Veterans' Affairs

To keep pace with societal and industry changes, the Department of Veterans Affairs (VA) began to transform its health care system in October 1995 from large hospitals to community-based integrated networks of VA and non-VA providers. It established primary care as the dominant delivery model, shifted medical care from inpatient to outpatient settings, and consolidated administrative and clinical services. During the last three years, VA has served 400,000 additional veterans while realizing a nonappropriated revenue surplus of $496 million, having reduced operating costs by more than $1 billion. However, VA has prolonged decisions on the much needed restructuring of aged capital assets, including hospital closures, which could result in billions of dollars in unnecessary outlays during the next several years. VA's fiscal year 2000 budget request for $18.4 billion is based on an unduly optimistic assumption that its health care system overhaul will save $1.4 billion in fiscal year 2000. For example, VA anticipates that employment reductions will be more than three times greater than expected fiscal year 1999 reductions, but it has not taken the underlying management actions necessary to make that possible. Moreover, VA might have to resort to large-scale employee furloughs to operate within its proposed budget, which could harm veterans' quality of care. VA should, as Congress intended, use its new enrollment process to manage access to its health care services within available resources.

GAO noted that: (1) VA's transformation continues to make significant progress; (2) over the last 3 years, VA has enhanced benefits and served 500,000 additional veterans, while realizing a nonappropriated revenue surplus of $496 million that remains available for future use; (3) this was accomplished primarily because VA's management initiatives reduced operating costs by over $1 billion; (4) the most notable initiatives involved shifting veterans' care to appropriate settings and reengineering administrative and clinical processes; (5) this year, however, GAO's work shows that VA's transformation appears to be losing momentum; (6) VA, for example, has prolonged decisions concerning much needed restructuring of aged capital assets, including hospital closures, which could result in unnecessary expenditures of billions of dollars over the next several years; (7) VA's transformation cannot be successfully completed until these and other critical challenges are adequately addressed; (8) in GAO's view, VA's FY 2000 budget is based on the unduly optimistic expectation that its ongoing transformation will generate needed efficiencies of $1.4 billion in savings; (9) VA assumes that employment reductions in FY 2000 will be more than 3 times greater than expected FY 1999 reductions; (10) VA has not taken the underlying management actions--such as aggressively addressing all potential facility integrations and service consolidations--that appear necessary to make a three-fold reduction possible; (11) if VA had made such difficult decisions earlier, it might not need to realize this level of savings; (12) moreover, VA may ultimately need to use less desirable management actions, including large-scale employee furloughs, to operate within its proposed budget; (13) such actions could adversely affect all veterans' quality of care, especially waiting times; and (14) VA could avoid such undesirable outcomes for higher priority veterans if, as Congress intended, VA uses its new enrollment process to manage access to VA health care services within available resources.