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Report to the Chairman, Subcommittee on Government Efficiency, 

Financial Management and Intergovernmental Relations, Committee on 

Government Reform, House of Representatives:

December 2002:

MANAGING FOR RESULTS:

Efforts to Strengthen the Link Between Resources and Results at the 

Veterans Health Administration:

GAO-03-10:

GAO HIGHLIGHTS:

Highlights of GAO-03-10, a report to the Chairman, Subcommittee on 

Government Efficiency, Financial Management and Intergovernmental 

Relations, Committee on Government Reform, U.S. House of 

Representatives.

MANAGING FOR RESULTS

Efforts to Strengthen the Link Between Resources and Results at the 

Veterans Health Administration:

WHY GAO DID THIS STUDY:

Encouraging a clearer and closer link between budgeting and planning 

is essential to improving federal management and instilling a greater 

focus on results.  Through work at various levels within the 

organization, 

this report on the Veterans Health Administration (VHA)and its two 

companion studies on the Administration on Children and Families 

(GAO-03-09) 

and the Nuclear Regulatory Commission (GAO-03-258)documents (1) what 

managers considered successful efforts at creating linkages between 

planning 

and performance information to influence resource choices and (2) 

the 

challenges managers face in creating these linkages.

WHAT GAO FOUND:

VHAs budget formulation and planning processes are centrally 

managed, but 

are not closely linked.  Resource distribution to VHAs health 

care networks 

is mostly formulaic, determined primarily by the distribution of 

the veterans 

being served.  VHA offices involved in budget formulation and 

strategic 

planning provide guidance to health care networks in developing 

their 

financial and strategic plans. Integrating performance information 

into 

resource allocation decisions is apparent at the health care network 

level 

during budget execution.  Health care network managers told us 

that they use 

an internal data system as a tool to decide how to allocate resources 

to their 

facilities and programs.  They also use various communication methods 

to share 

information on performance measures, and are held responsible for 

meeting 

those measures. Network managers provided specific examples where 

performance 

information influenced their resource allocation decisions.  For 

example, 

one 

performance target specifies that all diabetic veterans are expected 

to receive 

retinal eye exams.  An ophthalmologist must interpret the results of 

such an 

exam; however, most outpatient clinics do not have the resources to 

maintain an 

ophthalmologist on staff.  One network invested in machines that 

record test 

results and transmit them to an ophthalmologist at another location, 

thereby 

increasing the networks capacity for meeting this performance target. 

While 

budget and performance integration has improved, VHA managers still 

face 

additional challenges.  VHAs budgeting and planning processes are 

not directly 

linked, but VHA officials noted that steps are being taken to better 

integrate 

them.  Also, VHA does not use the most complete information 

available when 

making resource allocation decisions to its health care networks, 

so the link 

between resources and results could be improved.

To view the full report, including the scope and methodology, click 

on the 

link above. For more information, contact Paul Posner at (202) 

512-9573 

or PosnerP@gao.gov

Letter:

Results in Brief:

Background:

Scope and Methodology:

Budget Formulation and Planning Efforts Are Centrally Managed, While 

Budget Execution and Planning Are Linked in Networks:

Performance Information Influences Resource Allocation Decisions in a 

Variety of Ways at These Networks:

Challenges:

Agency Comments and Our Evaluation:

Appendix:

Appendix I: Comments from the Department of Veterans Affair:

Figures:

Figure 1: Veterans Health Administration Organizational Chart:

Figure 2: VHAs Budget and Planning Processes:

Figure 3: Example of Linkage Between VHA Strategies, Performance 

Measures, and Network Strategies/Actions:

CBOC: Community Based Outpatient Clinic:

CEO:  Chief Executive Officer:

CFO:  Chief Financial Officer:

COO:  Chief Operating Officer:

DSS:  Decision Support System:

ELC:  Executive Leadership Council:

GPRA: Government Performance and Results Act of 1993:

MCCF: Medical Care Collections Fund:

NCA:  National Cemetery Administration:

OMB:  Office of Management and Budget:

OPP:  Office of Policy and Planning:

OQP:  Office of Quality and Performance:

PART: Program Assessment Rating Tool:

PMWG: Performance Management Work Group:

PSL:  Patient Service Line:

QMO:  Quality Management Officer:

TSPQ: Transforming Systems Performance & Quality Council:

VA:   Department of Veterans Affairs:

VBA:  Veterans Benefits Administration:

VERA: Veterans Equitable Resource Allocation system:

VHA:  Veterans Health Administration:

Letter December 10, 2002:

The Honorable Stephen Horn

Chairman, Subcommittee on Government Efficiency, Financial  Management 

and Intergovernmental Relations

Committee on Government Reform

House of Representatives	:

Dear Mr. Chairman:

During the past decade, the Congress and the executive branch have 

sought to improve federal management and instill a greater focus on 

results. Through enactment of a number of major management reforms, the 

Congress has created a statutory framework with the Government 

Performance and Results Act of 1993 (GPRA) as its centerpiece.[Footnote 

1] One of GPRAs major purposes is to encourage a closer and clearer 

linkage between planning, performance--i.e., results--and the budget 

process. Each administration takes a slightly different approach to 

implementing results management. Improving the integration of budget 

and performance is a high priority initiative included in the 

Presidents Management Agenda.[Footnote 2] A central piece of that is 

the Office of Management and Budgets (OMBs) new diagnostic tool, the 

Program Assessment Rating Tool (PART). PART is designed to provide a 

consistent approach to reviewing program design, planning, and goals 

development as well as program management and results. OMB expects to 

use PART assessments in considering department and agency budget 

submissions for the fiscal year 2004 Presidents Budget request to the 

Congress.[Footnote 3]

In a number of different reports to the Congress, GAO has examined 

different aspects of the resources-to-results linkage. A series of 

three reports described agencies progress over a 4-year period in 

linking performance plans, budgets, and, in the most recent report, 

financial statements.[Footnote 4] We found that between fiscal years 

1999 and 2002, agencies made significant progress in showing a direct 

link between expected performance and requested program activity 

funding levels through structural changes or cross-walks--the first 

step in defining the performance consequences of budgetary decisions. 

We concluded that additional effort was needed to more clearly describe 

the relationship between performance expectations, requested funding, 

and consumed resources. Furthermore, we said that the uneven extent and 

pace of developing these relationships were reflective of mission 

complexity and differences in operating environments across the 

government. Finally, we observed that describing the planned and actual 

use of resources in terms of measurable results was an essential long-

term effort that would take time, and adaptation on the part of all 

agencies.

In another approach to defining performance and resource integration, 

we developed a framework of budget practices that we believe can 

contribute to an agencys capacity to manage for results.[Footnote 5] 

We viewed these practices as desirable dimensions of budgeting that 

could be implemented in many different ways to reflect the 

characteristics and circumstances of a particular agency. Both our 

assessments of performance and budget account alignments and the 

framework of budget practices have led to the next phase of work and 

the subject of this report. This report--one of a group of three--looks 

at the resources-to-results link from the perspective of agency 

managers charged with making the linkage happen.

The objectives of this report on the Veterans Health Administration 

(VHA), and its two companion studies on the Administration for Children 

and Families and the Nuclear Regulatory Commission, are to document 

what managers in these three agencies considered successful efforts at 

creating linkages between planning and performance information to 

influence resource choices and the challenges they face in doing so. We 

neither evaluated their choices nor critiqued their processes. Instead, 

we asked managers to describe when and how planning and performance 

information was included in the budget cycle, to explain what 

strategies were used and why, and to provide evidence that there was a 

related programmatic effect. A third purpose was to show that there are 

multiple ways to get at these linkages, and that there can be 

successful applications even if progress in budget and performance 

integration is uneven.

Budgeting is and will remain an exercise in political choice, in which 

performance can be one, but not necessarily the only, factor underlying 

decisions. However, efforts to infuse performance information into 

resource allocation decisions can more explicitly inform budget 

discussions and focus them--both in the Congress and in agencies--on 

expected results, rather than on inputs. We believe that showcasing 

agencies successes with and challenges in integrating budgeting and 

planning may prove useful to other agencies; congressional authorizing, 

appropriation, and oversight committees; and OMB in the shared goal of 

strengthening the link between program performance and resources.

Results in Brief:

VHAs budget formulation and planning processes are centrally managed 

but are not closely linked. Through fiscal year 2003, VHAs budget was 

prepared centrally and reflected an incremental approach, primarily 

taking prior years appropriations and making some adjustments for 

projected increases in workload, efficiency, and new policies. Resource 

distribution from central office to VHAs 21 health care networks is 

mostly formulaic, determined primarily by the distribution of the 

veterans being served. Planning documents, used in the development of 

performance measures, show relationships between agency goals, outcome 

measures, and performance targets. VHA offices involved in budget 

formulation and strategic planning provide guidance to health care 

networks in developing their financial and strategic plans. Budgeting 

and performance are more closely associated at health care networks 

during the budget execution phase, that is, after VHA receives its 

appropriation and the funds are allotted to the networks.

Integrating performance information into resource allocation decisions 

during budget execution is apparent at the two health care networks we 

visited. Managers at these networks told us that they use an internal 

data system as a tool to make resource allocations to their health care 

facilities and programs. They also use various communication methods to 

share information on performance measures and are held responsible for 

meeting those measures. The managers provided specific examples where 

they used performance information to make resource allocation 

decisions.

Although budget and performance integration has improved, managers 

still face additional challenges. VHAs budgeting and planning 

processes are not directly linked, but VHA officials noted that steps 

are being taken to better integrate them. Also, VHA does not use the 

most complete information available to make its resource allocation 

decisions from central office to its networks.

In commenting on our draft report, the Department of Veterans Affairs 

(VA) agreed with our observations but stated that our report does not 

give the reader an adequate grasp of the depth and breadth of managing 

such a large health care system. Our review focused on VHAs efforts to 

create linkages between planning and performance information to 

influence resource choices, and was not intended to address all the 

complexities inherent in managing the entire VA health care system.

Background:

VHA, an administration of VA,[Footnote 6] is primarily a direct service 

provider of primary care, specialized care, and related medical and 

social support services to veterans through an integrated health care 

system. Headed by the Under Secretary for Health, VHA employed 

approximately 180,000 health care professionals to serve about 4.3 

million veterans in fiscal year 2002. VHAs fiscal year 2002 budget 

included $21.3 billion in discretionary funds from the VA/HUD 

(Department of Housing and Urban Development) appropriations act and an 

additional $142 million from an emergency supplemental enacted in 

August 2002.

VHA developed its six strategic goals to support VAs GPRA goals. These 

strategic goals are as follows:

* put quality first until first in quality;

* provide easy access to medical knowledge, expertise, and care;

* enhance, preserve, and restore patient function;

* exceed patients expectations;

* maximize resource use to benefit veterans; and:

* build healthy communities.

VHAs strategic planning document describes strategies to show how each 

goal will be met. The administration then develops performance measures 

to support the strategies identified.

VHA is headquartered in Washington, D.C. and has 21 Veteran Integrated 

Service Networks (networks) located throughout the country. The 

networks are the basic budgetary and decision-making units of VAs 

health care system. They have responsibility for making a wide range of 

decisions about health care delivery options, including contracting 

with private providers for health care services and generating revenue 

by selling excess services. A network director, who reports to the 

Deputy Under Secretary for Health for Operations and Management, heads 

each network. This organization is illustrated in figure 1, with 

offices we talked to regarding VHAs budget and planning processes 

shaded.

Figure 1: Veterans Health Administration Organizational Chart:

[See PDF for image]

[End of figure]

The VHA Office of Quality and Performance develops and recommends 

performance measures (mentioned above) to the Under Secretary for 

Health. A Performance Management Work Group, comprised of a variety of 

VHA staff with different subject matter expertise, provides overall 

guidance with regard to the measures and helps to prioritize them. 

VHAs Office of Policy and Planning prepares VHAs contribution to VAs 

5-year Strategic Plan, as well as the Network Strategic Planning 

Guidance, which is used by networks to prepare their strategic planning 

documents. Among other responsibilities, VHAs Office of Finance is 

responsible for policy and operational issues relating to budget 

formulation and execution, financial management, and financial 

analyses.

As a consequence of VHAs field structure reorganization, decision 

making is currently more decentralized. In 1995, the 172 independent VA 

Medical Centers were reorganized into 22 networks, headed by network 

directors. Network directors are accountable for a variety of 

functions, such as contracting, budgeting, and planning for the medical 

facilities within their purview. Under this reorganization, VHA 

management anticipated that network directors could manage the 

distribution of the networks resources to maximize the advantages to 

veterans within their service areas. Furthermore, the administration 

expected to perform less operational decision making and oversight at 

the central office level. Along with the decentralization, VHA shifted 

its service delivery focus from inpatient hospital care to outpatient 

care; between fiscal years 1995 and 2001, the average number of 

hospital inpatients declined from 31,137 per day to 13,452 per day. The 

number of annual outpatient visits increased from 26 million to 41 

million during the same period.

Scope and Methodology:

To address the reports objectives, we interviewed senior officials in 

VHA and VA to find out how they used performance information in the 

budget process. We reviewed several network managers performance 

contracts and information on network performance measures to learn 

about the level of accountability VHA expects from its networks. We 

reviewed VA guidance on preparing budget requests, budget submissions, 

and other related documents for information on the budget process and 

the use of performance information. To learn about the planning process 

within VHA and assess its integration with the budget process, we read 

VA strategic plans and other planning documents. We attended 

congressional hearings and reviewed related documents to learn about 

VHAs budget requests, use of performance information, and VA/

Department of Defense resource sharing. We did not assess the 

appropriateness of VHAs performance measures or budget requests, or 

the accuracy of VHAs performance management information.

We conducted interviews in Washington, D.C. with senior officials from 

the VA Office of Budget, VHA Office of Finance, VHA Office of Policy 

and Planning, VHA Office of Quality and Performance, VHA Management 

Support Office, and the Liaison Staff Office to learn about VHAs 

budget process and performance measures.

Because we found the most evidence of a linkage between budget and 

performance during budget execution at the network level, we focused 

our work on that process at that level. We selected two networks--

Network 2, in Albany, New York and Network 13, in Minneapolis, 

Minnesota--that VHA officials believed made the best use of performance 

information in managerial decision making. Networks 13 and 14 were 

combined and renamed Network 23 in January 2002, leaving 21 operational 

networks; there is a break in numerical sequence. We chose to focus on 

Network 13 rather than Network 23 since the structure of Network 23 had 

not yet been finalized at the time of our review, and we were 

interested in looking at processes that were already in place. Just as 

findings at individual federal agencies cannot be generalized across 

all agencies, the 2 networks selected for review are not representative 

of the other 19 networks. However, the observations of the network 

managers we interviewed are useful in understanding the different 

approaches taken to integrate budget and performance.

We reviewed network-specific budget and planning documents, such as 

strategic plans, annual performance plans, performance reports, and 

tactical plans for the two networks we visited. We interviewed over 20 

network officials, including senior network management, care and 

patient service line managers, facility managers, information 

technology managers, quality management officials, and strategic 

planners to learn about network structures and the use of performance 

information in decision making at the networks.

We also reviewed a number of background documents on administration 

initiatives and performance budgeting implementation, as well as recent 

public administration literature and GAO reports for general background 

and context.

We conducted our work between January 2002 and June 2002 in accordance 

with generally accepted government auditing standards.

Budget Formulation and Planning Efforts Are Centrally Managed, While 

Budget Execution and Planning Are Linked in Networks:

Although VHAs budget formulation and planning processes are both 

centrally managed, they are not closely linked. The agencywide budget 

request is based primarily on the previous years appropriations with 

some adjustments for workload and new policies. Distribution of funds 

to networks is largely driven by a system that is heavily based on the 

veteran population served at each network. Budget and performance are 

more clearly linked at the networks we visited. See figure 2 for an 

overview of VHAs budget and planning processes.

Figure 2: VHAs Budget and Planning Processes:

[See PDF for image]

[End of figure]

[A] May occur throughout the fiscal year.

VHAs Budget Formulation and Planning Processes Are Centralized but Not 

Integrated:

VHA reported that its budget formulation processes for fiscal years 

2002 and 2003 were developed centrally with limited input from the 

networks and reflected an incremental approach, with some adjustments 

in fiscal year 2003 for projected workload increases and administrative 

efficiency assumptions. Prior to the development of the fiscal year 

2003 budget, senior budget officials told us that VHA sought selected 

information from the networks, such as estimates of collections and 

long-term care expenditures. In preparing the budget that would 

eventually be included in VAs submission to OMB, VHA generally used 

the current appropriations levels as a baseline and added an adjustment 

for workload, as well as an increase for new programmatic initiatives. 

One VHA official commented that the process was very top down. For 

fiscal year 2003, the main change to this process was the introduction 

of some enrollment growth projections from an actuarial model and 

administrative efficiency adjustments for reducing resource 

requirements.

VHA receives guidance on how to formulate its budget through a budget 

call memorandum issued by VA in April. This memorandum includes VA 

strategic goals and objectives and stresses the need to focus on 

outcome and performance goals and measures. Once VHAs Office of 

Finance formulates the administrations budget, it is sent to VAs 

Office of Budget where the VHA request is reviewed and recommendations 

are made by VA senior staff, culminating in a department budget request 

for VHA and the other two administrations. This submission is sent to 

OMB in September. Decisions made by OMB are incorporated into the 

Presidents Budget presented to the Congress. Following congressional 

action and enactment of the appropriations bill, OMB apportions and VA 

allots the funding provided in the VHA appropriations, thus beginning 

the execution phase of VHAs budget cycle.

While the VHA-related information in VAs annual Performance Plan 

describes goals, strategies, and performance measures, the relationship 

to the budget formulation process is unclear. VHA officials told us 

that they use strategic planning information as source material for 

departmental reports (e.g., the Accountability Report and VAs Annual 

Performance Plan), to review networks policies for consistency, and 

generally to have the information on hand in an organized format. VAs 

Annual Performance Plan outlines resource requirements by strategic 

goal, and each strategic goal is accompanied by performance goals and 

measures. However, a VHA official told us that planning documents are 

typically finalized after VHAs budget is formulated.

VHA Resource Allocation Is Largely Formula-Driven:

About 90 percent of VHAs medical care appropriation, which is 

approximately 86 percent of VHAs total budgetary resources, is 

allocated to networks through the Veterans Equitable Resource 

Allocation system (VERA), which uses a formula that calculates resource 

allocation based on workload.[Footnote 7] The remainder of the 

appropriated funds is allocated to networks either through Specific 

Purpose Funding,[Footnote 8] which is designated for certain programs 

such as state home funds or Vietnam veterans readjustment counseling. 

Monies in the no-year Medical Care Collections Fund (MCCF), as well as 

other small nonappropriated funds, are also available to the 

networks.[Footnote 9]

Network Planning and Budget Execution Processes Are More Closely 

Related:

Decisions regarding resource allocation and planning are closely 

aligned at both networks we visited. The same officials are involved in 

strategic planning and budget execution, and network-produced documents 

show some alignment between planning efforts and resource allocation.

The Office of Policy and Planning prepares VHA Network Strategic 

Planning Guidance, directing networks on how to develop their 

individual strategic plans. According to the guidance, strategic plans 

must associate performance measures with each strategic objective. For 

example, the fiscal years 2003-2007 Guidance for Strategic Objective 1, 

Put Quality First Until First in Quality, identifies the first 

strategy as, Systematically measure and communicate the outcomes and 

quality of care, and the related performance measure as Improve 

performance on the Chronic Disease Care Index II. Networks must then 

identify their plans to meet each performance measure.

VHAs Office of Finance issued guidance that required networks to 

provide financial or operating plans for a range of possibilities. 

According to officials, networks prepare plans in anticipation of final 

appropriations actions. Once VHA receives its appropriations and VERA 

allocations are calculated, networks submit plans to the Office of 

Finance that lay out the networks spending plans for their VERA funds.

The two networks we visited, Network 2 and Network 13, are structured 

somewhat differently with regard to resource allocation authority. At 

Network 2, service delivery is organizationally divided into Care 

Lines;[Footnote 10] Care Line Directors have resource allocation 

authority across all medical facilities in the network. For example, 

according to network officials, the Geriatrics and Extended Care 

manager can make resource allocation decisions concerning nursing home 

care at all Network 2 facilities. Network 13, on the other hand, is 

structured around Patient Service Lines (PSLs).[Footnote 11] PSL Chief 

Executive Officers (CEOs)[Footnote 12] share resource allocation 

authority with the Chief Operating Officers (COO) at each medical 

center. PSL CEOs make allocation decisions for the facilities that 

support their PSL at the beginning of the fiscal year, while day-to-day 

smaller resource decisions during the fiscal year are handled primarily 

by each medical center COO. CEOs and COOs collaborate on larger budget-

related decisions across the PSL. The subject of the resource decision 

determines which PSL CEO is involved; for example, the PSL CEO for 

Mental Health is involved with decisions regarding psychiatric care. 

Annual budgets are developed by the PSL CEOs in conjunction with site 

COOs and Chief Financial Officers (CFOs).

At Network 2, network leadership works with Care Line Directors in 

developing and prioritizing strategic goals and targets. Network 2s 

strategic plan shows a link between VHA strategies and performance 

measures, and network-specific actions to achieve them. (See fig. 3 for 

an example of this linkage.) The plan also shows how expected increases 

in annual funding will be used by program line.

Figure 3: Example of Linkage Between VHA Strategies, Performance 

Measures, and Network Strategies/Actions:

[See PDF for image]

[End of figure]

Network 13 senior managers told us about annual 2-day tactical planning 

meetings that were designed to provide an outlet for stakeholders to 

plan and share information on performance and strategic planning, cost 

information, performance measures, successful practices, and lessons 

learned. Participants include PSL CEOs, a PSL COO, PSL managers under 

COO control, union representatives, and congressional stakeholders. A 

network official stated the purpose of including managers with resource 

allocation authority in tactical planning meetings was to strengthen 

the link between the processes of resource allocation decisions and 

planning.

Performance Information Influences Resource Allocation Decisions in a 

Variety of Ways at These Networks:

Integrating performance information into resource allocation decisions 

is apparent at the network level during budget execution. At the two 

networks we visited, managers told us that they use an internal data 

system that compares cost and performance data across facilities as a 

tool to make resource allocation decisions. Network performance is 

monitored by VHA, and networks establish their own processes to monitor 

their performance. Network managers also use various communication 

methods, both within their networks and across other networks, to share 

information on performance measures and ways to meet those measures. 

Managers reported that they were accountable for performance and 

provided examples where they used performance information to make 

resource allocation decisions.

Cost and Performance Data Used in Managerial Decision Making:

Network managers told us that they use data from the Decision Support 

System (DSS) to make resource allocation decisions to their facilities 

and programs. DSS is an executive information system designed to 

provide VHA managers and clinicians with data on patterns of patient 

care and patient health outcomes. It is also used to analyze resource 

utilization and the cost of providing health care services. For 

example, a manager in Network 2 said that he uses DSS data for 

comparisons of facilities, population and market share data, and 

veterans length of stay in inpatient units. Since veterans are staying 

in inpatient units for fewer days in certain facilities, the manager 

has been able to reallocate money across facilities because of DSS 

data.

Networks Performance Monitored:

As we noted in Results-oriented Budget Practices in Federal 

Agencies,[Footnote 13] it is important for agency management to 

monitor performance. VHA leadership uses several methods to monitor 

network performance and hold network officials accountable for that 

performance. At its quarterly meeting, the VHA Executive Leadership 

Council (ELC), which includes the deputy secretary, managers from all 

three administrations, network directors, other key staff, interest 

groups, and the public, monitors the status of performance measures at 

each network. In addition, the Deputy Secretary of Veterans Affairs 

began holding monthly meetings in late 2001 with the Under Secretary of 

VHA and all the network directors. At these meetings, the senior 

officials provide information on each networks successes in meeting 

VHA-established performance measures and share best practices in 

meeting performance measures. Networks must provide remedial action 

plans at these meetings for measures that are not being met. For 

example, one network was deemed deficient in testing patients for 

Hepatitis C. Its action plan included a review of patients who had not 

been tested and an electronic clinical reminder to help service 

providers identify patients who have risk factors but were not tested.

To make sure network directors understand the importance VHA places on 

performance, directors sign an annual performance agreement with the 

Under Secretary for Health called the Network Performance Plan. The 

agreement includes expectations regarding VHA-level performance 

measures and their associated strategic goals. According to VHA 

guidance, a network directors appraisal is affected by his or her 

networks performance in relation to agency goals. As a result, the 

directors compensation may also be affected. For example, in 2001 a 

network director received a bonus because his network exceeded VHA-

established performance goals.

Networks Establish Their Own Processes to Monitor Performance:

The two networks we visited each had its own ELC to review performance 

measures on a network level and commissioned task teams to work on 

areas where performance has not met the intended goal. Quality 

Management Officers (QMOs) also serve as performance monitors. The QMO 

at Network 2 keeps track of the networks action plans to improve upon 

deficient performance measures, and reports on performance-related data 

at the Transforming Systems Performance & Quality Council (TSPQ), a 

forum to address issues across care lines and facilities to work 

collaboratively toward addressing performance measure issues, quality 

management, information systems, and related operational issues. 

Membership includes top network management, care line managers, and 

network office staff.

Network 2 uses its Web site in various ways to maintain up-to-date 

information on performance measures. For example, Network 2 managers 

told us about the Web-based Pulse Points, which are performance 

indicators that assist management in monitoring achievement of 

performance measures. Additional performance-related information is 

available to network staff on the intranet.

Communication Important to Help Managers Meet Performance Measures:

Sharing information about lessons learned and strategies to achieve 

performance measures can lead to more informed resource allocation 

decisions. Between networks, managers have a number of opportunities to 

learn from each other via regularly scheduled meetings and conference 

calls. Network managers told us about periodic meetings where they 

interact with managers from other networks and share lessons learned 

with regard to cost-saving measures and approaches to performance 

measures. Within a network, staff may also use a variety of 

communication tools to share information to improve performance. For 

example, two Network 2 care line managers jointly established a team to 

discuss ways that the network could better meet performance goals for 

length-of-stay rates. This team, which spanned multiple care lines, 

worked on the issue and communicated its recommendations quarterly. 

Also, VA sponsors a Lessons/Innovations database on the Internet, 

where network managers can read ideas for performance improvement.

Network Managers Reallocate Resources in Response to Performance 

Measures:

In both of the networks we visited, managers provided examples where 

performance information and the responsibility to meet performance 

targets affected the way in which they allocated resources. The 

examples incorporated a number of different approaches to improve 

performance, including investing in telemedicine and technology 

advancements, resource reallocation, low-tech methods to improve 

performance, and the use of outside contractors.

Performance target: 100 percent of diabetic veterans should receive 

retinal eye exams to decrease the potential incidence of blindness.

Network manager approach: Use telemedicine and special equipment to 

allow diabetic veterans who receive care at locations that do not have 

ophthalmologists the ability to have their exam results read by 

qualified specialists.

An initial investment of network resources in advanced telemedicine 

techniques led to an increased percentage of diabetic veterans 

receiving a necessary test. To reduce the potential for blindness later 

in life, all diabetic veterans are supposed to have retinal eye exams 

to monitor their vision. However, this requires the services of an 

ophthalmologist who must interpret the exam results. The network did 

not have resources to maintain an ophthalmologist on staff at each 

site, so many diabetics were not being tested. A Network 2 manager 

found that a particular piece of equipment could record test results, 

then transmit them to an ophthalmologist at another location. Thus, the 

network invested resources in a number of these machines for Community 

Based Outpatient Clinics (CBOCs) to use, thereby increasing the 

networks capacity for meeting this performance target.

Performance target: Annual cost per patient must be below a given 

threshold.

Network manager approach: Moved $100,000 from one facility that was not 

taking on as many patients as expected to another facility with an 

increased workload.

A manager at Network 13 noted that facilities are expected to keep 

their average cost per patient down. Regular monitoring revealed that 

one facility was not taking on as many patients as planned, which led 

to higher average costs. To reinforce his expectation that this 

performance target should be met, the manager chose to transfer 

financial resources from this facility to another facility that 

required additional staffing to meet other performance targets. 

According to the manager, the facility that received the funds was able 

to improve its outcomes in the targeted area.

Performance measures: Reducing the number of falls out of bed and the 

use of restraints.

Network manager approach: Buying lower beds (9 off ground).

A Network 13 manager noted that veterans were falling out of their beds 

and thus incurring injuries, and the manager searched for a way to 

reduce this incidence. He also wanted to reduce the use of restraints, 

another performance measure. Based on staff recommendations, the 

manager agreed to invest in beds that were only 9 inches off the 

ground. This investment prevented more serious injuries from occurring, 

reduced the need for restraints, and directly improved the networks 

performance in these areas.

Performance target: Veterans should be able to obtain appointments with 

mental health professionals within 30 days of request.

Network manager approach: Reviewed various staff practices and made 

recommended improvements.

A PSL manager in Network 13 noted that wait times for veterans to 

obtain appointments with mental health specialists exceeded the 

performance target. The manager hired an outside consultant who looked 

at a variety of factors, including (1) how physicians time was being 

spent, (2) physicians practices regarding rescheduling appointments, 

and (3) hiring psychiatrists instead of contracting for them. According 

to the manager, after the network adopted the consultants 

recommendations, including hiring (instead of contracting for) 

psychiatrists and hiring administrative staff to prescreen patients, 

Network 13 met the performance target by eliminating wait time 

completely.

Challenges:

VHA has undergone a cultural shift over the past 7 years that has 

helped to integrate budget and performance, but managers face 

continuing challenges to further integration and in defining areas for 

improvement. The agencys budgeting and planning processes are not 

directly linked, so opportunities are missed to fully use planning 

information in the budget process. Additionally, VHA does not use the 

most complete information available when making resource allocation 

decisions.

Planning and Budgeting Linkage Could Improve:

VHAs planning and budgeting processes are not fully integrated (see 

fig. 2 for an overview of these processes). VHA officials acknowledged 

the offices in charge of these processes did not work closely together 

in the past, but steps are being taken to improve this linkage. For 

example, a member of VHAs Office of Finance now works in the Office of 

Policy and Planning on the agencys demand model, which will be used to 

project costs for fiscal year 2004. According to VHA, this model 

projects workload for VHA nationwide and was partially used to prepare 

the fiscal year 2003 budget request. Future workload is projected 

through the use of a detailed formula that includes enrollment, 

anticipated utilization, and reliance on VA services. It does not 

assume an incremental increase over current workload.

Performance Information is Available but Not Included in Resource 

Allocation Decisions:

VHA does not include the most complete information available when 

allocating resources. As we noted in VA Health Care: Allocation Changes 

Would Better Align Resources with Workload (GAO-02-338), VA does not 

adequately account for important variations in patients health care 

needs across networks nor does it include all veterans who use health 

care services in its resource allocation decisions. Without complete 

information, it is difficult for agencies to consider fully the 

relative priorities of programs and activities and, when funding 

tradeoffs are necessary, where adjustments can be best made. Producing 

reliable funding estimates requires an agency to include reasonable 

assumptions about factors affecting program costs or budgetary 

resources, assess the accuracy of previous estimates, and if necessary, 

make appropriate adjustments to its estimating methods.

Agency Comments and Our Evaluation:

In its comments, VA agreed with our observations but asserted that our 

report does not give the reader an adequate grasp of the depth and 

breadth of managing such a large health care system. VA also included 

three enclosures: the first was intended to clarify certain points in 

the draft report, the second provided information on VAs actuarial 

model, and the third outlined VAs new budget account structure.

In the first enclosure, VA suggested three clarifications regarding our 

report language.

1. VA stated that the fiscal year 2003 budget was based on actuarial 

projections of workload broken down by specific disease and veteran 

priority level using prior years costs; it also noted that 

administrative efficiency assumptions were further included for 

reducing resource requirements. During our interviews, officials told 

us that the process was generally incremental, but actuarial 

projections were used only to calculate potential increases in workload 

for fiscal year 2003; these projections were not used to reassess the 

base. For the fiscal year 2004 budget and beyond, officials expected to 

use the actuarial projections to calculate the entire workload, not 

just the potential increase. We made changes in our report language to 

reflect this process.

2. VA noted that it does not include all Priority 7 veterans[Footnote 

14] in its VERA calculations because it does not want to provide 

financial incentives that encourage network managers to provide care to 

Priority 7 veterans at the expense of higher-priority veterans. As we 

recommended in our February 2002 report,[Footnote 15] networks with a 

disproportionately large number of Priority 7 veterans already have 

fewer resources under VERA to treat higher-priority veterans on a per-

patient basis. To remedy this problem, we recommended that VA align 

measures of workload with actual workload served, regardless of veteran 

priority group. Doing so will help provide comparable resources for 

comparable workload. Thus, we maintain that complete information allows 

agencies to better consider the relative priorities of programs and 

activities.

3. VA also noted that the funds it received under the Emergency 

Supplemental appropriation were not intended for homeland security-

related activities. We changed our report language appropriately.

VAs second enclosure was a report that describes the actuarial model 

it uses to project the demand for health services. This report was 

prepared for the Senate Appropriations Committee, in response to a 

congressional mandate identified in S. Rpt. 107-156. During our 

fieldwork, we were told that there was no documentation available 

regarding this model. We received the documentation when the draft 

report was sent for agency comment and therefore did not review the 

model and its ability to project VAs workload.

The third enclosure focuses on VAs budget account restructuring for 

its fiscal year 2004 budget submission. VA notes that this structure 

will allow it to more readily determine the full cost of each of VAs 

programs and make resource decisions based on programs and their 

results rather than on other factors. We did not review this new 

structure or its ability to more effectively link resources with 

results since the outcome will not be available until the 

administrations budget proposal is released in early 2003.

As agreed with your office, we will distribute copies of this report to 

the Secretary of Veterans Affairs, appropriate congressional 

committees, and other interested parties. We will make copies available 

to others upon request. In addition, the report will be available at no 

charge on the GAO Web site at http://www.gao.gov.

Please contact me on (202) 512-9573 or Denise Fantone, Assistant 

Director, on (202) 512-4997 if you or your staff have any questions 

about this report. Major contributors to this report are Kimberly 

Gianopoulos, Kelli Ann Walther, and James Whitcomb.

Sincerely yours,

Paul L. Posner

Managing Director, Federal Budget Analysis

 Strategic Issues:

Signed by:

Paul L. Posner:

[End of section]

Appendixes:

Appendix I: Comments From the Department of Veterans Affairs:

THE SECRETARY OF VETERANS AFFAIRS WASHINGTON:

November 14, 2002:

Mr. Paul Posner Managing Director U. S. General Accounting Office 441 G 

Street, NW:

Washington, DC 20548:

Dear Mr. Posner:

The Department of Veterans Affairs (VA) has reviewed your draft report, 

MANAGING FOR RESULTS: VHAs Efforts to Strengthen the Link Between 

Resources and Results (GAO-03-10). The report describes the Veterans 

Health Administrations (VHA) process in integrating its budgeting and 

planning efforts to meet the health care needs of our Nations 

veterans. However, in doing so, it provides only a limited description 

that does not give the reader an adequate grasp of the depth and 

breadth of managing a health care system unmatched in complexity and 

size in the free world.

To address this huge challenge, VHA has developed and continues to 

reformulate its method of identifying current and future health care 

demands: the Veterans Equitable Resource Allocation (VERA) model. Using 

VERA, VHA distributes its resources across a nationwide system of over 

1,000 health care delivery points. It must be recognized that this 

budget form ulationlexecution system is in the context of the ever-

changing nature of modern medicine.

VA is in overall agreement with the General Accounting Offices (GAO) 

observations but believes additional description would be useful in 

helping the reader to understand the unique challenge of planning for 

and managing the largest health:

system in the United States. Enclosure 1 contains information for GAO 

to improve its description of VHAs linking its resources and results 

as well as clarifications to some inaccuracies in the draft report. 

Enclosure 2 provides information on the Milliman actuarial model. In 

September, VHA prepared and transmitted this white paper to Congress to 

describe actions VA is taking, and expects to take, to ensure that 

accurate estimate of workload and resource needs are met. VA believes 

GAOs report should provide more emphasis on how the actuarial model 

will improve the accuracy and reliability of VHAs budget forecasts. 

Enclosure 3 provides information on VAs efforts to more effectively 

link resources with results through the implementation of a new budget 

account structure.

Thank you for the opportunity to comment on your draft report. 

Sincerely yours,

Anthony J. Principi:

Signed by Anthony J. Principi:

Enclosures:

FOOTNOTES

[1] Other significant legislation includes the Chief Financial Officers 

Act of 1990 (CFO Act) and related legislation, which created a 

structure for the management and reporting of the governments 

finances; and the Clinger-Cohen Act of 1996 and Paperwork Reduction Act 

of 1995, which required agencies to take an orderly, planned approach 

to their information technology needs. 

[2] The Presidents Management Agenda, which by focusing on 14 targeted 

areas--5 governmentwide goals and 9 program initiatives--seeks to 

improve the management and performance of the federal government. 

[3] Office of Management and Budget, Program Performance Assessments 

for the FY 2004 Budget, M-02-10 (Washington, D.C.: July 16, 2002).

[4] U.S. General Accounting Office, Performance Budgeting: Initial 

Experiences under the Results Act in Linking Plans with Budgets, GAO-

AIMD/GGD-99-67 (Washington, D.C.: Apr. 12, 1999); U.S. General 

Accounting Office, Performance Budgeting: Fiscal Year 2000 Progress in 

Linking Plans with Budgets, GAO-AIMD-99-239R (Washington, D.C.: July 

30, 1999); and U.S. General Accounting Office, Managing for Results: 

Agency Progress in Linking Performance Plans with Budgets and Financial 

Statements, GAO-02-236 (Washington, D.C.: Jan. 4, 2002).

[5] U.S. General Accounting Office, Results-Oriented Budget Practices 

in Federal Agencies, GAO-01-1084SP (Washington, D.C.: August 2001).

[6] VA includes three administrations: VHA, Veterans Benefits 

Administration (VBA), and National Cemetery Administration (NCA).

[7] Most of the elements in the VERA formula are contingent upon 

workload (the number and type of veterans served).

[8] This designation may come about as a result of a legislative 

mandate or VHA determination.

[9] MCCF monies, mainly veterans copayments and third-party insurance 

payments, can be used by networks for a wide variety of purposes.

[10] Network 2s care lines include Medical, Diagnostics and 

Therapeutics, Geriatrics and Extended Care, and Behavioral Health.

[11] The PSLs include Primary Care, Specialty Care, Extended Care and 

Rehabilitation, and Mental Health. Even though Networks 13 and 14 

combined in January 2002 to become Network 23, the new networks 

structure had not yet been determined at the time of our audit work; 

thus, we focused on the processes of Network 13.

[12] PSL CEOs are now called PSL Directors.

[13] GAO-01-1084SP.

[14] Priority 7 veterans are veterans who have either incomes or net 

worths above a certain threshold, no service-connected disability that 

results in monetary benefits from VA, and no other recognized statuses 

such as former prisoners of war.

[15] See GAO-02-338.

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