Department of Veterans Affairs: Key Management Challenges in Health and Disability Programs
Published: 2003-05-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In previous GAO reports and testimonies on the Department of Veterans Affairs (VA), and in its ongoing reviews, GAO identified major management challenges related to enhancing access to health care, improving the efficiency of health care delivery, and improving the effectiveness of disability programs. This testimony underscores the importance of continuing to make progress in addressing these challenges and ultimately overcoming them.
section_title: What GAO Found
paragraphs: VA has taken actions to address key challenges in its health care and disability programs. However, growing demand for health care and a potentially larger and more complex disability workload may make VA's challenges in these areas more complex. Enhancing access to health care: VA is challenged to deliver timely, convenient health care to its enrolled veteran population. Too many veterans continue to travel too far and wait too long for care. However, shifting care closer to where veterans live is complicated by stakeholder interests. In addition, VA's efforts to reduce waiting times may be complicated by an anticipated short-term surge in demand for specialty outpatient care. VA also faces difficult challenges in providing equitable access to nursing home care services to a growing elderly veteran population. Improving the efficiency of health care delivery: VA is challenged to find more efficient ways to meet veterans' demand for health care. VA operates a large portfolio of aged buildings that is not well aligned to efficiently meet veterans' needs. As a result, VA faces difficult realignment decisions involving capital investments, consolidations, closures, and contracting with local providers. VA also faces challenges in implementing management changes to improve the efficiency of patient support services, such as food and laundry services. Improving the effectiveness of disability programs: VA is challenged to find more effective ways to compensate veterans with disabilities. VA's outdated disability determination process does not reflect a current view of the relationship between impairments and work capacity. Advances in medicine and technology have allowed some individuals with disabilities to live more independently and work more effectively. VA also faces continuing challenges to improve the timeliness, quality and consistency of claims processing. Major improvements may require fundamental program changes. GAO designated federal real property, including VA health care infrastructure, and federal disability programs, including VA disability benefits, as high-risk areas in January 2003. GAO did this to draw attention to the need for broad-based transformation in these areas, which is critical to improving the government's performance and ensuring accountability within expected resource limits.

section_title: Letter
paragraphs: Thank you for inviting me to discuss our past and current work on  veterans’ health care and disability benefits—two major program areas at  the Department of Veterans Affairs (VA). As you know, VA’s budget  submission for fiscal year 2004 includes about $64 billion and 214,000 staff.  In fiscal year 2002, VA spent about $23 billion to provide health care to  over 4 million veterans and about $26 billion to provide cash disability  benefits to over 3 million veterans, family members, and survivors.
It is especially fitting, with the recent deployment of our military forces to  armed conflict, that we reaffirm our commitment to provide high quality  services in a convenient and timely manner to those who serve our nation  in its times of need. Meeting this commitment as efficiently and effectively  as possible is also of paramount importance. In this regard, my statement  focuses on challenges that VA faces to ensure reasonable access to health  care, use its health care resources efficiently, and manage its disability  programs effectively.
My comments today are based on numerous reports and testimonies  issued over the last 7 years, including significant recommendations we  have made and VA’s progress in implementing them. (See Related GAO  Products.) We did our work in over 100 VA health care delivery locations  and conducted surveys of all 21 health care networks and reviews of  disability management issues covering all 57 disability claims processing  regional offices. We are also reporting preliminary results of ongoing  health care work that started in November 2002. This involves visits to  delivery locations, document reviews, and interviews with VA officials in  headquarters and the networks. We did our work in accordance with  generally accepted government auditing standards.
In summary, VA is challenged to meet the acute and nursing home care  needs of veterans in a timely, convenient, and equitable manner. Despite  VA’s significant access enhancements over the past several years, too  many veterans continue to travel too far and wait too long for  appointments, especially when they require hospital admissions or  consultations with specialists on an outpatient basis. When trying to  reduce travel times, VA faces difficult decisions because shifting care  closer to where veterans live can have significant ramifications for  stakeholders, such as medical schools, as well as for the use of VA’s  existing resources. In addition, VA’s efforts to reduce waiting times may be  complicated by an anticipated surge in demand for VA specialty outpatient  care over the next 10 years. Also, the population most in need of nursing  home care—veterans who are 85 years old or older—is growing. As a  result, VA faces difficult decisions concerning the delivery and sizing of  nursing home care services to equitably meet these needs.
VA is also challenged to find ways to use available health care resources  more efficiently to meet veterans’ demand for health care. For example,  VA operates and maintains a large portfolio of aged health care assets,  primarily buildings. This infrastructure is no longer effectively aligned  with VA’s new delivery model that emphasizes outpatient care. As a result,  VA faces difficult realignment decisions involving capital investments,  consolidations, closures, and contracting with local providers. These may  have significant ramifications for stakeholders, such as medical schools  and unions, primarily because realignments involve a shifting of workload  among delivery locations or workforce reductions. VA also faces  challenges in implementing management changes to improve the  efficiency of patient support services, such as food and laundry services.
In addition, VA is challenged to find ways to compensate disabled veterans  in a more meaningful and timely manner. For example, VA uses a disability  determination process that is based on economic conditions in 1945 and,  as such, does not accurately reflect current relationships between  impairments and the skills and abilities needed to work in today’s business  environment. Moreover, the consequences of some medical conditions for  many individuals have been reduced through advances in medicine and  technology, which allow individuals to live with greater independence and  function more effectively in work settings. Besides modernizing the  economic and medical underpinnings of the program, VA remains in the  midst of significant challenges to improve the quality, timeliness, and  consistency of disability claims processing. Despite its recent efforts, too  many disabled veterans wait too long for disability decisions. Significant  and sustainable improvements may not be possible without fundamental  program design changes, including those that require legislative actions to  implement. VA and the Congress could face significant stakeholder  resistance to such changes.
I would also like to point out that we designated federal real property and  federal disability programs as high-risk areas in January 2003. We did this  to draw attention to the need for broad-based transformation in these  areas, which is critical to improving the government’s performance and  ensuring accountability within expected resource limits. If this  transformation is well implemented, agencies will be better positioned to  achieve mission effectiveness, reduce operating costs, improve facility  conditions, and enhance security and safety.
subsections: section_title: Background
paragraphs: During World War I, Public Health Service hospitals treated returning  veterans and, at the end of the war, several military hospitals were  transferred to the Public Health Service to enable it to continue treating  injured soldiers. In 1921, those hospitals were transferred to the newly  established Veterans’ Bureau. By the early 1990s, the veterans’ health care  system had grown into one of our nation’s largest direct providers of  health care, comprising more than 172 hospitals.
In October 1995, VA began to transform its health care system from a  hospital-dominated model to one that provides a full range of health care  services. A key feature of this transformation involves the development of  community-based, integrated networks of VA and non-VA providers that  could deliver health care closer to where veterans live. At that time, about  half of all veterans lived more than 25 miles from a VA hospital; about 44  percent of those admitted to VA hospitals lived more than 25 miles away.  In making care more proximate to veterans’ homes, VA also began shifting  the delivery of health care from high-cost hospital settings to lower-cost  outpatient settings.
To facilitate VA’s transformation, the Congress passed the Veterans’  Health Care Eligibility Reform Act of 1996, which furnishes tools that VA  said were key to a successful transformation, including:    new eligibility rules that allow VA to treat veterans in the most appropriate    a uniform benefits package to provide a continuum of services; and    an expanded ability to purchase services from private providers.
Today, VA operates over 800 delivery locations nationwide, including over  600 community-based outpatient clinics and 162 hospitals. VA’s delivery  locations are organized into 21 geographic areas, commonly referred to as  networks. Each network includes a management office responsible for  making basic budgetary, planning, and operating decisions concerning the  delivery of health care to its veterans. Each office oversees between 5 and  11 hospitals, as well as many community-based outpatient clinics.
To promote more cost-effective use of resources, VA is authorized to share  resources with other federal agencies to avoid unnecessary duplication  and overlap of activities. VA and the Department of Defense (DOD) have  entered into agreements to exchange inpatient, outpatient, and specialty  care services as well as support services. Local facilities also have  arranged to jointly purchase pharmaceuticals, laboratory services, medical  supplies, and equipment.
Also, VA has been authorized to enter into agreements with medical  schools and their teaching hospitals. Under these agreements, VA  hospitals provide training for medical residents, and appoint medical  school faculty as VA staff physicians to supervise resident education and  patient care. Currently, about 120 medical schools and teaching hospitals  have affiliation agreements with VA. About 28,000 medical residents  receive some of their training in VA facilities every year.
Veterans’ eligibility for health care also has evolved over time. Before  1924, VA health care was available only to veterans who had wounds or  diseases incurred during military service. Eligibility for hospital care was  gradually extended to war-time veterans with lower incomes and, in 1973,  to peace time veterans with lower incomes. By 1986, all veterans were  eligible for hospital and outpatient care for service-connected conditions  as well as for conditions unrelated to military service.
VA implemented an enrollment process in 1998 that was established  primarily as a means of prioritizing care if sufficient resources were not  available to serve all veterans seeking care. About 6.2 million veterans had  enrolled by the end of fiscal year 2002. In contrast, the overall veteran  population is estimated to be about 25 million. VA projects a decline in the  total veteran population over the next 20 years while the enrolled  population is expected to decline more slowly as shown in table 1.
In addition to health care, VA provides disability benefits to those veterans  with service-connected conditions. Also, VA provides pension benefits to  low-income wartime veterans with permanent and total disabilities  unrelated to military service. Further, VA provides compensation to  survivors of service members who died while on active duty.
Disabled veterans are entitled to cash benefits whether or not employed  and regardless of the amount of income earned. The cash benefit level is  based on the percentage evaluation, commonly called the “disability  rating,” that represents the average loss in earning capacity associated  with the severity of physical and mental conditions. VA uses its Schedule  for Rating Disabilities to determine which disability rating to assign to a  veteran’s particular condition. VA’s ratings are in 10 percent increments,  from 0 to 100 percent.
Although VA generally does not pay disability compensation for  disabilities rated at 0 percent, such a rating would make veterans eligible  for other benefits, including health care. About 65 percent of veterans  receiving disability compensation have disabilities rated at 30 percent or  lower; about 8 percent are 100 percent disabled. Basic monthly payments  range from $104 for a 10 percent disability to $2,193 for a 100 percent  disability.
To process claims for these benefits, VA operates 57 regional offices.  These offices made almost 800,000 rating-related decisions in fiscal year  2002. Regional office personnel develop claims, obtain the necessary  information to evaluate claims, and determine whether to grant benefits.  In doing so, they consider veterans’ military service records, medical  examination and treatment records from VA health care facilities, and  treatment records from private providers. Once claims are developed, the  claimed disabilities are evaluated, and ratings are assigned based on  degree of disability. Veterans with multiple disabilities receive a single,  composite rating. For veterans claiming pension eligibility, the regional  office also determines if the veteran served in a period of war, is  permanently and totally disabled for reasons unrelated to military service,  and meets the income thresholds for eligibility.
section_title: Access to Health Care Could Be Enhanced
paragraphs: Over the past several years, VA has done much to ensure that veterans  have greater access to health care. Despite this, travel times and waiting  times are still problems. Another problem faced by aging veterans is  potentially inequitable access to nursing home care.
subsections: section_title: Many Veterans Travel Too Far for Hospital Admissions and Specialty Consultations
paragraphs: The substantial increase in VA health care delivery locations has enhanced  access for enrolled veterans in need of primary care, although many still  travel long distances for primary care. In addition, many who need to  consult with specialists or require hospitalization often travel long  distances to receive care. Nationwide, for example, more than 25 percent  of veterans enrolled in VA health care—over 1.7 million—live over 60  minutes driving time from a VA hospital. These veterans would have to  travel a long distance if they require admissions or consultations with  specialists, such as urologists or cardiologists, located at the closest VA  hospitals.
In October 2000, VA established the Capital Asset Realignment for  Enhanced Services (CARES) program, which has a goal of improving  veterans’ access to acute inpatient care, primary care, and specialty care.  CARES is intended to identify how well the geographic distribution of VA  health care resources matches projected needs and the shifts necessary to  better align resources and needs. Toward that end, VA has divided, for  analytical purposes, its 21 networks into 76 geographic areas—groups of  counties—in order to determine the extent to which enrollees’ travel times  exceed VA’s access standards.
For example, as part of CARES, VA has mandated that the 21 network  directors identify ways to ensure that at least 65 percent of the veterans in  their areas are within VA’s access standards for hospital care—60 minutes  for veterans residing in urban counties, 90 minutes for those in rural  counties, and 120 minutes for those in highly rural counties. VA has  identified 25 areas that do not meet this 65 percent target. In these areas,  over 900,000 enrolled veterans have travel times that exceed VA’s access  standards. In addition, as part of CARES, VA identified 51 other areas  where access enhancements may be addressed at the discretion of  network directors, given that at least 65 percent of all enrolled veterans in  those areas have travel times that meet VA’s standard. In these areas,  about 875,000 enrolled veterans have travel times that exceed VA’s  standards.
By contrast, VA has not mandated that network directors enhance access  for veterans who travel long distances to consult with specialists. Unlike  hospital care, VA has not established standards for acceptable travel times  for specialty care. Currently, nearly 2 million enrolled veterans live more  than 60 minutes driving time from specialists located at the closest VA  hospital.
When considering ways to enhance access for veterans, VA network  directors may consider three basic options: construct a new VA-owned  and operated delivery location; negotiate a sharing agreement with  another federal entity, such as a DOD facility; or contract with nonfederal  health care providers. Shifting the delivery of health care closer to where  veterans live may have significant ramifications for other stakeholders,  such as medical schools. For example, within the 76 areas, there are  smaller geographic areas that contain large concentrations of enrollees  outside VA’s access standards—10,000 or more—who live closer to non- VA hospitals than they do to the nearest VA hospitals. Such enrolled  veterans could account for significant portions of the hospital workload at  the nearest VA delivery locations. Therefore, a shifting of this workload  closer to veterans’ residences could reduce the size of residency training  opportunities at existing VA delivery locations.
Enhancing veterans’ access can also have significant ramifications  regarding the use of VA’s existing resources. Currently, VA has most of its  resources dedicated to costs associated with its existing hospitals and  other infrastructure, including clinical and support staff, at its major  health care delivery locations. Reducing veterans’ travel times through  contracting with providers in local communities or other options could  reduce demand for services at VA’s existing, more distant delivery  locations. Efficient operation of those locations could become more  difficult given the smaller workloads in relation to the operating costs of  existing hospitals.
section_title: Many Veterans Wait Too Long for Appointments
paragraphs: We also have found that excessive waiting times for VA outpatient care  persist—a situation that we have reported on for the last decade. For  example, in August 2001, we reported that veterans frequently wait longer  than 30 days—VA’s access standard—for appointments with specialists at  VA delivery locations in Florida and other areas of the country. More  recently, a Presidential task force reported in its July 2002 interim report  that veterans are finding it increasingly difficult to gain access to VA care  in selected geographic regions. For example, the task force found that the  average waiting time for a first outpatient appointment in Florida, which  has a large and growing veteran population, is over a year.
Although there is general consensus that waiting times are excessive, we  reported, and VA agreed, that its data did not reliably measure the scope of  the problem. To improve its data, VA is in the process of developing an  automated system to more systematically measure waiting times. VA has  also taken several actions to mitigate the impact of long waiting times,  including limiting enrollment of lower priority veterans and granting  priority for appointments to certain veterans with service-connected  disabilities.
VA faces an impending challenge, however, reducing the length of times  veterans wait for appointments. Specifically, VA’s current projections of  acute health care workload indicate a surge in demand for acute health  care services over the next 10 years. For example, specialty outpatient  demand nationwide is expected to almost double by fiscal year 2012.
section_title: Veterans’ Access to Nursing Home Care May Be Inequitable
paragraphs: VA’s long-term care infrastructure, including nursing homes it operates,  was developed when the concentration of veteran population was  distributed differently by region. Consequently, the location of VA’s  current infrastructure may not provide equitable access across the  country. In addition, when VA developed its long-term care infrastructure,  it relied more on nursing home care and less on home and community- based services than current practice. To help update VA’s long-term care  policy, the Federal Advisory Committee on the Future of VA Long-Term  Care recommended in 1998 that VA maintain its nursing home capacity at  the level of that time but meet the growing veteran demand for long term  care by greatly expanding home and community-based service capacity.  The House Committee on Veterans’ Affairs has expressed concern that VA  needs to maintain its nursing home capacity workload at 1998 levels.
VA currently operates its own nursing home care units in 131 locations,  according to VA headquarters officials. In addition, it pays for nursing  home care under contract in community nursing homes. VA also pays part  of the cost of care for veterans at state veterans’ nursing homes and in  addition pays a portion of the construction costs for some state veterans’  nursing homes. In all these settings combined, VA’s nursing home  workload—average daily census—has declined by more than 1,800 since  1998. See table 2. The biggest decline has been in community nursing  home care where the average daily census was 31 percent less in 2002 than  in 1998. Average daily census in VA-operated nursing homes also declined  by 11 percent during this period. A 9 percent increase in state veterans’  nursing homes’ average daily census offsets some of the decline in average  daily census in community and VA-operated nursing homes.
VA headquarters officials told us that the decline in nursing home average  daily census could be the result of a number of factors. These factors  include providing more emphasis on shorter-term care for post-acute care  rehabilitation, providing more home and community-based services to  obviate the need for nursing home care, assisting veterans to obtain  placement in community nursing homes where care is financed by other  payers, such as Medicaid, when appropriate, and difficulty recruiting  enough nursing staff to operate all beds in some VA-operated nursing  homes.
VA policy provides networks broad discretion in deciding what nursing  home care to offer those patients that VA is not required to provide  nursing home care to under the provisions of the Veterans Millennium  Health Care and Benefits Act of 1999. Networks’ use of this discretion  appears to result in inequitable access to nursing home care. For example,  some networks have policies to provide long-term nursing home care to  these veterans who need such care if resources allow, while other  networks do not have such policies. As a result, these veterans who need  long-term nursing home care may have access to that care in some  networks but not others. This is significant because about two-thirds of  VA’s current nursing home users are recipients of discretionary nursing  home care.
VA intended to address veterans’ access to nursing home care as part of its  larger CARES initiative to project future health care needs and determine  how to ensure equitable access. However, initial projections of nursing  home need exceeded VA’s current nursing home capacity. VA said that the  projections did not reflect its long-term care policy and decided not to  include nursing home care in its CARES initiative. Instead, VA officials  told us that they have developed a separate process to provide projections  for nursing home, and home and community-based services needs. These  officials expect that new projections will be developed for consideration  by the Under Secretary for Health by July 2003. VA officials also told us  that VA will use this information in its strategic planning initiatives to  address nursing home and other long-term care issues at the same time  that VA implements its CARES initiatives.
Because VA has not systematically examined its nursing home policies and  access to care, veterans have no assurance that VA’s $2 billion nursing  home program is providing equitable access to care to those who need it.  This is particularly important given the aging of the veteran population.  The veteran population most in need of nursing home care—veterans 85  years old or older—is expected to increase from almost 640,000 to over 1  million by 2012 and remain at about that level through 2023. Until VA  develops a long-term care projection model consistent with its policy, VA  will not be able to determine if its nursing home care units in 131 locations  and other nursing home care services it pays for provide equitable access  to veterans now or in the future.
section_title: Efficiency Could Be Improved through Health Care Asset Realignment and Other Management Actions
paragraphs: In recent years, VA has made an effort to realign its capital assets,  primarily buildings, to better serve veterans’ needs as well as institute  other needed efficiencies. Despite this, many of VA’s buildings remain  underutilized and patient support services are not always provided  efficiently. VA could make better use of its resources by taking steps to  partner with other public and private providers, purchase care from such  providers, replace obsolete assets with modern ones, consolidate  duplicative care provided by multiple locations serving the same  geographic areas where it would be cost effective to do so, and assess  various management options to improve the efficiency of patient support  services.
subsections: section_title: Capital Assets Not Well- Aligned to Meet Veterans’ Needs
paragraphs: VA has a large and aged infrastructure, which is not well aligned to  efficiently meet veterans’ needs. In recent years, as a result of new  technology and treatment methods, VA has shifted delivery from inpatient  to outpatient settings in many instances and shortened lengths of stay  when hospitalization was required. Consequently, VA has excess inpatient  capacity at many locations.
For example, in August 1999, we reported that VA owned about 4,700  buildings, over 40 percent of which had operated for more than 50 years,  and almost 200 of which were built before 1900. Many organizations in the  facilities management environment consider 40 to 50 years to be the useful  life of a building. Moreover, VA used fewer than 1,200 of these buildings  (about one-fourth of the total) to deliver health care services to veterans.  The rest were used primarily to support health care activities, although  many had tenants or were vacant. In addition, most delivery locations  had mission-critical buildings that VA considered functionally obsolete.  These included, for example, inpatient rooms not up to industry standards  concerning patient privacy; outpatient clinics with undersized examination  rooms; and buildings with safety concerns, such as vulnerability to  earthquakes.
As part of VA’s transformation, begun in 1995, its networks implemented  hundreds of management initiatives that significantly enhanced their  overall efficiency and effectiveness. The success of these strategies— shifting inpatient care to more appropriate settings, establishing primary  care in community clinics, and consolidating services in order to achieve  economies of scale—significantly reduced utilization at most of VA’s  inpatient delivery locations. For example, VA operated about 73,000  hospital beds in fiscal year 1995. In 1998, veterans used on average fewer  than 40,000 hospital beds per day, and by 2001 usage had further declined  to about 16,000 hospital beds per day.
In 1999, we concluded that VA’s existing infrastructure could be the  biggest obstacle confronting VA’s ongoing transformation efforts. During  a hearing in 1999 before this Committee’s Subcommittee on Health, we  pointed out that, although VA was addressing some realignment issues, it  did not have a plan in place to identify buildings that are no longer needed  to meet veterans’ health care needs. We recommended that VA develop a  market-based plan for restructuring its delivery of health care in order to  reduce funds spent on underutilized or inefficient buildings. In turn those  funds could be reinvested to better serve veterans’ needs by placing health  care resources closer to where they live.
To do so, we recommended that VA comply with guidance from the Office  of Management and Budget. The guidance suggested that market-based  assessments include (1) assessing a target population’s needs,   (2) evaluating the capacity of existing assets, (3) identifying any  performance gaps (excesses or deficiencies), (4) estimating assets’ life  cycle costs, and (5) comparing such costs to other alternatives for meeting  the target population’s needs. Alternatives include (1) partnering with  other public or private providers, (2) purchasing care from such providers,  (3) replacing obsolete assets with modern ones, or (4) consolidating  services duplicated at multiple locations serving the same market.
During the 1999 hearing, the subcommittee chairman urged VA to  implement our recommendations and VA agreed to do so. In August 2002,  VA announced the results of a pilot study in its Great Lakes network,  which includes Chicago and other locations. VA selected three  realignment strategies in this network – consolidation of services at  existing locations, opening of new outpatient clinics, and closure of one  inpatient location. Currently, VA is analyzing ways to realign health care  delivery in its 20 remaining networks. VA expects to issue its plans by the  end of 2003. To date, VA has projected veterans’ demand for acute health  care services through fiscal year 2022, evaluated available capacity at its  existing delivery locations, and targeted geographic areas where  alternative delivery strategies could allow VA to operate more efficiently  and effectively while ensuring access consistent with its standards for  travel time.
For example, VA has the opportunity to achieve efficiencies through  economies of scale in 30 geographic areas where two or more major  health care delivery locations that are in close proximity provide  duplicative inpatient and outpatient health care services. VA may also  achieve similar efficiencies in 38 geographic areas where two or more  tertiary care delivery locations are in close proximity. VA considers  delivery locations to be in close proximity if they are within 60 miles of  one another for acute care and within 120 miles for tertiary care. In  addition, VA may achieve additional efficiencies in 28 geographic areas  where existing delivery locations have low acute medicine workloads,  which VA has defined as serving less than 40 hospital patients per day. VA  also identified more than 60 opportunities for partnering with the DOD to  better align the infrastructure of both agencies.
VA faces difficult challenges when attempting to improve service delivery  efficiencies. For example, service consolidations can have significant  ramifications for stakeholders, such as medical schools and unions,  primarily due to shifting of workload among locations and workforce  reductions. Understandably, medical schools are reluctant to change long- standing business relationships involving, among other things, training of  medical residents. For example, VA tried for 5 years to reach agreement on  how to consolidate clinical services at two of Chicago’s four major health  care delivery locations before succeeding in August 2002. This is because  such restructuring required two medical schools to use the same location  to train residents, a situation that neither supported.
Unions, too, have been reluctant to support planning decisions that result  in a restructuring of services. This is because operating efficiencies that  result from the consolidation of clinical services into a single location  could also result in staffing reductions for such support services as  grounds maintenance, food preparation, and housekeeping. For example,  as part of its ongoing transformation, VA proposed to consolidate food  preparation services of 9 delivery locations into a single location in New  York City in order to operate more efficiently. Two unions’ objections,  however, slowed VA’s restructuring, although VA and the unions  subsequently agreed on a way to complete the restructuring.
VA also faces difficult decisions concerning the need for and sizing of  capital investments, especially in locations where future workload may  increase over the short term before steadily declining. In large part, such  declines are attributable to the expected nationwide decrease in the  overall veteran population by more than one-third by 2030; in some areas,  veteran population declines are expected to be steeper. It may be in VA’s  best interests to partner with other public or private providers for services  to meet veterans’ demands rather than risk making a major capital  investment that would be underutilized in the latter stages of its useful life.
In cases when VA’s realignment results in buildings that are no longer  needed to meet veterans’ health care needs, VA faces other difficult  decisions regarding whether to retain or dispose of these buildings. VA has  several options, including leasing, demolition, or transferring buildings to  the General Services Administration (GSA), which has the authority to  dispose of excess or surplus federal property. When there is no leasing  potential, VA faces potentially high demolition costs as well as uncertain  site preparation costs associated with the transfer of buildings to GSA.  Given that such costs involve the use of health care resources, ensuring  that disposal decisions are based on systematic analyses of costs and  benefits to veterans poses another realignment challenge.
The challenge of dealing with a misaligned infrastructure is not unique to  VA. In fact, we identified federal real property management as a high-risk  area in January 2003. For the federal government overall and VA in  particular, technological advancements, changing public needs,  opportunities for resource sharing, and security concerns will call for a  new way of thinking about real property needs. In VA’s case, it has  recognized the critical need to better manage its buildings and land and is  in the process of implementing CARES to do so. VA has the opportunity to  lead other federal agencies with similar real property challenges. However,  VA and other agencies have in common persistent problems, including  competing stakeholder interests in real property decisions. Resolving  these problems will require high-level attention and effective leadership.
section_title: Patient Support Services Could Be Provided More Efficiently
paragraphs: As VA continues to transform itself from an inpatient- to an outpatient- based health care system, it must find more efficient, systemwide ways of  providing patient care support services, such as consolidation of services  and the use of competitive sourcing. For example, VA’s shift in emphasis  from inpatient to outpatient health care delivery has significantly reduced  the need for inpatient care support services, such as food and laundry  services. To make better use of resources, some VA inpatient facilities  have consolidated food production locations, used lower-cost Veterans  Canteen Service (VCS) workers instead of higher-paid Nutrition and Food  Service workers to provide inpatient food services, or contracted out for  the provision of these services. Some VA facilities have also consolidated  two or more laundries into a single location, contracted for labor to  operate VA laundries, or contracted out laundry services to commercial  organizations.
VA needs to systematically explore the further use of such options across  its health care system. In November 2000, we recommended that VA  conduct studies at all of its food and laundry service locations to identify  and implement the most cost-effective way to provide these services at  each location. At that time, we identified 63 food production locations  that could be consolidated into 29, saving millions of dollars annually. We  estimated that VA could potentially save millions of dollars by  consolidating both food and laundry production locations.
VA may also be able to reduce its food and laundry service costs at some  facilities through competitive sourcing—through which VA would  determine whether it would be more cost-effective to contract out these  services or provide them in-house. VA must ensure, however, that, if a  decision to contract for services is made, contract terms on payments and  service quality standards will continue to be met. For example, we found  that weaknesses in the monitoring of VA’s Albany, New York laundry  contract appear to have resulted in overpayments, reducing potential  savings.
In August 2002, VA issued a directive establishing policy and  responsibilities for its networks to follow in implementing a competitive  sourcing analysis to compare the cost of contracting and the cost of in- house performance to determine who can do the work most cost  effectively. VA has announced that, as part of the President’s Management  Agenda, it will complete studies of competitive sourcing of 55,000  positions by 2008. VA plans to complete studies of competitive sourcing  for all its laundry positions by the end of calendar year 2003. Similar  initiatives for food services and other support services are in the planning  stages at VA. Overall, VA’s plan for competitive sourcing shows promise.  However, VA has not yet established a timeline for implementing an  assessment of competitive sourcing and the other options we  recommended for all its inpatient food service locations. Until VA  completes these assessments and takes action to reduce costs, it may be  paying more for inpatient food services than required and as a result have  fewer resources available for the provision of health care to veterans.
We recognize that one of the options we recommended that VA assess, the  competitive sourcing process set forth in the Office of Management and  Budget (OMB) Circular A-76, historically has been difficult to implement.  Specifically, there are concerns in both the public and private sectors  regarding the fairness of the competitive sourcing process and the extent  to which there is a “level playing field” for conducting public-private  competitions. It was against this backdrop that the Congress in 2001,  mandated that the Comptroller General establish a panel of experts to  study the process used by the government to make sourcing decisions. The  Commercial Activities Panel that the Comptroller convened conducted a  yearlong study, and heard repeatedly about the importance of competition  and its central role in fostering economy, efficiency, and continuous  performance improvement. The panel made a number of  recommendations for improving sourcing policies and processes.
As part of the administration’s efforts to implement the recommendations  of the Commercial Activities Panel, OMB published proposed changes to  Circular A-76 for public comment in November 2002. In our comments on  the proposal to the Director of OMB this past January, we noted the  absence of a link between sourcing policy and agency missions,  unnecessarily complicated source selection procedures, certain unrealistic  time frames, and insufficient guidance on calculating savings. The  administration is now considering those and other comments as it finalizes  the revisions to the Circular.
section_title: Fundamental Changes Could Improve Effectiveness of VA’s Disability Programs
paragraphs: Significant program design and management challenges hinder VA’s ability  to provide meaningful and timely support to disabled veterans and their  families. VA relies on outmoded medical and economic disability criteria.  VA also has difficulty providing veterans with accurate, consistent, and  timely benefit decisions, although recent actions have improved  timeliness.
subsections: section_title: VA’s Disability Criteria Are Outmoded
paragraphs: In assessing veterans’ disabilities, VA remains mired in concepts from the  past. VA’s disability programs base eligibility assessments on the presence  of medically determinable physical and mental impairments. However,  these assessments do not always reflect recent medical and technological  advances, and their impact on medical conditions that affect the ability to  work. VA’s disability programs remain grounded in an approach that  equates certain medical impairments with the incapacity to work.  Moreover, advances in medicine and technology have reduced the severity  of some medical conditions and allowed individuals to live with greater  independence and function more effectively in work settings. Also, VA’s  rating schedule updates have not incorporated advances in assistive  technologies—such as advanced wheelchair design, a new generation of  prosthetic devices, and voice recognition systems—that afford some  disabled veterans greater capabilities to work.
VA has made some progress in updating its rating schedule to reflect  medical advances. Revisions generally consist of (1) adding, deleting, and  reorganizing medical conditions in the Schedule for Rating Disabilities,   (2) revising the criteria for certain qualifying conditions, and (3) wording  changes for clarification or reflection of current medical terminology.  However, VA’s effort to update its disability criteria within the context of  current program design has been slow and is insufficient to provide the  up-to-date criteria VA needs to ensure meaningful and equitable benefit  decisions. Completing an update of the schedule for one body system has  generally taken 5 years or more; the schedule for the ear and other sense  organs took 8 years. In August 2002, we recommended that VA use its  annual performance plan to delineate strategies for and progress in  updating its disability rating schedule. VA did not concur with our  recommendation because it believes that developing timetables for future  updates to the rating schedule is inappropriate while the initial review is  ongoing.
In addition, VA’s disability criteria have not kept pace with changes in the  labor market. The nature of work has changed in recent decades as the  national economy has moved away from manufacturing-based jobs to  service- and knowledge-based employment. These changes have affected  the skills needed to perform work and the settings in which work occurs.  For example, advancements in computers and automated equipment have  reduced the need for physical labor. However, the percentage ratings used  in VA’s Schedule for Rating Disabilities are primarily based on physicians’  and lawyers’ estimates made in 1945 about the effects that service- connected impairments have on the average individual’s ability to perform  jobs requiring manual or physical labor. VA’s use of a disability schedule  that has not been modernized to account for labor market changes raises  questions about the equity of VA’s benefit entitlement decisions; VA could  be overcompensating some veterans, while under-compensating or  denying compensation entirely to others.
In January 1997, we suggested that the Congress consider directing VA to  determine whether the ratings for conditions in the schedule correspond  to veterans’ average loss in earnings due to these conditions and adjust  disability ratings accordingly. Our work demonstrated that there were  generally accepted and widely used approaches to statistically estimate  the effect of specific service-connected conditions on potential earnings.  These estimates could be used to set disability ratings in the schedule that  are appropriate in today’s socio-economic environment.
In August 2002, we recommended that VA use its annual performance plan  to delineate strategies for and progress in periodically updating labor  market data used in its disability determination process. VA did not concur  with our recommendation because it does not plan to perform an  economic validation of its disability rating schedule, or to revise the  schedule based on economic factors. According to VA, the schedule is  medically based; represents a consensus among stakeholders in the  Congress, VA, and the veteran community; and has been a valid basis for  equitably compensating disabled veterans for many years.
Even if VA’s schedule updates were completed more quickly, they would  not be enough to overcome program design limitations in evaluating  disabilities. Because of the limited role of treatment in VA disability  programs’ statutory and regulatory design, its efforts to update the rating  schedule would not fully capture the benefits afforded by treatment  advances and assistive technologies. Current program design limits VA’s  ability to assess veterans’ disabilities under corrected conditions, such as  the impact of medications on a veteran’s ability to work despite a severe  mental illness. In August 2002, we recommended that VA study and report  to the Congress on the effects that a comprehensive consideration of  medical treatment and assistive technologies would have on its disability  programs’ eligibility criteria and benefit package. This study would include  estimates of the effects on the size, cost, and management of VA’s  disability programs and other relevant VA programs; and would identify  any legislative actions needed to initiate and fund such changes. VA did  not concur with our recommendation because it believes this would  represent a radical change from the current programs, and it questioned  whether stakeholders in the Congress and the veterans’ community would  accept such a change.
VA’s disability program challenges are not unique. For example, the Social  Security Administration’s (SSA) disability programs remain grounded in  outmoded concepts of disability. Like VA, SSA has not updated its  disability criteria to reflect the current state of science, medicine,  technology and labor market conditions. Thus, SSA also needs to  reexamine the medical and vocational criteria it uses to determine  whether individuals are eligible for benefits.
section_title: VA Is Trying to Improve the Quality and Timeliness of Claims Processing
paragraphs: Even if VA brought its disability criteria up to date, it would continue to  face challenges in ensuring quality and timely decisions, including  ensuring that veterans get consistent decisions—that is, comparable  decisions on benefit entitlement and rating percentage—regardless of the  regional office making the decisions. VA has made some progress in  improving disability program administration, but much remains to be done  before VA has a system that can sustain production of accurate,  consistent, and timely decisions.
VA is making changes that will allow it to better identify accuracy  problems at the national, regional office, and individual employee levels.  In turn, this will allow VA to identify underlying causes of inaccuracies and  target corrective actions, such as additional training. In response to our  March 1999 recommendation, VA has centralized accuracy reviews under  its Systematic Technical Accuracy Review (STAR) program to meet  generally applicable government standards on segregation of duties and  organizational independence. Also, the STAR program began reviewing  more decisions in fiscal year 2002, with the intent of obtaining statistically  valid accuracy data at the regional office level; regional office-level  accuracy goals have been incorporated into regional directors’  performance standards. Further, VA is developing a system to measure the  accuracy of individual employees’ work; this measurement is tied to  employee performance evaluations.
While VA has made changes to improve accuracy, it continues to face  challenges in ensuring consistent claims decisions. In August 2002, we  recommended that VA establish a system to regularly assess and measure  the degree of consistency across all levels of VA claims adjudication.  While VA agreed that consistency is an important goal, it did not fully  respond to our recommendation regarding consistency because it did not  describe how it would measure consistency and evaluate progress in  reducing any inconsistencies it may find. Instead, VA said that consistency  is best achieved through comprehensive training and communication  among VA components involved in the adjudication process. We continue  to believe that VA will be unable to determine the extent to which such  efforts actually improve consistency of decision-making across all levels of  VA adjudication now and over time.
VA’s major focus over the past 2 years has been on producing more timely  decisions for veterans, and it has made significant progress in improving  timeliness and reducing the backlog of claims. The Secretary established  the VA Claims Processing Task Force, which in October 2001 made  specific recommendations to relieve the veterans’ claims backlog and  make claims processing more timely. The task force observed that the  work management system in many regional offices contributed to  inefficiency and an increased number of errors. The task force attributed  these problems primarily to the broad scope of duties performed by  regional office staff—in particular, veterans service representatives (VSR).  For example, VSRs were responsible for both collecting evidence to  support claims and answering claimants’ inquiries. Based on the task  force’s recommendations, VA implemented its claims process  improvement (CPI) initiative in fiscal year 2002. Under this initiative,  regional office claims processing operations were reorganized around  specialized teams to handle specific stages of the claims process. For  example, regional offices have teams devoted specifically to claims  development, that is, obtaining evidence needed to evaluate claims.
Also, VA focused on increasing production of rating-related decisions to  help reduce inventory and, in turn, improve timeliness. In fiscal years 2001  and 2002, VA hired and trained hundreds of new claims processing staff.  VA also set monthly production goals for fiscal year 2002 for each of its  regional offices, incorporating these goals into regional office directors’  performance standards. VA completed almost as many decisions in the  first half of 2003 (404,000) than in all of fiscal year 2001 (481,000). This  increase in production has contributed to a significant inventory  reduction; on March 31, 2003, the rating-related inventory was about  301,000 claims, down from about 421,000 at the end of fiscal year 2001.  Meanwhile, rating-related decisions timeliness has been improving  recently; an average of 199 days for the first half of fiscal year 2003, down  from an average of 223 days in fiscal year 2002.
While VA has made progress in getting its workload under control and  improving timeliness, it will be challenged to sustain this performance.  Moreover, it will be difficult to cope with future workload increases due to  factors beyond its control, such as future military conflicts, court  decisions, legislative mandates, and changes in the filing behavior of  veterans. VA is not alone in facing these challenges; SSA is also challenged  to improve its ability to provide accurate, consistent, and timely disability  decisions to program applicants. For example, after failing in its attempts  since 1994 to redesign a more comprehensive quality assurance system,  SSA has recently begun a new quality management initiative. Also, SSA has  taken steps to provide training and enhance communication to improve  the consistency of decisions, but variations in allowances rates continue  and a significant number of denied claims are still awarded on appeal. SSA  has recently implemented several short-term initiatives not requiring  statutory or regulatory changes to reduce processing times but is still  evaluating strategies for longer-term solutions.
More dramatic gains in timeliness and inventory reduction might require  program design changes. For example, in 1996, the Veterans’ Claims  Adjudication Commission noted that most disability compensation claims  are repeat claims—such as claims for increased disability percentage— and most repeat claims were from veterans with less severe disabilities.  The Commission questioned whether concentrating processing resources  on these claims, rather than on claims by more severely disabled veterans,  was consistent with program intent. Another possible program design  change might involve assigning priorities to the processing of claims. For  example, claims from veterans with the most severe disabilities and  combat-disabled veterans could receive the highest priority attention.  Program design changes, including those to address the Commission’s  concerns, might require legislative actions.
In addition to program design changes, outside studies of VA’s disability  claims process identified potential advantages to restructuring VA’s  system of 57 regional offices. In its January 1999 report, the Congressional  Commission on Servicemembers and Veterans Transition Assistance  stated that some regional offices might be so small that their  disproportionately large supervisory overhead unnecessarily consumes  personnel resources. Similarly, in its 1997 report, the National Academy of  Public Administration stated VA should be able to close a large number of  regional offices and achieve significant savings in administrative overhead  costs.
Apart from the issue of closing regional offices, the Commission  highlighted a need to consolidate disability claims processing into fewer  locations. VA has consolidated its education assistance and housing loan  guaranty programs into fewer than 10 locations, and the Commission  encouraged VA to take similar action in the disability programs. VA  proposed such a consolidation in 1995 and in that proposal enumerated  several potential benefits, such as allowing VA to assign the most  experienced and productive adjudication officers and directors to the  consolidated offices; facilitating increased specialization and as-needed  expert consultation in deciding complex cases; improving the  completeness of claims development, the accuracy and consistency of  rating decisions, and the clarity of decision explanations; improving  overall adjudication quality by increasing the pool of experience and  expertise in critical technical areas; and facilitating consistency in  decisionmaking through fewer consolidated claims-processing centers. VA  has already consolidated some of its pension workload (specifically,  income and eligibility verifications) at three regional offices. Also, VA has  consolidated at its Philadelphia regional office dependency and indemnity  compensation claims by survivors of servicemembers who died on active  duty, including those who died during Operation Enduring Freedom and  Operation Iraqi Freedom.
Mr. Chairman, this concludes my prepared statement. I will be happy to  answer any questions that you or Members of the Committee may have.
section_title: Contact and Acknowledgments
paragraphs: For further information, please contact me at (202) 512-7101. Individuals  making key contributions to this testimony include Paul R. Reynolds,  James C. Musselwhite, Jr., Irene P. Chu, Pamela A. Dooley, Cherie’ M.  Starck, William R. Simerl, Richard J. Wade, Thomas A. Walke, Cheryl A.  Brand, Kristin M. Wilson, Greg Whitney, and Daniel Montinez.
section_title: Related GAO Products
paragraphs: VA Health Care: Improved Planning Needed for Management of Excess  Real Property. GAO-03-326. Washington, D.C.: January 29, 2003.
High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 1,  2003.
High-Risk Series: Federal Real Property. GAO-03-122. Washington, D.C.:  January 1, 2003.
Major Management Challenges and Program Risks: Department of  Veterans Affairs. GAO-03-110. Washington, D.C.: January 1, 2003.
Veterans’ Benefits: Quality Assurance for Disability Claims and Appeals  Processing Can Be Further Improved. GAO-02-806. Washington, D.C.:  August 16, 2002.
SSA and VA Disability Programs: Re-Examination of Disability  Criteria Needed to Help Ensure Program Integrity. GAO-02-597.  Washington, D.C.: August 9, 2002.
VA Long-Term Care: The Availability of Noninstitutional Services Is  Uneven. GAO-02-652T. Washington, D.C.: April 25, 2002.
VA Long-Term Care: Implementation of Certain Millennium Act  Provisions Is Incomplete, and Availability of Noninstitutional Services  Is Uneven. GAO-02-510R. Washington, D.C.: March 29, 2002.
VA Health Care: More National Action Needed to Reduce Waiting Times,  but Some Clinics Have Made Progress. GAO-01-953. Washington, D.C.:  August 31, 2001.
VA Health Care: Community-Based Clinics Improve Primary Care  Access. GAO-01-678T. Washington, D.C.: May 2, 2001.
Inadequate Oversight of Laundry Facility at the Department of Veterans  Affairs Albany, New York, Medical Center. GAO-01-207R. Washington,  D.C.: November 30, 2000.
VA Health Care: Expanding Food Service Initiatives Could Save  Millions. GAO-01-64. Washington, D.C.: November 30, 2000.
VA Laundry Service: Consolidations and Competitive Sourcing Could  Save Millions. GAO-01-61. Washington, D.C.: November 30, 2000.
Veterans’ Health Care: VA Needs Better Data on Extent and Causes of  Waiting Times. GAO/HEHS-00-90. Washington, D.C.: May 31, 2000.
VA and Defense Health Care: Evolving Health Care Systems Require  Rethinking of Resource Sharing Strategies. GAO/HEHS-00-52.  Washington, D.C.: May 17, 2000.
VA Health Care: VA Is Struggling to Address Asset Realignment  Challenges. GAO/T-HEHS-00-88. Washington, D.C.: April 5, 2000.
VA Health Care: Improvements Needed in Capital Asset Planning and  Budgeting. GAO/HEHS-99-145. Washington, D.C.: August 13, 1999.
VA Health Care: Challenges Facing VA in Developing an Asset  Realignment Process. GAO/T-HEHS-99-173. Washington, D.C.: July 22,  1999.
Veterans’ Affairs: Observations on Selected Features of the Proposed  Veterans’ Millennium Health Care Act. GAO/T-HEHS-99-125. Washington,  D.C.: May 19, 1999.
Veterans’ Affairs: Progress and Challenges in Transforming Health  Care. GAO/T-HEHS-99-109. Washington, D.C.: April 15, 1999.
VA Health Care: Capital Asset Planning and Budgeting Need  Improvement. GAO/T-HEHS-99-83. Washington, D.C.: March 10, 1999.
Veterans’ Benefits Claims: Further Improvements Needed in Claims- Processing Accuracy. GAO/HEHS-99-35. Washington, D.C.: March 1, 1999.
VA Health Care: Closing a Chicago Hospital Would Save Millions and  Enhance Access to Services. GAO/HEHS-98-64. Washington, D.C.: April 16,  1998.
VA Hospitals: Issues and Challenges for the Future. GAO/HEHS-98-32.  Washington, D.C.: April 30, 1998.
VA Health Care: Status of Efforts to Improve Efficiency and Access.  GAO/HEHS-98-48. Washington, D.C.: February 6, 1998.
VA Disability Compensation: Disability Ratings May Not Reflect  Veterans’ Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7,  1997.
VA Health Care: Issues Affecting Eligibility Reform Efforts. GAO/HEHS- 96-160. Washington, D.C.: September 11, 1996.
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