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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

April 2011: 

VA Health Care: 

Need for More Transparency in New Resource Allocation Process and for 
Written Policies on Monitoring Resources: 

GAO-11-426: 

GAO Highlights: 

Highlights of GAO-11-426, a report to congressional requesters. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

What GAO Recommends: 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-11-426] or key 
components. For more information, contact Randall B. Williamson at 
(202) 512-7114 or williamsonr@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

VA's New Allocation Process Uses a Standardized Model, but 
Transparency of Networks' Allocation Decisions Is Limited: 

VA Monitors Resources to Ensure Spending Does Not Exceed Allocations, 
but Lacks Written Policies Documenting Practices for Monitoring 
Resources: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Comments from the Department of Veterans Affairs: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Allocation of VA's Health Care Resources, Fiscal Year 2011: 

Figure 2: VA's New Process for Networks to Use in Determining 
Allocations to Medical Centers: 

Figure 3: Percentage of Network Adjustments to VA's Proposed Medical 
Center Allocation Amounts, Fiscal Year 2011: 

Abbreviations: 

VA: Department of Veterans Affairs: 

VERA: Veterans Equitable Resource Allocation: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 29, 2011: 

Congressional Requesters: 

The Department of Veterans Affairs (VA) received appropriations of 
about $48.2 billion for health care services for fiscal year 2011. 
[Footnote 1] 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).[Footnote 2] 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.[Footnote 3] 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. 
[Footnote 4] 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. 

Background: 

Appropriations for VA's health care services are made through three 
separate appropriations accounts: Medical Services, Medical Support 
and Compliance, and Medical Facilities.[Footnote 5] 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.[Footnote 6] 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. 

Allocation of General Purpose Resources from VA Headquarters to 
Networks: 

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.[Footnote 7] VA assesses its VERA model annually to 
determine any needed changes to the model, which may include 
incorporating new components. 

Allocation of General Purpose Resources from Networks to Medical 
Centers: 

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 figure 1.) Networks do not provide 
resources directly to medical centers; rather VA headquarters retains 
responsibility for providing these resources based on network 
allocation decisions. 

Figure 1: Allocation of VA's Health Care Resources, Fiscal Year 2011: 

[Refer to PDF for image: illustration] 

Congress: 
Health care appropriations: $48.2 billion[A]. 
to: 

VA: 
General purpose resources ($37.8 billion): 78% of appropriations: 
VERA[B]; to: 
Networks: Network allocation; to: 
Medical Centers. 

Specific purpose resources ($10.4 billion): 22% of appropriations: 
to: 
Networks: 
Medical Centers. 

Source: GAO, Art Explosion (medical centers image). 

[A] Appropriations for VA health care services are made through three 
separate appropriations accounts: Medical Services, Medical Support 
and Compliance, and Medical Facilities. 

[B] The Veterans Equitable Resource Allocation (VERA) system 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. 

[End of figure] 

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.[Footnote 8] 

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. 

VA's New Allocation Process Uses a Standardized Model, but 
Transparency of Networks' Allocation Decisions Is Limited: 

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;[Footnote 9] 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 figure 2.) 

Figure 2: VA's New Process for Networks to Use in Determining 
Allocations to Medical Centers: 

[Refer to PDF for image: illustration] 

Step 1: VA proposes medical center allocation amounts. 

Step 2: Networks review and can adjust proposed allocation amounts. 

Step 3: Networks report final medical center allocation amounts to VA 
headquarters. 

Source: GAO. 

[End of figure] 

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.[Footnote 10] 

* 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[Footnote 11]--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.[Footnote 12] 
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.[Footnote 13] 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,[Footnote 14] 122 
were adjusted from amounts proposed by the model--77 medical center 
allocations received an upward adjustment and 45 received a downward 
adjustment.[Footnote 15] The remaining 18 medical center allocations 
were not adjusted. (See figure 3 for networks' percentage adjustments 
to proposed allocations for medical centers.) 

Figure 3: Percentage of Network Adjustments to VA's Proposed Medical 
Center Allocation Amounts, Fiscal Year 2011: 

[Refer to PDF for image: vertical bar graph] 

Percentage adjustment: -13.99 to -10.0; 
Number of medical center allocations: 2. 

Percentage adjustment: -9.99 to -6.0; 
Number of medical center allocations: 4. 

Percentage adjustment: -5.99 to -2.0; 
Number of medical center allocations: 19. 

Percentage adjustment: -1.99 to 1.99; 
Number of medical center allocations: 60; 
Within this range, 18 of the 60 medical center allocations were not
adjusted (0.0), 20 received downward adjustments, and 22 received 
upward adjustments from amounts proposed in the model. The adjustments 
ranged from -13.9 to 34.2 percent. The average adjustment was 1.8 
percent. 

Percentage adjustment: 2.0 to 5.99; 
Number of medical center allocations: 33. 

Percentage adjustment: 6.0 to 9.99; 
Number of medical center allocations: 14. 

Percentage adjustment: 10.0 to 13.99; 
Number of medical center allocations: 3. 

Percentage adjustment: 14.0 to 17.99; 
Number of medical center allocations: 1. 

Percentage adjustment: 18.0 to 21.99; 
Number of medical center allocations: 1. 

Percentage adjustment: 22.0 to 25.99; 
Number of medical center allocations: 1. 

Percentage adjustment: 26.0 to 29.99; 
Number of medical center allocations: 1. 

Percentage adjustment: 30.0 to 33.99; 
Number of medical center allocations: 0. 

Percentage adjustment: 34.0 to 37.99; 
Number of medical center allocations: 1. 

Source: GAO analysis of VA data. 

Note: Because some medical centers in VA are combined, they receive a 
single allocation. Therefore, the 140 medical center allocations 
represented in this figure is less than the total number of medical 
centers--153--that VA operated in fiscal year 2011. 

[End of figure] 

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.[Footnote 16] 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. 
[Footnote 17] 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.[Footnote 18] 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. 

VA Monitors Resources to Ensure Spending Does Not Exceed Allocations, 
but Lacks Written Policies Documenting Practices for Monitoring 
Resources: 

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.[Footnote 19] 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.[Footnote 20] When medical 
centers want to spend some of their resources, they enter requests for 
the obligation of funds into the system.[Footnote 21] 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.[Footnote 22] 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.[Footnote 23] 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. 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments: 

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 [hyperlink, 
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. 

Signed by: 

Randall B. Williamson: 
Director, Health Care: 

List of Requesters: 

The Honorable Jeff Miller: 
Chairman: 
The Honorable Bob Filner: 
Ranking Member: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Jerry McNerney: 
Ranking Member: 
Subcommittee on Disability Assistance and Memorial Affairs: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Michael Michaud: 
Ranking Member: 
Subcommittee on Health: 
Committee on Veterans' Affairs: 
House of Representatives: 

The Honorable Joe Donnelly: 
Ranking Member: 
Subcommittee on Oversight and Investigations: 
Committee on Veterans' Affairs:
House of Representatives: 

The Honorable John Boozman: 
United States Senate: 

The Honorable Jerry Moran: 
United States Senate: 

The Honorable Brian P. Bilbray: 
House of Representatives: 

The Honorable Gus M. Bilirakis: 
House of Representatives: 

The Honorable Corrine Brown: 
House of Representatives: 

The Honorable Vern Buchanan: 
House of Representatives: 

The Honorable Doug Lamborn: 
House of Representatives: 

The Honorable David P. Roe: 
House of Representatives: 

The Honorable Cliff Stearns: 
House of Representatives: 

The Honorable Timothy J. Walz: 
House of Representatives: 

[End of section] 

Appendix I: Comments from the Department of Veterans Affairs: 

Department Of Veterans Affairs: 
Washington DC 20420: 

April 15, 2011: 

Mr. Randall B. Williamson: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC 20548: 

Dear Mr. Williamson: 

The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, VA Health Care: Need for 
More Transparency in New Resource Allocation Process and for Written 
Policies on Monitoring Resources (GA0-11-426) and generally agrees 
with GAO's conclusions and concurs with GAO's recommendations to the 
Department. 

The enclosure specifically addresses each of GAO's recommendations and 
provides comments on the draft report. VA appreciates the opportunity 
to comment on your draft report. 

Sincerely, 

Signed by: 

John R. Gingrich: 
Chief of Staff: 

Enclosure: 

[End of letter] 

Enclosure: 

Department of Veterans Affairs (VA) Comments to Government 
Accountability Office (GAO) Draft Report: VA Health Care: Need for 
More Transparency in New Resource Allocation Process and for Written 
Policies on Monitoring Resources (GA0-11-426). 

GAO recommendation: 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: 

Recommendation 1: Require networks to provide rationales for all 
adjustments made to the allocation amounts proposed by the model in 
VA's resource allocation process. 

VA response: Concur. Beginning with the fiscal year (FY) 2012 
allocation process, the Veterans Health Administration (VHA) Chief 
Finance Officer (CFO) will require Veterans Integrated Service Network 
(VISN) Directors to provide rationales for all adjustments to amounts 
provided to medical facilities from those amounts initially proposed 
by VHA's resource allocation model. 

Recommendation 2: Develop written policies, consistent with Federal 
internal control standards, to formalize existing practices for 
monitoring resources networks have allocated to medical centers. 

VA response: Concur. Beginning with the FY 2012 VHA budget execution 
cycle, VHA's CFO will provide written guidance consistent with Federal 
internal control standards to formalize existing practices for 
monitoring FY 2012 and future resources that VISNs allocate to medical 
centers. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Randall B. Williamson, (202) 512-7114 or williamsonr@gao.gov: 

Staff Acknowledgments: 

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. 

[End of section] 

Footnotes: 

[1] The Consolidated Appropriations Act, 2010, provided advance 
appropriations for fiscal year 2011 for VA health care services. See 
Pub. L. No. 111-117, div. E, tit. II, 123 Stat. 3034, 3298-3300 
(2009). Among other things, the Department of Defense and Full-Year 
Continuing Appropriations Act, 2011, rescinded 0.2 percent of the 
amount provided as advance appropriations. See Pub. L. No. 112-10, 
div. B, tit. I, § 1119, 125 Stat. 38 (2011). 

[2] VA allocates the remaining resources to networks and medical 
centers outside of the VERA system for such things as prosthetics and 
sets aside resources so that they are available for contingencies that 
may arise during the year. 

[3] Medical centers typically include one or more hospitals as well as 
other types of health care facilities such as outpatient clinics and 
nursing homes. 

[4] GAO, Internal Control: Standards for Internal Control in the 
Federal Government, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1] (Washington, D.C.: 
November 1999). 

[5] In addition, VA receives appropriations for information 
technology, medical and prosthetic research, and construction, which 
support the delivery of health care services. 

[6] In addition, medical centers may receive resources from third-
party collections, such as insurance companies, and from veterans' 
copayments for services and prescription drugs. VA credits these sums 
to a collections fund and may transfer them to its Medical Services 
account, from which they are provided to medical centers. See 38 
U.S.C. § 1729A; Pub. L. No. 112-10, div. B, tit. I, § 1101(a) (6), 125 
Stat. 38 (2011); Pub. L. No. 111-117, § 215, 123 Stat. 3034, 3305 
(2009). 

[7] GAO, VA Health Care: Resource Allocation Has Improved, but Better 
Oversight Needed, [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-97-178] (Washington, D.C.: 
September 1997). GAO, VA Health Care: More Veterans Are Being Served, 
but Better Oversight Is Needed, [hyperlink, 
http://www.gao.gov/products/GAO/HEHS-98-226] (Washington, D.C.: August 
1998). GAO, VA Health Care: Allocation Changes Would Better Align 
Resources with Workload, [hyperlink, 
http://www.gao.gov/products/GAO-02-338] (Washington, D.C.: February 
2002). 

[8] The guidance also stated that network allocation systems must 
support high quality health-care delivery in the most appropriate 
setting; support integrated patient-centered operations; provide 
incentives to ensure continued delivery of appropriate complex care; 
provide adequate support for VA's research and education missions; be 
consistent with eligibility requirements and priorities; be consistent 
with the network's strategic plans and initiatives; promote managerial 
flexibility and innovation; and encourage increases in alternative 
revenue collections. Department of Veterans Affairs, Veterans 
Equitable Resource Allocation 2010, VERA 10 Includes all Veteran 
Users: Equitable Funding Across 21 Health Care Networks, pg. 109. 
(Washington, D.C.: May 2010). 

[9] In the spring of 2010, VA formed an internal workgroup to 
recommend options for a new standardized network allocation process. 
The workgroup recommended a standardized allocation model, which VA 
adopted for use in fiscal year 2011. The workgroup was comprised of 
officials from VA headquarters, networks, and medical centers. 

[10] Another component of the new model relates to capital resources, 
such as those for medical center equipment and maintenance costs. As 
in prior years, these resources are allocated at the network's 
discretion. 

[11] VA provides networks with an additional allocation for patients 
whose annual costs exceed a certain threshold. In fiscal year 2011, VA 
set this threshold at $107,000. 

[12] Patient weighted work is determined using facility workload 
(FacWork) as a base measure. FacWork measures workload by taking into 
account the range of resources required to care for different classes 
of patients, as determined by age and case-mix. Patient weighted work 
accounts for additional factors including high cost procedures; 
geographic cost differences between medical centers; and the 
complexity of medical centers as measured by the size of their patient 
population, the complexity of medical services provided, and the 
extent to which they have research and education programs, among other 
factors. 

[13] Network adjustments to proposed allocation amounts for medical 
centers cannot increase or decrease the network's total allocation for 
the fiscal year. 

[14] Because some medical centers in VA are combined, they receive a 
single allocation. Therefore, the number of medical center allocations 
is less than the total number of medical centers--153--that VA 
operated in fiscal year 2011. 

[15] Regardless of adjustments from the amounts proposed in the model, 
in fiscal year 2011, 132 out of 140 medical center allocations 
represented an increase from the prior year's allocation. 

[16] This clinic is an independent outpatient clinic that receives 
resources in the same manner as medical centers. 

[17] In addition to the general purpose resources allocated through 
the model, VA allocated specific purpose resources to this medical 
center to meet its resource needs. 

[18] For fiscal year 2011, VA's list of acceptable rationales included 
adjustments to account for staffing realignments, significant revenue 
changes, providing care in rural areas, and the impact of the new 
model. VA officials told us that if networks wanted to make an 
adjustment for a rationale not included in the list, they would need 
to obtain approval from VA headquarters. 

[19] The Antideficiency Act prohibits federal agencies from making 
obligations or expenditures in excess of the appropriations available, 
among other things. See 31 U.S.C. § 1341(a)(l). 

[20] VA headquarters makes resources available to its networks on a 
quarterly basis, for use by medical centers; as such, the network's 
total allocation for the fiscal year is not available at the beginning 
of the fiscal year. 

[21] An obligation is a definite commitment that creates a legal 
liability for the payment of goods and services ordered or received. 
An agency incurs an obligation, for example, when it awards a contract. 

[22] VA headquarters officials told us they use a red/yellow/green 
color-coding system in their reviews of network spending. In this 
system, networks are coded as red if their spending is different from 
their operating plans, with a major impact on operations. Networks are 
coded as yellow if their spending is different from their operating 
plans, but with a minor impact on operations. Networks are coded as 
green if their spending is on target with their operating plans. 

[23] [hyperlink, http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[End of section] 

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