VA operates its nursing homes in 132 locations, which are located throughout VA’s 21 health care networks. Almost all of these nursing homes are attached or in close proximity to a VA medical center. According to VA policy, VA staff at these facilities determine whether the veteran has a clinical need for nursing home care based on a comprehensive interdisciplinary clinical assessment. The interdisciplinary teams determining clinical need for nursing home care could include personnel such as the nursing home director, a social worker, nurse, physical therapist, and gerontologist. The care provided to veterans at a VA nursing home could include a range of services, including short-term postacute care needed to recover from a condition such as a stroke to longer-term care required by veterans who cannot be cared for at home because of severe, chronic physical or mental limitations. VA may also refer patients to receive nursing home care under contract from non-VA nursing homes located in the community—referred to as community nursing homes. In fiscal year 2003, VA purchased care from community nursing homes in one of two ways. VA contracted with most nursing homes through the local VA medical center. In addition, VA also contracted with some community nursing homes under its Regional Community Nursing Home initiative, in which nursing home chains in single or multiple states contract directly with VA headquarters for services at their nursing homes. In fiscal year 2003, VA contracted with 1,723 nursing homes through its medical centers and with 508 more nursing homes under its Regional Community Nursing Home initiative. Veterans may also choose to seek care in state veterans’ nursing homes. In fiscal year 2003, 109 state veterans’ nursing homes located in 44 states and Puerto Rico received VA payment to provide care. VA may refer patients to these nursing homes for care, but does not control the admission process. Veterans are admitted based on eligibility criteria established by the states. For state veterans’ nursing homes to participate in VA’s program, however, VA requires that at least 75 percent of the residents be veterans in most cases. State veterans’ nursing homes may also provide nursing home care to certain nonveterans, such as spouses of residents who are veterans. VA is authorized to pay for about two-thirds of the costs of construction of state veterans’ nursing homes and pays about a third of the costs per day to provide care to veterans in these homes. In fiscal year 2003, VA paid $56.24 per day for veterans in these state veterans’ nursing homes and awarded $174 million in grants to 16 states for renovations of existing facilities or construction of new state veterans’ homes. Veterans can also receive nursing home care financed by sources other than VA, including Medicaid and Medicare, private health or long-term care insurance, or self-financed. States design and administer Medicaid programs that include coverage for long-term nursing home care to assist with daily activities such as eating and bathing. Medicare primarily covers acute care health costs and therefore limits its nursing home coverage to short stays requiring skilled nursing home care following hospitalization. State Medicaid programs are the principal funders of nursing homes, besides patients self-financing their care. Private health insurance pays for about 11 percent of nursing home and home health care expenditures. VA nursing homes accounted for almost three-quarters of VA’s overall nursing home expenditures, or about $1.7 billion, in fiscal year 2003. Care in state veterans’ nursing homes accounted for 15 percent of nursing home expenditures, or about $352 million. Care in community nursing homes accounted for the lowest percentage of overall nursing home expenditures at 12 percent, or about $272 million. Overall, VA spent approximately $2.3 billion to provide or pay for nursing home care in VA nursing homes, community nursing homes, and state veterans’ nursing homes in fiscal year 2003. In contrast to fiscal year 1998, in fiscal year 2003 the percentage of expenditures from community nursing homes declined, whereas the percentage of expenditures for care in VA nursing homes and state veterans’ nursing homes increased. (See fig. 1.) For example, 70 percent of nursing home expenditures were accounted for by VA nursing homes in fiscal year 1998 as compared to 73 percent in 2003. Moreover, the percentage of community nursing home expenditures was 17 percent in 1998 as compared to 12 percent in 2003. During the same years, VA’s overall nursing home expenditures increased by about a third, growing from about $1.7 billion to approximately $2.3 billion. The percentage of nursing home expenditures for care in each nursing home setting varied widely by network in fiscal year 2003. (See fig. 2.) All networks spent the largest percentage of their resources on VA nursing homes. The percentage of expenditures for VA nursing homes ranged from a low of 47 percent in Network 19 (Denver) to a high of 88 percent in Network 6 (Durham). Further, the percentage of overall nursing home expenditures accounted for by community and state veterans’ nursing homes also varied widely across the networks. For example, the percentage of expenditures for community nursing homes ranged from a low of 2 percent in Network 3 (Bronx) to a high of 28 percent in Network 20 (Portland). A comparison of how networks’ percentage of expenditures on each nursing home setting changed in fiscal year 2003 as compared to fiscal year 1998 showed that networks’ changes were consistent with the VA- wide changes. In fiscal year 2003, the percentage of expenditures for VA nursing homes increased in 15 of the 21 health care networks as compared to fiscal year 1998. Similar to the overall trend, the percentage of expenditures for state veterans’ nursing homes increased in 17 of 21 networks, whereas the percentage of expenditures for community nursing homes decreased in 17 of 21 networks. The largest shift in the percentage of expenditures for the three settings occurred in Network 19 (Denver). In this network, the percentage of expenditures for VA nursing homes declined from 75 to 47 percent because of a nursing home closure during this period. For more detailed information on the percent change in nursing home expenditures for each setting and network in fiscal years 1998 and 2003, see appendix II. State veterans’ nursing homes accounted for half of VA’s overall nursing home workload—measured by average daily census—in fiscal year 2003, even though they accounted for only 15 percent of expenditures. In large part this is because VA pays a per-diem rate for care in state veterans’ nursing homes that, on average, accounts for about one-third of the cost to provide veterans nursing home care in this setting. The remaining payments made to state veterans’ nursing homes come from a number of other sources including Medicaid, Medicare, private health insurance, and patients self-financing their care. VA nursing homes provided the next largest percentage of nursing home workload, 37 percent in fiscal year 2003. Community nursing homes provided 13 percent of overall nursing home workload. Overall, VA provided or paid for 33,214 patients to receive nursing home care daily in VA nursing homes, community nursing homes, and state veterans’ nursing homes in fiscal year 2003. Since fiscal year 1998, VA has increased its use of state veterans’ nursing homes and decreased the use of VA nursing homes and community nursing homes. Overall, workload in VA’s nursing home program was 33,214 in fiscal year 2003, about 1 percent below its fiscal year 1998 workload. The percentage of nursing home workload provided in state veterans’ nursing homes increased from 43 to 50 percent. In contrast, the percentage of workload provided in VA nursing homes and community nursing homes declined. (See fig. 3.) The increase in the percentage of nursing home workload provided in state veterans’ nursing homes resulted from a number of factors. States, with the assistance of construction grants from VA, built 17 new state veterans’ nursing homes, increasing the number of beds available during this period. The increasing percentage of state veterans’ nursing home workload also occurred as a result of declines in workload in VA nursing homes and community nursing homes due to changes in VA’s use of these settings. In VA nursing homes, VA officials attributed some of the decreases in nursing home workload to an increased emphasis on postacute patients with short lengths of stay. Moreover, VA officials told us that they are providing contract community nursing home care to fewer veterans and paying for shorter contracts than in the past. The number of patients VA served in this setting declined from 28,893 to 14,032 during this period. Network officials also told us that contracts for community nursing home care are often now 30 days or less and are used primarily to transition veterans to nursing home care, which is paid for by other payers such as Medicaid. Although state veterans’ nursing homes predominate overall, networks vary widely in the percentage of workload met in different nursing home settings. For example, networks varied in their use of state veterans’ nursing homes ranging from a low of 22 percent in Network 8 (Bay Pines) to a high of 71 percent in Network 15 (Kansas City). (See fig. 4.) This variation is due, in part, to the available bed capacity of state veterans’ nursing homes in these networks. In 2003, Network 15 (Kansas City) had 1,509 state veterans’ nursing home beds compared to 420 beds in Network 8 (Bay Pines). However, wide network variation also existed in the percentage of networks’ workloads accounted for by VA nursing homes and community nursing homes. Changes in networks’ delivery of nursing home care among the three nursing home settings were consistent with VA-wide changes between fiscal year 1998 and 2003. The percentage of workload provided in state veterans’ nursing homes increased in 19 of VA’s 21 health care networks. Similar to the overall trend, the percentage of workload met in community nursing homes declined in 17 networks and declined in 13 networks for VA nursing homes. The largest shift in the percentage of workload for the three settings occurred in Network 17 (Dallas). In this network, the percentage of workload for state veterans’ nursing homes increased from 0 to 30 percent because Texas opened up four state veterans’ nursing homes during this period.