VA Health Care: Improving Veterans' Access Poses Financial and
Mission-Related Challenges (Letter Report, 10/25/96, GAO/HEHS-97-7).

Pursuant to a congressional request, GAO reviewed the Department of
Veterans Affairs' (VA) efforts to establish health care access points to
provide outpatient care for veterans who are geographically distant from
VA hospitals.

GAO found that: (1) about one-half of all veterans live more than 25
miles from a VA hospital; (2) VA draft guidance states that the intent
of access points is to primarily enroll users who find it difficult to
travel to a VA facility due to location or medical condition, but VA
does not have statutory authority to provide primary care through its
access points; (3) VA has specific statutory authority to contract for
medical care when its facilities cannot provide necessary services; (4)
the types of services available and the classes of veterans eligible for
care under this authority is limited; (5) if health care access points
are established in conformance with this authority, VA would need to
limit the types of services provided to all veterans, except those with
service-connected disabilities; (6) nine VA hospitals have funded new
clinics by using money saved from hospital-based staff reductions and
other hospital-based efficiencies, but most VA hospital directors
believe it would be more cost-effective to contract for care in targeted
locations than to operate new access points; and (7) VA success in
improving veterans' health status and reducing the need for specialty
and inpatient care depends on the availability of resources, veterans'
willingness to use VA hospitals or VA-sponsored services, and providers'
willingness to contract with VA hospitals.

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

 REPORTNUM:  HEHS-97-7
     TITLE:  VA Health Care: Improving Veterans' Access Poses Financial 
             and Mission-Related Challenges
      DATE:  10/25/96
   SUBJECT:  Veterans benefits
             Patient care services
             Health services administration
             Veterans hospitals
             Health centers
             Community health services
             Eligibility criteria
             Statutory law
             Persons with disabilities
             Health care cost control
IDENTIFIER:  VA Veterans Integrated Service Network
             Medicare Program
             Medicaid Program
             
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Cover
================================================================ COVER


Report to Congressional Requesters

October 1996

VA HEALTH CARE - IMPROVING
VETERANS' ACCESS POSES FINANCIAL
AND MISSION-RELATED CHALLENGES

GAO/HEHS-97-7

VA's Proposed Health Care Access Points

(406125)


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

  HUD - Department of Housing and Urban Development
  VA - Department of Veterans Affairs
  VISN - veterans integrated service network

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


B-274205

October 25, 1996

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

The Honorable Bob Stump
Chairman, Committee on
 Veterans' Affairs
House of Representatives

The Department of Veterans Affairs (VA) operates one of the nation's
largest health care delivery systems, including over 170 hospitals
and over 200 free-standing clinics.  Veterans must often travel long
distances to receive care at these facilities.  In 1995, VA
established a policy encouraging its hospitals ".  .  .  to employ
all means at their disposal, and within available resources, to
improve access to VA care for eligible veterans."\1 Subsequently,
many hospitals either planned or established new, free-standing
outpatient clinics referred to as access points.\2 An access point
may be a VA-operated clinic or a VA-funded or VA-reimbursed private
clinic.  Access points provide primary care to veterans and generally
refer those needing specialized services or inpatient stays to VA
hospitals.  This report responds to your request for us to examine
VA's policy for establishing access points.  It discusses the legal,
financial, and mission-related implications of VA's efforts to
establish access points.\3

To develop this information, we relied on previous GAO reports for
information on veterans' use of VA medical facilities.  (See the
Related Products section at the end of this report.) We also reviewed
VA directives and statutory authorities for their role and relevance
in establishing access points.  To obtain more detailed information,
we selected three VA hospitals that had established new access
points--Big Spring and Amarillo in Texas and West Side in Chicago. 
We selected Big Spring because it had proposed 7 of the 15 new access
points submitted for congressional approval.  We chose Amarillo
because it had established the first contract access point in 1994. 
To contrast Big Spring's and Amarillo's access points, which are in
rural areas, we selected West Side because its new access point is in
an urban area. 

We visited these hospitals and three of their new access points. 
During these visits, we interviewed VA hospital officials and
reviewed records relating to the operations of their access points. 
We also conducted telephone interviews with officials at six other
hospitals that had also proposed new access points.  In addition, we
conducted a telephone survey of 115 veterans who had used new access
points.  We also interviewed VA headquarters officials and
representatives of local and national veterans service organizations
to obtain their views regarding VA's efforts to enhance primary care
accessibility.  We did our review from March 1995 to July 1996 in
accordance with generally accepted government auditing standards. 


--------------------
\1 Department of Veterans Affairs, Veterans Health Administration
(VHA), VHA Directive 10-95-017 (Feb.  8, 1995). 

\2 Access points are now referred to as Community Based Outpatient
Clinics (CBOC) per VHA Directive 96-049 (Aug.  7, 1996), which
superseded VHA Directive 10-95-017. 

\3 On April 24, 1996, we testified on this issue before the
Subcommittee on Hospitals and Health Care, Committee on Veterans'
Affairs, House of Representatives (see VA Health Care:  Efforts to
Improve Veterans' Access to Primary Care Services (GAO/T-HEHS-96-134,
Apr.  24, 1996)).  This report expands on our testimony from that
hearing. 


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

VA's new access points represent a proactive effort to transition
from a direct delivery system to an integrated network of VA-operated
hospitals and VA and non-VA outpatient providers.  In so doing, VA
has identified what could be a cost-effective way to enhance the
availability of health care for current users, especially those
residing in underserved areas.  Doing this, however, has raised some
important legal, financial, and mission-related issues. 

To begin with, VA ignored important limitations in its legal
authority to provide primary care to veterans.  VA's Under Secretary
for Health has testified\4 about the need to reform VA's contracting
authority and veterans' eligibility for VA health care.  On October
9, 1996, the President signed legislation--the Veterans' Health Care
Eligibility Reform Act of 1996 (P.L.  104-262)--that expands VA's
authority to contract for the provision of such care and veterans'
eligibility to receive primary care services. 

From a financial standpoint, VA hospitals will be affected by access
points in several ways.  First, hospitals must finance access points
within their existing budgets; this will generally require
reallocating resources among current activities and services.  In
time, access points should allow VA hospitals to serve current users
more efficiently; however, efficiencies may not generate enough
savings to offset the increased costs associated with caring for
increased numbers of veterans attracted to the new clinics but who
would otherwise not have used VA's facilities. 

Finally, because VA has not developed a strategic plan for expanding
veterans' access to its medical care system, it is difficult, if not
impossible, to accurately gauge the number of access points that VA
will need or the effect that they will have on VA's mission.  While
establishing access points could result in a modest increase in
accessibility for a limited number of current users, they could also
dramatically change VA's role as a direct health care provider by
significantly increasing the number of new veterans using VA
services.  In essence, our work suggests that the growth potential
will be limited only by the availability of resources, veterans'
willingness to use VA hospitals or VA-sponsored services, and
providers' availability and willingness to contract with VA
hospitals. 


--------------------
\4 Statement of Kenneth W.  Kizer, Under Secretary for Health, VA,
before the Committee on Veterans' Affairs, United States Senate (May
8, 1996). 


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

VA operates one of the nation's largest health care systems at a cost
of more than $16 billion a year.  The system has 173 hospitals and
220 clinics that are geographically remote from a VA hospital.  VA
hospitals typically operate these clinics themselves and staff them
with VA personnel.  Since its inception in 1930, the VA health care
system has developed into a direct delivery system, with the
government owning and operating its own health care facilities, in
response to a time when there was virtually no public or private
health insurance. 

Traditionally, many veterans traveled long distances to use VA
facilities.  About one-half of all veterans live more than 25 miles
from a VA hospital, including 6 percent who live more than 100 miles
from one.  Over one-third of all veterans live 25 miles or more from
a VA clinic.\5 Currently, VA serves about 10 percent of the 27
million veterans eligible for care including many who travel long
distances.  Other veterans have often said that they do not use VA
facilities for their health care because they live too far from the
nearest hospital or clinic. 

Until 1995, VA required its hospitals to meet rigid criteria to
establish outpatient facilities located apart from the hospitals. 
These criteria included a minimum number of veterans to be served in
a clinic and a minimum distance that clinics must be from the VA
hospitals.  For example, community-based clinics were required to (1)
have a projected workload of at least 3,000 visits annually, (2) be
100 miles or 3 hours travel time away from the nearest VA facility,
and (3) have more than one-half of the counties in the targeted
veteran population in health manpower shortage areas. 

In anticipation of national health care reform, VA determined that it
needed to expand its ability to provide outpatient care, especially
for veterans who are geographically distant from VA hospitals.  The
Amarillo VA hospital is recognized as the first facility to establish
access points.  Amarillo's first access point began operations in
January 1994. 

In February 1995, VA encouraged all its hospitals to consider
establishing access points, like those that Amarillo operates.  In
doing this, VA eliminated many of its restrictions concerning the
workload and location of proposed clinics.  In addition, VA policy
encouraged hospitals to provide care not only in VA-operated
facilities, but also by contracting with other providers. 

VA gave hospital and veterans integrated service network (VISN)
directors the authority to propose and approve access points.  When
developing new access points, directors are to consider the (1)
eligible veteran population, (2) services to be provided, (3) costs
of available alternatives, and (4) sources of funds.  To date, nine
VA hospitals have opened 12 access points (see fig.  1). 

   Figure 1:  VA Medical Centers
   and Their Access Points

   (See figure in printed
   edition.)

VISN directors have considerable freedom to develop their own goals
and objectives as well as their own implementation strategies;
however, they are encouraged to discuss plans with interested parties
as well as inform VA headquarters.  Each of the 12 new access points
generally shares four common operating characteristics.  They each
have a (1) designated health care provider, (2) prescribed package of
medical services, (3) target veteran population, and (4)
predetermined cost. 

VA staff operate four of the access points and contract with county
or private clinics to operate the remaining eight.  During a
veteran's initial visit, access points that have contracted with VA
"enroll" the veteran in the facility.  The contract access point
agrees to care for the veteran for 1 year.  For that care, the access
point is paid a capitated fee--a one-time payment to cover the
veteran's care for a 12-month period, regardless of how many times
the veteran seeks care. 

When new access points are established, VA encourages veterans
currently receiving VA health care to enroll along with veterans who
have not previously received care.  However, some VA hospitals have
limited enrollment to veterans with service-connected conditions or
current VA users.  As of March 1996, the 12 access points had
enrolled nearly 5,000 veterans.  Veterans receive primary care at
access points comparable to that available during visits to a private
physician's office.  With the exception of emergencies, enrolled
veterans are referred to VA hospitals, not local hospitals, for
inpatient or specialized care. 

In early 1996, VA notified the Congress that 47 hospitals (including
5 of the 9 hospitals that already had access points) were ready to
open an additional 58 access points.  Another 200 were under
development and could be operating by December 1996.  Subsequently,
the 22 VISN directors began developing 1-year tactical, 2- or 3-year
strategic, and 5-year target plans.  VA expects that new access
points will be an important element of the networks'
tactical/strategic plans. 

VA has drafted guidance to be used by VISN directors when planning
for new access points.  This draft guidance states that the intent of
access points is to primarily enroll current users who find it
difficult due to location or medical condition to travel to a VA
facility.  Toward this end, the guidance suggests that directors
provide a more thorough analysis of such key factors as eligible
veteran population, costs, and source of funds when submitting
proposals to establish new or realign existing access points.  For
example, directors are to complete a workload analysis that describes
and distinguishes those patients that will be redirected from the
existing service population and those that are new.  The guidance
also provides a specific set of desirable characteristics that should
be considered when siting an access point, including that it be
generally within 30 minutes travel time of veterans' residences. 


--------------------
\5 See VA Health Care:  How Distance From VA Facilities Affects
Veterans' Use of VA Services (GAO/HEHS-96-31, Dec.  20, 1995) and VA
Health Care:  Exploring Options to Improve Veterans' Access to VA
Facilities (GAO/HEHS-96-52, Feb.  6, 1996). 


   INAPPROPRIATE STATUTORY
   AUTHORITY CITED AS BASIS FOR
   ESTABLISHING ACCESS POINTS
------------------------------------------------------------ Letter :3

Historically, the Congress has limited VA's authority to provide
medical care to veterans, expanding it in a careful and deliberate
manner.  Although VA's authority has increased significantly over the
years, important limitations were not recognized by VA in
establishing and operating the access points we visited. 

At those access points we visited, many veterans received primary
care contrary to applicable statutory limitations and priorities on
their eligibility for such services.  As authority for operating
contract access points, however, VA relied on a statute (38 U.S.C. 
8153) that permits it to enter into agreements

     "for the mutual use, or exchange of use of specialized medical
     resources .  .  .  only if such an agreement will obviate the
     need for a similar resource to be provided in a [VA] health care
     facility."

Specialized medical resources are equipment, space, or personnel
that--because of cost, limited availability, or unusual nature--are
unique in the local medical community. 

VA officials asserted that primary care provided at access points is
a specialized medical resource because its limited availability to
veterans in areas where VA facilities are geographically inaccessible
(or inconvenient) makes it unique.  One significant aspect of VA's
reliance on this authority is that it effectively broadens the
eligibility criteria for contract outpatient care, thus allowing some
veterans, who would otherwise be ineligible, to receive treatment. 

In our view, this statute does not authorize VA to provide primary
care through its access points.  The absence of a VA facility close
to veterans in a particular area does not make primary care
physicians unique in the local medical community, within the meaning
of the statute.  The purpose of allowing VA to contract for services
under the specialized medical resources authority is not to expand
the geographic reach of its health care system, but to make available
to eligible veterans services that are not feasibly available at a VA
facility that presently serves them.  Furthermore, contracting for
the provision of primary care at access points does not obviate the
need for primary care physicians at the parent VA facility. 

VA has specific statutory authority (38 U.S.C.  1703) to contract for
medical care when its facilities cannot provide necessary services
because they are geographically inaccessible.  This authority could
be relied on to authorize contracting for the operation of access
points.  However, both the types of services available and the
classes of veterans eligible for care under this authority are more
limited than those under the authority upon which VA relies (38
U.S.C.  8153). 

For example, under 38 U.S.C.  8153, a veteran who has income above a
certain level and no service-connected disability is eligible for
pre- and posthospitalization medical services and for services that
obviate the need for hospitalization.  But under 38 U.S.C.  1703,
that same veteran is not eligible for prehospitalization medical
services or for services that obviate the need for hospitalization. 

If access points are established in conformance with 38 U.S.C.  1703,
VA would need to limit the types of services provided to all veterans
except those with service-connected disabilities rated at 50 percent
or higher (who are eligible to receive treatment of any condition). 
All other veterans are generally eligible for VA care based on
statutory limitations (and to the extent that VA has sufficient
funds).  For example, veterans with service-connected disabilities
are eligible for all care needed to treat those conditions.  Those
with disabilities rated at 30 or 40 percent are eligible for care of
nonservice-connected conditions at contract access points to complete
treatment incident to hospital care.  Furthermore, veterans with
disabilities rated at 20 percent or less and those with no
service-connected disability may only be eligible for limited
diagnostic services and follow-up care after hospitalization. 

Most veterans currently receiving care at access points do not have
service-connected conditions and, therefore, do not appear to be
eligible for all care provided.  VA is required to assess each
veteran's eligibility for care on the merits of his or her situation
each time that the veteran seeks care for a new medical condition. 
We found no indication that VA requires access point contractors to
establish veterans' eligibility or priority for primary care or that
contractors were making such determinations for each new condition. 

Last year, VA proposed ways to expand its statutory authority and
veterans' eligibility for VA health care.  A bill has been passed in
the Congress that, if signed by the President, would authorize VA
hospitals to establish contract access points and provide more
primary care services to veterans in the same manner as the access
points are now doing. 


   FINANCIAL IMPLICATIONS OF
   ESTABLISHING ACCESS POINTS
------------------------------------------------------------ Letter :4

Access points have significant financial implications for VA
hospitals, veterans, and non-VA health care providers.  In general,
VA hospitals will probably experience these effects only after access
points have operated for a few years.  In contrast, veterans and
non-VA providers could experience financial effects immediately. 


      VA HOSPITALS MUST REALLOCATE
      EXISTING RESOURCES TO FUND
      ACCESS POINTS
---------------------------------------------------------- Letter :4.1

VA hospital directors are likely to experience a series of financial
challenges as they establish new access points.  Initially, VA
hospitals must finance access points within their existing budgets;
this generally will require reallocating resources among other
activities and services with no net change in their respective
budgets.  Over time, however, VA hospitals may incur significant cost
increases to provide care to veterans who would otherwise not have
used VA's facilities.  We have suggested that these additional
increases at least in the near term may be offset if these new
clinics enable hospitals to conserve money by serving users more
efficiently.\6

To date, the nine VA hospitals have funded new clinics by using money
saved from hospital-based staff reductions and other hospital-based
efficiencies.  At one hospital, officials are financing their new
clinics by using funds saved by reducing the hospital staff.  They
estimated savings in excess of $900,000 by eliminating the equivalent
of 15.5 positions.  Another hospital expects to save up to $400,000
by reviewing patients' use of prescription medications.  At other
hospitals, such reviews have reduced the number of prescribed
medications and have achieved cost savings in procuring, storing, and
dispensing drugs. 

Savings can also be achieved by reducing the staff involved in
primary care at the hospitals.  Officials at one hospital told us
that if a sufficient number of veterans currently receiving care at
their hospital can be enrolled in access clinics, they can reduce the
size of their primary care staff and use the resulting savings to
fund additional access points.  Each primary care team at the
hospital treats approximately 1,500 patients; consequently, for every
group of 1,500 patients they can shift to access points, the hospital
can eliminate one hospital-based primary care team. 

Most VA hospital directors have concluded that it is more cost
effective to contract for care in targeted locations than to operate
new access points themselves.  In many instances it is the only
cost-effective option available.  One of VA's goals in negotiating
contract rates was to obtain a rate that was less than the estimated
cost of a VA primary care team providing the same services.  While VA
does not have a financial system capable of tracking
procedure-specific costs, VA hospitals with new access points
attempted to estimate VA costs\7 related to primary care services. 
These hospitals used their cost estimates as the basis to compare
bids from clinics interested in establishing VA access clinics. 

In areas where the veteran population is too small to justify a
VA-operated clinic, contracting may be the only cost-effective method
available to provide primary care.  VA guidance suggests that 3,000
visits per year are needed to justify a VA-operated clinic.  In the
rural areas served by most new access points, veteran populations are
small.  For example, in one area served by an access point, only 173
veterans who use VA health care live there, far below the amount
needed to justify a full-time VA clinic.  Health providers that have
agreed to establish access points to serve veterans on a contractual,
capitated basis also benefit because they have an existing nonveteran
patient base and excess capacity to meet VA's needs.\8

Hospitals also plan to finance clinics by using the savings that
result from implementing a managed care delivery system.  Clinics
will have a major role in this system that plans to be based on a
strong primary care network with clinics conveniently located near
patients.  VA contends that by making primary care more accessible,
patients will be more likely to seek preventive care and VA hospitals
will experience a consequent reduction in specialist and hospital
use. 

VA believes that veterans should experience an improvement in their
health status as VA shifts its emphasis from inpatient to preventive
care.  VA officials anticipate a significant decrease in the use of
specialty clinics and diagnostic services as a result of VA focusing
on preventive medicine.  VA officials contend that veterans who live
several hours away from a VA facility do not receive sufficient
preventive care.  Typically these veterans would wait until their
condition worsened before they would seek treatment.  Consequently,
when veterans ultimately sought care, the care they would then need
would be more intensive, more extensive, and more costly.  By
providing care closer to where veterans live, VA officials predict
that veterans will be more likely to seek and receive care before
their condition becomes serious. 

Additionally, by obtaining their primary care from caregivers in
local clinics rather than specialists in VA hospitals, VA anticipates
a reduction in the number of diagnostic tests, which are used more
frequently by VA specialists than by local primary care givers.  If
the clinics succeed in improving veterans' health status and reducing
the need for specialty and inpatient care, VA hospitals should
realize significant cost savings. 

If the emphasis on primary care results in a reduction of the number
of days of hospitalization, that in turn could result in further
medical ward consolidations and fewer hospital-based staff.  The
majority of savings would result from hospital staff reductions and
associated salary and benefit savings.  For example, when one
hospital consolidated inpatient wards and eliminated 23 beds, it
saved an estimated $250,000.  These savings were used to finance
access clinics. 

Over time, the initial savings that VA experiences with access points
may ultimately be reversed and expenses may rise.  In a recent
study,\9 VA researchers compared two groups of veterans who had been
discharged from nine VA hospitals.  One group of veterans was given
traditional VA services following an inpatient stay and the other
group received intensive primary care intervention involving close
follow-up by a nurse and a primary care physician beginning before
discharge and continuing for the next 6 months.  After 6 months, the
rehospitalization rate was greater for the group receiving the
intensive primary care treatment than for the group receiving
traditional VA follow-up services.  Although the results are
preliminary and the veterans involved in the study suffered from
serious medical conditions, the implications of this study relative
to increasing the numbers of access points should be carefully
considered. 

The longer-term effects of access points on VA's budget are less
certain.  Our work has shown that VA has not clearly delineated its
goals and objectives nor has it developed a strategic plan that
specifies the number of potential access points, time frames for
beginning operations, and associated costs. 

If access point clinics attract a significant number of new
users--veterans who heretofore have not used VA for their health care
needs--VA hospital specialty use and hospitalization rates may
actually increase.  The effect on VA's medical budget will depend
largely on the number and willingness of these "new" veterans who are
referred by clinics to receive specialized treatment at VA hospitals. 
For example, as of March 1996, 40 percent of the 5,000 veterans
enrolled at VA's 12 new access points were new users.\10 If new users
receive care only at the clinics and not at VA hospitals, the budget
effect may be small.  However, if a significant number of new users
begin using VA hospitals for specialty and inpatient care, overall VA
use could remain stable or even increase with a corresponding
increase in VA's expenses.  Therefore, the projected savings
attributable to managed care could be offset by increased costs at VA
hospitals. 


--------------------
\6 We issued correspondence to the Senate Appropriations Subcommittee
on VA, HUD and Independent Agencies that describes how VA hospitals
finance access points.  See VA Clinic Funding (GAO/HEHS-95-273R,
Sept.  19, 1995). 

\7 The Amarillo VA hospital estimated that it costs $304 a year to
provide primary care for a veteran.  The Big Spring VA hospital
estimated its costs at $277 per year per veteran to provide primary
care.  In both instances, each facility was able to negotiate a per
capita rate less than these costs, even before including an
additional 15 percent for VA overhead. 

\8 VA patients are generally a relatively small portion of the total
patient population served by these providers. 

\9 "Does Increased Access to Primary Care Reduce Hospital
Readmissions?", The New England Journal of Medicine, Vol.  334, No. 
22 (1996), pp.  1441-47. 

\10 VA officials estimate that up to 20 percent of the veterans who
receive care at access points will be new to the VA health care
system. 


      BOTH CURRENT AND NEW VETERAN
      USERS BENEFIT
---------------------------------------------------------- Letter :4.2

Overall, both veterans and veterans service officers indicated their
satisfaction with the care that veterans have received at the new
access points, but some concerns have been expressed about the
ownership and operation of the clinics.  One veterans service officer
at a clinic we visited said that the access point was an improvement
for veterans seeking care.  Previously, veterans now using the clinic
had to travel long distances to get to the nearest VA medical center. 
The representative said that he had not heard any veteran complaints
and that the clinic is especially effective in providing preventive
care.  He added that the veterans were happy to have medical care
available to them at the clinic.  He also told us that now veterans
are more likely to see a physician more frequently because it is much
more convenient to seek care and not wait until the last minute. 

A veterans service officer at another clinic was very supportive of
the clinic, but said she would prefer that the clinic be VA-owned and
operated.  She was concerned because the clinic only had a part-time
physician.  If a veteran arrived at the clinic without an
appointment, the veteran might have to be cared for by a physician
assistant or nurse.  She indicated that veterans want to be seen by a
physician.  She also said there had been problems with medical files
not being transferred to or available at the clinic.  As a
consequence, medical care was delayed.  The same representative said
that veterans' demand for care may overwhelm the clinic.  She said
that some of the veterans getting care at the clinic had not received
medical care before because it took 3 hours to drive to the nearest
VA facility.  The veterans are now using the clinic because it is
more accessible.  About one-half of the veterans we interviewed said
that as long as VA paid for the care, they were not bothered by the
fact that the care they received was given at the access point rather
than at a VA facility. 

Access points may prove more attractive to veterans than VA hospitals
in part because access points moderate barriers such as geographic
inaccessibility.  The financial benefits that will accrue to veterans
using new access points will vary depending on whether veterans are
currently using VA hospitals or are new users of VA services. 
Current users should realize savings related to travel expenses.  New
low-income users will save these costs in addition to any costs they
previously incurred by receiving care at non-VA providers.  Savings
realized by new high-income users will be offset by VA copayments
that will be required. 

Current VA users will benefit primarily from reduced travel costs. 
VA reports that many veterans must travel several hours to get to a
VA hospital.  Because of the distances involved, many elderly
patients are not able to travel to and from their homes and receive
medical treatment all in one day.  Often, veterans and those
assisting them must stay in lodging the day before or after a
scheduled appointment.  Although VA may reimburse these veterans a
set amount of money for each mile they travel, lodging and meals are
not reimbursed.  Clinics located closer to current users would save
these veterans both time and money. 

Veterans new to the VA system have the potential to experience
significant cost savings.  Besides the savings that current users
would receive associated with travel, new users would realize
additional savings at rates dependent on the amount that they were
spending for health care before they used VA's access points.  For
example, an insured veteran could avoid a deductible of $250 or more
by using VA.  In addition, low-income veterans, who previously may
have received minimal health care because they lacked the means to
travel or pay for care, would no longer have to forgo care. 


      SOME PROVIDERS BENEFIT WHILE
      OTHERS MAY NOT
---------------------------------------------------------- Letter :4.3

The financial effect on non-VA providers will vary depending on
whether they provide care to veterans under contract with VA or
compete with VA by providing the same care to veterans while being
reimbursed by some other source.  When VA enters a community as a
payer of community providers, some local providers have the potential
to benefit financially.  Clinics that have excess capacity are in the
best position to benefit from a VA primary care contract.  For
example, one official at a new access point clinic reported that the
clinic's contract with the local VA hospital helped to offset its
fixed costs without adding much to its variable costs.  Because the
general population was getting smaller, local primary care staffs
were underutilized.  In addition, the populations served by the
clinics were disproportionately elderly, poor, and underinsured. 
Combined, these factors enabled the clinics to better utilize their
existing staff and benefit financially by contracting with VA. 

The veterans service officer at one location said that if it were not
for the VA contract, the clinic would probably not have survived. 
Therefore, not only do the veterans benefit, but VA's presence has
public health implications as well. 

An additional benefit cited by one clinic physician for contracting
with VA was the convenience for both veterans and their families to
receive care at the same location.  While VA pays only for a
veteran's health care, a veteran's family can receive treatment at
the same location. 

After VA selects a health care provider to establish a new access
point, those providers not selected will lose income to the extent
that their veteran patients switch to the VA-sponsored clinic for
their care.  At one access point, a local physician complained to the
clinic that one of his patients switched to the VA access point.  The
physician expressed concern about losing his other veteran patients. 
The likelihood that veterans will move from one provider to another
depends on a variety of factors, including the number and types of
providers available in the same geographic area. 

VA believes that contracting with existing local health care
providers will be less disruptive to the local health community
overall.  On the other hand, if VA established a VA-operated clinic
in a community with sufficient capacity to treat the target veteran
population, VA would most likely be viewed as a competitor
duplicating existing medical resources. 


      SOME INSURERS BENEFIT WHILE
      OTHERS ARE UNAFFECTED
---------------------------------------------------------- Letter :4.4

The financial effect on other health care financing organizations
will vary depending on whether they are publicly or privately
sponsored.  Seventy percent of the veterans using access points that
we interviewed had Medicare coverage and 7 percent had Medicaid
coverage.  These public insurers may process fewer claims for these
veterans because they are now using VA's access points. 

Under current law, Medicare and Medicaid are not allowed to pay VA
for eligible veterans treated at a VA facility.  VA recently asked
the Congress for authority to be reimbursed by Medicare for providing
care to such veterans.  Under the VA proposal, Medicare would
reimburse VA for care at a rate no greater than 95 percent of the
prevailing rate at which private Medicare providers are reimbursed. 

Private insurers will likely realize little financial change.  About
one-half of the veterans that we interviewed reported that they had
private insurance coverage.  Typically, insurers would be billed by
providers.  Access points, however, are paid by VA.  For veterans
with private insurance coverage, VA bills the insurer to recover its
costs. 


   MISSION-RELATED IMPLICATIONS OF
   ESTABLISHING ACCESS POINTS
------------------------------------------------------------ Letter :5

VA's new access points represent a proactive effort to transition
from a hospital-based delivery system to an integrated network of
VA-operated hospitals and non-VA primary care providers.  The
potential effect of access points on the future role of VA hospitals
as health care providers for veterans depends to a large extent on
hospitals' operational goals and objectives.  To date, VA has not
developed a strategic plan for its access points initiative, relying
instead on VISN directors to develop their own goals and objectives. 
In effect, the access points may be considered pilot projects that
provide useful information to assess the implications of different
network integration goals and veterans' satisfaction with an
integrated service delivery network. 

The effect of the access points on demand for VA health care services
is uncertain.  Improved accessibility, however, could greatly affect
future demand.  Each of the three hospitals we studied has
established access points to improve the convenience of primary care
for their current users.  At two of the hospitals, VA officials had
decided that the veterans who would benefit most from access points
would be those who lived the farthest from their respective medical
center.  Veterans who received care at these two hospitals had to
travel 108 miles on average with some veterans having to travel as
many as 300 miles from their homes. 

While VA's goal is intended to benefit its current veteran
population, all but two access points have attracted veterans who had
not previously used VA for their health care.  The extent to which
this occurs depends on a variety of factors, including the number of
veterans living in areas served by access points.  Despite the
intent, access points should help VA improve service delivery for
users, which in turn should improve user satisfaction with VA's
health care system. 


   VA MAY EXPAND ITS MARKET SHARE
------------------------------------------------------------ Letter :6

Depending on the location of the access point and the number of
veterans who live in the area, enrolling new users could
significantly affect VA's mission and budget.  VA officials at one
hospital anticipate a 20-percent increase in the number of new users. 
To date, about 10 percent of its access point users have been
veterans new to the VA health care system.  There are 3,848 veterans
in the area surrounding the access point clinic who are not currently
using VA.  In theory, this represents the potential customer base for
the access point.  VA officials anticipate the number of new users
for this access point to be moderate because of the characteristics
of the geographic area.  Specifically, the access point service area
consists of veterans whose homes are scattered throughout a rural
area and many would still have to travel long distances to get to the
access point.  Consequently, a new access point would not be an
attractive alternative to a veteran unless it was within a comparable
travel distance to his or her current health care provider. 

In more densely populated areas, however, VA's ability to attract new
users is more significant.  For example, one VA hospital has
contracted with a clinic in a more urbanized area to provide primary
care for up to 1,656 veterans.  However, there are 4,048 veterans in
the service area who currently use VA services and 24,856 veterans
who live in the same area who can be considered potential patients. 
Because veterans who live close to a VA facility are more likely to
use VA services,\11 there exists the potential for increasing VA's
market share.  Additionally, the potential for treating new veterans
is much greater in urban areas than in the remote rural areas where
the number of potential patients is far lower. 


--------------------
\11 See GAO/HEHS-96-31, Dec.  20, 1995. 


   EQUITY CONCERNS BETWEEN CURRENT
   AND NEW USERS MUST BE ADDRESSED
------------------------------------------------------------ Letter :7

VA hospitals are contracting with access points to care for a limited
number of veterans.  VA hospital resources available to fund access
points are finite and are limited to the extent that hospitals have a
set of core activities and services that must be maintained and
funded.  Because demand for service at access points may outstrip VA
hospitals' ability to fund the extra clients, VA hospitals have
developed procedures to ration care provided at access points. 

VA hospitals have the discretion to increase the number of veterans
covered by contracts, but if demand for medical care at access points
exceeds the VA hospitals' resources, the VA hospitals may need to
limit care.  VA hospitals have discretion on how to ration care.  For
example, veterans with high incomes and nonservice-connected
disabilities might be refused care, but care might also be rationed
by medical condition.  While the VA hospital officials with whom we
spoke did not anticipate having to ration care, they said that if it
became necessary they would do so on a first-come, first-served basis
rather than limiting care on the basis of VA eligibility criteria. 
This could result in a situation where veterans who have been using
the VA system could be denied care at the access point if they sought
care after an access point had enrolled its maximum number of
veterans.  Simultaneously, veterans who had never used VA health
services before going to the access point would continue to use the
clinic if they had been enrolled before the maximum number of
enrollees had been reached. 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

VA's plans to establish access points could represent a defining
moment for its health care system as it prepares to move into the
21st century.  The results of this action could range from improving
access for a modest number of current or new users who live the
greatest distances from VA facilities or in medically underserved
areas to opening hundreds of access points and expanding VA's market
share by attracting hundreds of thousands of new users.  VA's growth
potential is, in essence, limited by the availability of resources
and statutory authority, new veteran users' willingness to be
referred to VA hospitals, and other health care providers'
willingness to contract with VA hospitals. 

Although VA should be commended for encouraging hospital directors to
serve veterans using their facilities in the most convenient way
possible, VA did not establish access points in conformance with
applicable statutory authority.  In addition, VA has not developed a
plan to ensure that hospitals establish access points in an
affordable manner.  If developed, such a plan should articulate the
number of new access points to be established, target populations to
be served, time frames to begin operations, and related costs and
funding sources.  It should also articulate specific travel times or
distances that represent reasonable veteran travel goals that
hospitals could use in locating access points. 

Given the uncertainty surrounding resource needs for new access
points, such a plan should also articulate clear goals for the target
populations to be served.  Hospitals should be directed to provide
care at new access points following the statutory service priorities. 
If sufficient resources are not available to serve all eligible
veterans expected to seek care, new access points that are
established should first serve veterans with service-connected
disabilities; then other categories of veterans; and finally,
higher-income veterans.  This approach should provide for more
equitable access to VA care than VA's current strategy of allowing
local hospitals to establish access points that could result in
veterans being served on a first-come, first-served basis and then
having services rationed to them when resources run out. 

VA proposed ways to address the legal concerns, and on October 9,
1996, the President signed legislation (P.L.  104-262) that provides
VA hospitals with the authority to establish new access points.  VA
has also drafted guidance to address concerns about equity of access,
convenience of access, and enrolling new users.  However, the
guidance has not been finalized and directors have great latitude in
deciding how to use it.  Consequently, 22 VISN directors must decide
what is the fairest way to use their limited resources to establish
new access points that could result in 22 different, potentially
conflicting approaches. 

Given limited resources, our work suggests that VA should first focus
on improving the convenience of access for current users, with a goal
of equalizing access systemwide.  Once this is accomplished, VA could
then evaluate the costs and availability of resources to decide
whether to pursue seeking new users.  This approach seems fair for
two reasons.  First, veterans will not encounter situations where VA
hospitals in certain parts of the country may provide convenient
access for new users while veterans who have used VA hospitals in
other parts of the country for from 5 to 20 years will be required to
travel long distances for care.  Second, VA hospitals' efforts to add
new users will exacerbate the potential resource shortfalls,
resulting in hospitals running out of money sooner than they
otherwise would.  Ensuring equity of access for current users before
adding new users will also provide VA hospitals with additional time
to assess the financial implications of the access points and better
plan outreach strategies for new users. 


   RECOMMENDATIONS
------------------------------------------------------------ Letter :9

We recommend that the Secretary of Veterans Affairs direct the Under
Secretary for Health to establish a travel time or distance standard
to be followed by VA hospitals as they plan for additional access
points in their service areas. 

We also recommend that the Secretary direct the Under Secretary to
require VA hospitals to establish their access points in a manner
that focuses on (1) the equalization of access for current users of
the VA health care system on the basis of the designated time or
distance standard and (2) the enrollment of any new users of the
system in accordance with statutory priorities for VA care. 

Finally, we recommend that the Secretary direct the Under Secretary
to provide the Congress a report that presents VA's overall plan and
time schedule for the systemwide establishment of access points to
assist the Congress in determining the affordability of VA's plan. 


   AGENCY COMMENTS AND OUR
   EVALUATION
----------------------------------------------------------- Letter :10

In commenting on our draft report, VA agreed, in principle, with all
but one of our recommendations.  For example, VA stated that its
ongoing network planning will include activities that should achieve
our overall objectives of improving, in an equitable manner,
veterans' access to care.  Each VISN director is expected to
consistently work to achieve specific desirable outcomes and goals
and to consider desirable characteristics including travel time or
distance criteria when making decisions about new access points for
hospitals in his or her network.  VA cautioned, however, that
applying a single national standard as we recommended may be
difficult given the diverse nature of the veteran population and VA's
current health system that involves both urban and rural locations. 
For these reasons, VA believes that it is critical that the 22 VISN
directors have considerable discretion in the placement of access
points given veterans' travel times or driving distances. 

In the draft report provided to VA for its comment, we recommended
that VA comply with the then-existing statutes regarding both
veterans' eligibility for health care services and contracting for
those services.  In response to that recommendation, VA said that its
general counsel is reviewing each new request for access points.  In
VA's opinion, the recently passed reform bill will help resolve
disagreements over its interpretation and implementation of existing
statutes.  In view of the recent congressional action, we have
deleted our recommendation from this final report. 

VA did not agree that it is necessary to provide the Congress with a
report solely on VA's overall plans for systemwide establishment of
access points.  VA believes that the 22 networks' efforts to develop
1-year tactical and 2- or 3-year strategic plans will serve the same
purpose.  These 22 network plans will be consolidated into a national
business plan that will include planned activities relating to the
establishment of access points.  While we agree that VA's national
plan could provide a means to achieve the intent of our
recommendation, it is not known at this time whether the plan will
ultimately provide sufficient detail to afford the Congress enough
information to determine the overall extent and cost of establishing
access points. 


--------------------------------------------------------- Letter :10.1

Copies of this letter are being sent to the Ranking Minority Members
of the House Committee on Veterans' Affairs and the Senate
Subcommittee on VA, HUD and Independent Agencies, Committee on
Appropriations and the Secretary of Veterans Affairs.  Copies also
will be sent to other interested congressional committees and made
available to others upon request. 

Please call me at (202) 512-7101 if you have any questions or need
additional assistance.  Other major contributors to this report
include Paul Reynolds, Assistant Director; Michael O'Dell, Senior
Social Science Analyst; Patrick Gallagher and Abigail Ohl, Senior
Evaluators; Robert Crystal, Assistant General Counsel; Sylvia Shanks,
Senior Attorney; Linda Diggs and Larry Moore, Evaluators; and Joan
Vogel, Evaluator (Computer Science). 

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



RELATED GAO PRODUCTS
=========================================================== Appendix 0

VA Health Care:  Efforts to Improve Veterans' Access to Primary Care
Services (GAO/T-HEHS-96-134, Apr.  24, 1996). 

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

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

VA Clinic Funding (GAO/HEHS-95-273R, Sept.  19, 1995). 


*** End of document. ***