Arizona-based VA contractor collected 'tens of millions' in over payments, federal audit says

A Phoenix-based company that oversees about half of the private medical care for America's veterans is looking to extend its contract even as documents reveal it overbilled the government by tens of millions of dollars.

In addition: It's the target of a federal grand jury investigation.

The company, TriWest Healthcare Alliance, has multi-billion-dollar contracts with the Department of Veterans Affairs to administer private health-care appointments for ex-military personnel in Arizona and 27 other states.

The VA Office of Inspector General recently reported to Congress that TriWest and another company, Health Net Federal Services — which oversees private VA care for the remainder of the nation — collected at least $89 million more than they should have, sometimes by billing the government at improper rates or collecting twice for the same treatment.

That, lawmakers allege, means money that could have been spent on veterans' health care was instead taken by the two companies.

The total amount is not yet known because audits are ongoing.

READ: VA in Crisis: A Republic investigation

Anonymous comments lead to subpoena

The grand jury inquiry was the subject of a 9th U.S. Circuit Court of Appeals decision last week in favor of prosecutors who are seeking "witnesses to potential unlawful conduct."

According to the appellate ruling, the U.S. Attorney's Office in Phoenix obtained a subpoena in March to identify anonymous authors who posted comments on glassdoor.com, an Internet site where employees critique their workplaces.

As reported in The Wall Street Journal, Glassdoor attempted to quash the subpoena based on First Amendment protections for anonymous free speech, but a federal judge in Phoenix ruled against the company. The 9th Circuit decision upheld that finding.

TriWest was the subject of those anonymous posts.

Though the company's name has been redacted from legal files, its identity was clearly identifiable by contents of court documents.

The 9th Circuit ruling says the subpoena stems from a grand jury investigation of possible wire fraud and misuse of government funds by a Phoenix company that administers two VA healthcare programs.

Online whispers of abuse

TriWest oversees the Veterans Choice program and another known as Patient-Centered Community Care, or PC3. And the court papers contain direct quotes from the Glassdoor Web page for TriWest employees.

One anonymous post on that page, cited in the subpoena, says the company "m]anipulate[s] the system to make money unethically off of veterans/VA."

Another says there is "a real disconnect between how this program runs and how the VA thinks the program runs."

The U.S. Attorney's Office, which is striving to identify possible witnesses, declined to comment.

In response to questions from The Arizona Republic, TriWest CEO and President David McIntyre Jr. issued a statement: “We are aware of the decision in the Glassdoor case, but we have no information beyond what has been published. ... As a result of TriWest’s dedication of resources and process improvements, we are able to schedule nearly all Veteran appointments within five business days of authorization by the agency."

During an interview last month at company headquarters — before the grand jury issue arose — McIntyre was asked directly if TriWest's financial practices have been dishonest or corrupt.

“Absolutely not,” he replied.

“This stuff is all challenging,” McIntyre added. “What we’ve sought to do is be transparent and accountable… This thing (Veterans Choice) was born out of crisis, which makes it more complicated. … Has someone exploited it? I’m not sure. But that’s not this company.”

McIntyre said billing errors are common in the health insurance industry, and the VA processing system is plagued with problems that need to be cured.

“I’m glad they’re focused on this. There is work to do," he said. "If we don’t get the mechanics right, the stuff doesn’t stand on a proper foundation.”

MORE: Phoenix VA whistleblower assigned to new national accountability office

A private solution to nationwide problem

Veterans Choice, which has already cost taxpayers more than $12 billion, was created as an emergency stopgap to serve patients who were waiting weeks or months to see doctors in a backlogged VA healthcare system.

Life-threatening delays, first exposed in reports by The Republic about the Phoenix VA hospital in 2014, turned out to be a nationwide problem.

In response to the crisis, Congress passed the Veterans Access, Choice and Accountability Act, a reform measure designed to expedite diagnoses and treatments. The bill included $10 billion to give veterans a private medical option.

When the new Choice program was put out for bid in 2014, two companies – TriWest and Health Net Federal Services — were the only ones to apply.

They wound up splitting the VA’s private-care system nationwide, developing physician networks and handling appointments at VA expense.

The agreements required TriWest and Health Net to begin serving veterans within three months, a herculean task. Contracts were drafted so hastily that, to date, there have been about 70 modifications.

MORE: WWII veteran's family wants military honors for his funeral, but will help come in time?

Excess payments go unnoticed

Now, inspectors have found the contractors reaped excess payments that went unreported for nearly two years.

The inspector general's memorandum in September said TriWest and Health Net engaged in at least four practices that generated company windfalls. They include:

Duplicate errors: The VA got billed more than once for specific medical services.

Health insurance errors: The VA was billed for services covered by private insurance payments.

Pass-through errors: The VA was billed more than private medical providers had been paid for their services.

Rate errors: The companies did not require medical providers to pay according to rates set by Medicare or contracts.

Inspector General Michael Missal estimated that, in duplicate payments alone, Health Net and TriWest overbilled taxpayers by $89.7 million.

Health Net was instructed to reimburse $50.8 million; TriWest allegedly owed $38.9 million.

“Our audit staff has attributed these errors to the lack of an appropriate payments process for Choice claims and an inefficient internal control system,” wrote Missal. “As a result, we estimate that (the VA) overpaid the (contractors) by tens of millions of dollars.”

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'Waste of resources'

New controversy involving VA contractors comes at a pivotal moment for veterans and taxpayers.

Congress and the Trump administration are moving to expand and consolidate private-care options for veterans, and to hire long-term contractors as overseers for the new program.

Those efforts are advancing despite audit results that prompted an alarmed letter from Rep. Phil Roe, R-Tenn., chairmain of the House Committee on Veterans’ Affairs, to VA Secretary David Shulkin.

“This was a senseless waste of resources that could have been better spent on veterans’ health care,” Roe wrote, referring to some of the excess payments. “I am disappointed in the department’s continued lack of urgency to prevent these extensive over-payments.”

With audits still underway, Shulkin is pushing legislation that would make private healthcare a permanent option for all veterans. And, according to McIntyre, TriWest is among several companies bidding to oversee that new system under a five-year contract.

SEE ALSO: Phoenix veterans hospital gets VA's worst ranking

Although the scope of the VA's new community-care program remains unknown and awaiting Congressional action, department officials confirmed they are in the process of selecting contractors to run it.

Shulkin has dubbed his proposed legislation prospectively as the Veterans CARE Act. (CARE stands for Coordinated Access and Rewarding Experiences.)

The reform measure would create a permanent private-care option for all veterans with a streamlined system and clear rules. The startup fund would be $4 billion.

Several members of Congress have proposed alternate legislation that also would extend VA-subsidized private treatment for veterans. The complex measures have received scant public attention, as have the VA audit findings.

Contractor's past missteps

TriWest, incorporated in Delaware, is operated by a consortium of nonprofits. The founder, McIntyre, is a former aide to Sen. John McCain, R-Ariz., who has been a staunch advocate for the Choice Program.

This is not the first time TriWest's billing methods have come under scrutiny.

In 2011, the company paid $10 million to settle a Justice Department lawsuit that alleged the company "systematically defrauded" the TRICARE health system for uniformed military personnel.

In that case, the company was accused of multiple improper billing tactics similar to those reported by VA auditors.

TriWest lost the TRICARE contract and nearly went out of business before taking on the VA healthcare assignments two years later. Today, the company boasts 3,500 employees in 10 operation centers.

McIntyre contends the VA billing process is to blame for overpayments, not TriWest. He declined to divulge TriWest's income for each VA medical appointment, claiming the amount is “market competitive.”

“What I will tell you is that this company has yet to make a profit, net-net,” he said. “Our expenses (overall) have exceeded our revenues; that’s a loss."

McIntyre said at one point the VA owed his company nearly $200 million, threatening its viability: “We were going to have to close our doors. …Currently, VA owes more to TriWest than TriWest owes to VA, and we stand ready to reconcile our claims records with VA’s payments records."

To overcome payment backlogs, the VA began allowing Health Net and TriWest to simply total up bills and request compensation as a “bulk payment.”

By August, inspectors found, the two companies had collected almost $2 billion in medical charges that were not scrutinized at all. Inspectors uncovered “tens of thousands of duplicate payments” and said the VA took no steps to safeguard the process.

McIntyre said his company welcomes audits and has a "98 percent claims accuracy rate that…exceeds all applicable standards."

TriWest: 'We’re the ones' who caught error

He asserted that TriWest brought the over-payments to light in a July letter to the VA, identifying 58,000 incorrect medical claims that netted $35 million. About $13 million of that sum already has been paid back, he said.

“We’re the ones who actually brought it to the government’s attention,” McIntyre said. “We were seeking a process to return the funds. There was no process in place. We now have returned some of the money."

In written statements, VA representatives said the July letter from TriWest "did not contain new information" and excess payments already had been identified. The company's notification letter was delivered three months after the grand-jury subpoena to Glassdoor, and 18 months after inspector general inquiries began.

Amid those developments, the VA gave TriWest and Healthnet extensions through Sept. 30 of 2018, explaining that the federal agency "has no other immediate options available to perform the functions of current contracts."

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