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.