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1996 May Report of the Auditor General of Canada

Assistant Auditor General: Wm. F. Radburn
Responsible Author: John O'Brien

Main Points

12.2 The Department has not yet developed a comprehensive plan to meet the future health care needs of its clients for the following reasons:

• It has limited information on its future health care population. There is a significant population of veterans and members of the armed forces who are potential eligible clients and who could be eligible for Veterans Affairs health care benefits.
• The Department does not have a forecast of the likely changes in future health care needs of its client population and the impact of these changes on the Department's programs.

12.4 There is a long-standing unresolved issue between Veterans Affairs and some provinces over responsibility for providing certain health care benefits to income-qualified veterans. The Department has identified approximately $50 million that it is paying annually for these health care benefits.

12.5 In our opinion, the Department has satisfactory controls over eligibility for health care benefits.

12.6 The Department does not have national guidelines for the quality of long-term institutional care. Control over the cost of delivery in contract institutions is deficient, with weak operating agreements, budgets often received after the beginning of the fiscal year and backlogs in conducting operating reviews.

12.7 In implementing changes designed to improve the efficiency of delivery of the Veterans Independence Program, Veterans Affairs did not fully comply with conditions established by Treasury Board that required continuation of a post-payment verification system. We found weaknesses in the health care needs assessment process, also required by Treasury Board. The Department does not have adequate empirical evidence to demonstrate the impact the Program has on recipients' health or on helping recipients live independently in their homes and communities.

12.8 The Department has saved money by implementing controls for the provision of non-drug services to clients. It has also identified the need to improve controls for drug benefits and is in the process of developing a plan to implement these controls in 1997. The Department estimates that it could save $7 million annually and improve the quality of care by implementing improved controls. In addition, the Department's method of controlling over-the-counter drugs is costly.

Introduction

Canada's Veteran Population

12.10 The Department recognizes that the most important factor affecting the veteran population is that of aging. As shown in Exhibit 12.2 , while the overall veteran population is expected to decline significantly by the year 2000, the percentage of veterans aged 75 and older will increase substantially.

Benefits Provided by Veterans Affairs

Disability pensions

Economic support

Health care

• Treatment and other health-related benefits. The Department provides medical, surgical and dental examination and treatment, prosthetic and related devices, supplementary benefits, treatment allowances and other community health care benefits and services. In 1995-96, benefits provided under this activity were estimated to cost $203 million.
• Veterans Independence Program. This activity provides services aimed at improving and maintaining recipients' health and independence in the home or community. The Department provides funding for home care, ambulatory health care, social transportation, modifications to homes and intermediate care in a community facility. In 1995-96, the Department budgeted $167 million for these services.
• Long-term care. The Department provides intermediate and chronic care in a departmental facility, priority access beds and community care facilities. In 1995-96, the estimated cost of this activity was about $200 million.
• Delivery. The budgeted cost of delivery for health care in 1995-96 was $58 million.

The Role of Veterans Affairs in Providing Health Care to Veterans

12.17 While Veterans Affairs uses the provincial health care systems and other providers to provide services to veterans, we found that the extent to which the Department actively managed rather than acted as an insurer of health care varied across the country. The factors that affected this variation in role were:

• the program element - the terms and conditions of the Veterans Independence Program require active case management in the form of a health care needs assessment prior to the provision of benefits;
• location of the departmental facility - the Department currently has one facility that it operates; and
• provincial health care programs - the health care services offered vary by province. Veterans Affairs is more active in managing certain activities when they are not offered in a province.

Pension Approval Process

12.20 Concerns over the timeliness of adjudicating and paying pensions are long-standing. Observations on the lack of timeliness in adjudicating pensions have been raised by the Office of the Auditor General (1980 and 1986), the Public Accounts Committee (1981), the McCracken Study (1982), the Special Committee to Study Procedures under the Pension Act (1984), the Nielsen Task Force (1985) and the Senate Sub-Committee on Veterans Affairs (1994).

12.21 A major concern of these studies was the length of time it took to reach a decision on a disability claim and to begin or adjust disability pension payments. In 1986, our audit found that for first payments made in the month of December 1985, it took about 13 months on average from the date of application to the date the benefit was paid. However, turnaround times have subsequently increased to the point where the Department reported it has been taking an average of 18 months to reach a first decision resulting in a disability pension award. We corroborated this departmental information. In addition, the Department reported that it took an average of three years to reach a final decision if all levels of appeal are exhausted. Exhibit 12.4 shows the distribution of turnaround times for all applications resulting in an initial pension payment during the 1993 to 1995 period.

12.22 In September 1995, legislation came into effect that streamlined the pension approval process. The legislation resulted in the following changes:

• The authority to make first decisions on entitlement to pension benefits, previously the responsibility of the Canada Pension Commission, was transferred to the Department.
• Responsibility for preparing applications, previously the responsibility of the Bureau of Pension Advocates, was given to departmental officials in district offices.
• The Bureau of Pension Advocates, previously a separate agency responsible both for the preparation of first applications for pension benefits and for advocacy services for appeals, was integrated into the Department and given the mandate to deal solely with appeals.
• The Canadian Pension Commission and the Veterans Appeal Board, each previously responsible for initial decisions and for separate levels of appeal, were combined to form the new Veterans Review and Appeal Board. The new Board will hear first and second appeals.

Observations and Recommendations

Planning to Meet the Future Health Care Needs of Clients

Background

Veterans Affairs needs a more comprehensive plan to meet the future health care needs of its clients

12.27 Veterans Affairs has two major problems in developing a comprehensive plan to meet the future health care needs of its clients:

• The Department has limited information on its future health care population. There is a significant population of veterans and members of the armed forces who are potential clients and who could be eligible for Veterans Affairs health care benefits.
• The Department does not have a forecast that reflects likely changes in future health care needs of its client population and the impact of these changes on the Department's programs.

12.29 The role and clientele of Veterans Affairs have evolved since the end of World War II. During that period, the government changed veterans programs and expanded the eligibility for veterans benefits. For example, in 1981 the Department introduced the Aging Veterans Program for pensioners. In the mid-1980s, this program evolved into the Veterans Independence Program (VIP), which provides benefits to pensioners and income-qualified veterans. In 1989, the government expanded VIP eligibility to cover veterans who served in Canada for at least one year during wartime (Canada Service Veterans). At the time these decisions were made, they did not greatly increase the Department's overall budget because the increased costs were largely offset by the rapid decline in economic support. As shown in Exhibit 12.5 , economic support expenditures declined from $481 million in 1985-86 to $153 million in 1995-96 (a decrease of $328 million) while the cost of health care rose from $253 million to $629 million during the same period (an increase of $376 million).

Veterans Affairs does not have an accurate projection of its future client population

12.31 As shown in Exhibit 12.6 , the Department estimates that, in the 2006 fiscal year, there will be about 142,000 veterans eligible for health care benefits. The Department also estimates that there will be an additional 70,000 veterans who will not meet the eligibility requirements for health care benefits. Based on historical participation rates and consumption patterns, the Department estimates that only 80,000 veterans will actually access departmental health care benefits. However, studies have shown that vulnerability and dependence on others increase significantly beyond the age of 75. These findings suggest that the historical participation rates and consumption patterns used in the Department's forecasting model may not be appropriate for a population, such as the veteran population, with an average age of 75. Therefore, the Department could be significantly underestimating the number of future health care clients.

12.32 Any former member of the armed forces with a service-related injury is a potential health care client of Veterans Affairs. Exhibit 12.6 also shows the Department's projection of regular force clients. The projected growth is very modest but even at that rate regular force clients will become the largest client group by the year 2016. Recent experience has shown actual intake of regular force clients to be higher than numbers forecast. The Department has limited information on key characteristics of potential regular force clients, such as the size of the potential client population, the rate of program intake and special or unique health conditions. To date, limited resources have been committed to studying the characteristics of this client group.

12.33 Our 1980 audit observed that Veterans Affairs had little data on the current characteristics and needs of the veteran client population. In addition, similar concerns were raised by the Public Accounts Committee in 1981 and in our 1986 audit of the Department. The 1986 audit noted that the Department did not know how many veterans were eligible for its programs or how much of the target population it was reaching. Although improvements have been made recently, these deficiencies continue to exist at Veterans Affairs and remain an area of concern.

An aging population has specific health care needs

Veterans Affairs has not fully assessed the impact of the changing health care needs of its client population

12.36 Those who served in World War II, the majority of Canadian war veterans, are clustered around the average age. Departmental and other health studies have shown that health tends to decline slowly until around age 75. After that age, health care needs tend to increase significantly. The narrow distribution of the average age of the veteran population around age 75 suggests that their health care needs could increase rapidly in the near future. However, the Department's forecast model does not adequately consider the impact of aging on the extent of such needs.

The government faces a significant potential liability

12.38 The Department faces the risk that it may not be prepared for a possible increase in demand for its services over the next five to ten years. In order to assess whether this risk is real, it needs better information on its potential client population and their health care needs.

12.39 Veterans Affairs Canada's long-term plans for health care should include the following:

• an improved estimate of the number of potential health care clients in the next five to ten years;
• a complete assessment of the potential health needs, and associated costs, of new and present health care clients; and
• an implementation strategy to meet the health care needs of the future client population.

New estimates of health care clients and their associated costs for the ten-year period commencing with fiscal year 1995-96 are currently being finalized. The new forecasts of expenditures involve assessing the future health needs of the number of estimated clients.

Assessment of potential health needs is an ongoing initiative of the Department. The Department is currently acquiring and assessing detailed data on health-related behaviours in the senior veteran and senior non-veteran populations. This initiative is directed to assisting the Department in determining the future health needs of its current veteran clients, as well as to assisting in determining the health needs of forecasted veteran clients who currently do not access departmental benefits and services.

Jurisdictional Issues

Responsibility for health care

12.41 Veterans Affairs legislation defines who is a veteran and describes the federal government's responsibility for providing services to eligible veterans, including health care. This responsibility includes the following:

• For those in receipt of a veteran disability pension, Canada is responsible for all health care benefits associated with the pensioned condition, except that pensioners are required to apply for provincial programs before accessing the Veterans Independence Program.
• Other qualified recipients are to have access to all the benefits as residents of a province first and then receive any additional benefits from Veterans Affairs. As an example, in those provinces that have a seniors pharmacare program, veterans are to receive benefits from the provincial program and then receive benefits from the Department for any co-payment portion. In other words, for these clients, the intent of Veterans Affairs legislation is to provide treatment and drug benefits and Veterans Independence Program benefits as a "top-up" of provincial programs, where they exist, or to provide such benefits where a province does not provide them.

Responsibility for veterans health care

12.43 In 1993-94, the Department estimated that it was paying approximately $50 million annually for health benefits that would normally be available to a resident of a province.

12.44 Since 1990, Veterans Affairs officials have had discussions and exchanged correspondence with the provinces on this issue, but have been unable to resolve it. During that period, the Department has continued to accept responsibility for these costs even though they are not its responsibility under existing legislation and government policy, and it was not the government's intent to pay the full cost of drug benefits, in all cases, when the program was established.

12.45 This issue is common to other departments that have federal health care clients. Veterans Affairs has been given the lead role in developing a co-ordinated strategy for federal health care clients but has not yet made significant progress.

12.46 It can be argued that this issue is one where there is no real harm. After all, the recipients are eligible for the health care benefits from either a provincial or the federal government, and ultimately all levels of government are supported by the same taxpayers. However, both levels of government have to maintain administrative structures to determine eligibility and either pay the cost or refer the charge to another level of government. Furthermore, in situations where accountability is not clear, it becomes difficult to assign responsibility for managing delivery cost-effectively. These situations can also be difficult for the recipient population, particularly an elderly one, because individuals may be referred to different agencies for the funding or provision of services.

Cost-sharing issue is not new

Opportunities for co-operation with provinces may exist

Eligibility for Health Care Benefits

Who is eligible for veterans health care benefits?

Satisfactory controls over eligibility

12.51 As part of our audit, we selected a sample of payments made during 1994-95 from the treatment and drug and Veterans Independence Program elements of the health care program to ensure that these benefits were paid only to recipients who met the basic eligibility requirements such as war service, age and annual income. We examined the supporting documentation to ensure that recipients were veterans who met income qualifications (income-qualified recipient), where applicable. We did not examine the impact of the jurisdictional issue on this sample. We found that the Department has satisfactory controls for determining eligibility and that only two percent of our sample were not fully entitled to the benefits received. This error rate is consistent with the Department's results and within the error rate suggested by the Treasury Board policy.

12.52 In addition to the post-payment verification controls, income-qualified recipients who do not receive benefits under the Old Age Security Act are required to complete a statement of income each year. The Department regularly matches income information obtained from the recipient against income information from Human Resources Development Canada and Revenue Canada Taxation.

12.53 Income-qualified recipients who receive benefits under the Old Age Security Act are not required to complete a statement of income except upon application for benefits. We noted that in 1993 the Department implemented a system to ensure that recipients remain income-qualified for Veterans Affairs health care programs. The Department receives income information from Human Resources Development Canada and Revenue Canada Taxation on an annual basis. When the system was initially implemented in January 1993, 9,600 clients were identified as ineligible and had their benefits cancelled. Approximately 2,500 additional clients had benefits cancelled in 1994 and 1995.

12.54 After assessing the basic eligibility of potential recipients, the Department must determine the level of benefits required to meet client needs and the extent to which those needs are the responsibility of the federal government. We examined the Department's management of individual benefits entitlement and report our findings in the next three sections.

Long-Term Care

Background

12.56 The audit examined how the Department:

• negotiated the cost of services provided under agreements with non-departmental institutions;
• monitored and reviewed the cost of services purchased;
• ensured that services of appropriate quality were received; and
• determined the number and location of its priority access beds.

Weak controls over cost of service provided under agreements

12.59 The Department's operating practices for controlling the cost of services varied from one facility to another. However, two key control mechanisms for controlling the cost of service of a facility were the annual budget approval process, where Veterans Affairs paid the cost of a portion of a facility, and the subsequent operating review to ensure financial compliance.

12.60 We found that in many instances the Department did not require facilities to provide operating budgets for approval prior to the beginning of each fiscal year. There were examples where budgets were submitted six months into the fiscal year. In addition, we found several instances where the Department's operating review of a facility was conducted years after the fiscal period was completed. There is a backlog of operating reviews to be conducted.

12.61 We noted wide variations in the cost per patient-day paid by Veterans Affairs to facilities. The average costs per patient-day varied within regions as well as among regions, ranging from $138 to $234 for similar levels of care. The Department has not analyzed the reasons for the differences or used lower rates as a basis for negotiating costs with more expensive facilities.

National guidelines for quality of care need to be implemented

12.63 We found that the Department's monitoring practices varied widely among regional offices. Variations included the number of visits to facilities by Veterans Affairs personnel, the use of tools such as guidelines or questionnaires to assess the quality of care, the use of monitoring reports prepared by the facilities and the extent to which departmental staff took an active approach to monitoring the quality of care in facilities.

Planning for priority access beds needs to be reviewed

12.65 Veterans Affairs should improve management controls over the provision of long-term care, including:

• specifying the level and quality of service it expects;
• negotiating rates and budgets prior to the beginning of the fiscal year;
• regularly monitoring and reviewing compliance with financial and quality requirements of agreements with facilities; and
• reviewing its planning for long-term priority access beds.

Veterans Independence Program

Background

Contribution arrangements are weak

Implementation of advance payment has not met Treasury Board conditions

12.69 The Department continued to perform regular post-payment verification of payments that were reimbursed, based on receipts. However, for clients receiving advance payments, the Department did not perform complete post-payment verification and review, on a national basis, from September 1992 until November 1995. During this period, the Department did not have procedures in place that dealt with the changing requirements of the advance payment system. For this reason, the Department stopped issuing quarterly reports on the results of its testing.

12.70 In January 1994, the Department completed a "VIP Post-Payment Verification Pilot" to develop procedures for advance payment reviews. Three hundred and twenty-six clients, who received advance payments during the six-month period after implementation, were requested to forward their receipts to the Department for review. Ten percent of these clients did not produce receipts and an additional 27 percent did not provide receipts for over one quarter of the advance payments received.

12.71 Controls for advance payments varied among the regions. In most regions, area counsellors conducted a cursory review of receipts when contribution arrangements were renewed. We found no evidence of such reviews in the limited sample of VIP files that we audited. The Quebec and Pacific regions conducted post-payment verifications of advance payments. The Quebec region found that 40 percent of the 120 clients contacted did not keep all of their receipts. The Pacific region found that 17 percent of 130 clients did not have adequate documentation. Departmental officials believe that these error rates and the one from the pilot project overstate the real error rate, because the definition of error was not adjusted for changes resulting from implementation of advance payments. The Department has indicated that the results of these reviews were used to develop improved controls for the advance payment system.

12.72 Approximately one half of the 83,000 Veterans Independence Program clients are in receipt of advance payments. For the advance payment files in our sample, we were unable to determine if the Department had adequate assurance that contributions were spent as intended under signed agreements with recipients. At the time of our audit, there was no evidence that departmental officials had examined the supporting receipts for these sample items.

12.73 In November 1995, the Department selected a national sample of Veterans Independence Program payments for post-payment verification review but, at the time of completion of our audit field work in January 1996, the review of this sample had not been completed.

12.74 In 1995, the Department's Audit and Evaluation Division conducted a review of the Veterans Independence Program. As part of the review, the Division used a panel of health care experts to evaluate more than 300 health care needs assessments. The panel found that there was variability in the quality and quantity of information on assessment forms. Also, some assessments were not completed as specified by the program policy, and examples were noted where unmet client needs had not been identified. Our audit of a limited sample of VIP files supports the conclusions reached by the Department's review of the program.

12.75 We noted that the Department requires annual contact with each VIP client. With the limited resources available to the Department, the effect of this policy is that clients at all risk levels receive the same level of attention. The Department is currently conducting a pilot project that links the level of attention to the health care risk for each client. This approach could offer improved efficiency and better-quality service.

Program effectiveness not fully assessed

12.77 Our audit noted that the review addressed issues related to the relevance of the Program and identified areas where the cost effectiveness and management of the Program could be improved. The expert panel concluded that the Program was relevant to the needs of clients and will become more so. The panel also concluded that, although in the majority of cases the type and level of services were appropriate, improved case management and documentation were needed to improve effectiveness. While the review noted that veterans are institutionalized at significantly earlier ages than non-veterans, a statistical study done as part of the review suggested that the Program's home care element could be delaying institutionalization by about two years.

12.78 Departmental officials believe that the Program has been effective in meeting its objectives. However, the Department does not have adequate empirical data to demonstrate the Program's impact on recipients' health or on helping recipients live independently in their homes and communities.

12.79 Veterans Affairs should improve controls for the Veterans Independence Program by implementing complete post-payment verification of advance payments and strengthening health care needs assessments, as recommended by the departmental review.

Department's response: Ongoing post-payment verification for advance payments has been implemented. Results of the first review sample are expected in mid 1996.

The Department is looking at enhancing its annual reviews to better identify health care needs before they become serious and costly, and at enhancing its case management of clients with compounded health and social needs.

12.80 Veterans Affairs should gather adequate empirical evidence to demonstrate the success of the Program in achieving its objectives and the impact on recipients' health.

Department's response: The Department agrees with the need to regularly assess the Program's effectiveness, and has collected empirical evidence through surveys and interviews, statistical reviews and cost-benefit analyses, in addition to generating indirect supporting data. Several reliable, macro-level indicators do exist and support the claimed success of the Program, including evidence that since its initiation the average age of veteran clients being admitted for institutional care is rising steadily. This indicates that the veterans are remaining independent in their own homes for longer periods. Nevertheless, the Department is prepared to consider the use of other methods, such as longitudinal studies and self-reporting techniques, as long as they are cost-effective, non-invasive and objective.

Treatment and Drug Benefits

Background

12.82 Exhibit 12.12 shows the trend in treatment and drug benefit expenditures since our last audit in 1986.

12.83 Drugs, treatment and medical devices are generally provided to eligible recipients by suppliers such as pharmacists, dentists, audiologists and optometrists. In order to ensure cost-effective control over the services provided by these suppliers, most public and private sector medical plans have instituted controls for use and price. These controls usually include limits on the number of times a service can be used in a period (for example, eye glasses once every two years), limits on the type and number of drugs for which reimbursement will be made, requirements to use generic equivalents, monitoring of use to detect unusual patterns and preauthorization for certain services. Veterans Affairs has a contract with a private sector health insurer to deliver treatment and drug benefits. We examined the extent to which the Department has implemented controls to ensure cost-effective delivery of drug and treatment benefits.

Controls implemented for all non-drug services

12.85 Effective December 1995, Veterans Affairs introduced revised dollar and frequency-of-use limits as well as preauthorization for costly items for all other treatment benefits except drugs. We found that these new controls are comparable to those of other public and private sector plans. We also noted that exceptions can be made to meet the individual needs of recipients.

Improved controls for drugs are planned

12.87 Research indicates that elderly populations are particularly at risk for overmedication and inappropriate drug use. Many Canadian jurisdictions and health care plans are implementing procedures to monitor drug use and better manage health care. This monitoring has a number of benefits including cost containment, detection of overuse of medication and detection of unsafe drug interactions. In general, although the Department has such information available, its monitoring program has been limited to procedures that focus on potential errors or abuse. However, we noted the Department's Pacific region has established a treatment and drug benefit review committee whose objective is to better manage and control the treatment and drug benefits in the region.

12.88 As part of the introduction of changes to the drug formulary, the Department plans to move to "real-time" control over drug purchases through a system developed by its contractor. It is the intention of the Department to design a system that will adjudicate drug claims against an individual's approved drug benefits at the time of purchase. The proposed system will be designed to improve controls and monitoring of quality of care by identifying drug interactions or cases of overmedication.

12.89 While Veterans Affairs expects to implement the new drug formulary and real-time adjudication in 1997, it had not developed a firm implementation date, a plan or budget at the time of our audit.

12.90 The Department has estimated that the new monitoring system and revised drug formulary will reduce drug costs by approximately 10 percent or $7 million annually. In addition, the Department believes that monitoring of drug use will provide better quality of care. We are concerned that delays in implementing the new approach may delay receipt of the benefits.

12.91 Veterans Affairs should develop and implement a plan to realize the benefits of the revised drug formulary and improved drug-monitoring system.

Department's response: Work is under way on revisions to both the drug formulary and drug-monitoring system. Implementation is set for 1997.

The method of controlling over-the-counter medications is costly

12.93 We believe that the Department needs to explore less costly alternatives to the current method of providing over-the-counter medications. For example, it could provide individuals with an annual discretionary limit that could be billed directly to the Department. Another alternative may be to negotiate an annual handling fee with pharmacists to provide these medications.

12.94 Veterans Affairs should explore less costly means of providing over-the-counter medication to its clients.

Department's response: The Department agrees that the current means could be costly, and will examine alternatives, considering feasibility and with an eye to implementation, along with the revised drug formulary and monitoring framework.

Conclusion on Health Care

• The Department requires more knowledge about the number and needs of its future clients and must complete its plan to meet those needs.
• Better cost-control measures need to be implemented for the key health care program elements.
• The expected quality of care needs to be better defined and monitored.
• More effective partnerships with provincial governments and other providers need to be developed.
• The Department needs to hold the providers more accountable for the level, appropriateness, outcomes and cost of service provided.

About the Audit

Scope

We also examined changes in the pension process that came into force on 15 September 1995. Because of these major changes, we limited the scope of our audit to documenting concerns about the timeliness of the previous pension approval process and the targeted reduction in average approval time.

We did not audit the economic support program because significant decreases in the size of this program are expected to continue over the next few years.

Objectives

• how the Department identifies and plans to meet the health care needs of veterans;
• the Department's management of jurisdictional issues with provinces;
• the Department's procedures for ensuring that clients have received only those health care benefits to which they are entitled; and
• if the Department is acquiring long-term care, treatment and other health services in a cost-effective manner.

Audit Team

For information, please contact John O'Brien, the responsible auditor.