A Review of the Veterans Affairs Board’s Funding of State Veterans’ Homes
Executive Summary
This review focuses on the extent to which the state veterans’ homes have become self-supporting since PEER released its May 2000 report entitled Mississippi’s State Veterans’ Homes: An Analysis of Increasing Reliance on State General Funds and An Examination of Cost Reduction and Funding Options. In order to answer this question, PEER primarily followed up on recommendations contained in the report.
Background
State law authorizes the Veterans Affairs Board to establish homes to “provide domiciliary care and other related services for eligible veterans of the State of Mississippi” (MISS. CODE ANN. Section 35-1-19 [1972]). The board has established state veterans’ homes in Jackson, Collins, Oxford, and Kosciusko. Each of these homes was built to accommodate 150 residents. As of June 30, 2001, a total of 588 residents lived in the four homes, with an occupancy rate of 98%. The homes provide residents with comprehensive care, including room and board, nursing and physician’s services, prescription drugs, and ambulance service.
The Veterans Affairs Board contracts with a management company, Diversified Health Services, to handle day-to-day management of the homes in Jackson, Oxford, and Kosciusko. VAB has directly operated the Collins veterans’ home since July 2000.
Follow-Up Conclusion
The Veterans Affairs Board continues to increase its requests for state general funds, although it has not fully implemented PEER’s May 2000 recommendations to maximize efficiency in operation of the state veterans’ homes or to maximize non-state revenues funding the homes.
Mississippi’s state veterans’ homes were established to be self-supporting. When the Veterans Affairs Board sought authority for creation of the state’s four veterans’ homes, VAB told the Legislature that, aside from one-time state general fund appropriations necessary to start up each of the homes, operations costs would be funded entirely through non-state sources (e.g., federal funds and resident charges).
In 2000, PEER found that general fund support for state veterans’ home operations grew from zero in FY 1990 through 1994 to 13% in FY 1999. PEER again reviewed VAB in 2001, focusing on the extent to which the state veterans’ homes have become self-supporting since PEER released its May 2000 report and whether VAB had followed PEER’s recommendations.
VAB has followed several of PEER’s recommendations, including terminating payments for resident hospital costs (which could have led to significant costs in the event of catastrophic illness of an uninsured resident) and increasing resident fees. However, VAB has not followed other recommendations, because it continues to employ non-nursing staff at a rate greater than that of comparably sized nursing homes in the state and it also continues to pay the nursing home management company for nursing hours not received.
Since PEER’s May 2000 report, VAB’s reliance on state general funds for the state veterans’ homes continued to increase through the state fiscal year ending June 30, 2001, to $2.8 million, the highest amount since the program’s inception in 1990. Subsequent to the May 2000 PEER report, the Legislature decided to reduce its state funding for VAB state veterans’ homes to approximately $2.3 million in FY 2002. Nevertheless, VAB has requested $4.9 million in state general funds for the state veterans’ home program for FY 2003, or more than double the amount appropriated for FY 2002. (See the Exhibit)
Exhibit: Trends in Sources of Revenue for the VAB State Veterans’ Home
Program, FY 1998 to 2001, 2002 Estimate, and 2003 Request (in Millions)
The Veterans Affairs Board’s Management of Collins Veterans’ Home Costs
During the 2000 Regular Session, the Legislature amended the law to allow the State Veterans Affairs Board to be solely responsible for the operation and maintenance of the state veterans’ home located in Collins, Mississippi, beginning on July 1, 2000. The VAB Executive Director stated that he appealed to the Legislature to allow VAB to run the Collins home because of numerous complaints the board had received regarding the quality of care of the Collins home. He believed that VAB could operate the home more efficiently while also providing better care in the process. However, as noted below, PEER has not found evidence that would indicate that VAB has operated the home more efficiently.
A nine percent increase in costs per resident day for the Collins home during FY 2001 indicates that VAB did not fulfill its goal to operate the home more efficiently than did the private management company in FY 2000.
VAB costs per resident per day and costs in total for the Collins home exceeded VAB costs for the other three veterans’ homes in FY 2001. VAB’s FY 2001 costs for the Collins home were $5.72 million. Costs ranged from $5.3 to $5.4 million for the other three homes during the year.
The increased per-resident costs at the Collins home imply that the home had a higher level of direct care nursing hours. However, VAB’s level of direct nursing care hours provided to the veterans’ home at Collins was the next to the lowest of the four homes during the year.
VAB has not yet conducted costs analysis in preparation for filing a statutorily required report by January 1, 2002, with Senate and House committees specifying whether VAB should continue to operate the Collins home.
MISS. CODE ANN. Section 35-1-21 states that “on or before January 1, 2002, the State Veterans Affairs Board shall file a report with the Chairman of the Senate Veterans and Military Affairs Committee and the Chairman of the House Military Affairs Committee specifying its recommendations on whether to continue to manage the Collins, Mississippi, home or to contract with a nongovernmental entity to operate the home.”
Although VAB knew in the spring of 2000 that it would be required to report on its cost efficiency in operating the Collins home, VAB has not adequately prepared since that time to ensure that its report will be thorough and accurate. As of August 2001, VAB had not provided documentation to PEER showing any comparisons of the current Collins home operations with previous management company operations. VAB also had not established accounting system codes to capture costs for FY 2001 in a manner that would allow a complete and consistent comparison to costs incurred by the management company in FY 2000. Also, VAB has not conducted an economy and efficiency study (using existing resources) to determine the “most efficient organization and operation” of the veterans’ homes for comparison with bids to be received in the current management company contract bidding process.
Recommendations
The Legislature should amend MISS. CODE ANN. Section 35-1-21 (4) to allow VAB to contract out the running of the Collins home by a private company if it is found that the company can do so more efficiently than VAB.
In performing its legislatively required cost-efficiency review for the legislative committees in January 2002, VAB should study the various categories (e.g., minor object codes for budgeting purposes) of expenditures of the Collins home both before and after its operation by VAB to determine areas of efficiency and inefficiency and resulting prospects for improvement.
In determining whether VAB should continue to operate the Collins home directly or through a management company, VAB should review bids received for private operation and compare them to state costs of operating the home in an efficient manner, as determined in Recommendation 2.
VAB should specifically review its non-nursing staffing to determine where it may achieve efficiencies, especially at the VAB offices, and determine:
VAB should calculate the cost of these duties at the state agency level so that it can determine if bids to provide these services are competitive. In order to determine this, VAB can require the bidders for management company services to bid separately for these items but as part of the overall contract.
Regarding services currently provided by state employees that VAB may choose to contract out in the future, VAB should ensure that one of its employees monitors the management company’s performance of these services, as well as fulfillment of other terms of the contract.
VAB should closely review contract provisions of all future management company contracts to ensure that they are most cost-beneficial to VAB. For example, in order to ensure that nursing home management company staff use building utilities efficiently, VAB should require that the management company pay for utilities--i.e., electricity, gas, water, and sewerage--at the veterans’ homes as part of its contract.
If VAB continues to operate the Collins home, it should set up its coding of accounts to capture expenditures by function or activity (e.g., housekeeping versus nursing versus administrative costs) in the state accounting system. VAB should set up these codes for the purpose of monitoring its costs more closely and make efficiency comparisons with homes operated by private companies. To facilitate cost comparisons, VAB should also require that VAB nursing home contractors compile financial statements using the same fiscal year as the state and provide them to VAB in computerized format to facilitate spreadsheet analysis.
To reduce dependence on state general funds, VAB should continue to review its resident fee structure and increase resident fees when feasible and as needed to cover veterans’ home costs, especially when the average income of residents is sufficient to withstand increased fees.
VAB should also periodically reassess the potential for other non-state funding sources, including Medicare Part A and B and Medicaid.
VAB should determine the amount of direct nursing care hours needed for its homes and then negotiate contracts for which VAB will only pay for direct nursing services rendered and for which VAB will impose a penalty for failure to meet required levels of care.
In the event that VAB determines that it will allow Diversified to end its nursing home management contract prior to June 30, 2002, VAB should require Diversified Health Services to fulfill its agreement to reimburse VAB all amounts for past nursing services not provided ($367,174 plus the remainder of the $8,826.96 monthly payments due through June 2002). Prior to or upon the date of the termination of the contract, Diversified should pay VAB the full amount of all future payments due.
VAB should not take over operations of the Jackson, Oxford, or Kosciusko homes (i.e., directly operate the homes instead of contracting their operation to a nursing home management company), at least until such time as financial data indicates that VAB can operate the Collins home more efficiently than the management company has operated the other three homes.