VA was overbilled by firm, audit says

Times Staff Writer

The California company headed by former Veterans Affairs Secretary Anthony J. Principi overcharged the agency some $6 million under a long-term contract to conduct physical evaluations on veterans applying for disability benefits, an audit has found.

The report, released Thursday, also questioned a proposal by the Department of Veterans Affairs to amend the contract with the company -- QTC Management Inc., based in Diamond Bar -- to charge higher rates than currently authorized.

“The contract clearly limits the base rate” for these services, the 43-page report by the department’s inspector general’s office states.


The audit also said the proposed amendment amounts to a major or “cardinal change” under federal contracting laws, which can trigger a requirement for a new bidding process.

The report also found evidence that the VA may still be paying too much to the company for a variety of services on the multiyear contract.

The audit was triggered by a call to a government hotline. It followed an internal review of QTC’s billing practices and a review of the contract by a private firm for the VA.

As a result, QTC already has agreed to repay about $3 million.

But a company executive said Friday that QTC “strongly disagrees” with the new audit’s conclusion that it should repay roughly $3 million more.

“We just got the audit, and we’re still reviewing it,” said Senior Vice President Marjie Shahani. “Our initial review of the report shows that it has numerous errors and inaccuracies, and we strongly disagree with many of its conclusions.”

QTC was paid a total of $267 million by the VA from May 1, 2003, through April 30, 2007, the period covered by the audit.

The company remains under contract with the agency. And, because of good performance reviews, it is to get an additional year tacked on to the current agreement, pushing the end date to April 2009.

The Times reported in 2006 that Principi’s firm had benefited from a series of contract awards and revisions to those awards by the department he once headed. The article noted that a congressionally mandated review of QTC’s performance had found that the costs of the contract were much higher than expected and did not produce anticipated savings.

The VA never performed a follow-up to that study, though one was recommended by the private firm doing the review.

Principi, in response to questions from The Times in 2006, said he took no actions relating to QTC while he served as VA secretary.

Principi was the head of QTC when Bush named him to the top veterans post in 2001. He returned to the company four years later after stepping down from the Cabinet post. He now is chairman of the board.

James B. Peake, a retired Army general who now heads the VA, also worked for QTC as an executive immediately prior to being named secretary last year. At his confirmation hearings, Peake said he would recuse himself from any matters involving QTC.

Much of the inspector general’s report focused on a discrepancy between the reimbursement rate for certain services called for in the contract and what QTC actually received.

The audit said that contract specifically set the reimbursement at the same rates for those services set by the Medicare program in 1998.

“QTC incorrectly updated the Medicare rates to the (program’s) current rates each year rather than bill at the 1998 rates as stipulated in the contract,” the audit said. “The contract is not ambiguous.”

By not sticking to the 1998 rates, QTC was able to bill the VA an extra $2.6 million, according to the audit.

The auditors, by reviewing records dating back to when the contract was awarded, concluded that QTC officials were fully aware that the payment rates for certain services were supposed to be frozen at 1998 figures.

“Nonetheless, QTC never complied with the terms of the contract,” the report said.

Under a prior contract, QTC had been allowed to raise rates annually.

Although QTC officials contended that the VA knew about the higher billing rate and effectively approved it, the auditors said they did not find that contention credible.

“The reasons QTC offered for continuing to use current Medicare rates are not accurate,” the report concluded.

The audit noted that VA officials disagreed with some of the report’s conclusions. Department officials also cited a ruling by its general counsel in early 2007 supporting the higher payments to QTC.

A department spokesman nonetheless issued a written statement saying that the agency agreed with the audit findings.