oversight

VA Health Care: Estimates of Available Budget Resources Compared with Actual Amounts

Published by the Government Accountability Office on 2012-03-30.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States Government Accountability Office
Washington, DC 20548



           March 30, 2012

           The Honorable Patty Murray
           Chairman
           The Honorable Richard Burr
           Ranking Member
           Committee on Veterans’ Affairs
           United States Senate

           The Honorable Jeff Miller
           Chairman
           The Honorable Bob Filner
           Ranking Member
           Committee on Veterans’ Affairs
           House of Representatives

           Subject: VA Health Care: Estimates of Available Budget Resources Compared with
                   Actual Amounts

           The Department of Veterans Affairs (VA) is one of the nation’s largest health care
           providers. In fiscal year 2011, VA spent about $51.4 billion to provide health care
           to about 6.2 million patients. To provide this care, VA operates more than
           150 hospitals, 130 nursing homes, 800 outpatient clinics, and 300 readjustment
           counseling centers through 21 regional health care networks known as Veterans
           Integrated Service Networks. 1 VA is required by law to provide health care services
           to certain veterans and may provide care to other veterans on a discretionary basis. 2
           In general, veterans must enroll in the VA health care system to receive VA’s
           medical benefits package, which includes coverage for a full range of hospital and
           outpatient services, prescription drug coverage, and noninstitutional long-term care



           1
            VA is responsible for providing health care services to various populations, including an aging
           veteran population and a growing number of younger veterans returning from the military operations
           in Afghanistan and Iraq.
           2
            VA is required to provide health care services to specified veterans, such as those with service-
           connected disabilities, income below a certain level, or other special statuses, such as former
           prisoners of war. See 38 U.S.C. § 1710(a)(1), (2). VA is authorized to provide care to other veterans
           not identified in these groups. See 38 U.S.C. § 1710(a)(3). Requirements for VA health care services
           are effective in any fiscal year only to the extent and in the amount provided in advance in
           appropriations acts for such purposes. See 38 U.S.C. § 1710(a)(4). To manage the provision of
           health care services within available resources, VA operates a system of annual patient enrollment,
           as required by 38 U.S.C. § 1705, in accordance with eight listed priorities.



           1                                                            GAO-12-383R VA Budget Resources
services provided in veterans’ own homes and in other locations in the community. 3
VA also provides some services that are not part of its medical benefits package,
such as nursing home care. 4

The amount of funding VA receives to provide its health care services is determined
by Congress in the annual appropriations process. Congress provided new
appropriations 5 of about $48.2 billion for fiscal year 2011 and advance
appropriations of $50.6 billion for fiscal year 2012 for VA health care. 6 In preparation
for the appropriations process, VA must annually develop a budget estimate of the
resources that it believes are needed to provide its health care services. This
estimate is subsequently used to help inform the President’s formal budget request
for appropriations for VA health care. 7

VA’s annual budget estimate for a fiscal year includes estimates of the resources
available to provide VA health care services. 8 This includes an annual estimate of
the amount of resources expected to be available from collections and
reimbursements that VA anticipates it will receive in the fiscal year. It also includes
an estimated amount of resources VA has not spent—known as an unobligated
balance—that VA is authorized to carry over into the following fiscal year from the
previous one. 9 VA’s collections include third party payments from veterans’ private
health care insurance for the treatment of nonservice-connected conditions and
veterans’ copayments for outpatient medications. VA’s reimbursements include
amounts VA receives for services provided under service agreements with the

3
 VA provides adult day health care, respite care, and other noninstitutional long-term care services as
part of the medical benefits package provided to all enrolled veterans. See 38 U.S.C. §§ 1701(6)(E),
1710B; 38 C.F.R. § 17.38.
4
 VA is required by law to provide nursing home care to certain veterans needing such care who also
have service-connected disabilities, and VA also makes nursing home care available to other
veterans on a discretionary basis as resources permit. See 38 U.S.C. § 1710A.
5
 We use the term “new appropriations” to refer to the appropriations provided during the current
annual appropriations process for the upcoming fiscal year and, in the case of “advance
appropriations,” appropriations provided for the following fiscal year.
6
 Veterans Health Care Budget Reform and Transparency Act of 2009, Pub. L. No. 111-81,
§ 3, 123 Stat. 2137, 2137–38 (2009), codified at 38 U.S.C. § 117, provided that VA’s annual
appropriations for health care include advance appropriations that become available 1 fiscal year
after the fiscal year for which the appropriations act was enacted.
7
 See GAO, Veterans’ Health Care: VA Uses a Projection Model to Develop Most of Its Health Care
Budget Estimate to Inform the President’s Budget Request, GAO-11-205 (Washington, D.C.: Jan. 31,
2011); and GAO, Veterans’ Health Care Budget Estimate: Changes Were Made in Developing the
President’s Budget for Fiscal Years 2012 and 2013, GAO-11-622 (Washington, D.C.: June 14, 2011).
8
 VA’s annual budget estimate for a fiscal year also includes estimates of the resources needed to
meet the expected demand for VA health care services. As we have previously reported, VA uses
what is known as the Enrollee Health Care Projection Model (EHCPM) to develop most of its estimate
of the resources needed to meet the expected demand for VA health care services, and VA uses
other methods to develop the remainder of the estimate. See GAO-11-205.
9
 In addition to new appropriations that VA may receive from Congress as a result of the annual
appropriations process, funding may also be available from unobligated balances of multiyear
appropriations, which remain available for a fixed period of time in excess of 1 fiscal year. For
example, VA’s fiscal year 2012 appropriations provided that about $1.75 billion be available for
2 fiscal years. These funds may be carried over from fiscal year 2012 to fiscal year 2013 if they are
not obligated by the end of fiscal year 2012. See Pub. L. No. 112-74, § 227(b), 125 Stat. 786, 1159
(2011).



2                                                              GAO-12-383R VA Budget Resources
Department of Defense (DOD). As indicated in the President’s budget request for VA
for fiscal year 2012, VA estimated it would receive $3.4 billion in collections and
reimbursements and would carry over an unobligated balance of $1.1 billion from
fiscal year 2011. The President’s fiscal year 2012 budget request assumed that VA’s
total spending for health care services would be $54.9 billion to serve an estimated
6.2 million patients.

VA’s estimates of collections, reimbursements, and unobligated balances are part of
VA’s overall formulation of its annual budget estimate. This process is inherently
complex, as VA must rely on assumptions and imperfect information. The process
begins approximately 18 months in advance of the fiscal year for which the
President is requesting funding. As such, VA’s budget formulation, including its
estimates of collections, reimbursements, and unobligated balances, occurs with
significant uncertainty about the future. Our past work has highlighted VA’s
challenges regarding budget formulation in making realistic assumptions about the
budgetary impact of policy changes, making accurate calculations, and obtaining
sufficient data for useful budget projections. 10

Given the importance of VA’s collections, reimbursements, and unobligated
balances in the formulation of its budget estimate and given VA’s budget formulation
challenges, you asked us to examine VA’s experience estimating these funds in the
context of the President’s budget request. In this report, we examine how VA:

     1. estimates the amount of collections and reimbursements, how the estimated
        amounts have compared to actual amounts in recent years, and what factors
        may explain any differences; and
     2. estimates the amount of its unobligated balances, how the estimated amounts
        have compared to actual amounts in recent years, and what factors may
        explain any differences.

To examine how VA estimates the amount of collections and reimbursements for
budget purposes, how VA’s estimates have compared to actual amounts collected,
and the factors explaining the differences, if any, we reviewed VA documents and
interviewed officials from VA’s Veterans Health Administration Office of Finance and
VA’s Chief Business Office. We also examined other information regarding events
that took place during the period of our analysis. For example, we examined whether
or to what extent changes in the health care services VA is required to provide to
certain veterans may impact VA’s actual collections amounts. We obtained
information on the methods, data, and assumptions VA used to develop the
estimates of collections and reimbursements for fiscal years 2005 through 2013. We
also compared VA’s estimated amounts to the actual amounts VA collected or
received for fiscal years 2005 through 2011, as reported in the President’s budget
request for VA. In instances where we identified differences between VA’s estimates
and actual amounts, we also examined factors that could help explain these

10
  See GAO, VA Health Care: Budget Formulation and Reporting on Budget Execution Need
Improvement, GAO-06-958 (Washington, D.C.: Sept. 20, 2006), and VA Health Care: Challenges in
Budget Formulation and Issues Surrounding the Proposal for Advance Appropriations, GAO-09-664T,
(Washington, D.C.: Apr. 29, 2009).



3                                                         GAO-12-383R VA Budget Resources
differences. As part of this analysis, we discussed with VA officials the strengths and
weaknesses of the data we used and examined the consistency of these data in
order to assess the data’s reliability. We determined that the data were reliable for
our purposes.

To examine how VA estimates the amount of unobligated balances to be carried
over from 1 fiscal year to the next, how these estimates have compared with actual
amounts, and what factors explain the difference, if any, we reviewed documents,
interviewed officials from VA’s Veterans Health Administration Office of Finance, and
examined other information regarding events that took place during the time frame
for our analysis. We obtained information on the methods, data, and assumptions
VA used to develop the estimates of its obligations—that is, spending—for fiscal
years 2005 through 2013. We also compared VA’s estimates of its unobligated
balances with the actual balances available to the agency for fiscal years 2005
through 2012 as reported in documents such as the President’s budget request for
VA. In instances when we identified differences between VA’s estimates and actual
balances, we also identified the factors that could help explain these differences. As
part of this analysis, we discussed with VA officials the strengths and weaknesses of
the data we used and examined the consistency of these data in order to assess the
data’s reliability. We determined that the data were reliable for our purposes.

We conducted our work from July 2011 to March 2012 in accordance with generally
accepted government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions
based on our audit objectives.

Results in Brief

VA estimates the amount of collections and reimbursements it expects to receive
each year by using a projection model and other methods. These estimates have
varied when compared with actual amounts for various reasons. VA used a
projection model to estimate its collections for fiscal years 2005 through 2012 based
on data reflecting the amount of health care—known as workload—VA has provided
in the past and the amounts VA has collected in the past. To estimate its collections
in fiscal year 2013, VA began using a second projection model, known as the
Integrated Collections Forecasting Model (ICFM) to estimate collections. The ICFM
relies on many of the same data sources as VA’s previous collections model, but it
also incorporates forecasts related to future workload. For fiscal years 2005
through 2011, VA both overestimated and underestimated its collections. For
example, for fiscal year 2011, VA overestimated the amount of its collections by
about $582 million, or 17 percent. VA officials attribute this difference to several
factors, such as overestimating the amount of collections VA would receive when it
billed veterans’ third-party insurance plans. To estimate the amount of
reimbursements it would likely receive in each of the fiscal years, VA used one of
two methods depending on the year. For fiscal years 2005 through 2011, VA applied
a growth rate to its most recent full year data on actual reimbursement amounts
received to reflect anticipated increases in reimbursements, and for fiscal years


4                                                    GAO-12-383R VA Budget Resources
2012 and 2013, VA relied on individual reimbursement estimates provided by each
of VA’s 21 Veterans Integrated Service Networks. While VA’s estimates of
reimbursements were relatively consistent with actual amounts in fiscal years 2005
through 2007, in fiscal years 2008 through 2011, VA underestimated
reimbursements by an average of $74 million, or 26 percent annually.

VA estimates its unobligated balances based on anticipated spending, and these
estimates have been generally less than actual amounts for various reasons.
Approximately 18 months in advance of the fiscal year for which it is requesting
appropriations, VA begins to develop an estimate of the unobligated balance likely to
be carried over from the prior year into that year. VA determines this amount based
on an estimate of its likely spending—that is, obligations—in that prior fiscal year,
relative to available resources. To the extent VA does not obligate all of its available
resources in the previous year, it can carry over these resources into the following
fiscal year up to the amount authorized by appropriations acts. For fiscal years 2005
through 2011, VA’s estimates of its unobligated balances available to be carried over
were generally less than the actual amounts available to be carried over. For
example, while VA estimated it would have an unobligated balance of $0 to carry
over into fiscal year 2011, VA’s actual unobligated balance was about $1.4 billion. In
contrast, for fiscal year 2012, VA’s estimated and actual unobligated balances were
nearly equal—$1.1 billion and $1.16 billion, respectively. A change in VA policy
helps explain the changing relationship between VA’s estimates and its actual
unobligated balances. VA officials told us that prior to fiscal year 2012, VA’s policy
was for its annual budget estimate to assume that VA would not have unobligated
balances to carry over that would help lower the request for new appropriations for
that fiscal year. In order to implement this policy, VA assumed that it would obligate
all of its available resources during the fiscal year for which they were first made
available. In contrast, VA officials told us that VA changed this policy so that the
agency’s annual budget estimate was based on the assumption that VA would have
an unobligated balance to carry over into fiscal year 2012 in order to help lower the
amount of new appropriations requested for that year.

In commenting on a draft of this report, VA requested that we replace some of the
language from our report that described VA’s change in policy when estimating the
unobligated balance to be carried over into fiscal year 2012. VA requested that we
substitute language explaining that three unique events contributed to the
unobligated carry over into fiscal year 2012: a federal pay freeze, savings from
operational improvements, and updated estimates that reduced program funding
requirements. We did not remove the language VA requested concerning the
information on the fiscal year 2012 change in policy that VA officials consistently
provided us throughout the course of our work. We did, however, revise our draft
report to include VA’s new information although we also note that VA did not provide
documentation to support its assertion.




5                                                    GAO-12-383R VA Budget Resources
Background

VA’s annual budget estimate for a fiscal year includes estimates of the collections
and reimbursements VA expects to receive in the fiscal year and an estimate of the
unobligated balance VA will carry over into the fiscal year from prior years. VA has
statutory authority to collect amounts from patients and private insurance companies
to be obligated for health care services. 11 VA collects first-party payments from
patients, such as copayments for outpatient medications, and third-party payments
from veterans’ private insurance companies for health care services provided to treat
health care conditions that are not service connected. 12 For fiscal years 2005
through 2011, about 95 percent of VA’s collections were from first-party payments
and third-party payments. VA collects the remaining funds for items such as parking
fees. VA has the authority to deposit these collections into the Medical Care
Collections Fund and may use them to provide health care services and to pay
expenses associated with the collections program. 13, 14

To manage veterans’ access to services in relation to available resources, VA
assigns veterans to one of eight priority groups for purposes of enrollment in VA
health care 15 and VA is more likely to collect first- and third-party payments for
veterans in lower priority categories. The order of priority for the categories is
generally based on service-connected disability, income, or other special status such
as having been a prisoner of war. Priority 1—the highest-priority category—consists
of veterans with a service-connected disability rated at 50 percent or more, based on
the severity of the disability. Priority 8—the lowest-priority category—consists of
veterans with no compensable service-connected disability, who have incomes
exceeding certain thresholds, and are not catastrophically disabled. VA is more likely
to collect first-party or third-party payments for veterans in the lower priority
categories who seek medical care at a VA facility, generally because their treatment
is more likely to be for nonservice-connected health care conditions and they are
more likely to have private insurance. For example, veterans in Priority Group 1 are
not required to make copayments for medical care or prescriptions, whereas
veterans in Priority Group 8 are generally required to make copayments for both.
11
     See 38 U.S.C. § 1729.
12
 VA is not authorized to collect for service-connected treatments from third-party insurers. VA can bill
enrollees’ private health insurance policies, including Medicare Supplement Insurance, but cannot bill
Medicare.
13
  Amounts in the Medical Care Collections Fund are available without fiscal year limitation for VA
health care and expenses of certain activities related to collections subject to provisions of
appropriations acts. Appropriations acts have authorized VA to transfer collections to its appropriation
for Medical Services, but provide for these amounts to be available without fiscal year limitation. See,
e.g., Pub. L. No. 112-74, § 215, 124 Stat. 786, 1156 (2011); Pub. L. No. 111-117, § 215, 123 Stat.
3034, 3305 (2009).
14
  Also, in 2003, 2004, and 2008, we found weaknesses in VA’s collections processes that may impair
its ability to maximize the amount of dollars VA receives from these sources. See GAO, VA Health
Care: Third-Party Collections Rising as VA Continues to Address Problems in Its Collections
Operations, GAO-03-145 (Washington, D.C.: Jan. 31, 2003); VA Medical Centers: Further
Operational Improvements Could Enhance Third-Party Collections, GAO-04-739 (Washington, D.C.:
July 19, 2004); and VA Health Care: Ineffective Controls over Medical Center Billings and Collections
Limit Revenue from Third-Party Insurance Companies, GAO-08-675 (Washington, D.C.: June 10,
2008).
15
     See 38 U.S.C. § 1705(a); 38 C.F.R. § 17.36.


6                                                              GAO-12-383R VA Budget Resources
VA’s ability to collect first-party or third-party payments for veterans also varies
depending on the veteran’s age, employment status, type of insurance, and
geographic location.

•    Veteran age: VA is less likely to be able to collect third-party payments for
     services provided to veterans who are 65 years or older than it is for younger
     veterans because VA is not authorized to collect third-party payments from
     Medicare. 16

•    Veteran employment status: VA is also less likely to collect first-party or third-
     party payments for veterans who are unemployed. Veterans who are
     unemployed are less likely to be covered by employer-provided insurance plans,
     and VA may require fewer payments for veterans who experience financial
     difficulties. 17

•    Veteran private insurance type: Finally, VA cannot collect payments from certain
     private insurers. For example, VA cannot collect payments from health
     maintenance organizations (HMO) when VA is not a participating provider unless
     the HMO covers services provided by nonparticipating providers. 18 Therefore, VA
     is less likely to collect third-party payments in regions of the country where a
     large percentage of veterans are enrolled in HMOs.

VA also receives reimbursements for services it provides to other government
entities, such as DOD, or to private or nonprofit entities. For example, VA receives
reimbursements for services provided under service agreements with DOD and
reimbursements from other entities by selling laundry services. 19 These amounts
inform funding decisions reflected in the President’s budget request for VA. In fiscal
year 2011, VA spent about $51.4 billion on health care for veterans and received
about $3.2 billion, or about 6 percent, in collections and reimbursements.

In addition to new appropriations that VA may receive from Congress as a result of
the annual appropriations process, as well as collections and reimbursements,
funding may also be available from unobligated balances from multiyear
appropriations, which remain available for a fixed period of time in excess of 1 fiscal
year. For example, VA’s fiscal year 2011 appropriations provided for some amounts
to be available for 2 fiscal years. These amounts may be carried over from fiscal
year 2011 to fiscal year 2012 if they are not obligated by the end of fiscal year 2011;
16
 Veterans who are age 65 or older may have private health insurance policies, such as Medicare
Supplement Insurance. VA can collect payments from those private health insurers.
17
 Veterans who experience temporary financial difficulties may apply to their local VA facility for
hardship waivers to eliminate copayments for a defined period or to have VA waive a specified
amount of outstanding debt incurred for prior medical services. See 38 U.S.C. § 1710(a)(2)(G);
38 C.F.R. §§ 17.47, 17.105.
18
  VA has interpreted the third-party payments statute to mean that HMOs must pay only to the extent
that they generally cover services provided by health care facilities not affiliated with the HMO and
that HMOs that have a point-of-service option are required to pay VA the same amount that would be
paid under the plan to nongovernment providers. See 38 U.S.C. § 1729; 75 Fed. Reg. 62,348, 62,351
(Oct. 8, 2010).
19
    GAO-06-958.



7                                                               GAO-12-383R VA Budget Resources
the remainder expires at the end of 1 fiscal year. VA and the Office of Management
and Budget consider anticipated unobligated balances, as well as expected
collections and reimbursements, when formulating the President’s budget request.

VA Estimates Collections and Reimbursements Using a Projection Model and
Other Methods, and These Estimates Have Generally Differed from Actual
Amounts

VA uses a projection model each year to estimate most of the amount of
collections—first-party payments and third-party payments—the agency expects to
receive, and depending on the year, these estimates have varied from the actual
amounts to varying degrees. VA estimates the amount of reimbursements it expects
to receive by adjusting its most recent full year data on actual reimbursements to
reflect anticipated increases due to inflation and other factors. While VA’s
reimbursement estimates for fiscal years 2005 through 2007 were relatively
consistent with actual amounts, in subsequent years, VA’s estimates have been less
than actual amounts.

Collections Projection Model Estimates

VA uses a projection model to estimate most of the collections—first-party payments
and third-party payments—the agency is likely to receive each fiscal year. To
estimate its collections for fiscal years 2005 through 2012, VA used a projection
model based on data reflecting VA’s past workload and the amounts that VA has
billed and collected for nonservice-connected health care services in the past.
During this period, VA made a number of changes intended to improve the
projection model it used to estimate collections. For example,

•   In fiscal year 2007, VA began using data on patient demographics in the model,
    including patient age, gender, and income level. VA officials explained that the
    agency included these data to more accurately account for differences in VA’s
    ability to collect first-party payments from patients and third-party payments from
    their health insurance companies. VA officials said that higher income patients
    are more likely to have health insurance that VA can bill and collect for services
    provided when compared with lower income patients.

•   Beginning in fiscal year 2010, VA incorporated additional data into its projection
    model to account for regional differences in the rate patients use medical
    services at each VA medical center and for differences in the average cost of
    health care across VA medical centers. For VA medical centers where the
    average cost per service is higher—due to regional differences in cost of health
    care or to differences in the frequency with which more expensive types of
    medical services are provided—VA can potentially collect more in third-party
    payments.

To estimate its collections for fiscal year 2013 and subsequent years, VA developed
and began using a second projection model, known as the Integrated Collections
Forecasting Model (ICFM). VA officials told us that the agency developed the new
model to provide a more transparent and easily understood approach to forecasting


8                                                     GAO-12-383R VA Budget Resources
collections. The ICFM relies on many of the same factors from VA’s previous
projection model, such as patient age, gender, and income level. However, instead
of using historical workload data, the new model uses workload projections
developed by VA’s Enrollee Health Care Projection Model (EHCPM), which VA uses
to develop its annual health care budget estimate. 20 The ICFM also incorporates
information such as veterans’ Priority Group status and insurance coverage;
economic and medical care market conditions in the region surrounding each VA
medical center; and each medical center’s historical performance in billing and
collecting for the medical services provided by the medical centers. VA officials told
us that this medical center-specific information should improve the new model’s
ability to forecast collections.

When comparing VA’s collection estimates to the amounts it has actually collected,
we found that VA has both overestimated and underestimated these collections,
depending on the fiscal year. For example, for fiscal years 2005 through 2007, VA
overestimated the amount of collections it would receive by an average of about
$570 million, or 22 percent. VA overestimated the amount of collections it would
receive for fiscal years 2005, 2006, and 2007 by about $522 million, $581 million,
and $606 million respectively. For fiscal years 2006 and 2007, VA estimated that it
would increase its collections by over $400 million per year based on legislative
proposals that, if enacted, would have increased certain pharmacy copayments and
implemented an enrollment fee for some veterans. Congress, however, did not pass
these proposals. By contrast, for fiscal years 2008 through 2010, VA underestimated
the amount of its collections by an average of about 6 percent. (See fig. 1.) For the
most recent fiscal year for which data on actual collection amounts are available,
fiscal year 2011, VA overestimated the amount of collections by about $582 million
or 17 percent.




20
 VA used the EHCPM to estimate the resources needed to meet expected demand for 61 health
care services that accounted for 83 percent of VA’s health care budget estimate for fiscal year 2011
and similarly for fiscal year 2012.



9                                                             GAO-12-383R VA Budget Resources
Figure 1: Comparison of VA’s Estimated and Actual Collections, Fiscal Years 2005-2011




For fiscal year 2011, VA officials attributed the difference between VA’s estimated
and actual collections to the following four factors:

•    Fewer new Priority 8 veterans enrolled in VA health care through fiscal year 2011
     than VA projected using its EHCPM. As a result, VA received less in third-party
     collections than the collections model projected. On June 15, 2009, VA began
     enrolling new Priority 8 veterans 21 after a 6-year suspension. 22 VA’s fiscal year
     2011 estimates for collections assumed that about 270,000 new Priority 8
     veterans would enroll for care by the end of fiscal year 2011 and, as a result of
     this change, VA would receive an additional $144 million in third-party collections
     attributable to care provided to these new enrollees. However, fewer than 30,000
21
  A committee report accompanying the Consolidated Security, Disaster Assistance, and Continuing
Appropriations Act, 2009 stated that funding had been provided within VA’s Medical Services;
Medical Support and Compliance; Medical Facilities; Construction, Minor Projects; and Information
Technology Systems accounts to support increased enrollment for Priority 8 veterans whose income
exceeded the current thresholds by 10 percent or less, including $375 million within VA’s Medical
Services account. Accordingly, VA raised the income thresholds, effective June 15, 2009. See Pub. L.
No. 110-329, 122 Stat. 3574, 3704-08 (2008); House Comm. on Appropriations, 110th Cong.,
Consolidated Security, Disaster Assistance, and Continuing Appropriations Act, 2009, div. E, 750
(Comm. Print 2008); 38 C.F.R. § 17.36; 74 Fed. Reg. 22,832 (May 15, 2009).
22
  The Secretary of Veterans Affairs announced on January 17, 2003, that VA would suspend
enrolling Priority 8 veterans. Under a statutory provision added by the Veterans Health Care Eligibility
Reform Act of 1996 the Secretary is required to make an annual decision concerning enrollment in
VA health care in order to ensure that medical services are timely and acceptable in quality. The
enrollment system is necessary because VA health care can be provided only to the extent that
appropriations are available. In its announcement, VA stated that, in recent months, it had been
unable to provide all enrolled veterans with timely access to medical services because of the increase
in the number of veterans seeking care from VA. See 38 U.S.C. § 1705; 68 Fed. Reg. 2670 (Jan. 17,
2003).



10                                                             GAO-12-383R VA Budget Resources
     new Priority 8 veterans actually enrolled through fiscal year 2011 and the
     associated increase in collections was only about $18.5 million. As a result, VA
     received approximately $122 million less in third-party collections than the
     collections model estimated. VA officials told us that EHCPM Priority 8
     enrollment projections used for the fiscal year 2012 collections estimate and
     beyond will better reflect the historical experience with the actual number of new
     Priority 8 enrollees. According to VA officials, VA’s EHCPM model developed the
     fiscal year 2011 Priority 8 enrollment projections using less than 6 months of
     actual data—from June 15, 2009, when VA began enrolling new Priority 8
     veterans to January 2010 when VA’s collections estimates for fiscal year 2011
     were finalized. For fiscal years 2012 and beyond, the EHCPM’s enrollment
     projections will be developed using 18 months or more of actual Priority 8
     enrollment data.

•    The unemployment rate for veterans was likely higher than VA’s projections—
     which were based on economic data for the general population—and thus fewer
     veterans had employer-provided health insurance than projected. VA assumed
     that the average unemployment rate for enrolled veterans for fiscal year 2011
     would be about 8.9 percent nationally and consistent with the unemployment
     projected for the general population that year. 23 However, VA officials said that
     the actual average national unemployment rate for the general population for
     fiscal year 2011 was somewhat higher than projected at 9.2 percent, according to
     Bureau of Labor Statistics data. 24 Further, although data on veteran
     unemployment are not available for fiscal year 2011, VA officials believe that the
     actual unemployment rate for enrolled veterans that year was likely higher than
     the rate for the general population. VA officials said that they base this view, in
     part, on data from a calendar year 2009 survey, which indicated that the
     unemployment rate for the enrolled veteran population was approximately
     13 percent. 25 VA officials said that they believe a higher actual unemployment
     rate than projected among enrolled veterans resulted in fewer veterans having
     employer–provided third-party insurance than the model projected. As a result,
     VA officials believe that this contributed to VA receiving approximately
     $114 million less in third-party collections than the model estimated for fiscal year
     2011. VA officials said that they have made changes in the collections model
     projections to better account for the higher unemployment rate for enrolled
     veterans, and that these changes were implemented in developing the




23
  According to VA officials, VA used unemployment estimates for metropolitan areas that correspond
to locations of VA medical facilities—developed by Moody’s Analytics
(https://www.economy.com/default.asp)—for the fiscal year 2011 collections estimate. The
8.9 percent national unemployment estimate for fiscal year 2011 is an aggregate of these estimates.
24
  Bureau of Labor Statistics, Current Population Survey. Report E-1: Employment status of the
civilian noninstitutional population by sex and age, seasonally adjusted. Accessed January 12, 2012,
at http://www.bls.gov/web/empsit/cpsee_e01.pdf.
25
  VA officials said that they used data from the U.S. Census Bureau’s calendar year 2009 American
Community Survey to develop the unemployment rate for the enrolled veteran population. See
http://www.census.gov/acs/www/.



11                                                           GAO-12-383R VA Budget Resources
     collections estimates which will appear in the President’s budget request for
     fiscal year 2013, including the advance appropriations request for 2014. 26

•    VA received fewer collections when VA billed veterans’ third-party insurance
     plans than VA’s collections model projected—using historical billing data.
     According to VA officials, this was mainly due to shifts in third-party insurance
     plan benefits. In recent years, according to VA officials, insurance plans have
     shifted costs by increasing the out-of-pocket expenses of patients and by
     decreasing the amount paid to medical providers. VA officials told us that the
     collections model assumed that VA would be reimbursed for about 41 percent of
     the total costs VA billed to third-party insurance plans, known as the third-party
     collections to billing ratio. Instead, during fiscal year 2011, VA’s actual third-party
     collections to billing ratio was approximately 36 percent. This difference resulted
     in VA receiving about $250 million less in collections than VA’s model estimated.

•    VA amended its rules regarding herbicide exposure-related conditions and
     implemented changes to veterans’ eligibility for health care. VA amended its
     regulations to classify certain conditions as presumptively service-connected for
     veterans exposed to certain herbicides, which reduced VA’s ability to collect
     payments because VA cannot collect first- or third-party payments for treatment
     of service-connected conditions. 27 VA’s collections were also estimated to
     decrease as a result of VA’s implementation of changes to veterans’ eligibility for
     VA health care made by the Caregivers and Veterans Omnibus Health Services
     Act of 2010. 28 According to VA officials, VA received $67 million less in
     collections than the model estimated because these changes occurred after the
     collections estimates were made.

Estimates Less than Actual Reimbursements

For fiscal years 2005 through 2013, VA estimated the amount of reimbursements—
fees for services provided under service agreements with DOD—it would likely
receive in each of the fiscal years using one of two general methods, depending on
the year. For fiscal years 2005 through 2011, VA officials told us that the agency
estimated the amount of reimbursements it would likely receive each fiscal year by
applying a growth rate to its most recent full year data on actual reimbursement
amounts received in order to reflect increases due to anticipated rates of inflation

26
  VA officials stated that the agency did not use this new methodology when developing the fiscal
year 2013 advance appropriations request which appeared in the President’s budget request for fiscal
year 2012.
27
  On August 31, 2010, VA amended its regulations to add ischemic heart disease, hairy cell leukemia
and other chronic B-cell leukemias, and Parkinson’s disease to the list of diseases presumed to be
related to exposure to certain herbicides. As a result, VA stopped collecting payments from eligible
veterans who were exposed to certain herbicides and subsequently diagnosed with these conditions.
See 75 Fed. Reg. 53,202 (Aug. 31, 2010) (amending 38 C.F.R. § 3.309).
28
  The law (1) exempted catastrophically disabled veterans from copayments for hospital care and
medical services (estimated $6.6 million reduction in collections); (2) classified veterans who received
the Medal of Honor into Priority Group 3 (estimated $4,000 reduction in collections); and (3) removed
the expiration date for the authority to provide treatment to veterans who were exposed to herbicides
in Vietnam and redefined the time period that constitutes the Persian Gulf War (estimated $9.9 million
reduction in collections). See Pub. L. No. 111-163, §§ 511-513, 124 Stat. 1130, 1164-65 (2010).



12                                                             GAO-12-383R VA Budget Resources
and other factors. 29 To develop its estimates for reimbursements for fiscal years
2012 and 2013, VA relied on individual reimbursement estimates provided by each
of VA’s 21 Veterans Integrated Service Networks.

While VA’s estimates of reimbursements were relatively consistent with actual
amounts in fiscal years 2005 through 2007, in subsequent years, VA’s estimates
have been less than the actual amounts. VA underestimated reimbursements by
about $17 million, or 8 percent, in fiscal year 2005, and overestimated
reimbursements by $4 million in fiscal year 2006 and $35 million in fiscal year 2007,
or by 2 percent and 13 percent respectively. However, in fiscal years 2008 through
2011, VA underestimated reimbursements by an average of $74 million, or
26 percent annually. (See fig. 2.) VA officials attributed the differences between its
estimated and actual reimbursements to factors such as an increase in the number
of VA’s sharing agreements with the Department of Defense, which has led to actual
reimbursements exceeding estimates.

Figure 2: Comparison of VA’s Estimated and Actual Reimbursements, Fiscal Years 2005-2011




29
  To develop its estimates for reimbursements for fiscal year 2011, VA used the aggregate growth
rate the agency uses to develop its overall budget estimates. Agency officials referred to this as the
EHCPM aggregate growth rate, and it is the growth rate incorporated into the EHCPM and used to
inform the President’s annual budget request for VA.



13                                                              GAO-12-383R VA Budget Resources
VA Estimates Its Unobligated Balances Based on Anticipated Spending, and
These Estimates Have Been Generally Less than Actual Amounts for Various
Reasons

VA estimates unobligated balances of appropriations available for more than 1 fiscal
year—that is, amounts that may be carried over from one fiscal year to the next—
based on an estimate of its anticipated spending—that is, obligations—in the
previous fiscal year, relative to those available resources. VA estimates about
83 percent of its obligations for that previous fiscal year using the EHCPM, which
incorporates actual data from the most recent fiscal year. This estimate is developed
about 10 months before the President’s request is made and about 18 months
before the fiscal year begins for which the appropriations are requested 30 and for
which VA is estimating the availability of an unobligated balance. For example, VA
developed its estimates of the unobligated balances available at the beginning of
fiscal year 2012 by developing estimates for its likely obligations for fiscal year 2011,
which were based on EHCPM output in fiscal year 2009. VA also uses other data for
the remaining portion of obligations (17 percent), which includes long-term care,
special initiatives, and other services.

Since fiscal year 2005, VA’s estimates of its unobligated balances have been less
than the actual amounts available to carry over into the next fiscal year, with the
exception of amounts carried over from fiscal year 2011 into fiscal year 2012, the
most recent year for which data on actual amounts are available. For example, VA
initially estimated it would have unobligated balances of $510 million to carry over
into fiscal year 2010 and nothing into 2011. However, the actual amounts available
to be carried over were $1.9 billion and $1.4 billion, respectively, for those years. In
contrast, VA’s estimated and actual unobligated balances carried over into fiscal
year 2012 were about the same—$1.1 billion and $1.16 billion, respectively. Figure 3
shows the comparison of estimated and actual unobligated balances that were
available to be carried over into fiscal years 2005 through 2012.




30
   The President’s budget request for VA for fiscal year 2011 also included an advance appropriations
request for fiscal year 2012. VA develops estimates for a request for advance appropriations about
30 months prior to the fiscal year for which the request is made. One year later, VA develops
estimates again for the same fiscal year. These estimates are made about 18 months prior to the
fiscal year and are incorporated into the President’s budget request for the fiscal year, including
revisions to estimates of unobligated balances to be carried over.



14                                                            GAO-12-383R VA Budget Resources
Figure 3: Comparison of Estimated and Actual Unobligated Balances, Fiscal Years 2005-2012




Note: The bars in the figure represent the estimated and actual unobligated balances carried over into each fiscal year. For
example, for fiscal year 2005, the bars represent the estimated and actual unobligated balances on October 1, 2004.


VA policy helps explain the relationship between VA’s estimates and its actual
unobligated balances. VA officials told us that for fiscal year 2012, VA made a policy
decision in advance to assume it would carry over an unobligated balance of
$1.1 billion from fiscal year 2011 into 2012 to help lower the amount of new
appropriations requested for this year. As a result, VA’s estimated and actual
unobligated balances were about the same in fiscal year 2012. According to VA
officials, this assumption was made for fiscal year 2012 in the context of a more
challenging fiscal environment. In March 2012, VA officials informed us that the
actual $1.16 billion unobligated balance VA carried over into fiscal year 2012
resulted from what the agency identified as three unique events: a federal pay freeze
($237 million), savings from operational improvements ($746 million), and updated
estimates of program requirements ($117 million). However, VA officials did not
provide documentation to support VA’s assertion that these events accounted for the
agency’s unobligated balance that year. In regard to VA’s estimate of $746 million in
savings from operational improvements, in particular, we have previously reported
our concerns with some of the estimates of savings from operational improvements
provided in the request for appropriations for fiscal year 2012 and advance
appropriations for fiscal year 2013. 31 It is unclear whether VA used the same
methods to estimate this $746 million because VA did not provide documentation.




31
  See GAO, VA Health Care: Methodology for Estimating and Process for Tracking Savings Need
Improvement, GAO-12-305 (Washington, D.C.: Feb. 27, 2012).



15                                                                            GAO-12-383R VA Budget Resources
In contrast, VA officials also told us that for fiscal years 2008 through 2011, VA’s
policy was for its annual budget estimate to assume that VA would not have
unobligated balances available that would help reduce the new appropriations
requested. 32 In order to implement this policy, VA assumed that it would obligate all
of its available resources during this period. However, VA did not obligate all of its
available resources as projected, and this largely accounts for the differences
between VA’s estimates and actual unobligated balances. For example, according to
VA officials, in fiscal years 2008-2010, VA was not able to obligate all of its
resources due to the following factors:

•    Longer-than-expected award process for planned service contracts. According to
     VA officials, when VA is in the process of finalizing its award of a contract for
     medical services, the agency reserves the full amount of funds associated with
     that contract; however, if VA receives concurrent bids from competing entities,
     the award process takes longer. Specifically, if VA is in the process of evaluating
     bids near the end of the fiscal year, VA may not be able to complete its
     evaluation and award the contract before the end of the fiscal year. As a result,
     VA does not incur an obligation and carries over the associated funds into the
     next fiscal year and awards the contract in the new fiscal year.

•    Delays in planned hiring. According to VA officials, given that the agency has an
     average 16 percent turnover rate each year, VA often experiences delays
     associated with filling these vacancies that range from 90 to 180 days. As a
     result, VA carries over amounts planned for these positions from one fiscal year
     to the next when the vacancies are filled.

•    Multiyear appropriations designated for specific initiatives. For any given fiscal
     year, VA typically receives multiyear appropriations that allow VA to carry over
     unobligated amounts beyond that fiscal year. Additionally, in some instances,
     Congress designates amounts for specific projects or initiatives. If VA does not
     implement the specific project or initiative during the fiscal year, it can use its
     multiyear appropriations to fund the project or initiative in the next fiscal year. For
     example, for fiscal year 2009, Congress appropriated $250 million for the
     establishment and implementation of a new rural health outreach and delivery
     initiative, but VA was not able to establish and implement the rural health
     initiative in fiscal year 2009. Because Congress authorized VA to carry over up to
     $1.6 billion into fiscal year 2010, VA was able to carry over the designated
     amount—that is, $250 million—into fiscal year 2010 for the establishment of the
     rural health initiative.

In addition, differences between VA’s estimated and actual amounts of unobligated
balances for certain fiscal years can be attributed to unanticipated resources—that
is, supplemental appropriations—that VA has received. For example, in May 2007,
Congress appropriated over $1.3 billion in supplemental funds to VA, as part of the
U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability

32
  VA officials told us that, for fiscal year 2010, VA included an estimate of the unobligated balance to
reflect funds made available through the American Recovery and Reinvestment Act of 2009, which
were available for 2 fiscal years—2009 and 2010. See Pub. L. No. 111-5, 123 Stat. 115, 199 (2009).


16                                                              GAO-12-383R VA Budget Resources
Appropriations Act, 2007. 33 VA carried over about $830 million of these funds, which
were to remain available until expended, into fiscal year 2008. This amount
accounted for over 60 percent of the difference between VA’s estimated and actual
unobligated balances carried over into fiscal year 2008. In addition, in February
2009, Congress appropriated $1 billion in supplemental funds for VA health care, as
part of the American Recovery and Reinvestment Act of 2009. 34 VA carried over
about $740 million of these funds into fiscal year 2010. This amount accounted for
40 percent of VA’s actual unobligated balance carried over into fiscal year 2010.
These supplemental appropriations were provided by Congress after the President’s
budget request was submitted in February; therefore, VA could not have accounted
for these additional resources when developing its estimates of the unobligated
balances.

Agency Comments and Our Evaluation

We provided a draft of this report to VA for comment. In its written comments,
reproduced in enclosure I, VA requested that we replace some of the wording we
used to describe and compare VA’s estimate and the actual amount of the
unobligated balance carried over into fiscal year 2012 with alternative wording VA
suggested. VA also provided technical comments, which we incorporated as
appropriate.

In its written comments, VA requested that we remove language from our report that
stated that according to VA officials, VA changed its policy when estimating a
$1.1 billion unobligated balance to be carried over into fiscal year 2012, in order to
help lower the amount of new appropriations VA requested for that year. VA also
requested that we remove language explaining that this change in policy helped
account for the consistency between VA’s estimate and the actual amount of the
unobligated balance carried over into fiscal year 2012. In place of the language VA
suggested removing, VA requested that we insert language explaining that three
unique events contributed to the unobligated balance of approximately $1.1 billion
carried over into fiscal year 2012. VA said that these events were a federal pay
freeze, savings from operational improvements, and updated estimates that reduced
program funding requirements.

We did not delete the language VA requested because VA officials consistently told
us throughout the course of our work that VA changed its policy for estimating the
amount of its unobligated balance to be carried over into fiscal year 2012 and that
this change in policy accounted for VA’s budget justification showing an estimated
amount of $1.1 billion to be carried over into that year. VA officials also told us that in
prior years VA’s policy was to estimate smaller unobligated balances to be carried
over or even a balance of zero for fiscal year 2011, for example, because VA’s intent
was to obligate all of the agency’s available resources. The new policy for fiscal year
2012 resulted in a substantially larger estimate than in recent years and helped

33
 See Pub. L. No. 110-28, 121 Stat. 112, 167-68 (2007). The funds were to remain available until
expended.
34
 See Pub. L. No. 111-5, 123 Stat. 115, 199 (2009). These funds, appropriated to VA’s Medical
Facilities account, remained available until September 30, 2010.



17                                                           GAO-12-383R VA Budget Resources
account for the consistency that year between VA’s estimate and the actual amount
carried over, VA officials told us during our review.

Although we did not remove the language as VA suggested, we revised our report to
include VA’s assertion that the amount of VA’s unobligated balance carried over into
fiscal year 2012 resulted from the three unique events VA identified in its written
comments. However, we also revised our report to note that VA did not provide
documentation to support this statement. During the course of our work, we asked if
VA officials could provide us with a breakdown of the unobligated carryover amount
by program activity and were told that they could not. Finally, regarding VA’s
asserted $746 million in savings from operational improvements, we have previously
reported our concerns with some of the estimates of savings from operational
improvements provided in the request for appropriations for fiscal year 2012 and
advance appropriations for fiscal year 2013. 35

                                      –––––

We are sending copies of this report to appropriate congressional committees and
the Secretary of Veterans Affairs. In addition, the report will be available at no
charge on the GAO website at http://www.gao.gov.

Should you or your staff have questions concerning this report, please contact me at
(206) 287-4860 or WilliamsonR@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page of this
report. Key contributors to this report are listed in enclosure II.




Randall B. Williamson
Director, Health Care

Enclosures – 2




35
 GAO-12-305.


18                                                 GAO-12-383R VA Budget Resources
                 Enclosure I

                               Comments from the Department of Veterans Affairs




Note: Page numbers in
the draft report may differ
from those in this report.




                 19                                           GAO-12-383R VA Budget Resources
Enclosure I




20            GAO-12-383R VA Budget Resources
Enclosure II

                   GAO Contact and Staff Acknowledgments

GAO Contact

Randall B. Williamson, (202) 512-7114 or williamsonr@gao.gov

Staff Acknowledgments

In addition to the contact named above, James C. Musselwhite, Assistant Director;
Melissa Wolf, Assistant Director; Matthew Byer; Krister Friday; Lisa Motley; and Said
Sariolghalam made key contributions to this report.




(290960)



21                                                 GAO-12-383R VA Budget Resources
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