Department of Veterans Affairs

Recommendations and Actions

DVA09: Establish a Comprehensive Resource Allocation Program

Background

The Department of Veterans Affairs is one of the largest organizations in the federal government, with nearly 700 medical centers, clinics, nursing care units, community homes, regional benefits offices, and cemetery facilities. Table 1 identifies fiscal year 1993 resources allocated to VA's three principal operating components: the Veterans Health Administration (VHA), Veterans Benefits Administration (VBA), and the National Cemetery System (NCS).

VA currently does not have a comprehensive, departmentwide, integrated approach to allocate its resources among its operating units and to maximize its return on investment in service to veterans and their families. With the enactment of the Government Performance and Results Act of 1993, the adoption of such an approach will eventually become the norm for the government.

As can be seen in Table 1, of VA's three major components, VHA has the vast majority of personnel resources and most of the funding spent on operational activities. In June 1993, VA secretary Jesse Brown endorsed a new resource allocation initiative for the VHA, beginning in fiscal 1994.(1) This initiative will build on lessons learned from earlier attempts by VA to correct this deficiency.

 Table 1
 *******
 Summary of Fiscal Year 1993 VA Resources 
 
 Operating Components        VHA       VBA       NCS       Other**
 
 Funding 
 (in billions of $)         	     15.8      18.7      <0.1        0.4
 
 Staffing 
 (in thousands)*          	    236.7      13.9       1.4        8.2
 
 Staffing 
 (percent of total)*         	     91.0         5.3       0.5        3.2
 
 *As of September 30, 1992; includes both full-time and part-time 
 staff. 
 
 **Includes construction costs; staffing includes inspector general, 
 staff offices, office of facilities, and veterans canteen service.

In the mid-1980s, for example, VA initiated a limited resource allocation project for VHA, but the project was later canceled. VA also commissioned the National Research Council's Institute of Medicine (IOM) to help develop an analytical approach to the allocation of physicians and other health care specialists. While this would have addressed part of the problem, the IOM approach generated some controversy and received little follow-up.(2)

VHA established its own Resource Allocation Model (RAM) several years ago, with mixed results. The benefit of RAM was that it resulted in a gradual improvement of service, even though little money was used to encourage and reward performance. The major flaw in RAM was that it provided an open-ended incentive to expand workload within limited budgets, and raised questions about its impact on the quality of health care. Some believe that RAM was abandoned because it was too threatening to participants.

What the VHA did do that had lasting significance was to establish an organization able to continue analyses of VHA performance data. It is this organization--the Boston Development Center--that developed the Resource Planning and Management (RPM) system that VA will implement in fiscal year 1994.

Secretary Brown has characterized RPM as patient-based, policy- driven, and prospective in terms of workload and costs. It is designed to improve the management of VA's limited medical care resources and to better define VA's resource requirements in the future.(3)

RPM will integrate budget formulation, budget implementation, and facility planning by reference to eight patient groups: clinical patient groups (acute inpatients); non-bed care (solely outpatient); long term care; acquired immune deficiency syndrome, commonly known as AIDS; dialysis; chronic mental illness; restorative and supportive care (rehabilitation, spinal cord injury, and traumatic brain injury); and transplants. Fiscal year 1994 will be the first stage of a three-year transition and development process to resource allocations based on patient care workload.(4)

Funding allocations will be made to VA medical centers under the new system on the basis of national policy, and will promote local management flexibility without sacrificing accountability. Consequently, it is critical to the success of this approach that managers and staff not be constrained artificially in making resource decisions, e.g., by ceilings and floors on staffing.(5)

Neither of VA's other two main components--the VBA or the NCS--have resource allocation programs as comprehensive as VHA's current initiative. Both, however, use defined mechanisms to formulate their budgets and equitably distribute the authorized funding. The VBA, for example, has used a resource allocation model since the mid-1980s that distributes resources to its 58 field offices on the basis of work unit and end product.

NCS formulates its budget and allocates its resources based on four major workload factors: internments performed, graves maintained, developed acreage maintained, and headstones and markers procured. This workload is labor intensive and time dependent, i.e., burials cannot be deferred and headstones must be obtained in a timely manner. While NCS makes use of community services and volunteers, training and liability considerations limit how these individuals can be used.

Action

The Department of Veterans Affairs should design and develop a comprehensive, departmentwide, performance- and needs-based resource allocation program.

The institutional output-oriented performance is a logical replacement for input-oriented control, along with the elimination of legislative constraints as proposed elsewhere in this report. This effort should be undertaken consistent with guidelines established by the Government Performance and Results Act, and serve as a comprehensive framework for the activities of individual components of VA. A multi-faceted strategy is recommended, the first element of which should be VA's implementation of the RPM initiative in VHA as planned in fiscal year 1994.

The department should evaluate whether any modifications are needed for fiscal year 1995, based upon the initial experience with RPM and the department's approach to performance measurement. The RPM process should identify unduly high-cost facilities and provide a mechanism for reallocating resources away from them to help offset uncontrollable annual cost increases or expansion costs of high- priority programs--thus enabling VA to move away from simply increasing each facility's budget by inflation and program enhancements.

Current data show significant variances in the cost of care among similar VA hospitals for treatment of similar patients. The department should be developing or identifying quality indices so that each facility can be measured in terms of clinical effectiveness. These quality data, along with RPM data, should be used to determine the level of quality care provided at high-, low-, and average-cost facilities, which would be useful not only to VA, but as a model for the nation's health care industry.

The second element of the strategy should also begin in fiscal year 1994. VA should begin framing comparable approaches for VBA, NCS, and the Central Office in Washington, with a view toward beginning the implementation and testing of such approaches in fiscal year 1995.

Adoption of this recommendation will position VA to achieve compliance with the Government Performance and Results Act of 1993 and enable the department to maximize the use of its resources in meeting the health care service and benefit delivery needs of veterans and their families.

Implications

While this recommendation responds to critics' concerns, it will not be possible for VA to implement this recommendation unless legislative budget constraints are eliminated and decisionmaking is decentralized as proposed by NPR recommendations elsewhere in this report. VA managers can be creative and responsive to veterans' needs when constraints are removed, but the initiative fades in the face of continuing constraints that inhibit or preclude such creativity (e.g., the RAM project).(6)

Fiscal Impact

The President's fiscal year 1994 budget reflects savings from this initiative of $200 million in fiscal year 1995, and $1.5 billion over six years.(7) Although this VA initiative is supported by NPR, the fiscal impact is not part of this report.

Endnotes

1. Letter from Jesse Brown, Secretary of Veterans Affairs to the directors of VA Medical Centers on Medical Care Budget Reform, June 16, 1993.

2. See Institute of Medicine (IOM), Physician Staffing for VA (Washington, D.C.: National Academy Press, 1991). In general, the IOM study used both a Delphi approach (i.e., the use of expert opinion) and an empirically based approach (i.e., the use of actual experience) to evaluate staffing requirements. When solutions based on the two approaches were similar, there was general agreement on the appropriate course. However, when solutions were far apart, there was no easy mechanism to resolve the difference and arrive at an answer to the reallocation issues.

3. Letter from Jesse Brown.

4. Letter from Jesse Brown.

5. In this regard, the National Performance Review (NPR) has recommended in this report that legislative budget constraints be eliminated and that decisionmaking be decentralized. See "DVA03: Eliminate Legislative Budget Constraints to Promote Management Effectiveness" and "DVA08: Decentralize Decisionmaking Authority to Promote Management Effectiveness."

6. See, for example, discussion of the Management Efficiency Pilot Program in the preceding section, entitled, "DVA08: Decentralize Decisionmaking Authority to Promote Management Effectiveness."

7. Clinton, William J., A Vision of Change for America (Washington, D.C., February 17, 1993), p.123.

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