VA Health Care
Preliminary Findings on the Department of Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005 and 2006
Gao ID: GAO-06-430R February 6, 2006
This report documents the information we provided to Congress in a briefing on February 2, 2006, in response to a request concerning the Department of Veterans Affairs (VA) internal budget formulation process. This includes information that VA develops for its budget submission to the Office of Management and Budget (OMB), but it does not include information on subsequent interactions that occur between VA and OMB. We will do additional work to incorporate information from OMB and complete our analysis in a report to be issued at a later date. Congress requested information on VA's budget formulation process because of its interest in ensuring that VA's budget forecasts are accurate and based on valid patient estimates. In response to the request for information on VA's internal budget formulation process, this report provides the following for fiscal years 2005 and 2006: (1) a description of VA's process for developing its budget submission to OMB for its medical programs, and the role of VA's actuarial model; (2) a description of the medical program activities cited by VA as needing additional funding, and how VA identified these activities; and (3) key factors in VA's budget formulation process that contributed to the requests for additional funding.
VA's internal process for formulating the medical programs funding requests was informed by, but not driven by, projected demand. VA projected costs based on projected demand for medical care under current policy. Throughout the process, VA compared projected costs to its anticipated request level for the OMB submission and made adjustments to address the difference. VA officials stated that this was done in two ways: through cost-saving policy proposals, such as assessing an annual health care enrollment fee, and management efficiencies. After making adjustments to address the difference between projected costs and its anticipated request level, VA developed its budget submission for OMB. VA later cited a number of activities as needing additional funding based on programmatic priorities and an analysis of expenditure data. Among the activities that were cited for fiscal year 2005 was $273 million for veterans returning from Iraq and Afghanistan; $226 million for long-term care; and almost $400 million for increases in the number of patients, as well as increases in both utilization and intensity of care. For the fiscal year 2006 budget, VA cited $677 million to cover a 2 percent increase in the number of patients, $600 million to correct VA's estimate for long-term care costs, $400 million for an unexpected 1.2 percent increase in average cost per patient, and $300 million to replace funds VA planned to carry over from fiscal year 2005 to fiscal year 2006. VA officials said that they chose to highlight activities that were of high programmatic priority and could be supported by workload and expenditure data (e.g. veterans returning from Iraq and Afghanistan). They also reviewed spending and workload trends to determine whether spending trends were on target or whether adjustments were needed. An unrealistic assumption, errors in estimation, and insufficient data were key factors in VA's budget formulation process that contributed to the requests for additional funding. According to VA, an unrealistic assumption about the speed with which VA could implement a policy to reduce nursing home patient workload in VA-operated nursing homes for fiscal year 2005 led to a need for additional funds. VA officials told us that errors in estimating the effect of a nursing home policy to reduce workload in all three of its nursing home settings--VA-operated nursing homes, community nursing homes, and state veterans' nursing homes--accounted for a request for additional funding for fiscal year 2006. VA officials said that the error resulted from calculations being made in haste during the OMB appeal process. Finally, VA officials told us that insufficient data on certain activities contributed to the requests for additional funds for both years. For example, inadequate data on veterans returning from Iraq and Afghanistan resulted in an underestimate in the initial funding request.
GAO-06-430R, VA Health Care: Preliminary Findings on the Department of Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005 and 2006
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Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005
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February 6, 2006:
The Honorable Steve Buyer:
Chairman:
Committee on Veterans' Affairs:
House of Representatives:
The Honorable Daniel K. Akaka:
Ranking Minority Member:
Committee on Veterans' Affairs:
United States Senate:
The Honorable Richard J. Durbin:
The Honorable Patty Murray:
The Honorable Ken Salazar:
United States Senate:
Subject: VA Health Care: Preliminary Findings on the Department of
Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005
and 2006:
This report documents the information we provided to you in a briefing
on February 2, 2006, in response to your request concerning the
Department of Veterans Affairs (VA) internal budget formulation
process. (See enclosure.) This includes information that VA develops
for its budget submission to the Office of Management and Budget (OMB),
but it does not include information on subsequent interactions that
occur between VA and OMB. We will do additional work to incorporate
information from OMB and complete our analysis in a report to be issued
at a later date. You requested information on VA's budget formulation
process because of your interest in ensuring that VA's budget forecasts
are accurate and based on valid patient estimates.
As you know, VA provides a uniform set of medical benefits to eligible
veterans. If sufficient resources are not available to provide care
that is timely and acceptable in quality, VA is required to restrict
medical benefits based on veterans' eligibility priorities.[Footnote 1]
VA also provides other services, such as nursing home care, to certain
veterans. VA's provision of medical care is dependent upon the
availability of appropriations. For fiscal year 2005, Congress
appropriated $31.5 billion for all of VA's medical programs, and VA
provided medical care to about 5 million veterans. During fiscal year
2005, the President requested a $975 million supplemental request for
that fiscal year and a $1.977 billion amendment to the President's
budget request for fiscal year 2006. In congressional testimonies in
the summer of 2005, VA stated that its actuarial model understated
growth in patient workload and services and the resources required to
provide these services.[Footnote 2]
In response to your request for information on VA's internal budget
formulation process, this report provides the following for fiscal
years 2005 and 2006:
* A description of VA's process for developing its budget submission to
OMB for its medical programs, and the role of VA's actuarial model.
* A description of the medical program activities cited by VA as
needing additional funding, and how VA identified these activities.
* Key factors in VA's budget formulation process that contributed to
the requests for additional funding.
To conduct our work, we interviewed VA officials, including those in
the Veterans Health Administration's Office of the Chief Financial
Officer and Office of the Assistant Deputy Under Secretary for Health
for Policy and Planning. We also interviewed officials in VA's Office
of the Deputy Assistant Secretary for Budget. We also analyzed
documents concerning VA's actuarial model, budgetary data, and workload
and expenditure data and reviewed our past work. We tested the
reliability of the data and determined they were adequate for our
purposes. We have not yet met with OMB officials to discuss the budget
formulation process for fiscal years 2005 and 2006 and the President's
subsequent request for additional appropriations. We conducted our
review from October 2005 through January 2006 in accordance with
generally accepted government auditing standards.
Results in Brief:
VA's internal process for formulating the medical programs funding
requests was informed by, but not driven by, projected demand. VA
projected costs based on projected demand for medical care under
current policy. Throughout the process, VA compared projected costs to
its anticipated request level for the OMB submission and made
adjustments to address the difference. VA officials stated that this
was done in two ways: through cost-saving policy proposals, such as
assessing an annual health care enrollment fee, and management
efficiencies.[Footnote 3] After making adjustments to address the
difference between projected costs and its anticipated request level,
VA developed its budget submission for OMB.
VA later cited a number of activities as needing additional funding
based on programmatic priorities and an analysis of expenditure data.
Among the activities that were cited for fiscal year 2005 was $273
million for veterans returning from Iraq and Afghanistan; $226 million
for long-term care; and almost $400 million for increases in the number
of patients, as well as increases in both utilization and intensity of
care. For the fiscal year 2006 budget, VA cited $677 million to cover a
2 percent increase in the number of patients, $600 million to correct
VA's estimate for long-term care costs, $400 million for an unexpected
1.2 percent increase in average cost per patient, and $300 million to
replace funds VA planned to carry over from fiscal year 2005 to fiscal
year 2006. VA officials said that they chose to highlight activities
that were of high programmatic priority and could be supported by
workload and expenditure data (e.g. veterans returning from Iraq and
Afghanistan). They also reviewed spending and workload trends to
determine whether spending trends were on target or whether adjustments
were needed.
An unrealistic assumption, errors in estimation, and insufficient data
were key factors in VA's budget formulation process that contributed to
the requests for additional funding. According to VA, an unrealistic
assumption about the speed with which VA could implement a policy to
reduce nursing home patient workload in VA-operated nursing homes for
fiscal year 2005 led to a need for additional funds. VA officials told
us that errors in estimating the effect of a nursing home policy to
reduce workload in all three of its nursing home settings--VA-operated
nursing homes, community nursing homes, and state veterans' nursing
homes--accounted for a request for additional funding for fiscal year
2006. VA officials said that the error resulted from calculations being
made in haste during the OMB appeal process. Finally, VA officials told
us that insufficient data on certain activities contributed to the
requests for additional funds for both years. For example, inadequate
data on veterans returning from Iraq and Afghanistan resulted in an
underestimate in the initial funding request.
Agency Comments:
We requested comments on a draft of the enclosed briefing slides from
VA. VA provided us with technical comments on the briefing slides,
which have been incorporated as appropriate.
We are sending copies of this report to the Secretary of Veterans
Affairs, the Director of the Office of Management and Budget, and
appropriate congressional committees. We will also provide copies to
others upon request. In addition, the report is available at no charge
on GAO's home page at http://www:gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report.
If you and your staff have any questions or need additional
information, please contact me at (202) 512-7101, or ekstrandl@gao.gov.
Major contributors to this letter were James Musselwhite, Assistant
Director; Denise Fantone; Michael Kendix; Dean Koulouris; Tiffany
Tanner; Thomas Walke; and Greg Whitney.
Signed by:
Laurie E. Ekstrand:
Director, Health Care:
Enclosure:
[See PDF for images]
[End of slide presentation]
[End of section]
(290527):
FOOTNOTES
[1] Priority categories are generally determined on the basis of
service-connected disability and income. There are currently eight
priority categories. VA used this system to restrict enrollment in
January 2003 to no longer allow Priority 8 veterans, those in the
lowest priority category who generally do not have service-connected
disabilities or low income, to enroll. This policy remains in effect.
[2] Senate Committee on Veterans' Affairs, Statement of the Secretary,
Department of Veterans Affairs, Emergency Hearing to Examine the
Shortfall in VA's Medical Care Budget, 109TH Congress, June 28, 2005;
House Committee on Veterans' Affairs, Statement of the Secretary,
Department of Veterans Affairs, Full Committee Hearing on the
Department of Veterans Affairs Health Care Budget, 109TH Congress, June
30, 2005; and House Committee on Veterans' Affairs, Statement of the
Under Secretary for Health, Department of Veterans Affairs, Full
Committee Hearing on the Department of Veterans Affairs Proposed Health
Care Budget Amendment for Fiscal Year 2006, 109TH Congress, July 21,
2005.
[3] See GAO, Veterans Affairs: Limited Support for Reported Health Care
Management Efficiency Savings, GAO-06-359R (Washington, D.C.: Feb. 1,
2006).
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