VA Hospitals

Use of the 173 hospitals run by the Department of Veterans Affairs (VA) has steadily declined during the past three decades; from 1963 through 1995, the average daily workload of VA hospitals declined 66 percent. This report identifies major issues and changes that Congress and the administration will face in the next few years concerning VA hospitals. GAO compares VA and community hospitals regarding (1) how hospital care evolved during the 20th century, including changes in supply and demand; (2) factors contributing to the declining demand; (3) the extent of excess capacity; and (4) actions taken to increase efficiency and compete for patients.

GAO noted that: (1) both community and VA hospitals are struggling to survive; (2) demand for hospital care abruptly reversed and has steadily declined since the 1980s in community hospitals and since the 1960s in VA hospitals; (3) although many factors contributed to the reversal, medical advances and changes in health insurance mainly drove changes to community hospitals; (4) VA hospitals, however, were mainly affected by declining numbers of veterans and the improving health care options available to veterans through Medicare and other insurance; (5) GAO's work, and studies by others, suggest that if trends continue, 60 percent or more of community hospital beds and over 80 percent of VA hospital beds may not be needed in the next 15 years; (6) if such reductions occur, many hospitals will cease operation; (7) VA's current strategy for attracting new users may not generate the demand needed to preserve VA hospitals; (8) new users have indicated they are more likely to choose their local hospitals rather than a distant VA facility; (9) if VA decides to directly compete with community hospitals for market share, then it will have to subsequently decide whether to adopt private-sector marketing techniques; (10) both VA and community hospitals are fundamentally changing the ways they operate; (11) such changes include the hospitals' basic structure and management; reinvention of basic work, procurement, and supply processes; development of new marketing strategies; and methods and procedures of monitoring and delivering patient care; (12) teaching hospitals' use of medical residents as a lower cost labor source is often seen as contributing to the oversupply of physicians; (13) Congress, through the Balanced Budget Act of 1997, gave non-VA teaching hospitals financial incentives through the Medicare program to reduce residency positions; (14) both VA's strategic goals and the incentives it is creating through some of its restructuring efforts suggest that VA, like many community hospitals, is focusing its marketing efforts on attracting revenue-generating patients; (15) decisions on the future of VA hospitals, whether they mean closing hospitals or opening them to nonveterans, have significant implications for veterans, VA employees, affiliated medical schools, community hospitals, and taxpayers; and (16) therefore, Congress and the administration must have sufficient information for properly assessing the potential effects of VA's health care system changes on all stakeholders.