Department of Veterans Affairs GAO/OCG-99-15 - US Government

United States General Accounting Office

GAO Performance and AccountabilitySeries

January 1999

Major ManagementChallenges and ProgramRisks

Department of VeteransAffairs

GAO/OCG-99-15

GAO United States

General Accounting Office

Washington, D.C. 20548

Comptroller General

of the United States

January 1999

The President of the SenateThe Speaker of the House of Representatives

This report addresses the major performance andmanagement challenges that confront the Department ofVeterans Affairs (VA) in carrying out its mission of serviceto America’s veterans and their families. It also addressescorrective actions that VA has taken or initiated on thesechallenges and further actions that are needed. For manyyears, we have reported significant managementproblems at VA. These problems include obsoleteinfrastructure, poor monitoring of the effects of healthservice delivery changes on patient outcomes, inadequatedata, and ineffective management of non-health-carebenefits and management information systems.

VA has made progress in developing a framework formanaging and evaluating changes in health care servicedelivery; however, much more needs to be done. In itsrestructuring, VA must ensure that it meets its educationaland medical missions without compromising efforts toimprove efficiency and effectiveness. VA needs to improvethe accuracy and reliability of information for measuringthe extent to which veterans receive appropriate care,especially veterans with special needs, and have equitableaccess to care across the country. In managingnon-health-care benefits challenges, VA must continue toset results-oriented goals for compensating disabledveterans and develop effective strategies for improving

disability claims processing and vocational rehabilitation.VA must also implement adequate control andaccountability mechanisms over its direct loan and loansales activities as well as institutionalize fundamentalchanges to its approach to information systemsmanagement to ensure that benefits are not disrupted inthe year 2000.

This report is part of a special series entitled thePerformance and Accountability Series: MajorManagement Challenges and Program Risks. The seriescontains separate reports on 20 agencies—one on each ofthe cabinet departments and on most major independentagencies as well as the U.S. Postal Service. The seriesalso includes a governmentwide report that draws fromthe agency-specific reports to identify the performanceand management challenges requiring attention acrossthe federal government. As a companion volume to thisseries, GAO is issuing an update to those governmentoperations and programs that its work has identified as“high risk” because of their greater vulnerabilities towaste, fraud, abuse, and mismanagement. High-riskgovernment operations are also identified and discussedin detail in the appropriate performance andaccountability series agency reports.

The performance and accountability series was done atthe request of the Majority Leader of the House ofRepresentatives, Dick Armey; the Chairman of the HouseGovernment Reform Committee, Dan Burton; theChairman of the House Budget Committee, John Kasich;

GAO/OCG-99-15 VA ChallengesPage 2

the Chairman of the Senate Committee on GovernmentalAffairs, Fred Thompson; the Chairman of the SenateBudget Committee, Pete Domenici; and Senator LarryCraig. The series was subsequently cosponsored by theRanking Minority Member of the House GovernmentReform Committee, Henry A. Waxman; the RankingMinority Member, Subcommittee on GovernmentManagement, Information, and Technology, HouseGovernment Reform Committee, Dennis J. Kucinich;Senator Joseph I. Lieberman; and Senator Carl Levin.

Copies of this report series are being sent to thePresident, the congressional leadership, all otherMembers of the Congress, the Director of the Office ofManagement and Budget, the Secretary of VeteransAffairs, and the heads of other major departments andagencies.

David M. WalkerComptroller General ofthe United States


Contents

Overview 6

MajorPerformance andManagementIssues

11

Related GAOProducts

49

Performance andAccountabilitySeries

53


Overview

The Department of Veterans Affairs (VA) isresponsible for administering benefits andservices that affect the lives of more than25 million veterans and approximately44 million members of their families.Through its budget—approximately$43 billion in fiscal year 1999—VA providesan array of health care benefits;non-health-care benefits, such ascompensation and pensions; and othersupporting programs. Over 200,000 VA

employees deliver these services from morethan 1,000 facilities. As it administers thisdiverse group of programs, VA is confrontinga number of serious performance andmanagement challenges.

The Challenges

VA Health CareInfrastructure DoesNot Meet Currentand Future Needs

Many VA facilities are deteriorating,inappropriately configured, or no longerneeded because of their age and VA’s shift inemphasis from providing specializedinpatient services to providing primary carein an outpatient setting. Despite eliminatingabout one-half of VA’s hospital beds, excesscapacity remains.


Overview

VA Lacks AdequateInformation toEnsure ThatVeterans HaveAccess to NeededHealth Care Services

VA lacks accurate, reliable, and consistentinformation for measuring the extent towhich (1) veterans are receiving equitableaccess to care across the country, (2) allveterans enrolled in VA’s health care systemare receiving the care they need, and (3) VA ismaintaining its capacity to care for specialpopulations.

VA Lacks OutcomeMeasures and Datato Assess Impact ofManaged CareInitiatives

VA does not know how its rapid move towardmanaged care is affecting the health statusof veterans because measures of the effectsof its service delivery changes on patientoutcomes have not been established. Otherpublic and private health care providers haverecognized the necessity—and thedifficulty—of creating such criteria andinstruments.

VA Faces MajorChallenges inManagingNon-Health-CareBenefits Programs

In managing non-health-care benefitsprograms, VA needs to overcome a variety ofdifficulties. Currently, VA cannot ensure thatits veterans’ disability compensation benefitsare appropriately and equitably distributedbecause its disability rating schedule doesnot accurately reflect veterans’ economiclosses resulting from their disabilities. Also,VA is compensating veterans for diseases thatare neither caused nor aggravated by


Overview

military service. In addition, claimsprocessing in VA’s compensation and pensionprogram continues to be slow, and thevocational rehabilitation program hasyielded limited results. Moreover, the datathat VA will use to measure compensationand pension program performance arequestionable. Furthermore, VA hasinadequate control and accountability overthe direct loan and loan sales activitieswithin VA’s Housing Credit Assistanceprogram.

VA Needs to ManageIts InformationSystems MoreEffectively

VA has made progress in addressing Year2000 challenges but still has a number ofassociated issues to address. In addition, VA

lacks adequate control and oversight ofaccess to its computer systems and has notyet institutionalized a disciplined process forselecting, controlling, and evaluatinginformation technology investments, asrequired by the Clinger-Cohen Act.

Progress andNext Steps

As required by the Government Performanceand Results Act of 1993, commonly knownas the Results Act, VA submitted a strategicplan for fiscal years 1998 to 2003. In thisplan, VA developed strategic goals coveringall its major programs and included


Overview

objectives, strategies, and performance goalsto support its strategic goals. VA has madeprogress in developing a framework formanaging and evaluating changes in servicedelivery. However, there is still much moreto do.

In particular, VA must determine whether itwill better serve veterans’ needs for healthcare services by repairing, renovating, andmaintaining existing buildings or byspending resources directly on patient care.In its restructuring, VA must ensure that itmeets its educational and medical missionswithout compromising efforts to improveefficiency and effectiveness, and it mustconsider the impact such changes may haveon its role in national emergencies. VA mustalso improve its management information tohelp it ensure that veterans have equitableaccess to care across the country, that itmaintains its capacity to serve specialpopulations, and that it can meet enrolledveterans’ demand for care. Furthermore, VA

needs to have clearly understandable,reliable, and consistent information availableto its health care managers at all levels toidentify and correct negative trends in healthoutcomes in a timely manner.


Overview

In addressing non-health-care benefitschallenges, VA must continue to setresults-oriented goals, such as whetherdisabled veterans are being compensatedappropriately under the existing disabilityprogram. VA must develop effectivestrategies for resolving its long-termdisability claims processing and vocationalrehabilitation shortcomings. Also, VA mustimplement adequate control andaccountability over its direct loan and loansales activities to ensure that the true costassociated with these activities can bemeasured. Furthermore, VA must implementand institutionalize fundamental changes toits approach to information systemsmanagement to ensure that benefitspayments and medical care to veterans arenot disrupted in the year 2000, unauthorizedaccess to and misuse of VA systems do notoccur, and sound information technologyinvestment practices continue.


Major Performance and ManagementIssues

VA directly touches the lives of millions ofveterans and their families every day throughits health care and non-health-care benefitsprograms. VA serves the medical care needsof veterans by providing primary care,specialized care, and related medical andsocial support services at hundreds ofservice delivery locations or by purchasingthat care from other providers. In addition,VA supports medical education and researchand serves as a primary medical backup toother federal agencies during nationalemergencies. In the last several years, VA hasintroduced two major initiatives to changethe way it manages its approximately $18billion health care system. In fiscal year1996, VA decentralized its managementstructure to form 22 geographically distinctVeterans Integrated Service Networks (VISN)to coordinate the activities of VA’s hospitals,outpatient clinics, nursing homes, and otherfacilities. VA has also been makingfundamental changes in the way it delivershealth care services by applying managedcare practices, such as primary, outpatient,and preventive care, and decreasing itsemphasis on providing inpatient care. Inaddition to providing health care services toveterans, VA provides non-health-carebenefits of over $20 billion each year toabout 3.3 million veterans, their dependents,and their survivors. The non-health-care


Major Performance and Management

Issues

benefits include disability payments,compensation, pensions, and vocationalrehabilitation assistance programs that areadministered through VA’s 58 regionalbenefits offices.

Over the past several years, our reports andthose of VA’s Inspector General and othershave documented problems with VA’sperformance in carrying out its complexmission and have identified severalmanagement challenges that VA mustaddress. This report highlights some of theserious management challenges that VA mustovercome to meet its strategic goals ofefficiently and effectively delivering servicesto veterans and their families. Thesechallenges include an infrastructure thatdoes not meet current and future needs,inadequate information for ensuring thathealth care services are available to eligibleveterans, poor monitoring of the effects ofhealth service delivery changes on patientoutcomes, ineffective management ofnon-health-care benefits programs, disabilitycompensation payments that areinappropriately and inequitably distributed,and ineffective management of informationsystems.



Issues

VA Health CareInfrastructureDoes Not MeetCurrent andFuture Needs

Because of their age and recent changes inthe way VA delivers health care, many VA

facilities are deteriorating, unneeded, orinappropriately configured. As VA shifts itsemphasis from providing specializedinpatient services to providing primary carein an outpatient setting, less of VA’s existinghospital space is needed. Unneeded vacantspace creates a financial drain on VA:maintaining unproductive assets siphonsvaluable resources away from providingdirect medical services. In confronting thischallenge, VA needs to make importantmanagement decisions about whether andhow to maintain, renovate, liquidate, orredirect the use of these buildings andgrounds. VA will need to identify services thatcould be consolidated across its facilities aswell as those that could be offered moreefficiently by other public and privateproviders who contract with VA. Thesedecisions must be made in the context of adecreasing population of veterans—one thathas a rapidly increasing proportion ofmembers aged 85 and older who will requiremore intensive services, such as nursinghome care. Furthermore, these decisions arelikely to affect how VA meets its medicaleducation mission to train physicians andother clinical care providers and will requireVA to restructure its affiliation agreements



Issues

with medical schools and other institutions.All these decisions will be of criticalimportance in shaping how VA fulfills itshealth care role well into the next century.

Many VA FacilitiesAre Inadequate forDelivering HealthCare

Many of VA’s facilities—its buildings andgrounds—are no longer adequate forefficiently and effectively delivering healthcare to veterans. Many facilities are poorlyconfigured for the way in which VA delivershealth care services today and plans todeliver services in the future. For example,most VA facilities were constructed ashospitals with an array of bed sections,treatment rooms, surgical suites, and otheraccommodations and equipment for treatingan inpatient population. The layout of thesefacilities is often poorly suited for deliveringcare to an ambulatory population on anoutpatient basis. Although changing carepractices and efficiency initiatives, such asemphasizing outpatient care and facilityintegration, have allowed VA to eliminateapproximately half of its 52,000 acute-carehospital beds since 1994, excess capacityremains. Furthermore, the veteranpopulation is declining: VA projects that thenumber of veterans in the country will dropabout 21 percent from 1997 to 2010. We havereported that if past efficiency trends and



Issues

demographic projections are realized, VA willneed only about 10,000 of its current 26,000acute-care beds to meet veterans’ health careneeds in 2010. As a result, VA will likely needto close some facilities.

Meanwhile, VA continues to serve someveterans in aged and deteriorating buildingsthat will require billions of dollars torenovate or replace in order to meet currentindustry standards and accommodatechanging health care practices. As itconsiders priorities for renovating orredirecting the use of these buildings, VA

should also be planning for the needs of theincreasingly older veteran population. As thenation’s World War II and Korean Warveteran populations age, their health careneeds are shifting from acute hospital careto nursing home and other long-term careservices. For example, the number ofveterans aged 85 and older is projected toincrease to about 1.3 million in 2010, afourfold increase from 1995.

VA’s major initiative to integrate variousclinical and support operations across someof its facilities recognizes that some facilitiescannot meet VA’s current and future needswithout extensive renovations. For example,we have reported that consolidating services



Issues

from four to three locations in the Chicagoarea could save $6 million to $27 million infuture renovation costs. Integrations are alsointended to enhance the efficiency andeffectiveness of VA’s health care deliverysystem by reducing unnecessary duplicationof services. We have reported that the 23facility integrations involving 48 health carefacilities that have been completed or areunder way will produce millions of dollars insavings that can be used to enhanceveterans’ health care. We believe VA needs toidentify additional opportunities forintegrating facilities. For example, we havereported that if VA closed one of its fourhospitals in the Chicago area, it could save$20 million annually and enhance veterans’access to services.

We have also reported, however, that VA’splanning and implementation efforts for theintegrations it has undertaken have beeninadequate. First, in planning integrations VA

generally did not conduct comprehensiveevaluations thoroughly assessing allpotential resources needed to meet theexpected workload in a given location overthe next 5 to 10 years. As a result ofinadequate planning, VA has spent hundredsof millions of dollars over the last decadeconstructing and renovating inpatient



Issues

capacity that is no longer needed. Second, VA

has implemented some changes beforecompleting the planning phases andproviding detailed integration plans tostakeholders. Third, VA has not usedindependent planners—that is, plannerswithout vested interests in the geographicarea. Consequently, VA has encounteredopposition from stakeholders such asveterans, facility personnel, affiliatedmedical school personnel, and Members ofthe Congress who represent these groupswhen it proposed facility integrations.However, VA has recently developed aguidebook for planners to use in developing,implementing, and evaluating potentialfacility integrations. While this is a stepforward, VA needs to apply this frameworkand evaluate its effectiveness in savingresources for both the short and the longterm.

One additional factor that may affect theneed for continued use of some VA facilitiesis the expanded authority to contract forhealth care services that the Congressprovided VA in 1996. Under this authority, VA

can contract with public or privateproviders, who can provide care at lowercost or care that VA does not offer in aparticular geographic location. To the extent



Issues

that VA uses this authority, it may createadditional excess capacity in existingfacilities. VA needs to determine whether itwill better serve veterans by repairing,renovating, and maintaining existingbuildings or by spending resources directlyon patient care—for example, by contractingfor that care with other providers. In makingits decisions and in planning futureconstruction and integrations, VA has theopportunity to dramatically reshape itsdelivery system to meet the changingmedical and long-term-care needs of itsveteran population. VA generally agrees thatit must take a comprehensive, long-rangeapproach to planning to help ensure that itefficiently and effectively meets the needs ofveterans in the future.

InfrastructureChanges AreComplicated by VA’sMedical SchoolAffiliations,Research Activities,and EmergencyBackup Role

VA’s restructuring efforts, particularlyintegrating administrative and clinicalservices across two or more medical centers,are complicated by affiliation agreementsthat VA facilities have with medical schoolsand agreements with federal agenciesregarding VA’s role in national emergencies.VA has met its education mission by forgingclose relationships with medical schools.Since VA’s medical education program beganin 1946, 130 VA medical centers have



Issues

affiliated with 105 medical schools toprovide training opportunities for medicalstudents and residents. Today, about70 percent of all physicians employed by VA

hold faculty appointments at these schools.In addition, over 100,000 healthprofessionals from more than 1,000educational institutions receive clinicalexperience in VA medical centers each year.VA management decisions aboutinfrastructure affect not only affiliationagreements with medical schools but alsoVA’s responsibility to support the nation’smedical needs during national emergencies.

Currently, most VA medical centers areaffiliated with a single, nearby medicalschool, making it easy for students,residents, faculty, and researchers to fulfilltheir obligations. Transforming VA’s healthcare delivery system from an inpatient to anoutpatient focus, increasing reliance onprimary care, and integrating services infewer hospitals are all causing VA andmedical schools to rethink their affiliationarrangements. As medical services areeliminated or transferred from one VA facilityto another to improve program efficiencies,educational opportunities available in VA

facilities will change, which is likely to affectVA medical center affiliation agreements with



Issues

medical schools. For example, instead ofcontinuing inpatient surgery and intensivecare at both the Montgomery and Tuskegeemedical centers, VA removed these servicesfrom Tuskegee and consolidated them atMontgomery, which is 35 miles away. Inaddition, because VA is shifting its emphasisfrom specialized care to primary care, it hasbegun to change the mix of trainingopportunities for medical residents. VA’s goalis to offer 48 percent of its medical residenttraining slots to primary care physicians bythe year 2000—an increase of 20 percentfrom fiscal year 1997. Furthermore, betweenfiscal years 1996 and 2000, VA plans to reducethe number of medical residents in specialisttraining by 1,000 (18 percent) by reallocating750 specialty slots to primary care andeliminating 250 others. Although somemedical schools, such as those in theChicago area, have raised numerousconcerns about potential VA integrations, itseems inevitable that more than one medicalschool will need to share inpatienteducational and research opportunities at asingle VA facility. VA must work with themedical schools to ensure it meets itseducational and medical missions withoutcompromising efforts to improve itsefficiency and effectiveness.



Issues

Since 1982, VA has served as the primarymedical system backup to the Department ofDefense (DOD). VA also works with theFederal Emergency Management Agency andthe National Disaster Medical System duringnational emergencies. For example, as DOD’sbackup, VA has agreed to make bedsavailable in case of war or other militaryneed. The integration of facilities’administrative functions, the consolidationof medical services in fewer VA locations,and VA’s reduced reliance on providingspecialized care may alter the way VA is ableto support DOD and the federal emergencyand disaster systems. VA has identified DOD

and others as stakeholders that are to beinvolved in its planning process but has notspecified the steps it will take to ensure thatits plans for restructuring health caredelivery consider the impact such changesmay have on its role in national emergencies.

Key Contact Stephen P. Backhus, DirectorVeterans’ Affairs and Military Health Care IssuesHealth, Education, and Human Services Division(202) [email protected]



Issues

VA LacksAdequateInformation toEnsure ThatVeterans HaveAccess to NeededHealth CareServices

Because VA lacks accurate, reliable, andconsistent information on how resources arebeing allocated, it cannot ensure thatveterans are receiving equitable access tocare across the country. VA has also beenunable to ensure that veterans in need ofcostly specialized treatment andrehabilitative services have access to suchcare. Finally, VA has not developedinformation that would enable it to ensurethat it meets the increased demand for caregenerated by its new enrollment process.

VA Does Not KnowWhether VeteransHave EquitableAccess to Care

VA cannot ensure that veterans who havesimilar economic status and eligibilitypriority and who are eligible for medical carehave similar access to care regardless of theregion of the country in which they live, asrequired by the Congress. The Congress wasconcerned that the dramatic shift in theveteran population from the Northeast andMidwest to the South and West had occurredwithout a corresponding shift in VA healthcare resources. In fiscal year 1997, therefore,VA introduced a new resource allocationsystem to begin to correct historicalinequities in allocating resources, with theintent of improving the equity of veterans’access to care. Instead of allocatingresources directly to medical centers on the



Issues

basis of their budget for the previous year, VA

now allocates funds to its 22 VISNs. A keyfactor in these allocations is the number ofveterans each VISN has served. VISNs, in turn,allocate resources to the facilities in theirgeographic area.

We have reported that while the new methodhas indeed improved the equity of resourcedistribution among VISNs, VA does not know ifit is making progress in providing similarservices to similarly situated veterans. VA’sstrategic plan does not include a goal forachieving equitable access, and VA does notmonitor the extent to which equitable accessis being achieved among or within VISNs.Instead, VA has focused its efforts onincreasing access generally—apparentlyexpecting this to lead to more equitableaccess sometime in the future. Furthermore,we have reported that VA headquartersneither provides criteria for VISNs to use toequitably allocate resources nor reviewsVISNs’ allocations for equity. Although VA hasmade progress in improving the equity ofresource allocations nationwide among thenetworks, it has done little to ensure thatwhen networks allocate funds to theirfacilities, the promise of the new system isfulfilled. Although VA told us that havingnational indicators to monitor improvements



Issues

in equitable access was contrary to itsphilosophy of decentralizing authority andaccountability, we have reported that VA

could use such indicators without being soprescriptive that local authority andaccountability were compromised. Forexample, VA has already used performancemeasures based on national criteria to holdVISN directors accountable for achievingnational goals.

We have also reported that VA’s data formeasuring changes in access are seriouslyflawed because different measures are usedfor the same indicator, users do not clearlyunderstand the measures, and obtaining thesame measure over time for comparisonpurposes can be difficult. As a result, VA doesnot know whether changes in resourcedistribution from its new allocation methodand other initiatives to improve access (forexample, emphasizing primary care inexisting medical centers and expanding thenumber of community-based outpatientclinics throughout the country) areequalizing access nationwide. VA does notknow whether additional changes inresource allocation, strategic planning, ormanagement decisionmaking are needed toensure more equitable access. Withoutaccurate, reliable, and consistent



Issues

information on changes in the equity ofaccess, VA does not know whether thenumber of veterans it has served hasincreased at the expense of reduced accessto services for veterans who have beenhistorically underserved.

VA Cannot Ensure ItHas Maintained theCapacity to ServeSpecial Populations

VA has not been able to adequately addresscongressional concern that VA maintain itslevel of certain high-cost specialized servicesin the face of the many initiatives to becomea more efficient provider of care. TheCongress required VA to ensure that itscapacity for specialized treatment andrehabilitative services for certain conditionswas not reduced below October 1996 levelsand that veterans with these conditions hadreasonable access to care. The Congressidentified four disabling conditions requiringspecialized care: spinal cord dysfunction,blindness, amputation, and mental illness. VA

identified two additional conditions:traumatic brain injury and post-traumaticstress disorder.

We have reported that much moreinformation and analyses are needed tosupport VA’s conclusion that it is maintainingits national capacity to treat specialdisability groups. For example, VA’s data



Issues

indicate that from fiscal year 1996 to fiscalyear 1997, the number of veterans servedincreased by 6,000 (or 2 percent), butspending for specialized disability programsdecreased by $52 million (or 2 percent). VA

attributes the decreased spending toreducing unnecessarily duplicative servicesand replacing more expensive hospitalinpatient treatment with outpatient care.Such aggregate data and assertions may,however, mask potential adverse effects onspecific programs and locations. Forexample, VA data also show thatexpenditures were reduced for veterans withserious mental illness and post-traumaticstress disorder. In addition, VA data showthat about 3,000 fewer substance abusepatients with serious mental illness wereserved, and $112 million less was spent.

Consistent with the Results Act, VA plans todevelop outcome measures to track, amongother things, whether the care provided todisabled veterans is effective as a result ofVA’s shift from inpatient to outpatient care.While this is a step in the right direction, weand two of VA’s advisory committees havequestioned the accuracy of VA’s data forthese populations. We have reporteddifficulties arising from changing definitionsfor data that make it difficult to establish



Issues

baselines for comparison purposes;inaccurate reporting at the local level; andirreconcilable differences among medicalcenter, VISN, and national data. For example,we reported that in its 1997 and 1998 reportsto the Congress, VA used different 1996baseline expenditure capacity data for eachof the six special disability programs. VA

needs to develop more comprehensive,uniform, accurate, and reliable informationon these programs.

VA May Not Be Ableto Meet EnrolledVeterans’ Demandfor Care

VA has not developed information to helpensure that it meets the increased demandfor care generated by its new process forenrolling veterans in its health care system.As a result, VA’s success in enrolling veteransmay jeopardize the availability of care forsome veterans. As part of its 1996 eligibilityreform legislation, the Congress required VA

to develop a priority-based enrollmentsystem to allow VA to better manage accesswhile operating within its budgetary limits.VA has determined that in fiscal year 1999 itwill serve each veteran who enrolls and isassigned a primary health care providerregardless of the veteran’s priority category.VA projects that by the end of fiscal year1999, it will have enrolled about 4.4 millionveterans. If each of these veterans received



Issues

medical services from VA in fiscal year 1999,the percentage of veterans receiving VA carewould increase about 47 percent comparedwith the percentage of those served annuallyin recent years.

Because enrolled veterans are eligible for allneeded hospital and medical care from VA

regardless of their priority category, care forhigher-priority veterans may be jeopardizedas medical centers provide care to allenrollees, including high-income veteranswithout service-connected conditions. VA

does not know how many enrollees will useits services and what services they will needto use. Several challenges result. VA may nothave sufficient systemwide funds to serve itsenrollees. For example, officials at onemedical center told us that they will need atleast an additional $5 million in fiscal year1999 to serve newly enrolled veterans whoalready numbered 8,000 early in the fiscalyear. In addition, VA’s allocation process maynot be able to distribute funds adequately toensure that access to care is equitable ifVISNs grow at different rates—that is, if thenumber of veterans VISNs must serve beginsto vary widely. Furthermore, veterans’waiting times to get an appointmentscheduled or be seen after arriving for anappointment may increase greatly. Finally,



Issues

VA’s local and systemwide capacity to servespecial populations, such as those withspinal cord injuries or amputations, may bereduced because of the sheer number ofveterans seeking other services and the costof providing those services. For example,veterans who do not have pharmacy benefitsavailable from Medicare or private insurersmay enroll in VA’s system to obtain thesebenefits, potentially reducing resourcesavailable for low-income veterans or thosewith service-connected conditions. Withoutknowing the number of enrollees who willuse services or the types and amounts ofservices to be used, VA may be risking theavailability of services to veterans withservice-connected disabilities and those withlow incomes.

VA’s authority to retain collections fromthird-party insurers for care provided toveterans for conditions that are notservice-connected could help maintain VA’sfinancial viability. For each of the last 6fiscal years, VA’s financial collectionsaveraged about $544 million, with$560.1 million collected in fiscal year 1998.Increased collections resulting fromincreased enrollment of privately insuredveterans could provide funds to help meetinfrastructure and direct care needs. VA has



Issues

recently initiated efforts to improve itscollections, such as automating the billcollection process. We have reported,however, that VA may have difficulty inachieving its goals for collecting third-partypayments for two reasons. First, the numberof veterans participating in private managedcare organizations is increasing, and suchorganizations typically do not pay for caredelivered outside their plans. In addition, theshift away from costly inpatient services toless costly outpatient care could reduceprivate insurance recoveries and increaserecovery costs. To effectively manage itsresources, VA needs to closely monitor andevaluate the impact of its decision to openenrollment to veterans in all prioritycategories.




Issues

VA LacksOutcomeMeasures andData to AssessImpact ofManaged CareInitiatives

VA has made little progress in developing,implementing, and evaluatingresults-oriented outcome measures to assessthe health status of veterans. Instead, VA’sefforts to determine how well it delivershealth care have relied primarily onprocess-oriented performance measures. VA

needs to ensure that its rapid change towarda managed care system is not adverselyaffecting the appropriateness of healthservices provided to veterans.

Responsibility for monitoring qualityassurance shifted several times in the lastfew years among headquarters and VISN

offices, and VA’s Inspector General andveterans’ service organizations raisedconcerns that VA had weakened its qualityassurance efforts with some of these shifts.In response, in fiscal year 1998, VA realignedthe Office of Performance and Quality toreport directly to the Under Secretary forHealth. The realignment has the potential toimprove VA’s quality assurance effortsbecause this office is situated to morereadily identify emerging challenges acrossthe health care system, implement andoversee local and national corrective actionswhen needed, and help create the singlestandard of care required by accreditingagencies.



Issues

Providing centralized oversight is animportant step, but until recently, VA hasmade little progress in developing,implementing, and evaluatingresults-oriented outcome measures to assessthe health status of veterans. Instead, VA’sefforts to determine how well it delivershealth care have relied primarily onprocess-oriented performance measures. Forexample, VA has been tracking the number ofbeds in use, the number of patients served,and the number of patients receiving certaindiagnostic tests. Although these measurescan provide useful information on progresstoward meeting managed care goals, theyprovide little information on the specificimpact of changes on the health status ofveterans.

Moreover, although VA has designed oneperformance measure to assess thefunctioning of seriously mentally ill patientsand another to assess the functioning ofpatients with a primary diagnosis ofsubstance abuse, VA has generally notperformed the program evaluationsnecessary to determine whether these arethe most appropriate or sensitive measuresfor assessing responses to treatment andchanges in health outcomes. The need forsuch measures is critical, given the multitude



Issues

of changes in delivering care that VA hasintroduced over the last few years. Indeed,the need is exacerbated by the flexibilityVISNs and medical centers have in choosinghow they deliver care in VA’s decentralizedmanagement structure. VA recognizes that itneeds to ensure that the changes made toimprove its efficiency and effectiveness donot unintentionally compromise the healthstatus of veterans. VA is not alone in its needto design, implement, and evaluate healthoutcome measures. Other public and privateproviders have recognized the necessity—and the difficulty—of creating such criteriaand instruments.

VA’s challenges in assessing outcomes arefurther complicated by poor data. We andothers have reported numerous concernswith VA’s outcome data. These concerns,which are similar to those with VA’s accessdata, include inconsistent, incompatible, andinaccurate databases; changes in datadefinitions over time; and lack of timely anduseful reporting of information to medicalcenter, VISN, and national program managers.For example, in evaluating VA’s fiscal year1999 performance plan, we reported that VA

identified data sources and collectionmethods for many of its performancemeasures but provided little information



Issues

about how these data would be verified orvalidated. Given VA’s history of dataweaknesses, such an omission is potentiallyquite damaging. Prudent managementrequires that managers of local programs,VISNs, and national programs have readyaccess to clearly understandable, reliable,and consistent information in order toidentify and correct negative trends in healthoutcomes in a timely manner.


VA Faces MajorChallenges inManagingNon-Health-CareBenefitsPrograms

We have reported that VA’s current disabilityrating schedule does not reflect theeconomic loss experienced by veteranstoday and may not be equitably distributingdisability compensation funds. We have alsoreported that VA is compensating veteransfor diseases that are neither caused noraggravated by military service, calling intoquestion the fairness of VA’s treatment ofveterans who were disabled because of their



Issues

service. In addition, slow claims processingin the compensation and pension programand lack of program results in the vocationalrehabilitation program have beenlong-standing challenges for VA. Moreover,concerns have been raised recently aboutthe accuracy and reliability of the data VA

will use to measure compensation andpension program performance. Furthermore,there is concern about VA’s accountabilityover the direct loan and loan sales activitieswithin VA’s Housing Credit Assistanceprogram.

VA Cannot EnsureThat Veterans’DisabilityCompensationBenefits AreAppropriately andEquitablyDistributed

VA’s largest non-health-care benefits programis disability compensation. Under thisprogram, VA compensates veterans fordisabilities incurred or aggravated duringtheir military service. Since fiscal year 1996,cash benefits to veterans and their survivorshave steadily increased by about $1 billionannually. In fiscal year 1998, VA received over$17 billion in appropriations to providebenefits to 2.3 million veterans, and VA

requested an additional $1.2 billion for fiscalyear 1999. VA’s disability program is requiredby law to compensate veterans for theaverage loss in earning capacity in civilianoccupations that results from injuries orconditions incurred or aggravated during



Issues

military service. The disability ratings in VA’scurrent schedule are primarily based onphysicians’ and lawyers’ judgments made in1945 about the effect service-connectedconditions had on the average individual’sability to perform jobs requiring manual orphysical labor. Although the ratings in theschedule have not changed substantiallysince 1945, dramatic changes have occurredin the labor market and in society. Advancesin the management of disabilities, likemedication to control mental illness andcomputer-aided prosthetic devices thatreturn some functioning to the physicallyimpaired, have helped reduce the severity ofthe functional loss caused by some mentaland physical disabilities. Moreover,electronic communications and assistivetechnologies, such as synthetic voicesystems, standing wheelchairs, and modifiedautomobiles and vans, have given peoplewith certain types of disabilities moreindependence and potential to work.

In the late 1960s, VA conducted a study of the1945 version of the schedule to determinewhether the schedule constituted anadequate basis for compensating veteranswith service-connected conditions. Thestudy concluded that at least some disabilityratings in the schedule did not accurately



Issues

reflect the average impairment in earningcapacity among disabled veterans andneeded to be adjusted. Specifically, VA foundthat of the schedule’s approximately 700diagnostic codes, 330 overestimatedveterans’ average loss in earnings as a resultof their conditions, and about 75underestimated the average loss amongveterans. Despite the results of this study,however, VA has done little to ensure that theschedule’s assessments of the economic lossassociated with service-connectedconditions are accurate. Instead, VA’s effortsto maintain the schedule have concentratedon improving the appropriateness, clarity,and accuracy of the descriptions of theconditions. Basing disability ratings at leastin part on actual earnings losses rather thansolely on physicians’ and lawyers’ judgmentsof loss in functional capacity as determinedusing a rating scale that is over 50 years oldwould help to ensure that veterans arecompensated commensurately with theireconomic losses and that compensationfunds are distributed equitably. Successfulimplementation of a revised rating scheduleto reflect actual earnings losses would likelyrequire congressional action.

In addition to compensating disabledveterans on the basis of a rating schedule



Issues

that does not accurately reflect economiclosses, according to a 1996 CongressionalBudget Office report, VA was paying about230,000 veterans about $1.1 billion indisability compensation payments annuallyfor diseases or injuries neither caused noraggravated by military service. VA regulationsprovide that a disease or injury resulting indisability is considered service-connected ifit was incurred during a veteran’s militarytour of duty or, if incurred before the veteranentered service, was aggravated by service.No causal connection is required betweenthe circumstances of the disability andofficial military duty. Thus, veterans canreceive compensation for diseases related toheredity or life-style, such as heart diseaseand diabetes, rather than military service.Our 1993 study of five countries showed thatmost of those countries do not compensateveterans under such circumstances; rather,they require that a disability be closelyrelated to the performance of a military dutyfor a veteran to qualify for disability benefits.Eliminating disability compensation to thoseveterans whose disabilities were not clearlycaused by their military service couldcontrol entitlement spending withoutpenalizing veterans disabled because of theirservice, but such a change would likelyrequire congressional action.



Issues

VA Continues toFace Challenges inProcessing Claimsand RehabilitatingDisabled Veterans

In 1997, the National Academy of PublicAdministration reported that the timelinessand quality of adjudication decisions andslow appellate decisions continued to be amajor challenge in VA’s compensation andpension program. VA reported in fiscal year1997 that it took an average of 133 days tocomplete the processing of a veteran’soriginal disability compensation claim. Whilethis is substantially faster than the averageof 213 days required in fiscal year 1994, VA’sgoal is to reduce the average to 53 days infiscal year 2002. Furthermore, veterans whoappeal VA’s initial decision may have to wait2 years or more for a final decision. Inaddition, VA’s vocational rehabilitationprogram continues to place few disabledveterans in jobs. Our 1996 review of recordsof about 74,000 applicants for vocationalrehabilitation between October 1991 andSeptember 1995, who were classified by VA

as eligible for assistance, showed that only8 percent had completed the vocationalrehabilitation process by finding a suitablejob and holding it for at least 60 days.

Moreover, VA’s Under Secretary for Benefitshas raised concerns about the accuracy ofVA’s existing management reporting systemsthat will be used for measuringcompensation and pension program



Issues

performance. In September 1998, VA’s Officeof Inspector General (OIG) reported on itsaudit of three key compensation and pensionclaims processing performance measures.The OIG found that the performancemeasures lacked integrity because thecompensation and pension program’sautomated information system wasvulnerable both to reporting errors and tomanipulation of data by regional offices toshow better performance than was actuallyachieved.

VA is implementing a number of initiatives toaddress its compensation and pensionclaims processing and vocationalrehabilitation performance weaknesses,including establishing performancemeasures for processing times and unitcosts, initiating quality assurance efforts,and reassessing its business processreengineering. VA is in the process ofdeveloping results-oriented goals for itscompensation, pension, and vocationalrehabilitation and counseling programs.Also, VA has developed a results-orientedobjective to increase the number ofvocational rehabilitation participants whoget and keep suitable employment. VA alsohas plans to review and revise its operationsto focus the vocational rehabilitation



Issues

program less on training and more onhelping veterans get jobs. For example,program applications, brochures, and otherforms of written communication will berevised to ensure that they clearlycommunicate the program’s focus onemployment.

VA has also begun to address the need toensure that it has accurate and reliable datafor planning and management purposes. It istaking action in response to the OIG’sSeptember 1998 report on compensation andpension workload data concerns by(1) collecting and analyzing historical data toidentify suspect transactions in thecompensation and pension informationsystem and (2) conducting on-siteinspections of transaction processing at VA

regional benefits offices.

While VA has taken steps toward improvingits strategic planning, performancemeasures, and accountability to improve itsnon-health-care programs, it has much moreto do. VA faces significant challenges insetting clear strategies for achieving thegoals it has established and in measuringprogram performance. For example, VA

considers its business process reengineeringefforts to be essential to the success of key



Issues

performance goals, such as reducing thenumber of days it takes to process aveteran’s disability compensation claim. VA isin the process of reexamining the businessprocess reengineering implementation; atthis point, however, it is unclear exactly howVA expects reengineered processes toimprove claims processing timeliness. VA isalso currently identifying and developing keydata it needs to measure its progress inachieving specific goals. At the same time, VA

is working to make its data more accurateand reliable with its existing managementreporting systems. Until these issues areresolved, veterans and other beneficiaries ofVA’s non-health-care benefits programs willcontinue to suffer from slow claimsprocessing and poor customer service.

VA Does Not HaveAdequate Controland AccountabilityOver Its Direct Loanand Loan SalesActivities

VA’s Annual Accountability Report, FiscalYear 1997 described several deficiencies thatcontributed to VA’s receiving a qualifiedopinion. Among the areas of concern was thelevel of control and accountability over thedirect loan and loan sale activities withinVA’s Housing Credit Assistance program.Specifically, the auditors were unable toconclude that the $3 billion loans receivableaccount balance was accurate because ofinadequate controls and incomplete records.



Issues

In addition, the auditors identified a numberof errors, including inaccurate recording ofloan sales transactions and improperaccounting for loan guarantees.

When VA transferred the servicing of itsdirect loan portfolio to a contractor in fiscalyear 1997, it did not adequately plan thetransfer. VA converted only those loans thatwere fully documented on its legacy systemto the contractor’s system. Furthermore,once VA shut down its legacy system, it nolonger had a centralized automated systemto record those loans that were in process.Without such a system, VA transferredresponsibility for tracking and recordingloans in process to the regional offices. As aresult of the contractor’s having incompleterecords, significant delays occurred inrecording new loans in the contractor’saccounting records, processing borrowers’loan payments, and paying property taxesand insurance from escrow accounts.

In addition, VA did not appropriately accountfor or report its loan sale activities. Proceedsfrom the loan sales were not accuratelyrecorded in the accounting records, and theliability of the loan guarantees was notestimated and reported in accordance withfederal accounting standards. Because VA did



Issues

not account for its loan sales activities asrequired under federal accounting standards,the true cost associated with this activitycould not be measured.

Key Contacts For compensation and pension issues:

Stephen P. Backhus, DirectorVeterans’ Affairs and Military Health Care IssuesHealth, Education, and Human Services Division(202) [email protected]

For housing credit assistance issues:

Gloria L. Jarmon, DirectorHealth, Education, and Human Services Accounting and Financial ManagementAccounting and Information Management Division(202) [email protected]



Issues

VA Needs toManage ItsInformationSystems MoreEffectively

VA faces significant information systemschallenges. It does not know the full extentof its health-care-related Year 2000challenges; it lacks adequate control andoversight of access to its computer systems;and it has not yet institutionalized adisciplined process for selecting, controlling,and evaluating information technologyinvestments, as required by theClinger-Cohen Act. Failure to adequatelyaddress these issues could result indisruptions in benefits payments andmedical care to veterans, unauthorizedaccess to and misuse of VA systems, and poorinformation technology investmentpractices.

VA could face widespread computer systemfailures at the turn of the century if itssystems cannot adequately distinguish theyear 2000 from the year 1900. Thus, veteranswho are due to receive benefits and medicalcare could appear ineligible. VA recognizesthe urgency of addressing this issue and hasmade progress, but challenges remain. Forexample, VA does not know the full extent ofits Year 2000 challenges regarding its healthcare services. Furthermore, VA has notcompleted development of its Year 2000business continuity and contingency plans.Failure to adequately address these issues



Issues

could result in disruptions in benefitspayments and medical care to millions ofveterans and their dependents.

Significant challenges also exist in VA’scontrol and oversight of access to computersystems. For example, VA has not establishedeffective controls to prevent individuals,both internal and external, from gainingunauthorized access to VA systems. VA’saccess control weaknesses are compoundedby ineffective procedures for monitoring andoverseeing systems designed to callattention to unusual or suspicious accessactivities. In addition, VA is not providingadequate physical security for its computerfacilities, assigning duties in such a way as tosegregate incompatible functions,controlling changes to powerful operatingsystem software, or updating and testingdisaster recovery plans to prepare itscomputer operations to maintain or regaincritical functions in emergency situations. VA

also does not have a comprehensivecomputer security planning and managementprogram. If these control weaknesses are notcorrected, VA operations, such as financialmanagement, health care delivery, benefitspayments, life insurance services, and homemortgage loan guarantees—and the assets



Issues

associated with these operations—are at riskof misuse and disruption.

Finally, VA has not yet institutionalized adisciplined process for selecting, controlling,and evaluating information technologyinvestments. Information technologyaccounted for approximately $1 billion ofVA’s fiscal year 1999 budget request of$43 billion. At the time of the budget request,VA decisionmakers did not have current andcomplete information, such as cost, benefit,schedule, risk, and performance data at theproject level, which is essential to makingsound investment decisions. In addition, VA’sprocess for controlling and evaluating itsinvestment portfolio has deficiencies inin-process and postimplementation reviews.As a result, decisionmakers do not have theinformation needed to (1) detect and avoiddifficulties early and (2) improve VA’sinvestment process. Consequently, VA doesnot know whether it is making the rightinvestments, how to control theseinvestments effectively, or whether theseinvestments have provided mission-relatedbenefits in excess of their costs.

Over the past several years, we have madenumerous recommendations to help VA

address information systems management



Issues

issues. VA has concurred with most of theserecommendations and has taken actions toimplement many of them. Such actionsinclude making fundamental changes to itsmethodology and approach to informationsystems management. For example, theVeterans Benefits Administration changed itsYear 2000 strategy from developing newsystems to converting existing ones. Inanother major change, VA separated theChief Information Officer function from theChief Financial Officer function andestablished a new Assistant Secretaryposition to serve as Chief InformationOfficer reporting directly to the Secretary onall information resources issues. This newlyestablished position should help VA ensureprompt and efficient handling of informationresources management issues.

Key Contact Joel C. Willemssen, DirectorCivil Agencies Information SystemsAccounting and Information Management Division(202) [email protected]


Related GAO Products

VA Health CareInfrastructure

VA Health Care: VA’s Plan for the Integrationof Medical Services in Central Alabama(GAO/HEHS-98-245R, Sept. 23, 1998).

Veterans’ Health Care: Challenges FacingVA’s Evolving Role in Serving Veterans(GAO/T-HEHS-98-194, June 17, 1998).

VA Hospitals: Issues and Challenges for theFuture (GAO/HEHS-98-32, Apr. 30, 1998).

VA Health Care: Closing a Chicago HospitalWould Save Millions and Enhance Access toServices (GAO/HEHS-98-64, Apr. 16, 1998).

VA Health Care: Opportunities to EnhanceMontgomery and Tuskegee ServiceIntegration (GAO/T-HEHS-97-191, July 28, 1997).

Veterans’ Accessto Needed HealthCare Services

VA Health Care: More Veterans Are BeingServed, but Better Oversight Is Needed(GAO/HEHS-98-226, Aug. 28, 1998).

VA Health Care: VA’s Efforts to MaintainServices for Veterans With SpecialDisabilities (GAO/T-HEHS-98-220, July 23, 1998).




VA Community Clinics: Networks’ Efforts toImprove Veterans’ Access to Primary CareVary (GAO/HEHS-98-116, June 15, 1998).

VA Health Care: Resource Allocation HasImproved, but Better Oversight Is Needed(GAO/HEHS-97-178, Sept. 17, 1997).

Impact of VAManaged CareInitiatives

VA Health Care: More Veterans Are BeingServed, but Better Oversight Is Needed(GAO/HEHS-98-226, Aug. 28, 1998).

VA Health Care: VA’s Efforts to MaintainServices for Veterans With SpecialDisabilities (GAO/T-HEHS-98-220, July 23, 1998).


Results Act: Observations on VA’s Fiscal Year1999 Performance Plan (GAO/HEHS-98-181R,June 10, 1998).

Managing for Results: Agencies’ AnnualPerformance Plans Can Help AddressStrategic Planning Challenges (GAO/GGD-98-44,Jan. 30, 1998).



VANon-Health-CareBenefits

Veterans Benefits Administration: Progressand Challenges in Implementing the ResultsAct (GAO/T-HEHS-98-125, Mar. 26, 1998).

Vocational Rehabilitation: Opportunities toImprove Program Effectiveness(GAO/T-HEHS-98-87, Feb. 4, 1998).

VA Disability Compensation: DisabilityRatings May Not Reflect Veterans’ EconomicLosses (GAO/HEHS-97-9, July 7, 1997).

Disabled Veterans Programs: U.S. Eligibilityand Benefit Types Compared With FiveOther Countries (GAO/HRD-94-6, Nov. 24, 1993).

VA Benefits: Law Allows Compensation forDisabilities Unrelated to Military Service(GAO/HRD-89-60, July 31, 1989).

VA InformationSystems

Year 2000 Computing Crisis: LeadershipNeeded to Collect and Disseminate CriticalBiomedical Equipment Information(GAO/T-AIMD-98-310, Sept. 24, 1998).

Information Systems: VA Computer ControlWeaknesses Increase Risk of Fraud, Misuse,and Improper Disclosure (GAO/AIMD-98-175,Sept. 23, 1998).



Year 2000 Computing Crisis: Progress Madein Compliance of VA Systems, But ConcernsRemain (GAO/AIMD-98-237, Aug. 21, 1998).

VA Information Technology: ImprovementsNeeded to Implement Legislative Reforms(GAO/AIMD-98-154, July 7, 1998).


Performance and Accountability Series

Major Management Challenges and ProgramRisks: A Governmentwide Perspective(GAO/OCG-99-1)

Major Management Challenges and ProgramRisks: Department of Agriculture(GAO/OCG-99-2)

Major Management Challenges and ProgramRisks: Department of Commerce(GAO/OCG-99-3)

Major Management Challenges and ProgramRisks: Department of Defense (GAO/OCG-99-4)

Major Management Challenges and ProgramRisks: Department of Education(GAO/OCG-99-5)

Major Management Challenges and ProgramRisks: Department of Energy (GAO/OCG-99-6)

Major Management Challenges and ProgramRisks: Department of Health and HumanServices (GAO/OCG-99-7)

Major Management Challenges and ProgramRisks: Department of Housing and UrbanDevelopment (GAO/OCG-99-8)



Major Management Challenges and ProgramRisks: Department of the Interior(GAO/OCG-99-9)

Major Management Challenges and ProgramRisks: Department of Justice (GAO/OCG-99-10)

Major Management Challenges and ProgramRisks: Department of Labor (GAO/OCG-99-11)

Major Management Challenges and ProgramRisks: Department of State (GAO/OCG-99-12)

Major Management Challenges and ProgramRisks: Department of Transportation(GAO/OCG-99-13)

Major Management Challenges and ProgramRisks: Department of the Treasury(GAO/OCG-99-14)

Major Management Challenges and ProgramRisks: Department of Veterans Affairs(GAO/OCG-99-15)

Major Management Challenges and ProgramRisks: Agency for International Development(GAO/OCG-99-16)



Major Management Challenges and ProgramRisks: Environmental Protection Agency(GAO/OCG-99-17)

Major Management Challenges and ProgramRisks: National Aeronautics and SpaceAdministration (GAO/OCG-99-18)

Major Management Challenges and ProgramRisks: Nuclear Regulatory Commission(GAO/OCG-99-19)

Major Management Challenges and ProgramRisks: Social Security Administration(GAO/OCG-99-20)

Major Management Challenges and ProgramRisks: U.S. Postal Service (GAO/OCG-99-21)

High-Risk Series: An Update (GAO/HR-99-1)

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Department of Veterans Affairs GAO/OCG-99-15 - US Government

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Transcript of Department of Veterans Affairs GAO/OCG-99-15 - US Government