VA Health Care: Better Data Needed to Effectively Use Limited Nursing
Home Resources (Letter Report, 12/20/96, GAO/HEHS-97-27).

The Department of Veterans Affairs (VA) reported spending $1.6 billion
in fiscal year 1995 on nursing home care for nearly 80,000
veterans--about 14 percent of the estimated demand by veterans for such
care. VA provides nursing home care in its own facilities, contracts
with community nursing homes, and pays state veterans' homes part of the
cost to care for veterans. All veterans are eligible for nursing home
care essentially on a first-come, first-served basis within VA's budget
constraints. As the number of veterans aged 65 and older increases to
9.3 million by the year 2000, the demand for nursing home care will
likely rise. The funds for VA nursing home care, however, are expected
to be limited. This report provides information on the (1) distribution
of veterans in VA, community, and state nursing homes; (2) costs to VA
for these nursing homes; (3) factors affecting VA's use of community and
state veterans' nursing homes; and (4) relative quality of the care
provided by VA, community, and state veterans' homes.

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

 REPORTNUM:  HEHS-97-27
     TITLE:  VA Health Care: Better Data Needed to Effectively Use 
             Limited Nursing Home Resources
      DATE:  12/20/96
   SUBJECT:  Nursing homes
             Veterans benefits
             Data integrity
             Community health services
             Medical services rates
             Health care costs
             Health care cost control
             Patient care services
             Health resources utilization
IDENTIFIER:  VA Enhanced Prospective Payment System
             HHS National Nursing Home Survey
             VA Veterans Integrated Service Network
             VA Homemaker Program
             VA Day Care Program
             VA Nursing Home Cost Study
             VA Decision Support System
             California
             District of Columbia
             Florida
             New Hampshire
             New York
             South Carolina
             Virginia
             Oklahoma City (OK)
             Kansas City (MO)
             Brevard County (FL)
             Medicaid Program
             National Survey of VA Community Nursing Home Program 
             Practices
             Massachusetts
             Colorado
             Medicare Program
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Report to the Chairman, Committee on Veterans' Affairs, U.S.  Senate

December 1996

VA HEALTH CARE - BETTER DATA
NEEDED TO EFFECTIVELY USE LIMITED
NURSING HOME RESOURCES

GAO/HEHS-97-27

VA Nursing Home Data

(101471)


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

  DSS - decision support system
  EPPS - Enhanced Prospective Payment System
  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  IOM - Institute of Medicine
  JCAHO - Joint Commission on Accreditation of Healthcare
     Organizations
  OMB - Office of Management and Budget
  RN - registered nurse
  RUGS-III - Resource Utilization Group System-III
  VA - Department of Veterans Affairs
  VHA - Veterans Health Administration
  VISN - Veterans Integrated Service Network

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


B-265690

December 20, 1996

The Honorable Alan K.  Simpson
Chairman
Committee on Veterans' Affairs
United States Senate

Dear Mr.  Chairman: 

The Department of Veterans Affairs (VA) reported spending about $1.6
billion in fiscal year 1995 on nursing home care for more than 79,000
veterans or about 14 percent of the estimated demand by veterans for
such care.\1 VA provides nursing home care in its own facilities,
contracts with community nursing homes, and pays state veterans homes
a portion of the cost of care provided to eligible veterans.  All
veterans are eligible for nursing home care essentially on a
first-come, first-served basis within VA budget constraints. 

As the number of veterans aged 65 and older increases to about 9.3
million (from 8.8 million in 1995) by the year 2000, the demand for
nursing home care is expected to increase.  Funds available for VA
nursing home care, however, are expected to be limited. 

This report responds to your request for the following information
about VA nursing home programs: 

  -- the distribution of veterans in VA, community, and state
     veterans nursing homes;

  -- the costs to VA for VA, community, and state veterans nursing
     homes;

  -- the factors affecting VA's use of community and state veterans
     nursing homes; and

  -- whether VA, community, and state veterans homes provide
     comparable quality care. 

To obtain information on the distribution of veterans in the three
types of nursing homes and the factors affecting use of community and
state veterans homes, we surveyed the 164 VA medical centers that had
nursing home care units or contracts with community nursing homes. 
We received responses from all of these centers.  Their responses
were based on fiscal year 1994 data, the most current available at
the time.  We supplemented the information from the survey with
discussions with VA officials and community and state veterans
nursing home administrators.  Also, we reviewed cost reports to
identify the relative costs to VA for each type of nursing facility,
previous studies on nursing home costs and quality, and VA policies
and procedures on monitoring nursing home care and cost reporting. 
In addition, we visited 2 VA, 10 community, and 5 state veterans
nursing homes.  Our review team included a registered nurse (RN) who
interviewed nursing home personnel and reviewed the care provided to
95 veterans in the facilities we visited drawing on Medicare provider
certification and survey procedures.\2 The patients were randomly
selected to be a representative sample from the VA and state veterans
nursing homes.  We reviewed the total veteran population served under
VA contracts at each community home.  We performed our work between
July 1995 and November 1996 in accordance with generally accepted
government auditing standards. 


--------------------
\1 VA has developed a model, using data from the National Nursing
Home Survey conducted by the Department of Health and Human Services'
(HHS) National Center for Health Statistics, to estimate veterans'
future demand for nursing home services.  VA's model is based on (1)
veteran population by age group and (2) veteran utilization rates per
1,000.  Using 1995 data, VA's model estimated an average daily census
of about 235,000 veterans needing nursing home care.  In 1995, VA's
average daily census in nursing homes was about 34,000 or 14 percent
of the estimated demand. 

\2 We focused on services provided and indicators of patient care
problems such as the use of restraints (physical and chemical), skin
integrity, ability to perform activities of daily living, level of
consciousness, and the use of exercise and physical and occupational
therapies to maintain or improve functioning. 


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

The number of veterans receiving VA-financed or -provided nursing
home care increased from 72,889 in 1985 to 79,373 in 1995, though the
costs of these services increased from about $710 million to $1.6
billion in the same period.  Among veterans currently receiving
VA-financed or -provided nursing home care, 40 percent receive such
care in VA nursing homes; 36 percent, in state veterans nursing
homes; and 24 percent, in community nursing homes.  By contrast, in
1985 about 40 percent of the veterans served by VA were cared for in
community nursing homes, and only 33 percent were served in VA
nursing homes. 

VA's reported cost for providing care in VA nursing homes is
considerably higher than its cost for doing so in community and state
veterans homes.  VA records for fiscal year 1995, the most current
available, indicate that VA's daily per patient cost was $213.17 for
veterans in VA nursing homes, $118.12 for veterans in community
nursing homes, and $35.37 for veterans in state veterans homes.  Some
of the cost differences are attributable to differing patient mix and
staffing patterns among the facility types.  The precise cost
differences cannot be determined, however, because of weaknesses in
VA's cost data. 

Several factors influence VA decisions on where to place nursing home
patients.  First, some parts of the country have a shortage of
community nursing home beds.  Second, many veterans and their
families prefer to use VA nursing homes instead of community nursing
homes because VA generally pays for only 6 months of nursing home
care in community nursing homes for veterans with no
service-connected conditions.  After 6 months, patients' assets are
used until the patients become eligible for Medicaid; in addition,
their pensions are reduced when Medicaid assumes responsibility for
them.  VA homes have no maximum service period, and only higher
income, nonservice-connected veterans must contribute to the cost of
their care in these facilities.  Third, VA sometimes has difficulty
getting community nursing home services in those locations where its
reimbursement rates are lower than other purchasers of such services. 
VA has several reimbursement initiatives under way to enhance its
access to community nursing homes.  Also, VA's use of state veterans
homes is limited by the number of such beds available and by some
states' criteria for admitting veterans to these homes--criteria that
are more restrictive than VA's.  For example, some states admit only
veterans who served during wartime. 

We and others have found differences in the quality of care provided
to veterans by the various types of nursing homes.  The VA nursing
homes we visited appeared to provide more comprehensive care to
veterans than most of the community and state veterans nursing homes
we visited.  Although the care provided in the community and state
homes we visited generally met quality standards, we identified
quality-of-care issues at both types of homes.  For example, veterans
in community nursing homes were less likely to receive restorative
therapies and more likely to be subjected to physical and chemical
restraints than veterans in VA homes. 

As VA adapts to changing health care markets and an aging veteran
population, it recognizes the need for accurate information on the
cost of providing and purchasing nursing home care, the availability
of nursing home beds in local markets, and the adequacy of VA
reimbursement rates to purchase quality nursing home care for
veterans.  Although VA has initiated efforts to improve its data in
these areas, better information is still needed for VA to make
informed resource management decisions. 


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

Veterans aged 65 or older are increasing both in number and in the
percentage of the veteran population receiving VA health care
services.  More significantly, the number of veterans aged 75 and
older, the heaviest users of nursing home care, is increasing
rapidly.  VA estimates that the number of veterans aged 75 and older
will increase from about 2.6 million in 1995 to about 4.0 million in
2000. 

All veterans with a medical need for nursing home care are eligible
to receive such care in VA nursing homes and community nursing homes
under contract to VA.  VA also pays a portion of the cost of care for
veterans served in state veterans nursing homes.\3 Because most
veterans receive care financed through other government programs
(Medicare or Medicaid), private insurance, or personal assets,
however, these VA programs provide only a portion of the nursing home
care that veterans receive. 

VA serves veterans essentially on a first-come, first-served basis up
to the limits of VA's budget authority for nursing home care.  VA is
authorized to pay for care in community nursing homes for a period
generally not longer than 6 months for nonservice-connected veterans
and for an indefinite period for veterans with service-connected
conditions.  No maximum service period exists, and only higher
income, nonservice-connected veterans must contribute to the cost of
their care in VA nursing homes.  State veterans homes establish their
own admissions policy, and, although they receive per diem payments
from VA, state homes generally rely on patient cost sharing to help
cover expenses.  VA operates 129 VA nursing homes (in 45 states),
contracts with 3,766 community nursing homes (in all 50 states, the
District of Columbia, and Puerto Rico), and pays a portion of the
costs for veterans served in 80 state veterans homes (in 38 states). 

Obligations for VA and state veterans nursing homes have increased
each year from 1985 through 1995; obligations for community nursing
homes have fluctuated over the same period.  Overall, VA reports that
nursing home obligations have grown from about $710 million in 1985,
serving 72,889 veterans, to $1.6 billion in 1995, serving 79,373
veterans as shown in table 1. 



                                         Table 1
                         
                          VA Nursing Home Programs: Obligations
                                 and Utilization, 1985-95

                                   Community nursing      State veterans
              VA nursing homes           homes                homes             Total
            --------------------  --------------------  ------------------  -------------
                          Vetera                Vetera              Vetera
                              ns                    ns                  ns
Fiscal                    treate                treate  Obligation  treate
year         Obligations       d   Obligations       d           s       d    Obligations
----------  ------------  ------  ------------  ------  ----------  ------  -------------
1985        $390,432,000  20,442  $268,936,000  38,907  $50,217,00  13,540   $709,585,000
                                                                 0
1986         452,397,000  23,940   301,844,000  41,124  51,307,000  13,914    805,548,000
1987         492,810,000  25,567   325,677,000  41,925  54,293,000  14,116    872,780,000
1988         534,514,000  27,220   353,484,000  42,232  65,643,000  14,224    953,641,000
1989         598,588,000  26,561   281,487,000  32,209  70,248,000  14,311    950,323,000
1990         666,523,000  27,067   273,708,000  28,851  79,445,000  15,108  1,019,676,000
1991         766,521,000  28,376   288,031,000  28,450  85,346,000  15,319  1,139,898,000
1992         881,579,000  30,404   283,771,000  25,062  100,314,00  15,956  1,265,664,000
                                                                 0
1993         966,561,000  31,668   332,564,000  26,887  114,270,00  16,849  1,413,395,000
                                                                 0
1994        1,102,301,00  30,926   359,680,000  29,096  137,349,00  17,873  1,599,330,000
                       0                                         0
1995        $1,101,850,0  33,061  $360,759,000  26,971  $165,946,0  19,341  $1,628,555,00
                      00                                        00                      0
-----------------------------------------------------------------------------------------
To control construction of VA nursing homes and encourage placement
of veterans in less costly community nursing homes, the Office of
Management and Budget (OMB) established guidelines in 1987 for both
the market share (16 percent) of the estimated demand by veterans for
nursing home care and the distribution of veterans in the various
types of facilities.\4 The patient distribution goal is 30 percent in
VA nursing homes, 40 percent in community homes, and 30 percent in
state veterans homes. 

Management of nursing home resources in VA is changing with the
reorganization of the VA health care system.  The reorganization
involves trimming unnecessary management layers, consolidating
medical services, and using more community resources.  Called the
Veterans Integrated Service Network (VISN), the reorganized VA health
care system will be administered and provided through 22 local
network service areas and encompass the assessment, planning, and
budgeting aspects of providing VA nursing home care in each service
area.  Implementation of the VISN will shift nursing home resource
management decisions from individual VA medical centers to VISN
directors.  VA's transition to the VISN was in its early stages at
the time of our review. 


--------------------
\3 The daily amount paid per veteran in recognized state veterans
homes is the per diem rate established by 38 U.S.C.  1741, for
nursing home care.  State veterans homes originated in the post-Civil
War era when the federal government established homes for disabled
soldiers in need of hospital and domiciliary care.  The government
could not meet the demand for services, and care was limited to
veterans who had served with the Union Army.  As a result, states
established state homes for the care of soldiers at state expense. 
The Congress enacted legislation in 1888 authorizing the payment of
$100 per year to help defray state tax burdens. 

\4 These guidelines were announced in the President's fiscal year
1987 budget. 


   PATIENT DISTRIBUTION IN TYPES
   OF NURSING HOMES HAS SHIFTED
------------------------------------------------------------ Letter :3

The distribution of veterans in the three types of nursing homes
differs greatly from VA's target of 30 percent in VA homes, 40
percent in community homes, and 30 percent in state homes.  Figure 1
shows the distribution based on the average daily census\5 during
fiscal year 1995.  Appendix I shows, by state, the number of nursing
homes that VA uses and the average daily census by each type of
facility in fiscal year 1995. 

   Figure 1:  Average Daily Census
   of Veterans in the Three
   Nursing Home Programs, FY 1995

   (See figure in printed
   edition.)

The distribution pattern has also shifted considerably over the
years.  In fiscal year 1985, for example, about 40 percent of
veterans (figure based on the average daily census) receiving
VA-financed or -provided nursing home care were cared for in
community nursing homes.  Also, VA's average daily census in
community nursing homes was over 3,000 patients greater in 1985 than
in 1995.\6 Figure 2 shows the average daily census in the three types
of nursing homes from fiscal years 1985 through 1995. 

   Figure 2:  Average Daily Census
   in Three Types of Nursing
   Homes, FY 1985-95

   (See figure in printed
   edition.)

The distribution shift was the result of major reductions in
expenditures for community nursing homes that occurred in the late
1980s and early 1990s.  For example, in 1989 VA delegated community
nursing home budget decisions to VA medical centers.  Some medical
center directors left their programs intact, while others used
community nursing home funds for other medical center activities. 
Most community nursing home programs shrank considerably.  According
to a VA official, in fiscal year 1990, VA reversed its decision to
delegate budget authority to medical centers because VA medical
centers did not support the community nursing home program.  VA's use
of community nursing homes has not returned to pre-1989 levels,
however.  From fiscal years 1988 to 1993, the average number of
community nursing homes under contract to each VA medical center
decreased from 24 to 21, and the average number of veterans placed in
community homes by each VA medical center decreased from 183 to 129. 

Community nursing home funds have also been used to meet VA budget
emergencies and to fund VA-sponsored noninstitutional care programs. 
According to VA budget documents, in fiscal year 1992, $35 million of
VA's community nursing home program budget was reprogrammed to meet
the increased costs of special pay rates for physicians and dentists. 
According to a VA official, the reprogramming of these funds was
cleared by OMB and VA appropriations committees.  Also, in fiscal
year 1993, VA's Homemaker and Day Care programs, alternatives to
institutional care, began to share community nursing home budget
resources.  This action was also supported by the Congress through
language in VA's appropriations bill designed to increase VA's use of
long-term care alternatives. 


--------------------
\5 The number of patient days during the fiscal year divided by the
number of days in the fiscal year. 

\6 On the basis of patients treated, community nursing homes served
about 12,000 more veterans in fiscal year 1985 than in fiscal year
1995. 


   VA'S NURSING HOME COST DATA ARE
   INCOMPLETE
------------------------------------------------------------ Letter :4

For fiscal year 1995, VA obligated $1.1 billion for VA nursing home
operations, about $361 million for community nursing homes, and about
$166 million for state veterans homes.  According to VA-reported
costs for fiscal year 1995, VA's daily patient cost was $213.17 for
veterans in VA nursing homes, $118.12 for veterans in community
nursing homes, and $35.37 for veterans in state veterans homes (where
only a portion of costs are funded by VA).  Actual costs are unknown,
however, because VA data systems neither reflect all costs nor
captured all costs in a consistent way to make accurate cost
comparisons. 

We have reported that VA's cost accounting system distributes costs
inconsistently and is generally not reliable as a source for
precisely comparing VA program costs.\7 We have also noted that VA
cost reports are not subject to audit and rely on each medical center
to determine the distribution of costs among different activities. 
VA budget and program officials we contacted recognize that cost
reports do not provide useful, reliable cost information. 

Because decisions on staff allocation costs and, in some cases,
workload are made at the facility level, data are inconsistent among
facilities.  For example, VA's cost data do not include the cost of
all services provided to community nursing home patients by VA
medical centers, such as radiology and laboratory services, clinical
visits, and medications.  In addition, VA's costs for transporting
veterans between community nursing homes and VA medical centers for
treatment are generally excluded from VA's cost data for community
homes.  The inconsistent distribution of costs among VA cost centers
leads to both overallocation and underallocation of overhead and
variable costs (such as laundry, linen, janitorial, and
administrative services) to VA nursing home units.  Information was
not available to determine the overall effect of cost distribution
inconsistencies on VA nursing home daily costs. 

Factors that contribute to cost differences between VA and community
nursing homes include patient case mix differences and more intensive
staffing patterns in VA homes than in community nursing homes.  For
example, VA's Nursing Home Cost Study issued in August 1996\8
reported that among patients sampled as of October 1, 1995, about 16
percent of VA nursing home patients were in a heavy care category\9
requiring special rehabilitation services (thus requiring more care
and higher costs) compared with 3 percent of community nursing home
patients.  Conversely, more community nursing home patients were in a
less resource-demanding category--22 percent for community nursing
home patients compared with 17 percent for VA nursing home patients. 

The study also noted that VA nursing homes have an overall higher
level of staffing than community nursing homes (.69 patient care
personnel per resident at VA facilities compared with .58 at
community nursing homes) and that facilities have different types of
staff.\10 RNs make up 36 percent of the staff at VA nursing homes but
only 12 percent at community nursing homes.  Aides, on the other
hand, make up 67 percent of the staff at community nursing homes but
only 32 percent of the staff at VA facilities. 

In July 1995, VA began implementing a decision support system (DSS)
at 38 hospitals.  Current VA plans call for the deployment of DSS to
all VA hospitals by fiscal year 1998.  Such support systems in the
private sector have proved to be an effective management tool for
improving quality and cost-
effectiveness, and VA expects DSS to do the same for its health care
operations.  DSS can compute the cost of services provided to each
patient by combining patient-based information on services provided
with financial information on the costs and revenue associated with
those services.  VA expects DSS to provide VA managers and health
care providers with variance reports identifying areas for reducing
costs and improving patient outcomes and clinical processes. 

In a September 1995 report on the implementation of DSS,\11 we noted
that VA had not developed a business strategy for effectively using
DSS as a management tool.  We also noted that VA had not yet
developed business goals and associated plans to guide the
organization, determine the proper location and use of resources, and
provide a framework for using management tools such as DSS.  VA is
developing business plans that should be completed by December 1996. 
For example, one VISN work group charged with developing the
network's long-term care business plan was directed by the VISN
leadership to consider consolidating, contracting, or closing of all
VA nursing homes in the service area.  These options are being
considered so that VA can effectively provide nursing home resources
in future years to the aging veteran patient population. 


--------------------
\7 VA Health Care Delivery:  Top Management Leadership Critical to
Success of Decision Support System (GAO/AIMD-95-182, Sept.  29,
1995); Budget Issues:  Financial Reporting to Better Support
Decision-Making (GAO/AFMD-93-22, June 1993); Financial Management
Issues (GAO/OGC-93-4TR, Dec.  1992). 

\8 The study was conducted by the Health Services Research and
Development Service through VA's Management Decision and Research
Center. 

\9 These categories are based on Resource Utilization Group
System-III (RUGS-III) classifications.  RUGS-III is a classification
system that categorizes nursing home residents according to their
care needs (type, intensity, frequency, and so forth).  The system is
used to evaluate staffing and to determine some states' Medicaid
reimbursement rates on the basis of case mix and resource
utilization. 

\10 Nursing homes have no recognized staffing standards.  However,
the Omnibus Budget Reconciliation Act of 1987 requires nursing
facilities to have a licensed nurse on duty 24 hours a day; an RN on
duty at least 8 hours a day, 7 days a week; and an RN director of
nursing.  (The director and the RN on duty may be the same person.)

\11 GAO/AIMD-95-182, Sept.  29, 1995. 


   SEVERAL FACTORS AFFECT VA'S USE
   OF COMMUNITY AND STATE NURSING
   HOMES
------------------------------------------------------------ Letter :5

VA's use of community nursing home beds is affected by (1) a shortage
of beds in some parts of the country, (2) veteran and family
preferences to use VA nursing homes, and (3) VA's inability to
compete with other purchasers of community nursing home services in
some locations because of lower reimbursement rates.  VA has several
initiatives under way to improve its access to community nursing home
beds by improving the competitiveness of its rates but needs better
information on specific locations where rate adjustments would be
appropriate.  On the other hand, VA's use of state veterans nursing
homes is limited because of the number of such beds available and
because VA has little control over who gets admitted to these
facilities. 


      AVAILABILITY OF COMMUNITY
      NURSING HOME BEDS VARIES
---------------------------------------------------------- Letter :5.1

The availability of nursing home beds and occupancy rates are
critical to VA's ability to place veterans in community nursing
homes.  According to a 1996 study by the Institute of Medicine (IOM),
Nursing Staff in Hospitals and Nursing Homes, the demand for nursing
home services continues to grow as the number of aged and chronically
ill people increases.  IOM reported that in most areas of the
country, the demand for nursing home services has surpassed the
supply of beds, especially in relation to the growth in the oldest of
the elderly population.  In 1990, the United States had approximately
32 million people aged 65 years or older.  This number is projected
to double by 2030.  The number of elderly needing nursing home care
is expected to triple from about 1.8 million in 1990 to about 5.3
million in 2030.  The median occupancy rate for U.S.  nursing
facilities was about 93 percent in 1994, the most current year for
which data were available. 

As demand for nursing home resources grows, VA's access to community
nursing home beds varies by community.  VA has identified seven
geographic areas where it has problems securing community nursing
home beds:  California, the District of Columbia, Florida, New
Hampshire, New York, South Carolina, and Virginia.  In other parts of
the country, though, VA does not appear to have such problems. 
According to our questionnaire respondents, for example, the
availability of community nursing home beds in Oklahoma City,
Oklahoma, and Kansas City, Missouri, exceeded the number of veterans
needing beds.  A VA planning official in Salt Lake City, Utah, also
mentioned that this service area has always had a large number of
community nursing home beds available. 

To make informed nursing home resource management decisions, VA needs
reliable demand and capacity data.  The VA Inspector General and we
have criticized VA for consistently undercounting available community
beds and not basing its nursing home construction or expansion
projects on reliable data.\12

VA has in fact overstated its nursing home construction needs.  For
example, we noted in August 1995 that VA's planned conversion of the
former Orlando Naval Hospital to a nursing home and the construction
of a new hospital and nursing home in Brevard County were not the
most prudent and economical uses of its resources.  Furthermore, we
noted that VA could purchase care from community nursing homes to
meet veterans' needs more conveniently and at a lower cost. 

The VA Inspector General noted in 1994 that regional planners had
excluded suitable and available community nursing home beds and used
questionable community data in needs assessments.  Regional planners
indicated that they lacked staff resources to validate community
resource data or reasonably establish that the data were reliable or
accurate.  It is not yet clear how the VISN structure will address
the need to improve the reliability of community resource data on
available community nursing home beds. 


--------------------
\12 VA Health Care:  Improvements Needed in Nursing Home Planning
(GAO/HRD-90-98, June 12, 1990); Veterans Health Administration's
Nursing Home Care Program Resource Management and Planning, VA,
Office of the Inspector General, Report No.  4R3-17-109 (Washington,
D.C.:  Aug.  31, 1994); VA Health Care:  Need for Brevard Hospital
Not Justified (GAO/HEHS-95-192, Aug.  29, 1995). 


      VETERANS AND FAMILIES OFTEN
      PREFER VA NURSING HOMES
---------------------------------------------------------- Letter :5.2

A May 1995 VA report, Evaluation of the Enhanced Prospective Payment
System (EPPS) for VA Contract Nursing Homes, states that many longer
stay patients were in a VA nursing home because they or their
families refused to allow their admittance to a community facility. 
Veterans and their families were concerned about the limited VA
benefit in community homes (6 months for nonservice-connected
veterans) and the depletion of assets that occurs before a veteran's
community nursing home care is converted to Medicaid.\13

Also, many veterans tend to prefer to be housed with other veterans
because community nursing homes lack the (mainly male-
oriented) culture of VA or state veterans homes. 


--------------------
\13 To be eligible for Medicaid, nursing home residents must have
income and assets below eligibility thresholds. 


      VA REIMBURSEMENT RATES MAY
      LIMIT ACCESS TO COMMUNITY
      NURSING HOMES
---------------------------------------------------------- Letter :5.3

VA studies suggest that VA's reimbursement rates may be too low in
some areas, and as a result veterans' access to community nursing
homes may be limited.  VA has initiatives under way to enhance access
to community nursing homes but needs better information to determine
where reimbursement rates adversely affect veterans' access to these
homes. 

VA pays facilities a fixed daily rate for nursing home services. 
This rate is intended to cover all necessary services, both routine
daily services (room, board, and nursing services) and special and
ancillary services (primary and specialty physician services,
diagnostic tests, and equipment).\14 The rate is based on each
state's daily Medicaid rate for basic nursing home care, plus an
additional 15 percent.  VA medical centers may negotiate with
community nursing homes to provide higher reimbursements for extra
care cases (that is, costly special and ancillary services).\15

Other payers, such as private insurers, Medicare, and Medicaid,
generally do not reimburse community nursing homes on a daily-rate
basis.  The nursing home market generally reimburses on a
unit-of-service basis.  For example, the Medicaid program allows
providers to bill for medical services, such as physician care and
diagnostic tests, on a unit-of-service basis. 

In some communities, VA reimbursements are not competitive with other
payers.  Community nursing home administrators in the facilities we
visited informed us that VA was not paying what was necessary to care
for some veterans, particularly those patients with heavy care needs. 
For example, an administrator of a Salt Lake City home indicated that
although VA's contract rate is adequate for most patients, it is
inadequate for patients on intravenous or feeding tubes.  Another
administrator in Richmond, Virginia, indicated that although the
nursing home has the capacity to admit additional veterans, it would
turn away veterans requiring heavy care involving high treatment
costs because VA's reimbursement is inadequate.  Nursing home
administrators and VA questionnaire respondents told us that veterans
with behavioral problems, alcohol or drug dependencies, or conditions
requiring the use of a ventilator were most likely to be refused
admission to a community nursing home. 

Nursing home administrators said that they make trade-offs between
serving veterans at potentially lower reimbursement rates and serving
private pay, Medicare, and Medicaid patients whose ancillary service
costs can be billed separately.  The 1993 National Survey of VA
Community Nursing Home Program Practices conducted by VA's Midwest
Center for Health Services and Policy Research noted that only 29
percent of VA medical centers indicated that the Medicaid plus 15
percent reimbursement rate was adequate to cover community nursing
home costs in their area. 

VA policy allows medical centers to negotiate reimbursement rates
higher than the standard Medicaid plus 15 percent rate, and VA's May
1995 Evaluation of the Enhanced Prospective Payment System noted that
20 percent of community nursing homes were paid higher rates.  Some
VA medical centers do not pursue higher rates because negotiating
contracts is burdensome and obtaining approval for such rates from
the VA regional level sometimes takes 2 to 4 months.  The study
concluded that these increasingly difficult negotiations sometimes
soured relations with community nursing homes.  As a result of the
study, VA changed its policy on community nursing home rate
exceptions, allowing local VA medical center director approval,
except for subacute care. 

In addition, VA is a small purchaser of nursing home care in most
markets, providing little incentive for nursing homes to engage in
lengthy negotiations.  For example, in May 1995, VA's Management
Decision and Research Center noted that no veterans were placed in
one-quarter to one-third of the community nursing homes with which VA
had contracts during fiscal years 1988 through 1994.  The remaining
homes under contract during that period had between 4.6 and 6.3
veterans placed per year on average. 


--------------------
\14 The Veterans Health Administration's (VHA) payment method has
been altered to allow direct payment of drug costs that exceed 7.5
percent of the per diem.  In addition, therapy costs up to 60 percent
of per diem can be paid by a VA medical center without requesting an
exemption. 

\15 Providers are precluded from billing other third-party payers for
costs incurred beyond the VA contract rate.  Both VA and HHS consider
this double billing.  VA does permit a provider to bill Medicare for
hospice and dialysis services. 


      VA HAS THREE INITIATIVES TO
      ENHANCE ACCESS TO COMMUNITY
      NURSING HOMES
---------------------------------------------------------- Letter :5.4

VA is trying to improve the competitiveness of its nursing home
reimbursement rates through three initiatives:  (1) multistate
contracting, (2) a prospective payment system based on Medicare
nursing home reimbursement rates, and (3) revisions to the standard
community nursing home contract format.  However, VA needs better
information to identify specific locations where adjustments to
reimbursement rates are needed to enhance access to community nursing
home beds. 

In September 1995, VA issued a request for proposals for multistate
contracts to provide nursing home services.  Multistate contracting
is intended to enhance VA's ability to access beds by easing the
administrative requirements on community nursing homes and offering
prospective providers a large volume of patients.  VA plans to commit
$34 million to these contracts or about 10 percent of the community
nursing home program budget.  The multistate contracts specifically
guarantee access for veterans up to the amount specified in the
contracts. 

VA awarded six multistate contracts to private corporations on
September 1, 1996, and also contracted with a provider with 20
facilities in California.  The new contracts will provide VA access
to 1,101 nursing homes in 43 states, and VA believes the contracts
offer administrative and other cost efficiencies.  Each corporation
will provide five levels of care based on a state-specific pricing
structure designed to achieve cost savings over the life of the
contract. 

Since 1991, VA has also been pilot testing a prospective payment
system based on Medicare reimbursement rates.  EPPS, implemented in 8
of VA's 164 medical centers with nursing homes or contracts with
community nursing homes, provides three levels of
reimbursement--superskilled, skilled, and intermediate-level care. 
Ancillary costs are also included in these rates, but speech,
physical, and occupational therapies are reimbursed separately using
rates established by VA's central office.  A 1995 study by VA's
Management Decision and Research Center estimated that the pilot
system reimbursed nursing homes $3,402 more per patient than VA's
normal reimbursement system.  However, while data limitations made it
inconclusive, the study suggested that these added costs were
outweighed by savings to VA medical centers from moving patients from
the hospital sooner to nursing homes, which provide a lower (and less
expensive) level of care. 

VA will use the findings of the EPPS evaluation to collect
information on nursing home market conditions and hospital
utilization to determine whether special efforts are needed to become
more competitive in community nursing home markets.  VA medical
centers may qualify to participate by meeting certain criteria based
on cost, access, and administrative workload considerations.  For
example, medical centers will be allowed to participate if more than
50 percent of their community nursing home contracts require
exceptions to the Medicaid plus 15 percent reimbursement rate.  Other
participation criteria include the inability to place more than 5
percent of patients who are considered appropriate for nursing home
placement and a caseload that includes more than 50 percent of
patients who need specialized care and require special negotiations
before placement. 

In June 1995, VA changed its standard nursing home contract to
provide for multiple reimbursement rates.  These rates include the
following categories of care:  (1) reduced physical function, (2)
basic, (3) heavy rehabilitation therapy, (4) special care, (5)
clinically complex, (6) ventilator dependent, (7) human
immunodeficiency virus/acquired immunodeficiency syndrome, and (8)
Clinitron\16 dependent.  Rates are figured using the current Medicaid
rate plus an amount to cover the use of additional supplies,
services, and equipment associated with each category of care. 

Although these initiatives should improve VA's access to community
nursing home beds, VA needs reliable information on the availability
of community nursing home beds and the reasons for access problems in
specific locations to make informed decisions about where adjustments
to reimbursement rates are warranted.  Without information on the
reasons for access problems in specific locations, assertions of
noncompetitive VA reimbursement rates could obscure medical center
preferences for using VA nursing homes.  Some of the information
available is anecdotal and based on testimonial rather than
quantitative evidence.  For example, a 1993 VA Inspector General
report on the EPPS pilots noted that two sites reported that the
pilot rates were too high for their area, though the pilot sites had
been selected because they had reported difficulty accessing
community nursing home beds.  The Inspector General noted that the
higher reimbursement rates did not ensure placement of "heavy care"
(costly) VA patients in exchange for the higher costs associated with
the pilots. 


--------------------
\16 Specially designed beds that feature a constantly circulating
silicon mattress.  The bed is used to treat and prevent decubitus
ulcers (bed sores). 


      ADMISSION TO STATE VETERANS
      HOMES CONTROLLED BY STATES
---------------------------------------------------------- Letter :5.5

VA's access to state veterans homes is also limited.  States
establish admission policies, which vary from state to state.  In
some instances, admission criteria for state veterans homes are more
restrictive than VA admission criteria.  For example, some state
homes require that veterans have service-connected disabilities or
wartime military service.  Other states allow admission of veterans'
spouses and other nonveterans.  Bed availability in state homes also
helps determine VA's ability to use these facilities.  For example,
according to discussions we had with state nursing home admissions
staff in fiscal year 1996, Massachusetts has a waiting list for
skilled care bed admissions in its two state facilities; Colorado,
however, has no waiting list for its four facilities and admits
nonveterans to all four homes. 


   QUALITY OF CARE VARIES AMONG
   NURSING HOMES
------------------------------------------------------------ Letter :6

VA and we have found differences in the quality of care provided by
the various types of nursing homes.  Through its monitoring efforts,
VA works with homes to improve patient care.  On the basis of our
review of selected quality indicators, the homes we visited appeared
to provide comprehensive and appropriate care to veterans.  VA homes,
however, generally had fewer quality-of-care issues than most of the
community and state homes we saw. 

VA requires its medical centers to ensure that veterans receive
quality care in any nursing facility in which they are placed. 
Specifically, on a monthly basis, VA medical centers must send an RN
or social worker to visit veterans in community nursing homes to
review their care and to provide a liaison between the community home
and the VA medical center.  An RN must visit patients at least every
other month.  Medical center staff also review state survey and
certification data maintained for Medicare- and Medicaid-certified
facilities.  They also review Joint Commission on Accreditation of
Healthcare Organizations (JCAHO) accreditations, when available, to
assess community nursing homes' compliance with appropriate
standards.  In addition, VA medical centers conduct annual on-site
evaluations of community facilities using a multidisciplinary team to
review patient records, policy, and procedures and to check fire and
safety provisions. 

VA annually inspects state veterans homes to certify their
eligibility for per diem payments by meeting VA standards of care. 
VA inspections of state nursing homes are carried out by medical
center staff and are similar to annual inspections of community
nursing homes.  If the medical center determines that care is
inappropriate, it can suspend per diem payments for veterans placed
in state homes. 


      VA HOMES HAD FEWER
      QUALITY-OF-CARE ISSUES THAN
      OTHER TYPES OF HOMES
---------------------------------------------------------- Letter :6.1

We visited 2 VA, 10 community, and 5 state veterans nursing homes,
where we reviewed the care provided to 95 veterans.  The patients
were randomly selected for a representative sample at the VA and
state veterans homes.  We reviewed the total veteran population under
VA contracts at each community home but did not review the care
provided to nonveteran patients in these facilities.  We used the
1995 HCFA Provider Certification Survey Procedures to assess the
quality of care and the overall ability of the facility to meet
patient care needs. 

Patient care in the two VA nursing homes we visited was comprehensive
and generally met Medicare certification standards.  One VA nursing
home had achieved 100-percent participation in patient therapies.  VA
nursing homes are hospital based and therefore have greater access to
rehabilitative and restorative services than other nursing homes.  In
addition, VA nursing homes were generally staffed by a higher number
of RNs, gerontological and rehabilitation specialists, social
workers, and physical therapists than community and state veterans
homes, and all VA nursing homes are JCAHO accredited. 

Although care met quality standards, we found some quality-of-care
issues at all 10 community nursing homes we visited.  For example, we
noted that veterans in some community homes were less likely to
receive ongoing restorative therapies than in VA facilities.  We also
noted that community nursing homes used physical and chemical
restraints more often than VA homes we visited.  One facility was not
certified for Medicare or Medicaid, and one rural facility had only
recently qualified for Medicare certification by ensuring that at
least one RN staffed the facility 8 hours every day.  None of the
community facilities we visited was JCAHO accredited. 

Although medical center staff did not always comply with monthly
on-site monitoring requirements because of resource limitations, they
generally visited community nursing home patients when problems were
identified.  At one location, medical center staff told us they were
reluctant to criticize community nursing homes because bed
availability was at a premium and they did not want to antagonize the
homes.  The staff at this medical center did perform monthly
monitoring visits and sought to resolve patient care problems by
educating facility staff and providing patient care consultations. 
According to our survey respondents, VA medical centers terminated 50
contracts with community nursing homes in fiscal year 1994 because of
quality-of-care problems.  No placements were made in an additional
67 contract facilities because of quality-of-care concerns during the
same time frame. 

VA's study of EPPS also noted that some patients received
insufficient medications and restorative or rehabilitative care in
community nursing homes.  The report cited one group of community
nursing home providers who said distinct differences existed in the
quality of care provided to private and Medicare patients compared
with Medicaid and VA patients. 

Care provided in the state homes we visited generally met quality
standards.  One state home, however, had several quality-of-care
issues.  The home was not certified for Medicare or Medicaid or
accredited by JCAHO.  This home showed little evidence of planned
daily activity and did little to protect the privacy of patients,
whose care was provided in open wards without privacy curtains.  We
also observed heavy use of physical and chemical restraints at this
facility.  Although the VA medical center knew about this facility's
problems and annual visits had detected long-standing problems, the
medical center's infrequent attention to the facility's
quality-of-care problems was not sufficient to effect corrective
measures. 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

The uneven distribution of nursing homes and differences in the
extent to which VA reimbursement rates are competitive in local
markets could reasonably lead to different responses among VA
networks to meet the demand for cost-effective, high-quality nursing
home services.  However, without (1) accurate and complete
information on nursing home costs, (2) better information on the
availability of community nursing home beds, and (3) information on
the competitiveness of VA reimbursement rates, VA has inadequate
assurance that it is using the nursing home resources at its disposal
to the best of its ability to serve veterans in need of such care. 
As VA implements the VISN structure, decisionmakers will need better
cost- and care-based information on the nursing home services it
provides or purchases. 

VA's implementation of multistate contracts and efforts to improve
the competitiveness of its reimbursement rates should improve its
access to community nursing home beds.  VA's efforts to more
accurately identify and report nursing home costs through DSS are
incomplete.  Also, VA needs better information on the availability of
community nursing home beds and must identify locations where current
rates are not competitive, especially in areas not covered by
multistate contracts. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :8

As part of VA's ongoing efforts to improve nursing home resource
management decisions, we recommend that the Secretary of Veterans
Affairs direct the Under Secretary for Health to more accurately
accumulate and report nursing home costs, assess the availability of
community nursing home resources, and identify locations where
current reimbursement rates are not competitive. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

On November 25, 1996, we met with the Assistant Chief Medical
Director for Geriatrics and Extended Care and other VA officials to
obtain their comments on a draft of this report.  The VA officials
stated that the report complements VA's efforts to review options for
providing long-term care for veterans and concurred with our findings
and recommendations.  VA is currently rethinking its nursing home
patient distribution goals for the three types of facilities and is
also considering greater emphasis on alternatives to long-term care
for veterans such as home and community health care, day care, and
other noninstitutional care options.  To this end, VA has established
an Advisory Committee on the Future of VA Long-Term Care, which will
make recommendations to VA's Under Secretary for Health on the scope
and structure of VHA's long-term care services and the changes
necessary to ensure that services for veterans are available and
effective in future health care settings.  Committee members will be
selected on the basis of professional expertise in various components
of long-term care and will represent constituencies such as veterans
service organizations, nursing home corporations, and
university-based academic communities.  VA expects recommendations
from the committee in 1-1/2 to 2 years. 

VA agreed that its Cost Distribution Report is inadequate, and
although better information on costs and local resources is available
from data collected in conjunction with the new multistate contracts,
VA still expects that full implementation of DSS will improve data on
costs and patient outcomes.  In addition, VISN networks have been
provided a new population-based, long-term care planning model that
is being used to develop network business plans. 

VA noted that it has initiated efforts to improve collection of data
on community nursing home patients to compare their characteristics
(including case mix) with VA nursing home patients.  A Patient
Assessment Instrument, now used for VA nursing home patients, will be
applied to community nursing home patients and is currently used for
patients referred to multistate contract facilities.  VA also offered
several technical comments and clarifications on our draft report
that we incorporated into the final report as appropriate. 


---------------------------------------------------------- Letter :9.1

Copies of this report are being sent to the Secretary of Veterans
Affairs, other congressional committees, and interested parties. 
Copies will be made available to others upon request. 

Please call me at (202) 512-7101 if you have any questions or need
additional assistance.  Other GAO contacts and staff acknowledgments
to this report are listed in appendix II. 

Sincerely yours,

David P.  Baine
Director, Veterans' Affairs and
 Military Health Care Issues