VA Testimony of Edward A. Powell, Jr. before Congress on September 23, 1999

STATEMENT OF
THE HONORABLE EDWARD A. POWELL, JR.
ASSISTANT SECRETARY FOR FINANCIAL MANAGEMENT AND
CHIEF FINANCIAL OFFICER
DEPARTMENT OF VETERANS AFFAIRS
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
OVERSIGHT HEARING TO EVALUATE FRAUD AND MISMANAGEMENT

I am pleased to be here today to discuss the issues you have raised concerning Medical Care Cost Fund (MCCF) overbillings, and internal control weaknesses uncovered at two Department of Veterans Affairs’ (VA) regional offices. I am accompanied today by Nora Egan, Deputy Under Secretary for Management in the Veterans Benefits Administration, Todd Grams, Chief Financial Officer in the Veterans Health Administration, and Mark Catlett, Deputy Assistant Secretary for Budget.

As the Department’s Chief Financial Officer, I work closely with management officials in VA’s Administrations to support them as they provide benefits and services to our Nation’s veterans, and to provide strategic and operational leadership for improving the Department’s financial management stewardship and oversight.

Many of VA’s management challenges are directly attributable to problems with our existing business processes and our legacy systems. As a result, earlier this year I initiated a Department-wide effort to reexamine all of our business processes and systems with the objective of migrating our existing, independent and disparate financial systems to new, more integrated financial and logistics standards modeled on contemporary business, financial, and logistics management best practices. By taking this standards-based approach, we can significantly improve our management and operations, address the weaknesses in our internal controls, reduce our operating costs, and maintain our focus on what is most important - - providing benefits to our Nation’s veterans.

This initiative, which we have named the Integrated Financial/Logistics Management Standards or IFMS, has been approved by both VA’s Information Technology and Capital Investment Boards. IFMS will involve extensive field and central office staff participation from all three of VA’s Administrations and VA staff offices. IFMS is about bringing consistent reporting standards, data, and information to all Department components. It will also provide us leverage to speed change throughout VA by providing us the opportunity to abandon our old inefficient ways of doing business and incorporate the results of best practices through business process re-engineering. Our goal with IFMS is to address weaknesses in VA’s current financial management processes and systems and provide VA the flexibility to adapt to internal and external changes. IFMS will also help us better support and facilitate VA’s strategic business and technology plans.

Consistent and reliable data will assist us in resolving problems and improving management decisionmaking. Ultimately, improved business practices through better management information will help us prevent future problems.

I wish to focus on the two issues you raised concerning VA’s revenue program and internal control weaknesses uncovered at two of VA’s regional offices.

VA’s revenue programs encompass a broad range of issues and initiatives. It is my understanding you want to discuss specific issues and initiatives concerning the overpayment of VA by health insurance companies.

Regarding overpayments, we have sought advice from a variety of sources, all of which have proven useful. These sources include VA field and headquarters staff, private sector contractors, and the VA Inspector General. Before discussing the steps taken to address this problem, it should be recognized that producing accurate bills for health services is not a challenge unique to VA. I say this, not to make excuses for our shortcomings, but simply to recognize that this is an industry-wide challenge.

In 1997, when the concern about possible overpayments was brought to us, we took several steps to correct billing to third-party payers. A series of handbooks outlining procedures to implement coordination of benefits was developed along with the software to assist in the coordination of benefit procedures. A series of audio training calls and two satellite video-training programs was conducted on coordination of benefits. In addition, these issues have been addressed at numerous national meetings and on national conference calls. The Veterans Health Administration (VHA) has issued several memoranda to Network Directors and medical center directors regarding the findings of the American Association of Retired Persons and the findings of other reviews that were conducted at VA’s request. Networks and medical centers have been instructed on several actions facilities must initiate locally to prevent similar problems and improve their processes. Some of these actions are:

VHA also retained the American Hospital Association (AHA) and PriceWaterhouse Coopers to conduct a comprehensive compliance assessment in January 1999. That assessment, completed in April 1999, recommended implementation of a comprehensive health-care compliance program to help correct the integrity in the billing and collections program. The VHA Compliance Office was officially established on August 6, 1999. Recruitment of staff is currently underway. In the interim, MCCF staff have been reassigned to the Compliance Office, and several temporary contract employees have been employed to develop processes and policies and to begin the work of the new office.

Some Veterans Integrated Service Networks (VISNs) and medical centers have already appointed compliance officers. Other VISNs and medical centers have appointed a compliance "contact" until recruitment of their compliance officers can be accomplished.

A multi-disciplinary team was constituted from staff of medical centers and VISNs to develop a strategic plan for training VHA employees regarding compliance functions. Training in the technical areas of coding, medical documentation and billing is presently occurring at the medical centers. Plans include training on the ethical framework of the compliance program for all employees including top management, and periodic training for health care providers, coders, billers, compliance officers, and other appropriate staff. Bi-weekly conference calls with VISNs and field facilities provide a forum for sharing progress and approaches, and to discuss issues so all can move forward expeditiously.

The first VA Compliance Conference for compliance officers and leaders in VHA will be held in Chicago, October 27-28, 1999, in conjunction with the Health Care Compliance Association’s (HCCA) National Annual Compliance Institute. The HCCA conference attendance is open to Chief Executive Officers, Chief Financial Officers, compliance officers, health law attorneys, health administration faculty, physicians, managed care managers, and others.

Infrastructure is being developed to track compliance efforts electronically. A nationwide compliance line to report compliance issues, via a toll-free telephone number, is planned for full implementation in fiscal year 2000.

Additionally, each VISN has a "Reasonable Charges Action Plan" for implementing the Department’s new methodology for computing charges for medical care, which became effective September 1, 1999. These plans include educational efforts for both health-care providers and administrative staff, and they require coding data validation on a bi-weekly basis. A series of reports from the field has been required and national-level coding data validation is conducted. These efforts were taken to ensure all field facilities are taking the necessary steps to insure accurate bills will be produced under the reasonable charges system.

Mr. Chairman, the MCCF Revenue Program is contributing significant funding for VA health care. We are confident the initiatives currently underway will correct the billing problems that surfaced in 1997. Through these and other efforts we will be able to continue to increase the revenues generated by this program in future years.

There have been three recent instances of employee fraud at two regional offices in the Veterans Benefits Administration (VBA). One case involved an employee creating a false benefits award for himself; another concerned a supervisor creating a false benefits award for her close friend; and the third involved an employee creating a false benefits award for another employee at the regional office. From what we now know, it appears the employees were able to carry out these fraudulent activities because procedures and checks and balances either have not been developed, were circumvented, or were not being utilized within the regional offices.

We believe violations of the law, such as these, are deplorable. However, they are also violations of trust, which makes them even worse. Our employees have been entrusted by the public to conduct its business. When they engage in fraudulent activities the trust is violated, not only with the public, but with their fellow employees as well. It impacts on honest employees, not just the few engaged in criminal activity, and such loss of trust may not be recoverable. The Under Secretary for Benefits addressed these issues and discussed internal controls in a broadcast to all field stations on July 22, 1999.

Having said this, I would like to briefly address the root causes that have diminished the VBA’s internal controls over time. The VBA workload has dramatically increased in recent years, despite the fact there are fewer veterans overall.

There has been an increase in the number of issues per individual claim, coupled with the increasing legal and medical complexity of the work. To meet these increasing demands with diminishing resources, VBA has shifted staffing resources into processing claims, and away from oversight/review functions. VBA’s efforts have been focused on restoring quality and timeliness, not addressing the potential for fraud. Clearly, not enough attention has been placed on ensuring that appropriate controls are in place to detect and prevent fraud, and to enforce those controls that do exist.

When the Under Secretary for Benefits learned of these fraud instances in January 1999, he immediately called upon the VA’s Inspector General’s (IG) office to assist in identifying internal control weaknesses and vulnerabilities in the Compensation and Pension Program. Working with members of the VBA, the IG’s office spent six months reviewing and assessing this program, and issued a report to the Under Secretary with 18 separate observations of internal control vulnerabilities. These observations fall into six general categories:

reasonable assurance and safeguards;
delegation of authority and organization;
separation of duties and supervision;
ADP access controls/access to claims records;
recording and documentation; and
integrity, competence, and attitude.

VBA has already begun addressing these 18 observations, and has identified specific policy changes, instructions, or controls which have been or immediately can be implemented to reduce the internal control vulnerabilities. Specific examples include: issuing instructions to the field reinforcing the policy regarding the transfer of veteran-employee claims folders to the appropriate jurisdiction; reinstituting regular reviews of security logs that identify each time an employee record is accessed; and re-establishing a System Security Office in headquarters with oversight of field violations. Wherever VBA can institute immediate and lasting solutions to these vulnerabilities, they have already begun to take action and will continue to do so. Longer-term solutions are also being outlined, with timeframes for completion. One of these solutions is the re-institution of quality reviews of work products for the purposes of determining the accuracy of claims processing. Those reviews provide an excellent opportunity for assessing whether there are any improprieties in the actual claims themselves.

In conclusion, my office’s financial review staff in Austin, Texas, continues to assist VA Administrations in looking at financial management areas, including MCCF and internal controls, for weaknesses. Though they were not part of any review of the internal control problems found at the two regional offices, they were contacted early in 1999 by VBA’s Compensation and Pension Service Director and Acting Chief Financial Officer to provide financial review assistance from an internal control perspective. At their request, my staff visited three other regional offices to gain a better understanding of the Compensation and Pension Program and the potential vulnerabilities inherent in its processes. In addition, we are supporting the IG in their audit of the Compensation and Pension Program’s financial and internal controls. We anticipate conducting eight to ten site visits during FY 2000 to follow up on problem/fraud indicators and evaluate procedures and controls in this Program.

Mr. Chairman, this concludes my statement. My colleagues and I will be pleased to respond to any questions you or other members of the subcommittee may have.