The Middlemen Who Kept the Difference

When a veteran gets care outside the VA, the VA usually doesn't pay the doctor. It pays a middleman — a "third-party administrator" — which pays the doctor and bills the VA. In February 2025, the VA's own inspector general reported what that arrangement cost: on dental services alone, the VA paid its two administrators an estimated $910.7 million more than the administrators paid the dentists. The contracts, in four of five regions, never required them to pass the savings through. So they kept the difference.

The paperwork error worth $648.7 million

Most of Optum's share traces to a single VA contracting mistake. In March 2021, according to the inspector general, Optum sent VA a copy of VA's own dental fee schedule; contracting officers meant only to add rates for new dental codes, but accepted the entire schedule — resetting rates on existing codes to levels averaging about 66% higher than the rates VA had negotiated. VA staff, the OIG found, "were not aware that the contracts' existing contracted dental rates had increased" until the OIG told them. The error ran from June 2021 until VA reset the rates in May 2023. Its estimated cost: $648.7 million. And in its February 2025 report, the OIG noted Optum "continues to seek and be reimbursed at the increased rates."

The structure, in the OIG's words

For most medical care, the contracts treat the administrator as a pass-through: bill VA what you paid the provider, no more. Dental was written differently — VA would pay "at the rate negotiated and identified in the contract," with no tie to what the dentist actually received. An administrator could pay a dentist less than the contract rate, bill VA the full rate, and, in the inspector general's words, "keep the difference." One region — TriWest's Region 5 — had the pass-through language. The fix existed inside the VA's own contract file the entire time.

It wasn’t only dental

The same OIG audit estimated $178.5 million in outpatient overpayments because VA was charged the wrong Medicare or VA fee rates. And in the program's earlier generation, an inspector general audit found tens of thousands of cases where contractors billed VA more than they paid providers, plus $69.9 million in duplicate payments. VA's community-care program still carried $416.6 million in improper and unknown payments in FY2024 — its best year after six consecutive years of reductions, per the federal payment-integrity scorecard.

Optum also collected roughly $42 million in administrative fees for dental care from fiscal 2021 through 2023. The overpayments came on top of the fees. The money to administer the program was paid as agreed; the money that leaked was extra.

Sources: VA OIG, Community Care Network Outpatient Claim Payments Mostly Followed Contract Rates and Timelines, but VA Overpaid for Dental Services (Feb. 20, 2025); PaymentAccuracy.gov VA Community Care scorecard; Government Executive, "The VA's Private Care Program Gave Companies Billions and Vets Longer Waits" (2018). Part of the VA Fraud record.