oversight

Department of Veterans Affairs: Programmatic and Management Challenges Facing the Department

Published by the Government Accountability Office on 1997-03-18.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Human Resources,
                          Committee on Government Reform and Oversight, House
                          of Representatives


For Release on Delivery
Expected at 10:00 a.m.
Tuesday, March 18, 1997
                          DEPARTMENT OF
                          VETERANS AFFAIRS

                          Programmatic and
                          Management Challenges
                          Facing the Department
                          Statement of David P. Baine
                          Director, Planning and Reporting
                          Health, Education, and Human Services Division




GAO/T-HEHS-97-97
Department of Veterans Affairs:
Programmatic and Management Challenges
Facing the Department
                Mr. Chairman and Members of the Subcommittee:

                We are pleased to be here today to discuss some of the major challenges
                facing the Department of Veterans Affairs (VA) and some of the options for
                deficit reduction through changes in VA benefits and programs.

                VA has a profound effect on the welfare of our nation’s 26 million veterans.
                In fiscal year 1996, VA’s approximately 222,000 workers—nearly 1 for every
                120 veterans—delivered a wide array of medical, disability compensation,
                pension, housing, insurance, education, and burial services in more than
                1,000 facilities at a cost of over $38.1 billion.

                Two years ago, we testified before this Subcommittee that VA was at a
                crossroad in the evolution of its health care system.1 The average daily
                workload in its hospitals had dropped almost 56 percent during the
                preceding 25 years, and further declines appeared likely. At the same time,
                demand for outpatient care, nursing home care, and certain specialized
                services was expanding, taxing VA’s ability to meet veterans’ needs in those
                areas. We noted at that time that decisions made over the next few years
                about VA’s role in health care would have significant implications for
                veterans, taxpayers, and private health care providers.

                Today, I would like to discuss some of actions taken to increase the
                efficiency of the VA health care system and VA’s progress in addressing the
                challenges discussed 2 years ago. In addition, I will discuss

            •   challenges facing the Veterans Benefits Administration (VBA) in
                administering compensation and pension benefits,
            •   VA’s efforts to implement the Government Performance and Results Act
                (GPRA) and other recent legislation designed to improve the management
                of government programs, and
            •   changes that could be made in veterans’ benefits and in the operation of VA
                programs to help reduce the budget deficit.

                My comments are based primarily on the results of reviews conducted
                during the past several years by this and other divisions of the General
                Accounting Office.2

                In summary, significant improvements have occurred in the efficiency of
                the VA health care system since we last appeared before this

                1
                 VA Health Care: Challenges and Options for the Future (GAO/T-HEHS/95-147, May 9, 1995).
                2
                 A list of related GAO testimonies and reports appears at the end of this testimony.



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    Subcommittee. VA’s new management and Veterans Integrated Service
    Network (VISN) structure clearly values efficiency and customer service. In
    addition, legislation was enacted (1) expanding eligibility for VA health
    care (P.L. 104-262), (2) making it easier for VA to contract for and sell
    services to the private sector (P.L. 104-262), and (3) requiring VA to develop
    a plan for more equitably allocating resources to its VISNs (P.L. 104-204).
    These decisions bring with them both solutions to old problems and
    significant new challenges, such as developing an enrollment process
    consistent with the priorities established under the eligibility reform
    legislation and determining when to buy services from the private sector
    rather than provide them in VA facilities.

    VBA   also faces multiple challenges. For example,

•   the disability rating schedule has not been updated for over 45 years,
    meaning that ratings may no longer accurately reflect the loss in earning
    capacity resulting from service-connected disabilities;
•   VA faces the prospect of late or inaccurate compensation and pension
    payments to millions of veterans if it is unable to resolve the “year 2000”
    computer problem;
•   veterans often wait over 2 years for resolution of compensation and
    pension claims by the time the appeals process has been completed; and
•   VA could avoid millions of dollars in overpayments of compensation and
    pension benefits by strengthening its ability to prevent such payments.

    Recent legislation, including GPRA, the Chief Financial Officers (CFO) Act,
    and the Paperwork Reduction Act, provides a basis for addressing
    long-standing management challenges. VA has begun to use the legislation
    to improve its mission performance and results, its financial reporting, and
    its information resources management. For example, it included strategic
    plans for its health and benefits programs in its fiscal year 1998 budget
    submission. VA has been preparing audited financial statements since 1986,
    well in advance of the requirements imposed by the CFO Act.

    Finally, multiple options exist for supporting deficit reduction through
    changes in VA benefits and programs. Although some of the changes could
    be achieved through administrative action, others would require
    legislation. The options include (1) redefining compensation benefits to
    eliminate compensation for diseases that are not related to military
    service, (2) imposing higher cost sharing for nursing home and other
    long-term care services, (3) limiting enrollment in the VA health care
    system, and (4) closing underused hospitals.



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             The United States has a long tradition of providing benefits to those
Background   injured in military service, but the role of the federal government in
             providing for the health care needs of other veterans has evolved and
             expanded over time.

             In the nation’s early years, the federal role was limited to direct financial
             payments to veterans injured during combat; direct medical and hospital
             care was provided by the individual colonies, states, and communities. The
             Continental Congress, seeking to encourage enlistments during the
             Revolutionary War, provided federal compensation for veterans injured
             during the war and their dependents. Similarly, the first U.S. Congress
             passed a veterans’ compensation law.

             The federal role in veterans’ health care significantly expanded during and
             following the Civil War. During the war, the government operated
             temporary hospitals and domiciliaries in various parts of the country for
             disabled soldiers until they were physically able to return to their homes.
             Following the war, the number of disabled veterans unable to cope with
             the economic struggle of civilian life became so great that the government
             built a number of “homes” to provide domiciliary care. Incidental medical
             and hospital care was provided to residents for all diseases and injuries.

             The modern era of veterans’ benefits began with the onset of World War I.
             During World War I, a series of new veterans’ benefits was added:
             voluntary life insurance, allotments to take care of the family during
             military service, reeducation of those disabled, disability compensation,
             and medical and hospital care for those suffering from wounds or diseases
             incurred in the service.

             During World War I, Public Health Service (PHS) hospitals treated
             returning veterans, and, at the end of the war, several military hospitals
             were transferred to PHS to enable it to continue serving the growing
             veteran population. In 1921, those PHS hospitals primarily serving veterans
             were transferred to the then newly formed Veterans’ Bureau.

             During the 1920s, three federal agencies—the Veterans’ Bureau, the
             Bureau of Pensions in the Interior Department, and the National Home for
             Disabled Volunteer Soldiers—administered various benefits for veterans.
             With the establishment of the Veterans Administration in 1930, previously
             fragmented services for veterans were consolidated under one agency.




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    The responsibilities and programs of the Veterans Administration grew
    significantly during the ensuing decades. For example,

•   the VA health care system grew from 54 hospitals in 1930 to include 173
    hospitals, more than 375 outpatient clinics, 130 nursing homes, and 39
    domiciliaries in 1996;
•   the World War II GI Bill is said to have affected the American way of life
    more than any other law since the Homestead Act almost a century before,
    and further educational assistance acts were passed for the benefit of
    veterans of the Korean conflict, the Vietnam era, the Persian Gulf War, and
    the current all-volunteer force; and
•   in 1973, the Veterans Administration assumed responsibility for the
    National Cemetery System, and VA is now charged with the operation of all
    national cemeteries, except for Arlington National Cemetery.

    In 1989, the Department of Veterans Affairs was established as a
    cabinet-level agency. VA’s major benefits programs are divided among

•   the Veterans Health Administration (VHA), headed by the Under Secretary
    for Health;
•   the Veterans Benefits Administration, headed by the Under Secretary for
    Benefits, which administers compensation for service-connected
    disabilities, pensions for low-income war veterans, education loans, life
    insurance, and home loans; and
•   the National Cemetery System, headed by a Director.

    Figure 1 shows the organizational structure of VA.




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Figure 1: VA Organization Chart




                                  For fiscal year 1998, VA is seeking an appropriation of about $40.1 billion.
                                  Of this amount, about 54 percent is for benefit programs, primarily for
                                  compensation and pension payments, and 43 percent for medical
                                  programs. (See fig. 2.)




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Figure 2: VA’s Fiscal Year 1998
Appropriation Request                                                      Medical programs

                                                                           0.8%
                                                                           Construction




                                     • 43.1%
                                                           53.7% •         Benefits programs




                                                •




                                                                           2.4%
                                                                           General operating and
                                                                           miscellaneous



                                  VA’sbudget authority is split between mandatory programs ($22.4 billion)
                                  and discretionary programs ($18.7 billion). Mandatory programs include
                                  compensation and pension payments, certain readjustment benefits,
                                  housing benefits, and life insurance programs. Discretionary programs
                                  include medical care, construction, the National Cemetery System, and
                                  departmental administration.

                                  VA’s fiscal year 1998 budget request includes two major proposals affecting
                                  its health care program. First, VA proposes legislation to allow it to retain
                                  recoveries from private health insurance and veteran copayments.
                                  Currently, most such recoveries are returned to the Treasury; VA is allowed
                                  to retain enough funds to offset the costs of its recovery program. Second,
                                  VA proposes to test the feasibility of billing Medicare for health care
                                  services provided to higher-income veterans who have Medicare eligibility,
                                  commonly referred to as Medicare subvention. These initiatives would, VA
                                  believes, allow it to support a 30-percent lower unit cost for its health care
                                  services, serve 20 percent more veterans, and obtain 10 percent of the VA
                                  health care budget from nonappropriated sources by fiscal year 2002.




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                              In our testimony 2 years ago, we pointed out that VA lagged far behind the
VHA Has Made                  private sector in improving the efficiency of its health care system.
Significant Progress in       Specifically, we said that the VA system lacked
Improving the
                          •   oversight procedures to effectively assess the operations of its medical
Efficiency of Its             centers,
Health Care System        •   systems to shift significant resources among medical centers to provide
                              consistent access to VA care,
                          •   information systems capable of effectively coordinating patient care
                              among VA facilities, and
                          •   a corporate culture that valued economy and efficiency.

                              VA has made significant progress in improving the efficiency of its health
                              care system. For example, it has consolidated management of nearby
                              hospitals to reduce administrative costs, increased the use of ambulatory
                              surgery, and reduced average lengths of stay. Under the leadership of the
                              Under Secretary for Health, VA has a new emphasis on both economy and
                              efficiency and customer service.


Performance Measures          Two years ago, we told you that VA’s central office lacked much of the
Developed to Hold             systemwide information it needed to effectively (1) monitor the
Managers Accountable          performance of its medical centers, (2) ensure that corrective actions are
                              taken when problems are identified, and (3) identify and disseminate
                              information on innovative programs. Since then, VA has established a new
                              decentralized management structure and established performance
                              measures to hold managers accountable for improving efficiency and
                              ensuring the quality of services.

                              VA  reorganized its health care facilities into 22 VISNs. This reorganization
                              contains several elements that hold promise for providing the management
                              framework needed to realize the system’s full potential for efficiency
                              improvements. First, VA plans to hold network directors accountable for
                              VISNs’ performance by using, among other things, cost-effectiveness goals
                              and measures that establish accountability for operating efficiently to
                              contain or reduce costs. Second, the Under Secretary for Health
                              (1) distributed criteria that could guide VISN directors in developing the
                              types of efficiency initiatives capable of yielding large savings and (2) gave
                              VISN and facility directors authority to realign medical centers to achieve
                              efficiencies. Finally, VHA developed a new method for allocating funds to
                              its VISNs with the intent of creating additional incentives to improve
                              efficiency.



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                                Consistent with the requirements of GPRA, VHA established five basic goals
                                for its health care system. These goals are to

                            •   provide excellence in health care value,
                            •   provide excellence in service as defined by customers,
                            •   provide excellence in education and research,
                            •   be an organization that is characterized by exceptional accountability, and
                            •   be an employer of choice.

                                Under each goal, VHA established objectives and performance measures for
                                gauging progress toward meeting both the specific objectives and overall
                                program goals. For example, VHA’s performance measures include goals to

                            •   decrease the number of bed-days of care provided per 1,000 unique users
                                by 20 percent from the 1996 level,
                            •   increase the percentage of patients reporting their care as “very good to
                                excellent” by 5 percent annually,
                            •   enroll 80 percent of patients in primary care, and
                            •   increase the number of medical care residents trained in primary care.

                                Contracts with individual VISN directors reflect these goals and
                                performance measures. In addition, each VISN has developed a
                                business/strategic plan. The plans are generally organized around the five
                                broad goals.


VA Plans to Implement a         Two years ago, we testified that VA could reduce inconsistencies in
New Method for Allocating       veterans’ access to care by better matching medical centers’ resources to
Resources                       the volume and demographic makeup of eligible veterans requesting
                                services at each medical center. Although VA had developed a new
                                resource allocation system, the Resource Planning and Management (RPM)
                                system, we pointed out that the system had shifted few resources among
                                medical centers and allocated resources on the basis of prior workload
                                without any consideration of the incomes or service-connected status of
                                veterans who make up that workload.

                                Last year, Public Law 104-204 directed VA to prepare a resource allocation
                                plan that would ensure similar access to VA care for veterans who have
                                similar economic status and eligibility priority, taking into account
                                expected workload and promoting the efficient use of resources to the
                                extent feasible. VA developed the Veterans Equitable Resource Allocation
                                (VERA) system in response to the congressional requirement. Next month,



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VA plans to begin shifting resources among VISNs using the new system. The
system is based on calculations of the cost per veteran-user in each VISN.
VISNs that have the highest costs per veteran-user will lose funds, while
VISNs with the lowest costs per veteran-user will get additional funds.
Adjustments are included for the higher labor costs in some VISNs and for
differences in the costs of medical education, research, equipment, and
nonrecurring maintenance.

We applaud VA’s efforts to develop a simple, straightforward method for
allocating resources. However, we have the same basic concern about
VERA that we had about RPM. That is, VA has not determined the “right”
amount of dollars that need to be shifted to ensure equity of access. Our
concern is based on the fact that VA has not adequately determined the
reasons for differences between VISNs in costs per veteran-user. Without a
better understanding of why the costs vary, VA cannot, with any certainty,
determine the appropriate amount of resources to shift among VISNs.

VA data can give starkly different pictures of the comparability of veterans’
access to VA care depending on the basis used for the comparison. For
example, basing a comparison of equity of access on the percentage of the
total veteran population in a VISN that is provided VA services would
suggest that veterans in the Sunbelt generally have better access to VA care
than do veterans from the Midwest and Northeast. Over 17 percent of
veterans in VISN 18 (Phoenix) received VA services in fiscal year 1995,
compared with about 8 percent of veterans in VISN 4 (Pittsburgh).
Similarly, about 14 percent of veterans in VISN 9 (Nashville) received VA
health care services in fiscal year 1995, compared with about 8 percent of
those in VISN 11 (Ann Arbor). Such data could suggest the need to shift
resources from VISNs where VA has a high market share of the veteran
population to VISNs where VA has lower market shares.

On the other hand, the higher market shares might be justified because of
differences in the demographics of the veteran populations. For example,
there may be more low-income, uninsured veterans in the Sunbelt states
who rely on VA for their health care. Similarly, differences in health status
of users or a decision to provide a higher intensity of services to a smaller
population might justify differences in market share. For example, to the
extent that a higher proportion of the total veteran population is
composed of Category A veterans (primarily veterans with
service-connected disabilities or low incomes), a higher market share of
the total veteran population might not reflect an inequity. We are




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    attempting to develop data on the demographics of the veteran population
    by VISN to better understand the basis for differing market shares.

    Other VA data suggest that VISNs in the Northeast and Midwest may receive
    more than their fair share of VA resources. For example, VISN 18 received
    $3,197 per veteran served in fiscal year 1996, compared with $4,829 per
    veteran served in VISN 4. Similarly, VISN 9 received $4,071, compared with
    $4,360 in VISN 11.

    Both VERA data and data from prior allocation models suggest that
    differences in efficiency are a major factor in the variation in spending per
    veteran-user. Veteran-users in VISN 3 (the Bronx) are hospitalized over
    three times as often as are veterans in VISN 18. In addition, VA found that
    VISNs that have higher costs per veteran-user also tend to have more
    doctors and nurses per patient, and provide more bed-days of care per
    patient than the VISNs with lower costs per veteran-user.

    While differences in efficiency may help explain the wide variation in
    spending per veteran-user and justify some shifts in resources to increase
    equity, VA has not adequately explored other factors that might justify a
    portion of the higher costs or explain why certain VISNs have lower costs
    per veteran-user. In developing VERA, VA determined that differences in the
    age of veteran-users were not a significant factor explaining cost
    differences between VISNs. It did not, however, explore the role other
    factors, such as the following, may have played in the cost variations.

•   Differences in the percentage of veteran-users receiving compensation for
    service-connected disabilities or low-income pensions for
    nonservice-connected disabilities could affect a VISN’s cost per
    veteran-user. These costs could be affected because veterans with
    (1) service-connected disabilities rated at 50 percent or higher or
    (2) nonservice-connected pensions use a higher volume of services than
    higher-income veterans with nonservice-connected disabilities. For
    example, we found that among veteran-users living within 5 miles of a VA
    outpatient clinic, nonservice-connected veterans receiving low-income VA
    pensions used an average of 17 visits per user, compared with an average
    of 11 visits for other nonservice-connected users.3
•   Differences in veteran-users’ health insurance coverage could also affect a
    VISN’s cost per veteran-user because veterans with public or private health
    insurance may use VA care to supplement services they obtain from private

    3
     VA Health Care: How Distance From VA Facilities Affects Veterans’ Use of VA Services
    (GAO/HEHS-96-31, Dec. 20, 1995).



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    sector providers rather than rely on VA for comprehensive care. For
    example, we found that only about half of the Medicare-eligible veterans
    using VA health care relied on VA for all of their care. As a result, VISNs
    serving higher percentages of Medicare-eligible and privately insured
    veterans could expect to have lower costs per veteran.4
•   Finally, differences in the extent of incidental use of VA services could
    affect cost per veteran-user. Incidental use could artificially decrease the
    VISN’s average cost of care for veterans who regularly use VA and overstate
    the VISN market share of the veteran population.

    VA also has not developed data showing that the VISNs with lower than
    average expenditures per veteran-user need additional funds. In other
    words, it has not determined how much an efficient and well-managed VISN
    should be spending on each veteran-user. VISNs’ draft business/strategic
    plans generally discuss how they will use the additional funds. Those plans
    have not, however, been reviewed and approved by central office.

    Some VISN plans indicate that the additional funds will be used to reduce
    waiting times or increase the number of staff per patient. Others, however,
    indicate that the funds will be used to attract additional users. Giving
    additional funds to a VISN with no strings attached appears to enable VISNs
    with the largest market shares of the veteran population to further expand
    their market share. This does not appear to be consistent with the efficient
    use of resources that was one of the objectives of Public Law 104-204.

    The simplicity of VERA and the variety of health care needs and coverages
    of veterans also create the potential for VISNs to focus their marketing
    efforts on those individuals least likely to use extensive health care
    services. In fact, VERA gives VISNs financial incentives to focus their
    marketing efforts on attracting veterans with limited health care needs. VA
    officials told us that they are aware of the potential for gaming and have
    performance indicators in place that will allow them to detect any unusual
    activity that might suggest gaming. For example, VHA said that it will be
    monitoring to identify

•   unexpected increases in basic care workload,
•   significant changes in the special care workload,
•   inappropriate movement of special care services from inpatient to
    outpatient settings,
•   fluctuations in numbers of high-cost procedures,


    4
     Veterans’ Health Care: Use of VA Services by Medicare-Eligible Veterans (GAO/HEHS-95-13, Oct. 24,
    1994).



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                         •   increases in waiting times, and
                         •   changes in customer satisfaction.

                             One way to develop a resource allocation system that would be consistent
                             with the provisions of Public Law 104-204, easy to administer, and less
                             subject to gaming would be to base the allocation on the veteran
                             population in each VISN, with adjustments based on the numbers of
                             veterans in each of the priority categories for enrollment in the VA health
                             care system. To lessen the incentive for VISNs to target enrollment toward
                             younger, healthier veterans with private insurance, separate rates could be
                             established for various categories of veterans, on the basis of VA’s
                             historical cost and utilization data. We are currently developing data to
                             more fully explore this option.

                             VA recognizes that VERA is not a perfect system and is continuing to explore
                             options for improving its resource allocation methods. For example, VA,
                             like GAO, is developing data to more fully explore the potential effects of
                             population-based allocations. It plans, however, to go forward with
                             allocations using VERA through fiscal year 1998 in order to provide needed
                             financial incentives for certain VISNs to focus on efficiency improvements.
                             Otherwise, allocations tied to historic budgets might delay needed
                             efficiency improvements until another allocation method could be
                             developed.


VA Continues to              Without accurate and complete cost and utilization data, VA managers
Implement Its Decision       cannot effectively decide when to contract for services rather than provide
Support System but           them directly, how to set prices for services it sells to other providers, or
                             how to bill insurers for care provided to privately insured veterans.
Concerns Continue            Accurate utilization data are also essential to help ensure quality and to
                             prevent abuse.

                             Since February 1994, VA has been phasing in at its facilities a new Decision
                             Support System (DSS) that uses commercially available software to help
                             provide managers data on patterns of care and patient outcomes as well as
                             their resource and cost implications. While DSS has the potential to
                             significantly improve VA’s ability to manage its health care operations, the
                             ultimate usefulness of the system will depend not on the software but on
                             the completeness and accuracy of the data going into the system. If DSS is
                             not able to provide reliable information, VA facilities and VISNs will either
                             continue to make decisions on the basis of unreliable information or spend
                             valuable time and resources developing their own data systems.



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                          Two years ago, we recommended that VA identify data that are needed to
                          support decision-making and ensure that these data are complete,
                          accurate, consistent, and reconciled monthly.5 VA plans to begin
                          implementing DSS at the final group of VA facilities this month. VA still,
                          however, has not adequately focused on improving the completeness and
                          reliability of data entered into the feeder systems. It has, however, started
                          to reconcile DSS data on a monthly basis.

                          Although the draft business/strategic plans developed by the 22 VISNs
                          generally discuss goals and timetables for implementing DSS throughout
                          the network, they identify no plans for improving the completeness and
                          accuracy of the data feeding into DSS.


                          In our testimony 2 years ago, we focused on four major challenges facing
The VA Health Care        VA because of a rapidly changing health care marketplace. Specifically, VA
System Continues to       was faced with
Face Major
                      •   unequal access to health care services because of complex VA eligibility
Challenges                requirements, limited outpatient facilities, and uneven distribution of
                          resources;
                      •   a continuing decline in the number of hospital patients that threatened the
                          economic viability of its hospitals;
                      •   unmet needs, including the acute care needs of uninsured veterans not
                          living close to a VA hospital, and the needs of special care populations such
                          as those who are blind, paralyzed, or suffering from post traumatic stress
                          disorder; and
                      •   the growing long-term care needs of an aging veteran population.

                          Significant progress has been made in addressing the first
                          challenge—improving veterans’ access to VA outpatient care. The
                          remaining challenges, however, remain largely unchanged. In fact, VA’s
                          progress in improving the efficiency of its hospitals has accelerated the
                          decline in hospital workload, heightening the need to address the future of
                          VA hospitals. In addition, VA’s plans to attract new users focus primarily on
                          attracting insured and higher-income veterans with other health care
                          options rather than on addressing the unmet needs of veterans with
                          service-connected conditions and low-income veterans.




                          5
                           VA Health Care Delivery: Top Management Leadership Critical to Success of Decision Support System
                          (GAO/AIMD-95-182, Sept. 29, 1995).



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Progress Has Been Made in       The first major challenge facing VA health care 2 years ago was the uneven
Improving Access to             access to health care caused by complex VA eligibility requirements,
Outpatient Care                 limited outpatient facilities, and uneven distribution of resources. We
                                noted at the time that veterans’ ability to obtain needed health care
                                services from VA frequently depended on where they lived and the VA
                                facility that served them.

                                During the past 2 years, much progress has been made in improving
                                veterans’ access to care.

                            •   Eligibility for VA health care was expanded, eliminating the
                                hard-to-administer “obviate the need for hospitalization” provision that
                                limited most veterans’ access to routine outpatient care. All veterans are
                                now eligible for comprehensive inpatient and outpatient care subject to
                                the availability of resources.
                            •   VA established community-based outpatient clinics (CBOC) to improve
                                veterans’ access to outpatient care. Until 1995, VA required its hospitals to
                                meet rigid criteria to establish outpatient clinics apart from the hospitals.
                                These criteria included a minimum number of veterans to be served in a
                                clinic and a minimum distance that clinics had to be from the VA hospitals.
                                In encouraging its hospitals to consider establishing CBOCs, previously
                                known as “access points,” VA eliminated many of its restrictions
                                concerning the workload and location of proposed clinics. In addition, VA
                                policy now encourages hospitals to provide care not only in VA-operated
                                facilities, but also by contracting with other providers. Although only 12
                                CBOCs were operational by September 1996, plans had been developed to
                                establish hundreds of additional clinics.
                            •   VA’s contracting authority was revised to make it easier for VA to buy
                                services from private providers and to sell services to the private sector.
                                Previously, VA’s authority was restricted primarily to purchasing services
                                from and selling services to other government health care facilities and
                                VA’s medical school affiliates. Using its expanded contracting authority, VA
                                is moving quickly to establish additional CBOCs.


Efficiency Improvements         The second major challenge facing VA health care 2 years ago was the
Accelerate Decline in           declining use of VA hospitals. Between 1969 and 1994, the average daily
Hospital Use                    workload in VA hospitals declined by about 56 percent. VA reduced its
                                operating beds by about 50 percent, closing or converting to other uses
                                about 50,000 hospital beds.




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VA now finds itself increasingly a victim of its own success and faced with
what to do with so much unused inpatient infrastructure. As VA’s efforts to
increase the efficiency of its health care system gained momentum during
the past 2 years, the decline in VA hospital use accelerated. Between fiscal
years 1994 and 1996, the average daily workload in VA hospitals dropped
over 20 percent (from 39,953 patients in 1994 to 31,679 in 1996). Operating
beds dropped from 53,093 in 1994 to 45,798 in 1996.

Hospital use in the VA system varies dramatically. Last year, we reported
that the Northern California Health Care System, a part of VISN 21, was
supporting the hospital care needs of its users with about 2 beds per 1,000
users.6 Some VISNs, however, have over 20 hospital beds per 1,000
veteran-users. As a result, further significant declines in operating beds are
likely as the variation in hospital use is reduced. For example, VISN 5
(Baltimore) estimates that its acute hospital beds will have decreased by
58 percent by fiscal year 2002 (from 1,087 in fiscal year 1995 to 460 in
2002).

Recent VA actions to establish preadmission reviews for all scheduled
hospital admissions and continuing stay reviews for those
admitted—actions we have advocated for over 10 years—should further
reduce hospital use. VA may not realize the full potential from these
reviews, however, unless physicians’ incentives to minimize inappropriate
inpatient care are increased. VISN 5 (Baltimore), for example, uses its
reviews primarily for data collection, evaluation, and monitoring. The
program does not act as a gatekeeper, and inpatient care is not denied on
the basis of results of the preadmission reviews. Reviews at the VISN 5
hospitals in Martinsburg, West Virginia, and Washington, D.C., show that
over 50 percent of patients admitted since the program was initiated did
not need acute hospital care.

As workload continues to decline at VA hospitals, VA’s investment in its
hospital infrastructure increasingly detracts from its ability to shift
resources to other needs, such as expanding access for veterans living
long distances from VA facilities.




6
 VA Health Care: Travis Construction Project Is Not Justified (GAO/HEHS-96-198, Sept. 3, 1996).



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Veterans More Likely to     The third major challenge that faced VA health care 2 years ago was
Have Unmet Needs for        identifying and addressing the unmet health care needs of veterans. With
Specialized Care Services   the growth of public and private health benefits programs, more than 9 out
                            of 10 veterans now have alternate health insurance coverage. Still, about
Than Acute Care Services    2.6 million veterans had neither public nor private health insurance in 1990
                            to help pay for needed health care services. Without a demonstrated
                            ability to pay for care, individuals’ access to health care is restricted,
                            increasing their vulnerability to the consequences of poor health. Lacking
                            insurance, people often postpone obtaining care until their conditions
                            become more serious and require more costly medical services.

                            Most veterans who lack insurance coverage, however, are able to obtain
                            needed hospital care through public programs and VA. Still, VA’s 1992
                            National Survey of Veterans estimated that about 159,000 veterans were
                            unable to get needed hospital care in 1992 and about 288,000 were unable
                            to obtain needed outpatient services. By far the most common reason
                            veterans cited for not obtaining needed care was that they could not afford
                            to pay for it.

                            While the cost of care may have prevented veterans from obtaining care
                            from private sector hospitals, it appears to be an unlikely reason for not
                            seeking care from VA. All veterans are currently eligible for hospital care,
                            and about 9 to 11 million are eligible for free care. Other veterans are
                            required to make only nominal copayments.

                            Many of the problems veterans face in obtaining health care services
                            appear to relate to distance from a VA facility. For example, our analysis of
                            1992 National Survey of Veterans data estimates that fewer than half of the
                            159,000 veterans who did not obtain needed hospital care lived within 25
                            miles of a VA hospital. By comparison, we estimate that over 90 percent
                            lived within 25 miles of a private sector hospital.

                            Of the estimated 288,000 veterans unable to obtain needed outpatient care
                            during 1992, almost 70 percent lived within 5 miles of a non-VA doctor’s
                            office or outpatient facility. As was the case with veterans unable to obtain
                            needed hospital care, those unable to obtain needed outpatient care
                            generally indicated that they could not afford to obtain needed care from
                            private providers. Only 13 percent of the veterans unable to obtain needed
                            outpatient services reported that they lived within 5 miles of a VA facility,
                            where they could generally have received free care.




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    Veterans’ needs for specialized services cannot always be met through
    other public or private sector programs. Frequently, such services are
    either unavailable in the private sector, or are not extensively covered
    under other public and private insurance. Space and resource limits in VA
    specialized treatment programs can result in unmet needs, as in the
    following cases.

•   Specialized VA post-traumatic stress disorder programs are operating at or
    beyond capacity, and waiting lists exist, particularly for inpatient
    treatment. Although private insurance generally includes mental health
    benefits, private sector providers generally lack the expertise in treating
    war-related stress that exists in the VA system.
•   Inadequate numbers of beds are available in the VA system to care for
    homeless veterans. For example, VA had only 11 beds available in the San
    Francisco area to meet the needs of an estimated 2,000 to 3,000 homeless
    veterans.
•   Public and private insurance do not provide extensive coverage of
    long-term psychiatric care. Veterans needing such services must either rely
    on state programs or the VA system to meet their needs.
•   VA is a national leader both in research on and treatment and rehabilitation
    of people with spinal cord injuries. Similarly, it is a leader in programs to
    treat and rehabilitate the blind. Although such services are available in the
    private sector, the costs of such services can be catastrophic.

    Legislation enacted last year that expanded VA’s ability to contract with
    private sector facilities and providers gives VA an opportunity to better
    meet the health care needs of low-income veterans and those with
    service-connected conditions who previously were unable to obtain
    needed care because VA facilities were geographically inaccessible.

    Two years ago, we suggested that the VA health care system retarget
    resources used to provide care for higher-income veterans with
    nonservice-connected conditions toward lower-income veterans and those
    with service-connected conditions whose health care needs were not
    being met.7 VA, however, through its current legislative proposals, appears
    to be focusing its marketing efforts on attracting higher-income veterans
    with other health care options rather than using its expanded contracting
    authority to target its available resources toward meeting the needs of
    service-connected and uninsured veterans who lack other health care
    options.

    7
    VA Health Care: Retargeting Needed to Better Meet Veterans’ Changing Needs (GAO/HEHS-95-39,
    Apr. 21, 1995).



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    Data from VA’s Income Eligibility Verification System show that about
    15 percent of the veterans using VA facilities who have no
    service-connected disabilities have incomes of $20,000 or more. VA could
    use the resources spent to provide services to such higher-income
    nonservice-connected veterans to strengthen its ability to fulfill its safety
    net mission. For example, the resources could be used to

•   expand outreach to medically underserved populations, such as homeless
    veterans;
•   expand programs that address special care needs; or
•   contract for hospital and other service for lower-income, uninsured
    veterans who do not live near VA facilities.

    Our review of the draft strategic plans developed by the 22 VISNs, however,
    found little mention of plans to conduct outreach to veterans with limited
    health care options or special care needs. Nor did these plans specifically
    address expanding services for low-income uninsured veterans.

    The establishment of additional community-based outpatient clinics will
    address the unmet needs of some uninsured veterans. Most of the
    resources spent on CBOCs, however, will likely be spent on veterans who
    have other health care options. This reduces the resources available to
    provide services to uninsured veterans.

    The legislative proposals contained in VA’s fiscal year 1998 budget request
    would target veterans with other health care options. VA claims that it will
    be able to cut its per-user costs by 30 percent only if it is given funds to
    expand the number of veterans it serves by 20 percent and allowed to keep
    all of the funds it recovers from private health insurance and Medicare.
    The new users VA anticipates attracting either have private health
    insurance or are higher-income Medicare beneficiaries. The proposal to
    allow VA to keep all medical care cost recoveries could create strong
    financial incentives for VA to market its services to veterans who have no
    service-connected disabilities as well as private insurance.

    Similarly, VA is seeking authority to bill and retain recoveries from
    Medicare for services provided to higher-income Medicare-eligible
    veterans. Like recoveries from private health insurance, such Medicare
    subvention would create incentives for VA to market services to
    higher-income veterans with both Medicare and Medigap coverage rather
    than to lower-income Medicare-eligible veterans.




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                              VA’sproposals create the potential for its receiving duplicate payments for
                              services provided to privately insured and Medicare-eligible veterans. In
                              other words, unless changes are made in how VA develops its budget
                              request, it would receive both an appropriation to cover its costs of
                              providing services to privately insured and higher-income
                              Medicare-eligible veterans and payments from insurers and Medicare to
                              cover those same costs.

                              Although the 22 VISNs’ draft strategic plans discuss efforts to increase
                              market share and attract new users, few plans contain any mention of
                              targeting marketing efforts to veterans potentially having the greatest need
                              for VA services—veterans with service-connected disabilities and those
                              with low incomes and no health insurance.


Long-Term Care Needs of       As the nation’s large World War II and Korean War veteran populations
an Aging Population           age, their health care needs are increasingly shifting from acute hospital
                              care toward nursing home and other long-term care services. But Medicare
                              and most private health insurance cover only short-term, post-acute
                              nursing home and home health care. Although private long-term care
                              insurance is a growing market, the high cost of policies places such
                              coverage out of reach of many veterans. As a result, most veterans must
                              pay for long-term nursing home and home care services out of pocket until
                              they spend down most of their income and assets and qualify for Medicaid
                              assistance. After qualifying for Medicaid, they are required to apply almost
                              all of their income toward the cost of their care.

                              About a third of veterans are 65 years old or older, with the fastest
                              growing group of veterans being those 85 years old or older. This older
                              group raises particular concerns because the need for nursing home and
                              other long-term care services increases with the age of the beneficiary
                              population. Over 50 percent of those over 85 years of age are in need of
                              nursing home care, compared with about 13 percent of those 65 to 69
                              years old.


                              VBAalso faces several important challenges in administering VA
VBA Faces Multiple            compensation and pension programs. Specifically,
Challenges
                          •   the disability rating schedule has not been updated for over 45 years and
                              no longer reflects the lost earning potential resulting from some
                              disabilities;



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                          •   VA,like other federal agencies, could be unable to issue compensation and
                              pension checks at the beginning of the year 2000 unless it is able to
                              reprogram its computers to recognize the next century;
                          •   veterans frequently wait over 2 years for resolution of disability
                              compensation and pension claims; and
                          •   hundreds of millions of dollars in overpayments of compensation and
                              pension benefits are made because VBA does not focus on prevention.


Updating the Disability       VA’s disability program is required by law to compensate veterans for the
Rating Schedule               average loss in earning capacity in civilian occupations that results from
                              injuries or conditions incurred or aggravated during military service.
                              These injuries or conditions are referred to as “service-connected”
                              disabilities. Veterans with such disabilities are entitled to monthly cash
                              benefits under this program even if they are working and regardless of the
                              amount they earn.

                              In fiscal year 1995, VA paid about $11.3 billion to approximately 2.2 million
                              veterans who were on VA’s disability rolls at that time. Over the past 50
                              years, the number of veterans on the disability rolls has remained fairly
                              constant.

                              The amount of compensation veterans with service-connected conditions
                              receive is based on the “percentage evaluation,” commonly called the
                              disability rating, that VA assigns to these conditions. VA uses its “Schedule
                              for Rating Disabilities” to determine which rating to assign to a veteran’s
                              particular condition. VA is required by law to readjust the schedule
                              periodically on the basis of “experience.”

                              Since the 1945 version of the schedule was developed, questions have
                              been raised on a number of occasions about the basis for these disability
                              ratings and whether they reflect veterans’ current loss in earning capacity.
                              Although the ratings in the schedule have not changed substantially since
                              1945, dramatic changes have occurred in the labor market and in society.
                              VA has done little since 1945 to help ensure that disability ratings
                              correspond to disabled veterans’ average loss in earning capacity. Basing
                              disability ratings at least in part on judgments of loss in functional capacity
                              would help to ensure that veterans are compensated to an extent
                              commensurate with their economic losses and that compensation funds
                              are distributed equitably.




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Addressing the Year 2000   VA, like other federal agencies, faces serious problems with its computer
Computer Problem           systems that will occur in the year 2000. This year, we added the “year
                           2000 computer problem” to our list of “high-risk” federal management
                           areas.8 Unless agency computers are reprogrammed, the year 2000 will be
                           interpreted as 1900. This could create a major problem for VA, beginning in
                           January 2000, with its monthly processing of over 3 million disability
                           compensation and pension checks, totaling about $1.5 billion, to veterans
                           and their survivors. Unless the “year 2000” problem is corrected, VA’s
                           computer system for processing these checks will either produce
                           inaccurate checks, or produce no checks at all. VA would then have to
                           process the checks manually, causing severe delays to veterans and
                           survivors in receiving their benefits.

                           VA needs to move quickly to (1) inventory its mission-critical systems;
                           (2) develop conversion strategies and plans; and (3) dedicate sufficient
                           resources to conversion, and adequate testing, of computer systems before
                           January 1, 2000. We recently published draft guidance for agencies to use
                           in planning, managing, and evaluating their efforts to deal with this
                           problem.9 We are currently reviewing VBA’s efforts to deal with the “year
                           2000” problem and plan to report to the Chairman, Subcommittee on
                           Oversight and Investigations, House Committee on Veterans’ Affairs, this
                           spring.


Improving Claims           Slow claims processing and poor service to customers have long been
Processing for             recognized as critical concerns for VA. As early as 1990, VA began
Compensation and Pension   encouraging regional offices to develop and implement improvements in
                           their claims processing systems; but instead of decreasing, processing
Benefits                   times and backlogs increased. At the end of fiscal year 1994, almost
                           500,000 claims were waiting for a VA decision. About 65,000 of these claims
                           were initial disability compensation claims. On average, veterans waited
                           over 7 months for their initial disability claims to be decided; if veterans
                           appealed these decisions, they could wait well over 2 years for a final
                           decision.

                           In 1995, we reported that VA needed better assessments to guide its claims
                           processing improvements.10 We stated that VA had not developed adequate


                           8
                            1997 High-Risk Series: Information Management and Technology (GAO/HR-97-9, Feb. 1997).
                           9
                            Year 2000 Computing Crisis: An Assessment Guide (GAO/AIMD-10.1.14, Exposure Draft, Feb. 1997).
                           10
                            Veterans’ Benefits: Better Assessments Needed to Guide Claims Processing Improvements
                           (GAO/HEHS-95-25, Jan. 13, 1995).



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                          evaluation plans to allow it to judge the relative merit of its various
                          initiatives. Without such information, VA will not have a sound basis for
                          determining what additional changes, if any, should be made and for
                          guiding future improvement efforts. In addition, VA did not have a formal
                          mechanism to disseminate information about the content and
                          effectiveness of various regional office initiatives to allow other regional
                          offices to learn from the experiences.

                          VA is proposing a redesign of its claims processing system that would
                          incorporate several initiatives. VA has conducted a business process
                          reengineering effort on its compensation and pension claims processing
                          system. VA has also established claims processing goals that include
                          completing original compensation claims within 53 days by eliminating
                          unnecessary tasks, reducing the number of hand-offs involved in the
                          process, making information technology changes, and providing additional
                          training for rating specialists. However, it is unclear at this time how
                          successful these initiatives will be, how they will be evaluated, and how
                          regional offices’ experiences will be shared. VBA officials told us that the
                          claims backlog has been reduced from 500,000 to about 326,000 as a result
                          of VBA’s actions.


Preventing Overpayments   Despite its responsibility to ensure accurate benefit payments, VA
                          continues to overpay veterans and their survivors hundreds of millions of
                          dollars in compensation and pension benefits each year. For example, at
                          the end of 1996, VA’s outstanding overpayments exceeded $500 million.

                          VA has the capability to prevent millions of dollars in overpayments but has
                          not done so because it has not focused on prevention. For example, we
                          reported in April 1995 that VA did not use available information, such as
                          when beneficiaries will become eligible for Social Security benefits, to
                          prevent related overpayments from occurring.11 Furthermore, VA did not
                          systematically collect, analyze, and use information on the specific causes
                          of overpayments that would help it target preventive efforts.

                          VA has taken actions in response to our 1995 report, but some actions have
                          not been completed. For example, VA has installed programming changes
                          that will identify beneficiaries who will soon become eligible for Social
                          Security benefits. However, it has not completed its analysis of other



                          11
                           Veterans’ Benefits: VA Can Prevent Millions in Compensation and Pension Overpayments
                          (GAO/HEHS-95-88, Apr. 28, 1995).



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                              causes of overpayments nor developed strategies for targeting additional
                              preventive efforts.


                              The Congress, through recent legislation, established a framework to help
VA Is Responding to           federal agencies (1) improve their ability to address long-standing
Recent Legislative            management challenges and (2) meet the need for accurate and reliable
Management Reform             information for executive branch and congressional decision-making. This
                              framework includes
Requirements
                          •   GPRA, which is designed to improve federal agencies’ performance by
                              requiring them to focus on their missions and goals, and on the results
                              they provide to their customers—for veterans and their families;
                          •   the CFO Act of 1990, as amended by the Government Management Reform
                              Act, designed to improve the timeliness, reliability, usefulness, and
                              consistency of financial information in federal agencies; and
                          •   the Paperwork Reduction Act of 1995 and the Clinger-Cohen Act of 1996,
                              which are intended to improve agencies’ ability to use information
                              technology to support their missions and improve performance.

                              VA has begun to implement these acts, which can help it (1) develop fully
                              integrated information about its mission and strategic priorities,
                              (2) develop and maintain performance data to evaluate achievement of its
                              goals, (3) develop accurate and audited financial information about the
                              costs of achieving VA’s results-oriented mission, and (4) improve the
                              relationship of information technology to the achievement of performance
                              goals.


Improving Mission             GPRA requires that agencies consult with the Congress and other
Performance and Results       stakeholders to clearly define their missions. It also requires that they
                              establish long-term strategic goals, as well as annual goals linked to them.
                              They must then measure their performance against the goals they have set
                              and report publicly on how well they are doing. In addition to ongoing
                              performance monitoring, agencies are expected to identify performance
                              gaps in their programs, and to use information obtained from these
                              analyses to improve the programs.12 Under GPRA, VA and other federal
                              agencies must complete strategic plans by September 30, 1997.



                              12
                               Executive Guide: Effectively Implementing the Government Performance and Results Act
                              (GAO/GGD-96-118, June 1996) and Managing for Results: Using GPRA to Assist Congressional and
                              Executive Branch Decisionmaking (GAO/T-GGD-97-43, Feb. 12, 1997).



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    While VA has not yet completed its GPRA strategic plan, its fiscal year 1998
    budget submission to the Congress includes some of the elements of the
    GPRA planning process. The budget submissions for both of VA’s largest
    components—VHA and VBA—included strategic planning documents. Both
    the VHA and VBA plans included overall mission statements; identification of
    customers and stakeholders; program goals and objectives; and
    performance measures related to the goals and objectives.

    VHA’s strategic plan, as stated in its fiscal year 1998 budget submission, is
    based on five goals developed in March 1996 by the Under Secretary for
    Health.13 VHA then attached objectives and performance measures to each
    goal. For the first goal—“Provide Excellence in Healthcare Value”—VHA
    stated three objectives: (1) deliver the best health care outcomes at the
    lowest cost to the largest number of eligible veterans, (2) change VHA from
    a hospital-based to an ambulatory-based system, and (3) establish primary
    care as the central focus of patient treatment. To measure progress toward
    achieving VHA’s goals, it proposed eight performance measures. For the
    second objective, for example, VHA plans to increase the percentage of
    appropriate surgical and invasive diagnostic procedures performed on an
    ambulatory basis from 52 percent in fiscal year 1996 to 65 percent in fiscal
    year 1998.

    VBA’s strategic planning process began in July 1995, with definitions of its
    mission, goals, and core performance measures. As stated in the fiscal year
    1998 budget submission, VBA’s mission is to “provide benefits and services
    to veterans and their families in a responsive, timely and compassionate
    manner in recognition of their service to the nation.” To accomplish this
    mission, VBA has set out four goals: (1) improve responsiveness to
    customer needs and expectations, (2) improve service delivery and benefit
    claims processing, (3) ensure the best value for the available taxpayers’
    dollar, and (4) ensure a satisfying and rewarding work environment. The
    plan is then broken down by VBA’s major program areas. For example, the
    Compensation and Pension program area has performance indicators to
    measure progress in meeting VBA’s goal of improving service delivery and
    benefit claims processing by

•   reducing the processing time for original compensation and pension
    claims from 144 days in fiscal year 1996 to 53 days in fiscal year 2002 and
•   raising the accuracy rate for original compensation claims from 90 percent
    in fiscal year 1996 to 97 percent in fiscal year 2002.


    13
      Under Secretary for Health, VA, Prescription for Change (Washington, D.C.: VA, Mar. 1996).



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                          We are currently reviewing VA and other agencies’ initial implementation
                          of GPRA. As required under the legislation, we will report by June 1, 1997,
                          on GPRA implementation and the prospects for governmentwide
                          compliance.

                          We would be happy to assist the Congress in reviewing draft and final VA
                          submissions under GPRA, including strategic plans, performance plans,
                          performance reports, evaluations, and related VA performance information.



Improving Financial       The CFO Act was designed to remedy decades of serious neglect in federal
Management and            financial management and accountability by establishing a financial
Accountability            management leadership structure and requirements for long-range
                          planning, audited financial statements, and strengthened accountability
                          reporting. The act created CFO positions and a financial management
                          structure at each of the major agencies. The CFO Act, as expanded in 1994,
                          requires VA, as well as other major agencies, to prepare annual financial
                          statements, beginning with those for fiscal year 1996.

                          VA has established a sound financial management structure; in addition to
                          the Assistant Secretary for Management, who serves as CFO, VHA and VBA
                          each has a CFO. Also, VHA plans to have a CFO position in each of its 22
                          VISNs. VA met the requirement to prepare, and have audited, annual
                          financial statements beginning with those for fiscal year 1986.

                          VA’sresponse to the CFO Act has led to a number of financial management
                          improvements, including

                      •   the installation of VA’s Financial Management System, which gives VA, for
                          the first time, an integrated financial management system;
                      •   improvements in reporting of receivables and property management, due
                          to the implementation of the financial management system, that resulted
                          in the first issuance by a VA Inspector General of an unqualified opinion on
                          VA’s Statement of Financial Position on September 30, 1996;14 and
                      •   the consolidation of debt collection activities at VBA’s Debt Management
                          Center in St. Paul, Minnesota, to take full advantage of debt management
                          tools.




                          14
                           Office of Inspector General, VA, Audit of Department of Veterans Affairs Consolidated Financial
                          Statements for Fiscal Years 1996 and 1995, 7AF-G10-051 (Washington, D.C.: VA, Feb. 25, 1997).



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                                The Inspector General’s audit of VA’s fiscal year 1996 financial statement
                                disclosed six internal control weaknesses that expose VA to significant
                                financial risks:

                            •   errors in accounting for property, plant, and equipment, which could result
                                in a future qualification of opinion if not corrected;
                            •   errors by medical facilities in recording estimated amounts of unbilled
                                services and in estimating uncollectible amounts;
                            •   failure to cancel approximately $69 million in open obligations that should
                                have been cancelled before the end of the fiscal year—funds that could
                                have been reprogrammed and used for other valid needs if they had been
                                identified before the appropriations expired;
                            •   an outdated data processing system for VA’s life insurance programs that
                                has the potential to adversely affect the complete and accurate processing
                                of insurance transactions and the integrity of the financial information
                                generated by the system;
                            •   insufficient VA management emphasis on, and oversight of, VA data
                                processing facilities to ensure that data processing systems are protected
                                from unauthorized access and modification of data; and
                            •   lack of an integrated financial accounting system for VA’s Housing Credit
                                Assistance Program which, when coupled with the complexities of
                                accounting requirements under credit reform, increases the risk of
                                financial reporting error.



Improving Information           The Paperwork Reduction Act of 1995 provides basic guidance to federal
Management and the Use          agencies on acquiring and managing information resources. It is based on
of Information Technology       the concept that information resources should support agency missions
                                and performance. It requires that information resources management
                                plans delineate the resources that are needed and explain how the agency
                                plans to minimize the paperwork burden on the public and the cost to the
                                government of collecting information. The Clinger-Cohen Act of 1996
                                reinforces this guidance, and adds requirements designed to promote the
                                use of information technology to better support agencies’ missions and
                                performance. It is primarily concerned with the need to ensure that
                                agencies have systems to prioritize information technology investments.
                                Clinger-Cohen also requires that a qualified senior-level chief information
                                officer be appointed to guide all major information resource management
                                activities. Both acts require agencies to set goals, measure performance,
                                and report on progress in improving the efficiency and effectiveness of




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information management in general, and the acquisition and use of
information technology in particular.

VA has made efforts to improve its information management systems,
including the appointment of the Assistant Secretary for Management as
VA’s Chief Information Officer. The Clinger-Cohen Act requires, however,
that information resources management be the primary function of an
agency’s chief information officer. This is not the case in VA, because the
Assistant Secretary for Management is not only VA’s Chief Information
Officer, but is also responsible for its Offices of Financial Management,
Budget and Acquisition, and Materiel Management. The Office of
Management and Budget (OMB) has questioned whether information
management is the “primary function” of the Assistant Secretary for
Management, and whether VA is in compliance with the Clinger-Cohen Act.
In August 1996, OMB asked VA to reevaluate the placement of its chief
information officer function and report within a year on how it will come
into compliance with the Clinger-Cohen requirement.

VBA’s information technology efforts have yielded some improvements in
its hardware and software capabilities. However, our reviews of
information management in VBA have identified problems that need to be
addressed. One is the need for VBA to develop credible strategic business
and information resources management plans.15 VBA has undertaken
several initiatives to improve claims processing efficiency and reduce its
large backlog of unprocessed claims. But it has done so without an overall
business strategy clearly setting forth how it would achieve its goals.
Instead, VBA has used stopgap measures to deal with its claims processing
problems. While these measures have improved processing times and
reduced the claims backlog, VA needs to find other solutions.

Another challenge for VBA is to do a better job of managing its information
technology development projects as investments. Our reviews of VBA’s
information technology initiatives show that VBA lacks the critical cost,
benefit, and risk information to determine whether investments it is
considering are worthwhile.16 The next step would be to determine what it
needs to meet its information resource management priorities. VBA needs
to develop the tools needed to follow a three-phased management
approach for selecting, controlling, and evaluating information


15
 Veterans Benefits Modernization: Management and Technical Weaknesses Must Be Overcome if
Modernization Is to Succeed (GAO/T-AIMD-96-103, June 19, 1996).
16
  VBA Information Technology Investment (GAO/AIMD-97-10R, Oct. 18, 1996).



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                           technology-related projects. It also needs to develop a process to rank and
                           prioritize information technology investments as a consolidated portfolio.

                           A third challenge for VBA is to improve its software development
                           capability. Once agencies have identified their top priority information
                           technology projects, they must be able to determine whether the project
                           should be developed in-house or contracted out. Our review of VBA’s
                           software development capabilities found that, on a scale of software
                           development maturity, VBA was in the “least mature” category.17 Thus, VBA
                           cannot reliably develop and maintain high-quality software within existing
                           cost and schedule constraints. This, in turn, places VBA’s information
                           technology modernization efforts at significant risk. We made several
                           recommendations to address this issue. These recommendations and VA’s
                           responses follow:

                       •   Obtain expert advice on developing high-quality software. VBA is working
                           with the Air Force, under an interagency agreement, to implement this
                           recommendation.
                       •   Develop a plan to achieve a higher level of software development maturity.
                           VBA has developed such a plan and has taken other actions to improve
                           software development maturity.
                       •   Require that future software development contracts specify that services
                           be obtained from contractors with at least a level 2 (on a scale of 1 to 5,
                           with 5 being the highest level) rating. According to VBA, it plans to award a
                           general software contract with a provision regarding the necessary
                           software development skills.


                           We periodically report to the Congress on options for reducing the budget
Options for Reducing       deficit. Our latest report, issued March 14, 1997, identified a series of
the Budget Deficit         potential changes in veterans’ benefits and VA programs that could
Through Changes in         contribute many billions of dollars toward deficit reduction over the next 5
                           years.18 Some of the options involve management improvements that could
VA Programs and            be achieved by the agency. Others, however, would require fundamental
Benefits                   policy changes in veterans’ benefits, including changes in entitlement
                           programs.




                           17
                              Software Capability Evaluation: VA’s Software Development Process Is Immature (GAO/AIMD-96-90,
                           June 19, 1996).
                           18
                            Addressing the Deficit: Budgetary Implications of Selected GAO Work for Fiscal Year 1998
                           (GAO/OCG-97-2, Mar. 14, 1997).



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Eliminate Veterans’        During 1996, VA paid approximately $1.7 billion in disability compensation
Disability Compensation    payments to veterans with diseases neither caused nor aggravated by
for Nonservice-Connected   military service. In 1996, the Congressional Budget Office (CBO) reported
                           that about 230,000 veterans were receiving about $1.1 billion annually in VA
Diseases                   compensation for these diseases. Other countries we contacted do not
                           compensate veterans under such circumstances. If disability
                           compensation payments to veterans with nonservice-connected,
                           disease-related disabilities were eliminated in future cases, 5-year savings
                           could, CBO estimated, exceed $400 million.


Eliminate Certain VA       In fiscal year 1994, VA spent more than $1 billion in educational assistance
Contracts With State       benefits to more than 450,000 beneficiaries. In addition, it spent over
Approving Agencies         $12 million on contracts with state approving agencies to assess whether
                           schools and training programs offer education of sufficient quality for
                           veterans to receive VA education assistance benefits when attending them.
                           An estimated $10.5 million of the $12 million paid to state approving
                           agencies was spent to conduct assessments that overlapped assessments
                           performed by the Department of Education. CBO estimated that at least
                           $50 million could be saved over the next 5 years if the Congress directed
                           VA to discontinue contracting with state approving agencies to review and
                           approve educational programs at schools that have already been reviewed
                           and certified by Education.


Impose Cost Sharing for    State veterans’ homes recover as much as 50 percent of the costs of
Veterans’ Long-Term Care   operating their facilities through charges to veterans receiving services.
Services                   Similarly, Oregon recovers about 14 percent of the costs of nursing home
                           care provided under its Medicaid program through estate recoveries. In
                           fiscal year 1990, VA recovered less than one-tenth of 1 percent of its costs
                           for providing nursing home care through beneficiary copayments.

                           Potential recoveries appear to be greater within the VA system than under
                           Medicaid. Home ownership is significantly higher among VA hospital users
                           than among Medicaid recipients, and veterans living in VA nursing homes
                           generally contribute less toward the cost of their care than do Medicaid
                           recipients, allowing veterans to build larger estates.

                           If the Congress authorized VA to increase cost sharing for VA nursing home
                           care by adopting cost sharing requirements similar to those imposed by
                           most state veterans’ homes and implementing an estate recovery program
                           similar to those operated by many states under their Medicaid programs,



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                             billions of dollars could be saved through the increased revenues. For
                             example, if VA recovered 25 percent of its costs of providing nursing home
                             care through a combination of cost sharing and estate recoveries, it would
                             save about $3.4 billion over the next 5 years.


Establish Independent        VAhospitals too often admit patients whose care could be more efficiently
Preadmission Certification   provided in alternative settings, such as outpatient clinics or nursing
                             homes. Our studies and those of VA researchers and the VA Inspector
                             General have found that over 40 percent of VA hospital admissions and
                             days of care were not medically necessary.

                             Private health insurers generally require their policyholders (or their
                             physicians) to obtain authorization from them or their agent prior to
                             admission to a hospital. Failure to obtain such preadmission certification
                             can result in denial of insurance coverage or a reduction in payment.

                             We have recommended that VA establish an independent preadmission
                             certification program.19 Although VA, in September 1996, required its VISNs
                             to establish a preadmission review program, the review programs are run
                             by the hospitals rather than by external reviewers and do not provide any
                             direct financial incentive for facilities to adhere to the decisions of their
                             reviewers. While the preadmission reviews are likely to have some effect
                             on inappropriate admissions, they may not be effective unless coupled
                             with a financial penalty for noncompliance with review findings.

                             CBO estimated that if VA were to establish precertification procedures
                             similar to those used by private health insurers which, result in a
                             40-percent reduction in admissions and days of care, VA’s medical care
                             spending could be reduced by $8.4 billion over 5 years.


Delay Funding of Veterans’   Historically, VA has submitted a budget request for hundreds of millions of
Medical Facilities           dollars in major health care construction projects. The requests have
                             typically included construction or renovation of one or more hospitals.

                             Long-term commitments for any major construction or renovation of
                             predominantly inpatient facilities in today’s rapidly changing health care
                             environment are accompanied by high levels of financial risk. VA’s recent
                             commitment to a major realignment of its health care system magnifies

                             19
                              VA Health Care: Opportunities for Service Delivery Efficiencies Within Existing Resources
                             (GAO/HEHS-96-121, July 25, 1996).



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                            such risk by creating additional uncertainty. In addition, we believe that
                            analyzing alternatives to major construction projects is entirely consistent
                            with VA’s suggested realignment criteria. Delaying funding for major
                            construction projects until the alternatives can be fully analyzed may
                            result in more prudent and economical use of already scarce federal
                            resources.

                            The potential savings of delaying funding for VA hospital construction are
                            uncertain in the absence of an assessment of VA’s needs based on its own
                            realignment criteria. CBO estimates that if the Congress did not approve
                            funding of any major construction projects until after VA has completed its
                            realignment, savings totaling more than $1.2 billion could be achieved over
                            5 years.

                            VA’sfiscal year 1998 budget submission and its recent decision not to
                            pursue construction of a new VA hospital in East Central Florida are
                            consistent with this option. VA is seeking only $48 million for major
                            medical construction for fiscal year 1998.


Close Underused Hospitals   Although VA took over 50,000 hospital beds out of service between 1970
                            and 1995, it did not close any hospitals on the basis of declining utilization.
                            With the declining veteran population, new technologies, and VA’s efforts
                            to improve the efficiency of its health care system, significant further
                            declines in demand for VA hospital care are likely.

                            While closing wards saves some money by reducing staffing costs, the cost
                            per patient treated rises because the fixed costs of facility operation are
                            distributed among fewer patients. At some point, closing a hospital and
                            providing care either through another VA hospital or through contracts
                            with community hospitals may become less costly than simply taking beds
                            out of service.

                            Potential savings from hospital closures are difficult to estimate because
                            of uncertainties about which facilities would be closed, the increased
                            costs that would be incurred in providing care through other VA hospitals
                            or contracts with community hospitals, and the disposition of the closed
                            facilities.


Limit Growth of VA          As discussed earlier, the VA health care system should be able to
Medical Care Account        significantly contribute to deficit reduction during the next 5 years. First,



                            Page 31                                                       GAO/T-HEHS-97-97
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                         the system does not need to expend the level of resources that VA has
                         previously estimated to meet the health care needs of veterans. These
                         resources are overstated because VA did not adequately consider the
                         declining demand for VA hospital care in estimating its resource needs and
                         because eligibility for VA care has been reformed—which, according to VA,
                         will allow it to divert 20 percent of its hospital admissions to less costly
                         outpatient settings. Second, VA could reduce its operating costs by billions
                         of dollars over the next 5 years by completing a wide range of efficiency
                         actions. VA recognizes that it can reduce its costs per user by 30 percent
                         over the next 5 years but plans to use the savings to expand its market
                         share by 20 percent.

                         We recently recommended that VA provide the Congress information on
                         the savings achieved through improved efficiency in support of its budget
                         request. We noted that providing the Congress with information on
                         factors, such as inflation and creation of new programs, which increase
                         resource needs, without providing information on changes that could
                         reduce or offset those needs leaves the Congress with little basis for
                         determining appropriate funding levels. VA, however, has been unwilling to
                         provide such information to the Congress.

                         One way for the Congress to respond to VA’s unwillingness to provide
                         information on savings from improved efficiency would be to limit the VA
                         medical care appropriation at the fiscal year 1997 level for the next 5
                         years. CBO estimates that this would result in almost $9 billion in savings.


Limit Enrollment in VA   Recently enacted legislation expands eligibility for VA health benefits to
Health Care System       make all veterans eligible for comprehensive inpatient and outpatient
                         services, subject to the availability of resources. The legislation also
                         requires VA to establish a system of enrollment for VA health care benefits
                         and establishes enrollment priorities to be applied, within appropriated
                         resources. The lowest priority for enrollment is veterans with no
                         service-connected disabilities and high enough incomes to place them in
                         the discretionary care category.

                         VA,however, does not currently provide the Congress enough information
                         on the types of veterans it serves to enable the Congress to make informed
                         judgments about which portion of VA’s proposed workload to fund. We
                         found that about 15 percent of veterans with no service-connected
                         disabilities who use VA medical centers have sufficiently high incomes to
                         place them in the lowest priority category under the new patient



                         Page 32                                                      GAO/T-HEHS-97-97
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                    enrollment system. If the Congress funded the VA health care system to
                    cover only the expected enrollment of veterans in higher priority
                    enrollment categories, such as veterans with service-connected disabilities
                    and veterans without the means to obtain public or private insurance to
                    meet their basic health care needs, CBO estimates that $1.7 billion in budget
                    authority, adjusted for inflation, could be saved over 5 years.


Reduce Outpatient   VA pharmacies dispense to veterans over 2,000 types of medications and
Pharmacy Costs      medical supplies that are available over-the-counter (OTC) through local
                    retail outlets. Such products were dispensed more than 15 million times in
                    1995 at an estimated cost of $165 million. The most frequently dispensed
                    items include aspirin, dietary supplements, and alcohol prep pads.

                    Unlike VA, other public and private health programs cover few, if any, OTC
                    products for their beneficiaries. Our assessment of VA’s operating practices
                    suggests several ways that budget savings could be achieved. First, VA
                    could more narrowly define when to provide OTC products, reducing the
                    number of OTC products available to veterans on an outpatient basis.
                    Second, VA could collect copayments for all OTC products. CBO estimated
                    that these steps could save over $350 million over the next 5 years.


Extend Expiring     Legislation initially enacted in 1990 gave VA access to Internal Revenue
Authorities         Service tax data and Social Security Administration earnings records to
                    help VA verify incomes reported by beneficiaries. Since then, millions of
                    dollars in savings have been achieved in VA’s health and pension programs
                    as a result of VA’s income verification program.

                    Authority for the program will, however, expire on September 30, 1998.
                    Extending the authority could generate over $115 million in savings
                    between fiscal years 1999 and 2002.


                    VA is using the management framework created by recent legislation in
Conclusion          major restructuring of its health and benefits programs. Both VHA and VBA
                    have developed strategic plans. Those plans, and progress toward meeting
                    the goals contained in them, are included in VA’s fiscal year 1998 budget
                    submission. Similarly, VA is a leader in attempting to develop sound
                    financial management, having prepared audited financial statements for
                    over 10 years. However, VA has not fully complied with recent legislation in
                    the area of information management, and it is working with OMB to resolve



                    Page 33                                                     GAO/T-HEHS-97-97
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    differences with respect to its compliance with the Paperwork Reduction
    Act and the Clinger-Cohen Act.

    VA’s progress in strengthening its management should help it address the
    multiple challenges facing its health and benefits programs. Under the
    leadership of the Under Secretary for Health, the VA health care system has
    made significant progress during the past 2 years in improving both its
    efficiency and its image. In addition, actions to expand eligibility, make it
    easier for VA to buy services from and sell services to the private sector,
    improve access, and reduce waiting times place VA in a better position to
    compete with private sector providers for declining numbers of veterans.

    VA   and the Congress, however, are faced with difficult choices.

•   Should VA hospitals be opened to veterans’ dependents or other
    nonveterans as a way of increasing efficiency and preserving the system?
    What effect would such decisions have on private sector hospitals?
•   To what extent should the government attempt to capture market share
    from private sector providers? Should the government subsidize its
    facilities in order to capture market share?
•   Should some of VA’s acute care hospitals be closed, converted to other
    uses, transferred to states or local communities, or sold to developers?
•   Should VA remain primarily a direct provider of veterans’ health care or
    become a virtual health care system in which it contracts with private
    sector providers rather than operating its own facilities?
•   To what extent should the VA system address the unmet needs of
    uninsured veterans and those with service-connected disabilities?

    Decisions regarding these and other questions will have far-reaching
    effects on veterans, taxpayers, veterans facilities and the VA employees
    working in them, and private providers.

    Because of the historic inefficiency of the VA system, the changes currently
    taking place provide many opportunities for the VA health care system to
    contribute toward deficit reduction while still improving services to
    current users. Limiting the system to current users, however, could
    facilitate declines in hospital use and lead ultimately to closure of VA
    hospitals.

    The declining veteran population in the United States, in concert with the
    increased availability of community-based care, makes preserving the
    current acute care workload of existing VA health care facilities



    Page 34                                                      GAO/T-HEHS-97-97
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               exceedingly difficult. VA will have to attract an ever-increasing proportion
               of the veteran population if it is to keep its acute care hospitals open. VA’s
               fiscal year 1998 budget submission outlines its strategy for preserving its
               hospitals: it wants to increase its users by 20 percent in order to make
               more efficient use of existing VA facilities. The new users VA is targeting
               generally have other health care options available to them.

               The cost of maintaining VA’s direct delivery infrastructure limits VA’s ability
               to ensure similarly situated veterans equal access to VA health care. VA’s
               interest in providing services to veterans in the discretionary care category
               at VA hospitals and outpatient clinics is likely to limit its ability to provide
               services to low-income and service-connected veterans through the use of
               contract care.


               Mr. Chairman, this concludes my prepared statement. I will be happy to
               answer any questions that you or Members of the Subcommittee might
               have.


               For more information on this testimony, call Jim Linz, Assistant Director,
Contributors   at (202) 512-7110. Greg Whitney also contributed to this statement.




               Page 35                                                        GAO/T-HEHS-97-97
Related GAO Products


                        VAHealth Care: Improving Veterans’ Access Poses Financial and
Veterans’ Health Care   Mission-Related Challenges (GAO/HEHS-97-7, Oct. 25, 1996).
Issues
                        VAHealth Care: Opportunities for Service Delivery Efficiencies Within
                        Existing Resources (GAO/HEHS-96-121, July 25, 1996).

                        VA   Health Care: Challenges for the Future (GAO/T-HEHS-96-172, June 27, 1996).

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


                        Vocational Rehabilitation: VA Continues to Place Few Disabled Veterans in
Veterans’ Benefits      Jobs (GAO/HEHS-96-155, Sept. 3, 1996).
Issues
                        Veterans’ Benefits: Effective Interaction Needed Within VA to Address
                        Appeals Backlog (GAO/HEHS-95-190, Sept. 27, 1995).

                        Veterans’ Benefits: VA Can Prevent Millions in Compensation and Pension
                        Overpayments (GAO/HEHS-95-88, Apr. 28, 1995).

                        Veterans’ Benefits: Better Assessments Needed to Guide Claims
                        Processing Improvements (GAO/HEHS-95-25, Jan. 13, 1995).


                        Managing for Results: Using GPRA to Assist Congressional and Executive
Management Issues       Branch Decisionmaking (GAO/T-GGD-97-43, Feb. 12, 1997).

                        1997 High-Risk Series: Information Management and Technology
                        (GAO/HR-97-9, Feb. 1997).

                        Information Technology Management: Agencies Can Improve
                        Performance, Reduce Costs, and Minimize Risks (GAO/AIMD-96-64, Sept. 30,
                        1996).

                        Executive Guide: Effectively Implementing the Government Performance
                        and Results Act (GAO/GGD-96-118, June 1996).




(406138)                Page 36                                                        GAO/T-HEHS-97-97
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