DISCUSSED ABOVE. CHARGES FOR RENAL DIALYSIS ARE BASED ON A CENTRAL OFFICE DIRECTIVE.

WITH RESPECT TO THE ESTABLISHMENT OF RATES FOR SPECIALIZED SERVICES INCLUDING CERTAIN SURGICAL PROCEDURES AND OTHER SPECIALIZED MEDICAL SERVICES SUCH AS RENAL DIALYSIS, OPEN HEART SURGERY, AND SUPERVOLTAGE THERAPY, WE AGREE WITH THE VIEW EXPRESSED IN YOUR LETTER THAT THE POTENTIAL BENEFITS OF MAINTAINING A SEPARATE COST ACCOUNTING SYSTEM WHICH WOULD PRODUCE COST DATA FROM THE ACCOUNTS FOR EACH SERVICE PROVIDED UNDER SHARING AGREEMENTS WOULD NOT JUSTIFY THE EXPENSE.

WE UNDERSTAND HOWEVER THAT THE VA IS PLANNING TO CONDUCT COST STUDIES AS A BASIS FOR INSTITUTING A COST ASCERTAINMENT PLAN FOR EACH HOSPITAL TO FOLLOW IN DETERMINING THE COST OF PROVIDING ANY OF 27 SPECIALIZED MEDICAL SERVICES SUCH AS RENAL DIALYSIS, OPEN HEART SURGERY, AND SUPERVOLTAGE THERAPY. COSTS DEVELOPED UNDER THIS PLAN WILL BE USED TO DETERMINE CHARGES FOR ANY ONE OF THE 27 SPECIALIZED SERVICES WHETHER PROVIDED ON AN INPATIENT OR OUTPATIENT BASIS. WHEN ANY OF THE 27 SPECIALIZED SERVICES ARE PROVIDED ON AN INPATIENT BASIS, THE APPLICABLE INPATIENT PER DIEM RATES AT EACH VA HOSPITAL WILL BE A FACTOR CONSIDERED IN DETERMINING THE TOTAL CHARGES FOR THE SPECIALIZED SERVICES.

WE BELIEVE THAT VA SHOULD PROCEED WITH THIS COST ASCERTAINMENT PLAN UNDER WHICH CHARGES WOULD BE ESTABLISHED AT EACH HOSPITAL BASED ON THE INDIVIDUAL HOSPITAL'S COST FINDINGS.

CHARGES FOR SHARING OF EQUIPMENT AND SUPPLIES

UNDER VA INSTRUCTIONS THE CHARGES FOR SHARING OF EQUIPMENT AND SUPPLIES WHERE PERSONAL SERVICES ARE NOT PROVIDED BY THE VA AND WHICH ARE COMPUTED LOCALLY ARE BASED ON THE FULL COST OF SUPPLIES AND ANNUAL DEPRECIATION CHARGES FOR EQUIPMENT PLUS AN ANNUAL MAINTENANCE CHARGE REPRESENTING 3 PERCENT OF THE EQUIPMENT ACQUISITION COST. THEY ALSO INCLUDE IDENTIFIABLE COSTS FOR UTILITIES AND MAINTENANCE OF REAL PROPERTY. CHARGES FOR THE USE OF EQUIPMENT ARE BASED ON THE ACTUAL TIME THE EQUIPMENT IS USED BY THE PARTY TO THE AGREEMENT. THESE CHARGES FOR EQUIPMENT AND SUPPLIES APPEAR TO BE DESIGNED TO COVER FULL COSTS.