a

GAO

United States General Accounting Office

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
VHA’s budget formulation and planning processes are centrally managed,

but are not closely linked. Resource distribution to VHA’s 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 network’s capacity for meeting this

performance target.

While budget and performance integration has improved, VHA managers

still face additional challenges. VHA’s 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.

MANAGING FOR RESULTS

www.gao.gov/cgi-bin/getrpt?GAO-03-10.

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.

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

December 2002

Efforts to Strengthen the Link Between

Resources and Results at the Veterans

Health Administration

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.
Page i GAO-03-10 Link Between Resources & Results at VHA

Contents

Letter 1

Results in Brief 3

Background 4

Scope and Methodology 7

Budget Formulation and Planning Efforts Are Centrally Managed, 

While Budget Execution and Planning Are Linked in Networks 9

Performance Information Influences Resource Allocation Decisions 

in a Variety of Ways at These Networks 14

Challenges 18

Agency Comments and Our Evaluation 19

Appendix

Appendix I: Comments From the Department of Veterans Affairs 22

Figures Figure 1: Veterans Health Administration Organizational Chart 6

Figure 2: VHA’s Budget and Planning Processes 10

Figure 3: Example of Linkage Between VHA Strategies, 

Performance Measures, and Network 

Strategies/Actions 14
Contents

Page ii GAO-03-10 Link Between Resources & Results at VHA

Abbreviations

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
Page 1 GAO-03-10 Link Between Resources & Results at VHA

United States General Accounting Office

Washington, D.C. 20548

A

December 10, 2002 Letr

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.1

 One of 

GPRA’s 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 President’s Management Agenda.2

A central piece of that is the Office of Management and Budget’s (OMB’s) 

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 President’s Budget 

request to the Congress.3

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 

government’s 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 President’s 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).
Page 2 GAO-03-10 Link Between Resources & Results at VHA

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.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 agency’s capacity to manage for results.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 

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).
Page 3 GAO-03-10 Link Between Resources & Results at VHA

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 VHA’s budget formulation and planning processes are centrally managed 

but are not closely linked. Through fiscal year 2003, VHA’s 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 VHA’s 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 
Page 4 GAO-03-10 Link Between Resources & Results at VHA

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. VHA’s 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 VHA’s 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,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. VHA’s 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 VA’s GPRA goals. These 

strategic goals are as follows: 

• put quality first until first in quality;

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

6

VA includes three administrations: VHA, Veterans Benefits Administration (VBA), and 

National Cemetery Administration (NCA).
Page 5 GAO-03-10 Link Between Resources & Results at VHA

• enhance, preserve, and restore patient function;

• exceed patients’ expectations;

• maximize resource use to benefit veterans; and

• build healthy communities. 

VHA’s 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 VA’s 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 

VHA’s budget and planning processes shaded.
Page 6 GAO-03-10 Link Between Resources & Results at VHA

Figure 1: Veterans Health Administration Organizational Chart

Deputy Under Secretary 

for Health

Deputy Under Secretary 

for Health for Health Policy

 Coordination

Chief of Staff Deputy Under Secretary for Health 

for Operations and Management

Office of Patient 

Care Services

Office of Public 

Health and 

Environmental Hazards

Office of Readjustment 

Counseling

Office of Clinical 

Logistics

Office of Quality and 

Performance

National Center for 

Patient Safety

Medical Inspector

Office of Research 

and Development 

Office of Academic 

Affiliations

Office of Employee 

Education

Office of Nursing 

Services

National Center for 

Ethics

Office of Policy and 

Planning

Office of Research 

Compliance and 

Assurance

Under Secretary for Health

Office of 

Communications

Office of Compliance 

for Business Integrity

Management Support 

Office

VA/DoD Liaison

Assistant 

DUSH for 

Operations and 

Management

Director of 

Network Support 

(East)

Director of 

Network Support 

(Central)

Director of

 Network Support 

(West)

NLB Staff

Liaison Staff 

Offices

VSSC

CARES Program

Veterans Canteen 

Service

21 VISN Directors

Office of Finance

Office of Facilities 

Management 

Office of 

Information

Business Office

Focus of GAO study

Source: VA.
Page 7 GAO-03-10 Link Between Resources & Results at VHA

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. VHA’s 

Office of Policy and Planning prepares VHA’s contribution to VA’s 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, VHA’s 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 VHA’s 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 report’s 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 VHA’s budget requests, use 

of performance information, and VA/Department of Defense resource 

sharing. We did not assess the appropriateness of VHA’s performance 
Page 8 GAO-03-10 Link Between Resources & Results at VHA

measures or budget requests, or the accuracy of VHA’s 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 VHA’s 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. 
Page 9 GAO-03-10 Link Between Resources & Results at VHA

Budget Formulation 

and Planning Efforts 

Are Centrally Managed, 

While Budget 

Execution and 

Planning Are Linked in 

Networks

Although VHA’s budget formulation and planning processes are both 

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

request is based primarily on the previous year’s 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 

VHA’s budget and planning processes.
Page 10 GAO-03-10 Link Between Resources & Results at VHA

Figure 2: VHA’s Budget and Planning Processes

a May occur throughout the fiscal year.

Fall/

Winter

Fall/

Winter

OQP develops

performance

measures.

OPP updates annual

VHA strategic planning

document.

OPP develops

Network Strategic

Planning Guidance.

VA Performance

Plan submitted to

the Congress.

Networks may add

to the list of VHA's

performance

measures.

Networks develop

budgets and send

Network to Facilities 

Allocation document

to Office of Finance.

VHA distributes

appropriated funds 

to networks.

VA, and therefore

VHA, receives

congressional

appropriation.

Networks provide

estimate of

collections, FTEs,

and other indicators

to the Office of

Finance.

Office of Finance

formulates VHA

budget and sends it 

to the VA Office of

Budget.

Networks develop

strategic plans,

which include

performance

measures.

VA Budget Call

Memorandum

sent to VHA.

Network Directors'

Performance Plan

contracts, which

include performance

measures, are signed.

Networks use

performance measures

at the network level

to make resource

allocation decisions.

VA Office of Budget

submits department

budget to OMB.

a

a

VHA Planning Process Networks VHA Budget Process

Office of Finance

releases Financial

Planning Guidance

to networks.

The PMWG provides

overall guidance with

regard to VHA

performance measures

and helps

prioritize them.

Key:

OPP = Office of Policy and Planning

OQP = Office of Quality and Performance

PMWG = Performance Management Work Group

Spring/

Summer

Spring/

Summer

Source: GAO analysis of VHA information.
Page 11 GAO-03-10 Link Between Resources & Results at VHA

VHA’s 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 

VA’s 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 VHA’s Office of Finance 

formulates the administration’s budget, it is sent to VA’s 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 President’s 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 

VHA’s budget cycle.

While the VHA-related information in VA’s 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 VA’s Annual Performance 

Plan), to review networks’ policies for consistency, and generally to have 

the information on hand in an organized format. VA’s 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 VHA’s 

budget is formulated.
Page 12 GAO-03-10 Link Between Resources & Results at VHA

VHA Resource Allocation Is 

Largely Formula-Driven

About 90 percent of VHA’s medical care appropriation, which is 

approximately 86 percent of VHA’s 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.7

 The remainder of the appropriated funds is allocated to 

networks either through Specific Purpose Funding,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.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.

VHA’s 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 

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.
Page 13 GAO-03-10 Link Between Resources & Results at VHA

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;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).11 PSL Chief Executive Officers (CEOs)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 2’s 

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. 

10Network 2’s care lines include Medical, Diagnostics and Therapeutics, Geriatrics and 

Extended Care, and Behavioral Health.

11The 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 network’s structure had not yet been determined at the time of our 

audit work; thus, we focused on the processes of Network 13.

12PSL CEOs are now called PSL Directors.
Page 14 GAO-03-10 Link Between Resources & Results at VHA

Figure 3: Example of Linkage Between VHA Strategies, Performance Measures, and Network Strategies/Actions

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.

VHA Strategy 3: Emphasize health promotion and disease prevention to improve the health of the veteran population.

VHA Performance Measure: Increase the scores on the Prevention Index II KEY

Network 2 will meet the needs of the veteran population through a wellness model of patient care 

management, promoting preventive health and wellness initiatives, disease screening, application of

disease management protocols and standardized application of recommended clinical interventions and

clinical practice guidelines.

 An aggressive approach to patient screening shall be introduced for cancer screening including breast,

cervical, colorectal and prostate cancer. Increased use of clinical reminders will be used to identify those

patients in need of cancer screening.

VISN Strategy

Increase the scores on the Prevention Index II.

VISN Actions for FYs 2003-07

Source: Network 2 2003-2007 Strategic Plan.
Page 15 GAO-03-10 Link Between Resources & Results at VHA

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,”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 network’s 

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 director’s appraisal is affected by his or her network’s 

13GAO-01-1084SP.
Page 16 GAO-03-10 Link Between Resources & Results at VHA

performance in relation to agency goals. As a result, the director’s 

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 network’s 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. 
Page 17 GAO-03-10 Link Between Resources & Results at VHA

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 network’s 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 network’s performance in 

these areas.
Page 18 GAO-03-10 Link Between Resources & Results at VHA

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 consultant’s 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 agency’s 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

VHA’s 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 VHA’s Office of Finance now works in the Office of Policy and 

Planning on the agency’s 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 
Page 19 GAO-03-10 Link Between Resources & Results at VHA

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 VA’s actuarial model, and the 

third outlined VA’s 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.
Page 20 GAO-03-10 Link Between Resources & Results at VHA

2. VA noted that it does not include all Priority 7 veterans14 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,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 securityrelated activities. We changed our report language appropriately.

VA’s 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 

VA’s workload.

The third enclosure focuses on VA’s 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 VA’s 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 administration’s budget proposal is released in early 

2003.

14Priority 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.

15See GAO-02-338.
Page 21 GAO-03-10 Link Between Resources & Results at VHA

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
Page 22 GAO-03-10 Link Between Resources & Results at VHA

Appendix I

Comments From the Department of Veterans Apendxies

Affairs ApendxiI
Appendix I

Comments From the Department of Veterans 

Affairs

(450096) Page 23 GAO-03-10 Link Between Resources & Results at VHA
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