Managing for Results: Efforts to Strengthen the Link Between	 
Resources and Results at the Veterans Health Administration	 
(10-DEC-02, GAO-03-10). 					 
                                                                 
Encouraging a clearer and closer link between budgeting and	 
planning is essential to improving federal management and	 
instilling a greater focus on results.	Through work at various  
levels within the organization, this report on the Veterans	 
Health Administration (VHA)--and its two companion studies on the
Administration on Children and Families (GAO-03-09) and the	 
Nuclear Regulatory Commission (GAO-03-258)--documents (1) what	 
managers considered successful efforts at creating linkages	 
between planning and performance information to influence	 
resource choices and (2) the challenges managers face in creating
these linkages. 						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-10						        
    ACCNO:   A05701						        
  TITLE:     Managing for Results: Efforts to Strengthen the Link     
Between Resources and Results at the Veterans Health		 
Administration							 
     DATE:   12/10/2002 
  SUBJECT:   Performance measures				 
	     Planning programming budgeting			 
	     General management reviews 			 
	     OMB Program Assessment and Rating Tool		 

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GAO-03-10

                                       A

Report to the Chairman, Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations, Committee on Government
Reform, House of Representatives

December 2002 MANAGING FOR RESULTS Efforts to Strengthen the Link Between
Resources and Results at the Veterans Health Administration

GAO- 03- 10

Letter 1 Results in Brief 3 Background 4 Scope and Methodology 7 Budget
Formulation and Planning Efforts Are Centrally Managed,

While Budget Execution and Planning Are Linked in Networks 9 Performance
Information Influences Resource Allocation Decisions

in a Variety of Ways at These Networks 14 Challenges 18 Agency Comments
and Our Evaluation 19

Appendix

Appendix I: Comments From the Department of Veterans Affairs 22 Figures
Figure 1: Veterans Health Administration Organizational Chart 6

Figure 2: VHA*s Budget and Planning Processes 10 Figure 3: Example of
Linkage Between VHA Strategies, Performance Measures, and Network
Strategies/ Actions 14

Abbreviations

CBOC Community Based Outpatient Clinic CEO Chief Executive Officer CFO
Chief Financial Officer COO Chief Operating Officer DSS Decision Support
System ELC Executive Leadership Council GPRA Government Performance and
Results Act of 1993 MCCF Medical Care Collections Fund NCA National
Cemetery Administration OMB Office of Management and Budget OPP Office of
Policy and Planning OQP Office of Quality and Performance PART Program
Assessment Rating Tool PMWG Performance Management Work Group PSL Patient
Service Line QMO Quality Management Officer TSPQ Transforming Systems
Performance & Quality Council VA Department of Veterans Affairs VBA
Veterans Benefits Administration VERA Veterans Equitable Resource
Allocation system VHA Veterans Health Administration

Letter

December 10, 2002 The Honorable Stephen Horn Chairman, Subcommittee on
Government Efficiency, Financial Management and Intergovernmental
Relations Committee on Government Reform House of Representatives Dear Mr.
Chairman: During the past decade, the Congress and the executive branch
have sought to improve federal management and instill a greater focus on
results. Through enactment of a number of major management reforms, the
Congress has created a statutory framework with the Government Performance
and Results Act of 1993 (GPRA) as its centerpiece. 1 One of GPRA*s major
purposes is to encourage a closer and clearer linkage between planning,
performance* i. e., results* and the budget process. Each administration
takes a slightly different approach to implementing

results management. Improving the integration of budget and performance is
a high priority initiative included in the President*s Management Agenda.
2 A central piece of that is the Office of Management and Budget*s (OMB*s)

new diagnostic tool, the Program Assessment Rating Tool (PART). PART is
designed to provide a consistent approach to reviewing program design,
planning, and goals development as well as program management and results.
OMB expects to use PART assessments in considering department and agency
budget submissions for the fiscal year 2004 President*s Budget request to
the Congress. 3 1 Other significant legislation includes the Chief
Financial Officers Act of 1990 (CFO Act) and

related legislation, which created a structure for the management and
reporting of the government*s finances; and the Clinger- Cohen Act of 1996
and Paperwork Reduction Act of 1995, which required agencies to take an
orderly, planned approach to their information

technology needs. 2 The President*s Management Agenda, which by focusing
on 14 targeted areas* 5 governmentwide goals and 9 program initiatives*
seeks to improve the management and performance of the federal government.

3 Office of Management and Budget, Program Performance Assessments for the
FY 2004 Budget, M- 02- 10 (Washington, D. C.: July 16, 2002).

In a number of different reports to the Congress, GAO has examined
different aspects of the resources- to- results linkage. A series of three
reports described agencies* progress over a 4- year period in linking
performance plans, budgets, and, in the most recent report, financial
statements. 4 We found that between fiscal years 1999 and 2002, agencies
made significant progress in showing a direct link between expected
performance and requested program activity funding levels through
structural changes or cross- walks* the first step in defining the
performance consequences of budgetary decisions. We concluded that
additional effort was needed to more clearly describe the relationship
between performance expectations, requested funding, and consumed
resources. Furthermore, we said that the uneven extent and pace of
developing these relationships were reflective of mission complexity and

differences in operating environments across the government. Finally, we
observed that describing the planned and actual use of resources in terms
of measurable results was an essential long- term effort that would take
time, and adaptation on the part of all agencies.

In another approach to defining performance and resource integration, we
developed a framework of budget practices that we believe can contribute
to an agency*s capacity to manage for results. 5 We viewed these practices
as desirable dimensions of budgeting that could be implemented in many
different ways to reflect the characteristics and circumstances of a
particular agency. Both our assessments of performance and budget account
alignments and the framework of budget practices have led to the next
phase of work and the subject of this report. This report* one of a group
of three* looks at the resources- to- results link from the perspective of
agency managers charged with making the linkage happen.

The objectives of this report on the Veterans Health Administration (VHA),
and its two companion studies on the Administration for Children and
Families and the Nuclear Regulatory Commission, are to document what

4 U. S. General Accounting Office, Performance Budgeting: Initial
Experiences under the Results Act in Linking Plans with Budgets, GAO-
AIMD/ GGD- 99- 67 (Washington, D. C.: Apr. 12, 1999); U. S. General
Accounting Office, Performance Budgeting: Fiscal Year 2000

Progress in Linking Plans with Budgets, GAO- AIMD- 99- 239R (Washington,
D. C.: July 30, 1999); and U. S. General Accounting Office, Managing for
Results: Agency Progress in Linking Performance Plans with Budgets and
Financial Statements, GAO- 02- 236 (Washington, D. C.: Jan. 4, 2002).

5 U. S. General Accounting Office, Results- Oriented Budget Practices in
Federal Agencies, GAO- 01- 1084SP (Washington, D. C.: August 2001).

managers in these three agencies considered successful efforts at creating
linkages between planning and performance information to influence
resource choices and the challenges they face in doing so. We neither
evaluated their choices nor critiqued their processes. Instead, we asked
managers to describe when and how planning and performance information was
included in the budget cycle, to explain what strategies were used and
why, and to provide evidence that there was a related programmatic effect.
A third purpose was to show that there are multiple ways to get at these
linkages, and that there can be successful applications even if progress
in budget and performance integration is uneven. Budgeting is and will
remain an exercise in political choice, in which

performance can be one, but not necessarily the only, factor underlying
decisions. However, efforts to infuse performance information into
resource allocation decisions can more explicitly inform budget

discussions and focus them* both in the Congress and in agencies* on
expected results, rather than on inputs. We believe that showcasing
agencies* successes with and challenges in integrating budgeting and
planning may prove useful to other agencies; congressional authorizing,
appropriation, and oversight committees; and OMB in the shared goal of
strengthening the link between program performance and resources. Results
in Brief VHA*s budget formulation and planning processes are centrally
managed

but are not closely linked. Through fiscal year 2003, VHA*s budget was
prepared centrally and reflected an incremental approach, primarily taking
prior years* appropriations and making some adjustments for projected
increases in workload, efficiency, and new policies. Resource distribution
from central office to VHA*s 21 health care networks is mostly formulaic,
determined primarily by the distribution of the veterans being served.
Planning documents, used in the development of performance measures,

show relationships between agency goals, outcome measures, and performance
targets. VHA offices involved in budget formulation and strategic planning
provide guidance to health care networks in developing

their financial and strategic plans. Budgeting and performance are more
closely associated at health care networks during the budget execution
phase, that is, after VHA receives its appropriation and the funds are
allotted to the networks. Integrating performance information into
resource allocation decisions

during budget execution is apparent at the two health care networks we
visited. Managers at these networks told us that they use an internal data

system as a tool to make resource allocations to their health care
facilities and programs. They also use various communication methods to
share information on performance measures and are held responsible for
meeting those measures. The managers provided specific examples where they
used performance information to make resource allocation decisions.

Although budget and performance integration has improved, managers still
face additional challenges. VHA*s budgeting and planning processes are not
directly linked, but VHA officials noted that steps are being taken to
better integrate them. Also, VHA does not use the most complete
information available to make its resource allocation decisions from
central office to its networks.

In commenting on our draft report, the Department of Veterans Affairs (VA)
agreed with our observations but stated that our report does not give the
reader an adequate grasp of the depth and breadth of managing such a large
health care system. Our review focused on VHA*s efforts to create linkages
between planning and performance information to influence resource
choices, and was not intended to address all the complexities inherent in
managing the entire VA health care system.

Background VHA, an administration of VA, 6 is primarily a direct service
provider of primary care, specialized care, and related medical and social
support

services to veterans through an integrated health care system. Headed by
the Under Secretary for Health, VHA employed approximately 180,000 health
care professionals to serve about 4.3 million veterans in fiscal year

2002. VHA*s fiscal year 2002 budget included $21.3 billion in
discretionary funds from the VA/ HUD (Department of Housing and Urban
Development) appropriations act and an additional $142 million from an
emergency supplemental enacted in August 2002.

VHA developed its six strategic goals to support VA*s GPRA goals. These
strategic goals are as follows:

 put quality first until first in quality;  provide easy access to
medical knowledge, expertise, and care; 6 VA includes three
administrations: VHA, Veterans Benefits Administration (VBA), and National
Cemetery Administration (NCA).

 enhance, preserve, and restore patient function;  exceed patients*
expectations;  maximize resource use to benefit veterans; and  build
healthy communities. VHA*s strategic planning document describes
strategies to show how each

goal will be met. The administration then develops performance measures to
support the strategies identified.

VHA is headquartered in Washington, D. C. and has 21 Veteran Integrated
Service Networks (networks) located throughout the country. The networks
are the basic budgetary and decision- making units of VA*s health care
system. They have responsibility for making a wide range of decisions
about health care delivery options, including contracting with private
providers for health care services and generating revenue by selling
excess services. A network director, who reports to the Deputy Under
Secretary for Health for Operations and Management, heads each network.
This organization is illustrated in figure 1, with offices we talked to
regarding VHA*s budget and planning processes shaded.

Figure 1: Veterans Health Administration Organizational Chart

Under Secretary for Health Deputy Under Secretary

Deputy Under Secretary for Health Deputy Under Secretary

for Health for Health Policy Chief of Staff for Health

Coordination for Operations and Management Office of Patient

Office of Research Office of

Assistant Care Services

and Development Communications

DUSH for Operations and

Office of Public Management

Office of Academic Office of Compliance

Health and Affiliations

for Business Integrity Environmental Hazards

Director of Network Support

Office of Readjustment Office of Employee

Management Support (East)

Counseling Education

Office Director of Network Support

21 VISN Directors Office of Clinical

Office of Nursing VA/ DoD Liaison

(Central) Logistics

Services Director of

Office of Finance Office of Quality and

National Center for Network Support

Performance Ethics

(West) Office of Facilities

National Center for Office of Policy and

Management Patient Safety

Planning NLB Staff

Office of Office of Research

Information Medical Inspector

Compliance and Assurance

Liaison Staff Offices

Business Office VSSC CARES Program Veterans Canteen

Service Focus of GAO study

Source: VA.

The VHA Office of Quality and Performance develops and recommends
performance measures (mentioned above) to the Under Secretary for Health.
A Performance Management Work Group, comprised of a variety of VHA staff
with different subject matter expertise, provides overall guidance with
regard to the measures and helps to prioritize them. VHA*s Office of
Policy and Planning prepares VHA*s contribution to VA*s 5- year Strategic
Plan, as well as the Network Strategic Planning Guidance, which is used by
networks to prepare their strategic planning documents. Among other
responsibilities, VHA*s Office of Finance is responsible for policy and
operational issues relating to budget formulation and execution, financial
management, and financial analyses.

As a consequence of VHA*s field structure reorganization, decision making
is currently more decentralized. In 1995, the 172 independent VA Medical
Centers were reorganized into 22 networks, headed by network directors.
Network directors are accountable for a variety of functions, such as
contracting, budgeting, and planning for the medical facilities within
their purview. Under this reorganization, VHA management anticipated that
network directors could manage the distribution of the networks* resources
to maximize the advantages to veterans within their service areas.
Furthermore, the administration expected to perform less operational
decision making and oversight at the central office level. Along with the
decentralization, VHA shifted its service delivery focus from inpatient
hospital care to outpatient care; between fiscal years 1995 and

2001, the average number of hospital inpatients declined from 31,137 per
day to 13,452 per day. The number of annual outpatient visits increased
from 26 million to 41 million during the same period.

Scope and To address the report*s objectives, we interviewed senior
officials in VHA

Methodology and VA to find out how they used performance information in
the budget

process. We reviewed several network managers* performance contracts and
information on network performance measures to learn about the level of
accountability VHA expects from its networks. We reviewed VA guidance on
preparing budget requests, budget submissions, and other

related documents for information on the budget process and the use of
performance information. To learn about the planning process within VHA
and assess its integration with the budget process, we read VA strategic
plans and other planning documents. We attended congressional hearings and
reviewed related documents to learn about VHA*s budget requests, use of
performance information, and VA/ Department of Defense resource sharing.
We did not assess the appropriateness of VHA*s performance

measures or budget requests, or the accuracy of VHA*s performance
management information.

We conducted interviews in Washington, D. C. with senior officials from
the VA Office of Budget, VHA Office of Finance, VHA Office of Policy and
Planning, VHA Office of Quality and Performance, VHA Management Support
Office, and the Liaison Staff Office to learn about VHA*s budget process
and performance measures.

Because we found the most evidence of a linkage between budget and
performance during budget execution at the network level, we focused our
work on that process at that level. We selected two networks* Network 2,
in Albany, New York and Network 13, in Minneapolis, Minnesota* that VHA
officials believed made the best use of performance information in
managerial decision making. Networks 13 and 14 were combined and renamed
Network 23 in January 2002, leaving 21 operational networks; there is a
break in numerical sequence. We chose to focus on Network 13

rather than Network 23 since the structure of Network 23 had not yet been
finalized at the time of our review, and we were interested in looking at
processes that were already in place. Just as findings at individual
federal agencies cannot be generalized across all agencies, the 2 networks
selected for review are not representative of the other 19 networks.
However, the

observations of the network managers we interviewed are useful in
understanding the different approaches taken to integrate budget and
performance.

We reviewed network- specific budget and planning documents, such as
strategic plans, annual performance plans, performance reports, and
tactical plans for the two networks we visited. We interviewed over 20
network officials, including senior network management, care and patient
service line managers, facility managers, information technology managers,
quality management officials, and strategic planners to learn about
network structures and the use of performance information in decision
making at the networks.

We also reviewed a number of background documents on administration
initiatives and performance budgeting implementation, as well as recent
public administration literature and GAO reports for general background
and context.

We conducted our work between January 2002 and June 2002 in accordance
with generally accepted government auditing standards.

Budget Formulation Although VHA*s budget formulation and planning
processes are both

and Planning Efforts centrally managed, they are not closely linked. The
agencywide budget

request is based primarily on the previous year*s appropriations with some
Are Centrally Managed,

adjustments for workload and new policies. Distribution of funds to While
Budget

networks is largely driven by a system that is heavily based on the
veteran Execution and

population served at each network. Budget and performance are more clearly
linked at the networks we visited. See figure 2 for an overview of

Planning Are Linked in VHA*s budget and planning processes.

Networks

Figure 2: VHA*s Budget and Planning Processes VHA Planning Process
Networks VHA Budget Process Spring/

VA Budget Call

Summer

Memorandum sent to VHA.

Fall/

OQP develops Office of Finance

Winter performance releases Financial

measures. Planning Guidance

Networks provide to networks.

estimate of OPP develops

collections, FTEs, Network Strategic

and other indicators Planning Guidance.

to the Office of Finance.

Spring/

The PMWG provides Networks develop

Summer

overall guidance with strategic plans,

regard to VHA which include

performance measures performance

and helps measures.

Office of Finance prioritize them.

formulates VHA budget and sends it

to the VA Office of Budget. OPP updates annual VHA strategic planning

document.

Fall/

VA Performance VA Office of Budget

Winter

Plan submitted to submits department

the Congress. budget to OMB.

Network Directors' VA, and therefore

Performance Plan Networks may add

VHA, receives contracts, which

to the list of VHA's congressional

include performance performance

appropriation. measures, are signed.

measures. a

Networks develop budgets and send

VHA distributes Network to Facilities

appropriated funds Allocation document

to networks. Networks use

to Office of Finance. performance measures Key:

at the network level OPP = Office of Policy and Planning

to make resource a

OQP = Office of Quality and Performance allocation decisions.

PMWG = Performance Management Work Group Source: GAO analysis of VHA
information.

a May occur throughout the fiscal year.

VHA*s Budget Formulation VHA reported that its budget formulation
processes for fiscal years 2002

and Planning Processes Are and 2003 were developed centrally with limited
input from the networks

Centralized but Not and reflected an incremental approach, with some
adjustments in fiscal

Integrated year 2003 for projected workload increases and administrative
efficiency assumptions. Prior to the development of the fiscal year 2003
budget,

senior budget officials told us that VHA sought selected information from
the networks, such as estimates of collections and long- term care
expenditures. In preparing the budget that would eventually be included in
VA*s submission to OMB, VHA generally used the current appropriations
levels as a baseline and added an adjustment for workload, as well as an

increase for new programmatic initiatives. One VHA official commented that
the process was very *top down.* For fiscal year 2003, the main change to
this process was the introduction of some enrollment growth

projections from an actuarial model and administrative efficiency
adjustments for reducing resource requirements.

VHA receives guidance on how to formulate its budget through a budget call
memorandum issued by VA in April. This memorandum includes VA strategic
goals and objectives and stresses the need to focus on outcome and
performance goals and measures. Once VHA*s Office of Finance

formulates the administration*s budget, it is sent to VA*s Office of
Budget where the VHA request is reviewed and recommendations are made by
VA senior staff, culminating in a department budget request for VHA and
the

other two administrations. This submission is sent to OMB in September.
Decisions made by OMB are incorporated into the President*s Budget
presented to the Congress. Following congressional action and enactment of
the appropriations bill, OMB apportions and VA allots the funding provided
in the VHA appropriations, thus beginning the execution phase of VHA*s
budget cycle.

While the VHA- related information in VA*s annual Performance Plan
describes goals, strategies, and performance measures, the relationship to
the budget formulation process is unclear. VHA officials told us that they
use strategic planning information as source material for departmental
reports (e. g., the Accountability Report and VA*s Annual Performance
Plan), to review networks* policies for consistency, and generally to have
the information on hand in an organized format. VA*s Annual Performance

Plan outlines resource requirements by strategic goal, and each strategic
goal is accompanied by performance goals and measures. However, a VHA
official told us that planning documents are typically finalized after
VHA*s budget is formulated.

VHA Resource Allocation Is About 90 percent of VHA*s medical care
appropriation, which is

Largely Formula- Driven approximately 86 percent of VHA*s total budgetary
resources, is allocated

to networks through the Veterans Equitable Resource Allocation system
(VERA), which uses a formula that calculates resource allocation based on
workload. 7 The remainder of the appropriated funds is allocated to
networks either through Specific Purpose Funding, 8 which is designated
for certain programs such as state home funds or Vietnam veterans*
readjustment counseling. Monies in the no- year Medical Care Collections
Fund (MCCF), as well as other small nonappropriated funds, are also
available to the networks. 9 Network Planning and

Decisions regarding resource allocation and planning are closely aligned
at Budget Execution

both networks we visited. The same officials are involved in strategic
Processes Are More Closely

planning and budget execution, and network- produced documents show
Related

some alignment between planning efforts and resource allocation. The
Office of Policy and Planning prepares VHA Network Strategic Planning
Guidance, directing networks on how to develop their individual strategic
plans. According to the guidance, strategic plans must associate
performance measures with each strategic objective. For example, the

fiscal years 2003- 2007 Guidance for Strategic Objective 1, *Put Quality
First Until First in Quality,* identifies the first strategy as,
*Systematically measure and communicate the outcomes and quality of care,*
and the related performance measure as *Improve performance on the Chronic

Disease Care Index II.* Networks must then identify their plans to meet
each performance measure.

VHA*s Office of Finance issued guidance that required networks to provide
financial or operating plans for a range of possibilities. According to
officials, networks prepare plans in anticipation of final appropriations
actions. Once VHA receives its appropriations and VERA allocations are

7 Most of the elements in the VERA formula are contingent upon workload
(the number and type of veterans served). 8 This designation may come
about as a result of a legislative mandate or VHA determination.

9 MCCF monies, mainly veterans* copayments and third- party insurance
payments, can be used by networks for a wide variety of purposes.

calculated, networks submit plans to the Office of Finance that lay out
the networks* spending plans for their VERA funds.

The two networks we visited, Network 2 and Network 13, are structured
somewhat differently with regard to resource allocation authority. At
Network 2, service delivery is organizationally divided into Care Lines;
10 Care Line Directors have resource allocation authority across all
medical

facilities in the network. For example, according to network officials,
the Geriatrics and Extended Care manager can make resource allocation
decisions concerning nursing home care at all Network 2 facilities.
Network 13, on the other hand, is structured around Patient Service Lines
(PSLs). 11 PSL Chief Executive Officers (CEOs) 12 share resource
allocation authority with the Chief Operating Officers (COO) at each
medical center. PSL CEOs make allocation decisions for the facilities that
support their PSL at the beginning of the fiscal year, while day- to- day
smaller resource decisions during the fiscal year are handled primarily by
each medical center COO. CEOs and COOs collaborate on larger budget-
related decisions across the PSL. The subject of the resource decision
determines which PSL CEO is involved; for example, the PSL CEO for Mental
Health is involved with decisions regarding psychiatric care. Annual
budgets are

developed by the PSL CEOs in conjunction with site COOs and Chief
Financial Officers (CFOs).

At Network 2, network leadership works with Care Line Directors in
developing and prioritizing strategic goals and targets. Network 2*s
strategic plan shows a link between VHA strategies and performance
measures, and network- specific actions to achieve them. (See fig. 3 for
an example of this linkage.) The plan also shows how expected increases in

annual funding will be used by program line. 10 Network 2*s care lines
include Medical, Diagnostics and Therapeutics, Geriatrics and Extended
Care, and Behavioral Health. 11 The PSLs include Primary Care, Specialty
Care, Extended Care and Rehabilitation, and Mental Health. Even though
Networks 13 and 14 combined in January 2002 to become Network 23, the new
network*s structure had not yet been determined at the time of our

audit work; thus, we focused on the processes of Network 13. 12 PSL CEOs
are now called PSL Directors.

Figure 3: Example of Linkage Between VHA Strategies, Performance Measures,
and Network Strategies/ Actions

VHA Strategy 3: Emphasize health promotion and disease prevention to
improve the health of the veteran population. VHA Performance Measure:
Increase the scores on the Prevention Index II KEY

VISN Strategy VISN Actions for FYs 2003- 07 Increase the scores on the
Prevention Index II.

Network 2 will meet the needs of the veteran population through a wellness
model of patient care management, promoting preventive health and wellness
initiatives, disease screening, application of disease management
protocols and standardized application of recommended clinical
interventions and

clinical practice guidelines. An aggressive approach to patient screening
shall be introduced for cancer screening including breast, cervical,
colorectal and prostate cancer. Increased use of clinical reminders will
be used to identify those patients in need of cancer screening.

Source: Network 2 2003- 2007 Strategic Plan.

Network 13 senior managers told us about annual 2- day tactical planning
meetings that were designed to provide an outlet for stakeholders to plan
and share information on performance and strategic planning, cost

information, performance measures, successful practices, and lessons
learned. Participants include PSL CEOs, a PSL COO, PSL managers under COO
control, union representatives, and congressional stakeholders. A network
official stated the purpose of including managers with resource allocation
authority in tactical planning meetings was to strengthen the link between
the processes of resource allocation decisions and planning.

Performance Integrating performance information into resource allocation
decisions is Information Influences

apparent at the network level during budget execution. At the two networks
we visited, managers told us that they use an internal data system
Resource Allocation that compares cost and performance data across
facilities as a tool to make

Decisions in a Variety resource allocation decisions. Network performance
is monitored by VHA,

of Ways at These and networks establish their own processes to monitor
their performance. Network managers also use various communication
methods, both within

Networks their networks and across other networks, to share information on

performance measures and ways to meet those measures. Managers reported
that they were accountable for performance and provided examples where
they used performance information to make resource

allocation decisions.

Cost and Performance Data Network managers told us that they use data from
the Decision Support

Used in Managerial Decision System (DSS) to make resource allocation
decisions to their facilities and

Making programs. DSS is an executive information system designed to
provide

VHA managers and clinicians with data on patterns of patient care and
patient health outcomes. It is also used to analyze resource utilization
and the cost of providing health care services. For example, a manager in
Network 2 said that he uses DSS data for comparisons of facilities,
population and market share data, and veterans* length of stay in
inpatient units. Since veterans are staying in inpatient units for fewer
days in certain facilities, the manager has been able to reallocate money
across facilities because of DSS data.

Networks* Performance As we noted in *Results- oriented Budget Practices
in Federal Agencies,* 13 it

Monitored is important for agency management to monitor performance. VHA

leadership uses several methods to monitor network performance and hold
network officials accountable for that performance. At its quarterly
meeting, the VHA Executive Leadership Council (ELC), which includes the
deputy secretary, managers from all three administrations, network
directors, other key staff, interest groups, and the public, monitors the
status of performance measures at each network. In addition, the Deputy
Secretary of Veterans Affairs began holding monthly meetings in late 2001
with the Under Secretary of VHA and all the network directors. At these
meetings, the senior officials provide information on each network*s
successes in meeting VHA- established performance measures and share best
practices in meeting performance measures. Networks must provide remedial
action plans at these meetings for measures that are not being

met. For example, one network was deemed deficient in testing patients for
Hepatitis C. Its action plan included a review of patients who had not
been tested and an electronic clinical reminder to help service providers
identify patients who have risk factors but were not tested. To make sure
network directors understand the importance VHA places on

performance, directors sign an annual performance agreement with the Under
Secretary for Health called the Network Performance Plan. The agreement
includes expectations regarding VHA- level performance measures and their
associated strategic goals. According to VHA guidance, a network
director*s appraisal is affected by his or her network*s

13 GAO- 01- 1084SP.

performance in relation to agency goals. As a result, the director*s
compensation may also be affected. For example, in 2001 a network director
received a bonus because his network exceeded VHA- established performance
goals.

Networks Establish Their The two networks we visited each had its own ELC
to review performance

Own Processes to Monitor measures on a network level and commissioned task
teams to work on

Performance areas where performance has not met the intended goal. Quality

Management Officers (QMOs) also serve as performance monitors. The QMO at
Network 2 keeps track of the network*s action plans to improve upon
deficient performance measures, and reports on performance- related data
at the Transforming Systems Performance & Quality Council (TSPQ), a forum
to address issues across care lines and facilities to work

collaboratively toward addressing performance measure issues, quality
management, information systems, and related operational issues.
Membership includes top network management, care line managers, and
network office staff. Network 2 uses its Web site in various ways to
maintain up- to- date

information on performance measures. For example, Network 2 managers told
us about the Web- based Pulse Points, which are performance indicators
that assist management in monitoring achievement of performance measures.
Additional performance- related information is available to network staff
on the intranet. Communication Important

Sharing information about lessons learned and strategies to achieve to
Help Managers Meet performance measures can lead to more informed resource
allocation

Performance Measures decisions. Between networks, managers have a number
of opportunities to

learn from each other via regularly scheduled meetings and conference
calls. Network managers told us about periodic meetings where they
interact with managers from other networks and share lessons learned with
regard to cost- saving measures and approaches to performance measures.
Within a network, staff may also use a variety of communication tools to
share information to improve performance. For example, two Network 2 care
line managers jointly established a team to discuss ways that the network
could better meet performance goals for length- of- stay rates. This team,
which spanned multiple care lines, worked on the issue and communicated
its recommendations quarterly. Also, VA sponsors a *Lessons/ Innovations*
database on the Internet, where network managers can read ideas for
performance improvement.

Network Managers In both of the networks we visited, managers provided
examples where Reallocate Resources in

performance information and the responsibility to meet performance
Response to Performance

targets affected the way in which they allocated resources. The examples
Measures incorporated a number of different approaches to improve
performance, including investing in telemedicine and technology
advancements, resource reallocation, low- tech methods to improve
performance, and the use of outside contractors.

Performance target: 100 percent

An initial investment of network resources in advanced telemedicine

of diabetic veterans should receive

techniques led to an increased percentage of diabetic veterans receiving a

retinal eye exams to decrease the

necessary test. To reduce the potential for blindness later in life, all

potential incidence of blindness. diabetic veterans are supposed to have
retinal eye exams to monitor their

Network manager approach:

vision. However, this requires the services of an ophthalmologist who must

Use telemedicine and special

interpret the exam results. The network did not have resources to

equipment to allow diabetic

maintain an ophthalmologist on staff at each site, so many diabetics were

veterans who receive care at

not being tested. A Network 2 manager found that a particular piece of

locations that do not have

equipment could record test results, then transmit them to an

ophthalmologists the ability to have

ophthalmologist at another location. Thus, the network invested resources

their exam results read by qualified specialists.

in a number of these machines for Community Based Outpatient Clinics
(CBOCs) to use, thereby increasing the network*s capacity for meeting this
performance target.

Performance target: Annual cost

A manager at Network 13 noted that facilities are expected to keep their

per patient must be below a given

average cost per patient down. Regular monitoring revealed that one

threshold. facility was not taking on as many patients as planned, which
led to higher

Network manager approach: average costs. To reinforce his expectation that
this performance target

Moved $100,000 from one facility should be met, the manager chose to
transfer financial resources from this

that was not taking on as many

facility to another facility that required additional staffing to meet
other

patients as expected to another

performance targets. According to the manager, the facility that received

facility with an increased

the funds was able to improve its outcomes in the targeted area.

workload.

Performance measures: A Network 13 manager noted that veterans were
falling out of their beds

Reducing the number of falls out of

and thus incurring injuries, and the manager searched for a way to reduce

bed and the use of restraints. this incidence. He also wanted to reduce
the use of restraints, another

Network manager approach: performance measure. Based on staff
recommendations, the manager

Buying lower beds (9* off ground).

agreed to invest in beds that were only 9 inches off the ground. This
investment prevented more serious injuries from occurring, reduced the
need for restraints, and directly improved the network*s performance in
these areas.

Performance target: Veterans

A PSL manager in Network 13 noted that wait times for veterans to obtain

should be able to obtain

appointments with mental health specialists exceeded the performance

appointments with mental health

target. The manager hired an outside consultant who looked at a variety of

professionals within 30 days of

factors, including (1) how physicians* time was being spent, (2)
physicians*

request. practices regarding rescheduling appointments, and (3) hiring
psychiatrists

Network manager approach:

instead of contracting for them. According to the manager, after the
Reviewed various staff practices network adopted the consultant*s
recommendations, including hiring

and made recommended

(instead of contracting for) psychiatrists and hiring administrative staff
to

improvements.

prescreen patients, Network 13 met the performance target by eliminating
wait time completely.

Challenges VHA has undergone a cultural shift over the past 7 years that
has helped to integrate budget and performance, but managers face
continuing challenges to further integration and in defining areas for
improvement. The agency*s budgeting and planning processes are not
directly linked, so

opportunities are missed to fully use planning information in the budget
process. Additionally, VHA does not use the most complete information
available when making resource allocation decisions.

Planning and Budgeting VHA*s planning and budgeting processes are not
fully integrated (see fig. 2

Linkage Could Improve for an overview of these processes). VHA officials
acknowledged the

offices in charge of these processes did not work closely together in the
past, but steps are being taken to improve this linkage. For example, a
member of VHA*s Office of Finance now works in the Office of Policy and
Planning on the agency*s demand model, which will be used to project

costs for fiscal year 2004. According to VHA, this model projects workload
for VHA nationwide and was partially used to prepare the fiscal year 2003
budget request. Future workload is projected through the use of a detailed
formula that includes enrollment, anticipated utilization, and reliance on
VA services. It does not assume an incremental increase over current
workload.

Performance Information is VHA does not include the most complete
information available when

Available but Not Included allocating resources. As we noted in VA Health
Care: Allocation Changes

in Resource Allocation

Would Better Align Resources with Workload (GAO- 02- 338), VA does not
Decisions

adequately account for important variations in patients* health care needs
across networks nor does it include all veterans who use health care
services in its resource allocation decisions. Without complete

information, it is difficult for agencies to consider fully the relative
priorities of programs and activities and, when funding tradeoffs are
necessary, where adjustments can be best made. Producing reliable funding
estimates requires an agency to include reasonable assumptions about
factors affecting program costs or budgetary resources, assess the
accuracy of previous estimates, and if necessary, make appropriate
adjustments to its estimating methods.

Agency Comments and In its comments, VA agreed with our observations but
asserted that our

Our Evaluation report does not give the reader an adequate grasp of the
depth and breadth

of managing such a large health care system. VA also included three
enclosures: the first was intended to clarify certain points in the draft
report, the second provided information on VA*s actuarial model, and the
third outlined VA*s new budget account structure.

In the first enclosure, VA suggested three clarifications regarding our
report language.

1. VA stated that the fiscal year 2003 budget was based on actuarial
projections of workload broken down by specific disease and veteran
priority level using prior years* costs; it also noted that administrative
efficiency assumptions were further included for reducing resource

requirements. During our interviews, officials told us that the process
was generally incremental, but actuarial projections were used only to
calculate potential increases in workload for fiscal year 2003; these
projections were not used to reassess the base. For the fiscal year 2004
budget and beyond, officials expected to use the actuarial projections

to calculate the entire workload, not just the potential increase. We made
changes in our report language to reflect this process.

2. VA noted that it does not include all Priority 7 veterans 14 in its
VERA calculations because it does not want to provide financial incentives
that encourage network managers to provide care to Priority 7 veterans at
the expense of higher- priority veterans. As we recommended in our
February 2002 report, 15 networks with a disproportionately large number
of Priority 7 veterans already have fewer resources under VERA to treat
higher- priority veterans on a per- patient basis. To remedy this problem,
we recommended that VA align measures of

workload with actual workload served, regardless of veteran priority
group. Doing so will help provide comparable resources for comparable
workload. Thus, we maintain that complete information allows agencies to
better consider the relative priorities of programs and activities.

3. VA also noted that the funds it received under the Emergency
Supplemental appropriation were not intended for homeland securityrelated
activities. We changed our report language appropriately.

VA*s second enclosure was a report that describes the actuarial model it
uses to project the demand for health services. This report was prepared
for the Senate Appropriations Committee, in response to a congressional
mandate identified in S. Rpt. 107- 156. During our fieldwork, we were told
that there was no documentation available regarding this model. We
received the documentation when the draft report was sent for agency
comment and therefore did not review the model and its ability to project

VA*s workload. The third enclosure focuses on VA*s budget account
restructuring for its fiscal year 2004 budget submission. VA notes that
this structure will allow it to more readily determine the full cost of
each of VA*s programs and make resource decisions based on programs and
their results rather than on other factors. We did not review this new
structure or its ability to more

effectively link resources with results since the outcome will not be
available until the administration*s budget proposal is released in early
2003.

14 Priority 7 veterans are veterans who have either incomes or net worths
above a certain threshold, no service- connected disability that results
in monetary benefits from VA, and no other recognized statuses such as
former prisoners of war.

15 See GAO- 02- 338.

As agreed with your office, we will distribute copies of this report to
the Secretary of Veterans Affairs, appropriate congressional committees,
and other interested parties. We will make copies available to others upon
request. In addition, the report will be available at no charge on the GAO
Web site at http:// www. gao. gov.

Please contact me on (202) 512- 9573 or Denise Fantone, Assistant
Director, on (202) 512- 4997 if you or your staff have any questions about
this report. Major contributors to this report are Kimberly Gianopoulos,
Kelli Ann Walther, and James Whitcomb.

Sincerely yours, Paul L. Posner Managing Director, Federal Budget Analysis
Strategic Issues

Appendi xes Comments From the Department of Veterans

Appendi x I Affairs

(450096)

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VHA*s budget formulation and planning processes are centrally managed, but
are not closely linked. Resource distribution to VHA*s health care
networks is mostly formulaic, determined primarily by the distribution of
the veterans being served. VHA offices involved in budget formulation and
strategic planning provide guidance to health care networks in developing
their financial and strategic plans.

Integrating performance information into resource allocation decisions is
apparent at the health care network level during budget execution. Health
care network managers told us that they use an internal data system as a
tool to decide how to allocate resources to their facilities and programs.
They also use various communication methods to share information on
performance measures, and are held responsible for meeting those measures.

Network managers provided specific examples where performance information
influenced their resource allocation decisions. For example, one
performance target specifies that all diabetic veterans are expected to
receive retinal eye exams. An ophthalmologist must interpret the results
of such an exam; however, most outpatient clinics do not have the
resources to maintain an ophthalmologist on staff. One network invested in
machines that record test results and transmit them to an ophthalmologist
at another location, thereby increasing the network*s capacity for meeting
this performance target.

While budget and performance integration has improved, VHA managers still
face additional challenges. VHA*s budgeting and planning processes are not
directly linked, but VHA officials noted that steps are being taken to
better integrate them. Also, VHA does not use the most complete
information available when making resource allocation decisions to its
health care networks, so the link between resources and results could be
improved.

MANAGING FOR RESULTS www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 10. To view
the full report, including the scope and methodology, click on the link
above. For more information, contact Paul Posner at (202) 512- 9573 or
PosnerP@ gao. gov. Highlights of GAO- 03- 10, a report to the

Chairman, Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations, Committee on Government Reform, U. S. House
of Representatives

December 2002

Efforts to Strengthen the Link Between Resources and Results at the
Veterans Health Administration

Encouraging a clearer and closer link between budgeting and planning is
essential to improving federal management and instilling a greater focus
on results. Through work at various levels within the organization, this
report on the Veterans Health Administration (VHA)* and its two companion
studies on the Administration on Children and Families (GAO- 03- 09) and
the Nuclear Regulatory Commission (GAO- 03- 258)* documents (1) what
managers considered successful efforts at creating linkages between
planning and performance information to influence resource choices and (2)
the challenges managers face in creating these linkages.

Page i GAO- 03- 10 Link Between Resources & Results at VHA

Contents

Contents

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Appendix I

Appendix I Comments From the Department of Veterans Affairs

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