VA Health Care: Resource Allocation Has Improved, But Better Oversight Is
Needed (Letter Report, 09/17/97, GAO/HEHS-97-178).

Pursuant to a congressional request, GAO assessed the Department of
Veterans Affairs' (VA): (1) implementation of the Veterans Equitable
Resource Allocation System (VERA); (2) monitoring of changes in health
care delivery resulting from VERA; and (3) oversight of the network
allocation process used to give veterans equitable access to services.

GAO found that: (1) VERA shows promise for correcting long-standing
regional funding imbalances that have impeded veterans' equitable access
to services; (2) specifically, VERA allocates more comparable amounts of
resources to the 22 networks for high-priority VA health service
users--those with service-connected disabilities, low incomes, or
special health care needs--than the resource allocation process it has
replaced; (3) as a result, if fully implemented as planned, VERA could
substantially shift funding among regions by fiscal year (FY) 1999; (4)
in addition, VA continues to explore ways to improve VERA's capacity to
more equitably allocate resources in the future; (5) among the
improvements being considered are better measures of network workloads
and adjustments for justifiable differences in network costs for
providing health services; (6) although it is early in VERA's
implementation, VA headquarters has not established an adequate
monitoring system to identify changes in workload and medical practices
that could negatively affect allocation equity and the appropriateness
of care that veterans receive; (7) in addition, VA headquarters lacks
the information to adequately review networks' planned facility
services; (8) Veterans Integrated Service Networks (VISN) that GAO
contacted are using varying methods to allocate resources to facilities;
(9) for example, some VISNs allocate resources on the basis of the
number of veterans using a facility; others negotiate changes in funding
for programs or services from the preceding FY to reach a new
allocation; (10) VISNs, however, lack criteria on how to develop methods
to give veterans equitable access; (11) to address these deficiencies,
GAO has identified corrective actions for VA to take to enhance its
ability to ensure that resources are allocated to improve veterans'
equitable access to health care services and ensure that the care
received is appropriate; and (12) these actions include improving the
timeliness and thoroughness of overseeing changes in health care
delivery resulting from the allocation process to the networks and to
the facilities.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-97-178
     TITLE:  VA Health Care: Resource Allocation Has Improved, But 
             Better Oversight Is Needed
      DATE:  09/17/97
   SUBJECT:  Health resources utilization
             Veterans hospitals
             Monitoring
             Hospital care services
             Patient care services
             Veterans benefits
             Health care programs
             Health services administration
IDENTIFIER:  VA Veterans Integrated Service Network
             VA Veterans Equitable Resource Allocation System
             Medicare Program
             
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Cover
================================================================ COVER


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

September 1997

VA HEALTH CARE - RESOURCE
ALLOCATION HAS IMPROVED, BUT
BETTER OVERSIGHT IS NEEDED

GAO/HEHS-97-178

VA Health Care Resource Allocation

(406141)


Abbreviations
=============================================================== ABBREV

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

Letter
=============================================================== LETTER


B-277468

September 17, 1997

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

Dear Mr.  Chairman: 

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

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

You have expressed concern about whether VERA equitably allocates
resources to the networks and whether VA oversight efforts adequately
ensure that shifts in resources improve veterans' equitable access to
services.  In this report, which expands on preliminary information
presented in our May 1997 statement for the record for a hearing held
by your Subcommittee,\3 we assess VA's (1) implementation of VERA,
(2) monitoring of changes in health care delivery resulting from
VERA, and (3) oversight of the network allocation process used to
give veterans equitable access to services.  To examine these issues,
we reviewed VA documentation explaining the VERA model and VISN
allocation process and interviewed VA headquarters officials and
officials from seven VISNs.  In addition, we analyzed data (1) used
for the fiscal year 1997 VERA allocations, (2) on veteran
demographics at the VISN level, and (3) used to measure VISN
performance.  We also relied on our 10 years of work reviewing VA's
resource allocation process.\4 For a complete description of our
scope and methodology, see appendix II. 


--------------------
\1 See Veterans' Health Care:  Facilities' Resource Allocations Could
Be More Equitable (GAO/HEHS-96-48, Feb.  7, 1996). 

\2 Section 429 of P.L.  104-204. 

\3 VA Health Care:  Assessment of VA's Fiscal Year 1998 Budget
Proposal (GAO/T-HEHS-97-121, May 1, 1997). 

\4 GAO/HEHS-96-48, Feb.  7, 1996; VA Health Care:  Resource
Allocation Methodology Has Had Little Impact on Medical Centers'
Budgets (GAO/HRD-89-93, Aug.  18, 1989); and VA Health Care: 
Resource Allocation Methodology Should Improve VA's Financial
Management (GAO/HRD-87-123BR, Aug.  31, 1987). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

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

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

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


   BACKGROUND
------------------------------------------------------------ Letter :2

The VA health care system is one of the nation's largest direct
health care delivery systems.  VA operates 173 hospitals, over 400
outpatient clinics, 133 nursing homes, and 40 domiciliaries.  VA
provides health care services to veterans with and without
service-connected disabilities on a priority basis defined by the
level of service-connected disability, income, and other factors. 
About 10 percent of the nation's veterans use VA health care
services.  To provide these services in fiscal year 1998, VA
requested a medical care appropriation of almost $17 billion.  In
addition, VA requested a legislative change to authorize it to retain
private health insurance and Medicare reimbursements.  The Congress
has responded by authorizing VA to retain private health insurance
payments and certain other payments in the Balanced Budget Act of
1997.\5 VA estimates this would provide an additional $468 million in
fiscal year 1998 after deducting administrative costs for
collections.  The Balanced Budget Act of 1997, however, does not
authorize VA to receive Medicare reimbursements. 

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

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


--------------------
\5 P.L.  105-33 ï¿½8023 (1997). 


   VERA IMPROVES RESOURCE
   ALLOCATION TO REGIONAL NETWORKS
------------------------------------------------------------ Letter :3

VERA shows promise for improving the equity of veterans' access to
care because it makes VA's allocation of resources to networks more
equitable.  VERA allocates resources to the 22 networks on the basis
of the number of high-priority veterans served.  It also includes
incentives for networks and their facilities to serve additional
veterans.  If fully implemented in fiscal year 1999 as planned, VERA
could substantially shift regional allocations.  VA continues to
explore refinements to improve VERA's equitable resource allocation. 


      VERA IMPROVES EQUITY OF
      REGIONAL RESOURCE
      ALLOCATIONS
---------------------------------------------------------- Letter :3.1

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

VERA provides more comparable levels of resources to each network for
each high-priority veteran served than the process it replaced, which
allocated resources primarily on the basis of facilities' historical
budgets.\7

VERA provides more comparable levels of resources by classifying
patients on the basis of the cost of their health care into two
workload groups--
basic care and special care.  Basic care patients generally receive
routine services that are less expensive than those received by
special care patients.  Special care patients often have complex or
chronic conditions, such as spinal cord injuries, advanced acquired
immunodeficiency syndrome (AIDS), chronic mental illness, or
end-stage renal disease or require care in settings such as nursing
homes (see app.  III for complete list of special care patient
classifications).\8 The VERA special care category also includes some
adjustment for age to account for expected changes in the age
distribution of veterans in a network.  VERA determines a national
capitation rate for each workload group.  (See fig.  1 for fiscal
year 1997 capitation rates.)

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

   (See figure in printed
   edition.)

\a Fiscal year 1997 amounts are based on the proportion of fiscal
year 1996 funds used for each category. 

\b Workload numbers reflect the number of unique individuals served
over several years.  VA determined that annual service use numbers do
not reflect longer term use patterns.  In fiscal year 1996, VA
provided health care services to 2.6 million veterans. 

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

VERA allocations to each network are based primarily on patient
workloads and the two national capitation rates.  To account for
differences in regional labor costs, VERA increases patient
allocations for networks with higher labor costs and reduces them for
networks with lower labor costs.\9 In addition, each VISN receives
funding for other health-related functions, including research
support, education support, equipment, and nonrecurring maintenance. 
Funding for these activities is determined using national cost
estimates for each activity and each network's workload in that
activity.  (See fig.  2 for an example of how a network allocation is
made.)

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

   (See figure in printed
   edition.)

\a Excludes non-VERA allocations. 

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

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

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

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

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


--------------------
\6 Headquarters allocated most of the remaining 12 percent (about $2
billion) on the basis of other criteria.  Several activities are
funded this way, including prosthetics, state veterans' homes, and
readjustment counseling.  Headquarters funds these activities
directly for several reasons, including buying power leverage gained
through central purchasing or legal requirements or because the
activities are VA-wide responsibilities beyond the scope of any one
network's operations. 

\7 Since the mid-1980s, VA has used several allocation methods,
including the Resource Allocation Methodology and the Resource
Planning and Management system.  (See GAO/HEHS-96-48, Feb.  7, 1996.)
These methods, however, were never fully implemented partly because
stakeholders lacked confidence in the equity of their allocations. 

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

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


      VERA SHIFTED FEW RESOURCES
      IN 1997, BUT FULL
      IMPLEMENTATION WOULD SHIFT
      SUBSTANTIALLY MORE
---------------------------------------------------------- Letter :3.2

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

The partial implementation of VERA in fiscal year 1997 moved
resources from the Northeast and Midwest, where per veteran costs
have been higher than the national average, to the South and West,
where per veteran costs have been lower than the national average. 
Five networks received less funding in fiscal year 1997 than in
fiscal year 1996 and 17 received more.  The largest network reduction
in fiscal year 1997 was about 1 percent, and the largest increase was
about 7 percent (see fig.  3). 

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

   (See figure in printed
   edition.)

Note:  These numbers include all six VERA expenditure categories: 
basic care, special care, research support, education support,
equipment, and nonrecurring maintenance.

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

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

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


      VA CONTINUES TO EXPLORE WAYS
      TO IMPROVE VERA ALLOCATIONS
---------------------------------------------------------- Letter :3.3

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

VA continues to examine the method for setting capitation rates by
trying to better account for differences in regional costs for each
veteran served.  We have previously noted the importance of such an
examination.\10 VERA assumes that all differences in regional
costs--after adjusting for the basic and special care case mix and
differences in labor costs--result from differences in efficiencies. 
Although differences in network efficiencies play a major role, to
the extent that any of the remaining differences do not result from
efficiencies, VERA may allocate some resources inappropriately.  For
example, some of these differences could result from differences in
veterans' health status not captured by VERA's case mix.  VA's
recently released data on veterans' self-reported physical and mental
health status, however, tend to support VERA's regional shift in
allocations.\11 Veterans in northeastern and midwestern VISNs, which
received reduced funds under VERA, tended to report being healthier
than veterans in southern VISNs, which gained funds under VERA.  VA
officials are planning to examine whether using such data will
improve the case mix adjustment. 

In addition to capitation, VA is examining whether workload measures
can be improved.  VA officials are examining the possibility of
determining workload on the basis of a VISN's population of
high-priority veterans rather than on past users as VERA did for
fiscal year 1997.\12 To do this, however, VA would need to know why
veterans choose to use or not use VA health services so it could
adjust the population workload numbers, according to VA officials. 
VA could consider, for example, adjusting for veterans' private
health insurance coverage or access to non-VA health providers. 

Usage rates for high-priority veterans vary widely among VISNs.  They
range from 25 percent in VISN 4 (Pittsburgh) to 45 percent in VISN 18
(Phoenix) of the eligible beneficiaries on the basis of data from
fiscal years 1994 to 1996.  (See fig.  4.) Whether veterans have
private insurance or access to non-VA health providers are important
variables in predicting use of VA services in networks, VISN
officials said.  Our previous work also showed that health insurance
status affects usage of VA health care services:  we found that
uninsured veterans were eight times more likely to use VA services
than insured veterans.\13 State-level insurance data also suggest
that veterans' usage rates vary with insurance coverage.  States
included in VISNs such as VISN 4 (Pittsburgh) and VISN 11 (Ann
Arbor), which have lower rates of veteran use of VA health care
services, have proportionally fewer uninsured veterans.  On the other
hand, states in VISN 18 (Phoenix) and VISN 16 (Jackson), which have
higher rates of veteran use of VA health care services, have
proportionally more uninsured veterans.\14

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

   (See figure in printed
   edition.)

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

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

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


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

\11 Health Status of Veterans:  Physical and Mental Component Summary
Scores (SF-36V), 1996 National Survey of Ambulatory Care Patients, VA
(Washington, D.C.:  1997). 

\12 VA officials told us they implemented VERA using veteran user
data for the VISN workload indicator because they believed the data
to be the best measure of probable users of VA health care available
pending further study. 

\13 See VA Health Care:  Alternative Health Insurance Reduces Demand
for VA Health Care (GAO/HRD-92-79, June 30, 1992). 

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

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


   VA'S MONITORING OF CHANGES
   RESULTING FROM VERA'S
   INCENTIVES IS INADEQUATE
------------------------------------------------------------ Letter :4

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

Because workload and capitation drive VERA allocations, key
indicators to monitor are changes in the number of basic and special
care patients VISNs serve and changes in medical care practices that
could significantly affect VISN per patient costs.  Such information
is needed to identify significant changes that could affect VERA's
future resource allocation or the appropriateness of care veterans
receive.  For example, some networks, according to officials, are
increasing workload by thousands of veterans and changing the way
they provide care in response to VERA's incentives.  Such changes
could significantly increase future allocations to their VISNs and
reduce allocations to others and result in new medical care practices
for certain conditions.  With adequate information, VA headquarters
can promptly assess the extent to which such changes are consistent
with VERA's purpose and take corrective actions when they are not. 
VA also can examine the appropriateness of care veterans receive when
medical care practices change significantly, such as when length of
stay for inpatient services decreases dramatically, and take
corrective action if necessary.  Such analyses would also enable VA
to distribute information to all VISNs on best practices and problems
identified. 

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

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

Moreover, VA does not monitor other changes in service delivery that
are critical to assessing networks' responses to VERA's incentives. 
For example, VA has not been monitoring changes in the number of
one-time users of VA health care.  Networks have an incentive under
VERA to increase the number of one-time users, whose cost of care is
significantly below the national capitation rate.  Providing one-time
services to a veteran is one of the most advantageous ways to
increase workload, VA officials told us.  Although VISNs incur
relatively fewer costs for each patient served, VERA still allocates
the full capitation amount for each one-time patient.  As networks
respond to VERA's incentives and VA's initiatives to increase primary
care along with its associated preventive services, VA does not know
the extent to which the number of one-time users is increasing.\16 To
the extent that some networks increase these visits
disproportionately, future VERA allocations could be substantially
affected.  In addition, monitoring unusual increases in the number of
one-time users could raise issues that require further investigation. 

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

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



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

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

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

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

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

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


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


   VA OVERSIGHT OF NETWORKS'
   ALLOCATION DECISIONS IS
   INADEQUATE TO ENSURE EQUITABLE
   ACCESS TO SERVICES
------------------------------------------------------------ Letter :5

VA's decentralized management structure gives VISNs the
responsibility for allocating the resources VERA provides.  VISN
resource allocation methods are crucial to veterans' equitable access
to services.  These methods determine the extent to which services
are available to veterans and their equity of access in using the
services.  Headquarters' guidance and oversight of these VISN
allocations are not adequate, however, because they have not
identified criteria for VISNs to use in forming their allocation
methods for achieving equitable access to services. 

VISNs are responsible for allocating resources to achieve equitable
access to health care services for veterans in their respective
geographic areas.  A VISN may shift resources to underserved areas in
its network by providing additional funding to facilities located
there, by establishing community-
based outpatient clinics (CBOC), or by contracting out for
services.\17

However, if VISNs do not take steps to improve equity of access
through their resource allocations, the promise of VERA may not be
realized. 

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

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

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


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


   CONCLUSIONS
------------------------------------------------------------ Letter :6

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

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

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


   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

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

  -- develop more timely and detailed indicators of changes in key
     VERA workload measures and medical care practices to maintain
     VERA's ability to equitably allocate resources in the future and
     help ensure that veterans receive the most appropriate care and

  -- improve oversight of VISNs' allocation of resources to their
     facilities by (1) developing criteria for use in designing VISN
     resource allocation methods, (2) reviewing and approving these
     methods, and (3) monitoring the impact of the methods on
     veterans' equitable access to care. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

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

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

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


---------------------------------------------------------- Letter :8.1

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

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

Sincerely yours,

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


VETERANS INTEGRATED SERVICES
NETWORKS
=========================================================== Appendix I



   (See figure in printed
   edition.)


SCOPE AND METHODOLOGY
========================================================== Appendix II

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

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

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

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


VERA SPECIAL PATIENT
CLASSIFICATIONS
========================================================= Appendix III

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

  -- AIDS category III,

  -- AIDS category IV,

  -- blind rehabilitation center patients,

  -- bone marrow transplants,

  -- community nursing homes,

  -- domiciliary,

  -- end-stage renal disease,

  -- heart and/or lung transplants,

  -- home care end-stage renal disease,

  -- hospital-based home care,

  -- kidney transplants,

  -- liver transplants,

  -- low activities of daily living,

  -- nursing home:  behavioral rehabilitation,

  -- nursing home:  clinically complex care,

  -- nursing home:  physical rehabilitation,

  -- nursing home:  rehabilitation,

  -- nursing home:  specialized care,

  -- other psychosis,

  -- post traumatic stress disorder,

  -- schizophrenia and dementia,

  -- spinal cord injury paraplegic--new injury,

  -- spinal cord injury paraplegic--old injury,

  -- spinal cord injury quadriplegic--new injury,

  -- spinal cord injury quadriplegic--old injury,

  -- stroke patients,

  -- substance abuse patients,

  -- traumatic brain injury patients, and

  -- ventilator-dependent patients. 



(See figure in printed edition.)Appendix IV

--------------------
\18 VA's VERA Handbook, ch.  4. 


COMMENTS FROM THE DEPARTMENT OF
VETERANS AFFAIRS
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)

RELATED GAO PRODUCTS

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

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

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

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

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

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

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

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

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

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


*** End of document. ***