VA Health Care: Resource Allocations to Medical Centers in the Mid South Healthcare Network
Published: 2004-04-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since fiscal year 1997, the Department of Veterans Affairs (VA) has relied primarily on its 21 health care networks to allocate resources to its medical centers. VA headquarters also directly allocates some resources to the medical centers. In addition, medical centers collect resources from third-party insurance payments and other sources. VA provides general guidance to\ networks for resource allocation to medical centers, but permits variation in networks' allocation methodologies. Representatives from veterans groups and others have expressed concerns regarding resource allocations to medical centers in Network 9 (Nashville) known as the Mid South Healthcare Network. GAO was asked to report for fiscal year 2002 (1) the amount of resources medical centers in the network received and the source of those resources and (2) the basis on which medical centers in the network received these resources. GAO was also asked to supplement findings for fiscal year 2002 with information for fiscal years 1997 through 2003.
section_title: What GAO Found
paragraphs: The six medical centers in Network 9 (Nashville), known as the Mid South Healthcare Network, received a total of about $1 billion in resources in fiscal year 2002. The network allocated 83 percent of the total, or $825 million, to its medical centers. The medical centers received smaller amounts from VA headquarters (9 percent of the total or about $93 million) and resources from collections (7 percent of the total or about $73 million). As in fiscal year 2002, the network allocated more than 80 percent of medical center resources each year from fiscal years 1997 through fiscal year 2003. Medical centers in Network 9 (Nashville) received about 77 percent of their resources, or $760 million, in fiscal year 2002 based on fixed-per-patient amounts, referred to as fixed-capitation amounts, for patient workload and case mix. Patient workload is the number of patients treated, and case mix is a classification of patients into categories based on health care needs and related costs. The largest portion of these resources allocated on this basis came from the network while a smaller portion came from VA headquarters. Medical centers in the network received about 23 percent of their total resources, or $232 million, in fiscal year 2002 based on a variety of other factors such as network managers' determination of the financial needs of medical centers during the course of the year. These resources came from the network, VA headquarters, and collections. Since VA changed its resource allocation system in fiscal year 1997, the medical centers in the network received about the same portions of their resources based on fixed capitation amounts and on a variety of other factors each year from fiscal years 1997 through 2003. VA agreed with GAO's findings.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) has changed the way it allocates  resources to its medical centers in recent years. Since fiscal year 1997, VA  has moved from a centralized allocation system—in which VA  headquarters allocated resources directly to VA medical centers—to a  more decentralized system in which VA headquarters allocates most of its  resources to VA’s 21 health care networks. The networks then allocate  these resources to their respective medical centers. VA headquarters also  directly allocates some additional resources to the medical centers. In  addition, medical centers collect resources from third-party insurance  payments and other sources. While implementing this new resource  allocation process, VA increased the number of patients it treated from  3.1 million to 4.7 million from fiscal years 1997 through 2002 and received  annual appropriations for medical care programs that increased from  $17 billion to $21 billion.
We and others have examined how VA uses the Veterans Equitable  Resource Allocation (VERA) system to allocate resources to the  networks. VERA is a national, formula-driven approach that VA uses to  allocate most of its resources to networks based primarily on two factors  that experts generally recognize as key principles of health care resource  allocation—patient workload and case mix. Patient workload is the  number of veterans treated. Case mix is a classification of patients into  categories based on their health care needs and related costs. Using  workload and case-mix data, VERA allocates a fixed amount of resources  for each veteran in a case-mix category. These amounts are often referred  to as capitation. By contrast, VA does not require that networks use a  formula-driven approach, like VERA, to allocate resources to medical  centers. Instead, VA provides general guidance to networks for allocating  resources to medical centers that permits variation in the network  allocation methodologies to take into account varying local conditions.
Representatives from veterans groups and others in Network 9 (Nashville),  also known as the Mid South Healthcare Network, have expressed  concerns about the allocation of resources to the medical centers in  Network 9 (Nashville). These concerns have focused on the total amount  of resources allocated to the network’s largest medical center, the  Tennessee Valley Healthcare System (TVHS), which is located in Nashville  and Murfreesboro; the basis on which medical centers in the network  receive their resources; and to what extent network office expenditures  have increased in recent years.
You asked us to determine for fiscal year 2002 (1) the amount of resources  medical centers in the network received and the source of those  resources, (2) the basis on which medical centers in the network received  these resources, and (3) the extent to which network office expenditures  were greater than in fiscal year 1997 and the primary reasons accounting  for any increase. To place this information in context, you asked us to  supplement our findings for fiscal year 2002, the most recent year for  which complete data were available at the time of our analysis, with  information for fiscal years 1997 through 2003.
To determine the amount of resources medical centers in the network  received and the sources of those resources in fiscal year 2002, we  categorized information in VA and Network 9 (Nashville) financial reports  on resources available to medical centers by the source of those  resources: Network 9 (Nashville), VA headquarters, and collections.  Because resources for the TVHS medical center and the Network 9  (Nashville) office are combined in the same financial accounts, we used  financial reports maintained by TVHS to separate out financial information  for the TVHS medical center. We developed estimates on similar  information for fiscal years 1997 through 2001 and 2003 based on these  and other data. To determine the basis on which medical centers in the  network received resources in fiscal year 2002, we obtained and analyzed  documents that described the allocation methodology used by the network  and VA headquarters. We relied on VA data, interviews with VA officials,  and on our prior work to calculate the extent of allocations based on  fixed-capitation amounts for patient workload and case mix. We  developed estimates on similar information for fiscal years 1997 through  2001 and 2003 based on these and other data. We limited our review to  how resources were allocated to medical centers and did not analyze how  medical centers in the network spent their allocations to deliver health  care. To examine the extent to which network office expenditures were  greater than in fiscal year 1997, we used financial reports maintained by  TVHS to separate out financial information for the network office from the  TVHS medical center resources and other data we obtained from the  network office. We used these data to analyze changes in network staffing  and other network office functions from fiscal years 1997 through 2002.  We also interviewed network and VA headquarters officials about the roles  and responsibilities of network office staff. To better understand the  issues of concern for all three objectives, we conducted a site visit to  interview officials at the network office located in Nashville and at the  TVHS locations in Nashville and Murfreesboro. In doing our work, we  tested the reliability of the data and determined they were adequate for  our purposes. For a complete description of our scope and methodology,  see appendix I. We conducted our work from March 2003 through April  2004 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: Network 9 (Nashville) is composed of a network office in Nashville,  Tennessee; six medical centers located in three states; and 27 community­ based outpatient clinics. In fiscal year 2002, about 1 million veterans lived  in the area served by the network. In that year, the six medical centers in  the network treated about 208,000 patients or 20 percent of the veterans  who lived in the area served by the network. (See table 1.) The largest  medical center in the network is TVHS, which has two main locations—  one in Nashville and the other in Murfreesboro, Tennessee. TVHS served  more than twice as many patients and had more than three times the  number of employees as the smallest medical center in the network in  fiscal year 2002. For more detailed information on staff resources at  TVHS’s two locations, which were integrated to form TVHS in fiscal year  2001, see appendix II.
Network 9 (Nashville) has received increased allocations each year under  VERA to provide resources for medical centers to treat their growing  patient workload. From fiscal year 1997 to fiscal year 2002, the number of  patients medical centers in the network treated increased by 27 percent.  To meet patient health care needs, the network received $700 million in  resources from VERA in fiscal year 1997, and by fiscal year 2002 the  network’s allocations from VERA had risen to $849 million—a 21 percent  increase. The network has been responsible for developing a method to  allocate these VERA resources to its medical centers. VA headquarters  provides general guidance to networks on the principles they should use  when developing their allocation methodologies, but does not require that  networks use patient workload or case mix in their allocation  methodologies.
Using fixed-capitation amounts for patient workload and case mix are  guiding principles recognized by experts on the design of health care  payment systems and implemented in practice by major health care  programs such as Medicare and Medicaid. Medicare and Medicaid, for  example, use fixed-capitation amounts to provide managed care plans  with an incentive to operate efficiently by placing them at risk if their  expenses exceed the payment amount. Our report on VERA in February  2002 also concluded that VERA provides a reasonable approach to  resource allocation, in part because VERA allocates resources to the  networks based primarily on the use of fixed-capitation amounts for  patient workload and case mix. VERA provides fixed-capitation amounts  for each case-mix category that are the same for each network and are  intended to reflect VA’s average costs instead of historical local costs.
In addition to resources that VA allocates to its medical centers from the  network and headquarters, medical centers also collect other resources  that they use in providing health care to veterans. VA medical centers  collect third-party insurance payments and copayments from veterans. VA  collects insurance payments for treatment of veterans’ conditions that are  not a result of injuries or illnesses incurred or aggravated during military  service. In addition, some veterans are charged copayments for certain  health care services and prescription drugs obtained at a VA pharmacy. VA  medical centers also collect resources for a variety of services VA provides  to non-VA health care providers such as hospital laundry services and  outpatient care provided to Department of Defense active duty military  personnel.
section_title: Medical Centers in Network 9 (Nashville) Received About $1 Billion in Fiscal Year 2002 from the Network and Other Sources
paragraphs: The six medical centers in Network 9 (Nashville) received about $1 billion  in fiscal year 2002 from three sources: the network, VA headquarters, and  resources from collections. (See table 2.) The network allocated the  largest share of this total—83 percent or about $825 million of the total  resources received by the six medical centers. VA headquarters allocated  directly to the medical centers the next largest share, which was about  9 percent or $93 million of the total resources the network’s medical  centers received. Finally, the six medical centers also collected about  7 percent of the total resources medical centers received or $73 million in  resources from collections of third-party insurance payments, veteran  copayments, and reimbursements primarily for services provided to non- VA healthcare providers.
The amount of resources that the network, VA headquarters, and  resources from collections provided, in total, to each medical center in  fiscal year 2002 ranged from about $93 million for Huntington to about  $291 million for TVHS. The network provided the largest portion of each  medical center’s total resources in fiscal year 2002. Network allocations as  a percentage of total medical center resources ranged from 82 percent at  TVHS and two other medical centers to 86 percent at Mountain Home.  TVHS and Lexington received the highest percentage of resources directly  from VA headquarters (11 percent), and TVHS and Memphis received the  lowest percentage of resources from collections (6 percent).
The percentage of resources that medical centers in the network received  in fiscal year 2002 from the three sources varied because of several  factors. For instance, TVHS received a lower percentage of its resources  from the network than three other medical centers, in part, because it  received a larger percentage of its resources from VA headquarters than  most medical centers in the network. The larger allocation from VA  headquarters was used, in part, for the TVHS transplant program, the only  one of its kind in the network. Louisville also received a lower percentage  of its resources from the network than three other medical centers, in part,  because the medical center received a higher percentage of its total  resources from collections than any other network medical center. This  resulted from agreements the medical center had—and resources it  collected—for the delivery of outpatient and family practice care to active  duty military personnel and their dependents at Ft. Knox, Kentucky.
Medical centers in the network have relied on the network to provide most  of their resources since VA changed its resource allocation system in fiscal  year 1997. From fiscal year 1997 through fiscal year 2003, Network 9  (Nashville) allocated more than 80 percent of medical center resources  each year. We estimate that on average the network provided 87 percent of  the resources medical centers received during this period.
section_title: Medical Centers in Network 9 (Nashville) Received Most of Their Resources Based on Allocations Using Fixed- Capitation Amounts for Patient Workload and Case Mix
paragraphs: Medical centers in Network 9 (Nashville) received most of their resources  in fiscal year 2002 based on allocations using fixed-capitation amounts for  patient workload and case mix. A large portion of the resources allocated  on the basis of fixed-capitation amounts for patient workload and case  mix came from the network and a smaller portion came from VA  headquarters. The other resources that medical centers received in fiscal  year 2002 were based on a variety of other factors such as network  managers’ determination of the financial needs of medical centers during  the course of the year. These resources came from the network, VA  headquarters, and collections. Since VA changed its resource allocation  system in fiscal year 1997, medical centers in Network 9 (Nashville)  received about three-quarters of their resources based on fixed-capitation  amounts and about one-quarter based on other factors each year from  fiscal years 1997 through 2003.
subsections: section_title: Medical Centers Received About Three-Quarters of Their Resources from Allocations Based on Fixed-Capitation Amounts for Patient Workload and Case Mix
paragraphs: Medical centers received about 77 percent of their approximately  $1 billion in total resources in fiscal year 2002—or $760 million—based on  allocations using fixed-capitation amounts for patient workload and case  mix. (See fig. 1.) The $760 million allocated on the basis of fixed-capitation  amounts for patient workload and case mix came primarily from the  network. The network allocated $742 million to medical centers on this  basis. VA headquarters allocated the remainder of the resources based on  fixed-capitation amounts for patient workload and case mix—  $19 million—directly to medical centers in Network 9 (Nashville). The  portion of medical center resources based on fixed-capitation amounts for  patient workload and case mix was similar in other years. For each of  fiscal years 1997 through 2003, we estimated that medical centers received  about three-quarters of their resources based on fixed-capitation amounts  for patient workload and case mix.
The network allocated the largest portion of medical centers’ resources—  $742 million—based on fixed-capitation amounts for patient workload and  case mix in fiscal year 2002. To calculate its patient workload, the  network, like VERA, used two methods. The network calculated the  number of patients who received a relatively limited amount of health care  during a previous 3-year period, and calculated the number of patients  who received relatively more care during a previous 5-year period. In its  workload calculation for this 3-year period, the network’s resource  allocation methodology, like VERA, excluded a group of veterans, known  as Priority 7 veterans, but included them in its 5-year workload  calculation. The network made an exception in the way it calculated  3-year workload for a one-time $5 million allocation, its share of a  supplemental appropriation VA received in fiscal year 2002. For this  allocation the network included all Priority 7 veterans in its workload  calculation.
To calculate case mix in fiscal year 2002, the network classified patient  workload into different categories, depending upon estimates of the  patients’ health care needs and associated costs for treating them. The  network, like VERA, used three case-mix categories: basic non-vested,  basic vested, and complex. Basic non-vested and basic-vested categories  included patients who have relatively routine health care needs and are  principally cared for in an outpatient setting. Basic non-vested patients  receive only part of their care through VA and are less costly to VA than  basic-vested patients. Basic-vested patients, by contrast, rely primarily on  VA for meeting their health care needs. Patients in the basic non-vested  and basic-vested category represented about 97 percent of the network’s  patient workload in that year. The complex category included patients  who generally required significant high-cost inpatient care as an integral  part of their rehabilitation or functional maintenance, and represented  about 3 percent of the network’s workload in that year. For patients in  each case-mix category, the network paid medical centers a capitation  rate, which is based on the average cost of care in VA for a patient in that  category. The capitation rates that the network used for each of these  categories were the same as those used in VERA: basic non-vested ($197),  basic vested ($3,121), and complex ($41,667). The network also allocated  about $9 million to medical centers based on other patient case-mix  categories.
Medical centers in Network 9 (Nashville) with larger patient workloads  generally received more resources than medical centers with smaller  patient workloads. In fiscal year 2002, for example, TVHS had the largest  patient workload and received the most resources. However, if two  medical centers had similar patient workloads but the two had differences  in the case mix of their patients, one may have received more resources  than the other. For example, Mountain Home and Huntington medical  centers had almost identical patient workloads in fiscal year 2002, but  Mountain Home received a larger allocation from the network  ($119 million) than Huntington ($78 million), in part, because of an  important difference in their respective patients’ case mix. Mountain  Home had more patients whose health care needs required more  expensive care as indicated by the number of complex care patients. In  that year, Mountain Home had almost 1,200 complex patients compared to  400 complex patients in Huntington.
subsections: section_title: VA Headquarters Allocated a Small Portion of Resources Based on Fixed-Capitation Amounts for Patient Workload and Case Mix in Fiscal Year 2002
paragraphs: VA headquarters allocated the remainder of resources that medical centers  received based on fixed-capitation amounts for patient workload and case  mix in fiscal year 2002, which was about $19 million. The largest resource  allocation VA headquarters made to medical centers in Network 9  (Nashville) on this basis—$13 million—was to pay a portion of the costs  for veterans receiving care in state veterans’ nursing homes, which are  operated in several locations in Network 9 (Nashville), including  Murfreesboro, Tennessee and Hazard, Kentucky. VA paid the same  amount for veterans receiving this service, about $53 per day per veteran,  without adjusting for differences in veterans’ health care needs. The  second largest resource allocation VA headquarters made to medical  centers in Network 9 (Nashville) based on fixed-capitation amounts for  patient workload and case mix in fiscal year 2002 was about $5 million for  its transplant program. VA headquarters allocated these resources based  on the number of patients needing transplants and the type of transplant  needed: kidney, liver, heart, and bone marrow transplants. The capitation  amounts for transplants ranged from $50,000 to $138,000 in fiscal year  2002. TVHS received all the VA headquarters transplant resource  allocation in Network 9 (Nashville) because it is the only medical center in  the network performing transplants. VA also allocated about $1 million to  medical centers through a per diem rate per veteran to support housing  programs for homeless veterans operated by nonprofit community-based  organizations.
section_title: Network 9 (Nashville) Changed Its Patient Workload and Case- Mix Measures During the Fiscal Year 1997-2003 Period
paragraphs: Network 9 (Nashville) changed how it determined patient workload in  fiscal year 2003 to allocate resources to its medical centers. For that year,  the network calculated patient workload based on a 1-year period—or the  total number of patients who used network medical centers in fiscal year  2002. In addition, the network included all veterans, including Priority 7  and 8 veterans, in its patient workload. According to a network official, the  network made these changes in determining patient workload to better  account for the costs involved in treating its patients. By contrast, in fiscal  years 1997 through 2002, the network determined workload based on the  same measures that VERA used by calculating the number of patients who  received a relatively limited amount of health care during a previous 3-year  period, and calculating the number of patients who received relatively  more care during a previous 5-year period. And like VERA, the network  also generally excluded Priority 7 veterans from its 3-year workload  calculation but included them in its 5-year calculation from fiscal years  1997 through 2002.
Network 9 (Nashville) also changed the way it calculated its case mix for  allocating resources to medical centers several times during this period. In  fiscal years 1997 and 1998, the network used the same 2 case-mix  categories that VERA used—basic and special. In fiscal year 1999, the  network did not use the 3 case-mix categories that VERA converted to in  that year but instead used the 44 classes that VA used to construct VERA’s  3 case-mix categories. In fiscal years 2000 through 2002, the network used  the 3 case-mix categories that VERA used: basic non-vested, basic vested,  and complex care. In fiscal year 2003, the network made a significant  change by increasing the number of case-mix categories from 3 used in  fiscal year 2002 to 644 case-mix categories. The fiscal year 2003 case-mix  approach classified the health care needs of hospital inpatients into the  511 diagnostic related groups (DRGs) used by Medicare to pay hospitals  for inpatient care. For outpatient care, the approach used 121 different  categories to classify the type of visit and account for the amount of  resources the visit consumed. Additionally, the network used 12 different  categories to measure the intensity of care in long-term care settings.  According to a network official, these changes were made to better  account for medical centers’ cost for treating patients.
The Network 9 (Nashville) decision to use more case-mix categories in  fiscal year 2003 is consistent with a recommendation we made to VA in  February 2002 to improve VERA’s allocation of comparable resources for  comparable workloads among networks. In that report, we  recommended that VA adopt more case-mix categories to better account  for differences in patient health care needs and that VA make other  improvements. We also pointed out that the literature and experts we  consulted suggested that a large increase in the number of case-mix  categories—such as the increase in the number of Network 9 (Nashville)  case-mix categories from 3 to 644 in fiscal year 2003—has advantages and  disadvantages. Specifically, using more case-mix categories can increase  the accuracy of health care resource allocations whether at the network or  medical center level, but may also provide more opportunities to classify  patients inappropriately to receive the highest capitation amounts.
section_title: Medical Centers Received About One-Quarter of Their Resources Based on a Variety of Other Factors
paragraphs: Medical centers in Network 9 (Nashville) received about 23 percent of  their total resources, or $232 million, in fiscal year 2002 based on a variety  of factors other than fixed-capitation amounts for patient workload and  case mix. (See fig. 2.) These resources came from three sources: Network  9 (Nashville), VA headquarters, and collections in the amounts of $84  million, $75 million, and $73 million, respectively.
In fiscal year 2002, Network 9 (Nashville) used a variety of factors to  allocate $84 million to its medical centers. Using these factors, the  network allocated $36 million for education and research support, $33  million for the network reserves, $14 million for equipment and  nonrecurring maintenance, and $1 million for other purposes.
To allocate $36 million in resources for education and research support,  Network 9 (Nashville) used two methods. For education, the network  allocated $22 million in resources to medical centers based on the number  of residents at each medical center in the current academic year, the same  approach that VERA used that year. For research support, the network  allocated $14 million in resources to medical centers based primarily on  the amount of funded research in fiscal year 2000, like VERA.
To allocate the network’s reserve fund, network management allocated  about $33 million in fiscal year 2002 based on the financial needs of  medical centers. The network reserve fund was intended to provide  resources for unexpected contingencies and cover unmet expenses that  medical centers have during the course of a year. VA headquarters requires  that all networks have such a fund, which is similar in concept to VERA’s  reserve fund. Network officials told us while they encourage efficient  operations, some medical centers have higher costs in certain areas and if  these medical centers are unable to lower their costs, the network  allocates funds from the reserve to help medical centers cover unmet  expenses during the year. In fiscal year 2002, the network allocated  reserve funds to medical centers for these purposes and distributed about  half of the reserve fund to the Lexington medical center because of its  higher than average costs in pharmacy, radiology, and laboratory  expenses. Table 3 shows how the network distributed the network reserve  to its six medical centers in fiscal year 2002.
To allocate resources for equipment and nonrecurring maintenance, the  network allocated about $14 million for that purpose in fiscal year 2002  based on priorities established by the chief engineers from each medical  center and the network’s Executive Leadership Council (ELC). These  groups prioritized a list of projects submitted by each medical center and  the network allocated resources for projects according to these priorities.  VERA, by contrast, allocated its equipment and nonrecurring maintenance  resources to all networks that year based primarily on fixed-capitation  amounts for patient workload.
Two other factors accounted for a small portion of resources medical  centers received or approximately $1 million. The network used other  factors to control the amount of change in a medical center’s total network  allocation from the prior year and for differences in local costs. In fiscal  year 2002, the network capped net change in medical centers’ resources  allocated by the network to a maximum of an 8 percent increase or  decrease from fiscal year 2001 resource allocations. The caps were  designed to prevent year-to-year fluctuations beyond management’s ability  to prudently manage services. In addition, the network adjusted the  amounts allocated to some medical centers relative to others to account  for local price differences. These differences resulted primarily from  variations in federal employee pay rates at the various medical centers in  the network.
subsections: section_title: VA Headquarters Allocated a Portion of the Resources Medical Centers Received Based on a Variety of Other Factors in Fiscal Year 2002
paragraphs: VA headquarters directly allocated $75 million to medical centers for  special programs such as prosthetics, stipends for medical residents and  other trainees, and other programs based on a variety of other factors. In  fiscal year 2002, VA allocated $34 million for prosthetics directly to  medical centers based largely on medical centers’ historical expenditures  for prosthetics, including items such as hearing aids, wheelchairs, and  artificial limbs. VA headquarters also allocated $25 million that year to  medical centers in the network to fund stipends for medical residents and  other trainees based on the type and number of medical residents at each  medical center. VA headquarters allocated about $16 million for other  programs, including readjustment counseling, substance abuse, and post­ traumatic stress disorder (PTSD) based on a variety of other factors.
section_title: Medical Centers Also Received a Portion of Their Resources from Collections in Fiscal Year 2002
paragraphs: Medical centers in Network 9 (Nashville) collected $73 million in  resources from third-party insurance payments, copayments, and  reimbursements for services provided to non-VA health care providers in  fiscal year 2002. Medical centers in the network collected about  $67 million of this amount from third-party insurance and copayments  paid by veterans. Medical centers in the network also collected about  $6 million in resources through reimbursements from the provision of  health care services to non-VA entities such as private hospitals, the  Department of Defense (DOD), and DOD’s civilian health care contractors  in fiscal year 2002. Each medical center retained the resources it collected  and had the flexibility to use these resources for any health care purpose.  The amounts collected varied depending upon the priority status of  veterans treated, whether their treatment was required for a service­ connected condition, whether the veteran had health insurance, and other  factors.
section_title: Expenditures Made by the Network 9 (Nashville) Office Increased by Approximately $22 Million Since Fiscal Year 1997
paragraphs: Expenditures made by the network office increased from $1 million in  fiscal year 1997 to $23 million in fiscal year 2002. The two primary reasons  for the $22 million increase were the consolidation of information  technology and staffing expenditures. Information technology  expenditures accounted for the largest increase in expenditures made by  the network office. This increase occurred, in part, because the network  assumed the cost of contracts for software licenses and information  technology services for which medical centers had once been responsible,  according to network officials. Instead of having each medical center  contract for information technology services individually, the network  took responsibility for these contracts to consolidate and negotiate lower  costs. In fiscal year 2002, computer contracts, software licensing, and  other information technology expenditures represented $9.6 million or  approximately 41 percent of total network office expenditures. (See table  4.)
Staff expenditures accounted for the second largest increase in  expenditures made by the network office and accounted for $8 million by  fiscal year 2002. Most of the increase in network office staff resulted  because of growth in Mid South Customer Accounts Center (MCAC)  staffing. (See table 5.) This growth occurred because the network  consolidated staff positions formerly located at medical centers for  medical insurance collections and claims processing at a central location  and also added additional staff for this purpose. To establish this  operation in fiscal year 1998, the network transferred 57 positions from the  medical centers to MCAC. By fiscal year 2002, the network had added  another 30 MCAC staff positions. MCAC staff expenditures in fiscal year  2002 were about $5 million. The MCAC operation is based at TVHS’s  Murfreesboro location. Network officials told us they consolidated this  operation to increase efficiency and improve oversight of collections and  claims processing. From fiscal years 1997 through 2002, collections for  third-party insurance payments and copayments increased from  $28 million to about $67 million.
Staff expenditures by the network office also increased because of growth  in positions mandated by VA headquarters and additional staff positions  that network management said would improve operations. These staff  positions accounted for about $3 million in staff expenditures in fiscal year  2002. The network office added 5 positions from fiscal years 1997 through  2002 that were mandated by VA headquarters for all network offices to  improve operations VA wide. These staff positions included a patient  safety officer and a compliance officer. In addition, the network created 12  other network staff positions from fiscal years 1997 to 2002 that  management expected to improve operations. For example, the network  created a pharmacy benefits manager position to manage the network’s  pharmaceutical budget, which, according to network officials, has brought  down the increase in pharmaceutical costs for the entire network, and a  Decision Support System (DSS) manager to oversee DSS activities. For a  detailed description of all network office staff positions and their  responsibilities for the network from fiscal years 1997 to 2002, see  appendix III.
section_title: Agency Comments
paragraphs: In commenting on a draft of this report, VA agreed with our findings. VA  provided technical comments which we incorporated, as appropriate. VA’s  written comments are in appendix IV.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  issue date. We will then send copies of this report to the Secretary of  Veterans Affairs, interested congressional committees, and other parties.  We also 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. If you or your staff have any questions about this  report, please call me at (202) 512-7101. Another contact and key  contributors are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: We reviewed Network 9 (Nashville) allocations to its medical centers for  fiscal year 2002 to determine: (1) the amount of resources medical centers  in the network received and the source of those resources, (2) the basis on  which medical centers in the network received these resources, and  (3) the extent to which network office expenditures were greater than in  fiscal year 1997 and the primary reasons accounting for any increase. To  place this information in context, we supplemented our findings for fiscal  year 2002, the most recent year for which complete data were available at  the time of our analysis, with information for fiscal years 1997 through  2003. We limited our review to how resources were allocated to medical  centers in Network 9 (Nashville) and did not analyze how they spent their  allocations to deliver health care.
subsections: section_title: The Amount of Resources Medical Centers in Network 9 (Nashville) Received and the Source of Those Resources
paragraphs: To determine the amount of resources medical centers in Network 9  (Nashville) received in fiscal year 2002 and the source of those resources  we obtained financial data from the Office of the Chief Financial Officer  within the Veterans Health Administration and from the Network 9  (Nashville) office. We categorized transactions in financial reports,  referred to as medical center allotment reports, into the source of the  resources: (1) Network 9 (Nashville), (2) VA headquarters, and  (3) resources from collections. We identified transactions and summed the  amount provided from each of the sources based on analysis of the  medical centers’ allotment reports and interviews with VA headquarters  and network officials. As part of resources allocated by the network, we  also included the amount each medical center received in fiscal year 2002  from the network’s share of a supplemental appropriation that VA  received, and the resources allocated for each medical center’s costs for  Consolidated Mail Outpatient Pharmacy (CMOP) mail prescription  services to veterans. In fiscal year 2002, medical centers in Network 9  (Nashville) had additional resources that they carried over from the prior  fiscal year, because they were authorized to use certain resources for  longer than 12 months. We did not include $25 million the medical centers  carried over into fiscal year 2002, because the network had allocated these  resources in the prior year.
Information was available for resources allocated to all medical centers in  medical center allotment reports except for the Tennessee Valley  Healthcare System (TVHS) because TVHS’s allotment report also included  resources allocated to the network office. To determine the amount of  resources allocated to TVHS in fiscal year 2002, therefore, required  additional analysis. Each network medical center was identified in the VA  allocation system with a unique three-digit station number; however, TVHS  and the network office shared the same station number, and as such, the  VA allocation system combined their allotment data. To separate the TVHS  and network office transactions, we obtained the fiscal year 2002 network  office financial transfer report from TVHS. We separated each transaction  on the combined network/TVHS allotment report, which allowed us to  construct an allotment report for TVHS. We also obtained an internal  allotment ledger from TVHS and network officials that documented fund  transfers between the two, which were transacted outside the VA  allotment system. Using our TVHS allotment report and the TVHS/network  internal allotment ledger, we determined the amounts TVHS received  through each funding source by applying similar calculations as with the  other medical centers. This information was not available for TVHS’s  Nashville and Murfreesboro locations after fiscal year 2000. However,  information on staffing resources at these two locations was available  after that year. See appendix II for our analysis of staffing information at  the two locations.
We estimated the percent of total medical center resources received from  Network 9 (Nashville) for fiscal years 1997 through 2001 and 2003 to  supplement our findings for fiscal year 2002. To develop these estimates,  we used VA headquarters and network office data. To determine the  amount of resources the medical centers received from the network we  used VA information on the VERA allocations to Network 9 (Nashville)  and network data on network office expenditures for these fiscal years. To  estimate the total amount of resources the medical centers received  through VA direct allocations in fiscal years 1997 through 2001 and in  fiscal year 2003, we assumed it was the same percentage as in fiscal year  2002 when medical centers in the network received 3 percent of all funds  VA headquarters allocated directly to all VA medical centers nationwide.  To determine the amount that medical centers received through revenue  collections in these years we relied on VA data.
section_title: The Basis on Which Medical Centers in Network 9 (Nashville) Received These Resources
paragraphs: To obtain information on the basis on which the medical centers received  resources, we interviewed network officials including the director, the  chief financial officer, and TVHS officials. In addition, we obtained and  analyzed documents that described the network’s allocation methodology  and relied on our prior work on VERA. To determine the basis on which  VA headquarters allocated resources directly to medical centers in the  network, we interviewed officials in the Office of the Chief Financial  Officer within the Veterans Health Administration. To determine how  insurance collections and copayments as well as other resources were  incorporated in allocations, we interviewed network officials, including  the director of the Mid South Customer Accounts Center (MCAC). Based  on our analysis of information we obtained from the network and VA  headquarters, first we calculated the percentage of resources allocated on  the basis of fixed-capitation amounts for patient workload and case mix in  fiscal year 2002. We then subtracted this amount from the total resources  medical centers received in fiscal year 2002 to determine the amount they  received based on other factors.
We estimated the percent of total resources received by all medical  centers combined based on fixed-capitation amounts for patient workload  and case mix for fiscal years 1997 through 2001 and 2003. To determine the  total amount of resources allocated to the medical centers by the network  based on fixed-capitation amounts, we used VA headquarters data on the  amount of VERA allocations to Network 9 (Nashville) each year during  this period. We then subtracted out expenditures made by the network  office from data provided by the network. From this total, we subtracted  out resources for allocations made to medical centers that were not based  on patient workload and case mix. We obtained data on these allocations  from VA headquarters, except allocations from the network reserve fund.  We estimated network reserve funds for fiscal years 1997 through 2001  and 2003 by making the assumption that these funds represented 4 percent  of all resources allocated to the network by VERA as in fiscal year 2002.  To estimate the total resources medical centers in the network received  directly from VA headquarters during this period we assumed it was the  same percentage as in fiscal year 2002, when medical centers in the  network received 3 percent of all funds VA headquarters allocated directly  to all VA medical centers nationwide. We estimated the portion of these  direct VA allocations to medical centers in the network that was based on  fixed-capitation amounts for patient workload and case mix by assuming  that during this period the portion was the same as in fiscal year 2002,  when such resources amounted to 20 percent of VA headquarters’ direct  allocations to the network. To determine the amount of resources  collected for each medical center in the network during this period, we  used information provided by the network and VA headquarters.
section_title: The Extent to Which Network 9 (Nashville) Office Expenditures Were Greater Than in Fiscal Year 1997 and the Primary Reasons Accounting for Any Increase
paragraphs: To determine the extent to which network office expenditures were  greater in fiscal year 2002 than in fiscal year 1997 and the primary reasons  accounting for any increase, we analyzed reports on network office  expenditures. Specifically, we analyzed expenditures made by the network  office for fiscal year 2002 that were set aside from resources that the  medical centers received. We also reviewed network office expenditures  for information and technology, staffing, and other functions for fiscal  years 1997 through 2002. We interviewed network officials to obtain the  number of staff and their job titles and responsibilities from fiscal years  1997 through 2002. We interviewed the MCAC manager regarding the  number of collections staff since fiscal year 1998, when the MCAC was  created. We also contacted officials at VA headquarters to verify which  staff positions were mandated by headquarters. As part of this analysis, we  categorized staff into staff positions at MCAC and other network office  staff positions, which included positions mandated by VA headquarters for  all VA networks and those positions that Network 9 (Nashville)  management established to improve operations. We included positions at  the MCAC as network office positions because their salaries were paid  from the same account as other network office staff and they were  supervised by an official who reported to the network director.
section_title: Overall Data Verification and Methodology
paragraphs: Throughout our review we examined the reliability of VA data and our use  of those data. We discussed these data with VA headquarters and network  officials to validate their accuracy. In addition, we discussed our  methodology with VA headquarters and Network 9 (Nashville) staff who  agreed that our approach and our assumptions were reasonable.  Furthermore, we tested the consistency of VA allocation data by  systematically comparing various types of data we obtained from several  VA sources. For example, we verified the amount and source of  transactions on the medical center allotment reports through interviews  with network and VA headquarters officials and by matching these  transactions with other financial reports obtained from VA. To better  understand all of these issues, we conducted a site visit to interview  officials at the network office located in Nashville and at the TVHS  locations in Nashville and Murfreesboro, Tennessee. We performed our  review from March 2003 through April 2004 in accordance with generally  accepted government auditing standards.
section_title: Appendix II: Staffing Resources Available at the Tennessee Valley Healthcare System’s Nashville and Murfreesboro Locations
paragraphs: VA combined the Nashville and Murfreesboro medical centers to create a  single integrated medical center—the Tennessee Valley Healthcare System  (TVHS)—to improve veterans’ health care and gain efficiencies. In fiscal  year 2000, the TVHS integration was announced and the first TVHS  director was hired. Separate financial resource information was available  for the Nashville and Murfreesboro locations before fiscal year 2001. The  accounting systems of the two locations were merged in fiscal year 2001  and since then, information has not been available on the financial  resources allocated separately to the Nashville and Murfreesboro  locations. However, information on staffing at each location was available  for fiscal year 2002 and staff salaries and benefits comprised over half of  TVHS’s budget in that year. Overall staffing at each location declined since  the integration, but trends varied by type of staff, such as administrative  and medical center support staff and patient care staff. From fiscal year  2000 to fiscal year 2002, the TVHS patient workload increased while  patient care staff remained about constant. Also, 125 other VA staff  worked at the Murfreesboro location in fiscal year 2002, in addition to the  staff at TVHS.
subsections: section_title: Information Not Available on Financial Resources Allocated Separately to Nashville and Murfreesboro After Fiscal Year 2000
paragraphs: Information was not available on financial resources allocated separately  to Nashville and Murfreesboro after fiscal year 2000. Beginning in fiscal  year 2001, Network 9 (Nashville) did not allocate resources to  Murfreesboro and Nashville separately because they were combined as a  single medical center, TVHS. Moreover, TVHS did not allocate resources to  each location. Instead, TVHS allocated resources to the programs it  operated across the two locations. As a result, the accounting systems did  not reflect allocations by location.
section_title: Staffing Declined at the Nashville and Murfreesboro Locations from Fiscal Year 2000 to Fiscal Year 2002
paragraphs: Overall, the number of staff declined at Nashville and Murfreesboro from  fiscal year 2000 to fiscal year 2002. However, the amount of change varied  by the type of staff. The number of staff at Nashville declined by 49, or  about 4 percent, from fiscal year 2000 to fiscal year 2002. At Murfreesboro,  the number of staff declined by 77, or about 7 percent, from fiscal year 2000 to fiscal year 2002. (See fig. 3.)
Staffing trends varied by type of staff at both locations. Administrative and  medical center support staff combined declined at both locations while  patient care staff remained about constant. Administrative and medical  center support staff include administrative, clerical, and wage rate staff  who do not provide patient care-related work, such as secretaries and  maintenance staff. At Nashville, the number of administrative and medical  center support staff combined declined by 52, or 11 percent, from fiscal  year 2000 to fiscal year 2002. At Murfreesboro, the number of  administrative and support staff combined declined by 65, or 14 percent,  from fiscal year 2000 to fiscal year 2002. (See fig. 4.)
The largest decreases in administrative and medical center support staff  are shown in table 6. The largest declines were in administrative and  clerical staff. Smaller declines occurred among wage rate employees who  are medical center support staff.
There was very little change in patient care staff at both Nashville and  Murfreesboro between fiscal year 2000 and fiscal year 2002. Patient care  staff includes those who provide direct hands-on care to patients, such as  doctors and nurses, as well as those staff who provide indirect care, such  as pharmacists and laboratory technicians. The number of patient care  staff at Nashville increased less than 0.5 percent from fiscal year 2000 to  fiscal year 2002. The number of patient care staff at Murfreesboro  decreased by almost 2 percent during the same time period. (See fig. 5.)
The largest changes in patient care staff from fiscal year 2000 to fiscal year  2002 can be seen in table 7. The biggest increases were in nursing staff and  the biggest declines were in nursing aides and assistants.
section_title: Number of TVHS Patients Increased While Patient Care Staff Remained About number of patients increased at TVHS from fiscal year 2000 to fiscal year Constant
paragraphs: The number of TVHS patients increased while the number of patient care  staff remained about constant from fiscal year 2000 to fiscal year 2002. The  2002 by 7 percent. The number of patient care staff decreased less than  1 percent during the same time period. (See table 8.)
section_title: 125 Other TVHS Staff Worked at Murfreesboro Location in Fiscal Year 2002
paragraphs: In addition to TVHS staff, 125 other VA staff worked at Murfreesboro in  fiscal year 2002. These staff consisted of Network 9 (Nashville) staff, staff  working at the Consolidated Mail Outpatient Pharmacy (CMOP), the Office  of Resolution Management, and the Veterans Benefits Administration.  Table 9 shows the numbers and types of VA staff other than those who  work for TVHS who work at the Murfreesboro location.
The 95 Network 9 (Nashville) staff consisted of 8 office staff whose offices  were located at Murfreesboro and 87 staff of the Mid South Customer  Accounts Center (MCAC), which is responsible for insurance billing and  collections for the network. These 87 staff were formerly located at  medical centers within the network but were consolidated at the  Murfreesboro location to increase the efficiency of collections. The CMOP  had 28 VA staff in fiscal year 2002 (in addition to 155 contract staff) and  provides mail prescription services to veterans. The CMOP at  Murfreesboro is one of seven CMOPs across the country. VA’s Office of  Resolution Management had 2 staff located at Murfreesboro in fiscal year  2002 and provided Equal Employment Opportunity (EEO) complaint  processing services to VA employees, applicants for employment, and  former employees. Finally, the Veterans Benefits Administration had a  part-time staff person providing vocational rehabilitation and employment  counseling at Murfreesboro in fiscal year 2002.
section_title: Methodology
paragraphs: We obtained information on staffing resources available at VA’s Nashville  and Murfreesboro locations in fiscal year 2002 by interviewing Network 9  (Nashville) and TVHS officials. These officials told us that beginning in  fiscal year 2001, information on financial resources allocated to Nashville  and Murfreesboro separately was not available because these locations  were combined as a single medical center, TVHS, in fiscal year 2001.  However, information on staffing numbers and costs at each location was  available and staff salaries and benefits constituted over half of TVHS’s  fiscal year 2002 budget. Therefore, our scope was limited to a comparison  of staffing numbers at each location in fiscal years 2000 and 2002. We  obtained the number of staff positions and descriptions for each position  for each location for fiscal years 2000 and 2002, reported by each staff  member’s duty station. The number of staff positions was reported as the  number of full time equivalent employees (FTEE). We analyzed the  increase and/or decrease in staff positions between the 2 years by the type  of staff. We obtained workload data for TVHS for fiscal years 2000 and  2002 and compared them with the number of patient care staff during  those years. In addition, we interviewed TVHS officials to determine the  number of other VA staff working at the Murfreesboro location in addition  to those staff working for TVHS.
section_title: Appendix III: Network 9 (Nashville) Office Staff and Their Responsibilities, Fiscal Years 1997 through 2002
paragraphs: Table 10 provides a brief description of the responsibilities for Network 9  (Nashville) office staff and the number of office staff positions filled from  fiscal years 1997 through 2002. The table includes staff positions at the Mid  South Customer Accounts Center (MCAC), positions mandated by VA  headquarters for all networks, and other staff positions Network 9  (Nashville) created.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Cheryl A. Brand, Linda C. Diggs,  Krister Friday, Donald W. Morrison, and Thomas A. Walke made key  contributions to this report.
section_title: Related GAO Products
paragraphs: VA Health Care: Access for Chattanooga-Area Veterans Needs  Improvement. GAO-04-162. Washington, D.C.: January 30, 2004.
VA Health Care: Changes Needed to Improve Resource Allocation. GAO­ 02-685T. Washington, D.C.: April 30, 2002.
VA Health Care: Changes Needed to Improve Resource Allocation to  Health Care Networks. GAO-02-744T. Washington, D.C.: May 14, 2002.
VA Health Care: Allocation Changes Would Better Align Resources with  Workload. GAO-02-338. Washington, D.C.: February 28, 2002.
VA Health Care: More Veterans Are Being Served, but Better Oversight Is Needed. GAO/HEHS-98-226. Washington, D.C.: August 28, 1998.
VA Health Care: Resource Allocation Has Improved, but Better Oversight  Is Needed. GAO/HEHS-97-178. Washington, D.C.: September 17, 1997.
Veteran’s Health Care: Facilities’ Resource Allocations Could Be More Equitable. GAO/HEHS-96-48. Washington, D.C.: February 7, 1996.
VA Health Care: Resource Allocation Methodology Has Had Little Impact  on Medical Centers’ Budgets. GAO/HRD-89-93. Washington, D.C.:  August 18, 1989.
VA Health Care: Resource Allocation Methodology Should Improve VA’s  Financial Management. GAO/HRD-87-123BR. Washington, D.C.:  August 31, 1987.