VA’s disability compensation program pays monthly benefits to veterans with service-connected disabilities (injuries or diseases incurred or aggravated while on active military duty) according to the severity of the disability. Also, VA pays dependency and indemnity compensation to some deceased veterans’ spouses, children, and parents and to survivors of service members who died on active duty. The pension program pays monthly benefits based on financial need to wartime veterans who have low income, served in a period of war, and are permanently and totally disabled for reasons not service-connected (or are aged 65 or older). VA also pays pensions to surviving spouses and unmarried children of deceased wartime veterans. When a veteran submits a claim to any of VA’s 57 regional offices, a veterans service representative (VSR) is responsible for obtaining the relevant evidence to evaluate the claim. Such evidence includes veterans’ military service records, medical examinations, and treatment records from VA medical facilities and private medical service providers. Once a claim is developed (i.e., has all the necessary evidence), a rating VSR, also called a rating specialist, evaluates the claim and determines whether the claimant is eligible for benefits. If the veteran is eligible for disability compensation, the rating specialist assigns a percentage rating based on degree of disability. Veterans with multiple service-connected disabilities receive a single composite rating. For veterans claiming pension eligibility, the regional office determines if the veteran served in a period of war, is permanently and totally disabled for reasons not service-connected (or is aged 65 or older), and meets the income thresholds for eligibility. A veteran who disagrees with the regional office’s decision for either program can appeal sequentially to VA’s Board of Veterans’ Appeals (BVA), the U.S. Court of Appeals for Veterans Claims, and the U.S. Court of Appeals for the Federal Circuit. In January 2003, we designated modernizing VA’s disability programs, along with other federal disability programs, as high-risk. We did so, in part, because VA had long-standing problems with lengthy claims processing times and lacked a clear understanding of the extent of possible decision inconsistencies. Moreover, VA’s disability programs have not been updated to reflect the current state of science, medicine, technology, and labor market conditions. In November 2003, the Congress established the Veterans’ Disability Benefits Commission to study the appropriateness of VA disability benefits, including disability criteria and benefit levels. The commission held its first public hearing in May 2005. VA continues to experience challenges processing veterans’ disability compensation and pension claims. These include large numbers of pending claims and lengthy processing times. While VA made progress in fiscal years 2002 and 2003 in reducing the size and age of its inventory of pending claims, it has lost ground since the end of fiscal year 2003. As shown in figure 1, pending claims increased by over one-third from the end of fiscal year 2003 to the end of fiscal year 2005, from about 254,000 to about 346,000. During the same period, claims pending over 6 months increased by about 54 percent, from about 47,000 to about 72,000. Similarly, as shown in figure 2, VA reduced the average age of its pending claims from 182 days at the end of fiscal year 2001 to 111 days at the end of fiscal year 2003. Since then, however, average days pending have increased to 120 days at the end of fiscal year 2005. This is also far from VA’s strategic goal of an average of 78 days pending by the end of fiscal year 2008. Meanwhile, the time required to resolve appeals remains too long. While the average time to resolve an appeal dropped from 731 days in fiscal year 2002 to 622 days in fiscal year 2005, VA was still far from its fiscal year 2005 goal of 500 days. In addition to problems with timeliness of decisions, VA acknowledges that the accuracy of regional office decisions needs further improvement. VA reports that it has improved the accuracy of decisions on rating related compensation claims from 80 percent in fiscal year 2002 to 84 percent in fiscal year 2005, close to its 2005 goal of 88 percent. VA also faces continuing questions about its ability to ensure that veterans receive consistent decisions—that is, comparable decisions on benefit entitlement and rating percentage regardless of the regional offices making the decisions. The issue of decision-making consistency across VA is not new. In May 2000 testimony before the House Subcommittee on Oversight and Investigations, Committee on Veterans’ Affairs, we underscored the conclusion made by the National Academy of Public Administration in 1997 that VA needed to study the consistency of decisions made by different regional offices, identify the degree of subjectivity expected for various medical issues, and then set consistency standards for those issues. In August 2002, we drew attention to the fact that there are wide disparities in state-to-state average compensation payments per disabled veteran. We noted that such variation raises the question of whether similarly situated veterans who submit claims to different regional offices for similar conditions receive reasonably consistent decisions. We concluded that VA needed to systematically assess decision-making consistency to provide a foundation for identifying acceptable levels of variation and to reduce variations found to be unacceptable. Again, in November 2004, we highlighted the need for VA to develop plans for studying consistency issues. VA concurred in principle with our findings and recommendation in the August 2002 report, agreed that consistency is an important goal, and acknowledged that it has work to do to achieve it. However, VA was silent on how it would evaluate and measure consistency. Subsequently, VA concurred with our recommendation in the November 2004 report that it conduct systematic reviews for possible decision inconsistencies. In December 2004, the media drew attention to the wide variations in the average disability compensation payment per veteran in the 50 states and published VA’s own data showing that the average payments varied from a low of $6,710 in Ohio to a high of $10,851 in New Mexico. Reacting to these media reports, in December 2004, the Secretary of Veterans Affairs instructed the agency’s Inspector General to determine why average payments per veteran vary widely from state to state. The Inspector General found that compensation payments are affected by many factors and that some disabilities are inherently more susceptible to variations in rating determinations. The Inspector General made eight recommendations to improve the consistency of rating decisions, including recommending that VBA conduct a study of the major influences on compensation payments and use the results to detect, correct, and prevent unacceptable payment patterns. Also, VA’s Veterans Benefits Administration began a study in March 2005 of three disabilities believed to have potential for inconsistency: hearing loss, post-traumatic stress disorder, and knee conditions. VA assigned 10 subject matter experts to review 1,750 regional office decisions. After completing its analysis of study data, VA planned to develop a schedule for future studies of specific ratable conditions and recommend a schedule for periodic follow-up studies of previously studied conditions. Recent history has shown that VA’s claims processing workload and performance are being affected by several factors, including the impacts of laws and court decisions and the filing behavior of veterans. For example, court decisions in 1999 and 2003 related to VA’s duty to assist veterans in developing their benefit claims, as well as legislation in response to those decisions, significantly affected VA’s ability to produce rating-related decisions. VA attributes some of the worsening of inventory level and pending timeliness since the end of fiscal year 2003 to a September 2003 court decision that required over 62,000 claims to be deferred, many for 90 days or longer. Also, VA notes that legislation and VA regulations have expanded benefit entitlement and as a result added to the volume of claims. For example, presumptions of service-connected disabilities have been created in recent years for many Vietnam veterans and former Prisoners of War. Also, VA expects additional claims receipts based on the enactment of legislation allowing certain military retirees to receive both military retirement pay and VA disability compensation. In addition, VA continues to receive increasing numbers of rating-related claims, from about 586,000 in fiscal year 2000 to about 788,000 in fiscal year 2005. VA projects 3 percent increases in claims received in fiscal years 2005 and 2006. VA notes that claims received are increasing in part because older veterans are filing disability claims for the first time. One reason for this increase could be that older veterans have incentives to file disability claims because obtaining a service-connected disability rating is a gateway to VA health care. According to VA, the complexity of claims is also increasing because veterans are citing more disabilities in their claims than in the past. Because each disability needs to be evaluated, these claims can take longer to complete. VA planned to develop baseline data on average issues per claim by the end of calendar year 2005. In November 2004, we reported that VA would have to rely on productivity improvements to achieve its claims processing performance goals in the face of increasing workloads and decreased staffing levels. However, its fiscal year 2005 budget justification did not provide information on claims processing productivity or how much VA expected to improve productivity. VA’s fiscal year 2006 budget justification provides information on actual and planned productivity, in terms of rating-related claims decided per direct full-time equivalent (FTE) employee, and identifies a number of initiatives that could improve claims processing performance. These initiatives include technology initiatives, such as Virtual VA, involving the creation of electronic claims folders; consolidation of the processing of Benefits Delivery at Discharge (BDD) claims at two regional offices; and collaboration with the Department of Defense (DOD) to improve VA’s ability to obtain evidence, such as evidence of in-service stressors for veterans claiming service-connected Post-Traumatic Stress Disorder. Despite these and other measures, we noted in May 2005 that it is still not clear whether VA will be able to achieve its planned improvements. In our May 2005 testimony we noted that VA’s fiscal year 2006 budget justification assumes that it will increase the number of rating-related claims completed per FTE from 94 in fiscal year 2004 to 109 in fiscal year 2005 and 2006, a 16 percent increase. For fiscal year 2005, this level of desired productivity translates into VA completing almost 826,000 rating- related decisions. In actuality, VA completed about 763,000 decisions in fiscal year 2005. While VA is taking a number of actions to address its claims processing challenges, there are opportunities for more fundamental reform, that could dramatically improve decision making and processing. These include reexamining program design and the context in which decisions are made as well as the structure and division of labor among field offices. For example, in designating federal disability programs as high risk in 2003, GAO noted that VA’s and the Social Security Administration’s (SSA) disability programs have not been updated to reflect the current state of science, medicine, technology, and labor market conditions. In addition, our work has shown that about one-third of newly compensated veterans could be interested in receiving a lump sum payment, potentially saving VA time and money associated with reopening cases over time. Moreover, VA and other organizations have identified potential changes to field operations that could enhance productivity and accuracy in processing disability claims. After more than a decade of research, GAO has determined that federal disability programs are in urgent need of attention and transformation and placed modernizing federal disability programs on its high-risk list in January 2003. Specifically, our research showed that the disability programs administered by VA and the Social Security Administration lagged behind the scientific advances and economic and social changes that have redefined the relationship between impairments and work. For example, advances in medicine and technology have reduced the severity of some medical conditions and have allowed individuals to live with greater independence and function in work settings. Moreover, the nature of work has changed in recent decades as the national economy has moved away from manufacturing-based jobs to service- and knowledge- based employment. Yet VA’s and SSA’s disability programs remain mired in concepts from the past—particularly the concept that impairment equates to an inability to work—and as such, we found that these programs are poorly positioned to provide meaningful and timely support for Americans with disabilities. In August 2002, we recommended that VA use its annual performance plan to delineate strategies for and progress in periodically updating labor market data used in its disability determination process. We also recommended that VA study and report to the Congress on the effects that a comprehensive consideration of medical treatment and assistive technologies would have on its disability programs’ eligibility criteria and benefits package. This study would include estimates of the effects on the size, cost, and management of VA’s disability programs and other relevant VA programs and would identify any legislative actions needed to initiate and fund such changes. Another area of program design that could be examined is the option of providing a lump sum payment in lieu of monthly disability compensation. In 1996, the Veterans’ Claims Adjudication Commission noted that most disability compensation claims are repeat claims—such as claims for increased disability percentage—and most repeat claims were from veterans with less severe disabilities. According to VA, about 65 percent of veterans who began receiving disability compensation in fiscal year 2003 had disabilities rated 30 percent or less. The commission questioned whether concentrating claims processing resources on these claims, rather than on claims by more severely disabled veterans, was consistent with program intent. The commission asked Congress to consider paying less severely disabled veterans compensation in a lump sum. According to the commission, the lump sum option could have a number of benefits for VA as well as veterans. Specifically, the lump sum option could reduce the number of claims submitted and allow VA to process claims more quickly—especially those of more seriously disabled veterans. Moreover, a lump sum option could be more useful to some veterans as they make the transition from military to civilian life. In December 2000, we reported that about one-third of newly compensated veterans could be interested in a lump sum option. In addition to program design changes, external studies of VA’s disability claims process have identified the regional office structure as disadvantageous to efficient operation. Specifically, in its January 1999 report, the Congressional Commission on Servicemembers and Veterans Transition Assistance found that some regional offices might be so small that their disproportionately large supervisory overhead unnecessarily consumes personnel resources. Similarly, in its 1997 report, the National Academy of Public Administration found that VA could close a large number of regional offices and achieve significant savings in administrative overhead costs. Apart from the issue of closing regional offices, the Congressional Commission on Servicemembers and Veterans Transition Assistance highlighted a need to consolidate disability claims processing into fewer locations. VA has consolidated its education assistance and housing loan guaranty programs into fewer than 10 locations, and the commission encouraged VA to take similar action in the disability programs. In 1995 VA enumerated several potential benefits of such a consolidation. These included allowing VA to assign the most experienced and productive adjudication officers and directors to the consolidated offices; facilitating increased specialization and as-needed expert consultation in deciding complex cases; improving the completeness of claims development, the accuracy and consistency of rating decisions, and the clarity of decision explanations; improving overall adjudication quality by increasing the pool of experience and expertise in critical technical areas; and facilitating consistency in decision making through fewer consolidated claims processing centers. VA has already consolidated some of its pension workload (specifically, income and eligibility verifications) at three regional offices. Also, VA has consolidated at its Philadelphia regional office dependency and indemnity compensation claims by survivors of service members who died on active duty, including those who died during Operation Enduring Freedom and Operation Iraqi Freedom. VA is also is in the process of consolidating decision-making on Benefits Delivery at Discharge claims, which are generally original claims for disability compensation, at the Salt Lake City and Winston-Salem regional offices. VA established this program to expedite decisions on disability compensation claims from newly separated service members. A service member can file a BDD claim up to 180 days before separation; VA staff performs some development work on the claim before separation. VBA actually decides the claim after the service member is separated and the official discharge form (DD Form 214) is received. Under the consolidation, regional offices and VBA’s 142 BDD sites will accept and develop claims, but will send the developed claims to Salt Lake City or Winston-Salem for decision. VBA expects this consolidation to help improve decision efficiency and consistency. Consolidation began in December 2004 and is expected to be completed by March 2006. While reexamining claims processing challenges in a larger context may be daunting, there are mechanisms for undertaking such an effort, including the congressionally chartered commission currently studying veterans’ disability benefits. In November 2003, the Congress established the Veterans’ Disability Benefits Commission to study the appropriateness of VA disability benefits, including disability criteria and benefit levels. The commission was to examine and provide recommendations on (1) the appropriateness of the benefits, (2) the appropriateness of the benefit amounts, and (3) the appropriate standard or standards for determining whether a disability or death of a veteran should be compensated. As of October 2005, the commission had established 31 potential research questions for study. Questions include how well do disability benefits meet the congressional intent of replacing average impairment in earnings capacity, should lump sum payments be made for certain disabilities or level of severity of disability, and how does VA’s claims processing operation compare to other disability programs, including the location and number of processing centers. These issues and others have been raised by previous studies of VBA’s disability claims process. For further information, please contact Cynthia A. Bascetta at (202) 512-7215. Also contributing to this statement were Cristina Chaplain, Irene Chu, and Martin Scire. Veterans’ Disability Benefits: Improved Transparency Needed to Facilitate Oversight of VBA’s Compensation and Pension Staffing Levels. GAO-06-225T. Washington, D.C.: November 3, 2005. VA Benefits: Other Programs May Provide Lessons for Improving Individual Unemployability Assessments. GAO-06-207T. Washington, D.C.: October 27, 2005. Veterans’ Disability Benefits: Claims Processing Problems Persist and Major Performance Improvements May Be Difficult. GAO-05-749T. Washington, DC.: May 26, 2005. VA Disability Benefits: Board of Veterans’ Appeals Has Made Improvements in Quality Assurance, but Challenges Remain for VA in Assuring Consistency. GAO-05-655T. Washington, D.C.: May 5, 2005. High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 2005. Veterans Benefits: VA Needs Plan for Assessing Consistency of Decisions. GAO-05-99. Washington, D.C.: November 19, 2004. Veterans’ Benefits: More Transparency Needed to Improve Oversight of VBA’s Compensation and Pension Staffing Levels. GAO-05-47. Washington, D.C.: November 15, 2004. Veterans’ Benefits: Improvements Needed in the Reporting and Use of Data on the Accuracy of Disability Claims Decisions. GAO-03-1045. Washington, D.C.: September 30, 2003. Department of Veterans Affairs: Key Management Challenges in Health and Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003. Veterans Benefits Administration: Better Collection and Analysis of Attrition Data Needed to Enhance Workforce Planning. GAO-03-491. Washington, D.C.: April 28, 2003. Veterans’ Benefits: Claims Processing Timeliness Performance Measures Could Be Improved. GAO-03-282. Washington, D.C.: December 19, 2002. Veterans’ Benefits: Quality Assurance for Disability Claims and Appeals Processing Can Be Further Improved. GAO-02-806. Washington, D.C.: August 16, 2002. Veterans’ Benefits: VBA’s Efforts to Implement the Veterans Claims Assistance Act Need Further Monitoring. GAO-02-412. Washington, D.C.: July 1, 2002. Veterans’ Benefits: Despite Recent Improvements, Meeting Claims Processing Goals Will Be Challenging. GAO-02-645T. Washington, D.C.: April 26, 2002. Veterans Benefits Administration: Problems and Challenges Facing Disability Claims Processing. GAO/T-HEHS/AIMD-00-146. Washington, D.C.: May 18, 2000. This is a work of the U.S. government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.

Summary: The Chairman, Committee on Veterans' Affairs, U.S. House of Representatives, asked GAO to report on the claims processing challenges and opportunities facing the Department of Veterans Affairs (VA) disability compensation and pension program. For years, the claims process has been the subject of concern and attention within VA and by the Congress and veterans service organizations. Their concerns include long waits for decisions, large claims backlogs, and inaccurate decisions. Our work and media reports of significant discrepancies in average disability payments from state to state have also highlighted concerns over the consistency of decision making within VA. In January 2003, we designated federal disability programs, including VA's compensation and pension programs, as a high-risk area because of continuing challenges to improving the timeliness and consistency of its disability decisions and the need to modernize programs. VA's outdated disability determination process does not reflect a current view of the relationship between impairments and work capacity. Advances in medicine and technology have allowed some individuals with disabilities to live more independently and work more effectively. The Department of Veterans Affairs continues to experience challenges processing veterans' disability compensation and pension claims including large numbers of pending claims and lengthy processing times. While VA made progress in fiscal years 2002 and 2003 reducing the size and age of its inventory of pending claims, it has lost ground since the end of fiscal year 2003. For example, pending claims increased by over one-third from the end of fiscal year 2003 to the end of fiscal year 2005. Meanwhile, VA faces continuing questions about its ability to ensure that veterans get consistent decisions across its 57 regional offices. GAO recommended in August 2002 that VA study the consistency of decisions made by different regional offices, identify acceptable levels of decision-making variation, and reduce variations found to be unacceptable. Several factors may impede VA's ability to significantly improve its claims processing performance. These include the potential impacts of laws, court decisions, and increases in the number and complexity of claims received. Opportunities for improvement may lie in more fundamental reform in the design and operation of disability compensation and pension claims programs. This would include reexamining program design and the context in which decisions are made as well as the structure and division of labor among field offices. For example, in recent years, GAO has found that VA and other federal disability programs have not been updated to reflect the current state of science, medicine, technology, and labor market conditions. The schedule on which disability decisions are made within VA, for example, is based primarily on estimates made in 1945 about the effect service-connected impairments have on the average individual's ability to perform jobs requiring manual or physical labor. In addition, our work has shown that about one-third of newly compensated veterans could be interested in receiving a lump sum payment, potentially saving VA time and money associated with reopening cases over time. In addition, VA and other organizations have identified potential changes to field operations that could enhance productivity and accuracy in processing disability claims. While reexamining claims processing challenges in a larger context may be daunting, there are mechanisms for undertaking such an effort, including the congressionally chartered commission currently studying veterans' disability benefits.