VA Testimony of Rita A. Reed before Congress on December 2, 2009

United States Department of Veterans Affairs

HOUSE COMMITTEE ON VETERANS’ AFFAIRS
FULL COMMITTEE
DECEMBER 2, 2009
STATEMENT OF RITA A. REED
PRINCIPAL DEPUTY ASSISTANT SECRETARY FOR MANAGEMENT,
OFFICE OF THE ASSISTANT SECRETARY FOR MANAGEMENT, U.S. DEPARTMENT OF VETERANS AFFAIRS

December 2, 2009

Chairman Filner, Ranking Member Buyer, Distinguished Members of the Committee, thank you for providing this opportunity to discuss the Department of Veterans Affairs’ (VA) Health Care Funding: Appropriations to Programs and the decision-making process used by Veterans Integrated Service Networks (VISN) to distribute appropriated dollars to VA medical centers (VAMC). I am accompanied today by Mr. William Schoenhard, Deputy Under Secretary for Health Operations and Management, Veterans Health Administration (VHA); Mr. Michael Finegan, Network Director, VHA VISN 11, Ann Arbor, Michigan; and Mr. Paul Kearns, VHA Chief Financial Officer (CFO).

The process of making appropriated funds available to the VISNs and then to the VAMCs begins immediately after Congress passes and the President signs VA’s appropriations bill. The Department’s central Budget Office in concert with the VHA CFO’s office, reviews financial and performance metrics associated with VA health care to construct the apportionment documents that request funding availability approval from the Office of Management and Budget (OMB). These apportionments, once approved by OMB, stipulate how much funding is available throughout the fiscal year (FY) for each appropriation account. If necessary, reapportionments may be resubmitted throughout the year to adjust the availability of funds.

Once the apportionments have been approved by OMB, the central Budget Office allocates these funds to VHA in total through VA’s Financial Management System. At this point the resources are available to VHA to distribute to its program offices and field facilities for obligation.

At the beginning of the fiscal year, VHA prepares operating budget plans that outline planned obligations, by month, for each appropriation account. The Department’s central Budget Office prepares extensive comparisons of planned vs. actual data, generally on a national basis, for Monthly Performance Reviews (MPRs) chaired by the Deputy Secretary and attended by senior management officials. These monthly reviews include metrics that measure financial performance, workload, and access and are one of the primary vehicles used at the central office level to help ensure that the Department achieves its financial and program performance goals. These reviews provide data for risk analysis and serve as a warning system to highlight potential operational or funding problems that could be significant. Nevertheless, the first line of accountability in assuring adequate resources for VA’s decentralized health care system on a facility-by-facility basis is the hospital and VISN directors. These Directors and their financial staff maintain frequent communication with VHA’s CFO and provide timely information to ensure necessary resources are available.

The medical care program is largely funded by three direct appropriation accounts (medical services, medical support and compliance, and medical facilities) and collections received from some Veterans and their health care insurance policies. These collections are added to the medical services account at each medical facility that generates the collections; as well as, reimbursements earned for activities such as sharing agreements with the Department of Defense are also added to each medical facility where the reimbursements have been earned. The allocation process by VHA’s CFO office involves only the first category described above because the second category (i.e., collections and reimbursements) go directly to the medical facilities that generated the collections or reimbursements.

What follows is an overview of the FY 2009 allocation process for medical funding. The appropriations in the three medical accounts totaled almost $41.5 billion, including $1 billion provided by the American Recovery and Reinvestment Act. Of the total funding,$31.8 billion (77 percent) was allocated to the 21 VISNs using the Veterans Equitable Resource Allocation (VERA) model that is primarily based on the estimated number of patients treated in each VISN, the severity or complexity of each patient’s treatment, and the cost of the services provided. The balance of about $9.7 billion (23 percent) was allocated outside the VERA model. Of the $9.7 billion, slightly more than $1.5 billion (3.6 percent) was identified in the appropriations process for specific initiatives and was allocated separately for each initiative such as: Priority 8 Veterans, Vet Centers, new generation prosthetics and sensory aids, HUD-VA supportive housing program, Homeless grant and per diem program, Homeless grant and per diem liaisons, rural health initiative, expanded outpatient services for the blind, Eye Injury Center of Excellence, FEE-based services outside VERA, non-recurring maintenance projects outside VERA and a major lease. Funding in the amount of about $6.8 billion (16.9 percent) was allocated as specific purpose funds of which $1 billion (2.5 percent) was for the operation of VHA’s program offices and $5.8 (14.4 percent) was for the centrally managed programs such as prosthetics prescriptions in each medical facility, salaries of clinical trainees at specific medical facilities, State Nursing Home per diem payments paid by the supporting medical facility, and the CHAMPVA benefit claims paid to both VA medical facilities and civilian medical facilities and providers. Funding provided by the American Recovery and Reinvestment Act were distributed to the VISNs based on a pro-rata share of each medical centers facility improvement needs.

After each VISN receives its VERA allocation, the VISN Director is responsible for making the allocations to each of their medical facilities using the method that best suits the specific needs of each VISN and consistent with long established guiding principles that focus on such things as ensuring support for high quality healthcare delivery in the most appropriate setting; improving access to care; and, consistency with the network’s strategic plans and initiatives.

The specific allocation methods used by each VISN are reported to the VHA Office of Finance. 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, for example: one used a combination of the Stochastic Frontier model, utilization, and care lines; four used a combination of VERA and facility workload; three used a combination of adjusted VERA, historical funding, workload increases, and marginal costs; and one used the service delivery model budget process incorporating care lines.

Mr. Chairman, the basic principle of this allocation process is that health care occurs locally. Allocation decisions and adjustments during the budget execution year are best vested in the VISN director who has the most complete knowledge of the changing requirements at each of his/her individual medical facilities and the needs of the Veterans that each medical facility serves. Should situations arise that dictate additional funding is needed for a particular facility during the year, the VISN director would provide additional funds to ensure veterans health care needs are met or would request these funds from VHA Central Office from funds reserved to meet unanticipated needs.

Mr. Chairman, we appreciate the opportunity to participate in this hearing. My colleagues and I are available to respond to questions from you and the other members of the committee.