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Background
The Department of Veterans Affairs (VA) has increased its medical cost recoveries over the past few years from $24 million in fiscal 1987 to approximately $494 million in fiscal 1993. The pivotal factor in this accomplishment was a joint effort between VA and the Office of Management and Budget to establish the Medical Care Cost Recovery (MCCR) Program within the Veterans Health Administration (VHA). MCCR Program authorities should now be expanded, and VA should be allowed to institute a similar Veterans Benefits Administration (VBA) initiative.
Through its MCCR Program, the VHA recovers health care costs from third-party insurers and copayments from veterans. Although VHA has been authorized by statute to collect certain costs since 1986, collections remained relatively low until:
--- the MCCR Program was formally established,
--- employees were empowered to redesign the program, and
--- the program was allowed to fund administrative costs for the succeeding year from the current year's collections.
The success of the MCCR Program after these enhancements has been dramatic, as shown in Table 1.
The MCCR Program is only one of several collection programs administered by VHA. For example, VHA also bills and collects monies under the provisions of the Federal Medical Care Recovery Act, from sharing agreements with other medical facilities, from ineligible recipients, and from emergency humanitarian care.
Even though these other programs are staffed by some of the same personnel involved with the MCCR Program, the administrative costs associated with these other programs are charged against appropriations for medical care. As shown in Table 2, in fiscal year 1992, these billings and collections amounted to an additional $65.8 million over the $448.4 million in MCCR collections, for a total of $514.2 million.
Table 1
*******
Medical Care Cost Recovery Collections
(Dollars in Millions)(1)
Fiscal Year
1987 1988 1989 1990 1991 1992 1993
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Recoveries 23.9 105.6 133.4 148.3 267.0 448.4 494.4*
Admin. n/a n/a n/a n/a 51.0 76.0 92.1
Costs
* Estimate
The authority to retain the administrative costs of MCCR has been a significant incentive for increased cost recoveries, and since fiscal year 1990, VA has averaged annual increases in collections of more than $100 million. Allowing for the payment of administrative costs alone, however, will not be a sufficient incentive to improve the collection potential in the shortest time possible.
The best and quickest inducement to increased collections may be through "gain-sharing," whereby a percentage of funds collected can be kept by local VA medical centers. The adoption of gain-sharing would be an important new incentive that promises to generate substantial gains in debt collections. The President's fiscal year 1994 budget contains estimates for recoveries in the MCCR Program without gain-sharing (see Table 3).
Gain-sharing could be instituted in fiscal year 1994 by assigning each VA medical center with a share of the total MCCR recoveries realized in fiscal year 1993 without gain-sharing. If a center's recoveries exceeded its allotted share of that total, it could keep 25 percent of the additional amount.
MCCR Program data tend to indicate that the volume of outpatient and inpatient cases for which collections are undertaken should be roughly equivalent, and a difference suggests a potential performance improvement target. Relatively solid performance data exist for the 166 reporting stations participating in the MCCR Program.
Table 2
*******
Veterans Health Administration Collections--Fiscal Year 1992(2)
(Dollars in Thousands)
% of % of
Total Number Total Total Total
Category of Receivables Collections Accounts Collections
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
MCCR Total 2,765,526 448,400 96.7 87.2
Ineligibles 9,611 397 0.3 <0.1
Tortfeasor &
Worker's
Compensation 10,891 4,790 0.4 0.9
Emergency
Humanitarian 8,951 461 0.3 <0.1
Sharing
Agreements 310 749 <0.1 0.2
All Other 63,201 59,369 2.1 11.6
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Total 2,858,490 514,166
Table 3
*******
Projected Medical Care Cost Recovery Program Collections(3)
(Dollars in Millions)
Fiscal Years 1995 1996 1997 1998 1999
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
With Gain-
Sharing 756.0 909.0 964.0 1,007.0 1,007.0
Without Gain-
Sharing* 705.0 846.0 882.0 920.0 920.0
Sharing at
25 Percent
Level 13.0 16.0 21.0 22.0 22.0
Net Savings
With Gain-
Sharing 38.0 47.0 61.0 65.0 65.0
* As reflected in the President's fiscal year 1994 budget
Because the value of an individual center's share would not be known until after a medical center's target allowance and current fiscal year budget were set, the gain-sharing would be based on VA's performance during the previous fiscal year. In terms of costs, VA would continue to operate the program at or below a cost of 20 cents for every dollar collected.
In view of the success of the MCCR Program it would be appropriate now to also establish a similar initiative within the Veterans Benefits Administration (VBA) for the collections of delinquent debts resulting from veterans' participation in its education, compensation, pension, and loan guaranty programs. The administrative costs of VBA collections have historically been charged to its general operating expense (GOE) appropriation. Payment of collection costs out of GOE money competes with a variety of other operational expenditures--such as salaries of all VBA employees--having little, if anything, to do with cost recovery efforts. Any cut in the GOE appropriation also imperils the prospects of future cost recovery efforts. This situation needs to be changed to strengthen the potential and incentives for cost recovery operations, not weaken them.
Table 4 projects VBA recoveries through fiscal year 1999, and projects net savings of $206.5 million if VBA were to be allowed to pay the administrative costs of debt collection from the collections themselves.
VBA has a fully automated, consolidated Debt Management Center located in St. Paul, Minnesota. As a government reinvention initiative, VA is proceeding to develop procedures and the necessary computer programs for VBA to collect the delinquent debt owed by veterans to VHA for copayments. VBA has a well-developed and efficient process for handling such debts, and this interdepartmental cooperation and assistance is another excellent example of what can be done to improve government operations.
It is anticipated that the Clinton administration's health care reform initiative could have some impact upon VA's cost recovery activities overall. It would, however, be premature to speculate at this time what the possible impact might be.
Table 4 ******* Veterans Benefits Administration Collections (Dollars in Millions) Fiscal Years 1995 1996 1997 1998 1999 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Collections 327.0 333.0 339.0 345.0 351.0 w/Retention of Costs from Collections Associated 11.3 11.9 12.7 13.3 14.0 Administrative Costs Net Collections with Retention 315.7 321.1 326.3 331.7 337.0 Collections 293.0 294.0 296.0 298.0 300.0 without Retention of Costs from Collections Associated Administrative Costs 10.2 10.6 11.1 11.6 12.2 Net Collections without Retention 282.8 283.4 284.9 286.4 287.8 Net Savings with Retention of Costs from Collections 32.9 37.7 41.4 45.3 49.2
Background
The Department of Veterans Affairs (VA) has increased its medical cost recoveries over the past few years from $24 million in fiscal 1987 to approximately $494 million in fiscal 1993. The pivotal factor in this accomplishment was a joint effort between VA and the Office of Management and Budget to establish the Medical Care Cost Recovery (MCCR) Program within the Veterans Health Administration (VHA). MCCR Program authorities should now be expanded, and VA should be allowed to institute a similar Veterans Benefits Administration (VBA) initiative.
Through its MCCR Program, the VHA recovers health care costs from third-party insurers and copayments from veterans. Although VHA has been authorized by statute to collect certain costs since 1986, collections remained relatively low until:
--- the MCCR Program was formally established,
--- employees were empowered to redesign the program, and
--- the program was allowed to fund administrative costs for the succeeding year from the current year's collections.
The success of the MCCR Program after these enhancements has been dramatic, as shown in Table 1.
The MCCR Program is only one of several collection programs administered by VHA. For example, VHA also bills and collects monies under the provisions of the Federal Medical Care Recovery Act, from sharing agreements with other medical facilities, from ineligible recipients, and from emergency humanitarian care.
Even though these other programs are staffed by some of the same personnel involved with the MCCR Program, the administrative costs associated with these other programs are charged against appropriations for medical care. As shown in Table 2, in fiscal year 1992, these billings and collections amounted to an additional $65.8 million over the $448.4 million in MCCR collections, for a total of $514.2 million.
The authority to retain the administrative costs of MCCR has been a significant incentive for increased cost recoveries, and since fiscal year 1990, VA has averaged annual increases in collections of more than $100 million. Allowing for the payment of administrative costs alone, however, will not be a sufficient incentive to improve the collection potential in the shortest time possible.
The best and quickest inducement to increased collections may be through "gain-sharing," whereby a percentage of funds collected can be kept by local VA medical centers. The adoption of gain-sharing would be an important new incentive that promises to generate substantial gains in debt collections. The President's fiscal year 1994 budget contains estimates for recoveries in the MCCR Program without gain-sharing (see Table 3).
Gain-sharing could be instituted in fiscal year 1994 by assigning each VA medical center with a share of the total MCCR recoveries realized in fiscal year 1993 without gain-sharing. If a center's recoveries exceeded its allotted share of that total, it could keep 25 percent of the additional amount.
MCCR Program data tend to indicate that the volume of outpatient and inpatient cases for which collections are undertaken should be roughly equivalent, and a difference suggests a potential performance improvement target. Relatively solid performance data exist for the 166 reporting stations participating in the MCCR Program.
Because the value of an individual center's share would not be known until after a medical center's target allowance and current fiscal year budget were set, the gain-sharing would be based on VA's performance during the previous fiscal year. In terms of costs, VA would continue to operate the program at or below a cost of 20 cents for every dollar collected.
In view of the success of the MCCR Program it would be appropriate now to also establish a similar initiative within the Veterans Benefits Administration (VBA) for the collections of delinquent debts resulting from veterans' participation in its education, compensation, pension, and loan guaranty programs. The administrative costs of VBA collections have historically been charged to its general operating expense (GOE) appropriation. Payment of collection costs out of GOE money competes with a variety of other operational expenditures--such as salaries of all VBA employees--having little, if anything, to do with cost recovery efforts. Any cut in the GOE appropriation also imperils the prospects of future cost recovery efforts. This situation needs to be changed to strengthen the potential and incentives for cost recovery operations, not weaken them.
Table 4 projects VBA recoveries through fiscal year 1999, and projects net savings of $206.5 million if VBA were to be allowed to pay the administrative costs of debt collection from the collections themselves.
VBA has a fully automated, consolidated Debt Management Center located in St. Paul, Minnesota. As a government reinvention initiative, VA is proceeding to develop procedures and the necessary computer programs for VBA to collect the delinquent debt owed by veterans to VHA for copayments. VBA has a well-developed and efficient process for handling such debts, and this interdepartmental cooperation and assistance is another excellent example of what can be done to improve government operations.
It is anticipated that the Clinton administration's health care reform initiative could have some impact upon VA's cost recovery activities overall. It would, however, be premature to speculate at this time what the possible impact might be.
Actions
1. The Department of Veterans Affairs should revise its policy to allow MCCR funds to be used to defray all collection costs for all categories of VHA receivables.
Implementation of this recommendation would produce a more consistent policy governing VA's various collection programs. It would result in more appropriate allocations of the administrative costs of collection to MCCR funding, rather than appropriations for medical care. Implementation would also eliminate the burden of maintaining separate records. The MCCR Program has been advised by the VA general counsel that only VA's internal policy needs to be changed--i.e., legislative authorities would not have to be enacted or amended.(4)
2. VA should seek legislative authority to enable the MCCR Program to retain and distribute to medical facilities 25 percent of prior year revenues that exceed projected total collections, as a gain-sharing incentive to optimize cost recoveries.
VA proposes that allocations to medical centers of gains in revenues from collection activities be based on the performance of individual centers in relation to those collection efforts--i.e., a facility would receive a share of the revenue incentive proportionate to its contribution to the total recovery effort, with adjustments for operational efficiencies. Congressional action to approve this use of funds would be required; Title 38 of the United States Code should also be amended at Section 1729.
3. VA should seek legislative authority to establish a debt collection revolving fund based on the MCCR model.
Implementation of this recommendation would enable VA to pay administrative expenses of cost recovery from collections, rather than out of operational accounts unrelated to collections.
Implications
Legislation will be required to implement the second and third recommendations. As a department engaged in significant collection efforts, VA experience with gain-sharing would be a useful base of knowledge in the emerging base of federal experience with this incentive. Some observers contend that employees paid to engage in such collection efforts should need no added inducement, but experience in the private sector indicates that gain-sharing incentives work. Uniform collection policies and practices, coupled with newer technologies (as they become available), will improve the department's capacity to develop more specific measures of success for use in incentive and performance appraisal programs.
Fiscal Impact
The first recommendation will reduce transfers of recovered funds in VA medical care accounts to the general U.S. treasury for application to the deficit. These reduced transfers, however, will be offset in turn by reductions in medical care appropriations currently funding the collection activities. This recommendation will also eliminate current disincentives for the payment of collection costs from medical care accounts--with possible increases in cost recoveries.
The second recommendation will put gain-sharing incentives in place to enhance cost recoveries. With a 25 percent share of any gains, transfers to the general treasury fund would still be increased by approximately $276 million over the five-year period of fiscal years 1995 through 1999. It should also be noted that the analysis underlying the projected savings includes a substantial increase already factored into federal deficit offsets. As shown in Table 1 above, cost recoveries for the period prior to fiscal year 1994 were at the $494 million mark, and moving up to $705 million in fiscal year 1995 (Table 3 above). Consequently, the MCCR Program has already made a substantial commitment to enhance cost recoveries, and the concept of gain-sharing is one that builds on that commitment.
The third recommendation will result in additional cost recoveries. Funds coming into the VBA program would be retained to cover administrative costs. The recoveries in excess of program administration will be returned to the entitlement appropriation in the same manner as currently done. It is estimated that about $206.5 million in extra federal revenues will result from debt collections over the period of fiscal years 1995 through 1999. The appropriation accounts would be reduced by the amount devoted to these activities that would now be covered by collection receipts. The same holds true for staff positions. Because VBA's cost recovery activities have not operated as a revolving fund in the past, VBA is only now beginning to develop and refine its forecasting methodology.
The second and third recommendations will result in additional combined revenues of $486.5 million over the period of fiscal years 1995 through 1999 as shown below. Savings are not shown for fiscal year 1994, because legislation is required to implement both recommendations, and it is believed the legislation would not be in place until fiscal year 1995.
Budget Authority (BA), Outlays, and Revenues (Dollars in Millions)
Fiscal Year 1994 1995 1996 1997 1998 1999 Total
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
BA 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Outlays 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Revenues 0.0 70.9 84.7 103.4 110.3 117.2 486.5
Change
in FTEs 0 0 0 0 0 0 0
Endnotes
1. Letter from Richard Pell, Jr., Deputy Chief of Staff, Department of Veterans Affairs, to Corlis Sellers, National Performance Review, May 27, 1993. The fiscal year 1993 estimate was later revised in an interview with Raymond Wilburn on July 16, 1993, to reflect the latest performance estimate.
2. Ibid.
3. Letter from Richard Pell, Jr.
4. Interview between Douglas W. Bartow, Director, Debt Management, Office of the General Counsel, VA, and Don Pratt, Staff Director, MCCR Program, VA, July 7, 1993.
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