STATEMENT OF MICHAEL WALCOFF
DEPUTY UNDER SECRETARY FOR BENEFITS
VETERANS BENEFITS ADMINISTRATION

BEFORE THE
HOUSE COMMITTEE ON VETERANS' AFFAIRS
SUBCOMMITTEE ON DISABILITY ASSISTANCE AND MEMORIAL AFFAIRS

EXAMINING THE VA CLAIMS PROCESSING SYSTEM

February 14, 2008

Mr. Chairman and members of the Subcommittee:

Thank you for providing me the opportunity to appear before you today to discuss the Veterans Benefits Administration's ( VBA) claims inventory and claims processing system. I am pleased to be accompanied by Ms. Diana Rubens, VBA's Associate Deputy Under Secretary for Field Operations and Mr. Brad Mayes, VBA's Director of Compensation and Pension Service.

Today, my testimony will focus on two efforts we currently have in progress to improve claims processing: our aggressive hiring initiative and an independent study of the claims process conducted by IBM Global Business Services.

Inventory

Before I begin discussing our efforts to improve claims processing, I would like to talk about our inventory and productivity. As of January 31, 2008, VBA's pending inventory was 397,077. There are numerous factors that contribute to that number, the two primary ones being the increase in the number of claims filed and the increased complexity of those claims. The number of veterans filing initial disability compensation claims and claims for increased benefits has increased every year since FY 2000. In FY07, we received a total of 838,141 rating-related claims, compared to 578,773 in FY 2000, an increase of forty-five percent. This high level of claims activity is expected to continue over the next few years due to claims from Operation Iraqi Freedom and Operation Enduring Freedom veterans; the addition of type II diabetes as an Agent Orange presumptive disability; more beneficiaries on the rolls with resulting additional claims for increased benefits; and improved and expanded outreach to active-duty servicemembers, guard and reserve personnel, survivors, and veterans of earlier conflicts.

VBA has maintained the inventory at the 400,000 level for the last year due, in large part, to the productivity of our employees. In fact, VBA is 21 percent more productive now compared to two years ago. If you look at the current fiscal year alone, production is already up almost 13 percent compared to FY07. In FY08, we expect to make decisions on over 878,000 claims and in FY09, we expect that number to increase to over 942,000 claims. Our increased productivity will have a significant positive impact on our inventory.

The term "backlog" is frequently used when discussing VBA inventory, but it is not universally understood. Oftentimes you will hear that VBA has a "backlog" of approximately 400,000 claims. As stated earlier, 397,077 is the current number of disability claims that are pending determination. This inventory includes all claims, whether pending a few days or a few months. "Backlog" is actually the current inventory minus the normal running inventory if we are meeting our timeliness goals. For example, in FY 2008, we expect to receive 854,000 claims, or 71,000 claims per month. Achievement of our strategic target of 145 processing days would result in a consistent running inventory of approximately 339,000 claims at any given time. That means with an inventory of 400,000, 61,000 claims should be considered "backlog."

VBA is continually seeking new ways to decrease the pending inventory of disability claims and shorten the time veterans must wait for decisions on their claims. Key to our success will be our ongoing longer-term effort to enhance and upgrade our claims processing systems through integration of today's technology. In the near term, we have two initiatives that I would like to highlight here today.

Hiring Initiative and Training

In FY 2007, we implemented an aggressive nationwide hiring initiative to provide more timely decisions. More than 1,800 new employees have been added since January 2007. VBA's hiring plan will add an unprecedented total of 3,100 additional employees by the end of this fiscal year. We are also conducting ongoing recruitment to replace staffing losses due to normal attrition.

To enhance rapid integration into the claims production process, we modified our new employee training program to focus initial training on specific claims processing functions. This will allow new employees to become productive earlier in their training program and, at the same time, allow our more experienced employees to focus on the more complex and time-consuming claims. By more effectively utilizing both newly hired employees and experienced claims processors, we expect to reduce the pending claims inventory and improve claims processing timeliness in FY 2008.

Independent Study of the Claims Process

Adding more decision makers is only one part of VBA's strategy to further improve claims processing. Throughout out the last few years, VBA has implemented a variety of initiatives aimed at better managing the disability claims workload and improving benefits processing. Some of the initiatives include implementation of a consistent organizational structure across regional offices, establishment of an aggressive quality assurance program, centralization and standardization of training, and consolidation of specialized processing operations. VBA continues to develop new initiatives and strategies aimed at addressing the challenges posed by the number of claims received, the greater number of disabilities veterans now claim, the increasing complexity of the disabilities claimed, and the changes in law and processes.

Because of the increasing and changing workload and workforce and VBA's desire to ensure the most effective methods of organizing work and maximizing resources are in place, we sought help from the private sector. In September 2007, VBA contracted with IBM Global Business Services to analyze our current business processes and provide recommendations to further improve our operational efficiency and consistency.

From October 2007 through January 2008, IBM conducted a detailed review of the business processes involved with adjudicating a claim, beginning with application receipt and ending with notification to the claimant. To date, IBM has provided VBA with a gap analysis, which identifies the gaps between VBA's current process and IBM's envisioned process. The gap analysis also includes short-term and long-term recommendations to help VBA improve its processes. Overall, IBM's recommendations validate areas for efficiency gains already identified internally.

Both the short-term and long-term recommendations made by IBM focus on the phases of the claims process and specific activities under VBA's control. The short-term recommendations are incremental enhancements VBA can make to the existing business processes to realize benefits in efficiency and productivity in the near term. Because our current claims process is heavily reliant on paper and the movement of paper claims folders, the greatest efficiencies will be gained as a result of IBM's longer-term recommendations to move to an electronic, paperless environment.

Recommendations

Managing workflow, monitoring performance, and tracking the number of claims processed are critical to maintaining processing efficiencies. The average number of medical disabilities or conditions claimed on original applications is increasing. To further enhance our ability to monitor performance, the study team recommends the creation of a performance measurement system focused on tracking the number of medical disabilities or issues claimed. IBM believes that this issue-based performance measurement system, in conjunction with the existing claim-based performance measurement system, will result in a more accurate and detailed measure of productivity and workload. Under the current claim-based performance measurement system, a regional office is given the same credit for completing a claim with one issue as a claim with forty issues. The study team believes that measuring work output by both number of claims and number of issues at an organizational level is a more accurate assessment of a regional office's productivity. In addition, an issue-based performance measurement at an individual level will provide more specificity in the activities of staff and result in increased accountability overall.

VBA agrees with the idea of adding an issue-based performance measurement system to our current reporting structure. This system will provide us with a better understanding of our workload and productivity. However, VBA must ensure that our claims processors stay veteran-focused. Consequently, we must continue to pay benefits on specific issues as soon as possible, but remain cognizant that a claim is not complete until all issues have been resolved.

When analyzing our claims process, the study team noted that a bottleneck occurs during the time VBA waits for a response to our Veterans Claims Assistance Act ( VCAA) letter. Upon receipt of a claim for benefits, claims processors must carefully analyze all issues claimed and determine what evidence is necessary to substantiate the claim. Under VCAA, claims processors must also provide a letter to the claimant detailing the evidence required and which party ( VA or the claimant) is responsible for obtaining the evidence. Under statute (38 USC 5103), claimants have one year from the date of the VCAA notification to submit any requested evidence. However, VA may make a decision on the claim prior to the one-year expiration. Current VBA procedures allow 60 days for a claimant to respond to a request for evidence before VBA makes a decision.

To help streamline this evidence-gathering process, IBM recommends we simplify the VCAA letter and also reduce the evidence-gathering time period from 60 days to 30 days. The current VCAA letters are lengthy and contain complex legal language that many claimants find difficult to understand. Additionally, the VCAA letters include a waiver that allows the claimants to certify that they have no additional evidence and waive the 60-day evidence-gathering time period. IBM believes that if the letter were simpler to understand, the likelihood of a veteran responding to the VCAA letter with either additional evidence or waiver of the 60 day period would increase.

VBA agrees that a simplified VCAA letter will reduce confusion and misunderstanding by the veteran. In fact, VBA is currently working closely with the VA's Office General Counsel to revise and simplify the letter. However, we must ensure that any new language also meets legal requirements. We anticipate these revisions will be completed by August 2008. VBA has also considered a reduced time period for evidence gathering and agree that it would have measurable results in improving claims processing timeliness.

To achieve large-scale improvements in efficiency and productivity, however, VBA must make a fundamental shift in how we process compensation and pension claims. All of the study's long-term recommendations focus on information technology enhancements that will allow VBA to move into a paperless environment. Where work can be managed electronically and automation can reduce manual activities freeing up resources for more value-added decision making. Eliminating manual processes is also necessary to greatly improve VBA's timeliness. IBM believes that one of the critical first steps for VBA to transition is to enhance the current Veterans Online Application (VONAPP).

Because VONAPP is not integrated with our IT systems, claims processors must manually enter data provided in the online applications into our claims processing systems. Additionally, VBA does not currently have the capability or the authority to use e-signature and e-authentication. With these two features, claimants would no longer have to submit a "wet" signature in addition to their online application before benefits can be paid. Once e-signature and e-authentication elements are in place, VBA can create direct data feeds into our IT applications, thereby streamlining the data entry process.

Enhancing VONAPP is a critical step in moving to a paperless environment. VBA is currently coordinating with VA's Office of Information and Technology to resolve all data privacy and security concerns. In addition, we are working through VA's Office of General Counsel to resolve any regulatory issues regarding the need for a "wet" signature. Following approval and verification of security, implementation is expected to begin in FY 2009.

Another key element in a paperless environment is electronic workflow management, which would reduce our reliance on the physical movement of a claims folder to trigger the next step in the claims process. Work would automatically flow between claims processors as each activity is completed. Management would be able to allocate resources electronically based on individuals' workloads and available hours. Additionally, claims processing work would no longer be limited to a specific regional office. Work could be transferred instantaneously to any one of our regional offices, allowing for improved balance of our workload and increased utilization of resources nationwide.

Electronic workload management will only be successful if completed in conjunction with an electronic content management system ( ECM). The disability claims process is very paper-based and requires a vast amount of space to store all of the associated documentation. In the study team's envisioned paperless environment, ECM is integrated with business applications via an Electronic Folder (eFolder). The ECM system would pull relevant data from the corporate database to populate the eFolder. The biggest challenge and expense for VBA to convert to electronic content management is the scanning of paper records.

VBA has initiated two pilot efforts to test our ability to shift to a paperless environment and to test the utility of imaging technology. The Virtual VA application is being used for both pilot programs. Through the pilot programs, we continue to refine our business processes and identify necessary enhancements that will allow us to expand the use of imaging technology. We are also leveraging the lessons learned and the imaging accomplishments in our Insurance, Education, and Loan Guaranty programs.

As VBA transitions to paperless processing, claimants' access to information will expand. The study team recommends the creation of a secure web portal so that claimants can access claim information and request transactions online. Currently, claimants may check the status of their claim by calling the toll-free number, by visiting a regional office, or through their veterans service organization.

The study team believes that creation of a secure web portal will reduce telephone call volume, improve claim processing transparency, and increase claimant knowledge of the claims process. In addition to claim status, the team recommended the secure web portal contain functionality to allow online claim submission with e-signature, updates to contact information, review of prior and current benefits, online help, and frequently asked questions.

VBA has a secure web portal called the Veterans Information Portal ( VIP ). The primary external users of VIP are lenders and appraisers who are assisting veterans in the Loan Guaranty Program. Through VIP, external users can access web-enabled computer applications. Currently, there are no disability compensation business applications available to external users through VIP, but efforts are underway as the President's Commission on Care for America's Returning Wounded Warriors also recommended that VA and DoD develop an interactive web portal.

We believe that the independent study by IBM validates our current course of action to improve claims processing timeliness, particularly with regard to information technology. Despite ongoing challenges, VBA continues to develop new strategies to improve claims processing and reduce the time veterans must wait for decisions.

Mr. Chairman, this concludes my testimony. I will be happy to respond to any questions that you or other members of the Subcommittee have.