Report No.: GAO/OGC-93-21TR Date: December 1992
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Author: United States General Accounting Office
Addressee: Transition Series
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CONTENTS
Veterans Affairs Issues
Enhancing Strategic Management
- Integrating Planning Processes
- Strengthening Human Resource Management
- Integrating Information Systems
- Strengthening Financial Management
Strengthening Operational Management
- Implementing Legislative Initiatives
- Addressing Operational Problems
- Monitoring Policy Implementation
Assessing the Future Structure of Veterans' Benefits
- Planning VA's Role Under Reformed National Health Care
- Restructuring Veterans' Health Care Benefits
- Reforming Veterans' Compensation Benefits
Related GAO Products
- Enhancing Strategic Management
- Strengthening Operational Management
- Assessing the Future Structure of Veterans' Benefits
Transition Series
- Economics
- Management
- Program Areas
Office of the Comptroller General
Washington, DC 20548
December 1992
The Speaker of the House of Representatives
The Majority Leader of the Senate
In response to your request, this transition series report discusses major
policy and management issues facing the Congress and new administration in the
area of veterans affairs. Since we issued our 1988 transition series report,
the Department of Veterans Affairs has made progress in (1) developing a
strategic management process, (2) preparing and auditing financial statements,
and (3) modernizing its information resources. Further actions are needed,
however, to enhance the Department's strategic and operational management.
This report also discusses our view that the size of the budget deficit and
the prospects for national health care reform require a comprehensive
reevaluation of veterans' health and compensation benefits.
The GAO products upon which this report is based are listed at the end of the
report.
We are also sending copies of this report to the President-elect, the
Republican leadership of the Congress, the appropriate congressional
committees, and the Secretary-designate of Veterans Affairs.
The Department of Veterans Affairs (VA) has a profound effect on the welfare
of our nation's 27 million veterans. VA's 227,000 workers--nearly 1 for every
120 veterans--deliver a wide array of medical, disability compensation,
pension, housing, insurance, education, and burial services in more than 1,000
facilities at an annual cost of $34 billion.
Efforts to contain the rising federal deficit will likely mean that VA, like
other government entities, will have to operate its programs and activities
with increasingly constrained resources. VA has numerous opportunities to
operate more cost effectively, thereby saving hundreds of millions of dollars
while preserving or enhancing the quality of services it provides to veterans.
For example, VA now recovers more than $400 million a year through improved
billing and collection procedures for health care. Millions more dollars are
lost, however, because VA has not established procedures to verify veterans'
reported incomes. If VA is to take advantage of opportunities to improve its
cost effectiveness, it must substantially improve its efforts to ensure the
timely development and systemwide implementation of policies to correct
identified operational problems.
VA and the Congress are likely to face several fundamental policy decisions
about the future structure of veterans' benefits. The most significant
challenge facing VA could be national health reform. For example, universal
coverage could create excess capacity by reducing demand for inpatient care in
VA's $15 billion health care system by almost 50 percent. This could offer the
potential to (1) reduce substantially the overall size and cost of the system
and
(2) limit VA's approximately $500 million-a-year health facilities
construction program. Similarly, decisions may need to be made on whether to
provide disability compensation only to veterans whose disabilities were
clearly caused by their military service. About 19 percent of the
approximately $10 billion paid in disability compensation now goes to
compensate veterans for diseases related to heredity or life-style rather than
military service. Other challenges for VA's management include how best to
serve an aging veteran population and how to fully incorporate evolving
medical treatment patterns and innovative claims-processing technologies into
the Department's operations. Meeting all of these challenges will require VA
to complete the strategic management process it started under the previous
administration.
As we reported in August 1990, the Secretary of Veterans Affairs initiated
strategic management departmentwide. He stated that the goals of this
initiative would be to provide the most compassionate and highest-quality
service to veterans and their families and become the best-managed federal
service organization--a leader in total quality management. Implementation of
strategic management is incomplete, however, and achievement of the
Department's goals is in jeopardy. To complete implementation, VA will need to
-- integrate the planning of its three largely autonomous components --the
Veterans Health Administration, Veterans Benefits Administration, and the
National Cemetery System--into the Department's overall strategic
management;
-- develop a more forward-looking, proactive approach to human resource
management;
-- integrate its information systems; and
-- continue efforts to strengthen financial management through preparation of
audited financial statements.
Strategic management should drive other planning and unify departmental
management. Strategic planning and decision-making are fragmented among VA's
three components, however, with little involvement by the Secretary. For
example, the Veterans Health Administration recently implemented a new
planning process independent of Secretarial-level planning. Moreover, VA's
annual internal budget process is largely unconnected with the strategic
management process. As a result, VA's strategic management will not provide
the Secretary with a framework for shaping the future direction of VA's
activities. VA's top management needs to continue the previous Secretary's
initiative to develop VA's strategic management, integrate the plans of the
three components into that process, and periodically assess how each phase of
the process can be enhanced.
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STRENGTHENING HUMAN RESOURCE MANAGEMENT
In a labor-intensive service organization such as VA, employees are key to
achieving management's stated goals of providing high-quality services to its
beneficiaries and making the Department the best-managed service delivery
organization in the federal sector. Therefore, VA needs effective human
resource management focused on such activities as staffing, employee
development, appraisal, and rewards.
VA's traditional approach to personnel management emphasizes compliance with
procedural requirements. Although important, such emphasis can limit an
agency's ability to develop plans for adapting to change. In recent years, VA
has had difficulty dealing with emerging human resource management challenges.
For example, it lagged behind the private sector in competing for nursing
personnel during the severe shortage in the 1980s.
Developing a forward-looking, proactive approach to human resource management
would allow VA to use human resource planning to focus attention on the
personnel dimensions of its operations. For example, the trend in the medical
community of shifting emphasis from inpatient to outpatient care will
undoubtedly require staff with a different mix of jobs and skills. Similarly,
efforts to modernize claims processing for veterans' compensation and pension
benefits could create a need to retrain VA staff.
With effective human resource management, VA will be able to (1) better
anticipate emerging labor force issues before they become crises and (2) help
line managers identify human resource needs and determine what actions to take
so that enough employees with the right skills are available when and where
they are needed to accomplish goals.
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INTEGRATING INFORMATION SYSTEMS
Major improvements in both the quality of VA's services and the efficiency
with which they are provided depend, as we pointed out in our 1988 transition
series report, on VA managers' ability to get the right information at the
right time. VA has embarked on major systems-modernization efforts to improve
its medical and benefit services.
The effectiveness of these efforts is diminished, however, because VA has not
integrated currently separate information systems into a system capable of
sharing and permitting access to data across all program areas. VA's recent
purchase of computer hardware and software for a modernized benefits system
may result in a system that requires future replacement because of limited
capability, inability to perform as needed, or both.
VA has been a leader in attempts to strengthen federal financial management,
preparing audited financial statements for 1990 and 1991 as required under the
Chief Financial Officers Act of 1990. These statements are included in an
annual report assessing the overall soundness of VA's financial management and
the effectiveness of its internal controls.
Through this effort, VA has identified a number of improvements needed in its
financial management. For example, an audit of VA's 1991 financial statements
identified several weaknesses in accounting systems, inadequate physical
controls over fixed assets and inventory, and improper calculation of future
liability for compensation and pension benefits. VA's new Chief Financial
Officer should focus special attention on these issues as VA improves its
financial management activities.
Linked to strategic management is the need for VA to improve its management of
departmental operations. Numerous legislative initiatives are unnecessarily
delayed, and identified operational problems have gone unresolved for too
long. These delays occur because VA's central office is, at times, slow to
establish operational policies and ensure that such policies are carried out
appropriately and consistently by field facilities.
Field facilities either delay implementation of new legislative initiatives or
implement them inconsistently because VA's central office does not provide
them with timely policy guidance. For example, VA took more than 11 years to
finalize procedures to implement a 1980 legislative change. This change
expanded the focus of VA's vocational rehabilitation program to emphasize
assisting veterans in finding jobs as well as providing training. We found
that many veterans dropped out of the program without finding suitable jobs.
Slow development of policies also cost VA an opportunity to use temporary
legislative authority to strengthen its collection of copayments for medical
care. The Congress gave VA authority to use tax records to verify veterans'
reported incomes during 1991 and 1992. Because VA did not develop a
verification system, it lost an estimated $120 million in copayment revenues
for veterans who underreported their incomes to VA. The Congress has recently
extended VA's authority to use tax records for an additional 5 years. VA now
needs to move quickly to develop and implement policies for using tax records
to verify veterans' reported incomes.
Inadequate policy guidance has also resulted in field facilities'
inappropriately purchasing millions of dollars worth of medical care from
private providers. More than 15 years ago, the Congress authorized VA to make
such purchases if the care could be purchased more economically than VA could
provide it. Field facilities are purchasing care without making this
determination because VA has not provided clear guidance on how cost
comparisons are to be made. VA expects to provide the needed guidance to field
facilities by early 1993.
Field facilities developed their own interpretations of how a 1986 legislative
initiative should be implemented because VA did not provide adequate policy
guidance. In that year, the Congress authorized VA to exempt veterans who were
exposed to Agent Orange from copayment liabilities if they were receiving
medical care for a condition possibly caused by Agent Orange. Without guidance
on how to make this determination, facilities followed policies that ranged
from exempting all Vietnam veterans to exempting none, thus providing
inequitable benefits to veterans whose cases were similar. VA has said it will
correct this problem by early 1993.
VA's delays in issuing policy guidance have also impeded correction of
identified operating deficiencies. We and others have frequently recommended
ways that VA could improve its systems for delivering medical care and
processing disability claims. While VA generally responds favorably to such
suggestions, its central office is sometimes slow to develop the guidance
needed to realize service improvements and cost savings.
A year ago, we recommended that VA modernize its mail-service pharmacies. We
found that VA operates too many pharmacies, resulting in uneconomical
dispensing practices and labor-intensive processing of veterans'
prescriptions. VA has recently devised a strategy for consolidating and
automating its pharmacy operations, but systemwide pharmacy modernization
remains several years away. The timely implementation of this modernization
offers VA a unique opportunity to substantially improve an important service
to veterans while saving millions of dollars in operating costs.
In 1990, the Secretary of Veterans Affairs called for fundamental changes in
the way VA provides compensation benefit services to veterans. However, VA's
central office has not developed new policies, primarily because it is unsure
of what inefficiencies are causing its benefit-claims processes to be
burdensome for both VA and claimants. VA could enhance its efforts to improve
claims processing by developing a comprehensive approach for determining
veterans' service-delivery needs and eliminating barriers to speedy claims
resolution. Once this was accomplished, VA would be in a position to develop
policies to achieve the Secretary's objectives.
Over the last few years, we have recommended numerous ways that VA could
increase its recovery of medical care costs through improved billing and
collection procedures. VA has doubled the amount it has recovered from less
than $200 million to more than $400 million by developing policies to
implement some of our recommended actions. However, VA can accomplish much
more. For example, VA is still routinely billing too many veterans for
copayments rather than collecting the payments when veterans receive care. VA
also has not developed a standard form that billing clerks can use to
determine veterans' copayment charges. Timely development of policies to
correct these and other identified inefficiencies are needed if VA's recovery
of medical care costs is to realize its full potential.
VA also faces the challenge of developing a system for verifying unreimbursed
medical expenses that veterans who receive VA pensions report to VA. Veterans
may use these expenses to offset income that is used to determine pension
eligibility. In 1991, we reported that VA does not know whether millions of
dollars in reported medical expenses are valid. VA is currently developing
verification procedures, and it needs to ensure that these procedures are
completed and distributed in a timely manner to field facilities.
Under VA's decentralized management structure, as we noted in our 1988
transition series report, systems need to be in place to enable managers in
VA's central office to monitor field facilities to ensure that veterans
receive high-quality services.
When VA's central office has monitored field facilities' operations, it has
been able to make progress in ensuring that its policies have been implemented
and problems corrected. For example, systemwide improvements resulted when the
central office became actively involved in ensuring that medical facilities
properly validated the credentials of their physicians, controlled inventories
of addictive prescription drugs, and prepared for surveys conducted by the
Joint Commission on Accreditation of Healthcare Organizations.
But the above examples represent focused initiatives to follow up on specific,
identified problems. They do not represent a systematic approach to policy
implementation. Because VA's central office does not routinely follow up to
determine whether its directives are followed, many problems remain
uncorrected. For example:
-- Many of VA's problems--identified in 1982--in meeting the health care needs
of women veterans still exist more than 10 years later. VA's central office
directed medical facilities to identify and correct physical barriers to
women's access (such as lack of private rooms or separate bathroom
facilities) but did not follow up to see that these barriers were removed.
Similarly, facilities were directed to provide women with thorough physical
examinations, but no follow-up took place to ensure that they did so.
-- VA does not know whether medical facilities are setting accurate salary
rates under its recently implemented location-based pay system for nurses.
This is because VA has not monitored most medical facilities'
implementation of the guidance provided by the central office. As a result,
numerous internal control weaknesses exist in a rate-setting system that
affects about 15 percent of VA's health care budget.
-- As we stated in our 1988 transition series report, resident physicians are
inadequately supervised at many VA facilities. VA's central office agreed
with recommendations we made in 1986 to improve supervision and issued
guidance to its medical facilities that was intended to help ensure
adequate supervision of residents. In 1991, however, we found that many
medical centers were not following the guidance.
VA needs a monitoring system that encourages medical centers to follow up to
see that identified problems are corrected. As initial steps, VA will need to
(1) establish more accountability on the part of the facilities' directors for
problem resolution and (2) strengthen its oversight of their corrective
actions.
ASSESSING THE FUTURE STRUCTURE OF VETERANS' BENEFITS
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The Congress and the administration will be facing two major struggles--the
deficit and health care reform--that could have a dramatic effect on the
structure of veterans' benefits. In developing its strategic plans, VA needs
to consider such things as (1) its role under reformed national health care,
(2) how VA's health care eligibility and benefits can be restructured to
enable more veterans to be served with limited resources, and (3) how VA's
disability compensation benefits can be reformed to ensure that VA's limited
resources are targeted to the most deserving.
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PLANNING VA'S ROLE UNDER REFORMED NATIONAL HEALTH CARE
As the new administration's plans to reform the health care system unfold,
they will undoubtedly have a significant impact on VA. Any program that would
expand health insurance coverage could substantially reduce the demand for
VA-sponsored care. This is because veterans without health insurance are much
more likely to use VA services than veterans with other health care options.
For example, we estimate that enactment of nationwide employer-mandated health
insurance would lower demand for inpatient care in VA facilities by about 18
percent. Passage of universal coverage would reduce demand by almost 50
percent. Lower demand for VA care could reduce VA's operating costs by
shifting a portion of the costs of veterans' health care to employers or a new
universal insurance program.
Actions that reduce the number of uninsured veterans are also likely to create
excess capacity in existing facilities and reduce the need for new VA
construction. In recognition of this, the Congress and VA might want to
consider limiting construction of additional acute care capacity until the
reformed health care system takes shape. This would (1) free up funds for
deficit reduction without affecting current VA health care services, and (2)
prevent construction of facilities that could quickly lead to excess capacity.
VA currently spends about $500 million a year on construction and renovation
of health facilities.
Although many veterans would continue to seek treatment at VA facilities, the
magnitude of the likely decrease in demand for VA-sponsored care suggests that
plans for restructuring the VA health care system be developed as a part of a
national health care reform initiative. Restructuring could include:
-- maintaining a smaller direct delivery system strictly for veterans, but
focusing on those services, such as treatment of spinal cord injuries and
service-connected disabilities, which may not be adequately covered under a
reformed national health care system;
-- maintaining the current direct delivery system but opening the system to
other federal beneficiaries to maintain work loads;
-- converting some existing facilities to other uses such as long-term
psychiatric care, nursing home care, housing for homeless veterans, or AIDS
treatment facilities;
-- merging the VA system with one or more of the other federal health care
systems, such as that of the Department of Defense; or
-- eliminating the separate VA health care system and meeting the nation's
commitment to veterans by supplementing the coverage available under a
national health care reform initiative.
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RESTRUCTURING VETERANS' HEALTH CARE BENEFITS
Any restructuring of the VA system resulting from a reformed national health
care system would likely necessitate changes in VA eligibility and benefits.
VA would need to restructure (1) eligibility to better target resources to
veterans without other sources of care and (2) benefits to better serve
veterans with VA's limited resources.
The Secretary of Veterans Affairs took an important step in this direction
through appointment of a Commission on the Future Structure of Veterans Health
Care. The commission, in its November 1991 report, made several
recommendations for restructuring VA eligibility and benefits. Among other
things, the commission recommended reforming health care eligibility to remove
differences in eligibility for inpatient, outpatient, and long-term care and
providing service-connected and poor veterans with a full range of needed
health care services.
The commission's recommendations will likely be the subject of debate during
the next year as legislative proposals are submitted. Refocusing veterans'
health benefits to better serve those who need help the most and developing a
standard, easily understandable "benefit package" could enable the Department
to make better use of its available resources. VA's eligibility reform efforts
could also position the Department to adjust veterans' benefits, as needed, to
respond to a national health care reform initiative.
Another reform measure that could enable VA to serve more veterans with
available resources involves changing cost sharing. For example, states, more
than the federal government, are focusing on ways to serve more nursing home
patients with available resources by increasing cost sharing. Many states have
implemented or increased copayments for state veterans' home residents.
Similarly, many states have programs to recover a portion of their costs to
provide nursing home care to Medicaid recipients from the estates of the
recipients or their spouses. Application of such cost-sharing techniques to
VA's long-term care program could enable VA to provide services to more
veterans.
The federal deficit increases pressure to control entitlement expenditures. At
the same time, adequate benefits must be provided to veterans and their
survivors. The Congress and VA are considering ways to reform veterans'
eligibility for compensation and pension benefits and the level of benefits
available.
One such reform could be changing the definition of a service-connected
disability to require a direct causal link to military service. About 19
percent of veterans receiving VA disability compensation, under current law,
have disabilities resulting from diseases contracted during military service
that were neither caused nor aggravated by military service. Many of the
diseases were related to heredity or life-style rather than to military
service. We estimate that VA benefits paid for these types of disabling
diseases totaled about $1.7 billion in 1986. Limiting disability compensation
to those veterans whose disabilities were clearly caused by their military
service could enable the Congress to control entitlement expenditures without
penalizing veterans disabled because of their service.
