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Selecting the Most Cost-Effective Debt Collection Techniques [back to top]
HHS is dedicated to recovering, to the maximum extent possible, debts due the Federal Government utilizing collection techniques based on the type of debt and the most cost effective collection mechanism that can be applied to that debt.
We ended this reporting year with the following:
Receivable, Collections, Delinquencies and Write-offs HHS Wide in billions
We accomplished . . .
For the 1996 tax year, we referred 2,880 consumer debts totaling $89,123,150 to the Internal Revenue Service (IRS) Tax Refund Offset Program (TROP); 311 debtors paid $593,227 as a result of being referred; and 609 debts totaling $650,158 were recovered as a result of TROP offsets. Also referred to TROP were 397 commercial debts totaling $36,079,409; 31 debtors paid $358,956 as a result of being referred; and 10 debts totaling $62,794 were recovered as a result of TROP offsets. Additionally, we assisted the States in referring 4,355,185 cases totaling $31,009,541,159 to the IRS to recover delinquent child support payments. There were 1,240,596 child support offsets totaling $1,021,448,990.
Currently, the PSC provides debt management services to six of the 12 component agencies as part of the Department’s effort to achieve service efficiency by consolidating common administrative functions among HHS agencies. During this past reporting period, PSC engaged Kodak Corporation to provide an image processing system to assist in managing documents generated by the numerous debt and credit programs. The new system is expected to generate monetary savings from reductions in storage, filing, retrieval time as well as document reproduction.
PSC is also accelerating its use of private collection agencies to assist in the recovery of delinquent debts. During the past year, 2,000 debts totaling $59,396,500 were referred to private collection agencies, and they collected $3,868,750. ACF, an agency serviced by the PSC, instituted new debt collection procedures with an increased emphasis on recovering delinquent debts though comprehensive offset processes within HHS.
As the administrator of the Health Education Assistance Loans, HRSA aggressively pursues collection actions that include referrals to credit bureaus and the IRS TROP, salary offset, and litigation, etc. Current HRSA initiatives are emphasizing preventative action to reduce loan defaults through education. These initiatives involve the development and distribution of brochures, videos, and debt management workbooks to educate borrowers in managing their money, including the refinancing of loans to save students money. As of FY 1996, more than 40,000 workbooks have been distributed.
HCFA is also working to prevent receivables, primarily on the front end of the Medicare Secondary Payer (MSP) process. Proposed legislation would require group insurers to provide information that would ensure that Medicare only pays the appropriate share of beneficiary claims, eliminates the time limits for HCFA to file claims against insurers, and requires that insurers reimburse the government for the full amount of the Medicare payment. Passage of this legislation will minimize the program administration costs of recovering overpayments to insurers caused by the current "pay and chase" approach.
Additionally, HCFA is improving and simplifying its initial enrollment questionnaire and negotiating data sharing agreements with two Fortune 500 companies. Both of these activities will help ensure the timely receipt of accurate MSP data to ensure that Medicare beneficiary claims are paid in the correct order of financial liability. These processes will not only reduce costs to process health claims for HCFA but also for the rest of the industry. HCFA is also working on a large global settlement with insurers, and a settlement with Blue Cross/Blue Shield of Massachusetts is expected in the near future.
We plan to . . .
In the upcoming year, we will continue to meld ongoing Departmental debt management goals, such as increasing internal offset collections and improved systems, into the broader approach advocated by DCIA implementation initiatives.
Implementing the Major Provisions of the Debt Collection Improvement Act of 1996 by September 1997
We accomplished . . .
On April 26, 1996, the Debt Collection Improvement Act of 1996 was signed into law by the President in order to strengthen the Federal government’s debt management and collection activities. Shortly after its passage, HHS established a Department-wide workgroup to implement the provisions of the law with consideration to the impact on current HHS debt management policies and procedures. This effort will culminate with revisions to HHS debt management policy. HHS is also working with program managers and other groups affected by this legislation. Upon passage of DCIA, we notified 16,000 grantees of the offset provision of the DCIA and its potential impact on them.
We have made significant progress in implementing many of the provisions of the DCIA and have plans in place to continue our current efforts and to be prepared as new standards and implementing regulations are developed by Treasury. To date, we have accomplished the following:
Refer All Delinquent Debts Over 180 Days Old To The Treasury Offset Program (TOP) And The Treasury’s Debt Management Service Center (DMSC)
We initiated a Department-wide meeting with Treasury staff responsible for the TOP and DMSC programs to clarify the exemption provisions, particularly for our numerous grant programs. Upon completion of a vigorous internal review by September 1997, we anticipate submission of a request for exemption to Treasury for a small number of HHS programs.
On January 6, 1997, we published a new "Notice of an Altered System of Records" in the Federal Register to comply with Privacy Act requirements and complete our debt referral process. We referred our first debts to Treasury for offset on March 25, 1996, using the existing IRS TROP system. We are also working with Treasury to bring up the new dedicated TOP system. Not including delinquent child support cases, HHS, as one of eight Agencies to date, has referred 2,598 cases totaling $93.8 million to TOP.
We entered into an agreement with Treasury to refer delinquent debts to the DMSC on February 12, 1997; our first debts were referred on February 26, 1997. HHS, as one of thirteen Agencies to date, has referred 105 cases totaling $8,500 to the DMSC. Additional debts will be referred on a phased-in basis. However, if PSC is selected as a debt collection center (see below), it will handle the referrals scheduled to go to Treasury.
Refer All Delinquent Debt Over 180 Days Old To A Treasury Designated Debt Collection Center
PSC applied to Treasury to become a designated debt collection center on February 28, 1997. PSC currently provides debt management services to over half of the Department’s OPDIVs and has secured commitments to provide services for all OPDIVs during FY 1998. At the time of this report, Treasury has not acted upon PSC’s application.
Bar Delinquent Debtors From Obtaining Federal Credit. Phase In Requirements for Child Support Collections
We are reviewing our loan procedures to ensure that delinquent debtors do not receive loans from the Department. We will be able to implement this provision in accord with Treasury standards when they are published.
Develop GPRA Debt Management Performance Measures
In conjunction with its implementation of GPRA, HHS has worked with its OPDIVs to identify appropriate performance measures for its debt and credit programs. Some measures identified include:
Complete IRS Form 1099 C And Obtain Taxpayer Identification Numbers
The DCIA requires agencies to complete an IRS form 1099 C when a debt is determined to be uncollectable and is written off as a bad debt. Existing Departmental policy for write-off procedures (under the Federal Claims Collection Standards) has long required the reporting of written off debts to the IRS.
The Department has long required Taxpayer Identification Numbers (TINs) from the vast majority of entities that we do business with directly. One exception involves entities that request information under the Freedom of Information Act. We are reviewing our processes in this area, although we note that it may not be cost effective. Other exceptions involve entities who obtain information from the National Practitioner Data Bank and payments from Medicare providers.
Review Loan Programs For Sale To The Private Sector
In the past, the Department participated in asset sale programs. In the late 1980s, we sold collateralized medical facility loans. Under the DCIA, we developed an inventory of all debts owed to the Department and created an asset sales questionnaire to review their suitability for sale in today’s marketplace. Advice from the private sector, the Commerce Business Daily and other Federal agencies, apprised us that current financial markets are favorable for the sale of collateralized loans. We have also been advised that it would be more advantageous to continue our collection efforts on portfolios made up of non-collateralized, defaulted loans since the Government has more collection tools than the private sector, which would also devalue a sale as debtors could avoid payment to them by declaring bankruptcy. As a result of this assessment, we have decided not to sell our receivables at this time as none of them are backed by collateral. However, as a member of the asset sales work group under the CFO Council, we will continue to monitor market conditions and explore other avenues that may allow us to dispose of some of these assets with a favorable return to the Government.
Other
We have made progress in the implementation of other DCIA provisions. On October 7, 1996, the IG published a timely "Final Rule" in the Federal Register which incorporated the penalty inflation adjustments for civil monetary penalties covered by the DCIA.
We view the provision which allows the Federal government to assist States in recovering debts as an unique opportunity to increase the collection of past due child support. In conjunction with this provision and Executive Order 13019 "Supporting Families: Collecting Delinquent Child Support Obligations," HHS has been working with the States and Treasury to refer delinquent child support obligations to TOP. To date, 749,204 cases totaling $8,325,559,869 from Alaska, Arizona, California, Connecticut, Kansas, Oklahoma, Oregon, South Dakota, and the District of Columbia have been referred to TOP.
We plan to . . .
During the upcoming year, we plan to complete implementation of all provisions of the DCIA, where standards and implementing regulations have been established, while integrating current initiatives into our DCIA plan. Our target for referral of delinquent debts to TOP and the DMSC is September 1997, although we anticipate delay in the referral of medical debts. Our target for those debts is December 1997.
PSC currently provides full financial and debt management services to eight OPDIVs and selected delinquent debt management services to three other OPDIVs. With PSC’s application for Treasury designation as a debt collection center, we are examining the feasibility of consolidating this function to encompass the entire Department.
In other areas, OPDIVs will continue to develop program specific initiatives to improve debt management practices tailored to program goals. For example, HRSA will continue its preventative action initiatives to distribute educational videos that provide information on how to manage loans to students. HRSA will also make system improvements to submit loan service information electronically, and encourage States to enact stronger State laws against loan defaulters. HRSA intends to publish a list of persons who have defaulted on their HEAL loans in the Federal Register. Past publications of this list have resulted in the recovery of over $30 million. These persons will also be excluded from participating in the Medicare program. HCFA will continue to press for legislation to assist them in preventing MSP debts, and ACF will continue to strengthen its internal offset processes and work with the States to assist them in referring delinquent child support payments to TOP. Finance and program offices will work together to obtain the few TINs that we do not have, and the PSC will install, test, and train on the new Kodak image processing system this coming year.