VA Health Care
Budget Formulation and Reporting on Budget Execution Need Improvement Gao ID: GAO-06-958 September 20, 2006The Department of Veterans Affairs (VA) estimates it will serve 5.4 million patients in fiscal year 2006. Medical services for these patients are funded with appropriations, after consideration by Congress of the President's budget request. VA formulates the medical programs portion of that request. VA is also responsible for budget execution--using appropriations and monitoring their use for providing care. For fiscal years 2005 and 2006, the President requested additional funding for VA medical programs, beyond what had been originally requested. GAO was asked to examine for fiscal years 2005 and 2006 (1) how the President's budget requests for VA medical programs were formulated, (2) how VA monitored and reported to Congress on its budget execution, and (3) which key factors in the budget formulation process contributed to requests for additional funding. To do this, GAO analyzed budget documents and interviewed VA and Office of Management and Budget (OMB) officials.
The formulation of the President's budget requests for VA medical programs for fiscal years 2005 and 2006 was informed by VA's comparison of its cost estimate of projected demand for medical services to its anticipated resources. VA projected about 86 percent of its costs using an actuarial model that estimated veterans' demand for health care. To project the costs of long-term care (about 10 percent of the funds for VA medical programs in each of these years) and the remaining medical care costs (about 4 percent), separate estimation approaches were used that did not rely upon an actuarial model but used other methods instead. The agency anticipated resources based on prior year appropriations, guidance from OMB, and other factors. For both fiscal years, VA officials told GAO that projected costs--calculated from the actuarial model and other approaches--exceeded anticipated resources and that they addressed the difference in budget requests for those years with cost-saving policy proposals and management efficiencies. Although VA staff closely monitored budget execution and identified problems for fiscal years 2005 and 2006, VA did not report this information to Congress in a sufficiently informative manner. VA closely monitored the fiscal year 2005 budget as early as October 2004, anticipating challenges managing within its resources. However, Congress did not learn of these challenges until April 2005. VA initially planned to manage within its budget for fiscal year 2005 by delaying some spending on equipment and nonrecurring maintenance and drawing on funds it had planned to carry over into 2006. Instead, the President requested additional funds from Congress for both fiscal years 2005 (a $975 million supplemental appropriation in June 2005) and 2006 (a budget amendment of $1.977 billion in July 2005). Congress included in the 2006 appropriations act a requirement for VA to submit quarterly reports regarding the medical programs budget status during this fiscal year. These reports have not included some of the measures that would be useful for congressional oversight, such as patient workload measures to capture costs and the time required for new patients to be scheduled for their first primary care appointment. Unrealistic assumptions, errors in estimation, and insufficient data were key factors in VA's budget formulation process that contributed to the requests for additional funding for fiscal years 2005 and 2006. Unrealistic assumptions about how quickly cost savings could be realized from proposed nursing home policy changes contributed to the additional requests, as did computation errors measuring the estimated effect of one of these changes. Insufficient data in VA's initial budget projections also contributed to the additional funding requests. For example, VA underestimated the cost of serving veterans returning from Iraq and Afghanistan, in part because estimates for fiscal year 2005 were based on data that largely predated the Iraq conflict and because according to VA, the agency had challenges for fiscal year 2006 in obtaining data from the Department of Defense.
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-06-958, VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
September 2006:
VA Health Care:
Budget Formulation and Reporting on Budget Execution Need Improvement:
VA Budget Formulation and Reporting:
GAO-06-958:
GAO Highlights:
Highlights of GAO-06-958, a report to congressional requesters
Why GAO Did This Study:
The Department of Veterans Affairs (VA) estimates it will serve 5.4
million patients in fiscal year 2006. Medical services for these
patients are funded with appropriations, after consideration by
Congress of the President‘s budget request. VA formulates the medical
programs portion of that request. VA is also responsible for budget
execution”using appropriations and monitoring their use for providing
care. For fiscal years 2005 and 2006, the President requested
additional funding for VA medical programs, beyond what had been
originally requested.
GAO was asked to examine for fiscal years 2005 and 2006 (1) how the
President‘s budget requests for VA medical programs were formulated,
(2) how VA monitored and reported to Congress on its budget execution,
and (3) which key factors in the budget formulation process contributed
to requests for additional funding. To do this, GAO analyzed budget
documents and interviewed VA and Office of Management and Budget (OMB)
officials.
What GAO Found:
The formulation of the President‘s budget requests for VA medical
programs for fiscal years 2005 and 2006 was informed by VA‘s comparison
of its cost estimate of projected demand for medical services to its
anticipated resources. VA projected about 86 percent of its costs using
an actuarial model that estimated veterans‘ demand for health care. To
project the costs of long-term care (about 10 percent of the funds for
VA medical programs in each of these years) and the remaining medical
care costs (about 4 percent), separate estimation approaches were used
that did not rely upon an actuarial model but used other methods
instead. The agency anticipated resources based on prior year
appropriations, guidance from OMB, and other factors. For both fiscal
years, VA officials told GAO that projected costs”calculated from the
actuarial model and other approaches”exceeded anticipated resources and
that they addressed the difference in budget requests for those years
with cost-saving policy proposals and management efficiencies.
Although VA staff closely monitored budget execution and identified
problems for fiscal years 2005 and 2006, VA did not report this
information to Congress in a sufficiently informative manner. VA
closely monitored the fiscal year 2005 budget as early as October 2004,
anticipating challenges managing within its resources. However,
Congress did not learn of these challenges until April 2005. VA
initially planned to manage within its budget for fiscal year 2005 by
delaying some spending on equipment and nonrecurring maintenance and
drawing on funds it had planned to carry over into 2006. Instead, the
President requested additional funds from Congress for both fiscal
years 2005 (a $975 million supplemental appropriation in June 2005) and
2006 (a budget amendment of $1.977 billion in July 2005). Congress
included in the 2006 appropriations act a requirement for VA to submit
quarterly reports regarding the medical programs budget status during
this fiscal year. These reports have not included some of the measures
that would be useful for congressional oversight, such as patient
workload measures to capture costs and the time required for new
patients to be scheduled for their first primary care appointment.
Unrealistic assumptions, errors in estimation, and insufficient data
were key factors in VA‘s budget formulation process that contributed to
the requests for additional funding for fiscal years 2005 and 2006.
Unrealistic assumptions about how quickly cost savings could be
realized from proposed nursing home policy changes contributed to the
additional requests, as did computation errors measuring the estimated
effect of one of these changes. Insufficient data in VA‘s initial
budget projections also contributed to the additional funding requests.
For example, VA underestimated the cost of serving veterans returning
from Iraq and Afghanistan, in part because estimates for fiscal year
2005 were based on data that largely predated the Iraq conflict and
because according to VA, the agency had challenges for fiscal year 2006
in obtaining data from the Department of Defense.
What GAO Recommends:
GAO recommends that VA better explain cost savings from proposed policy
changes in budget formulation and provide more comprehensive reporting
on budget execution to Congress. VA stated that it substantially agreed
with GAO‘s findings and concurred with the recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-958].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Laurie E. Ekstrand at
(202) 512-7101 or ekstrandl@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Formulation of President's Budget Request for VA Medical Programs
Informed by Comparing Cost of Projected Demand and Anticipated
Resources:
VA Closely Monitored Budget Execution and Identified Problems, but Did
Not Report Them in a Timely and Sufficiently Informative Manner:
Unrealistic Assumptions, Estimation Errors, and Insufficient Data
Contributed to VA's Requests for Additional Funding:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Veterans Affairs:
Appendix III: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Table:
Table 1: VA Cost-saving Policies Proposed in the President's Budget
Requests for Fiscal Years 2005 and 2006 (Dollars in Millions):
Figures:
Figure 1: Percentage of Projected Costs for VA's Medical Programs Using
Various Estimation Approaches:
Figure 2: VA's March 2006 Monthly Report to VA Senior Management
Indicating Number of New Patients Waiting for First Appointment to be
Scheduled:
Abbreviations:
CHAMPVA: Civilian Health and Medical Program of the Department of
Veterans Affairs:
DOD: Department of Defense:
NCA: National Cemetery Administration:
OEF: Operation Enduring Freedom:
OIF: Operation Iraqi Freedom:
OMB: Office of Management and Budget:
VA: Department of Veterans Affairs:
VBA: Veterans Benefits Administration:
VHA: Veterans Health Administration:
United States Government Accountability Office:
Washington, DC 20548:
September 20, 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:
The Department of Veterans Affairs (VA) operates one of the largest
health care delivery systems in the nation. For fiscal year 2006, VA
estimates it will treat 5.4 million patients with appropriations of
$31.5 billion.[Footnote 1] During the past decade the number of
patients served by VA has increased rapidly, due in part to an
expansion of the number of veterans eligible to receive care. The
Veterans' Health Care Eligibility Reform Act of 1996 simplified
eligibility standards for veterans in need of hospital and outpatient
care and made available services that previously had not been made
available to veterans without service-connected disabilities or low
incomes.[Footnote 2] The act required VA to provide a uniform set of
medical benefits, including hospital and outpatient care, to veterans
who are eligible and who enroll in its health care system. In addition
to the uniform set of medical benefits, VA is required to provide
certain other services--such as nursing home care--to some veterans,
but not to others.[Footnote 3] If sufficient resources are not
available to provide hospital and outpatient care that is timely and
acceptable in quality, VA is required to restrict enrollment based on
veterans' eligibility priorities.[Footnote 4]
For VA, like other agencies, formulation of a budget request begins
approximately 18 months before the start of the fiscal year to which
the request relates and about 10 months before transmission of the
President's budget request, which usually occurs in early February. For
this purpose, the Veterans Health Administration (VHA),[Footnote 5]
within VA, develops estimates of its medical program budget for agency
review and approval. In preparing budget estimates, VA and its
component organizations--such as VHA--use policy and technical guidance
from the Office of Management and Budget (OMB), while preparing a
budget submission to OMB that reflects VA priorities. OMB is the office
responsible for assisting the President in overseeing the preparation
of the federal budget and supervising its administration. OMB reviews
VA's and other agencies' budget requests from their submission in
September through November and then notifies agencies at the end of
November on the level of funding and policy proposals that will be
included in the President's budget request. Agencies have very limited
time to appeal these decisions to OMB before they start preparing a
congressional budget justification--a more detailed presentation of the
President's budget request--for their appropriations subcommittees'
consideration. Congressional budget justifications are submitted to
appropriations subcommittees following transmission of the President's
budget request.
After the President submits his budget request, he may request further
changes in one of two ways, depending on the timing of the additional
request. If Congress has not completed action on an appropriations act,
the President can transmit a budget amendment. If an appropriations act
has already been enacted, the President can request a supplemental
appropriation; this is typically done in cases where the need for funds
is too urgent to postpone until enactment of the following year's
appropriations bill.
Once an appropriations bill becomes law, OMB apportions the funds,
allowing an agency to obligate and expend the funds as authorized. Each
agency is responsible for obligating and expending funds efficiently
and effectively to carry out the programs and activities for which
funds were appropriated. Carrying out this responsibility is referred
to as budget execution and requires monitoring throughout the fiscal
year to ensure that funds are being used as authorized for agency
program objectives--in the case of VA medical programs to provide
quality care to veterans--and to ensure compliance with provisions of
fiscal law. For example, the Antideficiency Act prohibits VA and other
agencies from making or authorizing obligations[Footnote 6] or
expenditures in excess of the available appropriations.[Footnote 7]
Congress provided additional funds beyond those initially requested by
the President for VA medical programs for both fiscal years 2005 and
2006. In June 2005, the President requested a $975 million supplemental
appropriation for fiscal year 2005, and in July 2005, the President
submitted a $1.977 billion budget amendment for fiscal year 2006. These
additional requests raised concerns in Congress and among stakeholders
regarding the reasons for the additional requests for funding. At your
request, we examined for fiscal years 2005 and 2006 (1) how the
President's budget requests for VA medical programs were formulated,
(2) how VA monitored and reported to Congress on its budget execution,
and (3) which key factors in the budget formulation process contributed
to the requests for additional funding.
To perform this work, we interviewed VA officials responsible for the
agency's medical programs budget issues, and for developing budget
projections. We also interviewed OMB officials. We analyzed and
reviewed budget documents including VA's budget justifications for
medical programs for fiscal years 2005 and 2006. We also reviewed VA
budget estimates and other information VA reported that it used either
to formulate its submissions to OMB for fiscal years 2005 and 2006 or
to monitor the use of appropriated funds for those fiscal years. Our
review of how VA monitored its use of funds in the fiscal year 2006
budget includes the first 11 months of the fiscal year.[Footnote 8]
This work expands upon the preliminary findings that we reported in
February 2006.[Footnote 9] We conducted our review from October 2005
through September 2006 in accordance with generally accepted government
auditing standards. For additional details of our scope and
methodology, see appendix I.
Results in Brief:
The formulation of the President's budget requests for VA medical
programs for fiscal years 2005 and 2006 was informed by VA's comparison
of its estimation of the cost of projected demand for its medical
services to its anticipated resources. VA projected about 86 percent of
its costs using an actuarial model that estimated veterans' demand for
health care. In addition, VA projected the costs of long-term care,
which accounts for about 10 percent of the funds requested for VA
medical programs in each of these fiscal years, and remaining costs for
other medical care, about 4 percent, using separate estimation
approaches that did not rely upon an actuarial model. VA anticipated
its resources to provide medical programs for fiscal years 2005 and
2006 based on its prior year appropriations, guidance published by OMB
that outlined the President's budget priorities, and other factors. For
both fiscal years, VA officials told us that projected costs--
calculated from the actuarial model and other approaches--exceeded
anticipated resources. VA officials told us they addressed the
difference in budget requests for those years with cost-saving policy
proposals and management efficiency savings, which were included in the
President's budget requests for fiscal years 2005 and 2006.
Although VA staff closely monitored budget execution and identified
problems for fiscal years 2005 and 2006, VA did not report this
information to Congress in a timely and sufficiently informative
manner. VA closely monitored the fiscal year 2005 budget as early as
October 2004, because the agency anticipated significant challenges to
providing care to veterans with its appropriations. However, Congress
did not learn of these challenges until April 2005. VA initially
planned to manage within its budget for fiscal year 2005 by delaying
some spending on equipment and nonrecurring maintenance and drawing on
funds it had planned to carry over into 2006. Instead, in June 2005,
with 3 months remaining in the fiscal year, the President requested a
$975 million supplemental appropriation from Congress for VA medical
programs for that fiscal year. In July 2005, the President requested
$1.977 billion for fiscal year 2006 through the budget amendment
process. The appropriations act for fiscal year 2006 included a
requirement that VA submit quarterly reports on VHA's financial status.
However, VA's reports have not included some of the measures that would
assist Congress in its oversight, such as measures of patient workload
that would capture the costliness of patient care, and the time
required for new patients to be scheduled for their first health care
appointment. Moreover, while VA has 12 months to execute its budget, it
did not submit its first two quarterly reports to Congress until nearly
2 months after the end of each quarter, using patient workload data
that were as much as 3 months old at the time of submission. These data
included a combination of actual and estimated number of patients seen.
However, VA submitted its third quarterly report about 1 month after
the end of the quarter, using estimated data for the number of patients
seen.
Unrealistic assumptions, errors in estimation, and insufficient data
were key factors in VA's budget formulation process that contributed to
the requests for additional funding in fiscal years 2005 and 2006. One
factor that contributed to these requests was a set of unrealistic
assumptions about the expected time frame in which cost savings could
be realized from proposed nursing home policy changes. Computational
errors in measuring the estimated effect of one of these changes also
contributed to the additional funding request. Furthermore,
insufficient data in VA's initial budget projections contributed to the
additional funding requests. For example, VA underestimated the cost of
serving veterans returning from Iraq and Afghanistan, in part because
estimates for fiscal year 2005 were based on data that largely predated
the Iraq conflict and because, according to VA, the agency did not have
sufficient data for fiscal year 2006 due to challenges obtaining data
needed to identify these veterans from the Department of Defense (DOD).
To help improve VA's formulation of its medical programs budget and
facilitate congressional oversight, we recommend that the Secretary of
Veterans Affairs take several actions. We recommend that VA improve its
budget formulation processes by explaining the relationship between
implementation of proposed policy changes and the expected timing of
cost savings to be achieved and by strengthening its internal controls
to better ensure the accuracy of calculations it uses in preparing
budget requests. We also recommend that VA improve its reporting of
budget execution progress to Congress by incorporating measures of
patient workload to capture the costliness of care and a measure of
waiting times to schedule veterans' first primary care appointment for
new patients.
VA stated that it substantially agreed with our findings and
conclusions, and concurred with our recommendations. VA also described
steps it has taken and plans to take to respond to our recommendations.
Background:
VA, as part of its mission to provide benefits and services to
America's veterans, administers one of the nation's largest health care
systems through the VHA. As part of a uniform set of medical benefits
provided to eligible veterans who enroll, VA provides a range of
services including preventive and primary health care, a full range of
outpatient and inpatient services, and prescription drugs. VA also
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. One of the largest of these programs is VA's nursing
home care program, which provides care in three settings. VA operates
its own nursing homes in 134 locations; it pays for care under contract
in non-VA nursing homes, referred to as community nursing homes; and it
pays about one-third of the costs per day for veterans in state
veterans' nursing home[Footnote 10]s. In its three settings, nursing
home services are provided to veterans, ranging from short-stay post-
acute care for patients recovering from a condition such as a stroke to
long-stay care for patients who cannot be cared for at home because of
severe, chronic physical or mental limitations.[Footnote 11]
To manage access to hospital and outpatient care in relation to
available resources, VA established an enrollment system with priority
categories, as required by the Veterans' Health Care Eligibility Reform
Act of 1996.[Footnote 12] The act called for seven priority categories;
subsequent legislation provided for eight categories.[Footnote 13]
Priority categories are generally determined by a veteran's degree of
service-connected or other disability or on financial need. VA gives
veterans in Priority category 1 (with 50 percent or more service-
connected disability) the highest preference for services and gives
lowest preference to those in Priority category 8 (no disability, with
income exceeding certain thresholds, and who were enrolled as of
January 16, 2003).
The act also required VA to restrict enrollment consistent with its
priority categories if sufficient resources are not available to
provide care that is timely and acceptable in quality.[Footnote 14] In
January 2003, VA restricted enrollment by no longer allowing Priority 8
veterans, those in the lowest priority category, to enroll.[Footnote
15] However, Priority 8 veterans who were already enrolled as of
January 16, 2003, would continue to receive service. This policy
remained in effect as of August 2006.
In the mid-1990s, VA began to change the way it delivered 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 deemphasizing its reliance on
inpatient care. Over the 10-year period from 1995 through 2004, for
example, the ratio of outpatient visits to inpatient hospital stays at
VA increased from 29 to 1, to 92 to 1, reflecting the change in how VA
delivers medical 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 health care networks. These networks have budget and
management responsibilities that include allocating resources to
facilities, clinics, and programs within their networks and ensuring
access to appropriate health care services.
Formulation of President's Budget Request for VA Medical Programs
Informed by Comparing Cost of Projected Demand and Anticipated
Resources:
The formulation of the President's budget requests for VA medical
programs for fiscal years 2005 and 2006 was informed by VA's comparison
of its estimation of the cost of projected demand and anticipated
resources. Estimated costs for medical care exceeded anticipated
resources in both fiscal years 2005 and 2006, and, in formulating the
budget, VA addressed the difference with cost-saving policy proposals
and estimated savings from management efficiencies.
VA Estimated Costs of Medical Programs Based on Projected Demand for
Medical Care:
VA used an actuarial model[Footnote 16] to project demand and costs for
about 86 percent of its medical programs budget estimate for fiscal
years 2005 and 2006. (See fig. 1.) For this part of the medical
programs budget estimate, the model was used to project enrollment in
the VA health care system and then to estimate VA's total health care
services utilization by estimating the proportion of enrollees' total
health care that was expected to come from VA. The actuarial model used
cost estimates associated with particular health care services in
conjunction with the enrollment and utilization projections to project
VA health care costs. The actuarial model provided utilization
projections for 55 health care services including inpatient acute
surgery, outpatient care, prescription drugs, and prosthetics. The
model used private sector benchmarks but made allowances for the
special characteristics of the VA enrollee population, adjusting for
age, sex, morbidity of enrollee population, and veterans' use of other
health care providers reimbursed by payers such as Medicare and
Medicaid.
Figure 1: Percentage of Projected Costs for VA's Medical Programs Using
Various Estimation Approaches:
[See PDF for image]
Source: VA.
[End of figure]
VA used a separate estimation approach, rather than an actuarial model,
to project long-term care demand and costs,[Footnote 17] which
accounted for about 10 percent of the funds requested for medical
programs for each of the fiscal years 2005 and 2006. The long-term care
estimation approach projected demand by using historical expenditures
to calculate the costs of treating veterans and multiplying these
estimates by projected workload, which was calculated based on
historical trends and policy proposals. VA officials told us that they
are working on incorporating the projection of long-term care demand
and costs into the actuarial model, but could not provide a date when
this would be completed. Similarly, VA used other approaches, rather
than an actuarial model, to project demand and costs for the remaining
4 percent of the medical programs budget request for fiscal years 2005
and 2006. These other methodologies included adding inflation to actual
expenditures and projecting trends based on workload, expenditure, and
other data provided by program officials. The majority of these
expenditure projections were for Civilian Health and Medical Program of
the Department of Veterans Affairs (CHAMPVA)[Footnote 18] and dental
care.
The actuarial model projections and the other estimation approaches for
the fiscal year 2005 budget were developed in March 2003. To estimate
costs for VA's medical programs for fiscal year 2005, VA used fiscal
year 2002 data, which were the most current fiscal year data available
in the spring of 2003. Similarly, VA used fiscal year 2003 data, in the
spring of 2004, to project costs for fiscal year 2006.
VA Anticipated Resources Based on Prior Appropriation Levels, OMB
Guidance, Collections, Reimbursements, and Projected Carryover of
Unobligated Funds:
VA anticipated its resources for fiscal years 2005 and 2006 based on
its prior year appropriations, guidance published by OMB that outlined
the President's budget priorities, and other factors. For example,
OMB's annual planning guidance for fiscal year 2005, published in April
2003, directed executive agencies, including VA, to develop a budget
for fiscal year 2005 that was within the levels included in the fiscal
year 2004 budget. The guidance noted, for example, that any increases
or amounts for new initiatives should be offset by reductions in lower
priority or ineffective programs.
In addition, VA anticipated its funding based on resources it expected
from collections, reimbursements,[Footnote 19] and the projected
carryover of unobligated funds into the next fiscal year. VA may carry
over from one fiscal year to the next unobligated balances of funds
made available without fiscal year limitation and other funds
appropriated for multiple fiscal years. In fiscal year 2004, for
example, VA collected $1.7 billion from veterans and third-party
insurers,[Footnote 20] which was available without fiscal year
limitation. VA carried over about $600 million from fiscal year 2004
into fiscal year 2005; this amount consisted of collections from prior
years and multiyear funds that had not been obligated during fiscal
year 2004.
Adjustments Were Made to Address the Difference Between Projected Costs
for VA Medical Programs and Anticipated Resources:
According to VA officials, for both fiscal years 2005 and 2006,
projected costs exceeded anticipated resources. VA officials stated
that differences between projected costs and anticipated resources in
budget requests for those years were addressed in two ways: (1) cost-
saving policy proposals and (2) management efficiency savings.
To develop a budget request consistent with anticipated resources, VA
officials told us they addressed the difference with cost-saving policy
proposals which were included in the President's budget requests for
fiscal years 2005 and 2006. These cost-saving policy proposals totaled
$494 million and $734 million in fiscal years 2005 and 2006,
respectively, and were proposed to reduce the total appropriation
requested. (See table 1.) More specifically, a proposed long-term care
policy was designed to reduce costs by reducing patient workload, while
a proposed $250 enrollment fee and an increase in pharmacy copayments
for Priority 7 and 8 veterans--primarily, those veterans with incomes
or net worths above applicable thresholds and no service-connected
disability--would have generated additional resources. The projected
savings from these policy proposals, which were designed to enhance
revenue as a means of protecting resources, were used to adjust
projected costs. VA used the actuarial model and long-term care
estimates to project savings from these proposals.
Table 1: VA Cost-saving Policies Proposed in the President's Budget
Requests for Fiscal Years 2005 and 2006 (Dollars in Millions):
Policy proposals: Long-term care policy proposals to reduce average
daily census[A];
Fiscal year 2005: $270;
Fiscal year 2006: $502.
Policy proposals: Assess $250 annual enrollment fee for Priority 7 and
8 veterans[B];
Fiscal year 2005: 141;
Fiscal year 2006: 206.
Policy proposals: Increase pharmacy copayment from $7 to $15 for
Priority 7 and 8 veterans[B];
Fiscal year 2005: 83;
Fiscal year 2006: 26.
Policy proposals: Total cost-saving policy proposals;
Fiscal year 2005: $494;
Fiscal year 2006: $734.
Source: GAO analysis of VA data.
[A] Average daily census is a patient workload measure, which
represents the total number of days of nursing home care provided in a
year divided by the number of days in the year.
[B] Priority 7 and 8 veterans are veterans who have either incomes or
net worths above applicable thresholds, no service-connected disability
that results in monetary benefits from VA, and no other recognized
statuses, such as former prisoners of war.
[End of table]
In addition to cost-saving policy proposals, VA developed estimates of
management efficiency savings of $340 million and $590 million in
fiscal years 2005 and 2006, respectively, which were included in the
President's budget request. According to VA, these management
efficiency savings were initiatives designed to reduce costs without
reducing quality. In a February 2006 report,[Footnote 21] we reported
that VA's total projected management efficiency savings in the
President's budget request for fiscal years 2003 through 2006 were used
to fill the gap between the costs associated with VA's projected demand
for health care services and anticipated resources. In addition, we
reported that VA lacked a methodology for measuring the dollar effect
of the health care management efficiency savings it had detailed for
fiscal years 2003 through 2006.
OMB and VA officials told us they did not include management efficiency
savings in the fiscal year 2007 budget request and do not have plans
for doing so in the future. However, they will continue to include
other efficiency savings, which VA calls clinical efficiencies,
projected by its actuarial model. Each year, a workgroup of VA
officials and staff from the developer of the actuarial model review VA
and health care industry trends and evaluate specific VA practices
expected to affect health care service utilization and cost and
incorporate these expectations into the actuarial model. For example,
VA's Advanced Clinical Access initiative is intended to reduce the need
for veterans to visit clinics to receive care by implementing certain
health care practices such as using follow-up telephone calls by
practitioners to reduce the number of in-person office visits. VA
officials told us that to calculate the savings from such an
initiative, the assumptions of reducing patient utilization are built
into the actuarial model. The actuarial model then produces estimates
of the effect of these efficiencies on the cost of health care
services, according to VA officials.
VA Closely Monitored Budget Execution and Identified Problems, but Did
Not Report Them in a Timely and Sufficiently Informative Manner:
Anticipating challenges in managing its medical care programs within
available resources, VA closely monitored its medical programs budget
execution from the beginning of fiscal year 2005. Similarly, in early
fiscal year 2006, the agency tracked how well it was managing to
provide care to veterans with available resources during the 12-month
time period. However, in fiscal years 2005 and 2006, VA reporting of
budget execution to Congress could have been more timely and
informative.
VA Monitored Budget Execution Early, Anticipating Challenges in
Providing Medical Care with Available Resources:
Recognizing that fiscal year 2005 would be a tight budget year, VA
closely monitored budget execution from the beginning of the fiscal
year. In early fiscal year 2005, VA formed a workgroup, the Budgetary
Challenges workgroup, to develop a strategy the agency could take to
manage within its budget. This six-member workgroup was comprised of
selected network directors and an official from VA headquarters. In
December 2004, in internal briefings to VA's National Leadership Board,
the Deputy Under Secretary for Health for Operations and Management,
and the Deputy Secretary, the workgroup recommended that the agency
consider a number of budget options to manage within its fiscal year
2005 budget, including limiting the implementation of new initiatives
and shifting resources from equipment and nonrecurring maintenance into
direct patient care.
VA officials told us that in the middle of fiscal year 2005, it became
clear that demand for health care services was increasing rapidly--
confirming what they had anticipated at the beginning of the fiscal
year--and that spending would have to be carefully controlled to manage
within its fiscal year 2005 budget for the remainder of the year. VA
staff identified these trends by analyzing the monthly reports they
generate for VA senior management. In its March 2005 report to senior
management, VA found that through January 2005 unique patient
workload[Footnote 22] was about 4.1 million, 5.2 percent above what VA
had expected by that time of the fiscal year, suggesting a potential
challenge to managing care with available resources.
On the basis of this close monitoring which began as early as October
2004, VA took actions to shift resources it had originally allocated
for equipment and nonrecurring maintenance into direct patient care. VA
initially planned to manage within its budget for fiscal year 2005 by
deferring $600 million for equipment and nonrecurring maintenance and
reducing the fiscal year 2006 carryover balance by $375 million.
However, with a few months remaining in the fiscal year, in June and
July 2005, the President requested additional VA medical programs funds
for fiscal years 2005 and 2006, asking for $975 million and $1.977
billion, respectively.
In June 2005, the President submitted a request for supplemental
funding for fiscal year 2005 that totaled $975 million. VA reported to
Congress[Footnote 23] that the following activities contributed to the
request:
* $273 million for medical care services provided to veterans returning
from Operation Iraqi Freedom (OIF) and Operation Enduring Freedom
(OEF),[Footnote 24]
* $226 million for long-term care,
* $200 million for an increase in the number of Priority 1 though 6
veterans using VA medical care,
* $179 million for a greater-than-expected increase in the utilization
of medical services and intensity of patient workload,
* $58 million to reduce the number of veterans on waiting lists to
receive medical care, and:
* $39 million to provide medical care for the health care needs of
dependents of veterans who are rated as having 100 percent service-
connected disability.
In July 2005, the President submitted a budget amendment adding $1.977
billion to his fiscal year 2006 request for VA Medical Services
appropriations. VA testified before the House Committee on Veterans
Affairs, in July 2005,[Footnote 25] that the following activities
contributed to the requests for additional funding:
* $677 million for a 2 percent increase in the number of veterans using
VA medical care,
* $600 million to correct an error in VA's estimate of long-term care
costs included in the President's budget,
* $400 million to cover an unexpected 1.2 percent increase in the
average cost per patient, and:
* $300 million to replace funds VA planned to carry over from fiscal
year 2005 to fiscal year 2006.
To support these requests for additional funding for VA medical
programs, VA officials told us that they chose to highlight activities
for fiscal years 2005 and 2006 that were of high programmatic priority
to the administration and Congress and could be supported by workload
and expenditure data (e.g., veterans returning from Iraq and
Afghanistan). They told us that there were a number of other ways the
agency could have presented the data in the President's request for
additional funding. For example, additional funding requested by the
President could have been categorized by budget object code, which
would have listed expenditures by broad cost categories including
personnel and travel. However, VA officials believed that presenting
the information primarily by programmatic activity would be the most
useful for Congress.
VA's Reporting of Budget Execution Progress and Problems to Congress
Could Have Been More Timely and Informative:
Despite VA's identification of potential fiscal year 2005 budget
challenges as early as October 2004, Congress did not learn of these
challenges until April 2005, when VA reported to Congress that it
intended to use funds allocated for equipment and nonrecurring
maintenance to fund patient care. It was not until June 2005, with 3
months remaining in the fiscal year, that VA reported in congressional
testimonies[Footnote 26] that it had greater-than-anticipated workload
levels, likely to result in greater-than-anticipated costs. It notified
Congress at that time that it would not be able to manage by using
nonrecurring maintenance funds as planned, but rather that the
President planned to request additional funds from Congress.
OMB officials told us that they have taken a more active role in
monitoring VA's execution of its fiscal year 2006 budget than they did
in fiscal year 2005. VA and OMB officials now meet monthly to discuss
the budget situation. Further, in fiscal year 2006, VA began preparing
a special monthly report for OMB. The data in VA's monthly status
reports have enabled OMB to help monitor VA's budget execution during
the fiscal year. VA's monthly status reports to OMB provide measures of
financial and workload data. For example, the report includes
information on obligations and patient workload such as patients by
priority category, outpatient visits, and nursing home average daily
census.
Following the supplemental appropriation requested in fiscal year 2005
and the budget amendment requested for fiscal year 2006, Congress
included a provision in the fiscal year 2006 Military Quality of Life
and Veterans Affairs Appropriations Act requiring the Secretary of
Veterans Affairs to submit to the Committees on Appropriations of the
U.S. Senate and U.S. House of Representatives a quarterly report on the
financial status of the Veterans Health Administration.[Footnote 27] In
addition, the conference report accompanying the appropriations act
directed VA to include waiting list performance measures and whether
equipment or nonrecurring maintenance funds have been used to pay for
operating expenses, among other things.[Footnote 28]
VA has provided three congressional quarterly reports beginning with a
report on the first quarter of fiscal year 2006. While VA has 12 months
to execute its budget, it did not submit its first two quarterly
reports to Congress until nearly 2 months after the end of each
quarter, using patient workload data that were as much as 3 months old
at the time of submission. These data included a combination of actual
and estimated number of patients seen. The third quarterly report was
submitted in August, about 1 month after the end of the quarter, which
was 1 month faster than VA provided the first two quarterly reports.
The third quarterly report used estimated data for the number of unique
patients seen.
We also found that these three quarterly reports did not include
information identified in the conference report that would be useful
for congressional oversight. Among measures identified in the
conference report and not provided by VA in the quarterly report was a
particular access measure--the time required for new patients to get
their first appointment. Although not the same measure, a similar
measure produced in one of VA's monthly reports to its own senior
management for use in internal budget formulation showed the number of
new patients waiting for their first appointment to be scheduled almost
doubled over 11 months, from April 2005 to March 2006, indicating a
potential problem in the first quarter of fiscal year 2006.[Footnote
29] (See fig. 2.) However, the quarterly report for that period shows
only the more favorable access measures for existing patients--percent
of primary care and percent of specialty care appointments scheduled
within 30 days of desired date--where VA is actually exceeding its
performance goals. VA did not provide other measures requested, such as
the status of equipment or nonrecurring maintenance funds and whether
these funds have been used to pay for operating expenses.
Figure 2: VA's March 2006 Monthly Report to VA Senior Management
Indicating Number of New Patients Waiting for First Appointment to be
Scheduled:
[See PDF for image]
Source: Adapted from VA's March 2006 report presented to senior
management on April 3, 2006.
Note: New patients are those who have enrolled in the past 12 months
and have not been seen in VA during the past 24 months. VA officials
told us the report reflects 50 outpatient clinics that account for
about 95 percent of VA's outpatient visits. Data from 2004 are reported
from the middle of the month (the 15th) and data for 2005 and 2006 are
reported from first day of the month.
[End of figure]
Additionally, we found that information VA provides on patient workload
in its quarterly reports to congressional committees contrasted with
the more detailed program and clinical information VA uses to inform
the President's budget request for VA medical programs--such as the
patient workload measures used to estimate costs in the actuarial
model. The information in the quarterly congressional reports also
contrasts with the more detailed patient workload information that VA
provides in its monthly reports to OMB. In its quarterly reports, VA
uses a patient workload measure, "unique patients," that counts
patients only once no matter how many times they use VA services within
the fiscal year. (For example, a patient who used VA health care
services in October would not be counted again in the patient workload
totals for November, December, or January, even if that patient used VA
medical services again during each of those months.) However, the
unique patient measure does not capture the difference between patients
predominately using low-cost services, such as primary care outpatient
visits, at an average $245 each, and patients using more high-cost
services, such as acute inpatient hospital care, which costs about
$1,500 a day, on average. In contrast, VA now provides in its monthly
reports to OMB other patient workload measures--in addition to the
number of unique patients--that provide a more complete picture of
whether new patients are receiving low-or high-cost services. Some of
the patient workload measures VA provides to OMB include nursing home
patient workload, as measured by average daily census, number of
outpatient visits, and patient workload by priority category.[Footnote
30]
Unrealistic Assumptions, Estimation Errors, and Insufficient Data
Contributed to VA's Requests for Additional Funding:
The requests for additional funding for VA medical programs in fiscal
years 2005 and 2006 were caused, in part, by unrealistic assumptions,
errors in estimation, and insufficient data in its budget formulation
process. Unrealistic assumptions about the expected time frame in which
the cost savings could be realized from proposed nursing home cost-
saving policies contributed to the subsequent request for additional
funding. Further, computational errors in measuring the estimated
effect of one of these cost-saving policies led VA to underestimate
resources needed in fiscal year 2006. Moreover, insufficient data in
VA's initial budget projections contributed to the additional funding
requests. For example, VA underestimated the cost of serving veterans
returning from Iraq and Afghanistan, in part because estimates for
fiscal year 2005 were based on data that largely predated the Iraq
conflict and because VA did not have sufficient data for fiscal year
2006 due to challenges in obtaining data needed to identify these
veterans from DOD, according to VA officials.
Unrealistic Assumptions and Errors in Estimating the Effect of Nursing
Home Policies Contributed to Requests for Additional Funding:
An unrealistic assumption about the expected time frame in which VA
could implement a fiscal year 2005 proposed nursing home cost-saving
policy contained in the President's budget request--a reduction in
nursing home patient workload in VA-operated nursing homes--contributed
to $226 million of the request for supplemental funding for that fiscal
year, VA officials said. The President's fiscal year 2005 budget
request for VA medical programs included a proposal to reduce patient
workload on a daily basis--average daily census--from about 12,000 to
8,500 in VA-operated nursing homes. In retrospect, agency officials
told us this assumption was particularly unrealistic because of its
accelerated time frame. VA projected the savings from this reduction in
workload would be realized on the first day of the fiscal year, a
change which would have required transferring or discharging, in an
extremely compressed time frame, potentially thousands of veterans,
many of whom had severe, chronic, physical or mental impairments. These
veterans would have had to seek financing from other sources, such as
Medicaid or private health insurance, or paid for their care out of
pocket. Moreover, achievement of substantial savings from this policy
would have also likely required reducing the number of VA employees.
However, VA included no discussion in its budget formulation on how
this cost-saving policy was to be implemented. Furthermore, VA
officials told us that because VA had established a precedent for
providing care to veterans who receive nursing home care on a
discretionary basis, changing the policy on short notice would be
difficult.
Similarly, the fiscal year 2006 President's budget request for VA
medical programs included unrealistic assumptions and computational
errors in estimating savings of a proposed nursing home policy. The
assumption and estimation errors contributed to $600 million of the
budget amendment requesting additional funding in fiscal year 2006. The
President's fiscal year 2006 budget request for VA medical programs
included a policy proposal to reduce patient workload and costs by
prioritizing the veterans[Footnote 31] who would receive long-stay
nursing home care in its VA-operated nursing homes, community nursing
homes, and state veterans' nursing homes. Long-stay care includes
nursing home care needed by veterans who cannot be cared for at home
because of severe, chronic physical or mental impairments such as the
inability to independently eat or the need for supervision because of
dementia. Under the proposed policy, many veterans receiving VA nursing
home care would no longer qualify for long-stay care.
An unrealistic assumption about the expected time frame in which VA
could implement the proposed policy contributed to $152 million of the
$600 million request for additional funding for nursing home care in
that fiscal year, according to VA officials. While VA had originally
assumed the savings could be realized in April 2005, before the start
of the 2006 fiscal year, VA staff said they later recognized with OMB
that this date had been unrealistic. In addition, VA said that the
policy assumed a 90 percent reduction in patient workload in state
veterans' nursing home workload for patients requiring long-stay
nursing home care but that the correct estimate was a 20 percent
reduction in workload per year. For VA-operated nursing homes, the
policy assumed an 80 percent reduction in patient workload over 1½
years; however, VA later stated the correct estimate was closer to 30
percent.
Computation errors in estimating the effect of this proposed fiscal
year 2006 policy contributed to about $445 million of the $600 million
request for additional funding for nursing home care in that fiscal
year, according to VA officials. In particular, VA underestimated
patient workload--average daily census--and costs in all three nursing
home settings. Specifically, VA incorrectly estimated that the average
daily census in VA-operated nursing homes was 9,795, when the correct
estimated patient count was 11,151. Similarly, while VA estimated that
the per diem rate for its homes was $471.16, it was actually $567.52.
VA officials said that the errors in estimating the effect of the
proposed nursing home policy resulted from calculations being made in
haste during the OMB appeal process,[Footnote 32] and that a more
standardized approach to long-term care calculations could provide
stronger quality assurance to help prevent future mistakes.
Insufficient Data on Certain Activities Contributed to the Requests for
Additional Funding in Fiscal Years 2005 and 2006:
Insufficient data on veterans returning from Iraq and Afghanistan--OIF
and OEF--accounted for $273 million of the request for supplemental
funding in fiscal year 2005. According to VA officials, the original
cost projections for providing care to OIF and OEF veterans were
understated for fiscal year 2005 in part because they were based on
data from fiscal year 2002 that predated the Iraq conflict, which began
in March 2003. While VA originally projected, in its fiscal year 2005
budget formulation, that it would need to provide care to about 23,500
returnees from Iraq and Afghanistan, revised projections indicated that
it would serve about four times that number of OIF and OEF veterans,
nearly 100,000 returnees for fiscal year 2005.
Insufficient data on returning OIF and OEF veterans continued to be a
problem in fiscal year 2006 budget formulation, accounting for $276
million of the budget amendment requesting additional funding for that
year, according to VA officials. VA officials told us they did not have
sufficient data for fiscal year 2006 due to challenges obtaining data
needed to identify these veterans from DOD. VA later determined in late
fiscal year 2005, after the President submitted the fiscal year 2006
budget request, that it expected to provide care to approximately
87,000 patients beyond what it had initially projected. According to VA
officials, VA now receives the DOD data it requires to identify OIF/OEF
veterans on a monthly basis rather than the quarterly reports it used
to receive. However, VA has a 2-month lag in projecting costs
associated with treating these veterans at VA.
Insufficient data on whether VA achieved management efficiency savings
may have also contributed to the requests for additional funding.
However, VA's calculations of management efficiencies obtained in
fiscal year 2005 were based on the same approach we found to be
inadequate in our earlier work and therefore are not reliable. Data on
whether management efficiency savings were achieved for fiscal year
2006 were not available during our work because the fiscal year was not
complete. Because we could not determine if the efficiency savings were
achieved, we could not conclude whether the estimation of savings was
incorrect and therefore may have contributed to the request for
additional funding.
Conclusions:
VA, like other federal agencies, faces fiscal challenges as demand for
its services increases while federal resources are constrained. Until
recently, VA had more options to meet this challenge because it could
redirect resources from more expensive inpatient care to less expensive
outpatient care to serve more veteran patients as it modernized the
delivery of its health care services. However, VA's success in
transforming its system to emphasize outpatient care means that it will
have fewer such options to meet future fiscal challenges. In this
context, sound budget formulation, anticipatory monitoring of budget
execution, and the reporting of informative and timely information to
Congress for oversight will become increasingly important in order to
provide high-quality, accessible, and cost-efficient health care to
veterans. Even with these actions, the challenge of balancing veterans'
access to health care and the availability of federal resources is
likely to be more difficult in the future.
The lessons of the last few years show what can happen when budget
formulation is affected by calculation errors, unrealistic assumptions,
and insufficient data. Whether due to errors in calculating long-term
care patient workloads and costs, unrealistic assumptions about the
expected time frame in which long-term care policies can be changed and
lack of discussion in budget formulation on how such policies would be
implemented, or insufficient data on the number of people who will need
health care, such problems can result in mismatches in projecting
service provision and available resources. Although budget formulation
is, by its nature, based on assumptions and imperfect information,
these assumptions and information can be improved based on experience,
and complemented by reasonable projections for known events that will
affect the agency. Additional measures in VA's quarterly reports, such
as the time new patients waited for their first health care
appointments and measures of patient workload in addition to unique
patients, might help alert Congress to potential problems VA may face
in managing within its budget in future years. VA's budget execution
and monitoring in fiscal years 2005 and 2006 were perhaps more vigilant
than in prior years because VA expected, from the beginning of fiscal
year 2005, that it might experience difficulties in managing its
medical program within available resources. When, as a result of this
monitoring, VA found potential problems in providing medical care
programs within its appropriations, its reporting of the information to
Congress was not sufficiently timely or informative. More recently,
however, VA improved the timeliness of its reporting. VA submitted its
third quarterly report for fiscal year 2006 more quickly after the end
of the quarter than it had the first two quarterly reports.
Recommendations for Executive Action:
To help improve VA's budget formulation of its medical programs budget
and facilitate congressional oversight, we recommend that the Secretary
of Veterans Affairs take three actions:
* Explain the relationship between implementation of proposed policy
changes and the expected timing of when cost savings would be achieved.
* Improve its internal controls to provide stronger assurance that
calculations used to formulate policy projections in the President's
budget submissions are accurate.
* Incorporate into VA's reporting to Congress (1) measures of patient
workload, in addition to unique patients, that would capture the
costliness of patient care; and (2) a measure of waiting times to
schedule veterans' first primary care appointment for new patients.
Agency Comments:
We received comments on a draft of this report from VA (reproduced in
app. II). In commenting on the draft, VA stated that it substantially
agreed with our findings and conclusions and concurred with our
recommendations. VA also described steps it has taken and plans to take
to respond to our recommendations, including steps it took in
developing information for the President's fiscal year 2007 budget
request and in monitoring the execution of its fiscal year 2006
resources.
We are sending copies of this report to the Secretary of Veterans
Affairs and the Director of the Office of Management and Budget,
appropriate congressional committees, and other interested parties. We
will also make copies available to others upon request. In addition,
this report will be available at no charge on GAO's Web site at
[hyperlink, http://www.gao.gov]. If you or your staff have any
questions about this report, please contact me at (202) 512-7101 or at
ekstrandl@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 who made major contributions to this report are
listed in appendix III.
Signed by:
Laurie E. Ekstrand:
Director, Health Care:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
For fiscal years 2005 and 2006, we examined: (1) how the President's
budget requests for the Department of Veterans Affairs (VA) medical
programs were formulated, (2) how VA monitored and reported to Congress
on its budget execution, and (3) which key factors in the budget
formulation process contributed to the requests for additional funding.
Our review of how VA monitored its fiscal year 2006 budget includes the
first 11 months of the fiscal year because the fiscal year was not over
when we completed our work.
For each of our reporting objectives, we interviewed senior officials
in VA and the Office of Management and Budget (OMB) to determine how
the President's budget request for VA medical programs for fiscal years
2005 and 2006 was formulated, and how VA monitored and reported on its
budget execution. We interviewed VA officials in Washington, D.C. from
three primary offices responsible for budget issues related to VA's
medical programs: (1) VA's Office of the Deputy Assistant Secretary for
Budget, (2) Veterans Health Administration's (VHA) Office of the Chief
Financial Officer, and (3) VHA's Office of the Assistant Deputy Under
Secretary for Health for Policy and Planning. We also interviewed
senior officials from OMB responsible for VA budget issues to obtain
their perspective on the President's budget request for VA's medical
programs and the subsequent requests for additional funding for fiscal
years 2005 and 2006.
For the purposes of our analysis, the President's budget request for VA
medical programs primarily concerned four appropriation accounts: (1)
medical services, for direct patient care; (2) medical administration,
for administrative oversight and all information technology; (3)
medical facilities, for the maintenance and operation of hospitals and
other structures; and (4) medical research. VA funded nonrecurring
maintenance, for items such as roof repair, through the appropriations
for VA medical programs, and funds for these activities are included in
our analysis. However, we did not include more general construction
funding--i.e., for major construction and minor construction--in our
analysis, as these funds are provided in separate appropriations.
We obtained and analyzed documents and interviewed VA officials about
how each of the three primary projection methods was used in
formulating the budget: (1) an actuarial model; (2) a long-term care
approach; and (3) other methodologies, including adding inflation to
actual expenditures. For each method, we verified information VA
officials told us in interviews by analyzing the documents VA provided.
For example, we confirmed that the actuarial model accounted for about
86 percent of the President's budget request for VA medical programs
for fiscal year 2005 through our analysis of documents VA provided.
To determine how VA monitored and reported to Congress on its budget
execution, we conducted interviews and reviewed copies of monthly
reports prepared internally for VA senior managers, monthly reports
prepared for OMB, and quarterly reports prepared for the House and
Senate Appropriations Committees. For monthly reports prepared for VA
senior managers, we reviewed both the March 2005 and the March 2006
monthly reports. We reviewed a monthly report VA prepared for OMB for
the month of April 2006. For the quarterly reports, we reviewed the
first, second, and third quarterly reports VA prepared on the fiscal
year 2006 budgets. We analyzed these documents to assess the
comprehensiveness of the reporting information included in these
reports.
To identify key factors in the budget formulation process that
contributed to the requests for additional funding, we obtained and
analyzed a number of documents detailing estimated savings from various
policy proposals, calculation errors, and data gaps in the budget
formulation process for fiscal years 2005 and 2006. For example, we
analyzed documents obtained from VA showing calculation errors made in
estimating the impact of a proposed long-term care policy in fiscal
year 2006. We also obtained and analyzed revised estimates of veterans
returning from Iraq and Afghanistan and compared these to data
available during the fiscal years 2005 and 2006 budget formulation
process. In addition, we reviewed publicly available documents such as
transcripts of VA testimony to the Senate and House Veterans' Affairs
Committees, the VA's Medical Programs Budget Submissions for fiscal
years 2005 and 2006, and the President's formal requests to Congress
for additional funding for VA medical programs for fiscal years 2005
and 2006.
We assessed the reliability of the information we obtained about how VA
formulated, monitored, and reported on the President's budget request
for medical programs in several ways. First, we checked the internal
consistency of documents VA provided detailing various budget estimates
for fiscal years 2005 and 2006 and information contained in the
President's budget request in those years. Second, we interviewed
agency officials knowledgeable about the data used to formulate,
monitor, and report on the budget. We determined that the actuarial
model appeared reasonable for formulating the budget but we did not
conduct a separate, detailed audit of all data inputs into the
actuarial model. Third, we relied on our prior work to identify
potential issues about data reliability. For example, we determined
that the assumptions used to project management efficiencies were
inaccurate, based on a report we had previously issued.[Footnote 33] We
determined that the data we used in our analyses were sufficiently
reliable for the purposes of this report.
We performed our review from October 2005 through September 2006 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Veterans Affairs:
The Deputy Secretary Of Veterans Affairs:
Washington:
September 5, 2006:
Ms. Laurie E. Ekstrand:
Director:
Health Care Team:
U. S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Ekstrand:
The Department of Veterans Affairs (VA) has reviewed the Government
Accountability Office's (GAO) draft report, VA Health Care, Budget
Formulation and Reporting on Budget Execution Need Improvement (GAO-06-
958). VA substantially agrees with your findings and conclusions as
they pertain to the formulation of the fiscal year (FY) 2005 and FY
2006 budgets. VA has also taken steps to incorporate these improvements
into the FY 2007 budget and will continue to do so in future budget
requests.
VA is committed to ensuring that budget estimates accurately reflect
mission requirements and are based on valid assumptions in providing
timely, high-quality health care to veterans.
The enclosure details actions taken and planned to implement GAO's
recommendations. VA appreciates the opportunity to comment on your
draft report.
Sincerely yours,
Signed by:
Gordon H. Mansfield:
Enclosure:
The Department Of Veterans Affairs' (VA) Comments To The Government
Accountability Office (GAO) Draft Report:
VA Health Care; Budget Formulation and Reporting on Budget Execution
Need Improvement (GAO-06-958):
* To help improve VA's budget formulation of its medical programs
budget and facilitate congressional oversight. GAO recommends that the
Secretary of Veterans Affairs take three actions:
Explain the relationship between implementation of proposed policy
changes and the expected timing of when cost savings would be achieved.
Concur-VA employed the approach of critically evaluating policy changes
and assumptions, realistic implementation timelines, and resulting
savings In the development of the FY 2007 budget request and will
continue to do so in future budgets. The relationship between the
implementation of the policy and the expected timing of the budgetary
impact will be determined and explained in the budget by VA. All
changes in health care policy were appropriately identified in the FY
2007 budget and will continue to be clearly identified in future
budgets. This will enable all stakeholders to clearly recognize any
policy changes that are proposed, along with the rationale to support
them and their financial impact. This includes the date of expected
approval of the policy, the timing of the implementation in the field,
and the initial and future cost impacts. VA will provide more
comprehensive explanations regarding the timing of the complex
relationship between respective policy changes and realization of cost,
or cost savings, in future budget requests to Congress.
Improve its internal controls to provide stronger assurance that
calculations used to formulate policy projections in the President's
budget submissions are accurate.
Concur-VA has taken steps to improve its overall quality control and
made technical changes to strengthen the accuracy of its formulation
methodologies and assessments of cost savings in the FY 2007 and future
budgets. Assumptions and calculations have been verified independently
to assure the fundamental quality of estimates. Additionally, VA has
contracted with the RAND Corporation to independently evaluate its
actuarial projection model for the purpose of identifying potential
improvements. During the execution year, VA is also monitoring budget
performance with monthly reports to VA senior leaders and to OMB, and
with quarterly reports to the four congressional committees.
Incorporate into VA's reporting to Congress (1) measures of patient
workload, in addition to unique patients, that would capture the
costliness of patient care, and (2) a measure of waiting times to
schedule veterans' first primary care appointment for new patients.
Concur - The Secretary personally briefed the first FY 2006 quarterly
report to the congressional committees as requested and has provided
quarterly reports for the two subsequent quarters. The Secretary and VA
have responded to all requests from the committees for performance
information and will continue to provide workload data as well as
financial and program performance information to Congress as requested.
VA will provide Congress with a measure of waiting times to schedule
veterans' first primary care appointments for new patients In its
quarterly reports to Congress.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Laurie E. Ekstrand, (202) 512-7101 or ekstrandl@gao.gov.
Acknowledgments:
James Musselwhite, Assistant Director; Jennie Apter; Denise Fantone;
Michael Kendix; Dean Koulouris; Tiffany Tanner; Thomas Walke; and Greg
Whitney made key contributions to this report.
[End of section]
Related GAO Products:
VA Long-Term Care: Data Gaps Impede Strategic Planning for and
Oversight of State Veterans' Nursing Homes. GAO-06-264. Washington,
D.C.: March 31, 2006.
VA Health Care: Preliminary Findings on the Department of Veterans
Affairs Health Care Budget Formulation for Fiscal Years 2005 and 2006.
GAO-06-430R. Washington, D.C.: February 6, 2006.
Veterans Affairs: Limited Support for Reported Health Care Management
Efficiency Savings. GAO-06-359R. Washington, D.C.: February 1, 2006.
VA Long-Term Care: Oversight of Nursing Home Program Impeded by Data
Gaps. GAO-05-65. Washington, D.C.: November 10, 2004.
VA Health Care: Resource Allocations to Medical Centers in the Mid
South Healthcare Network. GAO-04-444. Washington, D.C.: April 21, 2004.
VA Long-Term Care: Service Gaps and Facility Restrictions Limit
Veterans' Access to Noninstitutional Care. GAO-03-487. Washington,
D.C.: May 9, 2003.
Managing for Results: Efforts to Strengthen the Link Between Resources
and Results at the Veterans Health Administration. GAO-03-10.
Washington, D.C.: December 10, 2002.
VA Health Care: Allocation Changes Would Better Align Resources With
Workload. GAO-02-338. Washington, D.C.: February 28, 2002.
FOOTNOTES
[1] Total includes medical care collections, but does not include
certain other amounts, such as appropriations for construction.
[2] Pub. L. No. 104-262, §§ 101, 104, 110 Stat. 3177, 3178-81 and 3182-
84. Veterans with low incomes are those veterans with annual incomes
below a certain threshold. In 2006, the income threshold was $26,902
for veterans without dependents.
[3] The Veterans Millennium Health Care and Benefits Act required VA to
provide nursing home care to veterans requiring such care with a
service-connected disability rated at 70 percent or greater, those
requiring nursing home care because of a condition related to their
military service who do not have a service-connected disability rating
of 70 percent or greater, and those who were receiving care in VA
nursing homes on the enactment date of the act and continue to need
that care. Pub. L. No. 106-117, § 101, 113 Stat. 1545, 1547-51
(codified at 38 U.S.C. § 1710A). The Veterans' Health Care, Capital
Asset, and Business Improvement Act of 2003 extended this requirement
through 2008. Pub. L. No. 108-170, § 106(b), 117 Stat. 2042, 2046. VA
provides most of its nursing home care to veterans who receive it on a
discretionary basis rather than as required by these acts.
[4] Veterans' eligibility priority categories are generally determined
on the basis of service-connected disability and/or income. There are
currently eight priority categories.
[5] The VA also provides a comprehensive benefits program, administered
by the Veterans Benefits Administration (VBA), and maintains national
cemeteries, administered by the National Cemetery Administration (NCA).
[6] An obligation is generally a definite commitment that creates a
legal liability of the government for a payment immediately or in the
future. Agencies incur obligations when they place orders, award
contracts, receive services, and carry out similar transactions during
a given period that will require payments by an agency during the same
or future periods.
[7] See 31 U.S.C. § 1341(a)(1)(A).
[8] Fiscal year 2006 will not be complete until September 30, 2006.
[9] See GAO, VA Health Care: Preliminary Findings on the Department of
Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005
and 2006, GAO-06-430R (Washington, D.C.: Feb. 6, 2006). See Related GAO
Products at the end of this report.
[10] VA also supports state veterans' nursing homes through grants for
construction, acquisition, or renovation of existing structures. See
GAO, VA Long-Term Care: Data Gaps Impede Strategic Planning for and
Oversight of State Veterans' Nursing Homes, GAO-06-264 (Washington,
D.C.: Mar. 31, 2006) and GAO, VA Long-Term Care: Oversight of Nursing
Home Program Impeded by Data Gaps, GAO-05-65 (Washington, D.C.: Nov.
10, 2004).
[11] VA nursing home care is part of a continuum of long-term care
services that VA provides, including services to veterans in the
community and in veterans' own homes.
[12] Pub. L. No. 104-262, § 104(a)(1) 110 Stat. 3177, 3182-83 (codified
at 38 U.S.C. § 1705). Enrollment is not required to receive nursing
home care in any of VA's three nursing home settings.
[13] Department of Veterans Affairs Health Care Programs Enhancement
Act of 2001, Pub. L. No. 107-135, § 202(a), 115 Stat. 2446, 2457.
[14] See 38 U.S.C. § 1705(b)(1).
[15] VA announced this change through the publication of an interim
final rule in the Federal Register. See 68 Fed. Reg. 2670-73 (Jan. 17,
2003).
[16] VA's actuarial model was developed under contract by Milliman USA,
Inc.
[17] VA long-term care includes nursing home care provided in VA-
operated, state, and community nursing homes, and home and community-
based care such as in-home care services and adult day health care
centers.
[18] CHAMPVA provides medical care for dependents and survivors of
veterans who are permanently and totally disabled from a service-
connected disability.
[19] VA receives reimbursements from services it provides to other
government entities, such as DOD, or other private or nonprofit
entities. For example, VA laundries receive reimbursements from other
entities by selling laundry services.
[20] VA has the authority to collect payments for treatment of
veterans' nonservice-connected conditions, that is, injuries or
illnesses that were not incurred or aggravated during military service.
VA collects first-party payments from veterans, such as copayments for
outpatient medications and third-party payments from veterans' private
health insurers, including those companies that self-insure.
[21] See GAO, Veterans Affairs: Limited Support for Reported Health
Care Management Efficiency Savings, GAO-06-359R (Washington, D.C.: Feb.
1, 2006).
[22] Unique patient workload is a measure that represents an
unduplicated count of the number of patients that used VA within the
fiscal year. Therefore, patients are counted only once regardless of
the number of times they use VA medical services within a fiscal year.
[23] Emergency Hearing to Examine the Shortfall in VA's Medical Care
Budget Before the Senate Comm. on Veterans' Affairs, 109th Cong. (June
28, 2005) (statement of R. James Nicholson, Secretary, Department of
Veterans Affairs); Hearing on the Department of Veterans Affairs Health
Care Budget Before the House Comm. on Veterans' Affairs, 109th Cong.
(June 30, 2005) (statement of R. James Nicholson, Secretary, Department
of Veterans Affairs).
[24] Those who have served, or are now serving, in Operation Iraqi
Freedom and Operation Enduring Freedom may receive care from VA for
conditions that are or may be related to their combat services for a 2-
year period following the date of their separation from active duty
without copayment requirements. See 38 U.S.C. § 1710(e)(1)(C) and
(e)(3)(C).
[25] Hearing on the Department of Veterans Affairs Proposed Health Care
Budget Amendment for Fiscal Year 2006 Before the House Comm. On
Veterans' Affairs, 109th Cong. (July 21, 2005) (statement of Jonathan
B. Perlin, Under Secretary for Health, Department of Veterans Affairs).
[26] Emergency Hearing to Examine the Shortfall in VA's Medical Care
Budget Before the Senate Comm. on Veterans' Affairs, 109th Cong. (June
28, 2005) (statement of R. James Nicholson, Secretary, Department of
Veterans Affairs); Hearing on the Department of Veterans Affairs Health
Care Budget Before the House Comm. on Veterans' Affairs, 109th Cong.
(June 30, 2005) (statement of R. James Nicholson, Secretary, Department
of Veterans Affairs).
[27] Pub. L. No. 109-114, § 222, 119 Stat. 2372, 2391 (2005). A
provision contained in an annual appropriation act is not considered
permanent legislation unless the language or the nature of the
provision makes it clear that Congress intended it to be permanent.
Because this provision does not use any language indicating future
application, it is not permanent and applies only to fiscal year 2006.
The bill providing for the fiscal year 2007 Department of Veterans
Affairs appropriations, H.R. 5385, would continue the quarterly report
for that fiscal year. As of August 1, 2006, the bill had been reported
out of the House and Senate appropriation committees, and had been
passed by the House.
[28] See H.R. Conf. Rep. No. 109-305, at 50 (2005).
[29] VA provided us with more recent data through July 1, 2006, that
showed that the number of new patients waiting for first appointments
had returned to about 15,000 or the same level as in April 2005.
However, VA has not included these data in its first three quarterly
reports.
[30] Senior-level managers at managed care organizations typically use
a number of measures to monitor on a recurring basis changes in patient
workload. See Peter R. Kongstvedt, ed., The Managed Health Care
Handbook (Aspen Publishers, Inc., Gaithersburg, Maryland, Fourth ed.
2001), pp. 298-299.
[31] VA planned to limit long-stay nursing home care to those veterans
with higher priority status--i.e., those veterans who had a priority
status of 1 through 3 and those priority 4 veterans who were
catastrophically disabled.
[32] In late November, OMB "passes back" budget decisions to the
agencies on the President's budget requests for their programs, a
process known as passback. These decisions may involve, among other
things, funding levels, program policy changes, and personnel ceilings.
The agencies may appeal decisions with which they disagree.
[33] See GAO-06-359R.
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