VA Health Care: Need for More Transparency in New Resource Allocation Process and for Written Policies on Monitoring Resources
Published: 2011-04-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Through fiscal year 2010, the Department of Veterans Affairs (VA) permitted its 21 health care networks to develop their own methodologies for allocating resources to medical centers. These methodologies varied considerably. Concerned that network methodologies were not fully transparent to VA headquarters, in fiscal year 2011, VA implemented a new single process for all networks to use to determine allocations to medical centers. VA headquarters retains overall responsibility for oversight of VA's resources, including ensuring networks do not spend more than the resources available. GAO was asked to review how VA networks allocate resources and how VA oversees these resources once they are allocated. In this report, GAO describes (1) VA's new process for networks to use in determining allocations to medical centers, and (2) how VA centrally monitors these resources. To do this work, GAO reviewed VA documents describing the new process and VA's monitoring efforts, in light of federal internal control standards, and interviewed VA officials..
section_title: What GAO Found
paragraphs: VA's new resource allocation process uses a standardized model, but the transparency of networks' decisions for allocating resources to medical centers is limited. The new process involves three steps. First, VA headquarters proposes medical center allocation amounts to networks using a standardized resource allocation model. The model includes a standardized measure of workload that recognizes the varying costs and levels of resource intensity associated with providing care for each patient at each medical center. Second, network officials review the proposed amounts and have the flexibility to adjust them if they believe that certain medical centers' resource needs are not appropriately accounted for in the model. Third, networks report final medical center allocation amounts to VA headquarters and any adjustments made to the allocation amounts proposed by the model. VA headquarters did not ask networks to report reasons for each adjustment made to allocation amounts; networks reported reasons for some adjustments, but not for others. VA officials said that the new network resource allocation process was not intended to be used to question networks' decision making, but to increase the transparency of networks' allocation decisions to VA headquarters while maintaining network flexibility. However, absent rationales from networks on all adjustments made to medical center allocation amounts, transparency for decisions made through the allocation process is limited. Furthermore, understanding why networks make adjustments is key in determining if any modifications to the model are needed for subsequent years. VA officials told GAO that they intend to conduct annual assessments of the new resource allocation process, including a review of adjustments to the model, to identify areas for improvement. VA centrally monitors the resources networks have allocated to medical centers to ensure spending does not exceed allocations, but does not have written policies documenting these practices for monitoring resources. VA monitors resources through two primary practices--automated controls in its financial management system and regular reviews of network spending. Specifically, VA's financial management system electronically tracks the amount of resources that networks and medical centers have available--the resources allocated, less the resources already spent--and prevents medical centers from spending more than what they have available by rejecting spending requests in excess of available resources. In addition, each month VA headquarters officials compare each network's spending with what the network planned to spend and determine whether spending is on target, and whether any differences from the plan are significant. However, VA headquarters does not have written policies documenting the agency's practices for monitoring resources, which is not consistent with federal internal control standards. These standards state that internal controls should be documented, and all documentation should be properly managed, maintained, and readily available for examination. Without written policies, there is an increased risk of inconsistent monitoring of VA network and medical center resources.
section_title: What GAO Recommends
paragraphs: GAO recommends that VA (1) require networks to provide rationales for all adjustments made to allocations proposed by VA's resource allocation model, and (2) develop written policies to document practices for monitoring resources. VA concurred with these recommendations.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) received appropriations of about  $48.2 billion for health care services for fiscal year 2011. Each year, VA  allocates most of the appropriations for health care services to its 21  health care networks through a national, formula-driven system, called the  Veterans Equitable Resource Allocation (VERA). The networks in turn  allocate resources received through VERA to their respective medical  centers, as part of their role in overseeing all medical centers within their  networks.
In fiscal year 2010, nearly 6 million patients received care through 153 VA  medical centers across the 21 networks. Networks vary in terms of  veteran enrollment, geographic location, types of services offered by their  medical centers, and the number of their medical centers designated as  urban and rural. The decentralized structure of the VA health care system  was set up to allow networks to respond to local health care needs, such  as changing demographics of the veteran population in their regions, and  increasing demand for ambulatory care.
Through fiscal year 2010, VA headquarters permitted networks to develop  their own methodologies for allocating resources to medical centers, and  these methodologies varied considerably among the 21 networks. For  example, some networks’ methodologies were based solely on the  previous year’s allocations for its medical centers with an adjustment for  inflation, while some networks’ methodologies determined allocations  based on the patient workload of their medical centers. Concerned that  network methodologies for allocating resources to medical centers were  not fully transparent to VA headquarters, VA developed and implemented a  new process in fiscal year 2011 for all networks to use in determining their  allocations to medical centers.
Although VA networks retain responsibility for resource allocation  decision making, VA headquarters retains overall responsibility for  oversight and management of VA’s resources. For example, VA  headquarters is ultimately responsible for ensuring that networks and  medical centers do not spend more than the resources available to them.  You expressed interest in how VA networks allocate resources to medical  centers and how VA oversees these resources once they are allocated. In  this report, we describe (1) VA’s new process for networks to use in  determining allocations to medical centers, and (2) how VA centrally  monitors resources networks have allocated to medical centers.
To describe VA’s new process for allocating resources from networks to  medical centers in fiscal year 2011, we reviewed VA documents describing  the process and interviewed VA officials from the Veterans Health  Administration’s Office of Finance and Office of Operations and  Management about the process. In addition, we reviewed VA data detailing  the fiscal year 2011 allocations for each of VA’s 21 networks to determine  the effect of the new process on medical center allocations. We assessed  the reliability of the fiscal year 2011 allocation data by interviewing agency  officials knowledgeable about the data and the new process used to  determine the allocations. We also interviewed VA officials about the tests  of reliability that they conducted on the data. We determined that the data  we used were sufficiently reliable for the purposes of this report. In  addition, we reviewed information on the methodologies that networks  used for fiscal years 2004 through 2010. We also reviewed VA guidance  regarding the allocation of resources from networks to medical centers.
To describe how VA centrally monitors resources networks have allocated  to medical centers, we reviewed documents from VA about its monitoring  efforts. Specifically, we reviewed VA’s procedures related to financial  management and information tracked through VA’s financial systems, in  light of federal internal control standards, as documented in GAO’s  Standards for Internal Control in the Federal Government. In addition,  we interviewed officials from the Office of Finance and Office of  Operations and Management about VA’s monitoring efforts and financial  management systems.
For both objectives, we also interviewed officials from VA networks and  medical centers. We conducted in-person interviews with officials from  four VA networks—Network 5 (Baltimore), Network 8 (Bay Pines),  Network 10 (Cincinnati), and Network 20 (Portland)—and interviews with  officials from at least one medical center from each of these networks to  understand VA networks’ implementation of the new allocation process,  the variety of methodologies used in prior years, and the effect of VA  headquarters’ monitoring on networks. We conducted telephone  interviews with officials from two additional networks—Network 16  (Jackson) and Network 23 (Minneapolis)—to understand their  implementation of the new allocation process and the effect of VA  headquarters’ monitoring. We selected this judgmental sample of networks  and medical centers to obtain a diverse mix of perspectives, based on  variation in several factors, including geographic location and number of  veterans enrolled, and to obtain perspectives from officials representing  medical centers in both urban and rural areas.
We conducted this performance audit from April 2010 through April 2011  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Appropriations for VA’s health care services are made through three  separate appropriations accounts: Medical Services, Medical Support and  Compliance, and Medical Facilities. VA allocates resources from these  appropriations to its networks and medical centers for general purposes  and specific purposes at the beginning of each fiscal year. Seventy-eight  percent, or approximately $37.8 billion, of the nearly $48.2 billion in VA’s  advance appropriations for health care services for fiscal year 2011 were  allocated to VA’s 21 networks for general purpose patient care. VA also  allocates resources to networks and medical centers for specific purposes,  such as prosthetics, transplant care, and preventive and primary care  initiatives. For fiscal year 2011, 22 percent, or approximately $10.4 billion,  of VA’s advance appropriations for health care services were provided to  networks and medical centers for specific purposes. Of its total health  care resources, VA sets aside approximately $500 million at the beginning  of each fiscal year to allocate to networks and medical centers as needed  throughout the year to respond to contingencies and emergencies.
subsections: section_title: Allocation of General Purpose Resources from VA Headquarters to Networks
paragraphs: VA uses the VERA system to allocate general purpose resources to its  networks each fiscal year. Introduced in fiscal year 1997, VERA uses a  national formula-driven approach that considers the number and type of  veterans served (patient workload), the complexity of care provided (case- mix), and certain geographic factors, such as local labor costs, in  determining how much each VA network should receive. VERA  determines how much each network will receive according to each  network’s activities and needs in the following areas: patient care,  equipment, nonrecurring maintenance, education support, and research  support. We have previously reported that VERA is a reasonably sound  methodology for VA to allocate resources to networks, although we have  made recommendations to improve the methodology, some of which VA  has incorporated. VA assesses its VERA model annually to determine any  needed changes to the model, which may include incorporating new  components.
section_title: Allocation of General Purpose Resources from Networks to Medical Centers
paragraphs: Once VA applies VERA to determine how much networks will receive,  networks determine how these resources will be allocated to their  individual medical centers. (See fig. 1.) Networks do not provide resources  directly to medical centers; rather VA headquarters retains responsibility  for providing these resources based on network allocation decisions.
Prior to fiscal year 2011, VA permitted networks to develop and use their  own methodologies for determining how to allocate general purpose  resources to medical centers. VA headquarters provided general guidance  to networks on the principles they should use when determining their  allocation methodologies. For fiscal year 2010, for example, VA’s guidance  stated that networks were expected to allocate resources to medical  centers in a manner that must, among other things, be readily  understandable and result in predictable allocations, and support the goal  of improving equitable access to care and ensure appropriate allocation of  resources to facilities to meet that goal.
Given the relative autonomy that the 21 networks have under VA’s  decentralized health care system, they developed varying allocation  methodologies. For example, networks varied in the factors they  considered in determining medical center allocations. These factors  included prior year funding, patient workload, performance, and facility  square footage. Nonetheless, VA headquarters required networks to report  descriptions of their allocation methodologies, including a description of  how the methodology met VA’s guiding principles for network allocation.  Each network was also required to report the total amount of resources it  retained at the network level—the portion of network general purpose  resources set aside before allocations were made to medical centers at the  beginning of the fiscal year—such as resources for network operations,  network initiatives, and emergencies.
section_title: VA’s New Allocation Process Uses a Standardized Model, but Transparency of Networks’ Allocation Decisions Is Limited
paragraphs: In fiscal year 2011, VA implemented a new resource allocation process that  includes a standardized model for networks to use in allocating general  purpose resources to their medical centers. The model was designed to  provide consistency in the allocation process across networks and still  allow networks the flexibility to make adjustments to medical center  allocations. However, VA headquarters did not require networks to report  reasons for all of the adjustments networks made to their medical centers’  allocations, which limits the transparency of networks’ allocation  decisions.
The new process involves three steps—first, VA headquarters proposes  medical center allocation amounts to networks using a standardized  resource allocation model; second, network officials review these  amounts and can adjust them based on the needs of their medical centers  that are not reflected in the initial allocation amounts proposed by  headquarters; and third, after making any adjustments, networks report  final medical center allocation amounts to VA headquarters in a consistent  format. (See fig. 2.)
Step One: VA Proposes Allocation Amounts. VA headquarters  provides networks with a spreadsheet that includes a standardized model  that proposes allocation amounts for each medical center. The model  includes four main components covering different aspects of the resources  needed for network and medical center operations, which combined  determine the amount of resources allocated to each medical center.
Resources Retained for Network Initiatives. The new model requires  networks to report the amounts and purposes of all resources they do not  allocate to medical centers at the beginning of the fiscal year. Networks  retain and manage resources for network-level initiatives that are  allocated to medical centers throughout the fiscal year, such as to offset  start-up costs for new medical centers or clinics or for the network’s  consolidation of services shared across medical centers including  contracting services, accounting, and laundry. Additionally, networks  retain resources for the administrative costs associated with operating the  network, such as salaries for network employees. Historically, VA had  asked networks to identify the amount of resources retained at the  network level, but they did not ask networks to report the purposes of  these resources.
Resources Retained for the Network’s Emergency Reserve.
Networks may retain resources in an emergency reserve to respond to  medical center emergencies throughout the year. The new model limits the  amount of resources retained by each network to respond to medical  center emergencies to 1.5 percent of the total allocation amount. Networks  may reduce the amount retained for emergencies, but they cannot exceed  the 1.5 percent limit. Networks have used these resources to help cover  unanticipated medical center costs, such as those associated with natural  disasters, which required resources beyond what a medical center had  been initially allocated. In our review of the fiscal year 2011 allocation  models, the 21 networks’ reserve amounts ranged from about 0.1 percent  to the 1.5 percent limit, with an average reserve amount of 1.2 percent.  While networks were asked in prior years to report their emergency  reserve amounts, VA had not required that this amount be reported  separately from other resources retained at the network level, making it  challenging in the past for VA headquarters to know how much the  network retained in reserve specifically for emergencies. In fiscal year  2010, 1 network did not put any resources in reserve, and the remaining  networks’ reserves ranged from 0.2 percent to 3.7 percent of their total  allocation. Furthermore, VA had not established a cap on emergency  reserve amounts prior to fiscal year 2011.
Resources for Research Support, Education, and High Cost  Patients. Under the new model, medical centers’ resources for research  support, education, and high cost patients—patients whose treatment  costs exceed a VA established threshold—are determined solely by  VERA. VERA calculates these amounts based on specific medical center  characteristics. For example, the amount of resources allocated to medical  centers for education is based on the number of residents at each medical  center in the current academic year. Although these amounts were also  calculated using VERA in prior years, networks had the ability to adjust  them. Under the new model, networks are no longer involved in  determining how to allocate these resources, which allows VA  headquarters to ensure that these resources are allocated consistently  across all networks.
Resources for Patient Care Determined by a Standardized Measure  of Workload. The new model uses a standardized measure of patient  workload—which VA refers to as patient weighted work. Prior to fiscal  year 2011, each network was allowed to use its own preferred workload  measure, and the measures used ranged from a simple count of individual  patients to a more complex statistical regression model. In fiscal year  2010, 9 of the 21 networks used a workload measure similar to patient  weighted work. VA officials told us they chose patient weighted work  because it establishes an equitable measure of workload among medical  centers that vary significantly in their geographic location, and types and  costs of services provided. According to VA officials, the patient weighted  work measure lessens the impact of cost differences between medical  centers, by recognizing the varying costs and levels of resource intensity  associated with providing care for each patient at each VA medical center.  For example, patient weighted work would result in more resources being  allocated to a medical center that provides more complex care, such as  open heart surgery, than a workload measure based solely on a count of  each individual patient, which would not account for the additional costs  associated with more complex care. Furthermore, officials told us that the  patient weighted work measure is easily understandable by networks,  medical centers, and stakeholders, such as veterans or VA employees.
Step Two: Networks Review and Can Adjust Proposed Medical  Center Allocation Amounts. After receiving the spreadsheet from  headquarters, network officials determine the allocation amounts for  network initiatives and reserves, which affect the total amount of  resources available for allocation to medical centers. Network officials  then review and can make adjustments to the model’s proposed allocation  amounts for medical centers, as needed. According to VA headquarters  officials, these adjustments allow each network the flexibility to change  the allocation amounts if they believe that certain medical centers’  resource needs are not appropriately accounted for in the model.
We reviewed the 21 networks’ allocation spreadsheets, including the  adjustments networks made to the medical center allocation amounts  proposed by the new model. In our review, we found that, for fiscal year  2011, of the 140 medical center allocations, 122 were adjusted from  amounts proposed by the model—77 medical center allocations received  an upward adjustment and 45 received a downward adjustment. The  remaining 18 medical center allocations were not adjusted. (See fig. 3 for  networks’ percentage adjustments to proposed allocations for medical  centers.)
Officials from the six networks we interviewed told us that they adjusted  the allocation amounts when they anticipated that one or more of their  medical centers’ resource needs would not be met by the amounts  proposed in the model. Without these adjustments, network officials  believed that some medical centers may not have been able to maintain  the level of medical services for veterans in their service areas as they did  previously. For example,    Officials from one network told us they made adjustments that resulted in  redistributing resources from other medical centers in the network to a  rural medical center because the new model’s measure of workload would  not have appropriately determined the resources that the rural medical  center needed to operate. According to network officials, this medical  center has several community-based outpatient clinics that have not been  cost effective to operate but nonetheless provide critical access to care for  rural veterans. Therefore, the network made adjustments to the amounts  proposed in the model to ensure the medical center had sufficient  resources to continue to provide access to veterans in these areas.
Officials from another network told us that the fiscal year 2011 amount  proposed in the model for one of its medical centers was 11 percent lower  than the medical center’s fiscal year 2010 allocation, and for another  medical center, the fiscal year 2011 allocation amount was 18 percent  higher than the amount in fiscal year 2010. Network officials told us that  the former medical center would not be able to absorb such a cut in  resources without negatively impacting services offered, and the latter  medical center would not be able to spend the additional resources it  would have received under the model within the fiscal year. Network  officials told us that the model’s proposed decreases to allocation amounts  for some of its medical centers may have been due to inefficiencies in  medical center operations, but adjustments were necessary to ensure  these medical centers got the resources they needed to continue to  operate. Network officials stated that they will likely continue to make  adjustments in the future, but they plan to work with their medical centers  to increase their efficiency and ensure that their resource needs are more  in line with what the model provides.
More generally, VA headquarters officials stated that some medical centers  have resource needs that set them up to be recurring outliers to the model.  For example, officials said that the outpatient clinic in Anchorage, Alaska,  has significantly higher costs of care and therefore its resource needs  likely will continue to exceed the amounts generated by the model. VA  headquarters officials explained that the Anchorage clinic and other  outlier medical centers exist to ensure equitable access to care for  veterans in all areas and that VA therefore expects that some will incur  unavoidable high costs. Network officials described certain factors  contributing to particularly high costs at this clinic, including a heavy  reliance on expensive community-based care and relatively high  transportation costs associated with transporting patients from their  homes to the medical center or between medical centers for more  complex care or available services.
VA headquarters officials told us they expected networks to make  adjustments to the amounts proposed in the model for fiscal year 2011, but  they also expected networks’ allocations to medical centers to come  closer to the amounts provided by the model over time. If certain medical  centers continue to require significant adjustments to the amounts  proposed in the model, this could be an indicator that the medical centers  warrant further review or attention. VA officials said adjustment  information could be used together with information from VA’s managerial  accounting systems (designed to help identify areas for management  improvement or redesign) to identify areas for improving the medical  centers’ efficiency.
Step Three: Networks Report Final Allocation Amounts to VA  Headquarters. Lastly, networks report to VA headquarters their final  medical center allocation amounts, including the amounts and purposes of  resources retained for network initiatives and the amount retained for  network emergency reserves, using the original allocation spreadsheet  that VA provided. Additionally, networks report any adjustments to the  medical center allocation amounts proposed by the model. VA  headquarters officials told us that the spreadsheets submitted by the  networks provide headquarters with consistent information on all 21  networks’ medical center allocations to more easily track network  allocation decisions. However, VA did not collect information on the  reasons for each adjustment networks made to proposed allocation  amounts through the spreadsheet. Although VA provided networks a list of  acceptable rationales for adjustments for fiscal year 2011, VA did not  require networks to report these rationales for their adjustments in the  spreadsheet. As such, networks may have reported rationales for some  adjustments, but networks also made adjustments for which they may not  have reported a rationale. For example, one network reported detailed  rationales for all adjustments to its medical center allocations (ranging  from -13 percent to 34 percent), while another network did not report  rationales for any of the adjustments it made to its medical center  allocations (ranging from -14 percent to 17 percent). Officials said that the  new network resource allocation process was not intended to be used to  question networks’ decision making, but rather to increase the  transparency of networks’ allocation decisions to VA headquarters while  maintaining network flexibility for allocation decisions. However, absent  rationales from networks for each adjustment made to medical center  allocation amounts, transparency for decisions made through the new  allocation process is limited.
VA officials told us they have begun to review the fiscal year 2011  allocation process and intend to conduct annual assessments of the  network allocation process. VA officials said that this review will help  them identify potential ways to improve the model for fiscal year 2012. VA  officials told us they plan to complete their assessment by the end of fiscal  year 2011. Additionally, VA officials told us that they plan to conduct an  assessment of the network allocation process each subsequent year,  including a review of adjustments to the model, to identify areas for  improvement. VA officials stated that understanding these adjustments is  key to identifying potential areas where the model could be modified and  to respond to changing health care needs.
section_title: VA Monitors Resources to Ensure Spending Does Not Exceed Allocations, but Lacks Written Policies Documenting Practices for Monitoring Resources
paragraphs: VA monitors the general purpose resources networks have allocated to  medical centers to ensure spending does not exceed allocations, but does  not have written policies documenting these practices for monitoring  resources. VA’s lack of written policies documenting its monitoring is  inconsistent with internal control standards applicable to all federal  agencies and could put the agency’s stewardship of federal dollars at risk.
VA centrally monitors the resources networks have allocated to medical  centers through two primary practices—(1) automated controls in its  financial management system, and (2) regular reviews of network  spending. These practices help VA headquarters officials to manage VA  resources to prevent network and medical center spending from  exceeding their allocations and help to ensure that the agency does not  violate the Antideficiency Act. By monitoring network and medical center  resources throughout the fiscal year, VA is able to recognize additional or  changing needs that might not have been apparent when resources were  initially allocated, and to work with networks to realign resources as  appropriate, within the limits of the respective appropriations—Medical  Services, Medical Support and Compliance, and Medical Facilities.
Specifically, VA headquarters officials told us that the agency maintains a  financial management system that has automated controls in place that  prevent networks and medical centers from spending more than their  available resources. VA’s financial management system electronically  tracks the amount of resources that networks and medical centers have  available—that is, the resources they were allocated, less the resources  already spent. When medical centers want to spend some of their  resources, they enter requests for the obligation of funds into the system.  If the amount entered exceeds what is available to them, the request is  rejected by the system, and cannot be processed.
VA headquarters officials also told us they monitor resources by regularly  reviewing network spending—which includes the total spending of all  medical centers within a network. On a monthly basis, they monitor  resources by comparing each network’s spending with its operating plan,  which shows the network’s plan for its medical centers’ spending of  resources for each month of the fiscal year, summarized at the network  level and broken down by spending category—such as travel, personnel,  and equipment costs—and appropriations account. Each network submits  an operating plan to VA headquarters at the beginning of the fiscal year  and revises the plan throughout the year as needed. VA headquarters  officials told us they determine whether spending is on target with the  operating plan or not, and whether any differences from the plan are  significant. VA headquarters officials told us that if they find differences  that are significant, they contact network officials to discuss the  differences, such as if the network appears to be behind on its spending in  a particular category, based on what the network planned to spend in its  operating plan. For example, a network may mention that one of its  medical centers has a large contract pending that will be awarded later in  the year. VA headquarters officials told us that they do not have specific  criteria for which differences between what has been spent and what the  network had planned to have spent would warrant further investigation;  rather, they rely on their experience and judgment to know when a  network may be in danger financially, based on their review of the  network’s spending and their regular communication with network  officials. Officials also told us that they have biweekly teleconferences  with network financial officers and meet with them in person on a  quarterly basis to discuss any financial concerns.
However, VA does not have written policies documenting the agency’s  practices for monitoring the resources networks allocate to medical  centers. For example, VA does not have a written policy documenting that  one of its primary practices for monitoring is the automated controls in its  financial management system. In addition, VA does not have a written  policy that states the overall purpose and specific objectives of their  monthly reviews of network spending compared with each network’s  operating plan.
VA’s lack of written policies related to its monitoring of network and  medical center resources is inconsistent with federal internal control  standards and could put the agency’s stewardship of federal dollars at risk.  Internal control standards state that internal controls should be  documented and all documentation should be properly managed and  maintained, and readily available for examination. Such policies are an  integral part of a federal agency’s stewardship of government resources.  Without written policies that clearly define VA’s objectives for monitoring  resources and document existing practices, there is an increased risk that  these internal control activities may not be performed, may be performed  inconsistently, or may not be continued when knowledgeable employees  leave, which can lead to unreliable monitoring of VA network and medical  center resources.
section_title: Conclusions
paragraphs: Although networks make decisions about how resources are allocated to  medical centers, VA headquarters retains overall responsibility for  oversight and management of VA’s resources, including the process  networks use to allocate resources. To its credit, VA has taken steps to  increase the transparency for how networks allocate resources to medical  centers, while maintaining network flexibility for allocation decisions.  However, to make network decisions more transparent to VA  headquarters, and to achieve its goal of having networks’ allocations to  medical centers come closer to the amounts proposed by VA’s resource  allocation model over time, VA headquarters must understand the specific  reasons for any adjustments that networks make to the model.  Understanding why networks made adjustments is key in determining if  any modifications to the model are needed for subsequent years. Further,  evaluations of the model are important to determine the viability of the  allocation model each year and serve as a platform for making annual  modifications to it, where warranted. VA’s plan to conduct annual  assessments of the allocation process will provide it the opportunity to  identify and implement any modifications to the model—as medical  centers’ resource needs change over time—to ensure the process and its  various components continue to be viable each year.
In addition, VA’s current practices for monitoring help to ensure that  network and medical center spending does not exceed allocations.  However, without written policies to document its objectives for  monitoring resources—including its existing practices—VA cannot ensure  that monitoring will be performed consistently and reliably. For example,  if current employees left the agency and new employees were asked to  take on these monitoring activities, VA would not have policies to guide  them. These new employees might be unable to perform these activities,  or might perform them in a manner inconsistent with how the agency has  performed them in the past, resulting in unreliable monitoring. Such  possibilities could place VA’s stewardship of federal dollars at risk. By  documenting this information in a manner consistent with federal internal  control standards, VA would have greater assurance that the practices  developed by the current leadership will be maintained during  management changes over time.
section_title: Recommendations for Executive Action
paragraphs: To increase the transparency of the new network allocation process, and  to ensure that internal control activities are performed and that the  resources networks allocate to medical centers are monitored consistently  and reliably, we recommend that the Secretary of Veterans Affairs direct  the Under Secretary for Health to take the following two actions:  require networks to provide rationales for all adjustments made to the  allocation amounts proposed by the model in VA’s resource allocation  process; and   develop written policies, consistent with federal internal control  standards, to formalize existing practices for monitoring resources  networks have allocated to medical centers.
section_title: Agency Comments
paragraphs: We provided a draft of this report to VA for comment. In its written  comments, reproduced in appendix I, VA generally agreed with our  conclusions, and concurred with our recommendations. VA stated that  beginning in fiscal year 2012 the agency will require networks to provide  rationales for all adjustments made to medical centers’ allocation amounts  proposed by the new resource allocation model. VA also stated that  beginning in fiscal year 2012 it will provide written guidance consistent  with federal internal control standards to formalize its existing practices  for monitoring resources networks allocate to medical centers.
We are sending copies of this report to the Secretary of Veterans Affairs  and interested congressional committees. The report also will be available  at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or williamsonr@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff members who made major contributions  to this report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Veterans Affairs
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Janina Austin, Assistant Director;  Jennie F. Apter; Jessica Morris; Lisa Motley; and Julie T. Stewart made key  contributions to this report.