Veterans Affairs
Limited Support for Reported Health Care Management Efficiency Savings Gao ID: GAO-06-359R February 1, 2006The Department of Veterans Affairs (VA) provides a uniform set of health care services to eligible veterans who enroll to receive such care and seek it from VA. These services include preventive and primary health care, a full range of outpatient and inpatient services, and prescription drugs. VA provides additional services, such as nursing home and dental care and other services, as required by law for some veterans and makes these services available to other veterans on a discretionary basis as resources permit. Most of the nation's 24 million veterans are eligible for some aspect of VA's health care services if they choose to enroll. In fiscal year 2005, about 7 million veterans were enrolled to receive VA health care services. In that year, VA planned to provide health care services to about 5 million veterans based on its initial budget request of $ 30.2 billion. Funding for VA's health care program has increased substantially in recent years. Congress appropriates funds annually for VA to provide health care services to eligible veterans. Congressional budget deliberations start when the President submits his annual budget request to Congress as the Budget of the United States Government. This is soon followed by VA providing the Congress with a more detailed budget justification of the President's policy and funding proposals for its programs. In each of the President's budget requests for fiscal years 2003 through 2006, the proposals assumed implementation of management efficiency initiatives that would save money without reducing the quality of service. Indeed, over these 4 fiscal years, the President's budget proposals assumed that these initiatives reduced funding requests by billions of dollars. Since savings from management efficiencies were expected to help reduce the level of annual appropriations, Congress asked us to examine (1) VA's methodology for projecting the health care management efficiency savings that were assumed in the President's budget requests for fiscal years 2003 through 2006 and (2) VA's support for reported actual savings achieved through management efficiency initiatives during fiscal years 2003 and 2004--including the methodology and documentation used to track and report achieved savings. We also summarized prior GAO and VA Office of the Inspector General (OIG) reports that have identified management inefficiencies at VA.
VA lacked a methodology for making the health care management efficiency savings assumptions reflected in the President's budget requests for fiscal years 2003 through 2006 and, therefore, was unable to provide us with any support for those estimates. VA officials told us that the management efficiency savings assumed in these requests were savings goals used to reduce requests for a higher level of annual appropriations in order to fill the gap between the cost associated with VA's projected demand for health care services and the amount the President was willing to request. Further, VA lacks adequate support for the $1.3 billion it reported as actual management efficiency savings achieved for fiscal years 2003 and 2004 because it lacked a sound methodology and adequate documentation for calculating and reporting management efficiency savings. Specifically, there was little consistency with respect to what VA's regional networks reported as management efficiency savings, how savings were calculated, and what type of documentation was available to support the savings figures reported. In addition, VA's regional networks sometimes reported savings resulting from cost-cutting measures as management efficiency savings. Although both can achieve savings, cost-cutting measures, unlike management efficiency initiatives, are not consistent with VA's objective of providing the same or higher quality and quantity of service at a lower cost. Finally, VA does not have a reliable basis for determining whether it has realized the management efficiency savings that were reflected in the President's budget requests for fiscal years 2003 and 2004. Specifically, VA's use of its savings calculation for its national procurement initiatives is misleading because VA calculates actual savings for these initiatives on a cumulative basis and compares these savings figures with savings goals that are reflected on an incremental basis. In recent years, the VA OIG and we identified management inefficiencies that, if unaddressed, could contribute to requests for higher amounts of appropriations that could otherwise have been avoided. For example, although VA has instituted a number of procurement reform initiatives aimed at leveraging its purchasing power and improving the overall effectiveness of its procurement actions, the VA OIG and we continue to identify problems with VA's procurement processes. Moreover, the VA OIG identified deficiencies in VA's procurement practices as one of the agency's most serious management challenges. For instance, recent GAO and VA OIG reports disclosed significant problems with VA's acquisitions involving Federal Supply Schedule (FSS) contracts; procurement of health care services; VA construction; acquisition support weaknesses; and inadequate management and oversight of major system initiatives. In addition, recent GAO and VA OIG reports have identified both serious control weaknesses in the agency's inventory management and shortfalls in the agency's efforts to provide reliable cost data to accurately assess the efficiency and effectiveness of VA's programs and initiatives.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-359R, Veterans Affairs: Limited Support for Reported Health Care Management Efficiency Savings
This is the accessible text file for GAO report number GAO-06-359R
entitled 'Veterans Affairs: Limited Support for Reported Health Care
Management Efficiency Savings' which was released on February 2, 2006.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
February 1, 2006:
The Honorable Daniel K. Akaka:
Ranking Member:
Committee on Veterans' Affairs:
United States Senate:
The Honorable Lane Evans:
Ranking Member:
Committee on Veterans' Affairs:
House of Representatives:
Subject: Veterans Affairs: Limited Support for Reported Health Care
Management Efficiency Savings:
The Department of Veterans Affairs (VA) provides a uniform set of
health care services to eligible veterans who enroll to receive such
care and seek it from VA. These services include preventive and primary
health care, a full range of outpatient and inpatient services, and
prescription drugs. VA provides additional services, such as nursing
home and dental care and other services, as required by law for some
veterans and makes these services available to other veterans on a
discretionary basis as resources permit. Most of the nation's 24
million veterans are eligible for some aspect of VA's health care
services if they choose to enroll. In fiscal year 2005, about 7 million
veterans were enrolled to receive VA health care services. In that
year, VA planned to provide health care services to about 5 million
veterans based on its initial budget request of $ 30.2
billion.[Footnote 1] Funding for VA's health care program has increased
substantially in recent years.
Congress appropriates funds annually for VA to provide health care
services to eligible veterans. Congressional budget deliberations start
when the President submits his annual budget request to Congress as the
Budget of the United States Government. This is soon followed by VA
providing the Congress with a more detailed budget justification of the
President's policy and funding proposals for its programs.[Footnote 2]
In each of the President's budget requests for fiscal years 2003
through 2006, the proposals assumed implementation of management
efficiency initiatives that would save money without reducing the
quality of service. Indeed, over these 4 fiscal years, the President's
budget proposals assumed that these initiatives reduced funding
requests by billions of dollars.
Since savings from management efficiencies were expected to help reduce
the level of annual appropriations, you asked us to examine (1) VA's
methodology for projecting the health care management efficiency
savings that were assumed in the President's budget requests for fiscal
years 2003 through 2006 and (2) VA's support for reported actual
savings achieved through management efficiency initiatives during
fiscal years 2003 and 2004--including the methodology and documentation
used to track and report achieved savings. As agreed with your staff,
we also summarized prior GAO and VA Office of the Inspector General
(OIG) reports that have identified management inefficiencies at VA.
To examine VA's health care management efficiency initiatives, we
interviewed officials with VHA's Office of the Chief Financial Officer
(CFO). We also interviewed officials from VA's Procurement Reform Task
Force, the Pharmacy Benefits Management Strategic Health Care Group,
the Office of Prosthetic and Clinical Logistics Group, and the Office
of Information Technology, all of which VA reported as the primary
sources of the agency's management efficiency savings. We requested
documentation for the assumed savings amount from each source. We also
interviewed officials responsible for reporting actual savings achieved
from management efficiency initiatives at all 21 of VA's regional
health care networks. In addition, we obtained and analyzed
documentation provided by VA in support of its projected savings and
reported actual savings achieved from management efficiencies--
including guidance provided to each of the regional health care
networks on reporting actual savings achieved as well as documents and
spreadsheets used to collect and report efficiency savings. We could
only evaluate VA's achieved savings for fiscal years 2003 and 2004
because as of the end of our fieldwork, VA had not yet compiled its
fiscal year 2005 achieved savings figures. We also reviewed prior GAO
and VA OIG reports to identify management inefficiencies at VA. We
conducted our work from September 2005 through January 2006 in
accordance with U.S. generally accepted government auditing standards.
We requested and received written comments on a draft of this report
from VA and have reprinted VA's comments in enclosure II. Enclosure I
contains further details on our scope and methodology.
Results in Brief:
VA lacked a methodology for making the health care management
efficiency savings assumptions reflected in the President's budget
requests for fiscal years 2003 through 2006 and, therefore, was unable
to provide us with any support for those estimates. VA officials told
us that the management efficiency savings assumed in these requests
were savings goals used to reduce requests for a higher level of annual
appropriations in order to fill the gap between the cost associated
with VA's projected demand for health care services and the amount the
President was willing to request.
Further, VA lacks adequate support for the $1.3 billion it reported as
actual management efficiency savings achieved for fiscal years 2003 and
2004 because it lacked a sound methodology and adequate documentation
for calculating and reporting management efficiency savings.
Specifically, there was little consistency with respect to what VA's
regional networks reported as management efficiency savings, how
savings were calculated, and what type of documentation was available
to support the savings figures reported. In addition, VA's regional
networks sometimes reported savings resulting from cost-cutting
measures as management efficiency savings. Although both can achieve
savings, cost-cutting measures, unlike management efficiency
initiatives, are not consistent with VA's objective of providing the
same or higher quality and quantity of service at a lower cost.
Finally, VA does not have a reliable basis for determining whether it
has realized the management efficiency savings that were reflected in
the President's budget requests for fiscal years 2003 and 2004.
Specifically, VA's use of its savings calculation for its national
procurement initiatives is misleading because VA calculates actual
savings for these initiatives on a cumulative basis and compares these
savings figures with savings goals that are reflected on an incremental
basis.
In recent years, the VA OIG and we identified management inefficiencies
that, if unaddressed, could contribute to requests for higher amounts
of appropriations that could otherwise have been avoided. For example,
although VA has instituted a number of procurement reform initiatives
aimed at leveraging its purchasing power and improving the overall
effectiveness of its procurement actions, the VA OIG and we continue to
identify problems with VA's procurement processes. Moreover, the VA OIG
identified deficiencies in VA's procurement practices as one of the
agency's most serious management challenges. For instance, recent GAO
and VA OIG reports disclosed significant problems with VA's
acquisitions involving Federal Supply Schedule (FSS) contracts;
procurement of health care services; VA construction; acquisition
support weaknesses; and inadequate management and oversight of major
system initiatives. In addition, recent GAO and VA OIG reports have
identified both serious control weaknesses in the agency's inventory
management and shortfalls in the agency's efforts to provide reliable
cost data to accurately assess the efficiency and effectiveness of VA's
programs and initiatives.
VA concurred with our recommendations but disagreed that it had used
its management efficiency savings goals to fill the gap between the
cost associated with VA's projected demand for health care services and
the amount the President was willing to request. However, VA officials
uniformly described VA's process for determining its management
efficiency savings goals in this manner and it did not provide us any
other explanation. Further, VA did not provide us with any support for
the methodology used to develop its management efficiency savings
goals. Accordingly, we continue to believe that this characterization
is appropriate.
Background:
In the mid-1990s, VA began to change fundamentally the way it delivers
health care to veterans to increase the efficiency of its health care
system and to improve access to medical services. Applying lessons
learned from the private sector's experiences with managed health care,
VA began emphasizing certain managed care practices, such as primary,
outpatient, and preventive care, and de-emphasizing practices such as
inpatient care. To support its health care reform efforts, VA
decentralized the management structure of the agency to coordinate the
organization of hospitals, outpatient clinics, and other facilities
into 21 regional networks or Veterans Integrated Service Networks
(VISN). One aspect of VA's health care reorganization was to establish
organizationwide goals for improving efficiency and access and to
create performance measures to hold network directors accountable for
achieving these goals.
To maximize the health care provided to veterans with available
resources--although not required as part of the budget process--the
President's budget request has included expected savings achieved
through various management efficiency initiatives. We have previously
reported on the likelihood of VA achieving the management efficiency
savings included in the President's budget request. In September 1999,
we reported that VA had identified management efficiency initiatives
that it expected would result in savings totaling $1.2
billion.[Footnote 3] Our 1999 report concluded that it seemed unlikely
that VA's savings goal would be achieved through management efficiency
initiatives because many of VA's initiatives were not consistent with
VA's objective to provide the same or higher-quality services at lower
costs. Instead, anticipated savings could possibly cause service delays
or diminished service quality. Initiatives that appeared not to affect
service quality negatively accounted for only $600 million.
Then, in March 2005, as part of a review of VA's congressional budget
justification, we prepared an issue paper on the likelihood of VA
achieving significant management efficiency savings in fiscal year
2006. We reported that VA's fiscal year 2006 estimate of $590 million
in management savings appeared to be achievable based on prior work by
GAO and the VA OIG. In conducting the budget justification work, as
stated in our issue paper, we did not test the reliability and validity
of the data used to calculate the projected savings. With respect to
our current engagement, for which you asked us to validate the data
used to calculate projected and achieved savings, our work included
tests of the reliability and validity of the data used.
VA Lacks a Methodology for Projecting Savings Resulting from Management
Efficiency Initiatives:
VA lacked a methodology for making the health care management
efficiency savings assumptions reflected in the President's budget
requests for fiscal years 2003 through 2006 and, therefore, was unable
to provide us with any support for the savings. VA officials told us
that the management efficiency savings assumed in these requests were
savings goals used to reduce requests for a higher level of annual
appropriations in order to fill the gap between the cost associated
with VA's projected demand for health care services and the amount the
President was willing to request.
In its congressional budget justifications, VA has provided additional
details on the management efficiency savings reflected in the
President's budget request for fiscal years 2003 through 2006. As shown
in table 1, VA presented these savings goals on both an annual and a
cumulative basis. However, the level and type of detail provided in the
justifications varied from year to year. For example, in fiscal year
2004, the detailed savings amounts presented in VA's budget
justification sum to the cumulative amount of $950 million--whereas, in
fiscal year 2006, the detailed savings sum to the annual amount of $590
million. In fiscal years 2003 and 2005, VA did not provide information
linking savings goals to specific management efficiency initiatives--
making it difficult to determine how much savings was expected from
each initiative and whether VA's budget justification detail was
intended to support its annual or cumulative savings assumptions.
Table 1: VA's Health Care Management Efficiency Savings Goals, Fiscal
Years 2003-2006:
[See PDF for image]
Source: GAO analysis of VA's annual budget justifications for fiscal
years 2003 through 2006.
[End of table]
The Senate Appropriations Committee also found problems with VA's
fiscal year 2006 budget justification details--concluding that VA's
estimated management efficiencies are not supported by adequate details
in its congressional budget justification.[Footnote 4] Consequently,
the Senate Appropriations Committee and its House and Senate conferees-
-in their reports related to VA appropriations for fiscal year 2006--
directed VA to provide more detail on its justification for management
efficiencies in future congressional budget justifications on the
premise that savings projections that are well-grounded and supported
in the budget request are more likely to be achievable.[Footnote 5]
VA Lacks Adequate Support for Actual Management Efficiency Savings
Achieved:
VA also does not have adequate support for the $1.3 billion it reported
as actual management efficiency savings achieved for fiscal years 2003
and 2004 because it lacked a sound methodology and adequate
documentation for calculating and reporting actual management
efficiency savings. Specifically, there was little consistency with
respect to what VA's VISNs reported as management efficiency savings,
how savings were calculated, and what type of documentation was
available to support reported savings figures. In addition, VA does not
have a consistent basis for reporting actual savings achieved--
reporting savings for some initiatives on a cumulative basis and others
on an incremental basis--which can be misleading given the context of
an annual budget. By reporting some savings on a cumulative basis, VA
does not have a reliable way to determine whether it has realized the
planned management efficiency savings that are reflected in VA's budget
justifications for fiscal years 2003 and 2004. As shown in table 2, VA
reported realized management efficiency savings in two broad areas--
savings resulting from local or VISN-level initiatives and savings from
national or VA-wide initiatives.
Table 2: Reported Actual Savings Achieved from Management Efficiency
Initiatives for Fiscal Years 2003 through 2004:
[See PDF for image]
Source: VHA Office of the CFO.
[A] Of the $810 million, according to VA officials, $756 million was
related to pharmaceutical procurements and $54 million was related to
other equipment procurements.
[End of table]
Because VA had not yet compiled the savings information for fiscal year
2005 as of the end of our fieldwork, we could not evaluate VA's
achieved savings figures for that fiscal year. However, according to VA
officials, they planned to use the same process as was used in prior
years to arrive at VA's fiscal year 2005 achieved savings.
VA Lacks a Clear, Consistent Methodology for Tracking and Reporting
Achieved Savings Resulting from VISN Initiatives:
VA's methodology for tracking, reporting, and documenting actual
savings achieved through VISN-level initiatives lacked consistency with
respect to what was reported as management efficiency savings, how
savings were calculated, and type of documentation available to support
the savings figures reported. Consequently, VA did not have a
consistent basis for reporting actual savings achieved--reporting
savings for some initiatives on a cumulative basis and others on an
incremental basis. In other cases, based on the information provided by
VISN officials, VISNs appeared to include cost-cutting measures that,
unlike management efficiency initiatives, are not consistent with VA's
objective of providing the same or higher quality and quantity of
service at a lower cost.
Each year, VHA's Office of the CFO requests information on savings
achieved through local, or VISN-level, management efficiency
initiatives. To obtain this information, the Office of the CFO provides
a template to each of VHA's 21 VISNs that outlines general savings
categories--which include standardization of pharmaceuticals, supplies,
and material procurement; inventory management; administrative overhead
reductions; Department of Defense (DOD) and VA resource sharing
activities; productivity improvements; and other initiatives. Using
this template, each VISN requests savings figures from the medical
centers, clinics, and other organizations within the regional health
care network. Beyond a limited description of each of the savings
categories, VA provided no other written guidance to the VISNs on what
their roles were in providing oversight to the process, what
constitutes management efficiency savings, how savings should be
calculated, and what type of documentation should be maintained in
support of the reported savings figures.
Based on our interviews and documents provided by VISN officials, the
type of documentation available in support of the management efficiency
savings reported varied widely across the VISNs. According to the 21
VISN officials we interviewed, some received only a completed template,
or the summary-level information, from medical centers, clinics, and
other organizations within their region and performed only a cursory
review of the savings figures before forwarding the information on to
the VHA Office of the CFO. Others obtained more detailed information on
savings and were involved in calculating the savings figures.
In addition, the VISNs were not consistently defining what constituted
a management efficiency. For example, several of the VISNs reported
management efficiency savings for actions such as temporary and
permanent reductions in full-time equivalent (FTE) workers from one
year to the next, delays in hiring, reductions in overtime, and
reductions in available resources due to budget cuts--which may not
represent management efficiency savings because they are not consistent
with VA's objective of providing the same or higher quality and
quantity of service at a lower cost. For example, for fiscal year 2003,
one network reported more than $2.8 million of savings resulting from
controlled hiring--or delayed hiring of authorized staff. For that same
fiscal year period, another network reported savings of $131,000 for
reductions in overtime and $264,000 for staffing reductions--without
any explanation of whether and, if so, how these savings were achieved
without a reduction in the level or quality of service.
Finally, there was little consistency with respect to how savings were
calculated. Some VISNs calculated productivity savings based on
reductions in the unit cost of providing health care services, while
others calculated it based on the decreased cost associated with a
reduction in the number of FTEs on board. In some instances, VA
reported actual savings achieved on a cumulative basis, instead of an
incremental basis. For example, according to one VISN, it reported the
savings in fiscal year 2003 resulting from closing one of its hospitals
in that year and claimed the same savings again in fiscal year 2004.
However, due to inconsistencies in the type of documentation available
to support management efficiency savings, we were unable to determine
the extent to which VA reported savings on an incremental versus a
cumulative basis.
Methodology for Calculating Achieved Savings Resulting from National
Procurement Standardization Initiatives Is Not Appropriate:
VA does not have a reliable basis for determining whether it has
realized the management efficiency savings that were reflected in the
President's budget requests for fiscal years 2003 and 2004.
Specifically, VA's use of its savings calculation for its national
procurement initiatives is misleading because VA calculates actual
savings for these initiatives on a cumulative basis and compares these
savings figures with savings goals that are reflected on an incremental
basis.
Annually, VHA's Office of the CFO requests information on the agency's
national procurement standardization initiatives, which accounted for
most of the agency's reported actual management efficiency savings.
Using spreadsheets, the Office of the CFO accumulates summary-level
efficiency savings data from the Pharmacy Benefits Management Strategic
Healthcare Group, the Office of Prosthetics and Clinical Logistic
Group, and the Office of Information Technology. According to VA
officials, these actual savings figures provide the basis for VA to
determine whether it has realized previously reported savings goals.
VA officials told us that the achieved savings for VA's national
procurement standardization initiatives were based on data obtained
from its pharmaceutical and medical and surgical supplies prime
vendor[Footnote 6] databases. VA officials said that the achieved
savings amount represents costs that were avoided by utilizing national
contracts in lieu of other available sources. To compute this amount,
VA compares the actual cost of each item purchased on contract with the
estimated cost of that same item had the contract not been awarded. VA
estimated what the cost would be without the contract by multiplying
the weighted average price per unit that existed during the 3-month
period before the contract took effect by the quantity purchased in the
current fiscal year. For example, VA determined that a contract for
rabeprazole (used to treat ulcers of the stomach and gastro esophageal
reflux disease) awarded in May 2001 resulted in fiscal year 2003 cost
avoidance of $134 million (54 percent of the actual cost) because the
cost of the drug purchased on contract in fiscal year 2003 was $115
million, and the estimated cost of the drug without the contract was
$249 million.
VA's national procurement contract initiatives are not new. The agency
has been awarding national contracts to take advantage of larger
discounts based on volume purchasing since 1993. However, VA calculates
achieved savings each year as if it were the first year of the contract
and the savings were occurring for the first time. As a result, VA's
methodology for calculating actual savings achieved from its national
contract initiatives does not clearly distinguish recurring savings
from incremental savings--which precludes VA from calculating actual
savings figures on an incremental basis.
Using hypothetical figures, table 3 illustrates VA's savings
calculation approach. As noted, actual figures were not available
because VA's savings calculation methodology does not clearly
distinguish recurring savings from incremental savings. Table 3 shows
that during the first year of a contract, VA would calculate savings by
comparing the actual cost of an item purchased on contract with the
estimated cost of the same number of items using precontract prices.
Based on this calculation, VA would report savings in year one of $100.
Because it is the first year of the contract, the $100 savings figure
reflects an incremental amount. In the second year, assuming
utilization increases to 150 units and the contract price remains the
same, VA again would calculate savings by comparing the cost of the
item purchased on contract with the estimated cost of the item using
precontract prices.
Table 3: Comparison of Cumulative and Incremental Savings Computations:
[See PDF for image]
Source: GAO.
[End of table]
Based on this calculation, VA would conclude that it had achieved
savings of $150 million. However, $100 of the $150 reported in year two
represents recurring savings from year one--only $50 would be
incremental savings associated with year two. The same principle would
also hold for year three and subsequent years. That is, VA would
calculate savings as if each year being considered was the first year
of the contract and thereby, report savings on a cumulative rather than
incremental basis. If, as reflected in table 3, VA used the incremental
savings computation, for year two, $50 would be reported in incremental
savings--capturing only the additional costs avoided associated with
increased utilization. Taking this logic a step further, any additional
reductions in contract unit costs also should be captured as
incremental savings in the first year in which they occur.
Presenting actual savings achieved on a cumulative basis can be
misleading because VA compared these savings with the original savings
goals, which were reported on an incremental basis. In determining
whether VA met its savings goals, VA compared its total achieved
savings amount for both its national procurement initiatives and VISN-
level initiatives with the assumed savings included VA's budget
justification. However, as shown in table 4, VA reports its achieved
savings from its national procurement standardization initiatives on a
cumulative basis and, as discussed previously, reports its VISN-level
initiatives using a combination of cumulative and annual reporting. In
table 4, VA compares these figures with the assumed savings reflected
in VA's budget justifications for fiscal years 2003 and 2004--which are
calculated on an incremental basis.
Table 4: VA's Reported Actual Cost Savings Compared with Savings
Assumed in VA's Budget Justifications for Fiscal Years 2003 and 2004:
[See PDF for image]
Source: VHA Office of the CFO.
[End of table]
Although VA does not have a reliable basis for determining whether it
has achieved its savings goals, this does not mean that new savings
have not occurred or that new savings are not achievable in the future.
GAO and the VA OIG have reported[Footnote 7] that VA's procurement
standardization initiatives have saved hundreds of millions of dollars
and concluded that additional savings could be achieved through
increased resource sharing--especially in the areas of medical services
and joint procurement of medical and surgical supplies. Nonetheless,
without a sound methodology for tracking and reporting achieved
savings, the true extent of VA's actual management efficiency savings
cannot be determined.
Inefficiencies in VA's Processes Remain:
In recent years, the VA OIG and we identified management inefficiencies
that, if unaddressed, could contribute to requests for higher levels of
annual appropriations that could otherwise have been avoided. Although
VA has instituted a number of procurement reform initiatives aimed at
leveraging its purchasing power and improving the overall effectiveness
of procurement actions, the VA OIG and we continue to identify problems
with VA's procurement processes as well as VA's ability to provide
timely and reliable cost data needed to measure program efficiency.
Further, the VA OIG has identified deficiencies in VA's procurement
practices as one of the agency's most serious management challenges.
As shown in table 5, recent GAO and VA OIG reports disclosed
significant problems with VA's acquisitions involving FSS contracts;
procurement of health care services; VA construction; acquisition
support weaknesses; and inadequate management and oversight of major
system initiatives--including the implementation of VA's Core Financial
and Logistics System (CoreFLS) and E-Travel service. In addition,
recent reviews continue to identify serious control weaknesses in the
agency's inventory management, and shortfalls in the agency's efforts
to provide reliable cost data to accurately assess the efficiency and
effectiveness of VA's health care initiatives and programs.
Table 5: Summary of Recent Reports That Cite Management Inefficiencies
at VA:
[See PDF for image]
Source: Summary of GAO and VA OIG reports.
[End of table]
Finally, in our recent report and testimony[Footnote 8] on VA's
managerial cost accounting practices, we raised concerns about the
completeness and accuracy of nonfinancial data VA routinely uses to
generate cost information to support decisions relating to internal
budgeting; resource allocation; performance measurement; and cost
finding for programs, activities, and outputs. We found that VA was
unable to readily produce documentation that describes the mechanism
used to assign costs to cost objects. We concluded that such inaccurate
nonfinancial data could skew cost calculations and any resulting
managerial decisions, and limit the reliability of data used by
management to analyze and properly assign costs.
Conclusion:
As with most federal agencies, VA is under increasing pressure to find
ways to do more with less. To reduce amounts requested for annual
appropriations, VA has relied, in part, on anticipated savings
resulting from management efficiency initiatives. However, without a
sound methodology for projecting management efficiency savings VA runs
the risk of falling short of its management efficiency savings goals,
which may ultimately require VA to take actions--including revisiting
the assumptions, priorities, and levels of service assumed in the
budget--to stay within its level of available resources. If VA
continues to rely on management efficiencies as a means of savings, a
sound and well-documented methodology for consistently and accurately
reporting both projected and achieved savings related to management
efficiency initiatives will be an important factor in providing
reliable information for congressional decision makers.
Recommendations for Executive Action:
If VA continues to plan and budget for management efficiency savings,
we recommend that the Secretary of Veterans Affairs should direct the
Assistant Secretary for Management to develop a methodology to project
savings for management efficiency initiatives that provides key data
and assumptions used to estimate the savings.
To better determine whether management efficiency savings are being
achieved as planned, we recommend that the Secretary of Veterans
Affairs should direct the Assistant Secretary for Management to
establish methodologies for tracking and reporting actual savings
achieved through implementation of proposed management efficiencies,
including:
* clear criteria for what constitutes savings resulting from management
efficiencies,
* controls to ensure that actual savings are reported on the same basis
as projected savings in the budget request, and:
* documentation of such savings.
Agency Comments and Our Evaluation:
In its written comments, which are reprinted in enclosure II, VA
concurred with our recommendations and said that VA's Assistant
Secretary for Management will establish processes and procedures to
ensure proper documentation of savings and a methodology on how
realized savings should be tracked and reported. However, VA disagreed
that it used its management efficiency savings goals to fill the gap
between the cost associated with VA's projected demand for health care
services and the amount the President was willing to request. It said
that identifying goals, setting challenging targets, and forecasting
management efficiency savings are entirely appropriate for a large
health care organization like VA.
We agree that VA and other federal agencies have a basic responsibility
to identify goals, set challenging targets, and forecast management
efficiency savings. However, VA management officials, in three separate
interviews, uniformly described VA's process for determining its
management efficiency savings goals in terms of filling the gap between
the cost associated with VA's projected demand for health care services
and the amount the president was willing to request. At the time of our
review, VA did not provide another explanation and was unable to
provide us with any support for the methodology used to develop its
management efficiency savings goals. Therefore, we continue to believe
that this characterization is appropriate. VA also provided technical
comments for which we have revised our report, as appropriate, as shown
in enclosure II.
We are sending copies of this report to the Secretary of Veterans
Affairs, interested congressional committees, and other interested
parties. We will make copies of the report available to others upon
request. This report is also available at no charge on GAO's home page
at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-9095 or williamsm1@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff making major contributions
to this report are listed in enclosure III.
Signed by:
McCoy Williams:
Director, Financial Management and Assurance:
Enclosures - 3:
Enclosure I: Objective, Scope, and Methodology:
To examine the Department of Veterans Affairs' (VA) methodology for
determining the projected management efficiency savings assumed in the
President's budget requests for fiscal years 2003 through 2006 and VA's
support for reported actual management efficiency savings achieved--
including methodology and documentation used to track and report
achieved savings, we interviewed various VA officials from the Veterans
Health Administration (VHA) Office of the Chief Financial Officer,
including the Deputy Chief Financial Officer, Budget Office Director,
and chief financial officers for all 21 Veterans Integrated Service
Networks (VISN), who were responsible for documenting and reporting
projected and realized management efficiency savings at VA. We also
interviewed officials responsible for implementing VA's National
Pharmaceutical/Pharmacy and Medical Supplies and Equipment Procurement
Initiatives--which accounted for over half of VA's reported management
efficiency savings during fiscal years 2003 through 2006, including the
Chair of the former VA Procurement Reform Task Force, Chief and Deputy
Chief Consultants for the Pharmacy Benefits Management Strategic
Healthcare Group, Chief of the Prosthetics and Clinical Logistics
Office, Deputy Chief of the Clinical Logistics Office, and Chief for
the Office of Information Technology.
In addition, we obtained and analyzed VA's congressional budget
justifications; documentation provided by VA officials in support of
its projected and achieved in savings, including guidance provided to
each of the VISNs on reporting management efficiency savings; documents
and spreadsheets used to collect and report efficiency savings for
fiscal years 2003 through 2006; and documentation of VA's approach for
calculating efficiency savings amounts. To obtain a broader view of the
VA's national procurement initiatives, we reviewed VA's Procurement
Reform Task Force report (May 2002) and other documents relating to the
Procurement Reform Task Force initiatives.
To summarize prior GAO and VA Office of the Inspector General (OIG)
reports that have identified management inefficiencies at VA, we
reviewed GAO and VA OIG reports issued during fiscal years 2003 through
2006 that addressed management challenges and inefficiencies in VA's
health care programs, processes, and related health care activities.
We conducted our work from September 2005 to January 2006 in accordance
with U.S. generally accepted government auditing standards. We
requested comments on a draft of this report from the Secretary of
Veterans Affairs or his designee. We received written comments from the
Deputy Secretary of Veterans Affairs and have reprinted VA's comments
in enclosure II.
[End of section]
Enclosure II: Comments from the Department of Veterans Affairs:
THE DEPUTY SECRETARY OF VETERANS AFFAIRS:
WASHINGTON:
January 30, 2006:
Mr. McCoy Williams:
Director, Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Williams:
The Department of Veterans Affairs (VA) has reviewed your draft report,
VETERANS' AFFAIRS: Limited Support for Reported Health Care Management
Efficiency Savings (GAO-06-359R).
VA agrees with the report's two recommendations: that we should develop
an improved methodology to project savings for management efficiency
initiatives, and develop an improved methodology for tracking and
reporting actual savings achieved through implementation of proposed
management efficiencies. The enclosure provides additional discussion
on the recommendations.
However, I disagree with the report's characterization that management
efficiencies savings were assumed simply to "fill the [budget] gap." I
believe that identifying goals, setting challenging targets and
forecasting management efficiency savings is entirely appropriate for a
large health care organization like VA. Proper stewardship of taxpayer
resources requires that VA strive to become more effective and more
efficient in delivering timely, high-quality health care for our
veterans. As an example, your report points out that both GAO and VA's
Office of the Inspector General have reported recently that VA's
procurement standardization initiatives have saved hundreds of millions
of dollars.
While VA can and will work to improve our methodologies, your report
accurately states that a lack of perfect methodologies "does not mean
that new savings have not occurred or that new savings are not
achievable in the future."
VA appreciates the opportunity to comment on your draft report.
Signed by:
Gordon H. Mansfield:
Enclosure:
THE DEPARTMENT OF VETERANS AFFAIRS (VA) COMMENTS TO GOVERNMENT
ACCOUNTABILITY OFFICE (GAO) DRAFT REPORT VETERANS' AFFAIRS: Limited
Support for Reported Health Care Management Efficiency Savings (GAO-06-
359R):
If VA continues to plan and budget for management efficiency savings,
we recommend that the Secretary of VA direct the Assistant Secretary
for Management to:
* Develop a methodology to project savings for management efficiency
initiatives that provides key data and assumptions used to estimate the
savings.
To better determine whether management efficiency savings are being
achieved as planned, we recommend that the Secretary of VA direct the
Assistant Secretary for Management to establish methodologies for
tracking and reporting actual savings achieved through implementation
of proposed management efficiencies-including:
* Clear criteria for what constitutes savings resulting from management
efficiencies,
* Controls to insure that actual savings are reported on the same basis
as projected savings in the budget request, and * Documentation of such
savings.
Concur - VA fundamentally agrees with GAO's recommendations and will
take the necessary steps to develop procedures and guidance for VA
Central Office and the Veterans Health Administration to achieve the
stated objectives. VA believes it is essential and reasonable to pursue
management efficiencies and their resulting savings as part of the
budgetary process. Within a health care organization the size of VA's,
there exists the potential for savings. Therefore, it is incumbent upon
VA to establish a formal process for defining and securing these
savings on an annual basis. By developing a methodology for efficiency
initiatives through budgeting, tracking, reporting, and documenting, VA
can substantiate and realize valid savings. VA's Assistant Secretary
for Management will establish processes and procedures to assure the
proper documentation is identified and how the realized savings should
be tracked and reported.
Comments - VA has realized a significant portion of the potential
efficiency savings projected in the President's budget requests
covering fiscal years 2003 through 2005. The report states "GAO and the
VA OIG have reported recently that VA's procurement standardization
initiatives have saved hundreds of millions of dollars.." Additional
savings have resulted from the purchase of pharmaceuticals; medical
supplies,
Enclosure:
THE DEPARTMENT OF VETERANS AFFAIRS (VA) COMMENTS TO GOVERNMENT
ACCOUNTABILITY OFFICE (GAO) DRAFT REPORT VETERANS' AFFAIRS: Limited
Support for Reported Health Care Management Efficiency Savings (GAO-06-
359R) (Continued):
* equipment and prosthetics; and information technology hardware and
software, as well as local VISN efficiencies and resource sharing.
The data to support efficiency savings come from four major groups:
* the Pharmacy Benefits Management Strategic Healthcare Group,
* the Office of Prosthetics and Clinical Logistics Group,
* the Office of Information Systems, and:
* the local VISN organizations.
However, VA needs to develop a standard methodology and process for
accurately documenting and reporting these efficiencies in the future.
Technical Corrections: There are some inaccuracies in the draft report:
(1) On page 1, footnote #2 states that "Agencies submit these materials
for review and approval to OMB, which provides the final version to the
Congress." This is incorrect; VA and not OMB transmits the materials to
Congress.
(2) Throughout the document, the reference to the VA Office of the CFO
should instead reference the VHA Office of the CFO.
(3) On page 6, the last paragraph states "VA also does not have
adequate support for the $1.3 billion it reported .. for fiscal years
2003 and 2004." The amount should be $950 million.
(4) We disagree with the GAO finding that the calculation of
accumulated savings is not accurate due to the inconsistent reporting
of incremental and recurring savings. Rather, it is due to the method
VA uses for developing the budget using a base year that is 3 years
prior to the budget year, and the changes from the base year to the
budget year are both incremental and recurring.
(5) We disagree with the statement that cost-cutting measures or
efficiencies are not consistent with providing the same or higher
quality care (this appears in three places: on page 3, first paragraph,
second sentence; page 7, third paragraph, last sentence; and page 8,
second paragraph, second sentence).
The following are GAO's comments on VA's letter dated January 30, 2006.
GAO Comments:
See the Agency Comments and Our Evaluation section of this report.
Although our footnote is intended to provide an overview of the budget
process followed by executive branch agencies--not VA's specific
process--we have removed the reference to OMB's role in transmitting
agencies' budget justifications to the Congress.
Our report now references the VHA Office of the CFO.
Based on the documentation provided by VA officials, VA reported actual
management efficiency savings achieved of $1.3 billion for fiscal years
2003 and 2004. Management efficiency savings amounts assumed in the
President's budget requests for fiscal years 2003 and 2004 totaled $950
million.
We recognize that VA's budget justifications include both an
incremental and a recurring component. However, we continue to believe
that VA's use of its savings calculation for its national procurement
initiatives is misleading because VA calculates actual savings for
these initiatives on a cumulative basis and compares these savings
figures with savings goals that are reflected on an incremental basis.
We reaffirm our view that reductions in workforce, delays in hiring,
and reductions in overtime and available resources due to budget cuts
are cost-cutting measures--not management efficiencies--and therefore
are not consistent with VA's objective of providing the same or higher
quality and quantity of service at a lower cost.
[End of section]
Enclosure III: GAO Contact and Staff Acknowledgments:
McCoy Williams, (202) 512-9095:
Acknowledgments:
In addition to the contact named above, Diane Handley, Assistant
Director; Fannie Bivins, Francine DelVecchio, Denise Fantone, Carmen
Harris, James Musselwhite, Tiffany Tanner, and Michael Tropauer made
key contributions to this report.
(195070):
FOOTNOTES
[1] For fiscal year 2005, the President requested $27.8 billion in
appropriations and $2.4 billion in estimated collections, together
amounting to a request for $30.2 billion in discretionary budget
authority to the Veterans Health Administration (VHA) for providing
health care. See Budget of the United States Government--Appendix,
Fiscal Year 2005, at 869-70, 873. In the Departments of Veterans
Affairs and Housing and Urban Development, and Independent Agencies
Appropriations Act, 2005, Pub. L. No. 108-447, div. I, 118 Stat. 3285,
3287-89 (Dec. 8, 2004), Congress ultimately appropriated $28.3 billion
for health care. Later in fiscal year 2005, in response to the
President's request for $975 million in supplemental appropriations,
Congress provided an additional $1.5 billion in supplemental
appropriations for veterans' health care to be available through fiscal
year 2006. See the Department of the Interior, Environment, and Related
Agencies Appropriations Act, 2006, Pub. L. No. 109-54, title VI, 119
Stat. 499, 563-64 (Aug. 2, 2005). Finally, in the Budget of the United
States Government--Appendix, Fiscal Year 2006, the President reported
that VA's estimated collections for fiscal year 2005 would be $1.95
billion. Id. at 893.
[2] An agency provides budget justification materials - referred to as
the congressional budget justification - to its appropriations
subcommittees after the Office of Management and Budget has reviewed
the information for consistency with the President's budget request.
Although the congressional budget justification is transmitted after
the President's budget, the format and timing is determined by the
needs of the relevant appropriations subcommittee.
[3] GAO, Veterans' Health Care: Fiscal Year 2000 Budget, GAO/HEHS-99-
189R (Washington D.C.: Sept. 14, 1999).
[4] See Military Construction and Veterans Affairs and Related Agencies
Appropriation Bill, 2006, S. Rep. No. 109-105, at 42-43, 55 (July 21,
2005).
[5] Id; H.R. Conf. Rep. No. 109-305, at 44 (Nov. 17, 2005).
[6] Prime vendors are contractors that buy inventory from a variety of
suppliers, store the inventory in commercial warehouses, and ship it to
customers when ordered. VA's medical and surgical prime vendor
distribution contract has been in effect since fiscal year 2002. The
contract provides that the prime vendor reimburse VA about 3 percent of
sales to VA medical centers.
[7] GAO, Contract Management: Further Efforts Needed to Sustain VA's
Progress in Purchasing Medical Products and Services, GAO-04-718
(Washington, D.C.: June 22, 2004) and Department of Veterans Affairs,
Office of Inspector General, Audit of VA Medical Center Procurement of
Medical, Prosthetic, and Miscellaneous Operating Supplies, Report No.
02-01481-118 (Washington, D.C.: Mar. 31, 2004).
[8] GAO, Managerial Cost Accounting Practices: Leadership and Internal
Controls Are Key to Successful Implementation, GAO-05-1013R
(Washington, D.C.: Sept. 2, 2005) and Managerial Cost Accounting
Practices: Departments of Labor and Veterans Affairs, GAO-05-1031T
(Washington, D.C.: Sept. 21, 2005).
