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VA Health Care: Inadequate Planning in the Chesapeake Network (Letter
Report, 12/22/94, GAO/HEHS-95-6).

The Department of Veterans Affairs (VA) requested $14.5 million in its
fiscal year 1994 budget request to build a 120-bed nursing home on the
site of its former Baltimore (Loch Raven) Medical Center.  Although
Congress authorized VA's request, it required VA to reconsider the
location of the new nursing home in the context of the entire Chesapeake
Network and to determine whether the nursing home at the Fort Howard,
Maryland, Medical Center needed to be expanded and modernized.  VA
reported to Congress that it had chosen the Loch Raven site for
construction of a new nursing home and that the Fort Howard nursing home
needed replacing.  This report discusses whether VA used sound planning
criteria in its choosing Loch Raven as a new nursing home site and in
its plans to replace the Fort Howard hospital building and its nursing
home.

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

 REPORTNUM:  HEHS-95-6
     TITLE:  VA Health Care: Inadequate Planning in the Chesapeake 
             Network
      DATE:  12/22/94
   SUBJECT:  Veterans benefits
             Nursing homes
             Health care services
             Facility construction
             Site selection
             Health care cost control
             Community health services
             Construction costs
             Federal/state relations
             Health care planning
IDENTIFIER:  Baltimore (MD)
             Fort Howard (MD)
             VA Chesapeake Network
             Perry Point (MD)
             District of Columbia
             Charlotte Hall (MD)
             Martinsburg (WV)
             Maryland
             Virginia
             West Virginia
             Franklin County (PA)
             VA Five Year Medical Facility Development Plan
             
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Cover
================================================================ COVER

Report to the Chairman, Subcommittee on Hospitals and Health Care,
Committee on Veterans' Affairs, House of Representatives

December 1994

VA HEALTH CARE - INADEQUATE
PLANNING IN THE CHESAPEAKE NETWORK

GAO/HEHS-95-6

VA Chesapeake Network Planning

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

  VA - Department of Veterans Affairs
  VHA - Veterans Health Administration

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

B-255012

December 22, 1994

The Honorable J.  Roy Rowland
Chairman
Subcommittee on Hospitals and Health Care
Committee on Veterans' Affairs
House of Representatives

Dear Mr.  Chairman: 

The Department of Veterans Affairs (VA) requested $14.5 million in
its fiscal year 1994 budget for construction of a 120-bed nursing
home on the site of its former Baltimore (Loch Raven) Medical
Center.\1 In August 1993, in response to VA's request, the Congress
authorized construction of a nursing home in VA's Chesapeake Network. 
The Congress, however, required VA to (1) reconsider the location of
the new nursing home in the context of the entire Chesapeake Network
and (2) determine the need to expand and modernize the nursing home
at the Fort Howard, Maryland, Medical Center, approximately 15 miles
southeast of Baltimore.  The Secretary of Veterans Affairs reported
to the Congress in September 1993 that he had chosen the Loch Raven
site for construction of a new nursing home and that the Fort Howard
nursing home required replacement.  The Congress' fiscal year 1994
appropriation for VA major construction, enacted in October 1993,
included the $14.5 million that VA requested for the Loch Raven
nursing home. 

This report responds to your request that we determine whether VA
used sound planning criteria in choosing Loch Raven as a new nursing
home site and in developing its plans to replace the Fort Howard
Medical Center's hospital building and nursing home.  Our objectives,
scope, and methodology are discussed in more detail in appendix I. 

--------------------
\1 The former Baltimore Medical Center was closed in January 1993
after VA opened a new medical center in downtown Baltimore. 

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

VA plans to add 133 nursing home beds in the Baltimore area at 2
separate locations (Loch Raven and Fort Howard).  While VA is
demolishing its former Loch Raven hospital to make room for a new
nursing home, it plans to construct a replacement hospital building
and nursing home at nearby Fort Howard.  These construction projects
are not based on sound planning.  In part, this is because VA's
Veterans Health Administration (VHA) Central Office did not issue
adequate guidance to its regional offices and medical centers on how
to change VA's facility-by-facility construction planning process
into an integrated network planning process.  In addition, VHA's
Eastern Region did not always follow the guidance VHA provided. 

Specifically, Chesapeake Network planning

inadequately considered the future availability of community nursing
home beds in determining the need for new VA nursing homes in the
Network's service area;

misallocated state veterans' nursing home bed availability in
assessing the need for VA nursing home beds at various Chesapeake
Network sites; and

did not thoroughly explore renovating and converting existing
capacity to extended-care space as an alternative to new
construction. 

As a result of the weaknesses in its network planning, VA may have
overstated its need to build additional extended-care capacity in the
Chesapeake Network.\2 Also, because of the planning deficiencies
noted above, we question whether VA's plans to build two nursing
homes, and build a new hospital while demolishing a nearby existing
hospital, are the best way to improve extended-care services for
veterans throughout the entire Chesapeake Network service area. 
Finally, because of the misallocation of state veterans' nursing home
beds, we question whether Loch Raven was the best site for
construction of a new VA nursing home in the Chesapeake Network. 

--------------------
\2 "Extended care" refers to nursing home care and long-term
(intermediate and rehabilitation) medical care. 

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

VA provides health care services through a direct delivery system of
171 hospitals, 240 outpatient clinics, 126 nursing homes, and 35
domiciliaries.\3 In addition to operating its own nursing homes, VA
helps pay for nursing care provided to veterans by community and
state veterans' nursing homes.  VA reimburses community nursing homes
for care provided to eligible veterans and provides per diem payments
to state veterans' nursing homes.\4

VA operates 393 nursing home beds in the Chesapeake Network at its
medical centers at Fort Howard and Perry Point, Maryland; Washington,
D.C.; and Martinsburg, West Virginia.  In addition, VA provides per
diem payments for veterans residing at the state veterans' nursing
home in Charlotte Hall, Maryland, which operates 278 nursing home
beds.  On an average day in fiscal year 1993, VA cared for, or
provided funds for other providers to care for, 718 nursing home
residents in the Chesapeake Network. 

VA's decision in March 1992 to divide its medical care system into
networks was one of its early steps in transforming the VA health
care system into a managed care system capable of competing with
private sector health plans.  Networks were intended to plan and
coordinate the provision of medical services among two or more nearby
medical centers.  Working through a network council consisting of
medical center officials and coordinated through the appropriate VHA
regional office, each network was expected to develop local health
care systems designed to reduce overlap in medical center services
and facilitate resource sharing and referrals among participating
medical centers. 

The Chesapeake Network, one of nine networks established in VHA's
Eastern Region, was created in July 1992 to coordinate the services
provided by five medical centers.  The Network's service area
includes the District of Columbia; all of Maryland (except Kent and
Worcester counties); northern Virginia; northeastern West Virginia;
and Franklin County, Pennsylvania.  An estimated 922,000 veterans
lived in the Network's service area in 1990; by 2005, VA estimates
that the veteran population will decline by about 14 percent, to
794,000.  Figure 1 shows the Chesapeake Network service area and the
locations of the Network's medical centers.  However, VA estimates
that the veteran population aged 65 or older will increase. 

   Figure 1:  Chesapeake Network
   Service Area

   (See figure in printed
   edition.)

Before VA established networks, each medical center assessed its own
construction and renovation needs, and proposed specific construction
projects, through its VHA regional office, to VHA's Central Office. 
Approved projects were included in VA's annual Five Year Medical
Facility Development Plan and prioritized for inclusion in VA's
annual major construction budget requests to the Congress.  VA made
little effort, however, to coordinate construction plans at nearby
facilities.  For example, the Baltimore and Fort Howard medical
centers developed separate plans for nursing homes after the Congress
funded construction of a new Baltimore Medical Center in 1986.  The
Baltimore Medical Center developed plans for the use of the Loch
Raven site as a nursing home after the Medical Center was relocated
to its new downtown Baltimore site, while the Fort Howard Medical
Center developed plans to replace its existing hospital building and
nursing home.  (See app.  II for a chronology of the planning for
these projects.)

VA's Five Year Medical Facility Development Plan for fiscal years
1994-1998, issued in April 1993, included plans for a 120-bed nursing
home on the Loch Raven site.  The plan mentioned no planned major
construction projects at Fort Howard, although VA had previously
identified the Fort Howard hospital building as one of the 10
hospitals in the VA system most in need of construction, replacement,
or major modernization; and the Fort Howard Medical Center was
continuing to develop plans to build a replacement hospital and
nursing home.  Meanwhile, VA requested funding for the Loch Raven
project. 

VA's September 8, 1993, report to the Congress, in response to the
congressional mandate to reconsider the proposed Loch Raven nursing
home project, was VA's first attempt to broaden Baltimore-area major
construction planning to include the entire Chesapeake Network. 
However, the leadership of the House Committee on Veterans' Affairs
and its Subcommittee on Hospitals and Health Care criticized VA's
report as inadequate justification for the Secretary of Veterans
Affairs' decision to reconfirm Loch Raven as the site for
construction of a new nursing home.  In response to the Committee's
criticisms, VA attempted another Chesapeake Network nursing home site
selection study in October 1993.  This study, which compared nursing
home construction at Loch Raven with construction of additional
nursing home beds at the Fort Howard, Perry Point, Washington, and
Martinsburg medical centers, again concluded that Loch Raven was the
most appropriate place to build the nursing home. 

In October 1993, the Congress appropriated $369 million in fiscal
year 1994 funds for VA major construction, including $14.5 million
for the Loch Raven nursing home project.  VA has not yet requested
funding for the replacement hospital and nursing home at Fort Howard. 

--------------------
\3 In its direct delivery system, VA owns, staffs, and operates its
own medical facilities.  Domiciliaries provide services on an
ambulatory self-care basis to indigent veterans disabled by age or
disease who do not need the level of services available in hospitals
or nursing homes. 

\4 A "community nursing home" is a nursing home not owned by VA or a
state.  VA may contract to reimburse community nursing homes to care
for veterans.  State veterans' homes are state-owned and -operated
nursing homes and domiciliaries; VA makes per diem payments to offset
part of the cost of care for veterans residing in state homes, and
pays up to 65 percent of the costs of constructing or renovating
state homes. 

   NETWORK PLANNING GUIDANCE IS
   INADEQUATE
------------------------------------------------------------ Letter :3

Neither the VHA Central Office nor VHA's Eastern Region developed
adequate guidance on how to change VA's facility-by-facility planning
process into an integrated network planning process.  As a result,
the Chesapeake Network continues to plan construction projects
largely on a facility-by-facility basis. 

VHA's 1993 annual strategic planning guidance, issued in June 1993,
was designed to help VA convert VHA's medical care system into a
managed care system.  The 1993 strategic planning guidance required
that VHA regions

identify and validate the range of existing medical programs at each
facility within a network;

analyze the capabilities at the facility, network, and regional
levels to provide certain services, including rehabilitation for the
blind, pacemaker implants, cancer treatment, treatment for acquired
immunodeficiency syndrome, and treatment for traumatic brain
injuries;

review and update each facility's clinical inventory;

review workload projections and allocations for hospital, outpatient,
nursing home, and domiciliary care for each facility for fiscal year
2005, as prepared by the VHA Central Office, and justify any
deviations from these projections and allocations; and

conduct a nursing home needs assessment for each facility. 

While this guidance mentioned the need for regions to assess their
current programs and future needs on a networkwide basis, the basic
emphasis was on facility-by-facility planning.  The VHA Central
Office did not require regions to take a number of steps toward
developing integrated network plans, such as

assessing current and projected needs for each type of medical care
(including nursing home care) on a network-by-network basis;

assessing the current ability of VA facilities (both inside and
outside each network) to meet the needs identified by each network,
including an assessment of the accessibility of VA services
throughout the network;

assessing the private sector's current and future ability to meet the
needs of each network that VA is currently unable to meet;

exploring the cost-effectiveness of various options (such as
contracting, conversion of existing bed space, and new construction)
for meeting each network's needs; and

identifying and prioritizing VA construction projects (new
construction, renovation, and conversion) within each network based
on projected needs for the entire network. 

For example, Central Office guidance required assessments of the need
for new VA nursing home beds, including surveys of community nursing
home availability.  However, these assessments were to be done on a
facility basis instead of a network basis.  Also, while each facility
was expected to assess the potential for converting its unused
hospital space into nursing home beds, facilities were not expected
to assess the potential of conversions throughout their network
before identifying a need for new nursing home construction.  The
Eastern Region relied on VHA Central Office guidance in preparing its
1993 strategic plan, providing little supplementary guidance to its
networks and facilities on how to implement the Central Office
guidance. 

Based on the Central Office planning guidance, the Eastern Region
produced a Chesapeake Network plan that was primarily a compilation
of the plans of each of the Network's five medical centers, with
comments from the regional office.  The plan reflected little
consideration of the health care needs of veterans throughout the
Network or of how VA planned to coordinate the services of the
Network's five medical centers to meet those needs.  Also, the plan
did not provide a networkwide assessment of the need for new
construction in the Chesapeake Network.  Thus, VA does not have an
integrated Chesapeake Network plan to help meet VA's goal of
developing the Network into a competitive managed care system. 

   VA INADEQUATELY CONSIDERED
   COMMUNITY NURSING HOME
   AVAILABILITY IN THE CHESAPEAKE
   NETWORK
------------------------------------------------------------ Letter :4

The community nursing home surveys VA used to support its decision to
build a new nursing home on the Loch Raven site, and to support its
subsequent studies that reconfirmed that decision, were flawed and
may have inaccurately estimated the availability of less costly
community nursing home beds in the Chesapeake Network.  Specifically,
VA's surveys

excluded nursing homes with occupancy rates of 95 percent or higher,
even though they might be able to provide some beds to VA;

did not examine projections of future supply of, and demand for,
community nursing home care by nonveterans; and

relied on unverified data on community nursing home availability,
including data collected by a medical center that was proposing
construction of a new VA nursing home. 

Community nursing home surveys are an important part of the process
of determining the need for new VA nursing homes.  VA guidance
requires that local VA officials, before requesting construction of a
new nursing home, must identify all alternatives to the construction
of new VA beds--including the use of community nursing homes.  VA's
goal is to provide nursing home care to 16 percent of veterans who
require such care, with the remaining 84 percent of veterans
receiving care without VA assistance.  Of those veterans VA plans to
provide assistance for, VA expects about 40 percent to receive care
through contracts with community nursing homes.\5

VHA's Eastern Region conducted two community nursing home surveys as
parts of assessments of the need for new VA nursing home beds in the
Chesapeake Network.  The first assessment, completed in January 1993,
was used to support the need to build a new nursing home on the Loch
Raven site and was also used in VA's September 1993 Chesapeake
Network study.  The community nursing home survey used in this
assessment, however, was limited to nursing homes in the Maryland
portions of the Baltimore, Fort Howard, Perry Point, and Washington
service areas, which operate a total of almost 20,000 licensed
nursing home beds.  Of these beds, VA estimated that it could obtain
only 40 additional available and suitable beds toward its 40-percent
community share.\6 VA then estimated that the number of community
nursing home beds would grow in proportion to the increase in the
number of elderly veterans.  Hence, VA estimated that community
nursing homes could provide 50 beds by fiscal year 2005 in addition
to the 118 community nursing home beds currently used by VA in the
Maryland portions of the four medical centers' service areas. 

Using these estimated community beds, plus existing VA beds and
existing and additional state nursing home beds, VA estimated in its
January 1993 assessment that it could provide 511 of the 792
additional nursing home beds needed in the area VA assessed by fiscal
year 2005 without new VA construction.  VA's community nursing home
estimate of 168 beds by fiscal year 2005, however, fell below VA's
planned 40-percent share of total nursing home need (317 beds); this,
in turn, increased the number of beds VA estimated it will need to
build in Maryland by fiscal year 2005.  VA estimated that, to provide
a total of 792 nursing home beds, it will need to construct 296 beds
by fiscal year 2005.\7

The second community nursing home survey was conducted in September
1993 as part of VA's overall strategic planning process.  Data from
this survey were used in VA's October 1993 Chesapeake Network nursing
home site selection study to provide indicators of the need for
additional VA nursing home beds in each medical center's service
area.  The September 1993 needs assessment identified a need for VA
to provide 1,387 nursing home beds in the Chesapeake Network in
fiscal year 2005.  The September 1993 community nursing home survey
covered nursing homes throughout the Network, a total of 269
community nursing homes with about 37,000 licensed beds. 

By contacting community nursing homes in the Chesapeake Network that
VA believed might have available beds, VA identified 233 beds that it
considered both available and suitable.  These beds were in addition
to 211 community nursing home beds that VA was already using.  VA
then estimated that the number of Chesapeake Network veterans aged 65
and older will increase by 20 percent by fiscal year 2005, which
increased VA's projection of the number of additional available and
suitable community beds to 280 by fiscal year 2005.  Counting VA and
state beds, VA estimated that it could provide 1,123 of the 1,387
nursing home beds it will need in the Chesapeake Network by fiscal
year 2005 without additional VA construction.  As with the January
1993 needs assessment, however, VA's September 1993 estimate of
community nursing home availability (491 beds--211 currently in use
plus 280 available in the future) fell below its 40-percent community
bed goal (555 beds), increasing the estimated need for VA-built beds. 
VA estimated that it would require an additional 273 VA-built beds by
fiscal year 2005 (260 needed beds, inflated to allow for a 95-percent
occupancy rate). 

VA's projections of future need for VA-built nursing home beds are
questionable, however, because of its community nursing home survey
methodology.  For example, VA guidance assumes that a nursing home
with an occupancy rate of 95 percent or more, based on data provided
by state health agencies, has no beds available for VA patients and
will not have any beds available for VA patients in the future. 
Under VA's guidance, community nursing homes with 95-percent or
higher occupancy rates do not have to be contacted to determine if
they have available and suitable beds for VA referrals.  Meanwhile,
community nursing homes with occupancy rates below 95 percent are to
be surveyed by VA to determine if their available beds are suitable
for VA referrals and not whether they could provide more or fewer
suitable beds in the future.  Thus, VA may miss potentially available
and suitable nursing home beds because it is not contacting all
community nursing homes.  Also, VA is obtaining only information on
current availability, not future availability, of community nursing
home beds. 

Because of the 95-percent occupancy rate cutoff, VA's September 1993
Chesapeake Network community nursing home survey assumed that only 54
of the 269 community nursing homes in the Network's service area (20
percent) had available beds.  VA officials contacted 52 of the 54
nursing homes and found, as noted above, 233 available and suitable
beds.  VA, however, may have missed additional available and suitable
beds by not contacting the remaining 215 community nursing homes. 
For example, we found 30 community nursing homes in the Chesapeake
Network that had at least 200 beds each but were not contacted by VA
because they reported occupancy rates of 95 percent or higher.\8 On
the basis of their reported numbers of beds and occupancy rates, we
estimate that these nursing homes had almost 200 empty beds at the
time VA conducted its survey.  Consequently, VA may have been able to
obtain additional suitable beds if it had contacted these nursing
homes. 

VA's community nursing home bed projections also assume that the
supply of community beds will grow based on estimates of the increase
of the elderly veteran population.  This assumption does not account
for trends in the supply of community nursing home beds in the
Network or the demand for community nursing home beds in the future. 
For example, VA did not ask community nursing homes if they planned
to increase or decrease their numbers of beds in the future, or
whether they would be willing to provide additional beds to VA (for
example, if the nursing homes anticipate going below a 95-percent
occupancy rate in the future).  Also, VA relied only on estimates of
the increase in elderly veteran population by fiscal year 2005, not
on the change in total elderly population.  The latter would provide
a better indication of future demand for community nursing home care
and, thus, a better indicator of future community nursing home
supply. 

Furthermore, VA relied on data from the 1993 community nursing home
surveys without independently verifying that the surveys were
prepared correctly.  Thus, VA could not be assured that these surveys
accurately portrayed the future availability of community nursing
home beds.  Under VA guidance, medical centers both propose and
assess the need for new VA nursing home construction.  This could
create an incentive for medical centers to underestimate the
availability of community nursing home beds, which could lead to
overestimation of the need for VA-built beds.  Portions of the
January and September 1993 nursing home needs assessments were done
by the Baltimore Medical Center, which had proposed construction of a
new extended-care facility at Loch Raven. 

VHA Central Office officials in Washington, D.C., who are responsible
for reviewing needs assessments for major construction projects
stated that they normally do not review the accuracy of data on
community nursing home availability provided by medical centers and
regional offices or the manner in which the data were obtained
because they lack staff to perform such reviews.  These officials
stated that they attempt verification only if data appear to be
obviously erroneous, but that this was not the case with the January
and September 1993 assessments. 

--------------------
\5 VA divides the remaining 60 percent of its nursing home bed needs
equally between VA and state veterans' nursing homes. 

\6 In conducting a community nursing home survey, VA may classify
some beds as available but not suitable for VA use because (1) the
nursing home declines to accept VA patients or (2) the nursing home
does not meet VA standards. 

\7 VA estimated that it needed to provide 281 additional VA nursing
home beds in Maryland by fiscal year 2005.  VA increased the number
of beds to be constructed by 5 percent, to 296 beds, because it
assumed that the new beds would have a 95-percent occupancy rate. 
Our check of VA's calculations yielded 295 beds, rather than 296. 

\8 We limited our analysis to relatively large nursing homes because
they would provide a relatively large number of unused beds.  For
example, a 200-bed nursing home operating at 95-percent occupancy
would have 10 unused beds on any given day. 

   VA MISALLOCATED STATE NURSING
   HOME BEDS
------------------------------------------------------------ Letter :5

VA misallocated its projected available state veterans' nursing home
beds among the Chesapeake Network's four service areas in its
September 1993 Network nursing home needs assessment.\9 Instead of
following VA guidance, which recommends allocating state nursing home
beds for veterans among medical centers' service areas, the
Chesapeake Network assessment allocated all projected beds at the
Charlotte Hall state veterans' nursing home only to the Washington
Medical Center service area.  As a result, VA understated the need
for additional VA nursing home capacity in the Washington area and
overstated the need for additional VA capacity in other parts of the
Chesapeake Network, especially the Baltimore area.  These
overstatements and understatements of nursing home need may have
affected the ranking of the top site alternatives for construction of
a 120-bed nursing home in VA's October 1993 nursing home site
selection study--Loch Raven and Washington.  Thus, Loch Raven may not
be a better site for construction of a 120-bed nursing home than the
Washington Medical Center. 

For purposes of reporting data on state veterans' home usage, VA
assigns all residents of a state veterans' home for whom VA provides
payments to one medical center.  VA assigned all Charlotte Hall
residents to the Washington Medical Center because Charlotte Hall is
in Washington's service area.  However, Charlotte Hall nursing home
residents come from throughout Maryland, not just from that portion
of the state included in the Washington service area.  Of all
veterans using the Charlotte Hall nursing home during 1992, 58
percent came from the Washington service area, compared with 32
percent from the Baltimore/Fort Howard service area.  Table 1 shows
the distribution by service area of veterans using Charlotte Hall's
nursing home during calendar year 1992. 

                Table 1

Distribution of Charlotte Hall Residents
        by VA Service Area, 1992

--------------------
\9 For purposes of VA's nursing home needs assessment, the Chesapeake
Network had four service areas:  the service areas of the Washington,
Martinsburg, and Perry Point medical centers; and a joint service
area for the Baltimore and Fort Howard medical centers. 

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