Audit of the Timeliness and Accuracy of Choice Payments Processed Through the Fee Basis Claims System – Dec 2017

VA News

This report covers the audit of payments made through VA’s Fee Basis Claims System (FBCS), encompassing claims paid via that payment process from November 1,  2014  through  September 30, 2016. A subsequent report will contain the results of an audit conducted to assess VA’s processing of payments through a “bulk payment” process during 2016 and 2017.
The Executive Summary is below followed by a link to the full report.
Why We Did This Audit
Public Law 113-146 (August 7, 2014), Veterans Access, Choice, and Accountability Act of  2014 (VACAA), Section 101(o), requires the Inspector General of the Department of Veterans Affairs to issue a report to the Secretary of VA within 30 days after the Secretary’s determination that 75 percent of the amounts deposited in the Veterans Choice Fund established by VACAA (the “Choice Fund”) have been exhausted.1 The report was to address “the results of an audit of the care and services furnished under this section to ensure the accuracy and timeliness of payments by the Department for the cost of such care and services, including any findings and recommendations of the Inspector General.”
This report covers the audit of payments made through VA’s Fee Basis Claims System (FBCS), encompassing claims paid via that payment process from November 1,  2014  through  September 30, 2016. A subsequent report will contain the results of an audit conducted to assess VA’s processing of payments through a “bulk payment” process during 2016 and 2017.


On August 7, 2014, following well-publicized issues regarding delays in accessing care at VA medical centers (particularly in Phoenix, Arizona), Congress enacted VACAA, which set forth a broader program (the “Choice Program”) to enable eligible veterans to obtain medical care from providers in their communities.2 Congress appropriated $10 billion to the Choice Fund to be spent on care and expenses specifically authorized under VACAA, including $300 million for administrative expenses associated with establishing and maintaining the Choice Program. VACAA required VA to implement key portions of the Choice Program within 90 days, and veterans began using the Choice Program by November 2014.
VA’s Office of Community Care (OCC), which is part of the Veterans Health Administration (VHA) and is under the leadership of the Deputy Under Secretary for Health for Community Care, is responsible for the administration and operation of the Choice Program.3 VA’s Patient-Centered Community Care program (PC3) is a nationwide program for delivering care in the community established in 2013. In October 2014, VA amended the PC3 contracts with Third
1 The VA Office of Inspector General, pursuant to the requirement in Public Law 113-146, released on September 12, 2017 to the Secretary of Veterans Affairs a memorandum titled “Accuracy and Timeliness of Payments Made Under the Choice Program Authorized by the Veterans Access, Choice, and Accountability Act.”
2 Public Law 113-146 (August 7, 2014), Veterans Access, Choice, and Accountability Act of 2014. Eligibility for Choice is based on specific criteria relating to wait times for appointments and distance from the nearest medical facility, and these eligibility requirements have been modified on occasion by statute and regulation.
3 OCC, the group managing Choice, was known as the Chief Business Office until October 2016, when it reorganized into the Office of Community Care. Regardless of time frame, this group will be referred to as “OCC.”
Party Administrators (TPA) Health Net Federal Services LLC (Health Net) and TriWest Healthcare Alliance Corporation (TriWest) to include administration of the Choice Program, including establishing provider networks, scheduling appointments, receiving medical documentation, and making payments for medical care on behalf of VA.
Under the PC3/Choice contracts, VA makes payments to the TPAs, not the providers. The TPAs are responsible for paying their providers. VA reimburses the TPAs for payments the TPAs make to providers for veterans’ medical care obtained through the Choice Program. TPAs’ billings are submitted to OCC electronically, and then processed by VA’s Financial Services Center (FSC) in Austin, Texas. During the period of review for this audit, the FSC processed Choice claims using FBCS.

What We Did

Choice payment data were obtained from VA’s Central Fee Files and statistically sampled for each TPA. Our audit included Choice claims processed in FBCS for payment to the TPAs from November 1, 2014 through September 30, 2016. We did not audit bulk Choice medical  payments processed outside of FBCS,4 Choice administrative payments, or payments for Hepatitis C and other non-Department care that used Choice Program funding.
We reviewed a sample of payment transactions from the approximately $649 million paid to Health Net ($69 million) and TriWest ($580 million) from November 1, 2014 through September 30, 2016, via FBCS.5 We reviewed the PC3/Choice contracts and interviewed officials from OCC, FSC, the Denver Acquisition and Logistics Center, Health Net, and TriWest. We used a third-party vendor to evaluate medical claims in our audit sample to determine if the Medicare rates applied were correct.

What We Found

We estimated that from November 1, 2014 through September 30, 2016, payment errors were made on approximately 224,000 of 2.0 million Choice claims (12 percent)6 paid via FBCS.
These errors were of the following types:
Payment rate – Payments made on claims that did not use the appropriate Medicare or contract adjusted rate 4PC3/Choice contracts were modified in March through November 2016 to allow VCPBYPASS (payments for Choice medical claims that were not submitted to Veterans Affairs by the TPAs due to missing medical documentation) and Expedited payments for Choice medical care to TPAs. We refer to these transactions as “bulk payments” for the purpose of our report. Because these bulk payment processes were not in place when this review was planned, a second audit was started in April 2017 to address the accuracy of payments under the bulk payment process.
5FBCS is the current claims processing system used for processing and payment by VHA of claims authorized under
the non-VA Care Program which does not include PC3 or Choice claims.
6All payment error rates presented in this report are based on projections for a randomly selected sample; see Appendix C Statistical Sampling Methodology for more details.
Other Health Insurance (OHI) – Payments made on claims that were not adjusted for the amount OHI was responsible to pay the provider
Duplicate – Payments for medical claims that were submitted and paid more than once
Pass-Through – Payments where the amount the TPAs billed and were paid was more than the TPA paid the provider
We estimated that OCC payments to TPAs for approximately 1.0 million of 2 million claims   (50 percent) were  made  in  excess  of  the  30-day  Prompt  Payment  Standard  from  November 1, 2014 through September 30, 2016.
We also estimated that Health Net took 47 days on average to pay its  providers  from  November 1, 2014 through September 30, 2016. TriWest averaged 39 days to pay its providers for the same period.

Why This Occurred

The U.S. Government Accountability Office’s Standards for Internal Control in the Federal Government (Green Book) defines internal control standards for Federal Government agencies through five components consisting of 17 key principles necessary to produce an effective internal control system. In our review of the OCC Choice payment process, we found several internal control weaknesses in the payment process that contributed to the errors discussed in this report. We concluded that OCC did not design an effective internal control system for the  Choice payment process and did not appropriately follow these internal control principles:

  • Create clear written policy for the payment of claims
  • Ensure access to quality information is available for payment processing staff
  • Use a well-designed information system to address the risk of overpaying medical claims
  • Establish monitoring activities to ensure internal controls are working

OCC’s payments averaged 37 days to Health Net and 36 days to TriWest. These payment delays occurred because OCC did not accurately estimate the amount of staff necessary to process Choice claims through their Service Level Agreement with FSC. In addition, although VACAA requires VA to meet the timeliness standards of the Prompt Payment Act in paying the TPAs, the PC3/Choice contracts do not specify a timeliness standard applicable to the TPAs for their payments to providers.7
7 Public Law 113-146 (August 7, 2014) Veterans Access, Choice, and Accountability Act of 2014 (VACAA), Section 105(b)(1) and (2). VACAA requires VA to establish a claims processing system that complies with all requirements of the Prompt Payment Act, 5 CFR part 1315 – Prompt Payment.

What Resulted

OCC failed to comply with VACAA regulations when it established payment processing systems that did not function efficiently and have proper controls to ensure payment accuracy. TPAs improperly billed OCC, and OCC made an estimated 224,000 payment errors when paying the TPAs because OCC did not have in place an effective internal control system for the Choice payment process to ensure Choice payment accuracy. These payment errors resulted in an estimated overpayment of about $39 million during our period of review.
OCC did not implement an efficient claims processing system for Choice claims or adequately estimate staffing levels in the Service Level Agreement with FSC so that resources could be allocated in advance to deal with the Choice claims volume demand. Without such a system, OCC will continue to be at risk of late payments and penalty interest charges. Additionally, until OCC adds a standard for Choice payment timeliness to the PC3/Choice contracts for Health Net and TriWest, OCC will not have a control in place to enforce timely payments to Choice providers.

What We Recommended

We made these recommendations to the Executive in Charge, Veterans Health Administration:

  • Develop and issue written payment policies to guide staff processing medical claims received from TPAs as well as establish expectations and obligations for the TPAs that submit invoices for
  • Ensure payment processing staff have access to documentation from the TPAs verifying amounts paid to providers to ensure the TPAs are not billing VA more than they paid the provider for medical
  • Ensure VHA payment processing staff have access to accurate data regarding veterans’ OHI coverage and establish appropriate processes for collecting payments from these health insurers.
  • Ensure the new payment processing systems used for processing medical claims from TPAs have the ability to adjudicate reimbursement rates accurately and to ensure duplicate claims are not
  • Ensure VA performs post-payment audits on a periodic basis to determine if payments made to TPAs for medical care are
  • Ensure OCC staff and members of VA’s Office of General Counsel continue to work collaboratively with relevant government authorities to review and determine an appropriate process for
  • Ensure VHA has sufficient claims processing capacity to timely meet and process expected claim volume from the
  • Ensure that future contracts with TPAs contain payment timeliness standards for the processing of claims from health care

Agency Comments

The Executive in Charge, Office of the Under Secretary for Health, concurred with our findings and agreed that a full review of payments made under the Veterans Choice Program  and recovery of all identified overpayments is essential. The Executive in Charge stated that VHA has already taken action to identify past duplicate payments and prevent future duplicate payments to TPAs beginning in July 2017 and plans to continue working collaboratively with the Office of Inspector General (OIG) and all other relevant government stakeholders to ensure that Choice payments are thoroughly reviewed and all overpayments are recovered.
The Executive in Charge concurred with Recommendations 1, 3, 5, 6, 7, and 8 and concurred in
principle with Recommendations 2 and 4. Regarding Recommendations 2 and 4, VHA will address the documentation requirement in the upcoming Community Care Network contract.  The Executive in Charge’s planned corrective actions are acceptable. The OIG will monitor VHA’s progress and follow up on the implementation of our recommendations until all proposed actions are completed.

Author: WPTangerine


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