VA Health Care: Inadequate Planning in the Chesapeake Network (Letter Report, 12/22/94, GAO/HEHS-95-6). The Department of Veterans Affairs (VA) requested $14.5 million in its fiscal year 1994 budget request to build a 120-bed nursing home on the site of its former Baltimore (Loch Raven) Medical Center. Although Congress authorized VA's request, it required VA to reconsider the location of the new nursing home in the context of the entire Chesapeake Network and to determine whether the nursing home at the Fort Howard, Maryland, Medical Center needed to be expanded and modernized. VA reported to Congress that it had chosen the Loch Raven site for construction of a new nursing home and that the Fort Howard nursing home needed replacing. This report discusses whether VA used sound planning criteria in its choosing Loch Raven as a new nursing home site and in its plans to replace the Fort Howard hospital building and its nursing home. --------------------------- Indexing Terms ----------------------------- REPORTNUM: HEHS-95-6 TITLE: VA Health Care: Inadequate Planning in the Chesapeake Network DATE: 12/22/94 SUBJECT: Veterans benefits Nursing homes Health care services Facility construction Site selection Health care cost control Community health services Construction costs Federal/state relations Health care planning IDENTIFIER: Baltimore (MD) Fort Howard (MD) VA Chesapeake Network Perry Point (MD) District of Columbia Charlotte Hall (MD) Martinsburg (WV) Maryland Virginia West Virginia Franklin County (PA) VA Five Year Medical Facility Development Plan ************************************************************************** * This file contains an ASCII representation of the text of a GAO * * report. 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We are unable to accept electronic orders * * for printed documents at this time. * ************************************************************************** Cover ================================================================ COVER Report to the Chairman, Subcommittee on Hospitals and Health Care, Committee on Veterans' Affairs, House of Representatives December 1994 VA HEALTH CARE - INADEQUATE PLANNING IN THE CHESAPEAKE NETWORK GAO/HEHS-95-6 VA Chesapeake Network Planning Abbreviations =============================================================== ABBREV VA - Department of Veterans Affairs VHA - Veterans Health Administration Letter =============================================================== LETTER B-255012 December 22, 1994 The Honorable J. Roy Rowland Chairman Subcommittee on Hospitals and Health Care Committee on Veterans' Affairs House of Representatives Dear Mr. Chairman: The Department of Veterans Affairs (VA) requested $14.5 million in its fiscal year 1994 budget for construction of a 120-bed nursing home on the site of its former Baltimore (Loch Raven) Medical Center.\1 In August 1993, in response to VA's request, the Congress authorized construction of a nursing home in VA's Chesapeake Network. The Congress, however, required VA to (1) reconsider the location of the new nursing home in the context of the entire Chesapeake Network and (2) determine the need to expand and modernize the nursing home at the Fort Howard, Maryland, Medical Center, approximately 15 miles southeast of Baltimore. The Secretary of Veterans Affairs reported to the Congress in September 1993 that he had chosen the Loch Raven site for construction of a new nursing home and that the Fort Howard nursing home required replacement. The Congress' fiscal year 1994 appropriation for VA major construction, enacted in October 1993, included the $14.5 million that VA requested for the Loch Raven nursing home. This report responds to your request that we determine whether VA used sound planning criteria in choosing Loch Raven as a new nursing home site and in developing its plans to replace the Fort Howard Medical Center's hospital building and nursing home. Our objectives, scope, and methodology are discussed in more detail in appendix I. -------------------- \1 The former Baltimore Medical Center was closed in January 1993 after VA opened a new medical center in downtown Baltimore. RESULTS IN BRIEF ------------------------------------------------------------ Letter :1 VA plans to add 133 nursing home beds in the Baltimore area at 2 separate locations (Loch Raven and Fort Howard). While VA is demolishing its former Loch Raven hospital to make room for a new nursing home, it plans to construct a replacement hospital building and nursing home at nearby Fort Howard. These construction projects are not based on sound planning. In part, this is because VA's Veterans Health Administration (VHA) Central Office did not issue adequate guidance to its regional offices and medical centers on how to change VA's facility-by-facility construction planning process into an integrated network planning process. In addition, VHA's Eastern Region did not always follow the guidance VHA provided. Specifically, Chesapeake Network planning inadequately considered the future availability of community nursing home beds in determining the need for new VA nursing homes in the Network's service area; misallocated state veterans' nursing home bed availability in assessing the need for VA nursing home beds at various Chesapeake Network sites; and did not thoroughly explore renovating and converting existing capacity to extended-care space as an alternative to new construction. As a result of the weaknesses in its network planning, VA may have overstated its need to build additional extended-care capacity in the Chesapeake Network.\2 Also, because of the planning deficiencies noted above, we question whether VA's plans to build two nursing homes, and build a new hospital while demolishing a nearby existing hospital, are the best way to improve extended-care services for veterans throughout the entire Chesapeake Network service area. Finally, because of the misallocation of state veterans' nursing home beds, we question whether Loch Raven was the best site for construction of a new VA nursing home in the Chesapeake Network. -------------------- \2 "Extended care" refers to nursing home care and long-term (intermediate and rehabilitation) medical care. BACKGROUND ------------------------------------------------------------ Letter :2 VA provides health care services through a direct delivery system of 171 hospitals, 240 outpatient clinics, 126 nursing homes, and 35 domiciliaries.\3 In addition to operating its own nursing homes, VA helps pay for nursing care provided to veterans by community and state veterans' nursing homes. VA reimburses community nursing homes for care provided to eligible veterans and provides per diem payments to state veterans' nursing homes.\4 VA operates 393 nursing home beds in the Chesapeake Network at its medical centers at Fort Howard and Perry Point, Maryland; Washington, D.C.; and Martinsburg, West Virginia. In addition, VA provides per diem payments for veterans residing at the state veterans' nursing home in Charlotte Hall, Maryland, which operates 278 nursing home beds. On an average day in fiscal year 1993, VA cared for, or provided funds for other providers to care for, 718 nursing home residents in the Chesapeake Network. VA's decision in March 1992 to divide its medical care system into networks was one of its early steps in transforming the VA health care system into a managed care system capable of competing with private sector health plans. Networks were intended to plan and coordinate the provision of medical services among two or more nearby medical centers. Working through a network council consisting of medical center officials and coordinated through the appropriate VHA regional office, each network was expected to develop local health care systems designed to reduce overlap in medical center services and facilitate resource sharing and referrals among participating medical centers. The Chesapeake Network, one of nine networks established in VHA's Eastern Region, was created in July 1992 to coordinate the services provided by five medical centers. The Network's service area includes the District of Columbia; all of Maryland (except Kent and Worcester counties); northern Virginia; northeastern West Virginia; and Franklin County, Pennsylvania. An estimated 922,000 veterans lived in the Network's service area in 1990; by 2005, VA estimates that the veteran population will decline by about 14 percent, to 794,000. Figure 1 shows the Chesapeake Network service area and the locations of the Network's medical centers. However, VA estimates that the veteran population aged 65 or older will increase. Figure 1: Chesapeake Network Service Area (See figure in printed edition.) Before VA established networks, each medical center assessed its own construction and renovation needs, and proposed specific construction projects, through its VHA regional office, to VHA's Central Office. Approved projects were included in VA's annual Five Year Medical Facility Development Plan and prioritized for inclusion in VA's annual major construction budget requests to the Congress. VA made little effort, however, to coordinate construction plans at nearby facilities. For example, the Baltimore and Fort Howard medical centers developed separate plans for nursing homes after the Congress funded construction of a new Baltimore Medical Center in 1986. The Baltimore Medical Center developed plans for the use of the Loch Raven site as a nursing home after the Medical Center was relocated to its new downtown Baltimore site, while the Fort Howard Medical Center developed plans to replace its existing hospital building and nursing home. (See app. II for a chronology of the planning for these projects.) VA's Five Year Medical Facility Development Plan for fiscal years 1994-1998, issued in April 1993, included plans for a 120-bed nursing home on the Loch Raven site. The plan mentioned no planned major construction projects at Fort Howard, although VA had previously identified the Fort Howard hospital building as one of the 10 hospitals in the VA system most in need of construction, replacement, or major modernization; and the Fort Howard Medical Center was continuing to develop plans to build a replacement hospital and nursing home. Meanwhile, VA requested funding for the Loch Raven project. VA's September 8, 1993, report to the Congress, in response to the congressional mandate to reconsider the proposed Loch Raven nursing home project, was VA's first attempt to broaden Baltimore-area major construction planning to include the entire Chesapeake Network. However, the leadership of the House Committee on Veterans' Affairs and its Subcommittee on Hospitals and Health Care criticized VA's report as inadequate justification for the Secretary of Veterans Affairs' decision to reconfirm Loch Raven as the site for construction of a new nursing home. In response to the Committee's criticisms, VA attempted another Chesapeake Network nursing home site selection study in October 1993. This study, which compared nursing home construction at Loch Raven with construction of additional nursing home beds at the Fort Howard, Perry Point, Washington, and Martinsburg medical centers, again concluded that Loch Raven was the most appropriate place to build the nursing home. In October 1993, the Congress appropriated $369 million in fiscal year 1994 funds for VA major construction, including $14.5 million for the Loch Raven nursing home project. VA has not yet requested funding for the replacement hospital and nursing home at Fort Howard. -------------------- \3 In its direct delivery system, VA owns, staffs, and operates its own medical facilities. Domiciliaries provide services on an ambulatory self-care basis to indigent veterans disabled by age or disease who do not need the level of services available in hospitals or nursing homes. \4 A "community nursing home" is a nursing home not owned by VA or a state. VA may contract to reimburse community nursing homes to care for veterans. State veterans' homes are state-owned and -operated nursing homes and domiciliaries; VA makes per diem payments to offset part of the cost of care for veterans residing in state homes, and pays up to 65 percent of the costs of constructing or renovating state homes. NETWORK PLANNING GUIDANCE IS INADEQUATE ------------------------------------------------------------ Letter :3 Neither the VHA Central Office nor VHA's Eastern Region developed adequate guidance on how to change VA's facility-by-facility planning process into an integrated network planning process. As a result, the Chesapeake Network continues to plan construction projects largely on a facility-by-facility basis. VHA's 1993 annual strategic planning guidance, issued in June 1993, was designed to help VA convert VHA's medical care system into a managed care system. The 1993 strategic planning guidance required that VHA regions identify and validate the range of existing medical programs at each facility within a network; analyze the capabilities at the facility, network, and regional levels to provide certain services, including rehabilitation for the blind, pacemaker implants, cancer treatment, treatment for acquired immunodeficiency syndrome, and treatment for traumatic brain injuries; review and update each facility's clinical inventory; review workload projections and allocations for hospital, outpatient, nursing home, and domiciliary care for each facility for fiscal year 2005, as prepared by the VHA Central Office, and justify any deviations from these projections and allocations; and conduct a nursing home needs assessment for each facility. While this guidance mentioned the need for regions to assess their current programs and future needs on a networkwide basis, the basic emphasis was on facility-by-facility planning. The VHA Central Office did not require regions to take a number of steps toward developing integrated network plans, such as assessing current and projected needs for each type of medical care (including nursing home care) on a network-by-network basis; assessing the current ability of VA facilities (both inside and outside each network) to meet the needs identified by each network, including an assessment of the accessibility of VA services throughout the network; assessing the private sector's current and future ability to meet the needs of each network that VA is currently unable to meet; exploring the cost-effectiveness of various options (such as contracting, conversion of existing bed space, and new construction) for meeting each network's needs; and identifying and prioritizing VA construction projects (new construction, renovation, and conversion) within each network based on projected needs for the entire network. For example, Central Office guidance required assessments of the need for new VA nursing home beds, including surveys of community nursing home availability. However, these assessments were to be done on a facility basis instead of a network basis. Also, while each facility was expected to assess the potential for converting its unused hospital space into nursing home beds, facilities were not expected to assess the potential of conversions throughout their network before identifying a need for new nursing home construction. The Eastern Region relied on VHA Central Office guidance in preparing its 1993 strategic plan, providing little supplementary guidance to its networks and facilities on how to implement the Central Office guidance. Based on the Central Office planning guidance, the Eastern Region produced a Chesapeake Network plan that was primarily a compilation of the plans of each of the Network's five medical centers, with comments from the regional office. The plan reflected little consideration of the health care needs of veterans throughout the Network or of how VA planned to coordinate the services of the Network's five medical centers to meet those needs. Also, the plan did not provide a networkwide assessment of the need for new construction in the Chesapeake Network. Thus, VA does not have an integrated Chesapeake Network plan to help meet VA's goal of developing the Network into a competitive managed care system. VA INADEQUATELY CONSIDERED COMMUNITY NURSING HOME AVAILABILITY IN THE CHESAPEAKE NETWORK ------------------------------------------------------------ Letter :4 The community nursing home surveys VA used to support its decision to build a new nursing home on the Loch Raven site, and to support its subsequent studies that reconfirmed that decision, were flawed and may have inaccurately estimated the availability of less costly community nursing home beds in the Chesapeake Network. Specifically, VA's surveys excluded nursing homes with occupancy rates of 95 percent or higher, even though they might be able to provide some beds to VA; did not examine projections of future supply of, and demand for, community nursing home care by nonveterans; and relied on unverified data on community nursing home availability, including data collected by a medical center that was proposing construction of a new VA nursing home. Community nursing home surveys are an important part of the process of determining the need for new VA nursing homes. VA guidance requires that local VA officials, before requesting construction of a new nursing home, must identify all alternatives to the construction of new VA beds--including the use of community nursing homes. VA's goal is to provide nursing home care to 16 percent of veterans who require such care, with the remaining 84 percent of veterans receiving care without VA assistance. Of those veterans VA plans to provide assistance for, VA expects about 40 percent to receive care through contracts with community nursing homes.\5 VHA's Eastern Region conducted two community nursing home surveys as parts of assessments of the need for new VA nursing home beds in the Chesapeake Network. The first assessment, completed in January 1993, was used to support the need to build a new nursing home on the Loch Raven site and was also used in VA's September 1993 Chesapeake Network study. The community nursing home survey used in this assessment, however, was limited to nursing homes in the Maryland portions of the Baltimore, Fort Howard, Perry Point, and Washington service areas, which operate a total of almost 20,000 licensed nursing home beds. Of these beds, VA estimated that it could obtain only 40 additional available and suitable beds toward its 40-percent community share.\6 VA then estimated that the number of community nursing home beds would grow in proportion to the increase in the number of elderly veterans. Hence, VA estimated that community nursing homes could provide 50 beds by fiscal year 2005 in addition to the 118 community nursing home beds currently used by VA in the Maryland portions of the four medical centers' service areas. Using these estimated community beds, plus existing VA beds and existing and additional state nursing home beds, VA estimated in its January 1993 assessment that it could provide 511 of the 792 additional nursing home beds needed in the area VA assessed by fiscal year 2005 without new VA construction. VA's community nursing home estimate of 168 beds by fiscal year 2005, however, fell below VA's planned 40-percent share of total nursing home need (317 beds); this, in turn, increased the number of beds VA estimated it will need to build in Maryland by fiscal year 2005. VA estimated that, to provide a total of 792 nursing home beds, it will need to construct 296 beds by fiscal year 2005.\7 The second community nursing home survey was conducted in September 1993 as part of VA's overall strategic planning process. Data from this survey were used in VA's October 1993 Chesapeake Network nursing home site selection study to provide indicators of the need for additional VA nursing home beds in each medical center's service area. The September 1993 needs assessment identified a need for VA to provide 1,387 nursing home beds in the Chesapeake Network in fiscal year 2005. The September 1993 community nursing home survey covered nursing homes throughout the Network, a total of 269 community nursing homes with about 37,000 licensed beds. By contacting community nursing homes in the Chesapeake Network that VA believed might have available beds, VA identified 233 beds that it considered both available and suitable. These beds were in addition to 211 community nursing home beds that VA was already using. VA then estimated that the number of Chesapeake Network veterans aged 65 and older will increase by 20 percent by fiscal year 2005, which increased VA's projection of the number of additional available and suitable community beds to 280 by fiscal year 2005. Counting VA and state beds, VA estimated that it could provide 1,123 of the 1,387 nursing home beds it will need in the Chesapeake Network by fiscal year 2005 without additional VA construction. As with the January 1993 needs assessment, however, VA's September 1993 estimate of community nursing home availability (491 beds--211 currently in use plus 280 available in the future) fell below its 40-percent community bed goal (555 beds), increasing the estimated need for VA-built beds. VA estimated that it would require an additional 273 VA-built beds by fiscal year 2005 (260 needed beds, inflated to allow for a 95-percent occupancy rate). VA's projections of future need for VA-built nursing home beds are questionable, however, because of its community nursing home survey methodology. For example, VA guidance assumes that a nursing home with an occupancy rate of 95 percent or more, based on data provided by state health agencies, has no beds available for VA patients and will not have any beds available for VA patients in the future. Under VA's guidance, community nursing homes with 95-percent or higher occupancy rates do not have to be contacted to determine if they have available and suitable beds for VA referrals. Meanwhile, community nursing homes with occupancy rates below 95 percent are to be surveyed by VA to determine if their available beds are suitable for VA referrals and not whether they could provide more or fewer suitable beds in the future. Thus, VA may miss potentially available and suitable nursing home beds because it is not contacting all community nursing homes. Also, VA is obtaining only information on current availability, not future availability, of community nursing home beds. Because of the 95-percent occupancy rate cutoff, VA's September 1993 Chesapeake Network community nursing home survey assumed that only 54 of the 269 community nursing homes in the Network's service area (20 percent) had available beds. VA officials contacted 52 of the 54 nursing homes and found, as noted above, 233 available and suitable beds. VA, however, may have missed additional available and suitable beds by not contacting the remaining 215 community nursing homes. For example, we found 30 community nursing homes in the Chesapeake Network that had at least 200 beds each but were not contacted by VA because they reported occupancy rates of 95 percent or higher.\8 On the basis of their reported numbers of beds and occupancy rates, we estimate that these nursing homes had almost 200 empty beds at the time VA conducted its survey. Consequently, VA may have been able to obtain additional suitable beds if it had contacted these nursing homes. VA's community nursing home bed projections also assume that the supply of community beds will grow based on estimates of the increase of the elderly veteran population. This assumption does not account for trends in the supply of community nursing home beds in the Network or the demand for community nursing home beds in the future. For example, VA did not ask community nursing homes if they planned to increase or decrease their numbers of beds in the future, or whether they would be willing to provide additional beds to VA (for example, if the nursing homes anticipate going below a 95-percent occupancy rate in the future). Also, VA relied only on estimates of the increase in elderly veteran population by fiscal year 2005, not on the change in total elderly population. The latter would provide a better indication of future demand for community nursing home care and, thus, a better indicator of future community nursing home supply. Furthermore, VA relied on data from the 1993 community nursing home surveys without independently verifying that the surveys were prepared correctly. Thus, VA could not be assured that these surveys accurately portrayed the future availability of community nursing home beds. Under VA guidance, medical centers both propose and assess the need for new VA nursing home construction. This could create an incentive for medical centers to underestimate the availability of community nursing home beds, which could lead to overestimation of the need for VA-built beds. Portions of the January and September 1993 nursing home needs assessments were done by the Baltimore Medical Center, which had proposed construction of a new extended-care facility at Loch Raven. VHA Central Office officials in Washington, D.C., who are responsible for reviewing needs assessments for major construction projects stated that they normally do not review the accuracy of data on community nursing home availability provided by medical centers and regional offices or the manner in which the data were obtained because they lack staff to perform such reviews. These officials stated that they attempt verification only if data appear to be obviously erroneous, but that this was not the case with the January and September 1993 assessments. -------------------- \5 VA divides the remaining 60 percent of its nursing home bed needs equally between VA and state veterans' nursing homes. \6 In conducting a community nursing home survey, VA may classify some beds as available but not suitable for VA use because (1) the nursing home declines to accept VA patients or (2) the nursing home does not meet VA standards. \7 VA estimated that it needed to provide 281 additional VA nursing home beds in Maryland by fiscal year 2005. VA increased the number of beds to be constructed by 5 percent, to 296 beds, because it assumed that the new beds would have a 95-percent occupancy rate. Our check of VA's calculations yielded 295 beds, rather than 296. \8 We limited our analysis to relatively large nursing homes because they would provide a relatively large number of unused beds. For example, a 200-bed nursing home operating at 95-percent occupancy would have 10 unused beds on any given day. VA MISALLOCATED STATE NURSING HOME BEDS ------------------------------------------------------------ Letter :5 VA misallocated its projected available state veterans' nursing home beds among the Chesapeake Network's four service areas in its September 1993 Network nursing home needs assessment.\9 Instead of following VA guidance, which recommends allocating state nursing home beds for veterans among medical centers' service areas, the Chesapeake Network assessment allocated all projected beds at the Charlotte Hall state veterans' nursing home only to the Washington Medical Center service area. As a result, VA understated the need for additional VA nursing home capacity in the Washington area and overstated the need for additional VA capacity in other parts of the Chesapeake Network, especially the Baltimore area. These overstatements and understatements of nursing home need may have affected the ranking of the top site alternatives for construction of a 120-bed nursing home in VA's October 1993 nursing home site selection study--Loch Raven and Washington. Thus, Loch Raven may not be a better site for construction of a 120-bed nursing home than the Washington Medical Center. For purposes of reporting data on state veterans' home usage, VA assigns all residents of a state veterans' home for whom VA provides payments to one medical center. VA assigned all Charlotte Hall residents to the Washington Medical Center because Charlotte Hall is in Washington's service area. However, Charlotte Hall nursing home residents come from throughout Maryland, not just from that portion of the state included in the Washington service area. Of all veterans using the Charlotte Hall nursing home during 1992, 58 percent came from the Washington service area, compared with 32 percent from the Baltimore/Fort Howard service area. Table 1 shows the distribution by service area of veterans using Charlotte Hall's nursing home during calendar year 1992. Table 1 Distribution of Charlotte Hall Residents by VA Service Area, 1992 -------------------- \9 For purposes of VA's nursing home needs assessment, the Chesapeake Network had four service areas: the service areas of the Washington, Martinsburg, and Perry Point medical centers; and a joint service area for the Baltimore and Fort Howard medical centers.