WASHINGTON, DC—Congress has managed to nearly double the VA health care system’s budget over the last few years, but is that increase being seen at the local level? As the FY 2010 budget was making its way towards approval, legislators questioned VA officials on how allocated funds are disseminated to the hundreds of VA facilities scattered across the country, and asked whether or not there is a fairer, more efficient way of doing it.

“Some local VA medical centers claim that their allocations from the VISNs have either remained stagnant or have not been proportional to the unprecedented increase in overall funding for VA medical care,” declared Rep Bob Filner, D-CA, at a VA House Committee hearing last month. “We will examine whether the VA has an internal budget control system that is strong enough to track, account for, and safeguard the flow of federal dollars to the local VA medical centers.”

The VERA Model

At the beginning of each fiscal year, VHA prepares operating budget plans for its appropriations accounts. VA’s medical care program is largely funded through three such accounts—medical support, compliance, and medical facilities—as well as collections received from veterans’ health care insurance policies. Most of the appropriation account funding is allocated through the Veterans Equitable Resource Allocation model, which is primarily based on the estimated number of patients treated in each Veterans Integrated Service Network.

Using the FY2009 budget as an example, Rita Reed, VA’s principal deputy assistant secretary for management, explained the process in detail for legislators. “The appropriations in the three medical accounts totaled almost $41.5 billion, including $1 billion provided by the recovery act. Of the total funding, $31.8 billion was allocated to the 21 VISNs using VERA model,” Reed explained. The balance was allocated outside the VERA model mostly for specific programs.

After each VISN receives its VERA funding, the VISN director is in charge of distributing that funding to each facility in the network using a variety of methods. In FY 2009, the allocation methods used by the 21 VISNs were grouped into four broad categories: two VISNs used a patient workload basis and modified VERA capitation; two VISNs used an adjustment to the prior year’s base; eight VISNs used a combination of patient workload, modified VERA capitation, and adjustment to the prior year’s base; and nine VISNs used other methods.

The philosophy of using a variety of methods at the ground level, Reed said, is that health care is delivered locally and funding priorities should be decided locally.

Flexibility at Ground Level

While some legislators had concerns that there is not one set method of allocation, Michael Finegan, director of VISN 11, defended the system. “They’re not all that different at the end of the day,” noted Finegan, who was director of VISN 4 prior to his current position in VISN 11. “Every network uses some form of workload—whether the VERA workload passed down to facility, or a more current workload, or some case-mix adjusted method. Every network uses some comparison to last year’s budget, so no facility gets too little or too big an increase.”

Performance measures, though, are the same system-wide. “Our executive performance contract is the same for all directors across the system,” Finegan said. Those performance measures include wait times, access to care, quality measures, and satisfaction measures. “It’s very tight-loose-tight,” Finegan said. “We have a very tight budget given to us from Congress, with some discretion as to how we allocate it to facilities. And then we’re held very tightly to the performance measures.”

As VISN director, Finegan has the authority to move the money allocated to a VISN to the specific facilities. It is a flexibility that is necessary, because workload statistics do not tell the whole story with regard to what resources facilities need. “The problem with that is that our workload is not equally distributed among all of our facilities,” Finegan explained. “A complex psychiatric hospital, for example, has a disproportionate number of complex, expensive patients. A basic hospital, a small general hospital, would have more of the basic, less expensive kinds of patients.”

“VERA loses its effectiveness the further down into the organization you go,” Finegan explained. “I have the ability to move the money according to where our strategic priorities are and where we see performance issues.”

Review of Process Needed

But by putting these decisions in the hands of VISN directors, who are usually headquartered at the major medical centers within the VISN, some legislators are worried that VA might be giving short shrift to the smaller, outlying facilities.There’s an obvious disincentive for a medical center to look at constructing a new CBOC if it comes out of their operating budget,” noted Rep Stephanie Herseth-Sandlin, D-SD. “We need to work very closely with VA when it comes to dissemination of funds.”

With that concern in mind, several legislators added their signature, Herseth-Sandlin included, to a letter drafted by Rep Steve Buyer, R-IN, the committee’s ranking Republican, requesting an independent review of VA’s allocations process by GAO. VERA, Rep Buyer noted, has been in place since 1997, and a lot has changed in the last 12 years, not the least of which is the large increase in money being allocated.

The last time GAO looked at VA’s allocation model was 2004. “It has been 5 years since GAO has placed its eyes on VA funding, allocation issues,” Buyer said. “I will request that it perform a review of the criteria and process VA has established for VISNs, how VA ensures that VISNs comply with those criteria, and how VA centrally tracks and assesses the distribution and use of the funds at the medical center level.”

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