VA Health Care
Preliminary Information on the Joint Venture Proposal for VA's Charleston Facility Gao ID: GAO-05-1041T September 26, 2005The Department of Veterans Affairs (VA) maintains partnerships, or affiliations, with university medical schools to obtain medical services for veterans and provide training for medical residents. In 2002, the Medical University of South Carolina (MUSC)--which is affiliated with VA's medical facility in Charleston--proposed that VA and MUSC enter into a joint venture for a new VA facility as part of MUSC's plan to expand its medical campus. Under the proposal, MUSC and VA would jointly construct and operate a new medical center in Charleston. In 2004, the Capital Asset Realignment for Enhanced Services (CARES) Commission, an independent body charged with assessing VA's capital asset requirements, issued its recommendations on the realignment and modernization of VA's capital assets. Although the Commission did not recommend a replacement facility for Charleston, it did recommend, among other things, that VA promptly evaluate MUSC's proposal. This testimony discusses GAO's preliminary findings on the (1) current condition of the Charleston facility, (2) extent to which VA and MUSC collaborated on the joint venture proposal, and (3) issues for VA to consider when exploring the opportunity to participate in the joint venture. VA concurred with GAO's preliminary findings.
The most recent VA facility assessment and the CARES Commission concluded that the Charleston medical facility is in overall good condition and, with some renovations, can continue to meet veterans' health care needs in the future. VA officials attribute this to VA's continued capital investments in the facility. For example, over the last 5 years, VA has invested approximately $11.6 million in nonrecurring maintenance projects, such as replacing the fire alarm system and roofing. To maintain the facility's condition over the next 10 years, VA officials from the Charleston facility have identified a number of planned capital maintenance and improvement projects, totaling approximately $62 million. VA and MUSC have collaborated and communicated to a limited extent over the past 3 years on a proposal for a joint venture medical center. For example, before this summer, VA and MUSC had not exchanged critical information that would help facilitate negotiations, such as cost analyses of the proposal. As a result of the limited collaboration, negotiations over the proposal stalled. However, after a congressional delegation visit in August 2005, VA and MUSC took steps to move the negotiations forward. Specifically, VA and MUSC established four workgroups to examine critical issues related to the proposal. The MUSC proposal for a new joint venture medical center presents an opportunity for exploring new ways of providing health care to Charleston's veterans, but it also raises a variety of complex issues for VA. These include the benefits and costs of investing in a joint facility compared with other alternatives, legal issues associated with the new facility such as leasing or transferring property, and potential concerns of stakeholders, including VA patients and employees. The workgroups established by VA and MUSC are expected to examine some, but not all, of these issues. Additionally, some issues can be addressed through collaboration between VA and MUSC, but others may require VA to seek legislative remedies.
GAO-05-1041T, VA Health Care: Preliminary Information on the Joint Venture Proposal for VA's Charleston Facility
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Testimony:
Before the Subcommittee on Health, Committee on Veterans' Affairs,
House of Representatives:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:00 a.m. EDT in Charleston, S.C.
Monday, September 26, 2005:
VA Health Care:
Preliminary Information on the Joint Venture Proposal for VA's
Charleston Facility:
Statement of Mark L. Goldstein, Director, Physical Infrastructure
Issues:
GAO-05-1041T:
GAO Highlights:
Highlights of GAO-05-1041T, a testimony before the Subcommittee on
Health, Committee on Veterans' Affairs, House of Representatives:
Why GAO Did This Study:
The Department of Veterans Affairs (VA) maintains partnerships, or
affiliations, with university medical schools to obtain medical
services for veterans and provide training for medical residents. In
2002, the Medical University of South Carolina (MUSC)”which is
affiliated with VA‘s medical facility in Charleston”proposed that VA
and MUSC enter into a joint venture for a new VA facility as part of
MUSC‘s plan to expand its medical campus. Under the proposal, MUSC and
VA would jointly construct and operate a new medical center in
Charleston.
In 2004, the Capital Asset Realignment and Enhance Services (CARES)
Commission, an independent body charged with assessing VA‘s capital
asset requirements, issued its recommendations on the realignment and
modernization of VA‘s capital assets. Although the Commission did not
recommend a replacement facility for Charleston, it did recommend,
among other things, that VA promptly evaluate MUSC‘s proposal.
This testimony discusses GAO‘s preliminary findings on the (1) current
condition of the Charleston facility, (2) extent to which VA and MUSC
collaborated on the joint venture proposal, and (3) issues for VA to
consider when exploring the opportunity to participate in the joint
venture.
VA concurred with GAO‘s preliminary findings.
What GAO Found:
The most recent VA facility assessment and the CARES Commission
concluded that the Charleston medical facility is in overall good
condition and, with some renovations, can continue to meet veterans‘
health care needs in the future. VA officials attribute this to VA‘s
continued capital investments in the facility. For example, over the
last 5 years, VA has invested approximately $11.6 million in
nonrecurring maintenance projects, such as replacing the fire alarm
system and roofing. To maintain the facility‘s condition over the next
10 years, VA officials from the Charleston facility have identified a
number of planned capital maintenance and improvement projects,
totaling approximately $62 million.
VA and MUSC have collaborated and communicated to a limited extent over
the past 3 years on a proposal for a joint venture medical center. For
example, before this summer, VA and MUSC had not exchanged critical
information that would help facilitate negotiations, such as cost
analyses of the proposal. As a result of the limited collaboration,
negotiations over the proposal stalled. However, after a congressional
delegation visit in August 2005, VA and MUSC took steps to move the
negotiations forward. Specifically, VA and MUSC established four
workgroups to examine critical issues related to the proposal.
The MUSC proposal for a new joint venture VA hospital presents an
opportunity for exploring new ways of providing health care to
Charleston‘s veterans, but it also raises a variety of complex issues
for VA. These include the benefits and costs of investing in a joint
facility compared with other alternatives, legal issues associated with
the new facility such as leasing or transferring property, and
potential concerns of stakeholders, including VA patients and
employees. The workgroups established by VA and MUSC are expected to
examine some, but not all, of these issues. Additionally, some issues
can be addressed through collaboration between VA and MUSC, but others
may require VA to seek legislative remedies.
VA Facility in Charleston, South Carolina:
[See PDF for image]
[End of figure]
www.gao.gov/cgi-bin/getrpt?GAO-05-1041T.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark L. Goldstein (202)
512-2834 or goldsteinm@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here in Charleston to provide our preliminary
findings on the possibility of the Department of Veterans Affairs (VA)
and the Medical University of South Carolina (MUSC) entering into a
joint venture for a new medical center in Charleston. For decades VA
has developed and maintained partnerships, or affiliations, with
university medical schools to obtain medical services for veterans and
provide training and education to medical residents. Today, VA has
affiliations with 107 medical schools. These affiliations---one of
which is with MUSC--help VA fulfill its mission of providing health
care to the nation's veterans. For example, many MUSC physicians serve
as residents at VA's medical facility in Charleston, the Ralph H.
Johnson VA Medical Center. This medical facility is an important part
of the VA health care network, providing over 4,000 inpatient stays for
veterans in 2004.
To provide health care to veterans, in part through partnerships with
university medical schools, VA manages a diverse inventory of real
property. VA reported in February 2005 that its capital assets included
more than 5,600 buildings and about 32,000 acres of land.[Footnote 1]
However, many of VA's facilities were built more than 50 years ago and
are no longer well suited to providing accessible, high-quality, cost-
effective health care in the 21st century. To address its aging
infrastructure, VA, in 1999, initiated the Capital Asset Realignment
for Enhanced Services (CARES) process--the first comprehensive, long-
range assessment of its health care system's capital asset requirements
in almost 20 years. In February 2004, the CARES Commission--an
independent body charged with assessing VA's capital assets--issued its
recommendations regarding the realignment and modernization of VA's
capital assets necessary to meet the demand for veterans' health care
services through 2022. For example, the Commission recommended
replacing VA facilities in Denver and Orlando. The Commission did not
recommend replacing the VA facility in Charleston, which is a primary,
secondary, and tertiary care facility.[Footnote 2] However, the
Commission recommended that, among other things, VA promptly evaluate
MUSC's proposal to jointly construct and operate a new medical center
with VA in Charleston, noting that such an arrangement could serve as a
possible framework for partnerships in the future. In responding to the
Commission's recommendations, the Secretary stated that VA will
continue to consider options for sharing opportunities with
MUSC.[Footnote 3]
My statement today will cover the (1) current condition of the
Charleston facility and the actions VA has taken to implement CARES
recommendations at the facility, (2) extent to which VA and MUSC
collaborated on the proposal for a joint medical center, and (3) issues
for VA to consider when exploring the opportunity to participate in the
joint venture. My preliminary comments are based on our ongoing work
for the full Committee as well as GAO's body of work on VA's management
of its capital assets.[Footnote 4] For our ongoing work, we interviewed
VA and MUSC officials as well as other stakeholders in the Charleston
area, including officials from the City of Charleston and the U.S.
Navy. We also reviewed the CARES Commission's comments on and
recommendations for the Charleston facility; documents relating to the
MUSC proposal, including correspondence between MUSC and VA; federal
statutes; and past GAO reports. We obtained comments on this testimony
from VA and MUSC officials, which we incorporated as appropriate. We
conducted our work from June through September 2005 in accordance with
generally accepted government auditing standards.
In summary:
* The most recent VA facility assessment and the CARES Commission
concluded that the Charleston facility is in overall good condition and
with some renovations can continue to meet veterans' health care needs
in the future. VA officials attribute the facility's condition to VA's
continued capital investments. For example, over the last 5 years, VA
has invested approximately $11.6 million in nonrecurring maintenance
projects, such as replacing the fire alarm system and roofing. The
CARES Commission did not recommend replacing the Charleston facility;
however, the Commission recommended renovations of the nursing home
care units as well as the inpatient wards in order to meet the needs of
the projected veterans' population in the Charleston area. The CARES
projections indicate that demand for inpatient beds at VA's facility in
Charleston will increase by 29 percent from 2001 to 2022, while demand
for outpatient services will increase by 69 percent during the same
period. To maintain the facility's condition over the next 10 years,
officials from the VA facility in Charleston have identified a number
of planned capital maintenance and improvement projects, including
repairing expansion joints, making electrical upgrades, and adding a
parking deck for patients. VA officials estimate that the costs of
these planned maintenance and improvement projects will total about $62
million.
* VA and MUSC collaborated and communicated to a limited extent on a
proposal for a joint venture medical center over the past 3 years. In
November 2002, the President of MUSC made a proposal to the Secretary
of VA to participate in a 20-year, multiphase construction plan to
replace and expand its campus. Under MUSC's proposal, MUSC would
acquire the site of the current VA facility in Charleston for part of
its expansion project and then enter into a joint venture to construct
and operate a new facility on MUSC property. The CARES Commission
recommended that VA promptly evaluate MUSC's proposal to jointly
construct and operate a new medical center with VA. Although there has
been some discussion and correspondence between VA and MUSC since 2002
on the joint venture proposal, collaboration has been minimal. For
example, before this summer, VA and MUSC had not exchanged critical
information that would help facilitate negotiations, such as cost
analyses of the proposal. As a result of the limited collaboration,
negotiations over the proposal stalled. After a congressional
delegation visited Charleston in August 2005, however, VA and MUSC took
some initial steps to move the negotiations forward. Specifically, VA
and MUSC established four workgroups to examine critical issues related
to the proposal.
* The MUSC proposal for a new joint venture medical center presents a
unique opportunity for VA to explore new ways of providing health care
to Charleston's veterans now and in the future; however, it also raises
a variety of complex issues for VA. These include the benefits and
costs of investing in a joint facility compared with those of other
alternatives, such as maintaining the existing facility or considering
options with other health care providers in the area; legal issues
associated with the new facility, such as leasing or transferring
property, contracting, and employment; and potential concerns of
stakeholders. The workgroups established by VA and MUSC are expected to
examine some, but not all, of these issues. In addition, some issues
can be addressed through collaboration between VA and MUSC, while
others may require VA to seek legislative remedies. Until these issues
are explored, it will be difficult to make a final decision on whether
a joint venture is in the best interest of the federal government and
the nation's veterans.
Background:
VA manages a vast medical care network for veterans, providing health
care services to about 5 million beneficiaries. The estimated cost of
these services in fiscal year 2004 was $29 billion. According to VA,
its health care system now includes 157 medical centers, 862 ambulatory
care and community-based outpatient clinics (CBOC), and 134 nursing
homes. VA health care facilities provide a broad spectrum of medical,
surgical, and rehabilitative care. The management of VA's facilities is
decentralized to 21 regional networks referred to as Veterans
Integrated Service Networks (networks). The Charleston facility is part
of Network 7, or the Southeast Network.[Footnote 5]
The Charleston medical facility is a part of the VA health care network
and has served the medical needs of Charleston area veterans since it
opened in 1966. The Charleston facility is a primary, secondary, and
tertiary care facility. (See fig. 1.) The facility consists of more
than 352,000 square feet with 117 medical and surgical beds and 28
nursing home care unit beds; according to VA officials, the average
daily occupancy rate is about 80 percent. The outpatient workload was
about 460,000 clinic visits in fiscal year 2004. VA employs about 1,100
staff at the Charleston facility, which has an annual operating budget
of approximately $160 million.
Figure 1: East Side of The Ralph H. Johnson VA Medical Center in
Charleston, Adjacent to MUSC Project Construction:
[See PDF for image]
[End of figure]
VA's Charleston medical facility is affiliated with MUSC. MUSC is the
main source of the Charleston facility's medical residents, who rotate
through all major VA clinical service areas. VA also purchases
approximately $13 million in medical care services from MUSC, including
gastroenterology, infectious disease, internal medicine, neurosurgery,
anesthesia, pulmonary, cardiovascular perfusion, and radiology
services. In addition, VA has a medical research partnership with MUSC
for a mutually supported biomedical research facility, the Thurmond
Biomedical Research Center.
MUSC operates a 709 licensed bed acute care hospital in Charleston that
also provides primary, secondary, and tertiary services. The services
available through MUSC span the continuum of care with physician
specialists and subspecialists in medicine, surgery, neurology,
neurological surgery, psychiatry, radiology, and emergency medicine,
among other specialties. During a 12-month period ending on June 30,
2003, MUSC admitted 28,591 patients (including newborns), representing
an occupancy rate of approximately 78 percent of available beds.
Outpatient activity for the same period included 6,802 same-day
surgeries, 551,914 outpatient visits, and 35,375 emergency visits.
MUSC's net patient service revenue for the fiscal year ending on June
30, 2003, was about $559 million.
VA Determined That the Charleston Facility Is in Good Condition and Is
Currently Investing in Minor Renovations:
VA and the CARES Commission concluded that the Charleston facility is
in overall good condition and, with relatively minor renovations, can
continue to meet veterans' health care needs in the future. VA conducts
facility condition assessments (FCA) at its facilities every 3 years on
a rotating basis.[Footnote 6] FCAs evaluate the condition of a VA
facility's essential functions--electrical and energy systems,
accessibility, sanitation and water--and subsequently estimate the
useful and remaining life of those systems. The Charleston facility's
most recent FCA was conducted in 2003, and this assessment showed that
the facility currently is in overall good condition. According to VA
officials, the facility's current condition is a result of targeted
capital investments. In particular, VA invested about $11.6 million in
nonrecurring maintenance projects over the last 5 years. Such projects
include installing a new fire alarm system, replacing roofing, painting
the exterior of the building, and upgrading interior lighting.
The CARES Commission did not recommend replacing VA's facility in
Charleston as it did with facilities in some other locations. In
assessing the capital asset requirements for the Charleston facility,
the Commission relied on the 2003 FCA and projections of inpatient and
outpatient service demands through 2022, among other things. These
projections indicate that demand for inpatient beds at VA's facility in
Charleston will increase by 29 percent from 2001 to 2022, while demand
for outpatient services will increase by 69 percent during the same
period.[Footnote 7] Although the CARES Commission did not recommend a
new facility in Charleston, it did call for renovating the nursing home
units and the inpatient wards. In his response to the Commission's
recommendations, the Secretary agreed to make the necessary renovations
at the Charleston facility.
VA officials at the Charleston medical facility have a number of
ongoing and planned capital maintenance and improvement projects to
address the CARES Commission recommendations and to maintain the
condition of the current medical center. For example, two minor capital
improvements--totaling $6.25 million--are currently under
construction.[Footnote 8] These projects include:
* a third floor clinical addition, which will add 20,000 square feet of
space to the medical center for supply processing and
distribution,[Footnote 9] rehabilitation medicine, and prosthetics;
and:
* the patient privacy project, which will renovate the surgical in-
patient ward to provide private and semiprivate bathrooms for veterans.
Planned capital maintenance and improvements projects over the next 10
years include electrical upgrades, renovation of several wards to
address patient privacy concerns, renovation of operating rooms and the
intensive care units, and the expansion of the specialty care clinics.
VA officials estimate that the total cost for all planned capital
maintenance and improvement projects is approximately $62 million.
In addition to the capital improvement projects at the medical center
in Charleston, VA is currently constructing a CBOC, in partnership with
the Navy, at the Naval Weapons Station in Goose Creek, South Carolina.
The new clinic will be a joint VA-Navy facility and will help VA
address the projected increase in demand for outpatient services. The
new clinic--called the Goose Creek CBOC--is scheduled to open in 2008
and will serve a projected 8,000 patients who are currently served by
VA's Charleston facility. VA estimates its investment in the planning,
design, and construction of the Goose Creek CBOC will be about $6
million.
Limited Collaboration between VA and MUSC on a Joint Venture Facility
Characterized Negotiations until Recently:
VA and MUSC have collaborated and communicated to a limited extent on a
proposal for a joint venture medical center over the past 3 years. As a
result of the limited collaboration, negotiations over the proposal
stalled. In August 2005, however, initial steps were taken to move the
negotiations forward. Specifically, four workgroups were created--which
include both VA and MUSC officials--and tasked with examining critical
issues related to the proposal.
Limited Communication and Collaboration Have Hampered Negotiations over
MUSC's Joint Venture Proposal:
To meet the needs of a growing and aging patient population, MUSC has
undertaken an ambitious five-phase construction project to replace its
aging medical campus. Construction on the first phase began in October
2004. Phase I includes the development of a four-story diagnostic and
treatment building and a seven-story patient hospitality tower,
providing an additional 641,000 square feet in clinical and support
space--156 beds for cardiovascular and digestive disease services, 9
operating rooms, outpatient clinics with a capacity of 100,000 visits,
and laboratory and other ancillary support services. Phase I also
includes the construction of an atrium connecting the two buildings, a
parking structure, and a central energy plant. Initial plans for phases
II through V include diagnostic and treatment space and patient bed
towers. As shown in figure 2, phases IV and V would be built on VA
property. In particular, phase V would be built on the site of VA's
existing medical center. MUSC has informed VA about its proposed
locations for these facilities. According to MUSC officials, there are
approximately 2 years remaining for the planning of phase II.
Figure 2: MUSC Construction Plan:
[See PDF for image]
Note: The circle highlights some of VA's existing property.
[End of figure]
In November 2002, the President of MUSC sent a proposal to the
Secretary of VA about partnering with MUSC in the construction and
operation of a new medical center in phase II of MUSC's construction
project. Under MUSC's proposal, VA would vacate its current facility
and move to a new facility located on MUSC property to the south of
phase I. MUSC also indicated that sharing medical services would be a
component of the joint venture--that is, VA and MUSC would enter into
sharing agreements to buy, sell, or barter medical and support
services. VA and MUSC currently share some services--for example, VA
purchases services for gastroenterology, infectious disease, and
internal medicine. According to MUSC officials, the joint venture
proposal would increase the level of sharing of medical services and
equipment, which would create cost savings for both VA and MUSC. VA
officials told us that the proposed joint venture between MUSC and VA
is unprecedented--that is, should VA participate in the joint venture,
it would be the first of its kind between VA and a medical education
affiliate.
In response to MUSC's proposal, VA formed an internal workgroup
composed of officials primarily from VA's Southeast Network to evaluate
MUSC's proposal. The workgroup analyzed the feasibility and cost
effectiveness of the proposal and issued a report in March 2003, which
outlined three other options available to VA: replacing the Charleston
facility at its present location, replacing the Charleston facility on
land presently occupied by the Naval Hospital in Charleston, or
renovating the Charleston facility. The workgroup concluded that it
would be more cost effective to renovate the current Charleston
facility than to replace it with a new facility. This conclusion was
based, in part, on the cost estimates for constructing a new medical
center. In April 2003, the Secretary of VA sent a counterproposal to
the President of MUSC, which indicated that VA preferred to remain in
its current facility. The Secretary indicated, however, that if VA
agreed to the joint venture, it would rather place the new facility in
phase III--which is north of phase I--to provide better street access
for veterans. (See fig. 3 for MUSC's proposal and VA's
counterproposal.) In addition, the Secretary indicated that MUSC would
need to provide a financial incentive for VA to participate in the
joint venture. Specifically, MUSC would need to make up the difference
between the estimated life-cycle costs of renovating the Charleston
facility and building a new medical center--which VA estimated to be
about $85 million--through negotiations or other means.
Figure 3: MUSC's Proposal and VA's Counterproposal:
[See PDF for image]
Note: The circle highlights some of VA's existing property.
[End of figure]
The MUSC President responded to VA's counterproposal in an April 2003
letter to the Secretary of VA. In the letter, the MUSC President stated
that MUSC was proceeding with phase I of the project and that the joint
venture concept could be pursued during later phases of construction.
The letter did not specifically address VA's proposal to locate the new
facility in phase III, nor the suggestion that MUSC would need to
provide some type of financial incentive for VA to participate in the
joint venture. To move forward with phase I, the MUSC President stated
that MUSC would like to focus on executing an enhanced use lease (EUL)
for Doughty Street.[Footnote 10] Although MUSC owns most of the
property that will be used for phases I through III, Doughty Street is
owned by VA and serves as an access road to the Charleston facility and
parking lots. The planned facility for phase I would encompass Doughty
Street.[Footnote 11] (See fig. 4.) Therefore, MUSC could not proceed
with phase I--as originally planned--until MUSC secured the rights to
Doughty Street. To help its medical affiliate move forward with
construction, VA executed a EUL agreement with MUSC in May 2004 for use
of the street.[Footnote 12] According to the terms of the EUL, MUSC
will pay VA $342,000 for initial use of the street and $171,000 for
each of the following eight years.
Figure 4: Construction of Phase One of MUSC's Project:
[See PDF for image]
Note: The photograph shows the initial construction for phase I of
MUSC's project. Doughty Street will be encompassed by MUSC's new
facility.
[End of figure]
Although both entities successfully collaborated in executing the
enhanced use lease for Doughty Street, limited collaboration and
communication generally characterize the negotiations between MUSC and
VA over the joint venture proposal. In particular, before this summer,
VA and MUSC had not exchanged critical information that would help
facilitate negotiations. For instance, MUSC did not clearly articulate
to VA how replacing the Charleston facility, rather than renovating the
facility, would improve the quality of health care services for
veterans or benefit VA. MUSC officials had generally stated that
sharing services and equipment would create efficiencies and avoid
duplication, which would lead to cost savings. However, MUSC had not
provided any analyses to support such claims. Similarly, as required by
law, VA studied the feasibility of coordinating its health care
services with MUSC, pending construction of MUSC's new medical
center.[Footnote 13] This study was completed in June 2004. However, VA
officials did not include MUSC officials in the development of the
study, nor did they share a copy of the completed study with MUSC. VA
also updated its cost analysis of the potential joint venture this
spring, but again, VA did not share the results with MUSC. Because MUSC
was not included in the development of these analyses, there was no
agreement between VA and MUSC on key input for the analyses, such as
the specific price MUSC would charge VA for, or the nature of, the
medical services that would be provided. As a result of the limited
collaboration and communication, negotiations stalled--prior to August
2005, the last formal correspondence between VA and MUSC leadership on
the joint venture was in April 2003. (See fig. 5 for a time line of key
events in the negotiations between VA and MUSC.)
Figure 5: Time Line of Key Events in the Negotiations between VA and
MUSC:
[See PDF for image]
[A] As required by P.L. 108-170 (2003).
[End of figure]
Recent Events Have Spurred Discussion and Collaboration Between VA and
MUSC:
On August 1, 2005, a congressional delegation visited Charleston to
meet with VA and MUSC officials to discuss the joint venture proposal.
After this visit, VA and MUSC agreed to establish workgroups to examine
key issues associated with the joint venture proposal. Specifically, VA
and MUSC established the Collaborative Opportunities Steering Group
(steering group). The steering group is composed of five members from
VA, five members from MUSC, and a representative from the Department of
Defense (DOD), which is also a stakeholder in the local health care
market.[Footnote 14] The steering group chartered four workgroups, and
according to VA:
* The governance workgroup will examine ways of establishing
organizational authority within a joint venture between VA and MUSC,
including shared medical services.
* The clinical service integration workgroup will identify medical
services provided by VA and MUSC and opportunities to integrate or
share these services.
* The legal workgroup will review federal and state authorities (or
identify the lack thereof) and legal issues relating to a joint venture
with shared medical services.
* The finance workgroup will provide cost estimates and analyses
relating to a joint venture with shared medical services.
The workgroups will help VA and MUSC determine if the joint venture
proposal is mutually beneficial.[Footnote 15] The workgroups are
scheduled to provide weekly reports to the steering group and a final
report to the steering group by October 28, 2005. The steering group is
scheduled to submit a final report by November 30, 2005, to the Deputy
Under Secretary for Health for Operations and Management and to the
President of MUSC.
Joint Venture Proposal Raises a Variety of Issues:
The possibility of participating in the joint venture raises a number
of issues for VA to consider. The proposed joint venture presents a
unique opportunity for VA to reevaluate how it provides health care
services to veterans in Charleston. Our ongoing work, as well as our
previous work on VA's capital realignment efforts, cost-benefit
analysis, organizational transformation, and performance management,
however, suggests many issues to consider before making a decision
about a joint venture, including governance, legal, and stakeholder
issues. Some of these issues will be directly addressed by the
workgroups, while others, such as the concerns of stakeholders, will
not. In addition, some issues can be addressed through collaboration
between VA and MUSC, while others may require VA to seek legislative
remedies. Among the issues to explore are the following:
* Comparing appropriate options and assessing the costs and benefits of
all options: According to Office of Management and Budget (OMB)
guidelines on evaluating capital assets, a comparison of options, or
alternatives, including the status quo, is critical for ensuring that
the best alternative is selected.[Footnote 16] In its guidance, OMB
encourages decision makers to consider the different ways in which
various functions, most notably health care service delivery in this
case, can be performed. OMB guidelines further state that comparisons
of costs and benefits should facilitate selection among competing
alternatives.[Footnote 17] The finance workgroup is examining the
potential costs for shared services within a joint facility. However,
it is unclear whether the workgroup will weigh the benefits and costs
of a new facility against those of other alternatives, including
maintaining the existing medical center.
VA will also need to weigh the costs and benefits of investing in a
joint venture in Charleston against the needs of other VA facilities in
the network and across the nation. VA did not include the Charleston
facility on its list of highest priority major medical facility
construction requirements for fiscal years 2004 through 2010.[Footnote
18] According to VA, the list of priorities, which includes 48 projects
across the nation, aligns with existing CARES recommendations.
Nevertheless, exploring the potential costs and benefits of a joint
venture gives VA an opportunity to reexamine how it delivers health
care services to the nation's veterans and uses its affiliations with
medical universities now and in the future. As we have stated in
previous reports, given the nation's long-term fiscal challenges and
other challenges of the 21st Century, such reexaminations of federal
programs are warranted.[Footnote 19] Moreover, as the CARES Commission
noted, the potential joint venture between VA and MUSC is a possible
framework for future partnerships.
* Developing a governance plan that outlines responsibilities and
ensures accountability: If VA and MUSC decide to enter into a joint
venture for a new facility, they will need a plan for governing the
facility. Any governance plan would have to maintain VA's direct
authority over and accountability for the care of VA patients. In
addition, if shared medical services are a component of a joint venture
between MUSC and the VA, the entities will need a mechanism to ensure
that the interests of the patients served by both are protected today
and in the future. For instance, VA may decide to purchase operating
room services from MUSC.[Footnote 20] If the sharing agreement was
dissolved at some point in the future, it would be difficult for VA to
resume the independent provision of these services. Also, if MUSC
physicians were to treat VA beneficiaries, or VA physicians were to
treat MUSC patients, each entity would need a clear understanding of
how to report health information to its responsible organization.
Therefore, a clear plan for governance would ensure that VA and MUSC
could continue to serve their patients' health care needs as well as or
better than before.
* Identifying legal issues and seeking legislative remedies: The
proposed joint venture raises a number of complex legal issues
depending on the type of joint venture that is envisioned. Many of the
legal issues that will need to be addressed involve real estate,
construction, contracting, budgeting, and employment. The following are
among some of the potential issues relating to a joint venture that VA
previously identified:
* What type of interest will VA have in the facility? If MUSC is
constructing the facility on MUSC property, will VA be entering into a
leasehold interest in real property or a sharing agreement for space,
and what are the consequences of each? If the facility is to be located
on VA property, will it involve a land transfer to MUSC or will VA
lease the property to MUSC under its authority to enter into a EUL
agreement? What are the advantages and disadvantages of these options?
* Because MUSC contracting officials do not have the authority to
legally bind the VA, how would contracting for the services and
equipment be handled?
The legal workgroup is currently identifying VA's and MUSC's legal
authorities, or lack thereof, on numerous issues relating to entering
into a joint venture. Should VA decide to participate in the joint
venture, it may need to seek additional authority from the Congress.
* Involving stakeholders in the decisionmaking process: Participating
in a joint venture medical center, particularly if it includes
significant service sharing between VA and MUSC, has significant
implications for the medical center's stakeholders, including VA
patients, VA employees, and the community. These stakeholders have
various perspectives and expectations--some of which are common to the
different groups, while others are unique. For example, union
representatives and VA officials whom we spoke to indicated that VA
patients and employees would likely be concerned about maintaining the
quality of patient care at a new facility and access to the current
facility during construction. Union representatives also said the
employees would be concerned about the potential for the loss of jobs
if VA participated in the joint venture and purchased additional
services from MUSC. As VA and MUSC move forward in negotiations, it
will be important for all stakeholders' concerns to be addressed.
* Developing a system to measure performance and results: If VA and
MUSC decide to jointly build and operate a new facility in Charleston,
it will become, as noted in the CARES Commission report, a possible
framework for future partnerships between VA and other medical
universities. As a result, a system for measuring whether the new joint
venture facility is achieving the intended results would be
useful.[Footnote 21] In our previous work on managing for results, we
have emphasized the importance of establishing meaningful, outcome-
oriented performance goals.[Footnote 22] In this case, potential goals
could be operational cost savings and improved health care for
veterans. If the goals are not stated in measurable terms, performance
measures should be established that translate those goals into
concrete, observable conditions.[Footnote 23] Such measures would
enable VA and other stakeholders to determine whether progress is being
made toward achieving the goals. This information could not only shed
light on the results of a joint venture in Charleston, but it could
also enable VA to identify criteria for evaluating other possible joint
ventures with its medical affiliates in the future. It would also help
Congress to hold VA accountable for results.
Concluding Observations:
In conclusion, Mr. Chairman, we have stated over the past few years
that federal agencies, including VA, need to reexamine the way they do
business in order to meet the challenges of the 21st century. To
address future health care needs of veterans, VA's challenge is to
explore alternative ways to fulfill its mission of providing veterans
with quality health care. The prospect of establishing a joint venture
medical center with MUSC presents a good opportunity for VA to study
the feasibility of one method--expanding its relationships with
university medical school affiliates to include the sharing of medical
services in an integrated facility. This is just one of several ways VA
could provide care to veterans. Evaluating this option would involve VA
officials, working in close collaboration with MUSC officials, weighing
the benefits and costs as well as the risks involved in a joint venture
against those of other alternatives, including maintaining the current
medical center. Determining whether a new facility for Charleston is
justified in comparison with the needs of other facilities in the VA
system is also important. Until these difficult, but critical, issues
are addressed, a fully-informed final decision on the joint venture
proposal cannot be made.
Mr. Chairman, this concludes my prepared statement. I will be happy to
respond to any questions you or other Members of the Subcommittee may
have.
Contact and Acknowledgments:
For further information, please contact Mark Goldstein at (202) 512-
2834. Individuals making key contributions to this testimony include
Nikki Clowers, Daniel Hoy, Jennifer Kim, Edward Laughlin, Donna Leiss,
James Musselwhite Jr., Terry Richardson, Susan Michal-Smith, and
Michael Tropauer.
[End of section]
Related GAO Products:
VA Health Care: Key Challenges to Aligning Capital Assets and Enhancing
Veterans' Care. GAO-05-429. Washington, D.C.: August 5, 2005.
Federal Real Property: Further Actions Needed to Address Long-standing
and Complex Problems. GAO-05-848T. Washington, D.C.: June 22, 2005.
VA Health Care: Important Steps Taken to Enhance Veterans' Care by
Aligning Inpatient Services with Projected Needs. GAO-05-160.
Washington, D.C.: March 2, 2005.
High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January
2005.
VA Health Care: Access for Chattanooga-Area Veterans Needs
Improvements. GAO-04-162. Washington, D.C.: January 30, 2004.
Budget Issues: Agency Implementation of Capital Planning Principles Is
Mixed. GAO-04-138. Washington, D.C.: January 16, 2004.
Federal Real Property: Vacant and Underutilized Properties at GSA, VA,
and USPS. GAO-03-747. Washington, D.C.: August 19, 2003.
VA Health Care: Framework for Analyzing Capital Asset Realignment for
Enhanced Services Decisions. GAO-03-1103R. Washington, D.C.: August 18,
2003.
Department of Veterans Affairs: Key Management Challenges in Health and
Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.
VA Health Care: Improved Planning Needed for Management of Excess Real
Property. GAO-03-326. Washington, D.C.: January 29, 2003.
Major Management Challenges and Program Risks: Department of Veterans
Affairs. GAO-03-110. Washington, D.C.: January 2003.
High-Risk Series: Federal Real Property. GAO-03-122. Washington, D.C.:
January 2003.
VA Health Care: VA Is Struggling to Address Asset Realignment
Challenges. GAO/T-HEHS-00-88. Washington, D.C.: April 5, 2000.
VA Health Care: Improvements Needed in Capital Asset Planning and
Budgeting. GAO/HEHS-99-145. Washington, D.C.: August 13, 1999.
VA Health Care: Challenges Facing VA in Developing an Asset Realignment
Process. GAO/T-HEHS-99-173. Washington, D.C.: July 22, 1999.
VA Health Care: Capital Asset Planning and Budgeting Need Improvement.
GAO/T-HEHS-99-83. Washington, D.C.: March 10, 1999.
FOOTNOTES
[1] Department of Veterans Affairs, 5-Year Capital Plan 2005-2010
(Washington, D.C.: February 2005).
[2] Primary care is defined as health care provided by a medical
professional with whom a patient has initial contact and by whom the
patient may be referred to a specialist for further treatment.
Secondary care is provided by a specialist or facility upon referral by
a primary care physician that requires more specialized knowledge,
skill, or equipment. Tertiary care is highly specialized medical care,
usually over an extended period of time, that involves advanced and
complex procedures and treatments performed by medical specialists in
state-of-the-art facilities.
[3] Department of Veterans Affairs, Secretary of Veterans Affairs:
CARES Decision (Washington, D.C.: May 2004).
[4] See "Related GAO Products" at the end of this testimony.
[5] This network encompasses an area containing VA facilities in South
Carolina, Georgia, and Alabama.
[6] According to VA officials, FCAs provide VA with a professional
assessment of its capital assets that facilitates and enables uniformed
planning and expenditure of resources. Multidisciplinary teams of
architects and engineers, in conjunction with facility staff, conduct
the FCAs.
[7] These trends are based on the original CARES workload projections
for the Charleston facility. VA recently updated the CARES workload
projections and the updated projections suggest different trends.
Neither the original or updated projections, however, factor in the
potential impact on workload of veterans returning from Afghanistan and
Iraq.
[8] According to VA, minor capital improvement projects are those
costing less than $7 million.
[9] Supply processing and distribution is a section of the medical
center that is dedicated to the receiving, storage, and distribution of
medical supplies and the decontamination and sterilization of reusable
medical supplies and equipment.
[10] EUL authority allows VA to lease real property under the
Secretary's jurisdiction or control to a private or public entity for a
term of up to 75 years. EULs must result in a beneficial
redevelopment/reuse of the affected VA property by the lessee that will
include space for a VA mission-related activity and/or will provide
consideration that can be applied to improve health care and services
for veterans and their families in the community where the site is
located.
[11] To provide access to the current VA facility, a new street--the
Ralph H. Johnson Drive--will be constructed around MUSC's new facility.
[12] The Secretary of VA and the Medical University Hospital Authority
(MUHA), an affiliate of MUSC, entered into a 75-year EUL agreement in
May 2004 for MUHA use of VA property--a one-block segment of Doughty
Street.
[13] The Veterans Health Care, Capital Asset, and Business Improvement
Act of 2003, Pub. L. No. 108-170, § 232, 117 Stat. 2042, 2052-2053
(2003).
[14] The Department of Defense currently provides medical services to a
number of its beneficiaries through the Naval Hospital in Charleston.
[15] VA's Under Secretary for Health directed the workgroups to also
examine the potential for sharing services with DOD.
[16] Office of Management and Budget, Capital Programming Guide,
Version 1.0 (Washington, D.C.: July 1997).
[17] OMB and GAO have identified benefit-cost analysis as a useful tool
for integrating the social, environmental, economic, and other effects
of investment alternatives and for helping decision makers identify the
alternative with the greatest net benefits. In addition, the systematic
process of benefit-cost analysis helps decision makers organize and
evaluate information about, and determine trade-offs between,
alternatives.
[18] Department of Veterans' Affairs, CARES Major Construction Projects
FY 2004 -2010 (Washington, D.C.: May 2004).
[19] GAO, 21st Century Challenges: Reexamining the Base of the Federal
Government, GAO-05-325SP (Washington, D.C.: February 2005).
[20] Such purchases of health care or other services from MUSC would
involve contracts that VA would have to manage with oversight
mechanisms, such as pre-and postaward audits, as it now does for
current contracts with MUSC.
[21] Under the Government Performance and Results Act of 1993 (GPRA),
VA is required to develop performance goals for its major programs and
activities and measures to gauge performance. VA's experience with GPRA
could help them develop appropriate goals and measures for the joint
venture.
[22] GAO, Results Oriented Government: Using GPRA to Address 21st
Century Challenges, GAO-03-1166T (Washington, D.C.: September 2003).
[23] GAO, The Results Act: An Evaluator's Guide to Assessing Agency
Annual Performance Plans, GAO/GGD-10.1.20 (Washington, D.C.: April
1998).
