Veterans Benefits Administration: Problems and Challenges Facing
Disability Claims Processing (Testimony, 05/18/2000,
GAO/T-HEHS/AIMD-00-146).

Pursuant to a congressional request, GAO discussed the Veterans Benefits
Administration's (VBA) claims processing operations, focusing on: (1)
long-standing performance problems; (2) claims processing complexities;
(3) challenges to improving performance; and (4) VBA's initiatives to
improve performance.

GAO noted that: (1) VBA's problems with large backlogs and long waits
for decisions have not yet improved, despite years of studying these
problems; (2) moreover, VBA's new quality measurement system shows that
nearly one-third of decisions are incorrect or have technical or
procedural errors; (3) many performance problems stem from the process's
complexity, which is growing as the number of service-connected
disabilities per veteran increases and judicial review requires more
procedures and documentation; (4) although VBA has initiated a number of
efforts to streamline its claims processing performance, it is unclear
how much improvement will be gained; (5) VBA may need to collect and
analyze additional case-specific data to better understand its claims
processing problems and better target its corrective actions; and (6)
because some issues affecting VBA's performance are a function of
program design, more fundamental changes may have to be considered to
realize significant improvements.

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

 REPORTNUM:  T-HEHS/AIMD-00-146
     TITLE:  Veterans Benefits Administration: Problems and Challenges
	     Facing Disability Claims Processing
      DATE:  05/18/2000
   SUBJECT:  Claims processing
	     Veterans benefits
	     Customer service
	     Performance measures
	     Management information systems

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GAO/T-HEHS/AIMD-00-146

   * For Release on Delivery
     Expected at 10:00 a.m.

Thursday, May 18, 2000

GAO/T-HEHS/AIMD-00-146

VETERANS BENEFITS ADMINISTRATION

Problems and Challenges Facing Disability Claims Processing

        Statement of Cynthia A. Bascetta, Associate Director

Veterans' Affairs and Military Health Care Issues

Health, Education, and Human Services Division

Testimony

Before the Subcommittee on Oversight and Investigations, Committee on
Veterans' Affairs, House of Representatives

United States General Accounting Office

GAO

Veterans Benefits Administration: Problems and Challenges Facing Disability
Claims Processing

Mr. Chairman and Members of the Subcommittee:

We are pleased to be here today to provide an overview of claims processing
in the disability compensation program through which the Department of
Veterans Affairs (VA) provides cash benefits to more than 2.5 million
veterans, their dependents, and survivors. The compensation program pays
monthly benefits-based on degree of disability-to veterans who have
service-connected disabilities (injuries or diseases incurred or aggravated
while on active military duty). Administered by the Veterans Benefits
Administration (VBA), the compensation program is VBA's largest program,
accounting for about 72 percent of fiscal year 1999 cash outlays (about $18
billion out of $25 billion). For years, the compensation program has been
the subject of concern and attention within VA and by the Congress and
veterans' service organizations. The concerns have focused on backlogs of
claims, long waits for disability decisions, and the poor quality of these
decisions, all of which have negatively affected the quality of service
provided to veterans.

We have issued a number of reports on VBA's claims-processing operations,
and the Congress has sponsored studies of the disability compensation
program, including studies by the Veterans' Claims Adjudication Commission
and the National Academy of Public Administration (NAPA). Today, drawing on
this body of work, I will focus on four key areas related to compensation
claims processing: (1) long-standing performance problems, (2)
claims-processing complexities, (3) challenges to improving performance, and
(4) VBA's initiatives to improve performance.

In summary, VBA's problems with large backlogs and long waits for decisions
have not yet improved, despite years of studying these problems. Moreover,
VBA's new quality measurement system shows that nearly one-third of
decisions are incorrect or have technical or procedural errors. Many
performance problems stem from the process's complexity, which is growing as
the number of service-connected disabilities per veteran increases and
judicial review requires more procedures and documentation. Although VBA has
initiated a number of efforts to streamline its claims-processing
performance, it is unclear how much improvement will be gained. Also, VBA
may need to collect and analyze additional case-specific data to better
understand its claims-processing problems and better target its corrective
actions. Furthermore, because some issues affecting VBA's performance are a
function of program design, more fundamental changes may have to be
considered to realize significant improvements.

Background

Veterans may submit claims to any one of VBA's 57 regional offices. To
develop a veteran's claim, the regional office obtains the veteran's
existing medical and military service records and, if necessary, arranges
for the veteran to be examined by physicians in the Veterans Health
Administration (VHA). The regional office evaluates the veteran's
service-connected impairments and assigns a rating for the degree to which
the veteran is disabled, ranging from zero to 100 percent (expressed in
10-percent increments). For veterans with multiple disabilities, the
regional office combines the ratings for each disability into a single,
composite rating. If a veteran disagrees with the regional office's
decision, he or she can ask for a regional office hearing or submit a
"notice of disagreement" and file an appeal asking VA's Board of Veterans'
Appeals to review the decision. The Board makes the final decision on such
appeals and can grant benefits, deny benefits, or remand (return) the case
to the regional office for further development and reconsideration. After
reconsidering a remanded decision, the regional office either grants the
claim or returns it to the Board for a final VA decision. If the veteran
disagrees with the Board's decision, he or she may appeal to the U.S. Court
of Appeals for Veterans Claims. If either the veteran or VA disagrees with
this court's decision, they may appeal to the Court of Appeals for the
Federal Circuit.

Long-Standing Performance Problems in Compensation Claims Processing

As acknowledged by VBA, backlogs of claims have resulted in veterans having
to endure long waits to receive decisions on their initial claims and on
their appeals. As shown in figure 1, at the end of fiscal year 1999, VBA had
about 69,000 pending initial compensation claims, of which over 23,000 (34
percent) had been pending for more than 6 months. You can see that in all
categories the number of claims pending has been growing since 1996.

Figure 1: Initial Compensation Claims Pending at Year-End, FY 1995-99

Source: VBA data.

The average time for processing initial compensation claims peaked at 213
days in fiscal year 1994, as shown in figure 2. Thereafter, timeliness seems
to improve through fiscal year 1997, as average processing time declined to
133 days. However, according to VA, apparent improvements were based on
timeliness data that substantially understated the actual time required to
process claims. This was revealed by a VA Inspector General audit, which
found that timeliness data reported by regional offices had been in error by
as much as 34 percent. After VBA took action to correct the data reporting
problems, the average processing time again climbed, reaching 205 days in
fiscal year 1999. This places VBA far from reaching its strategic goal of 74
days average processing time for claims that require disability ratings.

Source: VBA data.

When veterans appeal decisions made by regional offices, the average time
spent to resolve the appeals is even longer than the time that the regional
offices spent making the initial decisions. For appeals resolved during
fiscal year 1999, the average time required was over 2 years (745 days) from
the date the veteran submitted a notice of disagreement with the regional
office's decision.

In addition to problems with timeliness of decisions, VBA acknowledges that
the accuracy of regional office decisions needs to be improved. VBA
historically had reported that regional offices processed claims accurately
over 95 percent of the time; however, concerns about accuracy arose in the
1990s when dramatic increases occurred in the percentage of appealed cases
remanded to regional offices by the Board of Veterans' Appeals. As a result,
VBA implemented a new accuracy measurement system in fiscal year 1999 under
which the error rate includes not only incorrect decisions on whether to
grant or deny claims but also procedural and technical errors such as
failure to include all required documentation in the case file or to
properly notify veterans of decisions. Using the new method, VBA calculated
an accuracy rate of 68 percent (32-percent error rate) for initial decisions
requiring disability ratings. For fiscal year 2000, VBA has set an accuracy
goal of 81 percent; its long-term strategic goal is 96 percent accuracy.

Another problem is the perception of inconsistency in decisions made by
different regional offices. In 1997, NAPA identified several factors that
could lead to inconsistency in VBA's decisions: (1) achieving consistency
across 57 decentralized offices is inherently difficult, (2) regional office
staff must deal with a variety of medical issues that often require them to
make subjective judgments, (3) VBA's regulations were unclear and subject to
varying interpretations, and (4) VBA lacked a comprehensive training
strategy that identified training needs and used standardized training to
meet these needs. NAPA stated that VBA needed to identify the degree of
subjectivity expected for various medical issues, set consistency standards,
and measure the level of consistency as part of the quality review process
or through testing of control cases in several regional offices.

Claims Processing Is Complex

   * receive the claim-the veteran submits the claim form to the regional
     office in person, through a veterans' service organization, or through
     the mail;
   * establish the claim-the regional office enters basic information about
     the veteran and the claim into a computer system and sets up a claim
     file folder;
   * develop the claim-the regional office reviews the claim file folder for
     military service and medical information, requests and obtains missing
     information, and reviews all pertinent information to determine basic
     eligibility;
   * rate the claim-the regional office analyzes the veteran's service
     records and service and private medical records and determines the
     veteran's level of disability;
   * determine the payment amount-the regional office reviews the claim file
     folder to ensure that the rating is consistent with statutes and VBA
     policies and to determine the payment amount; and
   * authorize the claim-the regional office reviews previous work on the
     claim, approves the initiation of benefit payments, and provides
     notification of the decision to the veteran, along with information on
     how to appeal should the veteran disagree with the decision.

As we reported in 1994, many in VA blamed part of the claims-processing
delays on the traditional, assembly line processing approach used in
regional offices. Under the traditional approach, each claim passed
sequentially through several individuals who separately performed the six
processing functions mentioned. VBA has started moving toward a team-based,
case management approach under which a regional customer service team is
collectively responsible for processing each claim from beginning to end,
thereby avoiding multiple handoffs of the claim to individuals who
separately perform each task. The regional offices are in various stages of
implementing this new approach. In addition, the regional offices have
implemented two systems to assist them with their work. One tracks the
location of claims folders, while the other system prevents the entry of
duplicate requests for service verification and service medical records.
Also, for claimants discharged from military service after May 1, 1994, the
Department of Defense now automatically transfers their service medical
records to VA, alleviating the need to request these records.

The changes made to date, however, have done little to streamline the
overall process. Currently, the process contains as many as 66 decision
points and 39 queues (or waiting points) (see the app. for a depiction of
the initial compensation claims process). Of the 39 queues, 28 are points at
which claims wait for attention from regional office staff, and 11 are
points at which regional office staff wait for information from external
sources not under their control. For example, NAPA reported in 1997 that it
was not unusual for regional offices to take as long as 80 days to request
and obtain information such as (1) military service dates; (2) service
medical records; (3) verification of receipt and amounts of military
severance pay, separation pay, and/or retired pay; (4) medical records from
private physicians, hospitals, and VA medical centers; and (5) other
evidence in the custody of military authorities or other government
agencies. Even after obtaining this information, regional staff often find
they need additional medical evidence to determine a veteran's precise
current medical status. In such cases, the staff must schedule the veteran
for an examination by a VHA or contract physician. If regional staff find
that the physician's initial examination is not adequate, they must request
a follow-up examination.

Another factor that can increase complexity and contribute to
claims-processing delays is that veterans have the right, by law, to submit
additional evidence at any point during VA's initial claims process,
including during appeals on these claims to the Board of Veterans' Appeals.
The submission of such evidence can result in delays because claims
processors must further develop the claim and reevaluate the veteran's
degree of disability.

Challenges to Improving Performance

Certain Characteristics of Claims Increase Workloads

The number of disabilities determined to be service-connected has also been
increasing. Of all the veterans who began receiving compensation benefits
during fiscal year 1998, the average veteran had 2.72 service-connected
disabilities. Compared with 1989, this represents an increase of about 30
percent in the number of service-connected disabilities per veteran.

The increase in the average number of service-connected disabilities per
veteran may be due to several factors. For example, NAPA commented on the
possible effects of VA's cooperative effort with the Department of Defense
to perform medical examinations of veterans before their discharge from the
service and to begin the claims process closer to the time of discharge.
NAPA raised the possibility that these efforts potentially could result in
the identification of a greater number of disabilities. The increase in
disabilities per veteran also may be attributable in part to the recognition
of new disabilities that are more difficult to evaluate. For example, the
Agent Orange Act of 1991 presumed that anyone who served in Vietnam had been
exposed to Agent Orange and extended compensation for certain diseases
presumed to result from exposure. In another instance, the Veterans'
Benefits Improvement Act of 1994 identified Gulf War Syndrome as a
compensable disability, which was the first time the Congress authorized VA
to compensate veterans for "undiagnosed illnesses" for which only symptoms
can be discerned. VBA data show that Gulf War veterans have more
service-connected disabilities than any other group of veterans since World
War II.

Another factor that drives regional office workloads is "repeat" (or
subsequent) claims filed by veterans after their initial claims are decided.
According to VBA, repeat claims include requests for reevaluation of
disabilities previously claimed or the evaluation of new disabilities not
claimed previously. In fiscal year 1998, veterans filing repeat claims
outnumbered veterans filing initial claims by about three to one.
Additionally, as mentioned, the number of service-connected disabilities per
veteran has been increasing. This increases the potential for repeat claims
because each additional disability represents the potential for a request
for reevaluation.

Establishment of the U.S. Court of Appeals for Veterans Claims Heightened
Complexity

Perhaps more importantly, the Court's decisions also contributed to
substantial increases in the time required to process claims. According to
the Veterans' Claims Adjudication Commission, VA historically has lacked
clear and definitive administrative procedures, but prior to creation of the
Court, VA's vague rules had not been a problem because the rules were
subject only to VA's interpretation. The Court's interpretation, however, of
statutory and regulatory provisions generally has been more expansive than
VA's and has imposed greater procedural and documentation requirements on
VA. For example, before the Court's creation, regional office staff
generally wrote one brief statement for each claim that summarized their
overall evaluation and rating of all disability issues. Now, regional staff
must separately describe the evidence and the decision rationale for each
disability issue. The Adjudication Commission's 1996 report stated that the
number of work hours required to process the average case had doubled since
the creation of the Court. Consistent with this finding, VBA data show that
the number of decisions produced per rating specialist in fiscal year 1999
(797 decisions) was less than half the number produced 10 years earlier in
fiscal year 1989 (1,716 decisions).

Wave of Retirements Presents Challenges for VBA's Training Program

Effectiveness of VBA's Performance Improvement Initiatives Remains Unclear

VBA's initiatives for improving claims processing encompass efforts such as
implementing a case management approach for processing claims; working with
the Department of Defense to administer physical examinations before
servicemembers are discharged from military service; using electronic
networks to obtain existing military service and medical records; improving
the guidance and training for VHA physicians; developing computer-based
training modules for regional office staff; and instituting a "balanced
scorecard" that measures program performance on the basis of
claims-processing accuracy and timeliness as well as unit cost, customer
satisfaction, and employee development.

In addition, during fiscal years 1986 through 1999, VBA spent at least $380
million to modernize its information technology systems to support its
operations. Of the $380 million, at least $28 million was spent on
initiatives specifically intended to improve compensation claims processing,
from the establishment of claims through benefit payment and accounting.
These initiatives are at various stages of completion. For example, in 1996
VBA implemented an initiative to track the location of veterans' claims
folders. Since then, VBA has been developing a system to replace the
compensation and pension payment system.

Also, in February 1999 VBA began testing the use of a case management
approach to claims processing at six demonstration sites. As part of this
test, VBA is using two automated tools: (1) the Claims Processing System
applies rule-based technology to identify necessary evidence when a claim is
initially received and produces reader-friendly letters requesting evidence
and (2) the Claims Automated Processing System collects and stores
information about pending claims. In August 1999 VBA completed a 6-month
assessment of the demonstration project and concluded that neither system
had any discernible effect on performance measures such as pending workload,
timeliness, and productivity. VBA found that the Claims Processing System
was labor intensive and had system access problems. It also found that the
Claims Automated Processing System could not produce some management
reports; this problem, according to VBA, has been fixed. According to a
recent status report on its efforts to reengineer claims processing, VBA
plans to continue using the Claims Automated Processing System to assist
employees in providing case management services, but VBA discontinued the
mandatory use of the rule-based Claims Processing System at the
demonstration sites.

Despite VBA's efforts to improve its performance, its timeliness problems in
claims processing continue and its accuracy in claims processing has far to
go to reach VBA's strategic goal for accuracy. At present, it is unclear how
much improvement will be gained through VBA's initiatives. Also, while VBA
has improved its data collection efforts, it may still need to collect and
analyze additional data, such as specific information on error-prone cases,
to further understand its claims processing problems and better target
corrective actions. Furthermore, as we mentioned in last year's testimony
before the Subcommittee on Benefits, some issues affecting VBA's performance
are not in its direct control and are a function of the design of the
program. As a result, it may be that only incremental gains can be made
without changes in the current design of the program.

Mr. Chairman, this concludes my prepared remarks. I would be pleased to
respond to any questions you or Members of the Subcommittee may have.

GAO Contact and Staff Acknowledgments

Appendix

VA's Initial Compensation Claims Process

Figures 3a through 3i depict the initial compensation claims process. A list
of abbreviations and forms referred to in the figures is included after
figure 3i.

Figure 3a: Process Legend

Figure 3b: Receive a Claim

Figure 3c: Establish a Claim

Figure 3d: Develop a Claim (Part 1)

Figure 3e: Develop a Claim (Part 2)

Figure 3f: Rate a Claim

Figure 3g: Determine Payment Amount

Figure 3h: Authorize a Claim

Figure 3i: File Banks

 VISTA        Veterans Health Information Systems and
              Technology Architecture
 VSO          veterans' service organization
 VSR          veterans service representative
 WIPP         work in progress
 Forms

 010          Original service-connected compensation claim with
              more than seven issues

 110          Original service-connected compensation claim with
              seven issues or fewer
              Veterans' application for service-connected disability
 526
              compensation and nonservice-connected pension
              benefits
              Veterans' release of information (permission) form to
 4142         obtain medical records from a private physician or
              hospital

 7131         Request (electronic or hard copy) for medical records
              from a VA medical facility

(105778)

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