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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

April 2004:

VA Health Care:

Resource Allocations to Medical Centers in the Mid South Healthcare 
Network:

GAO-04-444:

GAO Highlights:

Highlights of GAO-04-444, a report to congressional requesters 

Why GAO Did This Study:

Since fiscal year 1997, the Department of Veterans Affairs (VA) has 
relied primarily on its 21 health care networks to allocate resources 
to its medical centers. VA headquarters also directly allocates some 
resources to the medical centers. In addition, medical centers collect 
resources from third-party insurance payments and other sources.

VA provides general guidance to networks for resource allocation to 
medical centers, but permits variation in networks’ allocation 
methodologies. Representatives from veterans groups and others have 
expressed concerns regarding resource allocations to medical centers in 
Network 9 (Nashville) known as the Mid South Healthcare Network.

GAO was asked to report for fiscal year 2002 (1) the amount of 
resources medical centers in the network received and the source of 
those resources and (2) the basis on which medical centers in the 
network received these resources. GAO was also asked to supplement 
findings for fiscal year 2002 with information for fiscal years 1997 
through 2003.

What GAO Found:

The six medical centers in Network 9 (Nashville), known as the Mid 
South Healthcare Network, received a total of about $1 billion in 
resources in fiscal year 2002. The network allocated 83 percent of the 
total, or $825 million, to its medical centers. The medical centers 
received smaller amounts from VA headquarters (9 percent of the total 
or about $93 million) and resources from collections (7 percent of the 
total or about $73 million). As in fiscal year 2002, the network 
allocated more than 80 percent of medical center resources each year 
from fiscal years 1997 through fiscal year 2003.

Medical centers in Network 9 (Nashville) received about 77 percent of 
their resources, or $760 million, in fiscal year 2002 based on fixed-
per-patient amounts, referred to as fixed-capitation amounts, for 
patient workload and case mix. Patient workload is the number of 
patients treated, and case mix is a classification of patients into 
categories based on health care needs and related costs. The largest 
portion of these resources allocated on this basis came from the 
network while a smaller portion came from VA headquarters. Medical 
centers in the network received about 23 percent of their total 
resources, or $232 million, in fiscal year 2002 based on a variety of 
other factors such as network managers’ determination of the financial 
needs of medical centers during the course of the year. These resources 
came from the network, VA headquarters, and collections. Since VA 
changed its resource allocation system in fiscal year 1997, the medical 
centers in the network received about the same portions of their 
resources based on fixed-capitation amounts and on a variety of other 
factors each year from fiscal years 1997 through 2003.

VA agreed with GAO’s findings.

Percentage, Amounts, and Basis of Approximately $1 Billion In Resources 
Received by Medical Centers in Network 9 (Nashville), Fiscal Year 2002: 

[See PDF for image]

[End of section] 

www.gao.gov/cgi-bin/getrpt?GAO-04-444.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Cynthia A. Bascetta at 
(202) 512-7101.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Medical Centers in Network 9 (Nashville) Received About $1 Billion in 
Fiscal Year 2002 from the Network and Other Sources:

Medical Centers in Network 9 (Nashville) Received Most of Their 
Resources Based on Allocations Using Fixed-Capitation Amounts for 
Patient Workload and Case Mix:

Expenditures Made by the Network 9 (Nashville) Office Increased by 
Approximately $22 Million Since Fiscal Year 1997:

Agency Comments:

Appendix I: Objectives, Scope, and Methodology:

Appendix II: Staffing Resources Available at the Tennessee Valley 
Healthcare System's Nashville and Murfreesboro Locations:

Appendix III: Network 9 (Nashville) Office Staff and Their 
Responsibilities, Fiscal Years 1997 through 2002:

Appendix IV: Comments from the Department of Veterans Affairs:

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Related GAO Products:

Tables:

Table 1: Network 9 (Nashville) Medical Centers, Patients, and Staff, 
Fiscal Year 2002:

Table 2: Resources Provided to Network 9 (Nashville) Medical Centers in 
Fiscal Year 2002, by Source:

Table 3: Allocations to Medical Centers from the Network 9 (Nashville) 
Reserve Fund, Fiscal Year 2002:

Table 4: Expenditures Made by the Network 9 (Nashville) Office, Fiscal 
Year 2002:

Table 5: Number of Network 9 (Nashville) Office Staff Positions, Fiscal 
Years 1997 through 2002:

Table 6: Largest Administrative and Medical Center Support Staff 
Decreases at Nashville and Murfreesboro, Fiscal Year 2000 to Fiscal 
Year 2002:

Table 7: Largest Changes in Patient Care Staff at Nashville and 
Murfreesboro Locations, Fiscal Year 2000 to Fiscal Year 2002:

Table 8: Tennessee Valley Healthcare System's Patients and Patient Care 
Staff, Fiscal Year 2000 and Fiscal Year 2002:

Table 9: Other Staff Located at Murfreesboro, Fiscal Year 2002:

Table 10: Position Titles and Responsibilities for Network 9 
(Nashville) Office Positions, Fiscal Years 1997 through 2002:

Figures:

Figure 1: Percentage and Amounts of Approximately $1 Billion in 
Resources Medical Centers Received Based on Fixed-Capitation Amounts 
for Patient Workload and Case Mix, Fiscal Year 2002:

Figure 2: Percentage and Amounts of Approximately $1 Billion in 
Resources Medical Centers Received Based on a Variety of Factors Other 
Than Fixed-Capitation Amounts for Patient Workload and Case Mix, Fiscal 
Year 2002:

Figure 3: Number of Staff at Nashville and Murfreesboro Locations, 
Fiscal Year 2000 and Fiscal Year 2002:

Figure 4: Number of Administrative and Medical Center Support Staff at 
Nashville and Murfreesboro Locations, Fiscal Year 2000 and Fiscal Year 
2002:

Figure 5: Number of Patient Care Staff at Nashville and Murfreesboro 
Locations, Fiscal Year 2000 and Fiscal Year 2002:

Abbreviations:

CMOP: Consolidated Mail Outpatient Pharmacy: 
DODDepartment of Defense:  
DRG: diagnostic related group:  
DSS: Decision Support System:  
ELC: Executive Leadership Council:  
FTEE: full time equivalent employees: 
MCAC: Mid South Customer Accounts Center: 
PTSD: post-traumatic stress disorder: 
TVHS: Tennessee Valley Healthcare System: 
VA: Department of Veterans Affairs: 
VERA: Veterans Equitable Resource Allocation: 
VHA: Veterans Health Administration:

United States General Accounting Office:

Washington, DC 20548:

April 21, 2004:

The Honorable Bart Gordon: 
House of Representatives:
 
The Honorable Jim Cooper: 
House of Representatives:

The Department of Veterans Affairs (VA) has changed the way it 
allocates resources to its medical centers[Footnote 1] in recent years. 
Since fiscal year 1997, VA has moved from a centralized allocation 
system--in which VA headquarters allocated resources directly to VA 
medical centers--to a more decentralized system in which VA 
headquarters allocates most of its resources to VA's 21 health care 
networks. The networks then allocate these resources to their 
respective medical centers. VA headquarters also directly allocates 
some additional resources to the medical centers. In addition, medical 
centers collect resources from third-party insurance payments and other 
sources. While implementing this new resource allocation process, VA 
increased the number of patients it treated from 3.1 million to 4.7 
million from fiscal years 1997 through 2002 and received annual 
appropriations for medical care programs that increased from $17 
billion to $21 billion.

We and others have examined how VA uses the Veterans Equitable Resource 
Allocation (VERA) system to allocate resources to the 
networks.[Footnote 2] VERA is a national, formula-driven approach that 
VA uses to allocate most of its resources to networks based primarily 
on two factors that experts generally recognize as key principles of 
health care resource allocation--patient workload and case mix. Patient 
workload is the number of veterans treated. Case mix is a 
classification of patients into categories based on their health care 
needs and related costs. Using workload and case-mix data, VERA 
allocates a fixed amount of resources for each veteran in a case-mix 
category. These amounts are often referred to as capitation. By 
contrast, VA does not require that networks use a formula-driven 
approach, like VERA, to allocate resources to medical centers. Instead, 
VA provides general guidance to networks for allocating resources to 
medical centers that permits variation in the network allocation 
methodologies to take into account varying local conditions.

Representatives from veterans groups and others in Network 9 
(Nashville), also known as the Mid South Healthcare Network, have 
expressed concerns about the allocation of resources to the medical 
centers in Network 9 (Nashville). These concerns have focused on the 
total amount of resources allocated to the network's largest medical 
center, the Tennessee Valley Healthcare System (TVHS), which is located 
in Nashville and Murfreesboro; the basis on which medical centers in 
the network receive their resources; and to what extent network office 
expenditures have increased in recent years.

You asked us to determine for fiscal year 2002 (1) the amount of 
resources medical centers in the network received and the source of 
those resources, (2) the basis on which medical centers in the network 
received these resources, and (3) the extent to which network office 
expenditures were greater than in fiscal year 1997 and the primary 
reasons accounting for any increase. To place this information in 
context, you asked us to supplement our findings for fiscal year 2002, 
the most recent year for which complete data were available at the time 
of our analysis, with information for fiscal years 1997 through 2003.

To determine the amount of resources medical centers in the network 
received and the sources of those resources in fiscal year 2002, we 
categorized information in VA and Network 9 (Nashville) financial 
reports on resources available to medical centers by the source of 
those resources: Network 9 (Nashville), VA headquarters, and 
collections. Because resources for the TVHS medical center and the 
Network 9 (Nashville) office are combined in the same financial 
accounts, we used financial reports maintained by TVHS to separate out 
financial information for the TVHS medical center. We developed 
estimates on similar information for fiscal years 1997 through 2001 and 
2003 based on these and other data. To determine the basis on which 
medical centers in the network received resources in fiscal year 2002, 
we obtained and analyzed documents that described the allocation 
methodology used by the network and VA headquarters. We relied on VA 
data, interviews with VA officials, and on our prior work to calculate 
the extent of allocations based on fixed-capitation amounts for patient 
workload and case mix. We developed estimates on similar information 
for fiscal years 1997 through 2001 and 2003 based on these and other 
data. We limited our review to how resources were allocated to medical 
centers and did not analyze how medical centers in the network spent 
their allocations to deliver health care. To examine the extent to 
which network office expenditures were greater than in fiscal year 
1997, we used financial reports maintained by TVHS to separate out 
financial information for the network office from the TVHS medical 
center resources and other data we obtained from the network office. We 
used these data to analyze changes in network staffing and other 
network office functions from fiscal years 1997 through 2002. We also 
interviewed network and VA headquarters officials about the roles and 
responsibilities of network office staff. To better understand the 
issues of concern for all three objectives, we conducted a site visit 
to interview officials at the network office located in Nashville and 
at the TVHS locations in Nashville and Murfreesboro. In doing our work, 
we tested the reliability of the data and determined they were adequate 
for our purposes. For a complete description of our scope and 
methodology, see appendix I. We conducted our work from March 2003 
through April 2004 in accordance with generally accepted government 
auditing standards.

Results in Brief:

The six medical centers in Network 9 (Nashville) received a total of 
about $1 billion in resources in fiscal year 2002. These resources came 
from three sources: the network, VA headquarters, and resources 
collected by the medical centers. The network allocated the largest 
amountæ83 percent of the total or $825 millionæto its medical centers. 
VA headquarters allocated the next largest amount--9 percent of the 
total or approximately $93 millionædirectly to medical centers in 
Network 9 (Nashville). In addition to these allocations, the medical 
centers collected other resources--7 percent of the total or about $73 
million--from third-party insurance payments, copayments, and 
reimbursements for services provided to non-VA health care providers. 
The combined resources from the network, VA headquarters, and resources 
from collections for each medical center ranged from about $93 million 
for the Huntington medical center to about $291 million for TVHS. 
Medical centers in the network have relied on the network to provide 
most of their resources since VA changed its resource allocation system 
in fiscal year 1997. From fiscal year 1997 through fiscal year 2003, 
Network 9 (Nashville) allocated more than 80 percent of medical center 
resources each year.

Medical centers in Network 9 (Nashville) received about 77 percent of 
their resources, or $760 million, in fiscal year 2002 based on fixed-
capitation amounts for patient workload and case mix. The network 
allocated a large portion of these resources, about $742 million, to 
its medical centers on this basis. To allocate these resources, the 
network classified its patient workload into three categories based on 
case mix, which resulted in medical centers receiving higher fixed-
capitation amounts for patients with greater health care needs. VA 
headquarters also allocated about $19 million in resources directly to 
medical centers based on fixed-capitation amounts for patient workload 
and case mix. In addition to these resources, medical centers received 
about 23 percent of their resources, or $232 million, based on a 
variety of factors other than fixed-capitation amounts for patient 
workload and case mix. Of these $232 million in resources, $84 million 
came from Network 9 (Nashville), $75 million came from VA headquarters, 
and $73 million came from collections. For example, the network 
allocated about $33 million from its network reserve fund for 
unexpected contingencies based on network managers' determination of 
the financial needs of medical centers during the course of the year. 
Since VA changed its resource allocation system in fiscal year 1997, 
medical centers in Network 9 (Nashville) received about three-quarters 
of their resources based on fixed-capitation amounts and about one-
quarter based on a variety of other factors each year from fiscal years 
1997 through 2003.

Expenditures made by the network office increased from about $1 million 
to about $23 million from fiscal years 1997 through 2002, driven 
largely by spending for the consolidation of information technology and 
for staffing expenditures. Network office expenditures for information 
technology increased, in part, because the network assumed the costs of 
contracts the medical centers had previously paid for software licenses 
and information technology services. These expenditures represented 
$9.6 million or approximately 41 percent of total network office 
expenditures in fiscal year 2002. Expenditures for network office staff 
increased primarily because the network consolidated positions formerly 
located at the medical centers to a central location and added 
positions to handle an increased volume of insurance collections. The 
network consolidated its collections operations at Murfreesboro, 
Tennessee to increase the efficiency of collection operations. In 
addition to collections staff positions, the network increased the 
number of other network staff to improve network operations. Total 
network office staff expenditures accounted for $8 million of the 
network office's total expenditures in fiscal year 2002--$5 million for 
collections staff and $3 million for other network office staff.

In commenting on a draft of this report, VA agreed with our findings.

Background:

Network 9 (Nashville) is composed of a network office in Nashville, 
Tennessee; six medical centers located in three states; and 27 
community-based outpatient clinics. In fiscal year 2002, about 1 
million veterans lived in the area served by the network. In that year, 
the six medical centers in the network treated about 208,000 patients 
or 20 percent of the veterans who lived in the area served by the 
network. (See table 1.) The largest medical center in the network is 
TVHS, which has two main locations--one in Nashville and the other in 
Murfreesboro, Tennessee. TVHS served more than twice as many patients 
and had more than three times the number of employees as the smallest 
medical center in the network in fiscal year 2002. For more detailed 
information on staff resources at TVHS's two locations, which were 
integrated to form TVHS in fiscal year 2001, see appendix II.

Table 1: Network 9 (Nashville) Medical Centers, Patients, and Staff, 
Fiscal Year 2002:

Medical center: Tennessee Valley Healthcare System (TVHS), Tenn; 
Patients[A]: 61,120; 
Inpatients treated[B]: 9,490; 
Outpatient visits[B]: 463,578; 
Staff (full-time employees): 2,321.

Medical center: Memphis, Tenn; 
Patients[A]: 35,440; 
Inpatients treated[B]: 7,559; 
Outpatient visits[B]: 294,373; 
Staff (full-time employees): 1,723.

Medical center: Louisville, Ky; 
Patients[A]: 31,281; 
Inpatients treated[B]: 4,800; 
Outpatient visits[B]: 317,863; 
Staff (full-time employees): 1,121.

Medical center: Mountain Home, Tenn; 
Patients[A]: 28,187; 
Inpatients treated[B]: 5,401; 
Outpatient visits[B]: 247,170; 
Staff (full-time employees): 1,288.

Medical center: Lexington, Ky; 
Patients[A]: 26,963; 
Inpatients treated[B]: 5,391; 
Outpatient visits[B]: 267,327; 
Staff (full-time employees): 1,245.

Medical center: Huntington, W. Va; 
Patients[A]: 25,378; 
Inpatients treated[B]: 3,570; 
Outpatient visits[B]: 252,887; 
Staff (full-time employees): 697.

Medical center: Total; 
Patients[A]: 208,369; 
Inpatients treated[B]: 36,211; 
Outpatient visits[B]: 1,843,198; 
Staff (full-time employees): 8,395. 

Source: VA.

[A] The number of patients using health care services as counted by 
unique or unduplicated social security numbers. Each patient is counted 
one time, regardless of how many visits each patient makes.

[B] The number of inpatients treated and the number of outpatient 
visits are not based on unique or unduplicated social security numbers.

[End of table]

Network 9 (Nashville) has received increased allocations each year 
under VERA to provide resources for medical centers to treat their 
growing patient workload. From fiscal year 1997 to fiscal year 2002, 
the number of patients medical centers in the network treated increased 
by 27 percent. To meet patient health care needs, the network received 
$700 million in resources from VERA in fiscal year 1997, and by fiscal 
year 2002 the network's allocations from VERA had risen to $849 
million--a 21 percent increase. The network has been responsible for 
developing a method to allocate these VERA resources to its medical 
centers. VA headquarters provides general guidance to networks on the 
principles they should use when developing their allocation 
methodologies, but does not require that networks use patient workload 
or case mix in their allocation methodologies.[Footnote 3]

Using fixed-capitation amounts for patient workload and case mix are 
guiding principles recognized by experts on the design of health care 
payment systems and implemented in practice by major health care 
programs such as Medicare and Medicaid.[Footnote 4] Medicare and 
Medicaid, for example, use fixed-capitation amounts to provide managed 
care plans with an incentive to operate efficiently by placing them at 
risk if their expenses exceed the payment amount. Our report on VERA in 
February 2002 also concluded that VERA provides a reasonable approach 
to resource allocation, in part because VERA allocates resources to the 
networks based primarily on the use of fixed-capitation amounts for 
patient workload and case mix.[Footnote 5] VERA provides fixed-
capitation amounts for each case-mix category that are the same for 
each network and are intended to reflect VA's average costs instead of 
historical local costs.

In addition to resources that VA allocates to its medical centers from 
the network and headquarters, medical centers also collect other 
resources that they use in providing health care to veterans. VA 
medical centers collect third-party insurance payments and copayments 
from veterans.[Footnote 6] VA collects insurance payments for treatment 
of veterans' conditions that are not a result of injuries or illnesses 
incurred or aggravated during military service. In addition, some 
veterans are charged copayments for certain health care services and 
prescription drugs obtained at a VA pharmacy. VA medical centers also 
collect resources for a variety of services VA provides to non-VA 
health care providers such as hospital laundry services and outpatient 
care provided to Department of Defense active duty military personnel.

Medical Centers in Network 9 (Nashville) Received About $1 Billion in 
Fiscal Year 2002 from the Network and Other Sources:

The six medical centers in Network 9 (Nashville) received about $1 
billion in fiscal year 2002 from three sources: the network, VA 
headquarters, and resources from collections. (See table 2.) The 
network allocated the largest share of this total--83 percent or about 
$825 million of the total resources received by the six medical 
centers. VA headquarters allocated directly to the medical centers the 
next largest share, which was about 9 percent or $93 million of the 
total resources the network's medical centers received. Finally, the 
six medical centers also collected about 7 percent of the total 
resources medical centers received or $73 million in resources from 
collections of third-party insurance payments, veteran copayments, and 
reimbursements primarily for services provided to non-VA healthcare 
providers.

Table 2: Resources Provided to Network 9 (Nashville) Medical Centers in 
Fiscal Year 2002, by Source:

Medical center: Tennessee Valley Healthcare System (TVHS), Tenn; 
Total resources: $291; 
Resources provided by network (percent of total medical center 
resources): $240 (82%); 
Resources provided by VA headquarters (percent of total medical center 
resources): $33 (11%); 
Resources from collections (percent of total medical center 
resources): $18 (6%).

Medical center: Memphis, Tenn; 
Total resources: 185; 
Resources provided by network (percent of total medical center 
resources): 156 (84%); 
Resources provided by VA headquarters (percent of total medical center 
resources): 17 (9%); 
Resources from collections (percent of total medical center 
resources): 12 (6%).

Medical center: Louisville, Ky; 
Total resources: 143; 
Resources provided by network (percent of total medical center 
resources): 117 (82%); 
Resources provided by VA headquarters (percent of total medical center 
resources): 11 (8%); 
Resources from collections (percent of total medical center 
resources): 14 (10%).

Medical center: Lexington, Ky; 
Total resources: 141; 
Resources provided by network (percent of total medical center 
resources): 116 (82%); 
Resources provided by VA headquarters (percent of total medical center 
resources): 15 (11%); 
Resources from collections (percent of total medical center 
resources): 10 (7%).

Medical center: Mountain Home, Tenn; 
Total resources: 139; 
Resources provided by network (percent of total medical center 
resources): 119 (86%); 
Resources provided by VA headquarters (percent of total medical center 
resources): 8 (6%); 
Resources from collections (percent of total medical center 
resources): 12 (8%).

Medical center: Huntington, W. Va; 
Total resources: 93; 
Resources provided by network (percent of total medical center 
resources): 78 (83%); 
Resources provided by VA headquarters (percent of total medical center 
resources): 8 (9%); 
Resources from collections (percent of total medical center 
resources): 7 (8%).

Medical center: All medical centers; 
Total resources: $992; 
Resources provided by network (percent of total medical center 
resources): $825 (83%); 
Resources provided by VA headquarters (percent of total medical center 
resources): $93 (9%); 
Resources from collections (percent of total medical center 
resources): $73 (7%). 

Source: GAO analysis of VA data.

Notes: Includes about $15.6 million from the fiscal year 2001 VERA 
allocation that the network allocated to the medical centers in fiscal 
year 2002. Dollar amounts and percents may not add due to rounding.

[End of table]

The amount of resources that the network, VA headquarters, and 
resources from collections provided, in total, to each medical center 
in fiscal year 2002 ranged from about $93 million for Huntington to 
about $291 million for TVHS. The network provided the largest portion 
of each medical center's total resources in fiscal year 2002. Network 
allocations as a percentage of total medical center resources ranged 
from 82 percent at TVHS and two other medical centers to 86 percent at 
Mountain Home. TVHS and Lexington received the highest percentage of 
resources directly from VA headquarters (11 percent), and TVHS and 
Memphis received the lowest percentage of resources from collections (6 
percent).

The percentage of resources that medical centers in the network 
received in fiscal year 2002 from the three sources varied because of 
several factors. For instance, TVHS received a lower percentage of its 
resources from the network than three other medical centers, in part, 
because it received a larger percentage of its resources from VA 
headquarters than most medical centers in the network. The larger 
allocation from VA headquarters was used, in part, for the TVHS 
transplant program, the only one of its kind in the network. Louisville 
also received a lower percentage of its resources from the network than 
three other medical centers, in part, because the medical center 
received a higher percentage of its total resources from collections 
than any other network medical center. This resulted from agreements 
the medical center had--and resources it collected--for the delivery of 
outpatient and family practice care to active duty military personnel 
and their dependents at Ft. Knox, Kentucky.

Medical centers in the network have relied on the network to provide 
most of their resources since VA changed its resource allocation system 
in fiscal year 1997. From fiscal year 1997 through fiscal year 2003, 
Network 9 (Nashville) allocated more than 80 percent of medical center 
resources each year. We estimate that on average the network provided 
87 percent of the resources medical centers received during this 
period.

Medical Centers in Network 9 (Nashville) Received Most of Their 
Resources Based on Allocations Using Fixed-Capitation Amounts for 
Patient Workload and Case Mix:

Medical centers in Network 9 (Nashville) received most of their 
resources in fiscal year 2002 based on allocations using fixed-
capitation amounts for patient workload and case mix. A large portion 
of the resources allocated on the basis of fixed-capitation amounts for 
patient workload and case mix came from the network and a smaller 
portion came from VA headquarters. The other resources that medical 
centers received in fiscal year 2002 were based on a variety of other 
factors such as network managers' determination of the financial needs 
of medical centers during the course of the year. These resources came 
from the network, VA headquarters, and collections. Since VA changed 
its resource allocation system in fiscal year 1997, medical centers in 
Network 9 (Nashville) received about three-quarters of their resources 
based on fixed-capitation amounts and about one-quarter based on other 
factors each year from fiscal years 1997 through 2003.

Medical Centers Received About Three-Quarters of Their Resources from 
Allocations Based on Fixed-Capitation Amounts for Patient Workload and 
Case Mix:

Medical centers received about 77 percent of their approximately $1 
billion in total resources in fiscal year 2002--or $760 million--based 
on allocations using fixed-capitation amounts for patient workload and 
case mix. (See fig. 1.) The $760 million allocated on the basis of 
fixed-capitation amounts for patient workload and case mix came 
primarily from the network. The network allocated $742 million to 
medical centers on this basis. VA headquarters allocated the remainder 
of the resources based on fixed-capitation amounts for patient workload 
and case mix--$19 million--directly to medical centers in Network 9 
(Nashville). The portion of medical center resources based on fixed-
capitation amounts for patient workload and case mix was similar in 
other years. For each of fiscal years 1997 through 2003, we estimated 
that medical centers received about three-quarters of their resources 
based on fixed-capitation amounts for patient workload and case mix.

Figure 1: Percentage and Amounts of Approximately $1 Billion in 
Resources Medical Centers Received Based on Fixed-Capitation Amounts 
for Patient Workload and Case Mix, Fiscal Year 2002:

[See PDF for image]

Note: Dollar amounts do not add due to rounding.

[End of figure]

Network 9 (Nashville) Allocated Largest Portion of Resources Based on 
Fixed-Capitation Amounts for Patient Workload and Case Mix in Fiscal 
Year 2002:

The network allocated the largest portion of medical centers' 
resources--$742 million--based on fixed-capitation amounts for patient 
workload and case mix in fiscal year 2002. To calculate its patient 
workload, the network, like VERA, used two methods. The network 
calculated the number of patients who received a relatively limited 
amount of health care during a previous 3-year period, and calculated 
the number of patients who received relatively more care during a 
previous 5-year period. In its workload calculation for this 3-year 
period, the network's resource allocation methodology, like VERA, 
excluded a group of veterans, known as Priority 7 veterans,[Footnote 7] 
but included them in its 5-year workload calculation.[Footnote 8] The 
network made an exception in the way it calculated 3-year workload for 
a one-time $5 million allocation, its share of a supplemental 
appropriation VA received in fiscal year 2002. For this allocation the 
network included all Priority 7 veterans in its workload calculation.

To calculate case mix in fiscal year 2002, the network classified 
patient workload into different categories, depending upon estimates of 
the patients' health care needs and associated costs for treating them. 
The network, like VERA, used three case-mix categories: basic non-
vested, basic vested, and complex.[Footnote 9] Basic non-vested and 
basic-vested categories included patients who have relatively routine 
health care needs and are principally cared for in an outpatient 
setting. Basic non-vested patients receive only part of their care 
through VA and are less costly to VA than basic-vested patients. Basic-
vested patients, by contrast, rely primarily on VA for meeting their 
health care needs. Patients in the basic non-vested and basic-vested 
category represented about 97 percent of the network's patient workload 
in that year. The complex category included patients who generally 
required significant high-cost inpatient care as an integral part of 
their rehabilitation or functional maintenance, and represented about 3 
percent of the network's workload in that year. For patients in each 
case-mix category, the network paid medical centers a capitation rate, 
which is based on the average cost of care in VA for a patient in that 
category. The capitation rates that the network used for each of these 
categories were the same as those used in VERA: basic non-vested 
($197), basic vested ($3,121), and complex ($41,667). The network also 
allocated about $9 million to medical centers based on other patient 
case-mix categories.[Footnote 10]

Medical centers in Network 9 (Nashville) with larger patient workloads 
generally received more resources than medical centers with smaller 
patient workloads. In fiscal year 2002, for example, TVHS had the 
largest patient workload and received the most resources. However, if 
two medical centers had similar patient workloads but the two had 
differences in the case mix of their patients, one may have received 
more resources than the other. For example, Mountain Home and 
Huntington medical centers had almost identical patient workloads in 
fiscal year 2002, but Mountain Home received a larger allocation from 
the network ($119 million) than Huntington ($78 million), in part, 
because of an important difference in their respective patients' case 
mix. Mountain Home had more patients whose health care needs required 
more expensive care as indicated by the number of complex care 
patients. In that year, Mountain Home had almost 1,200 complex patients 
compared to 400 complex patients in Huntington.

VA Headquarters Allocated a Small Portion of Resources Based on Fixed-
Capitation Amounts for Patient Workload and Case Mix in Fiscal Year 
2002:

VA headquarters allocated the remainder of resources that medical 
centers received based on fixed-capitation amounts for patient workload 
and case mix in fiscal year 2002, which was about $19 million. The 
largest resource allocation VA headquarters made to medical centers in 
Network 9 (Nashville) on this basis--$13 million--was to pay a portion 
of the costs for veterans receiving care in state veterans' nursing 
homes, which are operated in several locations in Network 9 
(Nashville), including Murfreesboro, Tennessee and Hazard, 
Kentucky.[Footnote 11] VA paid the same amount for veterans receiving 
this service, about $53 per day per veteran, without adjusting for 
differences in veterans' health care needs. The second largest resource 
allocation VA headquarters made to medical centers in Network 9 
(Nashville) based on fixed-capitation amounts for patient workload and 
case mix in fiscal year 2002 was about $5 million for its transplant 
program.[Footnote 12] VA headquarters allocated these resources based 
on the number of patients needing transplants and the type of 
transplant needed: kidney, liver, heart, and bone marrow transplants. 
The capitation amounts for transplants ranged from $50,000 to $138,000 
in fiscal year 2002. TVHS received all the VA headquarters transplant 
resource allocation in Network 9 (Nashville) because it is the only 
medical center in the network performing transplants. VA also allocated 
about $1 million to medical centers through a per diem rate per veteran 
to support housing programs for homeless veterans operated by nonprofit 
community-based organizations.

Network 9 (Nashville) Changed Its Patient Workload and Case-Mix 
Measures During the Fiscal Year 1997-2003 Period:

Network 9 (Nashville) changed how it determined patient workload in 
fiscal year 2003 to allocate resources to its medical centers. For that 
year, the network calculated patient workload based on a 1-year period-
-or the total number of patients who used network medical centers in 
fiscal year 2002. In addition, the network included all veterans, 
including Priority 7 and 8 veterans, in its patient workload. According 
to a network official, the network made these changes in determining 
patient workload to better account for the costs involved in treating 
its patients. By contrast, in fiscal years 1997 through 2002, the 
network determined workload based on the same measures that VERA used 
by calculating the number of patients who received a relatively limited 
amount of health care during a previous 3-year period, and calculating 
the number of patients who received relatively more care during a 
previous 5-year period. And like VERA, the network also generally 
excluded Priority 7 veterans from its 3-year workload calculation but 
included them in its 5-year calculation from fiscal years 1997 through 
2002.

Network 9 (Nashville) also changed the way it calculated its case mix 
for allocating resources to medical centers several times during this 
period. In fiscal years 1997 and 1998, the network used the same 2 
case-mix categories that VERA used--basic and special.[Footnote 13] In 
fiscal year 1999, the network did not use the 3 case-mix categories 
that VERA converted to in that year but instead used the 44 classes 
that VA used to construct VERA's 3 case-mix categories. In fiscal years 
2000 through 2002, the network used the 3 case-mix categories that VERA 
used: basic non-vested, basic vested, and complex care. In fiscal year 
2003, the network made a significant change by increasing the number of 
case-mix categories from 3 used in fiscal year 2002 to 644 case-mix 
categories. The fiscal year 2003 case-mix approach classified the 
health care needs of hospital inpatients into the 511 diagnostic 
related groups (DRGs) used by Medicare to pay hospitals for inpatient 
care.[Footnote 14] For outpatient care, the approach used 121 different 
categories to classify the type of visit and account for the amount of 
resources the visit consumed. Additionally, the network used 12 
different categories to measure the intensity of care in long-term care 
settings. According to a network official, these changes were made to 
better account for medical centers' cost for treating patients.

The Network 9 (Nashville) decision to use more case-mix categories in 
fiscal year 2003 is consistent with a recommendation we made to VA in 
February 2002 to improve VERA's allocation of comparable resources for 
comparable workloads among networks.[Footnote 15] In that report, we 
recommended that VA adopt more case-mix categories to better account 
for differences in patient health care needs and that VA make other 
improvements. We also pointed out that the literature and experts we 
consulted suggested that a large increase in the number of case-mix 
categories--such as the increase in the number of Network 9 (Nashville) 
case-mix categories from 3 to 644 in fiscal year 2003--has advantages 
and disadvantages. Specifically, using more case-mix categories can 
increase the accuracy of health care resource allocations whether at 
the network or medical center level, but may also provide more 
opportunities to classify patients inappropriately to receive the 
highest capitation amounts.

Medical Centers Received About One-Quarter of Their Resources Based on 
a Variety of Other Factors:

Medical centers in Network 9 (Nashville) received about 23 percent of 
their total resources, or $232 million, in fiscal year 2002 based on a 
variety of factors other than fixed-capitation amounts for patient 
workload and case mix. (See fig. 2.) These resources came from three 
sources: Network 9 (Nashville), VA headquarters, and collections in the 
amounts of $84 million, $75 million, and $73 million, respectively.

Figure 2: Percentage and Amounts of Approximately $1 Billion in 
Resources Medical Centers Received Based on a Variety of Factors Other 
Than Fixed-Capitation Amounts for Patient Workload and Case Mix, Fiscal 
Year 2002:

[See PDF for image]

[End of figure]

Network 9 (Nashville) Allocated a Portion of Resources Based on a 
Variety of Other Factors in Fiscal Year 2002:

In fiscal year 2002, Network 9 (Nashville) used a variety of factors to 
allocate $84 million to its medical centers. Using these factors, the 
network allocated $36 million for education and research support, $33 
million for the network reserves, $14 million for equipment and 
nonrecurring maintenance, and $1 million for other purposes.

To allocate $36 million in resources for education and research 
support, Network 9 (Nashville) used two methods. For education, the 
network allocated $22 million in resources to medical centers based on 
the number of residents at each medical center in the current academic 
year, the same approach that VERA used that year. For research support, 
the network allocated $14 million in resources to medical centers based 
primarily on the amount of funded research in fiscal year 2000, like 
VERA.

To allocate the network's reserve fund, network management allocated 
about $33 million in fiscal year 2002 based on the financial needs of 
medical centers. The network reserve fund was intended to provide 
resources for unexpected contingencies and cover unmet expenses that 
medical centers have during the course of a year. VA headquarters 
requires that all networks have such a fund, which is similar in 
concept to VERA's reserve fund.[Footnote 16] Network officials told us 
while they encourage efficient operations, some medical centers have 
higher costs in certain areas and if these medical centers are unable 
to lower their costs, the network allocates funds from the reserve to 
help medical centers cover unmet expenses during the year. In fiscal 
year 2002, the network allocated reserve funds to medical centers for 
these purposes and distributed about half of the reserve fund to the 
Lexington medical center because of its higher than average costs in 
pharmacy, radiology, and laboratory expenses. Table 3 shows how the 
network distributed the network reserve to its six medical centers in 
fiscal year 2002.

Table 3: Allocations to Medical Centers from the Network 9 (Nashville) 
Reserve Fund, Fiscal Year 2002:

Medical center: Lexington, Ky; 
Amount distributed: $15,595,390; 
Percent of network reserve distributed: 46.9.

Medical center: Tennessee Valley Healthcare System (TVHS), Tenn; 
Amount distributed: $7,097,166; 
Percent of network reserve distributed: 21.4.

Medical center: Mountain Home, Tenn; 
Amount distributed: $5,834,036; 
Percent of network reserve distributed: 17.6.

Medical center: Louisville, Ky; 
Amount distributed: $4,403,466; 
Percent of network reserve distributed: 13.2.

Medical center: Memphis, Tenn; 
Amount distributed: $222,870; 
Percent of network reserve distributed: 0.7.

Medical center: Huntington, W. Va; 
Amount distributed: $87,738; 
Percent of network reserve distributed: 0.3.

Medical center: Total; 
Amount distributed: $33,240,666; 
Percent of network reserve distributed: 100. 

Source: GAO analysis of VA data.

Note: According to Network 9 (Nashville) officials, the network does 
not necessarily allocate its entire reserve fund to medical centers 
each year, sometimes carrying over some resources into the next year. 
The amount carried over each year varies. For example, the network 
carried over about $5 million from its fiscal year 2002 reserve fund 
into fiscal year 2003.

[End of table]

To allocate resources for equipment and nonrecurring maintenance, the 
network allocated about $14 million[Footnote 17] for that purpose in 
fiscal year 2002 based on priorities established by the chief engineers 
from each medical center and the network's Executive Leadership Council 
(ELC).[Footnote 18] These groups prioritized a list of projects 
submitted by each medical center and the network allocated resources 
for projects according to these priorities. VERA, by contrast, 
allocated its equipment and nonrecurring maintenance resources to all 
networks that year based primarily on fixed-capitation amounts for 
patient workload.

Two other factors accounted for a small portion of resources medical 
centers received or approximately $1 million. The network used other 
factors to control the amount of change in a medical center's total 
network allocation from the prior year and for differences in local 
costs. In fiscal year 2002, the network capped net change in medical 
centers' resources allocated by the network to a maximum of an 8 
percent increase or decrease from fiscal year 2001 resource 
allocations. The caps were designed to prevent year-to-year 
fluctuations beyond management's ability to prudently manage services. 
In addition, the network adjusted the amounts allocated to some medical 
centers relative to others to account for local price differences. 
These differences resulted primarily from variations in federal 
employee pay rates at the various medical centers in the network.

VA Headquarters Allocated a Portion of the Resources Medical Centers 
Received Based on a Variety of Other Factors in Fiscal Year 2002:

VA headquarters directly allocated $75 million to medical centers for 
special programs such as prosthetics, stipends for medical residents 
and other trainees, and other programs based on a variety of other 
factors. In fiscal year 2002, VA allocated $34 million for prosthetics 
directly to medical centers based largely on medical centers' 
historical expenditures for prosthetics, including items such as 
hearing aids, wheelchairs, and artificial limbs. VA headquarters also 
allocated $25 million that year to medical centers in the network to 
fund stipends for medical residents and other trainees based on the 
type and number of medical residents at each medical center. VA 
headquarters allocated about $16 million for other programs, including 
readjustment counseling, substance abuse, and post-traumatic stress 
disorder (PTSD) based on a variety of other factors.

Medical Centers Also Received a Portion of Their Resources from 
Collections in Fiscal Year 2002:

Medical centers in Network 9 (Nashville) collected $73 million in 
resources from third-party insurance payments, copayments, and 
reimbursements for services provided to non-VA health care providers in 
fiscal year 2002. Medical centers in the network collected about $67 
million of this amount from third-party insurance and copayments paid 
by veterans. Medical centers in the network also collected about $6 
million in resources through reimbursements from the provision of 
health care services to non-VA entities such as private hospitals, the 
Department of Defense (DOD), and DOD's civilian health care contractors 
in fiscal year 2002. Each medical center retained the resources it 
collected and had the flexibility to use these resources for any health 
care purpose. The amounts collected varied depending upon the priority 
status of veterans treated, whether their treatment was required for a 
service-connected condition, whether the veteran had health insurance, 
and other factors.

Expenditures Made by the Network 9 (Nashville) Office Increased by 
Approximately $22 Million Since Fiscal Year 1997:

Expenditures made by the network office increased from $1 million in 
fiscal year 1997 to $23 million in fiscal year 2002. The two primary 
reasons for the $22 million increase were the consolidation of 
information technology and staffing expenditures. Information 
technology expenditures accounted for the largest increase in 
expenditures made by the network office. This increase occurred, in 
part, because the network assumed the cost of contracts for software 
licenses and information technology services for which medical centers 
had once been responsible, according to network officials. Instead of 
having each medical center contract for information technology services 
individually, the network took responsibility for these contracts to 
consolidate and negotiate lower costs. In fiscal year 2002, computer 
contracts, software licensing, and other information technology 
expenditures represented $9.6 million or approximately 41 percent of 
total network office expenditures. (See table 4.):

Table 4: Expenditures Made by the Network 9 (Nashville) Office, Fiscal 
Year 2002:

Network 9 (Nashville) office expenditures: Information technology 
related expenditures; 
Amount: $9,583,965; 
Percent of total: 41.

Network 9 (Nashville) office expenditures: Staff expenditures; 
Amount: 8,051,324; 
Percent of total: 35.

Network 9 (Nashville) office expenditures: Contracts/consultant 
services[A]; 
Amount: 3,198,000; 
Percent of total: 14.

Network 9 (Nashville) office expenditures: Other[B]; 
Amount: 1,295,579; 
Percent of total: 6.

Network 9 (Nashville) office expenditures: Office of Resolution 
Management[C]; 
Amount: 1,119,098; 
Percent of total: 5.

Network 9 (Nashville) office expenditures: Total; 
Amount: $23,247,966; 
Percent of total: 100. 

Source: GAO analysis of VA data.

Note: Percents do not add due to rounding.

[A] Contracts and consultant services include a contract regarding 
quality assurance and consultant services for enhancing clinical and 
operational improvements for TVHS.

[B] Other includes after-hours telephone care, awards, and accounting 
support.

[C] Office of Resolution Management provides Equal Employment 
Opportunity complaint processing services to VA employees, applicants 
for employment, and former employees.

[End of table]

Staff expenditures accounted for the second largest increase in 
expenditures made by the network office and accounted for $8 million by 
fiscal year 2002. Most of the increase in network office staff resulted 
because of growth in Mid South Customer Accounts Center (MCAC) 
staffing. (See table 5.) This growth occurred because the network 
consolidated staff positions formerly located at medical centers for 
medical insurance collections and claims processing at a central 
location and also added additional staff for this purpose. To establish 
this operation in fiscal year 1998, the network transferred 57 
positions from the medical centers to MCAC. By fiscal year 2002, the 
network had added another 30 MCAC staff positions. MCAC staff 
expenditures in fiscal year 2002 were about $5 million. The MCAC 
operation is based at TVHS's Murfreesboro location. Network officials 
told us they consolidated this operation to increase efficiency and 
improve oversight of collections and claims processing. From fiscal 
years 1997 through 2002, collections for third-party insurance payments 
and copayments increased from $28 million to about $67 million.

Table 5: Number of Network 9 (Nashville) Office Staff Positions, Fiscal 
Years 1997 through 2002:

Network office staff positions: Staff positions at Mid South Customer 
Accounts Center (MCAC); 
Fiscal year: 1997: 0; 
Fiscal year: 1998: 57; 
Fiscal year: 1999: 62; 
Fiscal year: 2000: 66; 
Fiscal year: 2001: 68; 
Fiscal year: 2002: 87.

Network office staff positions: Mandated by VA headquarters; 
Fiscal year: 1997: 4; 
Fiscal year: 1998: 5; 
Fiscal year: 1999: 8; 
Fiscal year: 2000: 7; 
Fiscal year: 2001: 8; 
Fiscal year: 2002: 9.

Network office staff positions: Other network staff positions; 
Fiscal year: 1997: 4; 
Fiscal year: 1998: 4; 
Fiscal year: 1999: 6; 
Fiscal year: 2000: 8; 
Fiscal year: 2001: 14; 
Fiscal year: 2002: 16.

Network office staff positions: Total; 
Fiscal year: 1997: 8; 
Fiscal year: 1998: 66; 
Fiscal year: 1999: 76; 
Fiscal year: 2000: 81; 
Fiscal year: 2001: 90; 
Fiscal year: 2002: 112. 

Source: GAO analysis of VA data.

Note: The MCAC opened in fiscal year 1998.

[End of table]

Staff expenditures by the network office also increased because of 
growth in positions mandated by VA headquarters and additional staff 
positions that network management said would improve operations. These 
staff positions accounted for about $3 million in staff expenditures in 
fiscal year 2002. The network office added 5 positions from fiscal 
years 1997 through 2002 that were mandated by VA headquarters for all 
network offices to improve operations VA wide. These staff positions 
included a patient safety officer and a compliance officer. In 
addition, the network created 12 other network staff positions from 
fiscal years 1997 to 2002 that management expected to improve 
operations. For example, the network created a pharmacy benefits 
manager position to manage the network's pharmaceutical budget, which, 
according to network officials, has brought down the increase in 
pharmaceutical costs for the entire network, and a Decision Support 
System (DSS) manager to oversee DSS activities.[Footnote 19] For a 
detailed description of all network office staff positions and their 
responsibilities for the network from fiscal years 1997 to 2002, see 
appendix III.

Agency Comments:

In commenting on a draft of this report, VA agreed with our findings. 
VA provided technical comments which we incorporated, as appropriate. 
VA's written comments are in appendix IV.

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. We will then send copies of this report to the 
Secretary of Veterans Affairs, interested congressional committees, and 
other parties. We also will make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at http://www.gao.gov. If you or your staff have any 
questions about this report, please call me at (202) 512-7101. Another 
contact and key contributors are listed in appendix V.

Signed by: 

Cynthia A. Bascetta, 
Director, Health Care--Veterans' Health and Benefits Issues:

[End of section]

Appendix I: Objectives, Scope, and Methodology:

We reviewed Network 9 (Nashville) allocations to its medical centers 
for fiscal year 2002 to determine: (1) the amount of resources medical 
centers in the network received and the source of those resources, (2) 
the basis on which medical centers in the network received these 
resources, and (3) the extent to which network office expenditures were 
greater than in fiscal year 1997 and the primary reasons accounting for 
any increase. To place this information in context, we supplemented our 
findings for fiscal year 2002, the most recent year for which complete 
data were available at the time of our analysis, with information for 
fiscal years 1997 through 2003. We limited our review to how resources 
were allocated to medical centers in Network 9 (Nashville) and did not 
analyze how they spent their allocations to deliver health care.

The Amount of Resources Medical Centers in Network 9 (Nashville) 
Received and the Source of Those Resources:

To determine the amount of resources medical centers in Network 9 
(Nashville) received in fiscal year 2002 and the source of those 
resources we obtained financial data from the Office of the Chief 
Financial Officer within the Veterans Health Administration and from 
the Network 9 (Nashville) office. We categorized transactions in 
financial reports, referred to as medical center allotment reports, 
into the source of the resources: (1) Network 9 (Nashville), (2) VA 
headquarters, and (3) resources from collections. We identified 
transactions and summed the amount provided from each of the sources 
based on analysis of the medical centers' allotment reports and 
interviews with VA headquarters and network officials. As part of 
resources allocated by the network, we also included the amount each 
medical center received in fiscal year 2002 from the network's share of 
a supplemental appropriation that VA received, and the resources 
allocated for each medical center's costs for Consolidated Mail 
Outpatient Pharmacy (CMOP) mail prescription services to veterans. In 
fiscal year 2002, medical centers in Network 9 (Nashville) had 
additional resources that they carried over from the prior fiscal year, 
because they were authorized to use certain resources for longer than 
12 months. We did not include $25 million the medical centers carried 
over into fiscal year 2002, because the network had allocated these 
resources in the prior year.

Information was available for resources allocated to all medical 
centers in medical center allotment reports except for the Tennessee 
Valley Healthcare System (TVHS) because TVHS's allotment report also 
included resources allocated to the network office. To determine the 
amount of resources allocated to TVHS in fiscal year 2002, therefore, 
required additional analysis. Each network medical center was 
identified in the VA allocation system with a unique three-digit 
station number; however, TVHS and the network office shared the same 
station number, and as such, the VA allocation system combined their 
allotment data. To separate the TVHS and network office transactions, 
we obtained the fiscal year 2002 network office financial transfer 
report from TVHS. We separated each transaction on the combined 
network/TVHS allotment report, which allowed us to construct an 
allotment report for TVHS. We also obtained an internal allotment 
ledger from TVHS and network officials that documented fund transfers 
between the two, which were transacted outside the VA allotment system. 
Using our TVHS allotment report and the TVHS/network internal allotment 
ledger, we determined the amounts TVHS received through each funding 
source by applying similar calculations as with the other medical 
centers. This information was not available for TVHS's Nashville and 
Murfreesboro locations after fiscal year 2000. However, information on 
staffing resources at these two locations was available after that 
year. See appendix II for our analysis of staffing information at the 
two locations.

We estimated the percent of total medical center resources received 
from Network 9 (Nashville) for fiscal years 1997 through 2001 and 2003 
to supplement our findings for fiscal year 2002. To develop these 
estimates, we used VA headquarters and network office data. To 
determine the amount of resources the medical centers received from the 
network we used VA information on the VERA allocations to Network 9 
(Nashville) and network data on network office expenditures for these 
fiscal years. To estimate the total amount of resources the medical 
centers received through VA direct allocations in fiscal years 1997 
through 2001 and in fiscal year 2003, we assumed it was the same 
percentage as in fiscal year 2002 when medical centers in the network 
received 3 percent of all funds VA headquarters allocated directly to 
all VA medical centers nationwide. To determine the amount that medical 
centers received through revenue collections in these years we relied 
on VA data.

The Basis on Which Medical Centers in Network 9 (Nashville) Received 
These Resources:

To obtain information on the basis on which the medical centers 
received resources, we interviewed network officials including the 
director, the chief financial officer, and TVHS officials. In addition, 
we obtained and analyzed documents that described the network's 
allocation methodology and relied on our prior work on VERA.[Footnote 
20] To determine the basis on which VA headquarters allocated resources 
directly to medical centers in the network, we interviewed officials in 
the Office of the Chief Financial Officer within the Veterans Health 
Administration. To determine how insurance collections and copayments 
as well as other resources were incorporated in allocations, we 
interviewed network officials, including the director of the Mid South 
Customer Accounts Center (MCAC). Based on our analysis of information 
we obtained from the network and VA headquarters, first we calculated 
the percentage of resources allocated on the basis of fixed-capitation 
amounts for patient workload and case mix in fiscal year 2002. We then 
subtracted this amount from the total resources medical centers 
received in fiscal year 2002 to determine the amount they received 
based on other factors.

We estimated the percent of total resources received by all medical 
centers combined based on fixed-capitation amounts for patient workload 
and case mix for fiscal years 1997 through 2001 and 2003. To determine 
the total amount of resources allocated to the medical centers by the 
network based on fixed-capitation amounts, we used VA headquarters data 
on the amount of VERA allocations to Network 9 (Nashville) each year 
during this period. We then subtracted out expenditures made by the 
network office from data provided by the network. From this total, we 
subtracted out resources for allocations made to medical centers that 
were not based on patient workload and case mix. We obtained data on 
these allocations from VA headquarters, except allocations from the 
network reserve fund. We estimated network reserve funds for fiscal 
years 1997 through 2001 and 2003 by making the assumption that these 
funds represented 4 percent of all resources allocated to the network 
by VERA as in fiscal year 2002. To estimate the total resources medical 
centers in the network received directly from VA headquarters during 
this period we assumed it was the same percentage as in fiscal year 
2002, when medical centers in the network received 3 percent of all 
funds VA headquarters allocated directly to all VA medical centers 
nationwide. We estimated the portion of these direct VA allocations to 
medical centers in the network that was based on fixed-capitation 
amounts for patient workload and case mix by assuming that during this 
period the portion was the same as in fiscal year 2002, when such 
resources amounted to 20 percent of VA headquarters' direct allocations 
to the network. To determine the amount of resources collected for each 
medical center in the network during this period, we used information 
provided by the network and VA headquarters.

The Extent to Which Network 9 (Nashville) Office Expenditures Were 
Greater Than in Fiscal Year 1997 and the Primary Reasons Accounting for 
Any Increase:

To determine the extent to which network office expenditures were 
greater in fiscal year 2002 than in fiscal year 1997 and the primary 
reasons accounting for any increase, we analyzed reports on network 
office expenditures. Specifically, we analyzed expenditures made by the 
network office for fiscal year 2002 that were set aside from resources 
that the medical centers received. We also reviewed network office 
expenditures for information and technology, staffing, and other 
functions for fiscal years 1997 through 2002. We interviewed network 
officials to obtain the number of staff and their job titles and 
responsibilities from fiscal years 1997 through 2002. We interviewed 
the MCAC manager regarding the number of collections staff since fiscal 
year 1998, when the MCAC was created. We also contacted officials at VA 
headquarters to verify which staff positions were mandated by 
headquarters. As part of this analysis, we categorized staff into staff 
positions at MCAC and other network office staff positions, which 
included positions mandated by VA headquarters for all VA networks and 
those positions that Network 9 (Nashville) management established to 
improve operations. We included positions at the MCAC as network office 
positions because their salaries were paid from the same account as 
other network office staff and they were supervised by an official who 
reported to the network director.

Overall Data Verification and Methodology:

Throughout our review we examined the reliability of VA data and our 
use of those data. We discussed these data with VA headquarters and 
network officials to validate their accuracy. In addition, we discussed 
our methodology with VA headquarters and Network 9 (Nashville) staff 
who agreed that our approach and our assumptions were reasonable. 
Furthermore, we tested the consistency of VA allocation data by 
systematically comparing various types of data we obtained from several 
VA sources. For example, we verified the amount and source of 
transactions on the medical center allotment reports through interviews 
with network and VA headquarters officials and by matching these 
transactions with other financial reports obtained from VA. To better 
understand all of these issues, we conducted a site visit to interview 
officials at the network office located in Nashville and at the TVHS 
locations in Nashville and Murfreesboro, Tennessee. We performed our 
review from March 2003 through April 2004 in accordance with generally 
accepted government auditing standards.

[End of section]

Appendix II: Staffing Resources Available at the Tennessee Valley 
Healthcare System's Nashville and Murfreesboro Locations:

VA combined the Nashville and Murfreesboro medical centers to create a 
single integrated medical center--the Tennessee Valley Healthcare 
System (TVHS)--to improve veterans' health care and gain efficiencies. 
In fiscal year 2000, the TVHS integration was announced and the first 
TVHS director was hired. Separate financial resource information was 
available for the Nashville and Murfreesboro locations before fiscal 
year 2001. The accounting systems of the two locations were merged in 
fiscal year 2001 and since then, information has not been available on 
the financial resources allocated separately to the Nashville and 
Murfreesboro locations. However, information on staffing at each 
location was available for fiscal year 2002 and staff salaries and 
benefits comprised over half of TVHS's budget in that year. Overall 
staffing at each location declined since the integration, but trends 
varied by type of staff, such as administrative and medical center 
support staff and patient care staff. From fiscal year 2000 to fiscal 
year 2002, the TVHS patient workload increased while patient care staff 
remained about constant. Also, 125 other VA staff worked at the 
Murfreesboro location in fiscal year 2002, in addition to the staff at 
TVHS.[Footnote 21]

Information Not Available on Financial Resources Allocated Separately 
to Nashville and Murfreesboro After Fiscal Year 2000:

Information was not available on financial resources allocated 
separately to Nashville and Murfreesboro after fiscal year 2000. 
Beginning in fiscal year 2001, Network 9 (Nashville) did not allocate 
resources to Murfreesboro and Nashville separately because they were 
combined as a single medical center, TVHS. Moreover, TVHS did not 
allocate resources to each location. Instead, TVHS allocated resources 
to the programs it operated across the two locations. As a result, the 
accounting systems did not reflect allocations by location.

Staffing Declined at the Nashville and Murfreesboro Locations from 
Fiscal Year 2000 to Fiscal Year 2002:

Overall, the number of staff declined at Nashville and Murfreesboro 
from fiscal year 2000 to fiscal year 2002. However, the amount of 
change varied by the type of staff. The number of staff at Nashville 
declined by 49, or about 4 percent, from fiscal year 2000 to fiscal 
year 2002. At Murfreesboro, the number of staff declined by 77, or 
about 7 percent, from fiscal year 2000 to fiscal year 2002. (See fig. 
3.):

Figure 3: Number of Staff at Nashville and Murfreesboro Locations, 
Fiscal Year 2000 and Fiscal Year 2002:

[See PDF for image]

Note: Staff refers to full time equivalent employees (FTEE). Numbers 
are rounded to the nearest FTEE.

[End of figure]

Staffing trends varied by type of staff at both locations. 
Administrative and medical center support staff combined declined at 
both locations while patient care staff remained about constant. 
Administrative and medical center support staff include administrative, 
clerical, and wage rate staff who do not provide patient care-related 
work, such as secretaries and maintenance staff. At Nashville, the 
number of administrative and medical center support staff combined 
declined by 52, or 11 percent, from fiscal year 2000 to fiscal year 
2002. At Murfreesboro, the number of administrative and support staff 
combined declined by 65, or 14 percent, from fiscal year 2000 to fiscal 
year 2002. (See fig. 4.):

Figure 4: Number of Administrative and Medical Center Support Staff at 
Nashville and Murfreesboro Locations, Fiscal Year 2000 and Fiscal Year 
2002:

[See PDF for image]

Note: Staff refers to full time equivalent employees (FTEE). Numbers 
are rounded to the nearest FTEE.

[End of figure]

The largest decreases in administrative and medical center support 
staff are shown in table 6. The largest declines were in administrative 
and clerical staff. Smaller declines occurred among wage rate employees 
who are medical center support staff.

Table 6: Largest Administrative and Medical Center Support Staff 
Decreases at Nashville and Murfreesboro, Fiscal Year 2000 to Fiscal 
Year 2002:

Location: Nashville; 
Administrative and clerical: -45; 
Wage rate[A]: -9.

Location: Murfreesboro; 
Administrative and clerical: -56; 
Wage rate[A]: -9.

Source: GAO analysis of VA data.

Note: Table excludes changes in the number of administrative and 
medical center support staff of 1 or 2 positions. Staff refers to full 
time equivalent employees (FTEE).

[A] Wage rate employees, such as maintenance staff, are paid at an 
hourly rate.

[End of table]

There was very little change in patient care staff at both Nashville 
and Murfreesboro between fiscal year 2000 and fiscal year 2002. Patient 
care staff includes those who provide direct hands-on care to patients, 
such as doctors and nurses, as well as those staff who provide indirect 
care, such as pharmacists and laboratory technicians. The number of 
patient care staff at Nashville increased less than 0.5 percent from 
fiscal year 2000 to fiscal year 2002. The number of patient care staff 
at Murfreesboro decreased by almost 2 percent during the same time 
period. (See fig. 5.):

Figure 5: Number of Patient Care Staff at Nashville and Murfreesboro 
Locations, Fiscal Year 2000 and Fiscal Year 2002:

[See PDF for image]

Note: Staff refers to full time equivalent employees (FTEE). Numbers 
are rounded to the nearest FTEE.

[End of figure]

The largest changes in patient care staff from fiscal year 2000 to 
fiscal year 2002 can be seen in table 7. The biggest increases were in 
nursing staff and the biggest declines were in nursing aides and 
assistants.

Table 7: Largest Changes in Patient Care Staff at Nashville and 
Murfreesboro Locations, Fiscal Year 2000 to Fiscal Year 2002:

Location: Nashville; 
Increases: 
9 nurses (practical and licensed vocational); 6 part-time physicians; 5 
nurse practitioners; 
Decreases: 
3 nursing aides/assistants; 10 other health technicians/aides/
therapists.

Location: Murfreesboro; 
Increases: 
13 nurses (registered); 
Decreases: 
18 nursing aides/assistants; 3 other health technicians/aides/
therapists; 3 social workers.

Source: GAO analysis of VA data.

Note: Table excludes changes in the number of administrative and 
medical center support staff of 1 or 2 positions. Staff refers to full 
time equivalent employees (FTEE).

[End of table]

Number of TVHS Patients Increased While Patient Care Staff Remained 
About Constant:

The number of TVHS patients increased while the number of patient care 
staff remained about constant from fiscal year 2000 to fiscal year 
2002. The number of patients increased at TVHS from fiscal year 2000 to 
fiscal year 2002 by 7 percent. The number of patient care staff 
decreased less than 1 percent during the same time period. (See table 
8.):

Table 8: Tennessee Valley Healthcare System's Patients and Patient Care 
Staff, Fiscal Year 2000 and Fiscal Year 2002:

Fiscal year: 2000; 
Patients[A]: 57,080; 
Patient care staff: 1,477.

Fiscal year: 2002; 
Patients[A]: 61,120; 
Patient care staff: 1,468.

Source: GAO analysis of VA data.

Note: Staff refers to full time equivalent employees (FTEE).

[A] The number of patients using health care services as counted by 
unique or unduplicated social security numbers. Each patient is counted 
one time, regardless of how many visits each patient makes.

[End of table]

125 Other TVHS Staff Worked at Murfreesboro Location in Fiscal Year 
2002:

In addition to TVHS staff, 125 other VA staff worked at Murfreesboro in 
fiscal year 2002. These staff consisted of Network 9 (Nashville) staff, 
staff working at the Consolidated Mail Outpatient Pharmacy (CMOP), the 
Office of Resolution Management, and the Veterans Benefits 
Administration. Table 9 shows the numbers and types of VA staff other 
than those who work for TVHS who work at the Murfreesboro location.

Table 9: Other Staff Located at Murfreesboro, Fiscal Year 2002:

Description: Network 9 (Nashville) - includes 87 staff at the MCAC and 
8 other network office staff whose offices are located at 
Murfreesboro; Staff: 95.

Description: Consolidated Mail Outpatient Pharmacy (CMOP); 
Staff: 28.

Description: Office of Resolution Management; 
Staff: 2.

Description: Veterans Benefits Administration; 
Staff: <1.

Total; 
Staff: 125.

Source: GAO analysis of VA data.

Note: Staff refers to full time equivalent employees (FTEE).

[End of table]

The 95 Network 9 (Nashville) staff consisted of 8 office staff whose 
offices were located at Murfreesboro and 87 staff of the Mid South 
Customer Accounts Center (MCAC), which is responsible for insurance 
billing and collections for the network. These 87 staff were formerly 
located at medical centers within the network but were consolidated at 
the Murfreesboro location to increase the efficiency of collections. 
The CMOP had 28 VA staff in fiscal year 2002 (in addition to 155 
contract staff) and provides mail prescription services to veterans. 
The CMOP at Murfreesboro is one of seven CMOPs across the country. VA's 
Office of Resolution Management had 2 staff located at Murfreesboro in 
fiscal year 2002 and provided Equal Employment Opportunity (EEO) 
complaint processing services to VA employees, applicants for 
employment, and former employees. Finally, the Veterans Benefits 
Administration had a part-time staff person providing vocational 
rehabilitation and employment counseling at Murfreesboro in fiscal year 
2002.

Methodology:

We obtained information on staffing resources available at VA's 
Nashville and Murfreesboro locations in fiscal year 2002 by 
interviewing Network 9 (Nashville) and TVHS officials. These officials 
told us that beginning in fiscal year 2001, information on financial 
resources allocated to Nashville and Murfreesboro separately was not 
available because these locations were combined as a single medical 
center, TVHS, in fiscal year 2001. However, information on staffing 
numbers and costs at each location was available and staff salaries and 
benefits constituted over half of TVHS's fiscal year 2002 budget. 
Therefore, our scope was limited to a comparison of staffing numbers at 
each location in fiscal years 2000 and 2002. We obtained the number of 
staff positions and descriptions for each position for each location 
for fiscal years 2000 and 2002, reported by each staff member's duty 
station. The number of staff positions was reported as the number of 
full time equivalent employees (FTEE). We analyzed the increase and/or 
decrease in staff positions between the 2 years by the type of staff. 
We obtained workload data for TVHS for fiscal years 2000 and 2002 and 
compared them with the number of patient care staff during those years. 
In addition, we interviewed TVHS officials to determine the number of 
other VA staff working at the Murfreesboro location in addition to 
those staff working for TVHS.

[End of section]

Appendix III: Network 9 (Nashville) Office Staff and Their 
Responsibilities, Fiscal Years 1997 through 2002:

Table 10 provides a brief description of the responsibilities for 
Network 9 (Nashville) office staff and the number of office staff 
positions filled from fiscal years 1997 through 2002. The table 
includes staff positions at the Mid South Customer Accounts Center 
(MCAC), positions mandated by VA headquarters for all networks, and 
other staff positions Network 9 (Nashville) created.

Table 10: Position Titles and Responsibilities for Network 9 
(Nashville) Office Positions, Fiscal Years 1997 through 2002:

Network office staff: Staff positions at the Mid South Customer 
Accounts Center (MCAC); 
Network responsibilities: Perform billing, collecting, and verifying 
third-party insurance activities; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 57; 
Number of positions filled for fiscal year: 1999: 62; 
Number of positions filled for fiscal year: 2000: 66; 
Number of positions filled for fiscal year: 2001: 68; 
Number of positions filled for fiscal year: 2002: 87.

Network office staff: Staff positions mandated by VA headquarters; 
Staff positions mandated by VA headquarters; 
Number of positions filled for fiscal year: 1997: 4; 
Number of positions filled for fiscal year: 1998: 5; 
Number of positions filled for fiscal year: 1999: 8; 
Number of positions filled for fiscal year: 2000: 7; 
Number of positions filled for fiscal year: 2001: 8; 
Number of positions filled for fiscal year: 2002: 9.

Network office staff: Staff positions mandated by VA headquarters; 
Network Director (mandated in FY 1997); 
Network responsibilities: Chief executive; 
Number of positions filled for fiscal year: 1997: 1; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Chief Financial Officer (mandated in FY 1997); 
Network responsibilities: Advises network director and other managers 
on fiscal management; 
Number of positions filled for fiscal year: 1997: 1; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 0; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Chief Medical Officer (mandated in FY 1997); 
Network responsibilities: Provides clinical leadership; 
Number of positions filled for fiscal year: 1997: 1; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Chief Information Officer (mandated in FY 1997); 
Network responsibilities: Manages the design, development, and basic 
functions of information technology and communications systems; 
Number of positions filled for fiscal year: 1997: 1; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Information Security Officer (mandated in FY 2001); 
Network responsibilities: Develops and integrates infrastructure with 
mandated systems and products to ensure implementation and coordination 
of information and data systems; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Patient Safety Officer (mandated in FY 2001); 
Network responsibilities: Manages and implements patient safety 
policies of VA's National Center for Patient Safety; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Prosthetics Manager (mandated in FY1999); 
Network responsibilities: Manages, plans, develops, evaluates, and 
implements prosthetics program; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Quality Management Officer (mandated in FY 1997); 
Network responsibilities: Advises network director and others on 
quality improvement and performance management; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Staff positions mandated by VA headquarters; 
Compliance Officer (mandated in FY 2000); 
Network responsibilities: Plans, organizes, coordinates network 
activities, develops compliance program for internal controls and 
processes, and oversight in accordance with VA headquarters 
requirements; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Number of positions filled for fiscal year: 1997: 4; 
Number of positions filled for fiscal year: 1998: 4; 
Number of positions filled for fiscal year: 1999: 6; 
Number of positions filled for fiscal year: 2000: 8; 
Number of positions filled for fiscal year: 2001: 14; 
Number of positions filled for fiscal year: 2002: 16.

Network office staff: Other network staff positions[A]; 
Acquisition and Materiel Manager[B]; 
Network responsibilities: Manages the acquisition and materiel 
management product line; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 0; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Ambulatory Care Product Line Manager; 
Network responsibilities: Advises director and other managers on 
ambulatory and primary care; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Auditor/Compliance Officer; 
Network responsibilities: Identifies policies and procedures needed to 
prevent and detect noncompliance with VA regulatory, ethical, and legal 
requirements; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Budget Analyst; 
Network responsibilities: Performs budget analysis, formulation, 
justification, and execution; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Capital Assets Manager; 
Network responsibilities: Manages capital assets to ensure adherence to 
policies and procedures; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 0.

Network office staff: Other network staff positions[A]; 
Decision Support System (DSS) Manager; 
Network responsibilities: Establishes, plans, and directs DSS 
activities; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Deputy Network Director; 
Network responsibilities: Assists network director and acts as director 
in his absence; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Health System Specialist; 
Network responsibilities: Serves as program analyst for examining 
network activities such as cost effectiveness of operations; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Mid South Customer Accounts Center (MCAC) Manager[B]; 
Network responsibilities: Manages and operates the MCAC and insurance 
collections program; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 0; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Mental Health Product Line Manager; 
Network responsibilities: Serves as technical advisor to network 
director on the mental health program; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 0; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Operations Director; 
Network responsibilities: Manages construction, equipment, and network 
office daily operations; 
Number of positions filled for fiscal year: 1997: 1; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 0.

Network office staff: Other network staff positions[A]; 
Patient Administration Director; 
Network responsibilities: Manages patient access and benefits 
administration programs; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 0; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Pharmacy Benefits Manager; 
Network responsibilities: Manages pharmaceutical budget, coordinates 
professional and administrative functions at medical centers; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Public Affairs Officer; 
Network responsibilities: Manages public relations; 
Number of positions filled for fiscal year: 1997: 1; 
Number of positions filled for fiscal year: 1998: 1; 
Number of positions filled for fiscal year: 1999: 1; 
Number of positions filled for fiscal year: 2000: 1; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Network office staff: Other network staff positions[A]; 
Secretary; 
Network responsibilities: Performs administrative and clerical duties; 
Number of positions filled for fiscal year: 1997: 2; 
Number of positions filled for fiscal year: 1998: 2; 
Number of positions filled for fiscal year: 1999: 2; 
Number of positions filled for fiscal year: 2000: 2; 
Number of positions filled for fiscal year: 2001: 3; 
Number of positions filled for fiscal year: 2002: 3.

Network office staff: Other network staff positions[A]; 
Telephone Care Manager; 
Network responsibilities: Supervises employees of the network's 24-
hour/7 days-a-week telephone health care advice center and provides 
technical guidance to day-shift staff at medical centers; 
Number of positions filled for fiscal year: 1997: 0; 
Number of positions filled for fiscal year: 1998: 0; 
Number of positions filled for fiscal year: 1999: 0; 
Number of positions filled for fiscal year: 2000: 0; 
Number of positions filled for fiscal year: 2001: 1; 
Number of positions filled for fiscal year: 2002: 1.

Total staff; 
Number of positions filled for fiscal year: 1997: 8; 
Number of positions filled for fiscal year: 1998: 66; 
Number of positions filled for fiscal year: 1999: 76; 
Number of positions filled for fiscal year: 2000: 81; 
Number of positions filled for fiscal year: 2001: 90; 
Number of positions filled for fiscal year: 2002: 112. 

Source: GAO analysis of VA data.

[A] In fiscal year 2003, VA headquarters announced that some of the 
staff positions would become mandated later.

[B] The acquisition and materiel manager and the MCAC manager 
functioned in these positions since fiscal year 1997, but were charged 
to the TVHS payroll until the positions were transferred to the Network 
9 (Nashville) payroll in fiscal year 2002.

[End of table]

[End of section]

Appendix IV: Comments from the Department of Veterans Affairs:

THE SECRETARY OF VETERANS AFFAIRS 
WASHINGTON:

April 2, 2004:

Ms. Cynthia A. Bascetta 
Director:

Health Care Team:

U. S. General Accounting Office 
441 G Street, NW 
Washington, DC 20548:

Dear Ms. Bascetta:

The Department of Veterans Affairs (VA) has reviewed your draft report, 
VA HEALTH CARE: Resource Allocations to Medical Centers in the Mid 
South Healthcare Network (GAO-04-444) and agrees with your findings. 
This:

is an interesting case study describing the complex changes the 
Veterans Health Administration has undergone in allocating its 
resources among the various health care delivery points within the Mid 
South Healthcare Network.

The enclosure provides some technical comments VA believes would add to 
the overall clarity of your report. I appreciate the opportunity to 
comment on your draft report.

Sincerely yours,

Signed by: 

Anthony J. Principi:

Enclosure:

[End of section]

Appendix V: GAO Contact and Staff Acknowledgments:

GAO Contact:

James C. Musselwhite, 202-512-7259:

Acknowledgments:

In addition to the contact named above, Cheryl A. Brand, Linda C. 
Diggs, Krister Friday, Donald W. Morrison, and Thomas A. Walke made key 
contributions to this report.

[End of section]

Related GAO Products:

VA Health Care: Access for Chattanooga-Area Veterans Needs Improvement. 
GAO-04-162. Washington, D.C.: January 30, 2004.

VA Health Care: Changes Needed to Improve Resource Allocation. GAO-02-
685T. Washington, D.C.: April 30, 2002.

VA Health Care: Changes Needed to Improve Resource Allocation to Health 
Care Networks. GAO-02-744T. Washington, D.C.: May 14, 2002.

VA Health Care: Allocation Changes Would Better Align Resources with 
Workload. GAO-02-338. Washington, D.C.: February 28, 2002.

VA Health Care: More Veterans Are Being Served, but Better Oversight Is 
Needed. GAO/HEHS-98-226. Washington, D.C.: August 28, 1998.

VA Health Care: Resource Allocation Has Improved, but Better Oversight 
Is Needed. GAO/HEHS-97-178. Washington, D.C.: September 17, 1997.

Veteran's Health Care: Facilities' Resource Allocations Could Be More 
Equitable. GAO/HEHS-96-48. Washington, D.C.: February 7, 1996.

VA Health Care: Resource Allocation Methodology Has Had Little Impact 
on Medical Centers' Budgets. GAO/HRD-89-93. Washington, D.C.: August 
18, 1989.

VA Health Care: Resource Allocation Methodology Should Improve VA's 
Financial Management. GAO/HRD-87-123BR. Washington, D.C.: August 31, 
1987.

FOOTNOTES

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

[2] U.S. General Accounting Office, VA Health Care: Allocation Changes 
Would Better Align Resources with Workload, GAO-02-338 (Washington, 
D.C.: Feb. 28, 2002); U.S. General Accounting Office, VA Health Care: 
More Veterans Are Being Served, but Better Oversight Is Needed, GAO/
HEHS-98-226 (Washington, D.C.: Aug. 28, 1998); U.S. General Accounting 
Office, VA Health Care: Resource Allocation Has Improved, but Better 
Oversight Is Needed, GAO/HEHS-97-178 (Washington, D.C.: Sept. 17, 
1997); RAND, An Analysis of Potential Adjustments to the Veterans 
Equitable Resource Allocation (VERA) System (Santa Monica, California: 
2003); and Price Waterhouse LLP and The Lewin Group, Inc., Veterans 
Equitable Resource Allocation Assessment-Final Report, Mar. 27, 1998.

[3] VA policy provides the following 10 guiding principles to which 
networks shall adhere when developing network allocation methodologies: 
1) be readily understandable and result in predictable allocations, 2) 
support high quality healthcare delivery in the most appropriate 
setting, 3) support integrated patient-centered operations, 4) provide 
incentives to ensure continued delivery of appropriate special care, 5) 
support the goal of improving access to care, 6) provide adequate 
support for the department's research and education missions, 7) be 
consistent with eligibility requirements and priorities, 8) be 
consistent with the network's strategic plans and initiatives, 9) 
promote managerial flexibility and innovation, and 10) encourage 
increases in alternative revenue collections. Veterans Health 
Administration (VHA), Department of Veterans Affairs, Network Resource 
Allocation Principles, VHA Directive 97-054 (Washington, D.C.: Oct. 30, 
1997).

[4] For a discussion of health care programs that use fixed-capitation 
amounts for patient workload and case mix, see John Holahan and Shinobu 
Suzuki, "Medicaid Managed Care Payment Methods and Capitation Rates in 
2001," Health Affairs, vol. 22, no.1 (2003); Medicare Payment Advisory 
Commission, Report to the Congress: Medicare Payment Policy 
(Washington, D.C.: 2003); and Nigel Rice and Peter C. Smith, 
"Capitation and Risk Adjustment in Health Care Financing: An 
International Progress Report," The Milbank Quarterly, vol. 79, no.1 
(2001).

[5] GAO-02-338.

[6] See 38 U.S.C. §§ 1710(f), (g), 1722A, 1729. 

[7] Priority 7 veterans are veterans with relatively higher incomes 
compared to other veterans and most have no service-connected 
disabilities. VA classifies veterans according to their eligibility for 
enrollment for health benefits, with Priority 1 veterans having the 
highest priority for enrollment and prior to fiscal year 2003, Priority 
7 veterans having the lowest priority for enrollment. At the beginning 
of fiscal year 2003, an additional category, Priority 8, was 
established which includes mostly veterans with no service-connected 
disabilities whose incomes exceed a certain regional threshold. Many of 
the veterans formerly classified as Priority 7 veterans are now 
classified as Priority 8. See 38 U.S.C. § 1705(a)(8).

[8] VA did not include Priority 7 veterans in VERA's 3-year workload 
allocations, in part, because VA's expectation was that collections 
from copayments and third-party insurance reimbursements would cover 
the majority of the costs of patients who received a relatively limited 
amount of health care.

[9] The basic non-vested and basic-vested workload calculations are 
based on a 3-year time period and the complex workload calculations are 
based on a 5-year period. 

[10] The network allocated these resources to medical centers for part 
of their equipment allocations.

[11] State veterans' nursing homes provide nursing home care to 
veterans in state-owned and operated veterans' nursing homes, for which 
VA pays a portion of daily costs. Other state veterans' homes in the 
Network 9 (Nashville) area are located in Humboldt, Tennessee; Wilmore, 
Kentucky; and Oxford, Mississippi.

[12] VA headquarters allocated about $6 million directly to TVHS for 
transplants based on other factors.

[13] VERA's special case-mix category in fiscal years 1997 and 1998 was 
renamed as complex in fiscal year 1999.

[14] DRGs are designed to group patients with similar clinical problems 
that are expected to require similar amounts of hospital resources. 
Each DRG has a national relative weight that reflects the expected 
relative costliness of inpatient treatment for a patient in that group 
compared with that for the average Medicare patient. Groups expected to 
require above-average resources have higher weights and those that 
require fewer resources have lower ones.

[15] In response to our recommendation, VA increased the number of VERA 
case-mix categories in fiscal year 2003 from 3 to 10 in an effort to 
capture more accurately the health care needs and associated costs of 
its patients. See GAO-02-338.

[16] VERA uses its national reserve fund to cover network requests for 
additional allocations over and above the networks' other VERA 
allocations and other sources of revenue. Allocations from the reserve 
fund provide protection to patients from the risk that a health care 
network would not be able to provide services because its expenditures 
exceeded available financial resources. 

[17] In addition, the network allocated about $9 million for equipment 
using patient workload and case mix.

[18] The ELC included all medical center directors and network 
leadership.

[19] Network officials estimate that the pharmacy benefits manager 
reduced the network's pharmacy cost per unique user to a 4 percent 
growth in fiscal year 2002, compared to a 12 percent growth the 
previous year. DSS is an executive information system designed to 
provide VA managers and clinicians with data on patterns of patient 
care and outcomes as well as the capability to analyze resource 
utilization and the cost of providing health care services. DSS has 
been implemented at all VA medical centers. 

[20] GAO-02-338, GAO/HEHS-98-226, and GAO/HEHS-97-178.

[21] Staff refers to full time equivalent employees (FTEE) and does not 
include contract staff. 

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