United States General Accounting Office

GAO Report to the Chairman, Committee on

Veterans’ Affairs, U.S. Senate

December 1996 VA HEALTH CARE

Better Data Needed to

Effectively Use Limited

Nursing Home

Resources

G O A

years

1921 - 1996

GAO/HEHS-97-27

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-265690 

December 20, 1996

The Honorable Alan K. Simpson

Chairman

Committee on Veterans’ Affairs

United States Senate

Dear Mr. Chairman:

The Department of Veterans Affairs (VA) reported spending about

$1.6 billion in fiscal year 1995 on nursing home care for more than 79,000

veterans or about 14 percent of the estimated demand by veterans for such

care.1 VA provides nursing home care in its own facilities, contracts with

community nursing homes, and pays state veterans homes a portion of the

cost of care provided to eligible veterans. All veterans are eligible for

nursing home care essentially on a first-come, first-served basis within VA

budget constraints.

As the number of veterans aged 65 and older increases to about 9.3 million

(from 8.8 million in 1995) by the year 2000, the demand for nursing home

care is expected to increase. Funds available for VA nursing home care,

however, are expected to be limited.

This report responds to your request for the following information about

VA nursing home programs:

• the distribution of veterans in VA, community, and state veterans nursing

homes;

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

• the factors affecting VA’s use of community and state veterans nursing

homes; and

• whether VA, community, and state veterans homes provide comparable

quality care.

To obtain information on the distribution of veterans in the three types of

nursing homes and the factors affecting use of community and state

veterans homes, we surveyed the 164 VA medical centers that had nursing

home care units or contracts with community nursing homes. We received

1

VA has developed a model, using data from the National Nursing Home Survey conducted by the

Department of Health and Human Services’ (HHS) National Center for Health Statistics, to estimate

veterans’ future demand for nursing home services. VA’s model is based on (1) veteran population by

age group and (2) veteran utilization rates per 1,000. Using 1995 data, VA’s model estimated an average

daily census of about 235,000 veterans needing nursing home care. In 1995, VA’s average daily census

in nursing homes was about 34,000 or 14 percent of the estimated demand.

Page 1 GAO/HEHS-97-27 VA Nursing Home Data
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responses from all of these centers. Their responses were based on fiscal

year 1994 data, the most current available at the time. We supplemented

the information from the survey with discussions with VA officials and

community and state veterans nursing home administrators. Also, we

reviewed cost reports to identify the relative costs to VA for each type of

nursing facility, previous studies on nursing home costs and quality, and VA

policies and procedures on monitoring nursing home care and cost

reporting. In addition, we visited 2 VA, 10 community, and 5 state veterans

nursing homes. Our review team included a registered nurse (RN) who

interviewed nursing home personnel and reviewed the care provided to 95

veterans in the facilities we visited drawing on Medicare provider

certification and survey procedures.2

 The patients were randomly selected

to be a representative sample from the VA and state veterans nursing

homes. We reviewed the total veteran population served under VA

contracts at each community home. We performed our work between

July 1995 and November 1996 in accordance with generally accepted

government auditing standards.

Results in Brief The number of veterans receiving VA-financed or -provided nursing home

care increased from 72,889 in 1985 to 79,373 in 1995, though the costs of

these services increased from about $710 million to $1.6 billion in the same

period. Among veterans currently receiving VA-financed or -provided

nursing home care, 40 percent receive such care in VA nursing homes;

36 percent, in state veterans nursing homes; and 24 percent, in community

nursing homes. By contrast, in 1985 about 40 percent of the veterans

served by VA were cared for in community nursing homes, and only

33 percent were served in VA nursing homes.

VA’s reported cost for providing care in VA nursing homes is considerably

higher than its cost for doing so in community and state veterans homes.

VA records for fiscal year 1995, the most current available, indicate that

VA’s daily per patient cost was $213.17 for veterans in VA nursing homes,

$118.12 for veterans in community nursing homes, and $35.37 for veterans

in state veterans homes. Some of the cost differences are attributable to

differing patient mix and staffing patterns among the facility types. The

precise cost differences cannot be determined, however, because of

weaknesses in VA’s cost data.

2

We focused on services provided and indicators of patient care problems such as the use of restraints

(physical and chemical), skin integrity, ability to perform activities of daily living, level of

consciousness, and the use of exercise and physical and occupational therapies to maintain or improve

functioning.

Page 2 GAO/HEHS-97-27 VA Nursing Home Data
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Several factors influence VA decisions on where to place nursing home

patients. First, some parts of the country have a shortage of community

nursing home beds. Second, many veterans and their families prefer to use

VA nursing homes instead of community nursing homes because VA

generally pays for only 6 months of nursing home care in community

nursing homes for veterans with no service-connected conditions. After 6

months, patients’ assets are used until the patients become eligible for

Medicaid; in addition, their pensions are reduced when Medicaid assumes

responsibility for them. VA homes have no maximum service period, and

only higher income, nonservice-connected veterans must contribute to the

cost of their care in these facilities. Third, VA sometimes has difficulty

getting community nursing home services in those locations where its

reimbursement rates are lower than other purchasers of such services. VA

has several reimbursement initiatives under way to enhance its access to

community nursing homes. Also, VA’s use of state veterans homes is

limited by the number of such beds available and by some states’ criteria

for admitting veterans to these homes—criteria that are more restrictive

than VA’s. For example, some states admit only veterans who served during

wartime.

We and others have found differences in the quality of care provided to

veterans by the various types of nursing homes. The VA nursing homes we

visited appeared to provide more comprehensive care to veterans than

most of the community and state veterans nursing homes we visited.

Although the care provided in the community and state homes we visited

generally met quality standards, we identified quality-of-care issues at both

types of homes. For example, veterans in community nursing homes were

less likely to receive restorative therapies and more likely to be subjected

to physical and chemical restraints than veterans in VA homes.

As VA adapts to changing health care markets and an aging veteran

population, it recognizes the need for accurate information on the cost of

providing and purchasing nursing home care, the availability of nursing

home beds in local markets, and the adequacy of VA reimbursement rates

to purchase quality nursing home care for veterans. Although VA has

initiated efforts to improve its data in these areas, better information is

still needed for VA to make informed resource management decisions.

Background Veterans aged 65 or older are increasing both in number and in the

percentage of the veteran population receiving VA health care services.

More significantly, the number of veterans aged 75 and older, the heaviest

Page 3 GAO/HEHS-97-27 VA Nursing Home Data
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users of nursing home care, is increasing rapidly. VA estimates that the

number of veterans aged 75 and older will increase from about 2.6 million

in 1995 to about 4.0 million in 2000.

All veterans with a medical need for nursing home care are eligible to

receive such care in VA nursing homes and community nursing homes

under contract to VA. VA also pays a portion of the cost of care for veterans

served in state veterans nursing homes.3

 Because most veterans receive

care financed through other government programs (Medicare or

Medicaid), private insurance, or personal assets, however, these VA

programs provide only a portion of the nursing home care that veterans

receive.

VA serves veterans essentially on a first-come, first-served basis up to the

limits of VA’s budget authority for nursing home care. VA is authorized to

pay for care in community nursing homes for a period generally not longer

than 6 months for nonservice-connected veterans and for an indefinite

period for veterans with service-connected conditions. No maximum

service period exists, and only higher income, nonservice-connected

veterans must contribute to the cost of their care in VA nursing homes.

State veterans homes establish their own admissions policy, and, although

they receive per diem payments from VA, state homes generally rely on

patient cost sharing to help cover expenses. VA operates 129 VA nursing

homes (in 45 states), contracts with 3,766 community nursing homes (in

all 50 states, the District of Columbia, and Puerto Rico), and pays a portion

of the costs for veterans served in 80 state veterans homes (in 38 states).

Obligations for VA and state veterans nursing homes have increased each

year from 1985 through 1995; obligations for community nursing homes

have fluctuated over the same period. Overall, VA reports that nursing

home obligations have grown from about $710 million in 1985, serving

72,889 veterans, to $1.6 billion in 1995, serving 79,373 veterans as shown in

table 1.

3

The daily amount paid per veteran in recognized state veterans homes is the per diem rate established

by 38 U.S.C. 1741, for nursing home care. State veterans homes originated in the post-Civil War era

when the federal government established homes for disabled soldiers in need of hospital and

domiciliary care. The government could not meet the demand for services, and care was limited to

veterans who had served with the Union Army. As a result, states established state homes for the care

of soldiers at state expense. The Congress enacted legislation in 1888 authorizing the payment of $100

per year to help defray state tax burdens.

Page 4 GAO/HEHS-97-27 VA Nursing Home Data
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Table 1: VA Nursing Home Programs: Obligations and Utilization, 1985-95

VA nursing homes

Community nursing

homes State veterans homes

Total

Fiscal year Obligations

Veterans

treated Obligations

Veterans

treated Obligations

Veterans

treated Obligations

1985 $390,432,000 20,442 $268,936,000 38,907 $50,217,000 13,540 $709,585,000

1986 452,397,000 23,940 301,844,000 41,124 51,307,000 13,914 805,548,000

1987 492,810,000 25,567 325,677,000 41,925 54,293,000 14,116 872,780,000

1988 534,514,000 27,220 353,484,000 42,232 65,643,000 14,224 953,641,000

1989 598,588,000 26,561 281,487,000 32,209 70,248,000 14,311 950,323,000

1990 666,523,000 27,067 273,708,000 28,851 79,445,000 15,108 1,019,676,000

1991 766,521,000 28,376 288,031,000 28,450 85,346,000 15,319 1,139,898,000

1992 881,579,000 30,404 283,771,000 25,062 100,314,000 15,956 1,265,664,000

1993 966,561,000 31,668 332,564,000 26,887 114,270,000 16,849 1,413,395,000

1994 1,102,301,000 30,926 359,680,000 29,096 137,349,000 17,873 1,599,330,000

1995 $1,101,850,000 33,061 $360,759,000 26,971 $165,946,000 19,341 $1,628,555,000

To control construction of VA nursing homes and encourage placement of

veterans in less costly community nursing homes, the Office of

Management and Budget (OMB) established guidelines in 1987 for both the

market share (16 percent) of the estimated demand by veterans for

nursing home care and the distribution of veterans in the various types of

facilities.4

 The patient distribution goal is 30 percent in VA nursing homes,

40 percent in community homes, and 30 percent in state veterans homes.

Management of nursing home resources in VA is changing with the

reorganization of the VA health care system. The reorganization involves

trimming unnecessary management layers, consolidating medical services,

and using more community resources. Called the Veterans Integrated

Service Network (VISN), the reorganized VA health care system will be

administered and provided through 22 local network service areas and

encompass the assessment, planning, and budgeting aspects of providing

VA nursing home care in each service area. Implementation of the VISN will

shift nursing home resource management decisions from individual VA

medical centers to VISN directors. VA’s transition to the VISN was in its early

stages at the time of our review.

4

These guidelines were announced in the President’s fiscal year 1987 budget.

Page 5 GAO/HEHS-97-27 VA Nursing Home Data
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Patient Distribution in

Types of Nursing

Homes Has Shifted

The distribution of veterans in the three types of nursing homes differs

greatly from VA’s target of 30 percent in VA homes, 40 percent in

community homes, and 30 percent in state homes. Figure 1 shows the

distribution based on the average daily census5

 during fiscal year 1995.

Appendix I shows, by state, the number of nursing homes that VA uses and

the average daily census by each type of facility in fiscal year 1995.

Figure 1: Average Daily Census of

Veterans in the Three Nursing Home

Programs, FY 1995

40% • VA Nursing Home Care Units

24%•

Contract Community Nursing

Homes

•36%

State Veterans Nursing Homes

The distribution pattern has also shifted considerably over the years. In

fiscal year 1985, for example, about 40 percent of veterans (figure based

on the average daily census) receiving VA-financed or -provided nursing

home care were cared for in community nursing homes. Also, VA’s average

daily census in community nursing homes was over 3,000 patients greater

in 1985 than in 1995.6

 Figure 2 shows the average daily census in the three

types of nursing homes from fiscal years 1985 through 1995.

5

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

6

On the basis of patients treated, community nursing homes served about 12,000 more veterans in

fiscal year 1985 than in fiscal year 1995.

Page 6 GAO/HEHS-97-27 VA Nursing Home Data
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Figure 2: Average Daily Census in

Three Types of Nursing Homes, FY

1985-95

Patients

7000

8000

9000

10000

11000

12000

13000

14000

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995

Fiscal Year

VA Nursing Homes

Community Nursing Homes

State Veterans Nursing Homes

The distribution shift was the result of major reductions in expenditures

for community nursing homes that occurred in the late 1980s and early

1990s. For example, in 1989 VA delegated community nursing home budget

decisions to VA medical centers. Some medical center directors left their

programs intact, while others used community nursing home funds for

other medical center activities. Most community nursing home programs

shrank considerably. According to a VA official, in fiscal year 1990, VA

reversed its decision to delegate budget authority to medical centers

because VA medical centers did not support the community nursing home

program. VA’s use of community nursing homes has not returned to

pre-1989 levels, however. From fiscal years 1988 to 1993, the average

number of community nursing homes under contract to each VA medical

center decreased from 24 to 21, and the average number of veterans

placed in community homes by each VA medical center decreased from 183

to 129.

Page 7 GAO/HEHS-97-27 VA Nursing Home Data
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Community nursing home funds have also been used to meet VA budget

emergencies and to fund VA-sponsored noninstitutional care programs.

According to VA budget documents, in fiscal year 1992, $35 million of VA’s

community nursing home program budget was reprogrammed to meet the

increased costs of special pay rates for physicians and dentists. According

to a VA official, the reprogramming of these funds was cleared by OMB and

VA appropriations committees. Also, in fiscal year 1993, VA’s Homemaker

and Day Care programs, alternatives to institutional care, began to share

community nursing home budget resources. This action was also

supported by the Congress through language in VA’s appropriations bill

designed to increase VA’s use of long-term care alternatives.

VA’s Nursing Home

Cost Data Are

Incomplete

For fiscal year 1995, VA obligated $1.1 billion for VA nursing home

operations, about $361 million for community nursing homes, and about

$166 million for state veterans homes. According to VA-reported costs for

fiscal year 1995, VA’s daily patient cost was $213.17 for veterans in VA

nursing homes, $118.12 for veterans in community nursing homes, and

$35.37 for veterans in state veterans homes (where only a portion of costs

are funded by VA). Actual costs are unknown, however, because VA data

systems neither reflect all costs nor captured all costs in a consistent way

to make accurate cost comparisons.

We have reported that VA’s cost accounting system distributes costs

inconsistently and is generally not reliable as a source for precisely

comparing VA program costs.7

 We have also noted that VA cost reports are

not subject to audit and rely on each medical center to determine the

distribution of costs among different activities. VA budget and program

officials we contacted recognize that cost reports do not provide useful,

reliable cost information.

Because decisions on staff allocation costs and, in some cases, workload

are made at the facility level, data are inconsistent among facilities. For

example, VA’s cost data do not include the cost of all services provided to

community nursing home patients by VA medical centers, such as radiology

and laboratory services, clinical visits, and medications. In addition, VA’s

costs for transporting veterans between community nursing homes and VA

medical centers for treatment are generally excluded from VA’s cost data

for community homes. The inconsistent distribution of costs among VA

7

VA Health Care Delivery: Top Management Leadership Critical to Success of Decision Support System

(GAO/AIMD-95-182, Sept. 29, 1995); Budget Issues: Financial Reporting to Better Support

Decision-Making (GAO/AFMD-93-22, June 1993); Financial Management Issues (GAO/OGC-93-4TR,

Dec. 1992).

Page 8 GAO/HEHS-97-27 VA Nursing Home Data
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cost centers leads to both overallocation and underallocation of overhead

and variable costs (such as laundry, linen, janitorial, and administrative

services) to VA nursing home units. Information was not available to

determine the overall effect of cost distribution inconsistencies on VA

nursing home daily costs.

Factors that contribute to cost differences between VA and community

nursing homes include patient case mix differences and more intensive

staffing patterns in VA homes than in community nursing homes. For

example, VA’s Nursing Home Cost Study issued in August 19968

 reported

that among patients sampled as of October 1, 1995, about 16 percent of VA

nursing home patients were in a heavy care category9 requiring special

rehabilitation services (thus requiring more care and higher costs)

compared with 3 percent of community nursing home patients.

Conversely, more community nursing home patients were in a less

resource-demanding category—22 percent for community nursing home

patients compared with 17 percent for VA nursing home patients.

The study also noted that VA nursing homes have an overall higher level of

staffing than community nursing homes (.69 patient care personnel per

resident at VA facilities compared with .58 at community nursing homes)

and that facilities have different types of staff.10 RNs make up 36 percent of

the staff at VA nursing homes but only 12 percent at community nursing

homes. Aides, on the other hand, make up 67 percent of the staff at

community nursing homes but only 32 percent of the staff at VA facilities.

In July 1995, VA began implementing a decision support system (DSS) at 38

hospitals. Current VA plans call for the deployment of DSS to all VA hospitals

by fiscal year 1998. Such support systems in the private sector have proved

to be an effective management tool for improving quality and costeffectiveness, and VA expects DSS to do the same for its health care

operations. DSS can compute the cost of services provided to each patient

by combining patient-based information on services provided with

8

The study was conducted by the Health Services Research and Development Service through VA’s

Management Decision and Research Center.

9

These categories are based on Resource Utilization Group System-III (RUGS-III) classifications. RUGS-III

is a classification system that categorizes nursing home residents according to their care needs (type,

intensity, frequency, and so forth). The system is used to evaluate staffing and to determine some

states’ Medicaid reimbursement rates on the basis of case mix and resource utilization.

10Nursing homes have no recognized staffing standards. However, the Omnibus Budget Reconciliation

Act of 1987 requires nursing facilities to have a licensed nurse on duty 24 hours a day; an RN on duty at

least 8 hours a day, 7 days a week; and an RN director of nursing. (The director and the RN on duty

may be the same person.)

Page 9 GAO/HEHS-97-27 VA Nursing Home Data
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financial information on the costs and revenue associated with those

services. VA expects DSS to provide VA managers and health care providers

with variance reports identifying areas for reducing costs and improving

patient outcomes and clinical processes.

In a September 1995 report on the implementation of DSS,

11 we noted that

VA had not developed a business strategy for effectively using DSS as a

management tool. We also noted that VA had not yet developed business

goals and associated plans to guide the organization, determine the proper

location and use of resources, and provide a framework for using

management tools such as DSS. VA is developing business plans that should

be completed by December 1996. For example, one VISN work group

charged with developing the network’s long-term care business plan was

directed by the VISN leadership to consider consolidating, contracting, or

closing of all VA nursing homes in the service area. These options are being

considered so that VA can effectively provide nursing home resources in

future years to the aging veteran patient population.

Several Factors Affect

VA’s Use of

Community and State

Nursing Homes

VA’s use of community nursing home beds is affected by (1) a shortage of

beds in some parts of the country, (2) veteran and family preferences to

use VA nursing homes, and (3) VA’s inability to compete with other

purchasers of community nursing home services in some locations

because of lower reimbursement rates. VA has several initiatives under way

to improve its access to community nursing home beds by improving the

competitiveness of its rates but needs better information on specific

locations where rate adjustments would be appropriate. On the other

hand, VA’s use of state veterans nursing homes is limited because of the

number of such beds available and because VA has little control over who

gets admitted to these facilities.

Availability of Community

Nursing Home Beds Varies

The availability of nursing home beds and occupancy rates are critical to

VA’s ability to place veterans in community nursing homes. According to a

1996 study by the Institute of Medicine (IOM), Nursing Staff in Hospitals

and Nursing Homes, the demand for nursing home services continues to

grow as the number of aged and chronically ill people increases. IOM

reported that in most areas of the country, the demand for nursing home

services has surpassed the supply of beds, especially in relation to the

growth in the oldest of the elderly population. In 1990, the United States

had approximately 32 million people aged 65 years or older. This number

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

Page 10 GAO/HEHS-97-27 VA Nursing Home Data
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is projected to double by 2030. The number of elderly needing nursing

home care is expected to triple from about 1.8 million in 1990 to about

5.3 million in 2030. The median occupancy rate for U.S. nursing facilities

was about 93 percent in 1994, the most current year for which data were

available.

As demand for nursing home resources grows, VA’s access to community

nursing home beds varies by community. VA has identified seven

geographic areas where it has problems securing community nursing

home beds: California, the District of Columbia, Florida, New Hampshire,

New York, South Carolina, and Virginia. In other parts of the country,

though, VA does not appear to have such problems. According to our

questionnaire respondents, for example, the availability of community

nursing home beds in Oklahoma City, Oklahoma, and Kansas City,

Missouri, exceeded the number of veterans needing beds. A VA planning

official in Salt Lake City, Utah, also mentioned that this service area has

always had a large number of community nursing home beds available.

To make informed nursing home resource management decisions, VA

needs reliable demand and capacity data. The VA Inspector General and we

have criticized VA for consistently undercounting available community

beds and not basing its nursing home construction or expansion projects

on reliable data.12 VA has in fact overstated its nursing home construction

needs. For example, we noted in August 1995 that VA’s planned conversion

of the former Orlando Naval Hospital to a nursing home and the

construction of a new hospital and nursing home in Brevard County were

not the most prudent and economical uses of its resources. Furthermore,

we noted that VA could purchase care from community nursing homes to

meet veterans’ needs more conveniently and at a lower cost.

The VA Inspector General noted in 1994 that regional planners had

excluded suitable and available community nursing home beds and used

questionable community data in needs assessments. Regional planners

indicated that they lacked staff resources to validate community resource

data or reasonably establish that the data were reliable or accurate. It is

not yet clear how the VISN structure will address the need to improve the

reliability of community resource data on available community nursing

home beds.

12VA Health Care: Improvements Needed in Nursing Home Planning (GAO/HRD-90-98, June 12, 1990);

Veterans Health Administration’s Nursing Home Care Program Resource Management and Planning,

VA, Office of the Inspector General, Report No. 4R3-17-109 (Washington, D.C.: Aug. 31, 1994); VA

Health Care: Need for Brevard Hospital Not Justified (GAO/HEHS-95-192, Aug. 29, 1995).

Page 11 GAO/HEHS-97-27 VA Nursing Home Data
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Veterans and Families

Often Prefer VA Nursing

Homes

A May 1995 VA report, Evaluation of the Enhanced Prospective Payment

System (EPPS) for VA Contract Nursing Homes, states that many longer stay

patients were in a VA nursing home because they or their families refused

to allow their admittance to a community facility. Veterans and their

families were concerned about the limited VA benefit in community homes

(6 months for nonservice-connected veterans) and the depletion of assets

that occurs before a veteran’s community nursing home care is converted

to Medicaid.13 Also, many veterans tend to prefer to be housed with other

veterans because community nursing homes lack the (mainly maleoriented) culture of VA or state veterans homes.

VA Reimbursement Rates

May Limit Access to

Community Nursing

Homes

VA studies suggest that VA’s reimbursement rates may be too low in some

areas, and as a result veterans’ access to community nursing homes may

be limited. VA has initiatives under way to enhance access to community

nursing homes but needs better information to determine where

reimbursement rates adversely affect veterans’ access to these homes.

VA pays facilities a fixed daily rate for nursing home services. This rate is

intended to cover all necessary services, both routine daily services (room,

board, and nursing services) and special and ancillary services (primary

and specialty physician services, diagnostic tests, and equipment).14 The

rate is based on each state’s daily Medicaid rate for basic nursing home

care, plus an additional 15 percent. VA medical centers may negotiate with

community nursing homes to provide higher reimbursements for extra

care cases (that is, costly special and ancillary services).15

Other payers, such as private insurers, Medicare, and Medicaid, generally

do not reimburse community nursing homes on a daily-rate basis. The

nursing home market generally reimburses on a unit-of-service basis. For

example, the Medicaid program allows providers to bill for medical

services, such as physician care and diagnostic tests, on a unit-of-service

basis.

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

thresholds.

14The Veterans Health Administration’s (VHA) payment method has been altered to allow direct

payment of drug costs that exceed 7.5 percent of the per diem. In addition, therapy costs up to

60 percent of per diem can be paid by a VA medical center without requesting an exemption.

15Providers are precluded from billing other third-party payers for costs incurred beyond the VA

contract rate. Both VA and HHS consider this double billing. VA does permit a provider to bill

Medicare for hospice and dialysis services.

Page 12 GAO/HEHS-97-27 VA Nursing Home Data
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In some communities, VA reimbursements are not competitive with other

payers. Community nursing home administrators in the facilities we visited

informed us that VA was not paying what was necessary to care for some

veterans, particularly those patients with heavy care needs. For example,

an administrator of a Salt Lake City home indicated that although VA’s

contract rate is adequate for most patients, it is inadequate for patients on

intravenous or feeding tubes. Another administrator in Richmond, Virginia,

indicated that although the nursing home has the capacity to admit

additional veterans, it would turn away veterans requiring heavy care

involving high treatment costs because VA’s reimbursement is inadequate.

Nursing home administrators and VA questionnaire respondents told us

that veterans with behavioral problems, alcohol or drug dependencies, or

conditions requiring the use of a ventilator were most likely to be refused

admission to a community nursing home.

Nursing home administrators said that they make trade-offs between

serving veterans at potentially lower reimbursement rates and serving

private pay, Medicare, and Medicaid patients whose ancillary service costs

can be billed separately. The 1993 National Survey of VA Community

Nursing Home Program Practices conducted by VA’s Midwest Center for

Health Services and Policy Research noted that only 29 percent of VA

medical centers indicated that the Medicaid plus 15 percent

reimbursement rate was adequate to cover community nursing home costs

in their area.

VA policy allows medical centers to negotiate reimbursement rates higher

than the standard Medicaid plus 15 percent rate, and VA’s May 1995

Evaluation of the Enhanced Prospective Payment System noted that

20 percent of community nursing homes were paid higher rates. Some VA

medical centers do not pursue higher rates because negotiating contracts

is burdensome and obtaining approval for such rates from the VA regional

level sometimes takes 2 to 4 months. The study concluded that these

increasingly difficult negotiations sometimes soured relations with

community nursing homes. As a result of the study, VA changed its policy

on community nursing home rate exceptions, allowing local VA medical

center director approval, except for subacute care.

In addition, VA is a small purchaser of nursing home care in most markets,

providing little incentive for nursing homes to engage in lengthy

negotiations. For example, in May 1995, VA’s Management Decision and

Research Center noted that no veterans were placed in one-quarter to

one-third of the community nursing homes with which VA had contracts

Page 13 GAO/HEHS-97-27 VA Nursing Home Data
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during fiscal years 1988 through 1994. The remaining homes under

contract during that period had between 4.6 and 6.3 veterans placed per

year on average.

VA Has Three Initiatives to

Enhance Access to

Community Nursing

Homes

VA is trying to improve the competitiveness of its nursing home

reimbursement rates through three initiatives: (1) multistate contracting,

(2) a prospective payment system based on Medicare nursing home

reimbursement rates, and (3) revisions to the standard community nursing

home contract format. However, VA needs better information to identify

specific locations where adjustments to reimbursement rates are needed

to enhance access to community nursing home beds.

In September 1995, VA issued a request for proposals for multistate

contracts to provide nursing home services. Multistate contracting is

intended to enhance VA’s ability to access beds by easing the

administrative requirements on community nursing homes and offering

prospective providers a large volume of patients. VA plans to commit

$34 million to these contracts or about 10 percent of the community

nursing home program budget. The multistate contracts specifically

guarantee access for veterans up to the amount specified in the contracts.

VA awarded six multistate contracts to private corporations on

September 1, 1996, and also contracted with a provider with 20 facilities in

California. The new contracts will provide VA access to 1,101 nursing

homes in 43 states, and VA believes the contracts offer administrative and

other cost efficiencies. Each corporation will provide five levels of care

based on a state-specific pricing structure designed to achieve cost savings

over the life of the contract.

Since 1991, VA has also been pilot testing a prospective payment system

based on Medicare reimbursement rates. EPPS, implemented in 8 of VA’s 164

medical centers with nursing homes or contracts with community nursing

homes, provides three levels of reimbursement—superskilled, skilled, and

intermediate-level care. Ancillary costs are also included in these rates, but

speech, physical, and occupational therapies are reimbursed separately

using rates established by VA’s central office. A 1995 study by VA’s

Management Decision and Research Center estimated that the pilot

system reimbursed nursing homes $3,402 more per patient than VA’s

normal reimbursement system. However, while data limitations made it

inconclusive, the study suggested that these added costs were outweighed

by savings to VA medical centers from moving patients from the hospital

Page 14 GAO/HEHS-97-27 VA Nursing Home Data
B-265690 

sooner to nursing homes, which provide a lower (and less expensive) level

of care.

VA will use the findings of the EPPS evaluation to collect information on

nursing home market conditions and hospital utilization to determine

whether special efforts are needed to become more competitive in

community nursing home markets. VA medical centers may qualify to

participate by meeting certain criteria based on cost, access, and

administrative workload considerations. For example, medical centers will

be allowed to participate if more than 50 percent of their community

nursing home contracts require exceptions to the Medicaid plus 15 percent

reimbursement rate. Other participation criteria include the inability to

place more than 5 percent of patients who are considered appropriate for

nursing home placement and a caseload that includes more than

50 percent of patients who need specialized care and require special

negotiations before placement.

In June 1995, VA changed its standard nursing home contract to provide for

multiple reimbursement rates. These rates include the following categories

of care: (1) reduced physical function, (2) basic, (3) heavy rehabilitation

therapy, (4) special care, (5) clinically complex, (6) ventilator dependent,

(7) human immunodeficiency virus/acquired immunodeficiency syndrome,

and (8) Clinitron16 dependent. Rates are figured using the current Medicaid

rate plus an amount to cover the use of additional supplies, services, and

equipment associated with each category of care.

Although these initiatives should improve VA’s access to community

nursing home beds, VA needs reliable information on the availability of

community nursing home beds and the reasons for access problems in

specific locations to make informed decisions about where adjustments to

reimbursement rates are warranted. Without information on the reasons

for access problems in specific locations, assertions of noncompetitive VA

reimbursement rates could obscure medical center preferences for using

VA nursing homes. Some of the information available is anecdotal and

based on testimonial rather than quantitative evidence. For example, a

1993 VA Inspector General report on the EPPS pilots noted that two sites

reported that the pilot rates were too high for their area, though the pilot

sites had been selected because they had reported difficulty accessing

community nursing home beds. The Inspector General noted that the

higher reimbursement rates did not ensure placement of “heavy care”

16Specially designed beds that feature a constantly circulating silicon mattress. The bed is used to treat

and prevent decubitus ulcers (bed sores).

Page 15 GAO/HEHS-97-27 VA Nursing Home Data
B-265690 

(costly) VA patients in exchange for the higher costs associated with the

pilots.

Admission to State

Veterans Homes

Controlled by States

VA’s access to state veterans homes is also limited. States establish

admission policies, which vary from state to state. In some instances,

admission criteria for state veterans homes are more restrictive than VA

admission criteria. For example, some state homes require that veterans

have service-connected disabilities or wartime military service. Other

states allow admission of veterans’ spouses and other nonveterans. Bed

availability in state homes also helps determine VA’s ability to use these

facilities. For example, according to discussions we had with state nursing

home admissions staff in fiscal year 1996, Massachusetts has a waiting list

for skilled care bed admissions in its two state facilities; Colorado,

however, has no waiting list for its four facilities and admits nonveterans

to all four homes.

Quality of Care Varies

Among Nursing

Homes

VA and we have found differences in the quality of care provided by the

various types of nursing homes. Through its monitoring efforts, VA works

with homes to improve patient care. On the basis of our review of selected

quality indicators, the homes we visited appeared to provide

comprehensive and appropriate care to veterans. VA homes, however,

generally had fewer quality-of-care issues than most of the community and

state homes we saw.

VA requires its medical centers to ensure that veterans receive quality care

in any nursing facility in which they are placed. Specifically, on a monthly

basis, VA medical centers must send an RN or social worker to visit

veterans in community nursing homes to review their care and to provide

a liaison between the community home and the VA medical center. An RN

must visit patients at least every other month. Medical center staff also

review state survey and certification data maintained for Medicare- and

Medicaid-certified facilities. They also review Joint Commission on

Accreditation of Healthcare Organizations (JCAHO) accreditations, when

available, to assess community nursing homes’ compliance with

appropriate standards. In addition, VA medical centers conduct annual

on-site evaluations of community facilities using a multidisciplinary team

to review patient records, policy, and procedures and to check fire and

safety provisions.

Page 16 GAO/HEHS-97-27 VA Nursing Home Data
B-265690 

VA annually inspects state veterans homes to certify their eligibility for per

diem payments by meeting VA standards of care. VA inspections of state

nursing homes are carried out by medical center staff and are similar to

annual inspections of community nursing homes. If the medical center

determines that care is inappropriate, it can suspend per diem payments

for veterans placed in state homes.

VA Homes Had Fewer

Quality-of-Care Issues

Than Other Types of

Homes

We visited 2 VA, 10 community, and 5 state veterans nursing homes, where

we reviewed the care provided to 95 veterans. The patients were randomly

selected for a representative sample at the VA and state veterans homes.

We reviewed the total veteran population under VA contracts at each

community home but did not review the care provided to nonveteran

patients in these facilities. We used the 1995 HCFA Provider Certification

Survey Procedures to assess the quality of care and the overall ability of

the facility to meet patient care needs.

Patient care in the two VA nursing homes we visited was comprehensive

and generally met Medicare certification standards. One VA nursing home

had achieved 100-percent participation in patient therapies. VA nursing

homes are hospital based and therefore have greater access to

rehabilitative and restorative services than other nursing homes. In

addition, VA nursing homes were generally staffed by a higher number of

RNs, gerontological and rehabilitation specialists, social workers, and

physical therapists than community and state veterans homes, and all VA

nursing homes are JCAHO accredited.

Although care met quality standards, we found some quality-of-care issues

at all 10 community nursing homes we visited. For example, we noted that

veterans in some community homes were less likely to receive ongoing

restorative therapies than in VA facilities. We also noted that community

nursing homes used physical and chemical restraints more often than VA

homes we visited. One facility was not certified for Medicare or Medicaid,

and one rural facility had only recently qualified for Medicare certification

by ensuring that at least one RN staffed the facility 8 hours every day. None

of the community facilities we visited was JCAHO accredited.

Although medical center staff did not always comply with monthly on-site

monitoring requirements because of resource limitations, they generally

visited community nursing home patients when problems were identified.

At one location, medical center staff told us they were reluctant to criticize

community nursing homes because bed availability was at a premium and

Page 17 GAO/HEHS-97-27 VA Nursing Home Data
B-265690 

they did not want to antagonize the homes. The staff at this medical center

did perform monthly monitoring visits and sought to resolve patient care

problems by educating facility staff and providing patient care

consultations. According to our survey respondents, VA medical centers

terminated 50 contracts with community nursing homes in fiscal year 1994

because of quality-of-care problems. No placements were made in an

additional 67 contract facilities because of quality-of-care concerns during

the same time frame.

VA’s study of EPPS also noted that some patients received insufficient

medications and restorative or rehabilitative care in community nursing

homes. The report cited one group of community nursing home providers

who said distinct differences existed in the quality of care provided to

private and Medicare patients compared with Medicaid and VA patients.

Care provided in the state homes we visited generally met quality

standards. One state home, however, had several quality-of-care issues.

The home was not certified for Medicare or Medicaid or accredited by

JCAHO. This home showed little evidence of planned daily activity and did

little to protect the privacy of patients, whose care was provided in open

wards without privacy curtains. We also observed heavy use of physical

and chemical restraints at this facility. Although the VA medical center

knew about this facility’s problems and annual visits had detected

long-standing problems, the medical center’s infrequent attention to the

facility’s quality-of-care problems was not sufficient to effect corrective

measures.

Conclusions The uneven distribution of nursing homes and differences in the extent to

which VA reimbursement rates are competitive in local markets could

reasonably lead to different responses among VA networks to meet the

demand for cost-effective, high-quality nursing home services. However,

without (1) accurate and complete information on nursing home costs,

(2) better information on the availability of community nursing home beds,

and (3) information on the competitiveness of VA reimbursement rates, VA

has inadequate assurance that it is using the nursing home resources at its

disposal to the best of its ability to serve veterans in need of such care. As

VA implements the VISN structure, decisionmakers will need better costand care-based information on the nursing home services it provides or

purchases.

Page 18 GAO/HEHS-97-27 VA Nursing Home Data
B-265690 

VA’s implementation of multistate contracts and efforts to improve the

competitiveness of its reimbursement rates should improve its access to

community nursing home beds. VA’s efforts to more accurately identify and

report nursing home costs through DSS are incomplete. Also, VA needs

better information on the availability of community nursing home beds

and must identify locations where current rates are not competitive,

especially in areas not covered by multistate contracts.

Recommendations As part of VA’s ongoing efforts to improve nursing home resource

management decisions, we recommend that the Secretary of Veterans

Affairs direct the Under Secretary for Health to more accurately

accumulate and report nursing home costs, assess the availability of

community nursing home resources, and identify locations where current

reimbursement rates are not competitive.

Agency Comments

and Our Evaluation

On November 25, 1996, we met with the Assistant Chief Medical Director

for Geriatrics and Extended Care and other VA officials to obtain their

comments on a draft of this report. The VA officials stated that the report

complements VA’s efforts to review options for providing long-term care

for veterans and concurred with our findings and recommendations. VA is

currently rethinking its nursing home patient distribution goals for the

three types of facilities and is also considering greater emphasis on

alternatives to long-term care for veterans such as home and community

health care, day care, and other noninstitutional care options. To this end,

VA has established an Advisory Committee on the Future of VA Long-Term

Care, which will make recommendations to VA’s Under Secretary for

Health on the scope and structure of VHA’s long-term care services and the

changes necessary to ensure that services for veterans are available and

effective in future health care settings. Committee members will be

selected on the basis of professional expertise in various components of

long-term care and will represent constituencies such as veterans service

organizations, nursing home corporations, and university-based academic

communities. VA expects recommendations from the committee in 1-1/2 to

2 years.

VA agreed that its Cost Distribution Report is inadequate, and although

better information on costs and local resources is available from data

collected in conjunction with the new multistate contracts, VA still expects

that full implementation of DSS will improve data on costs and patient

outcomes. In addition, VISN networks have been provided a new

Page 19 GAO/HEHS-97-27 VA Nursing Home Data
B-265690 

population-based, long-term care planning model that is being used to

develop network business plans.

VA noted that it has initiated efforts to improve collection of data on

community nursing home patients to compare their characteristics

(including case mix) with VA nursing home patients. A Patient Assessment

Instrument, now used for VA nursing home patients, will be applied to

community nursing home patients and is currently used for patients

referred to multistate contract facilities. VA also offered several technical

comments and clarifications on our draft report that we incorporated into

the final report as appropriate.

Copies of this report are being sent to the Secretary of Veterans Affairs,

other congressional committees, and interested parties. Copies will be

made available to others upon request.

Please call me at (202) 512-7101 if you have any questions or need

additional assistance. Other GAO contacts and staff acknowledgments to

this report are listed in appendix II.

Sincerely yours,

David P. Baine

Director, Veterans’ Affairs and

 Military Health Care Issues

Page 20 GAO/HEHS-97-27 VA Nursing Home Data
Page 21 GAO/HEHS-97-27 VA Nursing Home Data
Contents

Letter 1

Appendix I 

Number of Nursing

Home Facilities and

Average Daily Census

in Fiscal Year 1995

24

Appendix II 

GAO Contacts and

Staff

Acknowledgments

26

Table Table 1: VA Nursing Home Programs: Obligations and Utilization,

1985-95

5

Figures Figure 1: Average Daily Census of Veterans in the Three Nursing

Home Programs, FY 1995

6

Figure 2: Average Daily Census in Three Types of Nursing Homes,

FY 1985-95

7

Abbreviations

DSS decision support system

EPPS Enhanced Prospective Payment System

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

IOM Institute of Medicine

JCAHO Joint Commission on Accreditation of Healthcare

Organizations

OMB Office of Management and Budget

RN registered nurse

RUGS-III Resource Utilization Group System-III

VA Department of Veterans Affairs

VHA Veterans Health Administration

VISN Veterans Integrated Service Network

Page 22 GAO/HEHS-97-27 VA Nursing Home Data
Page 23 GAO/HEHS-97-27 VA Nursing Home Data
Appendix I 

Number of Nursing Home Facilities and

Average Daily Census in Fiscal Year 1995

Number of facilities Average daily census

State NHCUa CNHb SVHc NHCU CNH SVH Total

Alabama 2 83 3 316 81 188 580

Alaska 0 10 0 0 12 0 12

Arizona 3 35 0 214 165 0 379

Arkansas 1 55 1 175 106 58 339

California 8 170 1 961 776 423 2,160

Colorado 3 31 4 235 83 234 552

Connecticut 1 26 0 76 108 0 184

Delaware 1 10 0 59 26 0 85

District of Columbia 1 1 0 115 0 0 115

Florida 6 217 1 889 342 96 1,327

Georgia 3 116 2 271 277 497 1,045

Hawaii 0 10 0 0 15 0 15

Idaho 1 17 3 33 20 266 319

Illinois 4 119 4 649 552 909 2,110

Indiana 3 136 1 170 140 304 614

Iowa 1 86 1 239 68 461 768

Kansas 3 40 1 254 103 64 421

Kentucky 1 58 1 79 95 240 414

Louisiana 2 111 1 182 151 139 472

Maine 1 29 4 84 30 216 327

Maryland 2 47 1 123 120 252 495

Massachusetts 3 119 2 391 412 266 1,069

Michigan 5 82 2 438 144 673 1,255

Minnesota 2 144 3 296 169 441 906

Mississippi 2 64 1 167 114 144 425

Missouri 3 65 5 193 223 636 1,052

Montana 1 53 2 29 44 88 158

Nebraska 1 39 4 54 65 484 603

Nevada 1 44 0 55 23 0 78

New Hampshire 1 25 1 108 32 136 276

New Jersey 2 14 3 283 83 715 1,081

New Mexico 1 29 2 44 55 158 257

New York 11 180 4 1,311 513 656 2,479

North Carolina 4 109 0 312 218 0 530

North Dakota 1 18 1 46 18 33 97

Ohio 4 163 1 717 405 313 1,435

Oklahoma 0 49 6 0 96 1,019 1,115

(continued)

Page 24 GAO/HEHS-97-27 VA Nursing Home Data
Appendix I 

Number of Nursing Home Facilities and

Average Daily Census in Fiscal Year 1995

Number of facilities Average daily census

State NHCUa CNHb SVHc NHCU CNH SVH Total

Oregon 2 68 0 198 155 0 353

Pennsylvania 9 169 4 1,137 449 544 2,130

Puerto Rico 1 4 0 98 8 0 106

Rhode Island 0 17 1 0 69 241 310

South Carolina 1 91 2 118 101 287 506

South Dakota 2 44 1 152 47 36 235

Tennessee 3 110 1 336 231 108 675

Texas 9 236 0 937 563 0 1,500

Utah 0 34 0 0 79 0 79

Vermont 1 13 1 24 24 150 198

Virginia 3 74 1 267 177 164 608

Washington 3 93 2 160 179 328 667

West Virginia 2 87 0 180 218 0 398

Wisconsin 2 114 1 320 127 511 958

Wyoming 2 8 0 77 23 0 100

Total 129 3,766 80 13,572 8,334 12,478 34,384

aNursing home care unit refers to a VA nursing home.

bCommunity nursing home.

cState veterans home.

Page 25 GAO/HEHS-97-27 VA Nursing Home Data
Appendix II 

GAO Contacts and Staff Acknowledgments

GAO Contacts George F. Poindexter, Assistant Director, (202) 512-7213

James D. Espinoza, Senior Evaluator, (303) 572-7325 

Patricia A. Jones, Senior Evaluator, (202) 512-7175

Staff

Acknowledgments

Gina Guarascio, Evaluator

(101471) Page 26 GAO/HEHS-97-27 VA Nursing Home Data
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