oversight

VA Health Care: Resource Allocation Has Improved, but Better Oversight Is Needed

Published by the Government Accountability Office on 1997-09-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Subcommittee
                  on VA, HUD, and Independent Agencies,
                  Committee on Appropriations
                  U.S. Senate

September 1997
                  VA HEALTH CARE
                  Resource Allocation
                  Has Improved, but
                  Better Oversight Is
                  Needed




GAO/HEHS-97-178
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division

      B-277468

      September 17, 1997

      The Honorable Christopher S. (Kit) Bond
      Chairman
      Subcommittee on VA, HUD, and Independent Agencies
      Committee on Appropriations
      United States Senate

      Dear Mr. Chairman:

      The Department of Veterans Affairs (VA) provides health care services to
      about 2.6 million veterans annually, but veterans nationwide have
      traditionally not had equitable access to these services. A shift of the
      veteran population from the northeastern and midwestern to the southern
      and western regions of the country without appropriate reallocation of VA
      resources has created inequities in access to service. We have previously
      reported on some of the difficulties VA faces in equitably allocating
      approximately $17 billion annually for veterans’ health care to address
      access issues.1

      The Congress enacted legislation in 1996 requiring VA to develop a plan for
      equitably allocating resources to “. . . ensure that veterans who have
      similar economic status and eligibility priority and who are eligible for
      medical care have similar access to such care regardless of the region of
      the United States in which such veterans reside.”2 In response, VA
      implemented the Veterans Equitable Resource Allocation (VERA) system on
      April 1, 1997, as part of a strategy to improve equity of access to veterans’
      health care services. VERA allocates resources to the 22 regional VA health
      care networks, known as Veterans Integrated Services Networks (VISN).
      (See app. I for a map of the VISNs.) Because each network allocates
      resources to its hospitals and clinics, networks play a vital role in ensuring
      that veterans have equity of access to health care services.

      You have expressed concern about whether VERA equitably allocates
      resources to the networks and whether VA oversight efforts adequately
      ensure that shifts in resources improve veterans’ equitable access to
      services. In this report, which expands on preliminary information
      presented in our May 1997 statement for the record for a hearing held by


      1
       See Veterans’ Health Care: Facilities’ Resource Allocations Could Be More Equitable
      (GAO/HEHS-96-48, Feb. 7, 1996).
      2
       Section 429 of P.L. 104-204.



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                   your Subcommittee,3 we assess VA’s (1) implementation of VERA,
                   (2) monitoring of changes in health care delivery resulting from VERA, and
                   (3) oversight of the network allocation process used to give veterans
                   equitable access to services. To examine these issues, we reviewed VA
                   documentation explaining the VERA model and VISN allocation process and
                   interviewed VA headquarters officials and officials from seven VISNs. In
                   addition, we analyzed data (1) used for the fiscal year 1997 VERA
                   allocations, (2) on veteran demographics at the VISN level, and (3) used to
                   measure VISN performance. We also relied on our 10 years of work
                   reviewing VA’s resource allocation process.4 For a complete description of
                   our scope and methodology, see appendix II.


                   VERA shows promise for correcting long-standing regional funding
Results in Brief   imbalances that have impeded veterans’ equitable access to services.
                   Specifically, VERA allocates more comparable amounts of resources to the
                   22 networks for high-priority VA health service users—those with service-
                   connected disabilities, low incomes, or special health care needs—than
                   the resource allocation process it has replaced. As a result, if fully
                   implemented as planned, VERA could substantially shift funding among
                   regions by fiscal year 1999. In addition, VA continues to explore ways to
                   improve VERA’s capacity to more equitably allocate resources in the future.
                   Among the improvements being considered are better measures of
                   network workloads and adjustments for justifiable differences in network
                   costs for providing health services.

                   Although it is early in VERA’s implementation, we found that VA
                   headquarters has not established an adequate monitoring system to
                   identify changes in workload and medical practices that could negatively
                   affect allocation equity and the appropriateness of care that veterans
                   receive. In addition, VA headquarters lacks the information to adequately
                   review networks’ planned facility allocations or their impact on veterans’
                   equitable access to services. VISNs we contacted are using varying methods
                   to allocate resources to facilities. For example, some VISNs allocate
                   resources on the basis of the number of veterans using a facility; others
                   negotiate changes in funding for programs or services from the preceding
                   fiscal year to reach a new allocation. VISNs, however, lack criteria on how
                   to develop methods to give veterans equitable access.

                   3
                    VA Health Care: Assessment of VA’s Fiscal Year 1998 Budget Proposal (GAO/T-HEHS-97-121, May 1,
                   1997).
                   4
                    GAO/HEHS-96-48, Feb. 7, 1996; VA Health Care: Resource Allocation Methodology Has Had Little
                   Impact on Medical Centers’ Budgets (GAO/HRD-89-93, Aug. 18, 1989); and VA Health Care: Resource
                   Allocation Methodology Should Improve VA’s Financial Management (GAO/HRD-87-123BR, Aug. 31,
                   1987).


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             To address these deficiencies, we have identified corrective actions for VA
             to take to enhance its ability to ensure that resources are allocated to
             improve veterans’ equitable access to health care services and ensure that
             the care received is appropriate. These actions include improving the
             timeliness and thoroughness of overseeing changes in health care delivery
             resulting from the allocation process to the networks and to the facilities.


             The VA health care system is one of the nation’s largest direct health care
Background   delivery systems. VA operates 173 hospitals, over 400 outpatient clinics, 133
             nursing homes, and 40 domiciliaries. VA provides health care services to
             veterans with and without service-connected disabilities on a priority basis
             defined by the level of service-connected disability, income, and other
             factors. About 10 percent of the nation’s veterans use VA health care
             services. To provide these services in fiscal year 1998, VA requested a
             medical care appropriation of almost $17 billion. In addition, VA requested
             a legislative change to authorize it to retain private health insurance and
             Medicare reimbursements. The Congress has responded by authorizing VA
             to retain private health insurance payments and certain other payments in
             the Balanced Budget Act of 1997.5 VA estimates this would provide an
             additional $468 million in fiscal year 1998 after deducting administrative
             costs for collections. The Balanced Budget Act of 1997, however, does not
             authorize VA to receive Medicare reimbursements.

             In 1995, VA began a major reform of its health care services to become
             more cost efficient and improve the quality and accessibility of its health
             care. VA is reforming its system to better align VA health delivery and
             financing with major changes in the national health care industry such as
             expanding primary care and emphasizing outpatient care, while
             de-emphasizing inpatient care.

             VA is trying to reform its health care delivery by restructuring the managing
             and financing of its services. A major element of VA’s restructuring is the
             creation of 22 VISNs in 1996 as the basic budgetary and decision-making
             unit of VA’s health care system. VISNs have responsibility for making a wide
             range of decisions about care delivery options, including contracting with
             private providers for health care services and generating revenue by
             selling excess services.




             5
              P.L. 105-33 §8023 (1997).



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                          VERA  shows promise for improving the equity of veterans’ access to care
VERA Improves             because it makes VA’s allocation of resources to networks more equitable.
Resource Allocation       VERA allocates resources to the 22 networks on the basis of the number of

to Regional Networks      high-priority veterans served. It also includes incentives for networks and
                          their facilities to serve additional veterans. If fully implemented in fiscal
                          year 1999 as planned, VERA could substantially shift regional allocations. VA
                          continues to explore refinements to improve VERA’s equitable resource
                          allocation.


VERA Improves Equity of   VERA was designed to allocate resources for services provided in a network
Regional Resource         whose costs VISN management can control. For the fiscal year 1997
Allocations               allocation, VERA was designed to allocate 88 percent of the $17 billion
                          medical care appropriation to the 22 regional networks.6 VERA allocates
                          resources on the basis of two key components: network workloads and
                          national capitation rates. Workloads are the estimates of the number of
                          high-priority veterans a network can serve. High-priority veterans—
                          commonly referred to as Category A veterans—are those with
                          service-connected disabilities, low incomes, or special health care needs.
                          The networks in turn allocate these resources to their facilities.

                          VERA provides more comparable levels of resources to each network for
                          each high-priority veteran served than the process it replaced, which
                          allocated resources primarily on the basis of facilities’ historical budgets.7
                          VERA provides more comparable levels of resources by classifying patients
                          on the basis of the cost of their health care into two workload groups—
                          basic care and special care. Basic care patients generally receive routine
                          services that are less expensive than those received by special care
                          patients. Special care patients often have complex or chronic conditions,
                          such as spinal cord injuries, advanced acquired immunodeficiency
                          syndrome (AIDS), chronic mental illness, or end-stage renal disease or
                          require care in settings such as nursing homes (see app. III for complete




                          6
                           Headquarters allocated most of the remaining 12 percent (about $2 billion) on the basis of other
                          criteria. Several activities are funded this way, including prosthetics, state veterans’ homes, and
                          readjustment counseling. Headquarters funds these activities directly for several reasons, including
                          buying power leverage gained through central purchasing or legal requirements or because the
                          activities are VA-wide responsibilities beyond the scope of any one network’s operations.
                          7
                           Since the mid-1980s, VA has used several allocation methods, including the Resource Allocation
                          Methodology and the Resource Planning and Management system. (See GAO/HEHS-96-48, Feb. 7,
                          1996.) These methods, however, were never fully implemented partly because stakeholders lacked
                          confidence in the equity of their allocations.



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                                          list of special care patient classifications).8 The VERA special care category
                                          also includes some adjustment for age to account for expected changes in
                                          the age distribution of veterans in a network. VERA determines a national
                                          capitation rate for each workload group. (See fig. 1 for fiscal year 1997
                                          capitation rates.)



Figure 1: Establishing VERA National Capitation Rates, Fiscal Year 1997




                                          a
                                           Fiscal year 1997 amounts are based on the proportion of fiscal year 1996 funds used for each
                                          category.
                                          b
                                           Workload numbers reflect the number of unique individuals served over several years. VA
                                          determined that annual service use numbers do not reflect longer term use patterns. In fiscal year
                                          1996, VA provided health care services to 2.6 million veterans.


                                          Source: Veterans Equitable Resource Allocation System Briefing Booklet, VA, Mar. 1997.


                                          VERA allocations to each network are based primarily on patient workloads
                                          and the two national capitation rates. To account for differences in
                                          regional labor costs, VERA increases patient allocations for networks with



                                          8
                                           VA considered using separate groups for the population included in the special care classification. It
                                          ran simulations—for example, with four patient groups: transplants, extended care, special care (that
                                          is, spinal cord injury, rehabilitation, and AIDS), and chronic mental illness—but this more complex
                                          method had little effect on network allocations.



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                                           higher labor costs and reduces them for networks with lower labor costs.9
                                           In addition, each VISN receives funding for other health-related functions,
                                           including research support, education support, equipment, and
                                           nonrecurring maintenance. Funding for these activities is determined
                                           using national cost estimates for each activity and each network’s
                                           workload in that activity. (See fig. 2 for an example of how a network
                                           allocation is made.)



Figure 2: VERA Allocation for VISN 3 (Bronx), Fiscal Year 1997




                                           a
                                               Excludes non-VERA allocations.


                                           Source: Veterans Equitable Resource Allocation System Briefing Booklet, VA, Mar. 1997.


                                           VERA creates incentives for networks to serve more high-priority veterans.
                                           Because allocations are based on high-priority veteran workload,
                                           networks serving more high-priority veterans compared with other
                                           networks gain resources under VERA; those serving fewer such veterans
                                           compared with others lose resources. This takes place because all
                                           networks receive the same national capitation rates for the workload they
                                           serve.

                                           9
                                            Because differences in energy costs by network were minimal, VA did not adjust for these costs in
                                           VERA.



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                              Network officials have responded to VERA’s incentives by increasing the
                              number of high-priority veterans served, according to officials we
                              contacted. For example, VISN 2 (Albany) facilities had served 7,442
                              high-priority veterans through the first half of fiscal year 1997 whom they
                              had never served before, officials told us. Similar efforts are under way at
                              the other VISNs we contacted.

                              In addition, VERA has incentives for reducing costs. Because network
                              allocations are based on a national standard (the national capitation rate),
                              networks have an incentive to keep their costs below the national rate.
                              Networks that are more efficient (that is, with patient costs below the
                              national capitation rate) have more funds available for local initiatives.
                              However, those with patient care costs above the national capitation rate
                              (that is, less efficient networks) must increase efficiency to have such
                              funds available.

                              Network and medical center officials are taking a variety of actions to
                              reduce costs because of VERA’s incentives and other VA initiatives, they
                              said. These officials represented networks gaining and losing resources
                              under VERA. Among these actions are providing more care on an outpatient
                              basis, decreasing more costly inpatient care; reducing lengths of stay in
                              nursing homes; and expanding primary care to prevent or postpone the
                              need for more costly care. In addition, some networks are developing
                              plans to reduce duplication by integrating the management structures of
                              nearby hospitals or consolidating the delivery of certain services into one
                              location.


VERA Shifted Few              Although VA began phasing in VERA in fiscal year 1997, VA did not shift
Resources in 1997, but Full   substantial amounts of resources among networks. VERA’s immediate
Implementation Would          impact was lessened because its adjustments to network allocations only
                              affected budgets for the second half of the fiscal year and caps were
Shift Substantially More      placed on the amount of funds moved. Networks with reduced funding
                              needed time for management to implement less costly ways of providing
                              quality care while improving access, VA officials said. Networks gaining
                              funding needed time to plan for and use new funds to provide the best
                              quality and most cost-efficient services.

                              The partial implementation of VERA in fiscal year 1997 moved resources
                              from the Northeast and Midwest, where per veteran costs have been
                              higher than the national average, to the South and West, where per veteran
                              costs have been lower than the national average. Five networks received



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less funding in fiscal year 1997 than in fiscal year 1996 and 17 received
more. The largest network reduction in fiscal year 1997 was about
1 percent, and the largest increase was about 7 percent (see fig. 3).




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Figure 3: Changes Resulting From VERA Allocations, Fiscal Years 1996-97




                                                                                                    (Figure notes on next page)
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                          Note: These numbers include all six VERA expenditure categories: basic care, special care,
                          research support, education support, equipment, and nonrecurring maintenance.

                          Sources: Veterans Equitable Resource Allocation System Briefing Booklet, VA, Mar. 1997 and
                          Budget Office, Veterans Health Administration.




                          If VA had fully implemented VERA in fiscal year 1997, it would have
                          substantially shifted funding among the networks, ranging from a
                          reduction of 14 percent to an increase of 16 percent when compared with
                          fiscal year 1996 allocations (see fig. 3). VA plans full implementation of
                          VERA in most networks by fiscal year 1998, although networks whose
                          resources will be reduced most may not have full implementation until
                          fiscal year 1999. However, two of the networks expected to absorb the
                          largest reduction under VERA—VISN 3 (Bronx) and VISN 1 (Boston)—have
                          plans to fully absorb all reductions by fiscal year 1998 if VA headquarters
                          agrees to their plans. VISN 2 (Albany), by contrast, plans to phase in
                          reductions through fiscal year 1999.

                          VERA will incorporate the most current VISN workload and national
                          capitation data each year to allocate resources. These data will reflect
                          changes in the number of veterans served and any changes in VA
                          appropriations. As a result, some VISNs that received reduced allocations
                          under VERA in fiscal year 1997 could receive increased allocations in future
                          years if the number of veterans they serve increases significantly.
                          Alternatively, some networks that gain resources in 1997 could lose
                          resources in future years if the number of veterans they serve does not
                          keep pace with those served by other VISNs.


VA Continues to Explore   VA is exploring several options for improving allocations. First, it is
Ways to Improve VERA      exploring whether it can better measure workload and determine
Allocations               capitation rates to improve equity of resource allocation. Because most of
                          VERA’s allocations are based on patient care capitation and workload
                          measures, these two measures are the ones most likely to contribute to
                          any inappropriate resource shifting.

                          VA continues to examine the method for setting capitation rates by trying
                          to better account for differences in regional costs for each veteran served.
                          We have previously noted the importance of such an examination.10 VERA

                          10
                           See GAO/HEHS-96-48, Feb. 7, 1996; Department of Veterans Affairs: Programmatic and Management
                          Challenges Facing the Department (GAO/T-HEHS-97-97, Mar. 18, 1997); and GAO/T-HEHS-97-121,
                          May 1, 1997.



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assumes that all differences in regional costs—after adjusting for the basic
and special care case mix and differences in labor costs—result from
differences in efficiencies. Although differences in network efficiencies
play a major role, to the extent that any of the remaining differences do
not result from efficiencies, VERA may allocate some resources
inappropriately. For example, some of these differences could result from
differences in veterans’ health status not captured by VERA’s case mix. VA’s
recently released data on veterans’ self-reported physical and mental
health status, however, tend to support VERA’s regional shift in allocations.11
Veterans in northeastern and midwestern VISNs, which received reduced
funds under VERA, tended to report being healthier than veterans in
southern VISNs, which gained funds under VERA. VA officials are planning to
examine whether using such data will improve the case mix adjustment.

In addition to capitation, VA is examining whether workload measures can
be improved. VA officials are examining the possibility of determining
workload on the basis of a VISN’s population of high-priority veterans
rather than on past users as VERA did for fiscal year 1997.12 To do this,
however, VA would need to know why veterans choose to use or not use VA
health services so it could adjust the population workload numbers,
according to VA officials. VA could consider, for example, adjusting for
veterans’ private health insurance coverage or access to non-VA health
providers.

Usage rates for high-priority veterans vary widely among VISNs. They range
from 25 percent in VISN 4 (Pittsburgh) to 45 percent in VISN 18 (Phoenix) of
the eligible beneficiaries on the basis of data from fiscal years 1994 to
1996. (See fig. 4.) Whether veterans have private insurance or access to
non-VA health providers are important variables in predicting use of VA
services in networks, VISN officials said. Our previous work also showed
that health insurance status affects usage of VA health care services: we
found that uninsured veterans were eight times more likely to use VA
services than insured veterans.13 State-level insurance data also suggest
that veterans’ usage rates vary with insurance coverage. States included in
VISNs such as VISN 4 (Pittsburgh) and VISN 11 (Ann Arbor), which have lower
rates of veteran use of VA health care services, have proportionally fewer

11
 Health Status of Veterans: Physical and Mental Component Summary Scores (SF-36V), 1996 National
Survey of Ambulatory Care Patients, VA (Washington, D.C.: 1997).
12
 VA officials told us they implemented VERA using veteran user data for the VISN workload indicator
because they believed the data to be the best measure of probable users of VA health care available
pending further study.
13
 See VA Health Care: Alternative Health Insurance Reduces Demand for VA Health Care
(GAO/HRD-92-79, June 30, 1992).



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uninsured veterans. On the other hand, states in VISN 18 (Phoenix) and VISN
16 (Jackson), which have higher rates of veteran use of VA health care
services, have proportionally more uninsured veterans.14




14
 See Health Insurance: Sources of Coverage and Characteristics of Veterans and Nonveterans,
National Center for Veteran Analysis and Statistics, VA (Washington D.C.: Sept. 1994).



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Figure 4: High-Priority Veteran Usage Rates, Fiscal Years 1994-96




                                                                                              (Figure notes on next page)



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                     Note: We calculated rates by dividing the 1996 population of high-priority veterans in a network
                     into the unduplicated count of high-priority users in that network for fiscal years 1994 to 1996.

                     Source: Policy, Planning, and Performance Office, Veterans Health Administration.




                     VA plans to systematically survey veterans on why they choose to use VA
                     health care services, officials told us. This survey will also provide
                     information for refining VERA for VA’s use as it implements an enrollment
                     system for veterans’ health care in fiscal year 1999,15 officials said. If this
                     option is adopted, VERA workload would become population based rather
                     than user based. The differences in allocations, if any, would depend on
                     the adjustments made to the population base for why veterans use or do
                     not use VA services. VA is also considering other refinements to VERA,
                     including possible improvements in VERA’s adjustment for regional
                     differences in labor costs, regional equipment costs, and nonrecurring
                     maintenance costs. Although VA has considered possible changes to VERA
                     to account for the impact of third-party health insurance payments that the
                     Congress has authorized, VA plans no change before it has experience in
                     collecting and using these funds.


                     VA headquarters officials do not adequately monitor some of the important
VA’s Monitoring of   changes under way in VA health care delivery resulting from VERA’s
Changes Resulting    incentives and other VA initiatives. Although officials have begun to
From VERA’s          address this issue, they lack timely and detailed indicators of certain
                     changes occurring in health care delivery. As a result, it is difficult for VA
Incentives Is        to ensure that VERA’s capacity to allocate resources equitably is not
Inadequate           compromised and that veterans receive appropriate health care.

                     Because workload and capitation drive VERA allocations, key indicators to
                     monitor are changes in the number of basic and special care patients VISNs
                     serve and changes in medical care practices that could significantly affect
                     VISN per patient costs. Such information is needed to identify significant
                     changes that could affect VERA’s future resource allocation or the
                     appropriateness of care veterans receive. For example, some networks,
                     according to officials, are increasing workload by thousands of veterans
                     and changing the way they provide care in response to VERA’s incentives.
                     Such changes could significantly increase future allocations to their VISNs
                     and reduce allocations to others and result in new medical care practices

                     15
                      P.L. 104-262 requires that VA establish and operate a system of annual patient enrollment by Oct. 1,
                     1998.



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for certain conditions. With adequate information, VA headquarters can
promptly assess the extent to which such changes are consistent with
VERA’s purpose and take corrective actions when they are not. VA also can
examine the appropriateness of care veterans receive when medical care
practices change significantly, such as when length of stay for inpatient
services decreases dramatically, and take corrective action if necessary.
Such analyses would also enable VA to distribute information to all VISNs on
best practices and problems identified.

VERA  data systems cannot promptly track changes in workload and
medical care practices. The data lag more than a year after services have
been provided. For example, until July 1997, fiscal year 1995 was the most
recent year for which VERA data systems could provide information on
workload and medical care practices. Several data validation processes
cause lags in data availability. VA officials told us that the delays result
mainly from the need to determine the patient classification in the VERA
model for each veteran served and the need to allocate patient costs
among VISNs when patients receive services in more than one VISN. They
said that hospital delays in posting information on the services provided to
veterans partly account for the time lag.

VA, however, has developed some indicators beyond the VERA system to
more promptly track changes in health care delivery. The most applicable
of these indicators for monitoring VERA is the change in high-priority
veteran workload, which VA began to report in fiscal year 1997 as part of
its new quarterly reports on VISN performance. Nonetheless, this measure
is inadequate for assessing the impact of workload changes on future VERA
allocations because it cannot classify these veterans into VERA’s basic and
special patient care workload measures.

Moreover, VA does not monitor other changes in service delivery that are
critical to assessing networks’ responses to VERA’s incentives. For
example, VA has not been monitoring changes in the number of one-time
users of VA health care. Networks have an incentive under VERA to increase
the number of one-time users, whose cost of care is significantly below the
national capitation rate. Providing one-time services to a veteran is one of
the most advantageous ways to increase workload, VA officials told us.
Although VISNs incur relatively fewer costs for each patient served, VERA
still allocates the full capitation amount for each one-time patient. As
networks respond to VERA’s incentives and VA’s initiatives to increase
primary care along with its associated preventive services, VA does not




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know the extent to which the number of one-time users is increasing.16 To
the extent that some networks increase these visits disproportionately,
future VERA allocations could be substantially affected. In addition,
monitoring unusual increases in the number of one-time users could raise
issues that require further investigation.

Moreover, VA lacks measures for monitoring changes in special patient
category services, which include the most expensive services VA delivers.
Monitoring these changes is important because of VERA’s incentives to
reduce the cost of patient care and because the special care population is
particularly vulnerable. VISNs may reduce costs for this care in several
ways. One way is to serve more patients with existing resources. For
example, some VISNs are increasing the number of patients served in
VA-operated nursing homes without increasing the number of beds or staff
available by reducing patients’ average length of stay.

In fiscal year 1996, lengths of stay varied considerably by VISN. (See table
1.) VISNs with longer lengths of stay have the greatest incentive to reduce
lengths of stay, while increasing workload. Although VERA does not
prescribe how networks should respond to its incentives, some network
and hospital officials told us they had initiatives under way to increase
nursing home workload, decrease lengths of stay, and lower costs by
reducing staffing. Under certain circumstances, officials said, they would
use other funds to pay some of the costs of VA-operated nursing home
care.




16
 In fiscal years 1993 to 1995, one-time users of basic care accounted for about 23 percent of VA’s
workload.



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Table 1: VA-Operated Nursing Home
Use, Fiscal Year 1996                                                                                        Patients served per
                                                                                    Average months of        bed over 12-month
                                    VISN                                               care per patient                   period
                                    18 (Phoenix)                                                     2.44                      4.47
                                    20 (Portland)                                                    2.67                      3.71
                                    13 (Minneapolis)                                                 2.82                      3.93
                                    21 (San Francisco)                                               3.03                      3.65
                                    15 (Kansas City)                                                 3.43                      2.91
                                    22 (Long Beach)                                                  4.09                      2.51
                                    11 (Ann Arbor)                                                   4.13                      2.50
                                    6 (Durham)                                                       4.29                      2.52
                                    17 (Dallas)                                                      4.32                      2.31
                                    19 (Denver)                                                      4.62                      2.39
                                    9 (Nashville)                                                    4.82                      2.12
                                    14 (Omaha)                                                       4.93                      2.25
                                    12 (Chicago)                                                     4.99                      2.08
                                    8 (Bay Pines)                                                    5.05                      2.09
                                    2 (Albany)                                                       5.08                      2.27
                                    1 (Boston)                                                       5.16                      2.17
                                    5 (Baltimore)                                                    5.49                      2.03
                                    16 (Jackson)                                                     5.56                      1.94
                                    10 (Cincinnati)                                                  5.85                      1.95
                                    4 (Pittsburgh)                                                   6.74                      1.71
                                    3 (Bronx)                                                        6.83                      1.68
                                    7 (Atlanta)                                                      7.81                      1.46
                                    National                                                         4.71                      2.30
                                    Note: VA also funds care in community nursing homes under VERA, but comparable data are not
                                    available.

                                    Source: Our calculations are based on VA’s Summary of Medical Programs, Oct. 1, 1995, through
                                    Sept. 30, 1996.



                                    By reducing the length of stay in nursing homes, a VISN could serve more
                                    patients with the same resources, and VERA would allocate more funds to
                                    the VISN because of the increased workload. For example, according to VA,
                                    the cost of serving one patient for a year in a VA-operated nursing home
                                    bed was about $80,000 in fiscal year 1996. But in fiscal year 1997, VERA
                                    would only allocate $35,707 for this patient. If the length of stay were 4
                                    months, however, a VISN could serve three patients and VERA would
                                    allocate $107,121 at the fiscal year 1997 capitation rate.




                                    Page 17                               GAO/HEHS-97-178 VA Health Care Resource Allocation
                       B-277468




                       Monitoring such changes is important because it can help managers
                       identify whether changes are consistent with VA-wide goals or corrective
                       action is needed. If monitoring reveals that nursing home discharges are
                       increasing, this may indicate progress toward meeting VA’s goal of reduced
                       reliance on inpatient services. If a VISN is serving more patients, it may also
                       indicate increased veterans’ access. Meanwhile, however, managers need
                       to monitor whether the changes significantly affect future allocations and
                       the appropriateness of services provided. For example, hospital officials in
                       VISN 4 (Pittsburgh) told us they were working to significantly lower their
                       nursing homes’ lengths of stay. If VISN 4 reduces its length of stay to that of
                       VISN 18 (Phoenix), it could serve more than 3,000 additional nursing home
                       patients annually, and VERA would allocate significantly more resources to
                       it. Monitoring the likelihood of such a resource shift is important because
                       such a shift would reduce the resources available to other networks for
                       future allocations. Monitoring is also important to ensure that changes in
                       the care provided this vulnerable, special care population are appropriate.
                       For example, monitoring would help VA identify issues to examine such as
                       whether patients with reduced length of nursing home stay receive
                       appropriate discharge planning and other needed services.

                       VA headquarters is considering improving the timeliness and detail of
                       indicators used for monitoring changes in allocations and VA health care
                       delivery, officials said. Among these improvements are the availability of
                       VERA workload data during the fiscal year in which they are collected and
                       monitoring changes in the number of special care patients and one-time
                       users and in the services provided to certain special care populations.


                       VA’s decentralized management structure gives VISNs the responsibility for
VA Oversight of        allocating the resources VERA provides. VISN resource allocation methods
Networks’ Allocation   are crucial to veterans’ equitable access to services. These methods
Decisions Is           determine the extent to which services are available to veterans and their
                       equity of access in using the services. Headquarters’ guidance and
Inadequate to Ensure   oversight of these VISN allocations are not adequate, however, because they
Equitable Access to    have not identified criteria for VISNs to use in forming their allocation
                       methods for achieving equitable access to services.
Services
                       VISNs are responsible for allocating resources to achieve equitable access
                       to health care services for veterans in their respective geographic areas. A
                       VISN may shift resources to underserved areas in its network by providing
                       additional funding to facilities located there, by establishing community-




                       Page 18                         GAO/HEHS-97-178 VA Health Care Resource Allocation
B-277468




based outpatient clinics (CBOC), or by contracting out for services.17
However, if VISNs do not take steps to improve equity of access through
their resource allocations, the promise of VERA may not be realized.

The seven networks we contacted have various funding allocation
methods. One funds its facilities using a flat rate for each veteran user.
Another uses a combination of historical funding and negotiation with
medical center management regarding new initiatives. Two others include
a feature in their allocation methods for each new veteran served. One
pays prospectively on the basis of targets for increased patients. The other
pays retrospectively after the veteran has received services. Several VISNs
are continuing to develop and evaluate their resource allocation methods.

Differences in VISN allocation methods may be appropriate to account for
characteristics specific to each VISN. These include differences in facility
missions, veteran users’ health needs, and the geographic dispersion of the
population served. For example, if a VISN has some facilities that mainly
provide low-cost primary and outpatient care and others that provide a
large volume of expensive inpatient care, the VISN allocation methods will
need to account for these differences in missions and associated costs.
VISNs, however, may allocate resources—regardless of whether they shift
funds among facilities—in such way that they make little improvement in
equity for underserved veterans.

VA has provided little oversight of networks’ allocation of resources to
their facilities. Documents headquarters has distributed to the networks
provide no guidance nor do they specify criteria that networks should
consider in allocating resources to their facilities. These documents only
describe the budget items included in VERA allocation and those allocated
separately by headquarters. Furthermore, headquarters has done little to
monitor network efforts to improve veterans’ equitable access to services.
Although headquarters has required each VISN to report changes in
allocations they made to each facility, including a report of funds used for
addressing equity of access, the instructions for this report do not explain
what this category is intended to capture or how VISNs should determine
the amount of funds per facility they report for this purpose. The
information submitted by VISNs did not provide enough detail, VA officials
told us, to determine the impact of network actions on equity of access,
and VA has no other system in place to monitor such actions or their
impact.


17
 See VA Health Care: Improving Veterans’ Access Poses Financial and Mission-Related Challenges
(GAO/HEHS-97-7, Oct. 25, 1996).



Page 19                                GAO/HEHS-97-178 VA Health Care Resource Allocation
              B-277468




              VERA is an important step forward in equitably allocating resources to
Conclusions   networks. VERA’s major contribution is to base allocations to the 22
              networks on comparable resources for veteran users. Because VERA was
              only partially implemented in fiscal year 1997, however, major shifts in
              funding among networks have not occurred. If fully implemented as
              planned in fiscal year 1999, these shifts may be substantial. By continuing
              to examine possible improvements to VERA while it is being phased in, VA is
              studying the right issues such as refinements in its workload and
              capitation measures.

              VA has not established an adequate monitoring system, however, to
              identify changes in workload and medical practices that could
              compromise VERA’s ability to allocate resources in the future or affect the
              appropriateness of services delivered. Networks and their facilities are
              making and planning significant changes in response to VERA’s incentives
              and related VA initiatives. Among these changes are reductions in lengths
              of stay, increases in number of veterans served, changed staffing patterns,
              more primary care, and more outpatient care. Headquarters’ monitoring
              efforts are not keeping pace with the changes occurring in the networks.
              Headquarters does not have sufficiently detailed or timely information
              available to enable it to identify and work with VISNs to correct problems
              as they occur. For example, VA has no data on changes in VERA workload
              measures and some key medical practices occurring in fiscal year 1997. As
              a result, headquarters cannot properly assess the impact or
              appropriateness of these changes. Without adequate monitoring, VA will
              have difficulty assuring its stakeholders that changes in allocations are
              appropriate and not adversely affecting veterans.

              Headquarters oversight of VISN allocations to their facilities is also
              inadequate. The methods VISNs use to allocate resources are crucial to
              achieving the equitable access to services that VERA makes possible. VISN
              allocation methods determine the extent to which services are available to
              veterans and their equity of access in using the services. VISNs are using
              various methods to allocate their resources in fiscal year 1997. VA
              headquarters, however, has not provided VISNs with adequate national
              guidance for making allocation decisions, developed criteria to review and
              approve these decisions, or implemented monitoring to assess the impact
              of these decisions on equitable access to services. Without such guidance,
              review, and monitoring of the VISN allocation process, headquarters cannot
              ensure that VERA’s potential for creating equitable access to services will
              be realized. VA headquarters can provide guidance and oversight to VISNs to
              achieve equitable access to services without being so prescriptive that it



              Page 20                       GAO/HEHS-97-178 VA Health Care Resource Allocation
                      B-277468




                      compromises the discretion of VISN management to adapt local programs
                      to local needs.


                      We recommend that the Secretary for Veterans Affairs direct the Under
Recommendations       Secretary for Health to

                  •   develop more timely and detailed indicators of changes in key VERA
                      workload measures and medical care practices to maintain VERA’s ability
                      to equitably allocate resources in the future and help ensure that veterans
                      receive the most appropriate care and
                  •   improve oversight of VISNs’ allocation of resources to their facilities by
                      (1) developing criteria for use in designing VISN resource allocation
                      methods, (2) reviewing and approving these methods, and (3) monitoring
                      the impact of the methods on veterans’ equitable access to care.


                      In an August 21, 1997, letter, the Secretary-designate of Veterans Affairs
Agency Comments       said that he concurred in principle with the recommendations in our draft
                      report and that VA is taking actions to respond to them (see app. IV).
                      Specifically, he agreed with our recommendation that improvements in
                      monitoring VERA’s impact are needed and said that VA is already monitoring
                      the VERA special care classification categories to avert potential problems.
                      Although officials in the Veterans Health Administration’s Office of the
                      Chief Financial Officer have begun to review changes in the numbers of
                      special care patients served, as of August 21, 1997, these data were not
                      complete and were unavailable for our review. Furthermore, this effort
                      does not include data to monitor changes in medical practice for veterans
                      receiving special care services. As we note in our report, monitoring
                      changes in special care resulting from VERA’s incentives and other VA
                      initiatives is critical for ensuring that veterans receive appropriate care.
                      Similarly, monitoring changes in the number of basic care patients served
                      and the services they receive is needed to ensure appropriate care and
                      access to services.

                      The Secretary-designate also said that more current data are now available
                      through monthly closing of databases. Although having monthly closings is
                      a step in the right direction, these databases may be incomplete and not
                      verified for accuracy. Even if these data are available, VA still needs
                      additional time to analyze them for use in monitoring workload, cost of
                      care, and medical practice. VA is developing selected quarterly data for




                      Page 21                        GAO/HEHS-97-178 VA Health Care Resource Allocation
B-277468




special care monitoring but, as noted above, these data are not yet
available.

The Secretary-designate generally agreed with our recommendations
about oversight of VISNs’ allocation of resources to their facilities. He
agreed that common criteria should be provided to VISNs for their
allocation processes and stated that these criteria will be provided for
fiscal year 1998 allocations. In addition, he noted that VA is developing
outcome measures for evaluating VISN performance in achieving equitable
access to care. We support these actions because they could significantly
improve VA oversight of VISN allocations at the network level. However, the
Secretary-designate stated that oversight of the networks should focus on
performance outcomes rather than inputs. Although we agree that
measuring outcomes is important, we believe headquarters should also
review and approve VISN resource allocation methods to ensure that VISNs
have the same understanding of the criteria and that variations in methods
appropriately apply the criteria. By reviewing methods developed by the
22 VISNs, headquarters would be able to identify possible problems. Such a
review could help networks prevent inequitable access to services that
might otherwise result from flawed allocation methods.


As arranged with your staff, we are sending copies of this report to the
Secretary-designate of Veterans Affairs, interested congressional
committees, and other interested parties. We will make copies of this
report available to others upon request.

If you have any questions about this report, please call me at
(202) 512-7101 or Bruce D. Layton, Assistant Director, at (202) 512-6837.
Other major contributors to this report were James C. Musselwhite, Senior
Social Science Analyst, and Timothy S. Bushfield, Evaluator.

Sincerely yours,




Stephen P. Backhus
Director, Veterans’ Affairs and
Military Health Care Issues




Page 22                           GAO/HEHS-97-178 VA Health Care Resource Allocation
Page 23   GAO/HEHS-97-178 VA Health Care Resource Allocation
Contents



Letter                                                                                               1


Appendix I                                                                                          26

Veterans Integrated
Services Networks
Appendix II                                                                                         27

Scope and
Methodology
Appendix III                                                                                        29

VERA Special Patient
Classifications
Appendix IV                                                                                         31

Comments From the
Department of
Veterans Affairs
Related GAO Products                                                                                36


Table                  Table 1: VA-Operated Nursing Home Use, Fiscal Year 1996                      17


Figures                Figure 1: Establishing VERA National Capitation Rates, Fiscal                 5
                         Year 1997
                       Figure 2: VERA Allocation for VISN 3, Fiscal Year 1997                        6
                       Figure 3: Changes Resulting From VERA Allocations, Fiscal Years               9
                         1996-97
                       Figure 4: High-Priority Veteran Usage Rates, Fiscal Years 1994-96            13


                       Abbreviations

                       AIDS       acquired immunodeficiency syndrome
                       CBOC       community-based outpatient clinic
                       VA         Department of Veterans Affairs
                       VERA       Veterans Equitable Resource Allocation
                       VISN       Veterans Integrated Services Network


                       Page 24                       GAO/HEHS-97-178 VA Health Care Resource Allocation
Page 25   GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix I

Veterans Integrated Services Networks




               Page 26    GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix II

Scope and Methodology


              We focused our work on VA’s resource allocation process, which is
              intended to improve veterans’ equitable access to services. First, we
              examined how VA allocates resources through the Veterans Equitable
              Resource Allocation (VERA) system to the 22 Veterans Integrated Services
              Networks (VISN). Second, we examined how headquarters monitors VERA’s
              impact. Third, we reviewed how headquarters oversees networks’
              allocation of resources to the facilities in their geographic regions.

              To address our objectives, we (1) collected and reviewed data on VERA’s
              allocation method; (2) reviewed our previous work that examined VA’s
              resource allocation process (see Related GAO Products); (3) reviewed
              national and regional veteran population data that could be used in
              considering alternatives to VERA’s method; (4) collected and examined
              documents on VISN allocations to facilities in VISN geographic areas; and
              (5) interviewed officials in the Veterans Health Administration’s Office of
              the Chief Financial Officer, Office of Policy, Planning, and Performance,
              and Office of the Chief Network Officer because of their VERA-related
              responsibilities. The Office of the Chief Financial Officer designed and is
              implementing VERA. The Office of Policy, Planning, and Performance
              collects information on network performance indicators that can be used
              for monitoring changes resulting from VERA’s implementation, and the
              Office of the Chief Network Officer has overall responsibility for managing
              and coordinating network activities. We also used information provided by
              VA’s National Center for Veterans Analysis and Statistics, which provides
              statistical data and analysis of veterans and VA services.

              We contacted network directors and other officials, including chief
              financial officers in seven networks to collect VISN-level data and interview
              them on VERA’s implementation, VISN allocation methods, and the
              implications for veterans’ equity of access to services. We telephoned
              officials in four networks: VISN 2 (Albany), VISN 3 (Bronx), VISN 18
              (Phoenix), and VISN 20 (Portland). We visited three networks: VISN 1
              (Boston), VISN 4 (Pittsburgh), and VISN 16 (Jackson). Three of these VISNs
              would have gained resources if VERA had been fully implemented in fiscal
              year 1997, and four would have lost resources. (See fig. 3.) We visited
              seven medical centers in these networks (Brockton/West Roxbury,
              Northampton, Pittsburgh, Clarksburg, Lebanon, Fayetteville, and
              Jackson), where we interviewed medical center managers, program
              directors, physicians, nurses, administrative personnel, and others about
              VERA implementation and VISN allocations to facilities.




              Page 27                        GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix II
Scope and Methodology




We performed our review between January 1997 and July 1997 in
accordance with generally accepted government auditing standards.




Page 28                      GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix III

VERA Special Patient Classifications


                   In fiscal year 1997, VERA’s special care category consisted of veterans with
                   high-cost health care needs in 29 special care patient classifications.
                   Networks receive a capitation payment for each veteran they serve in one
                   of the classifications. The capitation rate for veterans in the special care
                   classifications was $35,707. Patients are assigned to only one classification
                   on the basis of cost and other factors. The special care patient
                   classifications are costly because of the type and amount of care required
                   or the type of facility where care is provided. For example, some patient
                   classifications are for patients receiving treatment for a long time period,
                   such as for end-stage renal disease and spinal cord injury, while others are
                   for patients with relatively shorter periods of treatment such as those for
                   organ transplants. A list of the 29 special care patient classifications for
                   fiscal year 1997 follows:18

               •   AIDS category III,
               •   AIDS category IV,
               •   blind rehabilitation center patients,
               •   bone marrow transplants,
               •   community nursing homes,
               •   domiciliary,
               •   end-stage renal disease,
               •   heart and/or lung transplants,
               •   home care end-stage renal disease,
               •   hospital-based home care,
               •   kidney transplants,
               •   liver transplants,
               •   low activities of daily living,
               •   nursing home: behavioral rehabilitation,
               •   nursing home: clinically complex care,
               •   nursing home: physical rehabilitation,
               •   nursing home: rehabilitation,
               •   nursing home: specialized care,
               •   other psychosis,
               •   post traumatic stress disorder,
               •   schizophrenia and dementia,
               •   spinal cord injury paraplegic—new injury,
               •   spinal cord injury paraplegic—old injury,
               •   spinal cord injury quadriplegic—new injury,
               •   spinal cord injury quadriplegic—old injury,
               •   stroke patients,
               •   substance abuse patients,

                   18
                     VA’s VERA Handbook, ch. 4.



                   Page 29                        GAO/HEHS-97-178 VA Health Care Resource Allocation
    Appendix III
    VERA Special Patient Classifications




•   traumatic brain injury patients, and
•   ventilator-dependent patients.




    Page 30                                GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix IV

Comments From the Department of
Veterans Affairs




              Page 31   GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix IV
Comments From the Department of
Veterans Affairs




Page 32                           GAO/HEHS-97-178 VA Health Care Resource Allocation
Appendix IV
Comments From the Department of
Veterans Affairs




Page 33                           GAO/HEHS-97-178 VA Health Care Resource Allocation
Page 34   GAO/HEHS-97-178 VA Health Care Resource Allocation
Page 35   GAO/HEHS-97-178 VA Health Care Resource Allocation
Related GAO Products


              VA Health Care: Assessment of VA’s Fiscal Year 1998 Budget Proposal
              (GAO/T-HEHS-97-121, May 1, 1997).

              Department of Veterans Affairs: Programmatic and Management
              Challenges Facing the Department (GAO/T-HEHS-97-97, Mar. 18, 1997).

              VAHealth Care: Improving Veterans’ Access Poses Financial and
              Mission-Related Challenges (GAO/HEHS-97-7, Oct. 25, 1996).

              VAHealth Care: Opportunities for Service Delivery Efficiencies Within
              Existing Resources (GAO/HEHS-96-121, July 25, 1996).

              Veterans’ Health Care: Facilities’ Resource Allocations Could Be More
              Equitable (GAO/HEHS-96-48, Feb. 7, 1996).

              VAHealth Care: Exploring Options to Improve Veterans’ Access to VA
              Facilities (GAO/HEHS-96-52, Feb. 6, 1996).

              VAHealth Care: Alternative Health Insurance Reduces Demand for VA
              Health Care (GAO/HRD-92-79, June 30, 1992).

              VAHealth Care: Resource Allocation Methodology Has Had Little Impact
              on Medical Centers’ Budgets (GAO/HRD-89-93, Aug. 18, 1989).

              Change in the Delivery of Selected Mental Health Services at Veterans
              Administration Medical Centers (GAO/T-HRD-88-22, July 14, 1988).

              VA Health Care: Resource Allocation Methodology Should Improve VA’s
              Financial Management (GAO/HRD-87-123BR, Aug. 31, 1987).




(406141)      Page 36                       GAO/HEHS-97-178 VA Health Care Resource Allocation
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