oversight

VA Health Care: Improvements Needed in Capital Asset Planning and Budgeting

Published by the Government Accountability Office on 1999-08-13.

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

                  United States General Accounting Office

GAO               Report to the Secretary of Veterans
                  Affairs



August 1999
                  VA HEALTH CARE
                  Improvements Needed
                  in Capital Asset
                  Planning and
                  Budgeting




GAO/HEHS-99-145
                           United States
GAO                        General Accounting Office
                           Washington, D.C. 20548

                           Health, Education, and
                           Human Services Division

                           B-282935

                           August 13, 1999

                           The Honorable Togo D. West
                           The Secretary of Veterans Affairs

                           Dear Mr. Secretary:

                           On March 10, 1999, we testified before the Subcommittee on Health, House
                           Committee on Veterans’ Affairs, on the management of health care assets
                           within the Department of Veterans Affairs (VA).1 In summary, we
                           concluded that unless VA implements more effective capital asset planning
                           and budgeting processes, it may may spend billions of dollars operating
                           hundreds of unneeded buildings over the next 5 years or more. This report
                           contains recommendations to VA for completing key actions necessary to
                           meet these objectives. Our March 10th testimony is reprinted as appendix
                           I. Among other things, the testimony describes the scope and methodology
                           of our work, which was performed between July 1998 and February 1999
                           in accordance with generally accepted government auditing standards.


                           VA’s large, aged infrastructure could be the biggest obstacle confronting its
VA’s Asset Planning        efforts to transform itself from a hospital-based operator to a health care
Needs to Be Improved       provider that relies on integrated networks of VA and non-VA providers to
                           meet veterans’ health care needs. Over the next few years, VA could spend
                           one of every four of its health care dollars operating, maintaining, and
                           improving capital assets at its 181 major delivery locations that encompass
                           over 4,700 buildings on 18,000 acres of land nationwide.

                           The Office of Management and Budget (OMB) encourages federal agencies
                           to develop long-term “asset plans” as part of their capital planning
                           process and use these plans, among other things, to justify budget requests
                           to the Congress.

                           To obtain the best use of capital resources, OMB guidelines suggest that
                           agencies conduct market-based assessments to determine asset needs.2
                           These assessments include

                       •   determining a target population’s needs,
                       •   evaluating the capacity of existing assets,

                           1
                            VA Health Care: Capital Asset Planning and Budgeting Need Improvement (GAO/T-HEHS-99-83, Mar.
                           10, 1999).
                           2
                            OMB, Capital Programming Guide, Version 1.0 (Washington, D.C.: OMB, July 1997).



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•   identifying any performance gaps (excesses or deficiencies),
•   estimating assets’ life-cycle costs, and
•   comparing such costs with alternatives for meeting the target population’s
    needs.

    State and private organizations have achieved positive results using such
    planning processes.3

    VA has delegated basic health care planning responsibilities to its 22
    regional offices, each of which oversees from 5 to 11 major health care
    delivery locations. Each regional office has developed a 5-year business
    plan that includes management of the health care assets under its control.

    These plans indicate that billions of dollars may be used to operate
    hundreds of unneeded buildings over the next 5 years or more. This is
    because VA plans to continue to operate and therefore necessarily maintain
    its 181 major delivery locations, even though most locations operate in
    markets that include two or more VA locations.4 Also, VA does not
    systematically assess all life-cycle costs or logical alternatives for meeting
    veterans’ needs before deciding that capital investment is necessary.

    If VA followed OMB’s guidelines, in our view, its planning would focus on
    assets needed to meet veterans’ needs in 106 markets. These markets
    include

•   66 with a single VA location and
•   40 with multiple VA locations (between two and nine).

    VA’s 40 multiple-location markets yield great opportunities for asset
    restructuring and benefit enhancements for veterans because these
    markets have 115 delivery locations that

•   have utilization significantly below inpatient capacity and
•   compete with other VA locations to serve rapidly declining veteran
    populations.

    VA’s 66 single-location markets also could yield significant opportunities
    for restructuring and enhanced benefits for veterans. Like the

    3
    Executive Guide: Leading Practices in Capital Decision-Making (GAO/AIMD-99-32, Dec. 1998) and VA,
    Capital Inve$tment$: Survey of Best Practices (Washington, D.C.: VA, May 1998).
    4
     A market, for purposes of this statement, is defined as a geographic area with a high concentration of
    veterans, generally within 60 minutes of an existing VA major delivery location.



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                       multiple-location markets, many single-location markets are in geographic
                       areas that have rapidly declining inpatient workloads and veteran
                       populations.


                       In our testimony, we also pointed out that VA’s budgeting processes have
VA’s Capital           weaknesses that could result in unwise capital asset investment decisions
Investment Budgeting   totaling hundreds of millions of dollars. Improvements are needed in VA’s
Needs to Be Improved   centralized budget development process to review and approve high-cost
                       capital investments ($4 million or more) under its major construction
                       appropriation as well as in its decentralized review and approval process
                       that is used for less expensive health care capital investments under VA’s
                       minor construction and medical care (nonrecurring maintenance)
                       appropriations.

                       To its credit, we noted that VA has significantly improved its centralized
                       budget process by requiring more rigorous, systematic assessments of
                       proposed major investments than VA has done previously. But this process,
                       in our view, still relies on inconsistent or incomplete information.
                       Improved data could allow VA to enhance the precision of its guidance for
                       rating some decision criteria and thereby strengthen its asset management
                       decision-making process.

                       We also expressed concerns about VA’s decentralized assessment process
                       for less expensive capital investments. VA’s 22 regional offices use varying
                       approaches, which are considerably less rigorous than that used in VA’s
                       centralized process. These investment decisions, for example, are
                       generally made without systematically assessing ways to redesign or
                       simplify work processes or explore lower-cost alternatives for meeting
                       veterans’ needs.

                       We find this troublesome because such decisions account for over
                       85 percent of VA’s total health care investment dollars requested for fiscal
                       year 2000. Some VA service delivery locations, for instance, opt not to
                       submit investment proposals to VA’s centralized process. Officials at some
                       of these locations told us that there is a better chance of receiving funds,
                       through the decentralized process, if a high-cost investment is divided into
                       several less expensive investments that can be spread over several years.
                       The decentralized process requires less information from locations
                       regarding benefits, risks, or alternatives to a proposed investment.




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                         Over the last 3 years, VA has significantly reduced the number of high-cost
                         investment proposals, involving alterations or improvements, submitted
                         for VA’s centralized review and prioritization. This has resulted in a
                         disturbing situation whereby VA’s decentralized process has approved
                         investments that VA’s centralized process had found to be or would
                         consider to be low priority or unsound.


                         VA could enhance veterans’ health care benefits if it reduced the level of
Conclusions              resources spent on underused or inefficient buildings and used these
                         resources instead to provide health care more efficiently in existing
                         locations or closer to where veterans live.


                         We recommend that you develop asset-restructuring plans for all markets
Recommendations to       to guide future investment decision-making, among other things. These
the Secretary of         plans should comply with OMB guidelines and incorporate best practices of
Veterans Affairs         industry as well as those of VA’s 181 delivery locations.

                         Until more effective capital asset planning is in place, we recommend that
                         you

                     •   require that a larger share of health care investment decisions be made
                         using VA’s centralized budget process or
                     •   ensure that the fundamental principles underlying that process are
                         rigorously implemented when making decentralized health care
                         investment decisions.

                         To reduce subjectivity and thereby enhance the credibility of VA’s
                         centralized budget process, we recommend that you

                     •   modify written guidelines to describe, in greater detail, minimum
                         quantitative data required for each decision criterion and
                     •   exclude from the prioritization process all capital investment proposals
                         that fail to meet the information requirements.


                         In commenting on a draft of this report, the Department of Veterans
Agency Comments          Affairs generally concurred with our recommendations. VA said that it and
and Our Evaluation       the Veterans Health Administration are considering several approaches for
                         addressing our recommendations, but that no final decisions had yet been
                         made. VA further noted that the Capital Investment Board will work with



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the Veterans Health Administration to achieve a balance in the centralized
investment process and will obtain outside review to revalidate that
process. We urge VA to develop such an approach as expeditiously as
possible, because the cost of delaying realignment of VA’s health care
system is high.5

As you know, 31 U.S.C. 720 requires you as the head of a federal agency to
submit a written statement on actions taken on our recommendations to
the Senate Committee on Governmental Affairs and the House Committee
on Government Reform not later than 60 days after the date of this report
and to the House and Senate Committees on Appropriations with the
agency’s first request for appropriations made more than 60 days after the
date of this report.


We are sending copies of this report to Chairman Stearns and Ranking
Minority Member Gutierrez of the Subcommittee on Health, House
Committee on Veterans’ Affairs; Chairman Everett and Ranking Minority
Member Brown of the Subcommittee on Oversight and Investigations,
House Committee on Veterans’ Affairs; Chairman Bond and Ranking
Minority Member Mikulski, Subcommittee on VA, HUD, and Independent
Agencies, Senate Committee on Appropriations; Chairman Walsh and
Ranking Minority Member Mollohan, Subcommittee on VA, HUD, and
Independent Agencies, House Committee on Appropriations; and the
Director of the Office of Management and Budget. We will also make
copies available to others upon request.




5
 VA Health Care: Challenges Facing VA in Developing an Asset Realignment Process
(GAO/T-HEHS-99-173, July 22, 1999).



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If you or your staff have any questions concerning this report, please
contact me at (202) 512-7101. Other GAO contacts and staff
acknowledgments are listed in appendix III.

Sincerely yours,




Stephen P. Backhus
Director, Veterans’ Affairs and
  Military Health Care Issues




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Contents



Letter                                                                                           1


Appendix I                                                                                      10

GAO Testimony Dated
March 10, 1999
Appendix II                                                                                     37

Comments From the
Department of
Veterans Affairs
Appendix III                                                                                    39

GAO Contact and Staff
Acknowledgments
Related GAO Products                                                                            40




                        Abbreviations

                        OMB      Office of Management and Budget
                        VA       Department of Veterans Affairs


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Appendix I

GAO Testimony Dated March 10, 1999




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Appendix II

Comments From the Department of
Veterans Affairs




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Comments From the Department of
Veterans Affairs




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Appendix III

GAO Contact and Staff Acknowledgments


                  Paul Reynolds, (202) 512-7109
GAO Contact
                  Walter Gembacz, Fred Caison, Dawn Shorey, Mike Gorin, Richard Wade,
Staff             Maria Vargas, and Jim Espinoza made key contributions to this report.
Acknowledgments




                  Page 39                            GAO/HEHS-99-145 Capital Asset Restructuring
Related GAO Products


              VAHealth Care: Challenges Facing VA in Developing an Asset Realignment
              Process (GAO/T-HEHS-99-173, July 22, 1999).

              Veterans’ Affairs: Observations on Selected Features of the Proposed
              Veterans’ Millennium Health Care Act (GAO/T-HEHS-99-125, May 19, 1999).

              Veterans’ Affairs: Progress and Challenges in Transforming Health Care
              (GAO/T-HEHS-99-109, Apr. 15, 1999).

              VA Health Care: Capital Asset Planning and Budgeting Need Improvement
              (GAO/T-HEHS-99-83, Mar. 10, 1999).

              Major Management Challenges and Program Risks: Departments of
              Defense, State, and Veterans Affairs (GAO/T-NSIAD/HEHS/AIMD-99-104, Feb. 25,
              1999).

              Major Management Challenges and Program Risks: Department of
              Veterans Affairs (GAO/OCG-99-15, Jan. 1999).

              Executive Guide: Leading Practices in Capital Decision-Making
              (GAO/AIMD-99-32, Dec. 1998).

              Veterans’ Health Care: Challenges Facing VA’s Evolving Role in Serving
              Veterans (GAO/T-HEHS-98-194, June 17, 1998).

              VAHospitals: Issues and Challenges for the Future (GAO/HEHS-98-32, Apr. 30,
              1998).

              VAHealth Care: Closing a Chicago Hospital Would Save Millions and
              Enhance Access to Services (GAO/HEHS-98-64, Apr. 16, 1998).

              Budget Issues: Budgeting for Capital (GAO/T-AIMD-98-99, Mar. 6, 1998).

              Department of Veterans Affairs: Programmatic and Management
              Challenges Facing the Department (GAO/T-HEHS-97-97, Mar. 18, 1997).




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