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