VA Testimony of Dr. Leo S. MacKay, Jr. before Congress on October 10, 2001

United States Department of Veterans Affairs

STATEMENT BY
THE HONORABLE LEO MACKAY, JR.
DEPUTY SECRETARY
DEPARTMENT OF VETERANS AFFAIRS

BEFORE THE
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
FINANCIAL MANAGEMENT, AND INTERGOVERNMENTAL RELATIONS
COMMITTEE ON GOVERNMENT REFORM
U. S. HOUSE OF REPRESENTATIVES

October 10, 2001

INTRODUCTION

Mr. Chairman, and members of the Subcommittee, it is my pleasure to testify on behalf of the Department of Veterans Affairs (VA) concerning our implementation of the Debt Collection Improvement Act (DCIA) of 1996.

The VA Chief Financial Officer's (CFO) staff has worked with VA's three administrations-the Veterans Benefits Administration (VBA), Veterans Health Administration (VHA), and National Cemetery Administration (NCA), as well as other VA elements to take the steps necessary to ensure our compliance with the requirements of the DCIA. VA personnel continue to work closely with Department of the Treasury's Financial Management Service (FMS) to implement the provisions of the DCIA.

In our previous appearance before this Subcommittee on June 8, 2000, we testified that VA was making progress in referring eligible debt to the Treasury Offset Program (TOP) and for cross-servicing. I am delighted to inform you today that VA is certain next month's final records for this fiscal year will show that VA met its goal of referring over 90% of eligible debt to TOP and the cross-servicing program.

SUMMARY OF VA DEBT COLLECTION STATUS

VA has made extensive efforts to reduce the establishment of debts and to collect those that have been established. At the end of FY 1996, the year in which the DCIA was enacted, VA had $4.2 billion in total receivables, with $2.4 billion delinquent. As of September 30, 2000, VA had $3.8 billion in total receivables, with $1.4 billion delinquent.

Of the $1.4 billion in delinquent debt at the end of FY 2000, $341.3 million was attributable to Direct Home Loan mortgages held by VA; $328 million to Compensation & Pension overpayments, $139.5 million to defaulted guaranteed home loans, $46.7 million to Readjustment benefit (Education benefit) overpayments, and $545.4 million to charges for the provision of medical care and services. The bulk of the last-mentioned amount, owed to VA's Medical Care Collection Fund, is comprised of claims filed with third-party health insurers and represents the gross amounts billed. These "claims" are not referable to Treasury for cross-servicing or administrative offset because they are not sum-certain amounts owed. Rather, the existence and amount of such third-party liability, if any, for the charges billed is determined pursuant to an administrative process that frequently involves extensive negotiations and appeals. This process requires determinations concerning the health plan coverage applicable in the individual case, to include resolution of both medical and legal issues, comparable to the process performed by private sector health care providers.

IMPLEMENTATION OF ADMINISTRATIVE OFFSET REQUIREMENT

VA has participated in the Tax Refund Offset Program since 1987. The Department has collected $335 million from 1987 through 1999, when the Tax Refund Offset Program became part of the TOP program. Using the Tax Refund Offset Program file format, VA began referring debts to TOP in 1997. VA changed to the TOP file format in 2000 and has collected $40 million since then, $24.6 million of which has been collected this year. In addition, VA has been performing inter-agency matches over the last 10 years in order to offset VA debts from the pay of Federal employees or annuity payments of Federal retirees. VA will participate in centralized salary offset once it is completely incorporated into TOP.

At the end of FY 2000, VA had $328.7 million in delinquent debt eligible for TOP referral, and referred $220.5 million, or 67%. By the end of the 3rd quarter of FY 2001, VA referred $324.7 million, or 93%, of the $349.3 million eligible for referral to TOP. Based on the latest information from Treasury, VA has referred $390.9 million as of August 31, 2001.

In February of 2001, the Veterans Health Administration (VHA) began referring debts, through the Debt Management Center (DMC), to TOP. The types of debt included in these referrals are 1st party medical debts, ex-employee debts, and vendor/contractor debts. Through August, VHA referred $93.5 million and collected $19.2 million through TOP.

IMPLEMENTATION OF CROSS-SERVICING REQUIREMENT

For the cross-servicing program, VA had $263.4 million in delinquent debt eligible for referral at the end of FY 2000, and referred $45.5 million, or 17%. By the end of the 3rd quarter of FY 2001, VA referred $230.8 million, or 87%, of the $266.7 million eligible for referral for cross-servicing. According to Treasury, VA has referred $255.1 million as of August 31, 2001. VA implemented cross-servicing in the 4th quarter of FY 2000 after working for an extended period to make the necessary system changes to submit debts through the automated process. At Treasury's request, VA referrals have been limited to groups of 5,000 accounts per submission. Treasury has collected $5 million as of August. Data for the end of FY 2001 will show that over 90% of eligible debt was referred.

The referral of our debts to Treasury for cross-servicing took longer than anticipated. However, while an automated process for referral of VA debts to cross-servicing was being developed, we continued to refer our debts to the Treasury Offset Program, and also used Federal Salary Offset. Both of these programs have been highly effective external sources of collection for VA debt.

VA and Treasury continue to explore the efficacy of referring VA's 1st party medical debts for cross-servicing. These debts resemble a "revolving credit" account in that debtors incur additional charges on a periodic basis as medical services are provided. The nature of these debts makes the cross-servicing process especially problematic and expensive. Since such referral does not now appear to be cost effective, it must be determined whether VA should incur the expense of developing the automated processes necessary to refer all eligible 1st party debt. We should mention that VA executed a pilot project with Treasury in which we referred $1.1 million of VA's first party medical debts. Treasury continues to review the results of this pilot project. A final determination on whether to refer 1st party medical debts for cross-servicing should be reached in FY 2002.

The remaining $36 million of eligible debt at the end of the 3rd quarter of FY 2001 is made up of a few smaller benefit programs and miscellaneous VHA debt such as vendor debt, employee debt, and non-federal sharing agreement debt. We continue to work toward referring most of this remaining debt for cross-servicing during FY 2002.

OTHER DCIA REQUIREMENTS

VA is in the process of amending its regulations to comply with the revised Federal Claims Collection Standards (FCCS). The amended regulations proposed will include a new regulation to authorize VA's use of administrative wage garnishment, which allows garnishment, without prior judicial action, of up to 15% of any disposable pay of an indebted individual. We will use this new debt collection tool in conjunction with the Treasury cross-servicing program.

VA DEBT MANAGEMENT CENTER

VA has had an automated collection system in place since 1975. Since 1991, VA has operated the Debt Management Center (DMC) in St. Paul, Minnesota, which controls and maintains this automated collection system. The DMC utilizes every collection tool available to Federal agencies in an operation that emphasizes the collection of debt. It also remains a highly efficient and effective operation that executes all requirements of a cross-servicing center. The DMC has for many years used automated payment processing and collections systems; benefit and salary offset; credit bureau reporting and private collection agency referrals; compromises and litigation; write-offs; and referrals to Treasury's administrative offset and cross-servicing programs. Beginning in 1987, all eligible VA debt has been consolidated and referred for the Tax Refund Offset Program. DMC also began referring benefit debts in 1997 and facilitated the referral of first-party medical billings to Treasury in December 1998 using the format originally intended for the Tax Refund Offset Program.

This concludes my statement. I certainly appreciate the opportunity to discuss VA's progress in implementing the DCIA. I will be happy to answer any questions the Subcommittee may have.