VA hires Navy to build claims processing system

The Veterans Affairs Department has asked the Navy to develop a computer system to process the complex claims for educational benefits that veterans will file under the new GI bill President Bush signed into law in June.

Comment on this article in The Forum.In an Oct. 17 letter sent to the House and Senate VA committees, and obtained by Nextgov, VA Secretary James Peake wrote that the agency has hired the Space and Naval Warfare Systems Command (SPAWAR) in Charleston, S.C., to build a system to process educational benefits for veteran as outlined in the 2008 GI bill. The bill, called the Post-9/11 Veterans Educational Assistance Act, was part of the 2008 Supplemental Appropriations Act that provided veterans with expanded educational benefits. For example, the bill hikes payments for tuition from $1,300 a month to a payment that is pegged at the highest tuition at a public university in a veteran's state of residence, which for Massachusetts would be $10,232. The bill includes monthly living expenses of $1,100 to $1,200.

In July, VA planned to develop a procurement for the new system through the Office of Personnel Management's Training and Management Assistance contract, said Keith Pedigo, assistant deputy undersecretary at the Office of Policy and Program Management at the Veterans Benefits Administration. He testified at a hearing of the House VA committee on Sept. 24.

Pedigo told the panel that the general counsel at the Office of Personnel Management had "serious concerns" about OPM's authority to conduct the acquisition, and VA decided to run the procurement itself, and issued a request for proposals on Aug. 29.

But the Veterans of Foreign Wars' National Legislative Service objected to the contracting plan for the new system. Dennis Cullinan, director of legislative policy at the group, said at the hearing that the contract would allow a vendor to own the software and system source code, which would give the contractor the ability to sell a license to VA to operate the system. When the license expired, the contractor could set any pricing term for a follow-on contract, which could lead to VA being "held hostage" by the vendor, he said. To avoid that, Cullinan said VA must own the software and system source code.

The America Federation of Government Employees filed a protest with the Government Accountability Office on Aug 5, claiming VA violated an Office of Management and Budget requirement to conduct a public-private competition before contracting out work done by federal employees. In the protest, Alma Lee, head of the AFGE National VA Council, argued that hiring a vendor to develop the claims processing system would reduce the number of employees processing education benefit claims from 480 to 50.

VA made an interagency agreement with SPAWAR on Oct. 10 to build the new system. In his letter to the VA committees, Peake did not directly address AFGE's protest or the concerns the veterans group raised. Instead, he told the committees that VA chose the command because "many private contractors were apparently reluctant to offer proposals because of the external misconceptions as to the scope of work involved," and he described SPAWAR as the "premier system engineering command for the Department of the Navy."

More than 30 vendors expressed interest in bidding on the contract to build the claims processing system, and VA identified a bid from a team that included IBM, CGI Consulting Group Inc. and SRA International for the contract, a congressional staffer said.

SPAWAR has expertise with the technologies VA needs for the new system, including rules-based engines, service-oriented architecture and Extensible Markup Language coding to share data over Internet-based systems, said Stephan Warren, VA principal deputy assistant secretary for the Office of Information and Technology.

VA's legacy systems that process veterans' benefits under older versions of GI bills cannot accommodate the more complicated educational benefits provided under the latest GI bill, said Keith Wilson, director of VA's education service. The educational benefits under older versions of the GI bill are "a flat rate regardless of where a veteran went to school," he said. The new GI bill calculates tuition benefits based on length of service and the highest tuition charged by a public college in a veteran's home state. Separate housing allowances are based on cost of living allowances computed by the Defense Department for 300 ZIP codes.

Rules-based claims processing is common in the insurance industry and automatically computes myriad parameters and claims without the need for manual intervention.

VBA's processing systems, which are decades old and run on outdated COBOL programming language, could not calculate the benefits based on so many variables, Wilson said. Robert McFarland, VA's chief information officer from January 2004 to April 2006, said VBA systems run on mainframes produced in the 1990s and some code is based on assembly language written to run on the antiquated mainframes.

The new system will cost $75 million to develop and initially will be funded by $35 million that VA will transfer from its 2009 general operating budget, Peake wrote in his letter. VA also will direct $20 million in IT funding included in its 2008 supplemental appropriation to consolidate educational benefit data, ensure the accuracy of that data and build a gateway to manage it.

Top VA officials, including Wilson and Warren, told Hill staffers at a meeting on Oct. 23 that they had yet to develop requirements for the new system. This called into question the estimates and timeline Peake cited, because it would be difficult to gauge the cost and how long it will take to build a project without first defining requirements, the staffer said.

VA officials acknowledged at the Oct. 23 meeting that the total costs of the system would be $130 million, not the $95 million Peake implied in his letter.

McFarland saidif VA estimated the SPAWAR-developed system would cost $130 million, then "you can bet it will come it at $250 million. I don't know why SPAWAR is so uniquely qualified for this job."

SPAWAR did not reply to numerous queries asking for comment.

Until the system is up and running, Peake said benefit payments will require "significant manual processing," but Wilson said that will not hold up processing for veterans enrolled in college under the new GI bill. He said VA will have to hire additional claims processors to handle the workload, but the agency has yet to determine how many will be needed.

VBA currently processes educational benefit claims for 500,000 veterans, and VA may have to double the number of claims processors to manage the manual workload in addition to overseeing the benefits for veterans attending school under older versions of the GI bill, according to Eric Hilleman, deputy director of VFW's legislative affairs office. He said VA might not meet the August 2009 deadline required by law to process claims submitted under the new GI bill.

VA should start paying claims under the new GI bill by the August deadline, with VBA completing the processing of a claim within 19 days after it was submitted, officials said. VA will make payments to some veterans covered by the new GI bill, but might not issue payments to all veterans who have filed claims, a Hill staffer said. He added that VA wasted more than three months after the GI bill passed Congress to create a plan to execute the payments. "They've been just fiddling around," he said.

Besides educational benefits, VBA also handles disability compensation claims and its operations closely resemble commercial insurance companies, which have used rules-based systems to process complex claims for years, McFarland said. He suggested that the next presidential administration recruit executives from the commercial insurance industry to reform VBA and improve claims processing systems.

"VBA needs to be completely disassembled and redone, or we will continue to see fiascoes," McFarland said.