prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.



Report 2: Spinal cord injuries are complex, lifelong injuries that typically result from acute traumatic damage to the spinal cord or nerves within the spinal column  In spinal cord injury patients, certain nervous system functions may be impaired temporarily or permanently lost, depending on the level and severity of the patient’s injury  In addition to lower level nervous system functioning, spinal cord injury patients may develop secondary medical complications that can further decrease functional independence and quality of life, including, but not limited to: Autonomic dysreflexia: a condition that may result in life threatening hypertension—high blood pressure—due to impaired nervous system response, below the level of spinal cord injury  Depression: a medical mood disorder—commonly affecting about one in five spinal cord injury patients—that can cause physical and psychological symptoms (including changes in sleep and appetite, and thoughts of death or suicide)  Impaired bowel and bladder functioning: potential inability to move waste through the colon and control, stop or release, urine—which can lead to other life-threatening illnesses (such as autonomic dysreflexia) and/or infections  Pressure ulcers: a common complication affecting up to 80 percent of spinal cord injury patients that results from an area of the skin or underlying tissue that is damaged due to decreased blood flow, which can occur after extended periods of inactive sitting or lying, among other ways  Pressure ulcers—also known as pressure sores or wounds—can occur years after initial injury and may also result in life- threatening infections or amputation  Spasticity: a common condition that affects 65 to 78 percent of spinal cord injury patients and can result in symptoms ranging from mild muscle stiffness to severe, uncontrollable leg movements  Syringomyelia: a rare disorder that occurs when cerebrospinal fluid— normally found outside of the spinal cord and brain—enters the interior of the spinal cord to form a cyst known as a syrinx  This cyst expands and elongates over time, destroying the center of the spinal cord  Symptoms can develop slowly and can include numbness, pain, effects on bowel and bladder function, or paralysis  While this condition can occur as a result of a trauma, such as a spinal cord injury, the majority of cases are associated with a complex brain abnormality  Acquired brain injuries occur after birth and are not hereditary, congenital, degenerative, or a result of birth trauma  Acquired brain injuries result in changes to the brain’s neuronal activity, which can affect the physical integrity, metabolic activity, or functional ability of nerve cells in the brain  Acquired brain injuries can be either non-traumatic or traumatic in nature: non-traumatic brain injuries are caused by an internal force—such as in the case of stroke, tumors, or drowning—and traumatic brain injuries are caused by an external force—such as in the case of car accidents, gunshot wounds, or falls  The severity of brain injury can often result in changes to physical, behavioral, and/or cognitive functioning  For example, according to one source, nearly 50 percent of all people with a traumatic brain injury experience depression within the first year after injury, and nearly two-thirds experience depression within 7 years post- injury  Depression can develop as a result of physical changes in the brain, emotional response to the injury, and other unrelated factors—such as family history  Due to impaired cognitive functioning, traumatic brain injury patients may also experience difficulty communicating, concentrating, and processing and understanding information  Acute care hospitals and LTCHs are paid under different Medicare payment systems by law  Acute care hospitals are paid under the inpatient prospective payment system (IPPS)  LTCHs are paid under the LTCH PPS  Under both systems, Medicare classifies patients based on Medicare diagnosis groups, which organize patients based on their conditions and the care they receive  Medicare payments for LTCHs are typically higher than payments for acute care hospitals, to reflect the average resources required to treat Medicare beneficiaries who need long-term care  Traditionally, all LTCH discharges were paid at the LTCH PPS standard federal payment rate  The Pathway for SGR Reform Act of 2013 modified the LTCH PPS by establishing a two-tiered payment system— such that certain LTCH discharges continue to be paid at the standard rate and others are paid at a generally lower, site-neutral rate  In its March 2013 report, MedPAC described concerns regarding growth in the number of LTCHs and the extent to which some of their patients may otherwise be treated appropriately in less costly settings  To continue to be eligible for the standard rate, the discharge must generally have a preceding acute care hospital stay with either an intensive care unit stay of at least 3 days or an assigned diagnosis group based on the receipt of at least 96 hours of mechanical ventilation services in the LTCH, unless an exception applies  Discharges that do not qualify for the standard rate are to receive a blended site-neutral rate—equal to 50 percent of the site-neutral rate and 50 percent of the standard rate—for discharges in cost reporting periods beginning in fiscal years 2016 through 2019, and the full site-neutral rate for discharges in cost reporting periods beginning in fiscal year 2020  Beginning with cost reporting periods in fiscal year 2020, if fewer than half of an LTCH’s discharges meet the statutory requirements to be paid at the standard rate, the LTCH will no longer receive any payments at that rate for discharges in future cost reporting periods until eligibility for receiving payments under that rate is reinstated  Under this scenario, all discharges in succeeding cost reporting periods would be paid at the generally lower rate that an acute care hospital would receive for providing comparable care until eligibility for receiving payments at the standard rate is reinstated  According to officials from HHS, the department intends to establish a process for how hospitals would have their eligibility for receiving payments at the standard rate reinstated as part of the fiscal year 2020 rule-making cycle  Since the two qualifying hospitals are currently only excepted from the statutory two-tiered payment structure for cost reporting periods beginning during fiscal years 2018 and 2019, these two hospitals must also meet the statutory 50 percent threshold in fiscal year 2020 and beyond in order to receive the standard rate for any future discharges until reinstated  See table 1 for more information on Medicare’s LTCH PPS payment policies  Two LTCHs have qualified for the temporary exception to site-neutral payments, according to CMS officials  Craig Hospital is a private, not-for- profit facility that has specialized in medical treatment, research, and rehabilitation for patients with spinal cord and brain injury since 1956  Craig Hospital is classified as an LTCH for the purposes of Medicare payment, and is licensed as a general hospital by the state of Colorado— which does not have separate designations for LTCHs  Craig Hospital has been selected as one of 14 NIDILRR Spinal Cord Injury Model Systems and one of 16 Traumatic Brain Injury Model Systems and is accredited by the Joint Commission  Shepherd Center is a private, not-for-profit facility that specializes in medical treatment, research, and rehabilitation for people with traumatic spinal cord injury and brain injury—as well as neuromuscular disorders, including multiple sclerosis  Shepherd Center is classified as an LTCH for the purposes of Medicare payment, and as a specialty hospital—which includes LTCHs—by the state of Georgia  Shepherd Center is also currently designated as a NIDILRR Spinal Cord Injury Model System and is accredited by the Joint Commission  Shepherd Center also has several CARF International accredited specialty programs  Specifically, it has CARF-accredited inpatient rehabilitation specialty programs in spinal cord injury and brain injury—for adults, children, and adolescents; and interdisciplinary outpatient medical rehabilitation specialty programs in spinal cord injury and brain injury—for adults, children, and adolescents, among others  More than half of the Medicare discharges in fiscal year 2013 at the two qualifying hospitals—43 of 75 at Craig Hospital and 47 of 88 at Shepherd Center—were within the diagnosis groups designated in section 15009(a) of the 21st Century Cures Act  (See table 2 below for more information ) Patients treated for these diagnosis groups may receive treatment for spinal disorders and injuries; medical back problems; degenerative nervous system disorders; skin grafts for skin ulcers; acquired brain injuries, such as traumatic brain injuries; or other significant traumas with major complicating and comorbid (simultaneous) conditions  Both qualifying hospitals have a variety of specialized inpatient and outpatient programs to help treat the complex health care needs of their patients, including those covered by Medicare  For example, both hospitals have wheelchair positioning clinics that can help prevent skin complications, such as pressure ulcers, that can occur in spinal cord patients  Both hospitals also have programs for those patients who need ventilator support such as diaphragmatic pacing—support for patients with respiratory problems whose diaphragm, lungs, and nerves have limited function—and ventilator weaning programs  In addition to clinical programs, both qualifying hospitals also provide transitional support, such as providing counseling and education to families of patients with these injuries  We found that most Medicare beneficiaries at the two qualifying hospitals need specialized services to manage the chronic, long-term effects of a catastrophic spinal cord or brain injury  Most of these patients are younger than 65 and ineligible for Medicare at the time of their initial injury, according to officials from the qualifying hospitals  Instead, according to officials, these patients typically become eligible for Medicare 2 years or more after their initial injury due to disability  Medicare beneficiaries at the two qualifying hospitals typically need care to manage comorbidities or the associated long-term complications of their injury  Officials from Craig Hospital said a significant number of their Medicare beneficiaries have comorbid conditions—such as diabetes or cardiac problems—upon admission, that can be further complicated by their injury  The officials said managing these comorbidities is as much of a medical challenge as managing the spinal or brain injury  Officials from both qualifying hospitals noted their Medicare beneficiaries who have a spinal cord or brain injury also frequently seek care after initial injury to address secondary complications resulting from their injury, including urinary tract infections; respiratory problems; and pressure ulcers  While the qualifying hospitals primarily treated traumatic spinal cord or brain injuries, we found that their Medicare populations differed from each other during the period from fiscal year 2013 to 2016  Specifically, Craig Hospital  Our review of Medicare claims data indicates more than 50 percent of the 246 Medicare discharges during this time were associated with Medicare diagnosis groups for spinal cord conditions  Specifically, during this time, Craig Hospital’s Medicare discharges were commonly assigned to three diagnosis groups covering spinal procedures and spinal disorders and injuries  For example, officials from Craig Hospital told us that about 60 percent of Medicare beneficiaries in fiscal year 2016 required surgical care for a spinal cord injury  According to officials, most of these patients received surgery for syringomyelia—a complication in spinal cord patients that generally develops years after their initial injury  These officials told us that Craig Hospital provided the pre- and post-operative care for those patients in fiscal year 2016; however, currently, Craig Hospital is only responsible for pre-operative assessments  The remaining 40 percent of their Medicare beneficiaries in fiscal year 2016 received care for new spinal cord injuries  Shepherd Center  Our review of Medicare claims data indicates the most common diagnosis group of the 365 Medicare discharges during this time—fiscal year 2013 to fiscal year 2016—related to treatment for skin grafts that can be associated with pressure ulcers, among other things  Shepherd Center officials confirmed that most of their Medicare beneficiaries received treatment for a pressure ulcer that occurred after initial injury which, as previously noted, can be so severe as to result in life-threatening infections  According to officials, most of their post-injury Medicare beneficiaries receive post-operative care and other wound management services following surgery to treat pressure ulcers, to ensure that the site will not tear again and to avoid reoccurrence  Other diagnosis groups for Medicare patients at Shepherd Center included those for spinal disorders and injuries and extensive operating room procedures unrelated to principal diagnosis  According to officials, beneficiaries in these diagnosis groups received treatment for a range of conditions, including traumatic injuries, urinary tract infections, neurogenic bladder and bowel or respiratory complications  Officials told us the hospital also served Medicare beneficiaries recovering from other acquired brain injuries, such as stroke, and paralyzing neuromuscular conditions, such as multiple sclerosis  Stakeholders we interviewed—including providers at other facilities— noted that traumatic spinal cord and brain injury patients—including those covered by Medicare—require significant levels of care due to the complexity of their injuries as well as the immediate and long-term complications that can occur from the injuries  For example, most stakeholders told us these patients often require lifelong care due to the complexity and reoccurrence of comorbidities or secondary complications  Some of these stakeholders noted, for example, spinal cord and brain injury patients often face mental health or psychosocial conditions, such as depression or anxiety  Some stakeholders also emphasized that many spinal cord injury patients risk secondary complications that may not occur until years after injury, such as pneumonia, pressure ulcers, and other infections  A few stakeholders told us spinal cord and brain injury patients are often among the most complex patients they treat  As such, patients with spinal cord or brain injuries often require interdisciplinary care that covers a wide range of specialties—including physiatry (rehabilitation medicine), neurology, cardiology, and pulmonology—as well as specialized equipment or technology, such as eye glance tools to control call systems or the television  Simulations of Medicare payments illustrate the potential effects of Medicare’s site-neutral payment policies, which were required by law, on the qualifying hospitals  Specifically, our simulations calculated what the qualifying hospitals would have been paid for Medicare patient discharges that occurred in two baseline years—fiscal year 2013 (baseline year 1) and fiscal year 2016 (baseline year 2)—if applicable payment policies from future years (2017 through 2021) were applied to those discharges  We selected two baseline years to account for differences in data, such as the number of discharges, between fiscal year 2016—the most recent year of complete data available at the time we began our analysis—and fiscal year 2013  Table 3 below provides a summary of Medicare discharges and payments to the qualifying hospitals during these two baseline years  Variation in utilization and patient mix across the baseline years allows the simulations to cover a range of possible changes in payments for the two hospitals  Our simulations indicated how Medicare’s payment policies could have affected these baseline payments to each qualifying hospital: Fiscal Year 2017 Blended Site-Neutral Rate Policy: Discharges that do not meet criteria to receive the standard rate are to receive a blended site-neutral rate—equal to 50 percent of the site-neutral rate and 50 percent of the standard rate  We found that while some of the baseline discharges would qualify for the standard rate, most discharges would have been paid at the blended site-neutral rate  Specifically, 8 to 20 percent of Craig Hospital’s baseline Medicare discharges would have qualified for the standard rate, resulting in simulated payments of about $3 86 million (baseline year 1) and $3 22 million (baseline year 2) under blended site-neutral rate policy  For Shepherd Center, between 23 percent and 40 percent of baseline Medicare discharges would have qualified for the standard rate, resulting in simulated payments of about $5 16 million (baseline year 1) and $5 31 million (baseline year 2)  Each of these simulated payments is an increase compared to actual payments made in the baseline years  Fiscal Years 2018 and 2019 Temporary Exception: The qualifying hospitals are receiving the standard rate for all discharges, due to the temporary exception  As a result, simulated payments under the temporary exception are about $3 74 million (baseline year 1) and $3 18 million (baseline year 2) for Craig Hospital and about $5 64 million (baseline year 1) and $5 75 million (baseline year 2) for Shepherd Center, which is an increase compared to actual payments made in the baseline years  Fiscal Year 2020 Two-Tiered Payment Rate: The temporary exception for the qualifying hospitals no longer applies; therefore, the site- neutral rate will apply to discharges not qualifying for the standard rate  We found that both qualifying hospitals would receive some payments at the standard rate, but that most of their discharges would be paid at the lower, site-neutral rate—assuming similar caseloads (e g , patient mix)  As a result, simulated baseline year payments at Craig Hospital are about $3 47 million (baseline year 1) and $3 03 million (baseline year 2), and simulated baseline payments to Shepherd are about $4 42 million (baseline year 1) and $4 55 million (baseline year 2)  The simulated payments therefore decrease compared to those in fiscal year 2019, and also generally decrease compared to actual payments made in the baseline years  Future Years Under 50 Percent Threshold: Under statute, unless 50 percent or more of the hospital’s discharges in cost reporting periods beginning during or after fiscal year 2020 qualify for the standard rate, no subsequent payments will be made to a hospital at that rate in each succeeding cost reporting period  Most of the baseline year discharges did not qualify for the standard rate, and therefore simulated payments are based on the generally lower comparable acute care rate  However, simulated payments stayed about the same between fiscal year 2020 and 2021, in part due to differences in calculations for high-cost outlier payments  A high-cost outlier payment is made to hospitals for those cases that are extraordinarily costly, which can occur because of the severity of the case and/or a particularly long length of stay  Specifically, simulated payments were about $3 49 million (baseline year 1) and $3 02 million (baseline year 2) for Craig Hospital and about $4 24 million (baseline year 1) and $4 16 million (baseline year 2) for Shepherd Center  Without the high-cost outlier payments, the simulated payments would have decreased by at least $2 million  If the mix of patients at Craig Hospital and Shepherd Center changes so that they meet the 50 percent threshold in fiscal year 2020, then simulated payments for fiscal year 2021 could be higher  As of September 2018, Craig Hospital officials told us that they expect to meet the 50 percent threshold with their current patient mix  Shepherd Center officials told us they do not expect to meet the 50 percent threshold  See figures 1 and 2 below for the results of our simulations  Our simulations of payments assume the number and type of Medicare discharges at the two qualifying hospitals remain the same as those in fiscal years 2013 and 2016  However, the full effect of payment policy on future Medicare payments to the qualifying hospitals will depend on three key factors that are subject to change: 1  Severity of patient conditions: Medicare payment is typically higher for more severe injuries, such as a traumatic injury with major comorbidities or complications, relative to less severe injuries  In the two baseline years we used for our simulations—fiscal year 2013 and fiscal year 2016—more than half of the Medicare discharges at the qualifying hospitals were associated with conditions with multiple comorbidities and complications, as indicated by the diagnosis groups, and this level of severity is reflected in the simulation results  Future payments to qualifying hospitals will depend on the extent to which the severity of patient conditions changes over time  2  Volume of discharges meeting criteria for the standard rate: As previously noted, for a hospital to receive the standard rate for a discharge, the discharge must meet certain criteria, such as having a preceding acute care hospital stay with either an intensive care unit stay of at least 3 days or an assigned diagnosis group based on the receipt of at least 96 hours of mechanical ventilation services in the LTCH  Our simulations reflect that in the two baseline years, about 23 percent of the fiscal year 2013 discharges and about 40 percent of the fiscal year 2016 discharges met the criteria to receive the standard rate for Shepherd Center; and about 8 percent of the fiscal year 2013 discharges and about 20 percent of the fiscal year 2016 discharges met the criteria for Craig Hospital  Changes to these amounts could affect future payments to the qualifying hospitals  In particular, if 50 percent or more of either hospital’s discharges beginning in fiscal year 2020 meet the standard rate criteria, then the hospitals would be eligible for payments at the standard rate in fiscal year 2021, which may result in higher payments compared to our simulations  3  Payment adjustments: LTCHs may receive a payment adjustment for certain types of discharges, such as short-stay outliers, interrupted stays, or high-cost outliers  In particular, most discharges at Craig Hospital received high-cost outlier payments (additional payments for extraordinarily costly cases) during the two baseline years—76 percent in fiscal year 2013 and 85 percent in fiscal year 2016  At Shepherd Center, at least 40 percent of discharges during the two baseline years received high-cost outlier payments—about 42 percent in fiscal year 2013 and about 58 percent in fiscal year 2016  The amount of future payments to qualifying hospitals will depend on the extent to which they continue to have a high proportion of discharges with high-cost outlier payments  In addition to the effect on payments, officials from both qualifying hospitals and some stakeholders we interviewed noted that the LTCH site-neutral payment policies may result in fewer services provided and fewer patients served by the qualifying hospitals and other LTCHs  For example, officials from Craig Hospital told us they stopped providing post- operative care to patients requiring spinal surgery, such as patients with syringomyelia, in 2016—instead referring them to other facilities—in part because these discharges do not meet the criteria for the standard rate  As of September 2018, they told us they do not plan to provide this care in the future unless the temporary exception is extended  Officials from Shepherd Center told us while they have not yet made changes to services they offer to Medicare patients, they may limit which Medicare beneficiaries they serve in the future  For example, they told us that most of their Medicare beneficiaries were admitted from home or sought care in their outpatient clinic  When the temporary exception expires after fiscal year 2019, hospital officials expected that these patients will not qualify for the standard rate  Shepherd Center officials said they may not be able to serve similar patients in future years  MedPAC officials and some stakeholders—a specialty association and health care providers with experience treating patients with similar conditions at other LTCHs—told us that some LTCHs have changed the services they offer and the patients they treat to increase the proportion of discharges that qualify for the standard rate  For example, MedPAC officials cited reports that indicate how some LTCHs have adjusted to the site-neutral policies  For example, a 2018 MedPAC report indicated that LTCHs in one large for-profit chain were able to make adjustments so that, as of September 30, 2016, close to 100 percent of their Medicare discharges met the criteria to receive the standard rate  A representative from an LTCH association told us that many LTCHs have adjusted their patient mix by increasing the number of discharges that meet criteria for the standard rate and turning away some Medicare beneficiaries to reduce the number of discharges subject to the site-neutral rate  The representative noted that certain LTCHs have already been able to adjust their patient mix because they have existing programs in place that focus on chronic, critically ill patients who would have a preceding acute care hospital stay  The representative told us that some LTCHs specialize in care for patients who do not meet the criteria to receive the standard rate and would generally be paid at the site-neutral rate; therefore, changing their patient mix is not a viable strategy for these LTCHs  According to the stakeholder, as of February 2018, about two-thirds of all LTCHs are above the 50 percent threshold  Providers from another LTCH told us that before the site-neutral payment policy went into effect, only about 40 to 45 percent of its discharges met criteria for the standard rate  However, they worked to ensure most patients referred to the LTCH would qualify for the standard rate  Officials told us patients who do not meet the criteria for that rate typically either stay longer in the acute care hospital or are transferred to a different post-acute care setting, such as a skilled nursing facility  Officials noted that, in both cases, the patient may not receive the specialized services often required for their injuries, including those patients with spinal cord or brain injuries  A provider we interviewed from another LTCH said that, historically, the LTCH has accepted patients who acquire pressure ulcers at home following discharge, but they may choose not to continue this practice because the patients’ discharges would not meet the criteria to receive the standard rate  A few of these stakeholders told us some LTCHs are in markets that do not have alternative providers of care, such as skilled nursing facilities, for patients who do not meet the criteria  These LTCHs may have difficulty adjusting their patient mix to avoid site-neutral payments  For example, a provider from one LTCH said his facility continues to take “site-neutral patients” because those patients often do not have another option to receive the specialized services they need  The provider emphasized concerns about the long-term viability of caring for those patients at the facility, because their care is paid at lower rates  Our review of Medicare claims data, other information, and interviews with stakeholders indicated the two qualifying hospitals treated Medicare beneficiaries with different conditions than most of those treated at other LTCHs  Our analysis of Medicare claims data indicates Craig Hospital and Shepherd Center treat very few patients in the Medicare diagnosis groups that are most common to other LTCHs  Specifically, for several years, MedPAC has reported that LTCH patient discharges are concentrated in a relatively small number of diagnosis groups  For example, in March 2018, MedPAC reported that 20 diagnosis groups accounted for over 61 percent of LTCH discharges at both for-profit and not-for-profit facilities, in fiscal year 2016  However, in fiscal year 2016, these diagnosis groups accounted for approximately 30 percent of Medicare discharges—26 out of 88—at Shepherd Center, and most of these discharges fell within a single diagnosis group which covers a range of conditions  Craig Hospital did not discharge any Medicare beneficiaries assigned to these 20 diagnosis groups, in fiscal year 2016  The seven diagnosis groups that were used in the statutory criteria to except Craig Hospital and Shepherd Center from site-neutral payments were also not among these 20 diagnosis groups  For more information on the 20 diagnosis groups common to LTCHs in fiscal year 2016, see Appendix III, table 5  Our review of Medicare claims data and other information indicates the two qualifying hospitals also treat a relatively small number of Medicare beneficiaries, a key distinguishing factor from most other LTCHs  In March 2018, MedPAC reported that, on average, Medicare beneficiaries account for about two-thirds of LTCH discharges  However, Medicare claims data and other information provided by the two qualifying hospitals indicate Medicare beneficiaries account for a significantly smaller proportion (about 8 percent) of patients discharged from Craig Hospital and Shepherd Center in 2016  Specifically, 40 of the 486 patients discharged from Craig Hospital in fiscal year 2016 and 75 of the 912 patients discharged from Shepherd Center in calendar year 2016, were Medicare beneficiaries  Officials from the qualifying hospitals told us they treat few Medicare patients primarily because of the younger average age of persons with spinal cord injuries and acquired brain injuries  While patients with spinal cord and brain injuries may receive care in other LTCHs, most stakeholders we interviewed also suggested the two qualifying hospitals treat patients that are different from those treated at most other LTCHs, and can offer specialized care  Officials from the two qualifying hospitals told us that, relative to most other facilities—including most traditional LTCHs—they offer a more complete continuum of care to meet the needs of patients at different stages of spinal cord and brain injury treatment, without the need to transfer to different facilities  Officials also stated that, unlike most traditional LTCHs, they are able to offer more specialized care for patients with spinal cord and brain injuries, including more comprehensive rehabilitation services  Stakeholders we interviewed generally agreed that the two qualifying hospitals have developed expertise in treating spinal cord and brain injury patients and offer intensive rehabilitation services that are not provided in most other LTCHs  In addition, officials from the Colorado Department of Health Care Policy & Financing noted that Craig Hospital treats a patient population that is different from most other LTCHs in the state of Colorado  Specifically, according to officials, in comparison to other LTCHs in the state, Craig Hospital treats: (1) a higher percentage of patients with more severe conditions, (2) more patients from outside the state of Colorado, (3) fewer patients requiring ventilator weaning or requiring wound care— conditions typically characteristic of LTCH patients—and (4) patients that are, on average, younger than most other LTCHs in the state of Colorado  In addition, a 2014 study of LTCHs conducted for the Georgia Department of Community Health found Shepherd Center was “distinctly different” from other LTCHs in the state of Georgia, and most LTCHs nationwide  Most stakeholders we interviewed suggested some IRFs provide specialty care to patients with catastrophic spinal cord, acquired brain injuries, or other paralyzing neuromuscular conditions  Most of the stakeholders we interviewed noted that—like the two qualifying hospitals—some IRFs have the expertise to treat patients with catastrophic spinal cord, acquired brain injuries, or other paralyzing neuromuscular conditions patients and thus, may also treat patients with similar conditions  According to CMS officials, IRFs are specifically designed to provide post-acute rehabilitation services to patients with spinal cord injuries, brain injuries, and other neuromuscular conditions  CMS officials noted that patients with these conditions typically respond well to intensive rehabilitation therapy provided in a resource intensive inpatient hospital environment and to the specific interdisciplinary approach to care that is provided in the IRF setting  Stakeholders also noted that patients with spinal cord injuries, brain injuries, and other neuromuscular conditions may receive care in other settings  However, some stakeholders noted that some of these providers—such as skilled nursing facilities—generally do not offer the specialized care these patients generally require  Differences in payment systems and data limitations make it difficult to directly compare the attributes of Medicare beneficiaries discharged from the two qualifying hospitals and IRFs, including the costs of care they receive  Medicare uses separate payment systems to pay LTCHs and IRFs, for care provided to beneficiaries  LTCHs are paid pre-determined fixed amounts for care provided to Medicare beneficiaries, under the LTCH PPS  Medicare beneficiaries treated in LTCHs are assigned to diagnosis groups (MS-LTC-DRGs) for each stay—based on the patient’s primary and secondary diagnoses, age, gender, discharge status, and procedures performed  IRFs are also paid pre-determined fixed amounts for care provided to Medicare beneficiaries, but under a separate system—IRF PPS  Medicare beneficiaries treated in IRFs are assigned to case-mix groups—based on age, and level of motor and cognitive function—and then further assigned to one of four tiers (within these groups) based on the presence of specific comorbidities that may increase their cost of care  According to CMS officials, because the payment groups and assignments to those groups are different, it is difficult to directly compare LTCH patients, classified in diagnosis groups, with IRF patients, classified in case-mix groups  See Appendix II for more information on these payment systems  MedPAC has previously reported the differences in patient assessment tools used by post-acute care providers undermines Medicare’s ability to compare the patients admitted, costs of care, and outcomes beneficiaries achieve in these settings, on a risk-adjusted basis  MedPAC has also reported that while similar beneficiaries can receive care in each setting, payments can differ considerably for comparable conditions, due to differences in payment systems  It has made recommendations to address these issues  The Improving Medicare Post-Acute Care Transformation Act of 2014 also requires the Secretary of HHS to collect and analyze common patient assessment information and, in consultation with MedPAC, submit a report to Congress recommending a post-acute care PPS  Such efforts may make future comparison of beneficiaries, costs of services, and outcomes of care across these settings possible  While data limitations make a direct comparison difficult, based on our review of other data and information, and interviews with stakeholders, we identified similarities and differences between the qualifying hospitals and certain IRFs that provide specialty treatment for catastrophic spinal cord injuries, acquired brain injuries, or other paralyzing neuromuscular conditions  Key similarities and differences include the following: Volume of services  Our review of Medicare claims data, other information, and interviews with stakeholders indicate that—similar to the two qualifying hospitals—some IRFs treat a high volume (at least 100) of patients with complex spinal cord injury, brain injury, and other related conditions  Officials from the two qualifying hospitals, as well as some other stakeholders we interviewed—including officials from the Christopher & Dana Reeve Foundation and the Brain Injury Association of America—emphasized the importance of facilities treating a high volume of patients with these specialized conditions, which can be an indicator of expertise in treating these patients  Our review of Medicare claims data for 1,148 IRFs in fiscal year 2016 identified 21 IRFs that treated at least 100 Medicare beneficiaries with non-traumatic and traumatic spinal cord injuries and 109 IRFs that treated at least 100 Medicare beneficiaries with non-traumatic and traumatic brain injuries  Our review of Medicare claims data indicated that, similar to the two qualifying hospitals—some IRFs also treat a high volume of patients with “catastrophic” injuries—traumatic brain injury, traumatic spinal cord injury, and major multiple traumas with brain or spinal cord injuries  Specifically, we identified 25 IRFs that treated a high volume (at least 100) of Medicare beneficiaries with catastrophic injuries, in fiscal year 2016  In the absence of patient assessment data from the facilities, we did not independently evaluate the level and severity of these patients’ injuries, which can vary due to the presence of other co-morbid conditions  The Medicare case mix indexes we reviewed for these 25 IRFs indicated that, relative to other IRFs, most of these facilities treat patients who are more resource intensive  Specialty accreditation and designation as model systems  Like Shepherd Center, some IRFs receive CARF-accreditation for specialty programs to treat spinal cord and brain injuries  According to most stakeholders, this accreditation indicates expertise in treating these patients, as CARF International has established standards using evidence-based practices, among other factors  Officials from the two qualifying hospitals also noted CARF International has a specific focus on quality and outcomes  However, officials from Shepherd Center noted similarities in care and services offered at CARF-accredited facilities would depend on the specialties for which they are certified  Most of the stakeholders we interviewed also noted that designation as a NIDILRR model system is an indicator of similar expertise in treating patients with spinal cord and brain injuries  According to the Model Systems Knowledge Translation Center, spinal cord injury and brain injury model systems are recognized as national leaders in medical research and patient care and provide the highest level of comprehensive specialty services from the point of injury through eventual re-entry into full community life  While stakeholders we interviewed from NIDILRR model systems indicated the model system designation is focused primarily on research, rather than clinical care, most noted that model systems’ research often complements the facilities’ clinical efforts to address the unique needs of these patients  Officials from HHS’s Administration for Community Living also noted that all model system grantees must provide a continuum of care—emergency care, acute medical care, acute medical rehabilitation, and post-acute care—and that can happen in various provider types  According to officials from the qualifying hospitals and stakeholders from one other NIDILRR model system we interviewed, Craig Hospital and Shepherd Center are the only two LTCHs currently classified as spinal cord injury model systems; 12 of 14 spinal cord injury model systems are IRFs  Specialized programs and services  Similar to the two qualifying hospitals, some IRFs may also offer specialized programs and services for patients with brain and spinal cord injuries, but the availability of these programs and services may vary by facility  Officials from some of the IRFs that responded to our information request—which included both NIDILRR facilities and IRFs with CARF-accredited programs—told us they provide specialized programs and services for patients with similar conditions as those treated at two qualifying hospitals, and sometimes compete with the two qualifying hospitals for the same patients  For example, each IRF reported having interdisciplinary treatment teams; the capacity to provide medical management of medically complex and high acuity patients with spinal cord injury, traumatic brain injury, or other major multiple traumas associated with a brain or spinal cord injury; family education and training; and skin and wound programs or services, among other services  However, the availability of certain services—including but not limited to ventilator-dependent weaning programs, diaphragmatic pacing, and outpatient programs for spinal cord and traumatic brain injury patients—varied by facility  Staff with specialized training and clinical expertise  Similar to the two qualifying hospitals, most facilities that responded to our information request also reported having physicians, nurses, and physical and occupational therapists with specialty training in medical rehabilitation, spinal cord, and/or brain injury  However, the number of staff with these trainings, varied by facility  In comparison to the other facilities that responded to our information request, the number of nurses and physical and occupational therapists with these specialty trainings were generally higher at Craig Hospital and Shepherd Center  According to an American Spinal Injury Association consumer guideline that the Christopher & Dana Reeve Foundation typically provides to spinal cord injury patients and families, programs should regularly admit persons with spinal cord injury each year, to develop and maintain the necessary skills to manage a person with spinal cord injury, and a substantial portion of those admitted should have traumatic injuries  Out-of-state Admissions  Officials from the two qualifying hospitals emphasized they admit a significant number of patients from out-of-state, and our review of information provided by the qualifying hospitals and a select group of IRFs indicated the qualifying hospitals admit a higher percentage of patients from out-of-state  Specifically, information provided by these IRFs indicates that less than a quarter of patients admitted to these facilities, in 2016, were from out-of-state  Information provided by Craig Hospital and Shepherd Center indicate that about half of their patients were admitted from out-of-state in 2016  Officials from the Colorado Department of Health Care Policy & Financing also noted Craig Hospital treats a higher percentage of out-of-state patients, compared to IRFs in the state  Ability to treat medically complex patients  Officials from the two qualifying hospitals told us they treat more medically complex patients and provide a more complete range of medical services to spinal cord and brain injury patients, not provided by most IRFs  Specifically, officials from the two qualifying hospitals both noted they are able to treat patients much sooner in their recovery process than most IRFs, due to their LTCH status  Officials from the Shepherd Center noted that they have a 10-bed intensive care unit which allows them to take patients with certain injures that some IRFs may not be equipped to admit—such as patients requiring advance medical management and advanced level procedural services and monitoring  Information provided by Shepherd Center indicated that, in calendar year 2017, approximately 20 percent of all inpatients were admitted to this unit and 13 percent of all inpatients were internally transferred to this unit after developing medical complications  According to officials, Craig Hospital does not have an intensive care unit, but noted their ability to similarly care for medically complex patients—including telemetry (e g , specialized heart monitoring) and one-to-one nursing care, if necessary  Most stakeholders we interviewed agreed that both qualifying hospitals’ LTCH status provides certain advantages over IRFs, such as the ability to admit some medically complex patients earlier in the recovery process and longer lengths of stay  Stakeholders from most of the IRFs we interviewed also reported having the flexibility to admit some medically complex patients requiring more advanced level monitoring and resources earlier in the recovery process—such as patients with disorders of consciousness  Officials from the two qualifying hospitals also said they offer a continuum of care that can meet patient’s changing needs, without the need to transfer them to different facilities  Information provided by Craig Hospital indicated that 83 percent of patients treated at its facility, in 2016, were discharged to home, 13 percent were discharged to another post-acute care facility, and 3 percent were discharged to an acute care hospital  In 2016, approximately 91 percent of patients treated at Shepherd Center were discharged to home, 7 percent were discharged to another post- acute care facility, and 2 percent were discharged to an acute care hospital  Information provided by the IRFs that responded to our written request varied by facility, but—similar to the two qualifying hospitals— each facility discharged more than 65 percent of patients to home  IRF payment criteria  CMS and most other stakeholders we interviewed noted that two Medicare payment policies applicable to IRFs, but not LTCHs, may contribute to their different patient populations  Specifically, to be classified for payment under Medicare’s IRF PPS, at least 60 percent of the IRF’s total inpatient population must require intensive rehabilitative treatment for one or more of 13 conditions—which includes both spinal cord and brain injury  To be admitted to an IRF, Medicare beneficiaries must reasonably be expected to actively participate in and benefit from the intensive rehabilitation therapy program, typically provided in IRFs  According to HHS, per industry standard, the intensive rehabilitation therapy program is often demonstrated by providing three hours of rehabilitation services per day for at least five days per week, but this is not the only way such intensity can be demonstrated  Officials from the two qualifying hospitals told us they generally use Medicare’s intensive rehabilitation requirement as a minimum standard for their rehabilitation patients—even though they are not held to this requirement, for the purposes of Medicare payment—but noted that some of their patients may not meet this requirement, due to their medical complexity  Length of stay and site-neutral payment requirements, for LTCHs  As previously noted, LTCHs—including the two qualifying hospitals—must have an average length of stay of greater than 25 days; IRFs are not subject to this requirement  The average length of stay for patients discharged from the Craig Hospital was about 60 days, in fiscal year 2016, and the average length of stay for patients discharged from Shepherd Center was about 53 days, in calendar year 2016  Stakeholders from the IRFs that responded to our information request reported average lengths of stay ranging from 14 to 31 days, for patients discharged in fiscal year 2016; the ranges of lengths of stay were slightly higher for spinal cord injury and traumatic brain injury inpatients for the IRFs, during the same period  LTCHs are also generally subject to site- neutral payment policy that is not applicable to IRFs and may decrease LTCHs payments for certain discharges, under Medicare  Other services provided  In addition to these Medicare specific differences, a few stakeholders we interviewed also noted the two qualifying hospitals receive additional funding from their strong philanthropic donor base that may allow them to provide other services and resources, not covered by Medicare or offered at some IRFs  For example, while a few IRFs that responded to our information request reported offering housing for families of injured patients, the two qualifying hospitals offer up to 30 days of free housing to families of newly injured rehabilitation patients, if both the family and patient live more than 60 miles from the hospital  Officials from Shepherd Center told us their revenues are supplemented by investment income and donor funds  Craig Hospital has also established a foundation that supports the hospital in achieving its goals through philanthropy  We provided a draft of this report to HHS  HHS provided technical comments, which we incorporated as appropriate  We also provided the two qualifying hospitals summaries of information we collected from them, to confirm the accuracy of statements included in our draft report  We incorporated their comments, as appropriate  We are sending copies of this report to the Secretary of Health and Human Services and other interested parties  In addition, the report will be available at no charge on GAO’s website at http://www gao gov  If you or your staff have any questions about this report, please contact me at (202) 512-7114 or at farbj@gao gov  Contact points for our Office of Congressional Relations and Office of Public Affairs can be found on the last page of this report  Other major contributors to this report are listed in appendix IV  This appendix describes our methodology for conducting simulations of payments for the two qualifying hospitals  We used Medicare claims data to conduct simulations of payments for the two qualifying hospitals  We first identified discharges at each hospital in two baseline years—federal fiscal years 2013 and 2016  We selected fiscal year 2016 because it was the year with the most recent data available at the time of our analysis, and we selected a second baseline year because data for 2016 was different than data for other recent years  For example, the number of discharges for one qualifying hospital declined by nearly half between fiscal years 2013 and 2016  We chose fiscal year 2013 because data from that year was used to help determine which hospitals are subject to the temporary exception  To identify how to appropriately calculate the long-term care hospital (LTCH) payment for each of these discharges in future payment years, we reviewed applicable federal regulation and documents from the Centers for Medicare & Medicaid Services (CMS) and the Medicare Payment Advisory Commission (MedPAC), and interviewed officials from both organizations  See table 4 for the relevant components in the formulas, such as Medicare severity long-term care diagnosis related group (MS-LTC-DRG) weights, identified from final rule tables  When conducting these simulations, we made the following assumptions: For simulated payments for payment policies in effect for fiscal years 2017 and 2018, we used the base rates, relative weights (e g , the MS-LTC-DRG weights), geometric mean length of stay, wage index, geographic adjustment factor, fixed-loss amounts, and outlier thresholds that were published in the final rule tables for LTCH and inpatient prospective payment system (IPPS) hospitals—also known as acute care hospitals—for each respective year  At the time we began our analysis, this information was not known for fiscal years 2019 through 2021  We chose to use the fiscal year 2018 rates when conducting simulations for payment policies in those years because historical trends showed that annual changes were minimal—about 1 percent  Therefore, to the extent that these values continue to change over time, our findings may understate or overstate the amount that the qualifying hospitals would have been paid in our baseline years based on these future payment policies  The site-neutral payment policy did not apply to discharges from the fiscal year 2013 baseline year  Therefore, we examined Medicare claims data to determine whether each discharge would have met the criteria to receive the LTCH standard rate in that year  Specifically, we determined whether each discharge had an acute care hospital stay that immediately preceded their LTCH stay  We then determined whether the time at the acute care hospital included three or more days in the intensive care unit or whether there was a code on the LTCH claim that indicated at least 96 hours of mechanical ventilation services were provided  Per Medicare’s payment policy, we assumed any discharge that met these two criteria would qualify for full LTCH payment rate, unless the case was a psychiatric or rehabilitation stay, as identified by the following MS-LTC-DRG codes: 876, 880, 881, 882, 883, 884, 885, 886, 887, 894, 895, 896, 897, 945, or 946  Under statute, unless 50 percent or more of the hospital’s discharges beginning during or after 2020 qualify for the standard rate, no subsequent payments will be made to a hospital at that rate  Therefore, when calculating simulated payments for fiscal year 2021, we applied the 50 percent threshold  At the time of our analysis, CMS had not yet finalized this policy through rule-making  As of November 2018, CMS officials told us that it is unlikely that any payment adjustment under this provision would apply until 2022 because the percentage cannot be determined until after an LTCH’s cost reporting period has ended and data have been submitted  Shepherd Center’s fiscal year is different than the federal fiscal year  Therefore, the variables used to determine whether discharges in federal fiscal year 2016 met criteria to receive the standard rate were not available to use for some of the discharges that year  Of those discharges, we assumed that the same percentage of discharges that met the criteria to receive the standard rate in Shepherd’s fiscal year—30 percent—met the criteria in federal fiscal year 2016  When calculating site-neutral payments, we assumed that each discharge would be paid at a rate comparable to that for acute care hospitals—the IPPS comparable amount rate  Site-neutral payments may also be based on the estimated cost-of-care, if it is lower than the IPPS comparable amount rate  However, over 90 percent of discharges at the qualifying hospitals were paid at the IPPS comparable amount rate in fiscal year 2016  Per CMS’s recommendation, we applied the cost-to-charge ratio that was effective October 1, 2017, for each qualifying hospital, regardless of discharge date  For Craig Hospital this value was 0 442 and for Shepherd Center this value was 0 464  According to CMS officials, in general, these values do not change significantly when they are updated during the fiscal year  Therefore, they believe that using the values effective at the start of the fiscal year is a reasonable assumption  We excluded indirect medical education adjustments and disproportionate share hospital payments that are part of the IPPS comparable amount rate because, according to CMS, they were unlikely to have much impact for these hospitals  CMS reviewed each of these assumptions and agreed they were reasonable for purposes of our analysis  CMS also verified that we were correctly applying the formulas for calculating these payments and using the appropriate values from the final rules  Figures 3 and 4 illustrate the methodology for calculating Medicare payments under the long-term care hospital (LTCH) prospective payment system (PPS) and the inpatient rehabilitation facility (IRF) PPS, respectively, as reported by the Medicare Payment Advisory Commission (MedPAC)  Appendix III: List of Common Diagnosis Groups for Long-Term Care Hospitals (LTCH) In its March 2018 annual report to the Congress, the Medicare Payment Advisory Commission (MedPAC) reported that 20 diagnosis groups accounted for over 61 percent of LTCH discharges at both for-profit and not-for-profit facilities, in fiscal year 2016  Table 5 provides a list of these 20 diagnosis groups  In addition to the contact named above, Will Simerl, Assistant Director; Kathy King; Amy Leone, Analyst-in-Charge; Todd Anderson; Sam Amrhein; LaKendra Beard; Rich Lipinski; Jennifer Rudisill; and Eric Wedum made key contributions to this report  Also contributing were Leia Dickerson, Diona Martyn, Vikki Porter, and Lisa Rogers 
Report 2:  We previously found that federal programs should be reexamined if there have been significant changes in the country or the world that relate to the reason for initiating the program  In that report, we found that many federal programs and policies were designed decades ago to respond to trends and challenges that existed at the time of their creation  Moreover, the Office of Management and Budget Circular A-94 for benefit-cost analysis of federal programs includes guidelines that apply to any analysis used to support government decisions to initiate, renew, or expand programs or projects that would result in a series of measurable benefits or costs extending for 3 or more years into the future  Given changing market conditions and future projections, without conducting additional analysis to supplement its 2016 review and thereafter periodically reexamining the SPR to take into account changes in market conditions and include a thorough consideration of the costs and benefits of a wide range of SPR sizes, DOE cannot provide information to Congress to inform decisions about the appropriate size of the SPR and risks holding too much or too little in the SPR to meet the United States’ evolving energy security needs and IEA obligations  DOE has also not fully identified whether additional regional petroleum product reserves should be part of the SPR  Because the SPR stores oil nearly exclusively along the Gulf Coast, the SPR is configured primarily to respond to global oil supply disruptions  However, as we reported in November 2017, the SPR has primarily been used in response to domestic disruptions  The SPR is limited in its ability to respond to domestic disruptions because reserves are almost entirely composed of crude oil and not refined petroleum products, which may not be effective in responding to disruptions that affect the refining sector  For example, as we reported in November 2017, Hurricanes Harvey, Irma, and Maria damaged infrastructure and property, caused the loss of life, and disrupted the operations of refineries representing at least 15 percent of the nation’s refining capacity  DOE has identified regions subject to product supply vulnerabilities as shown in Figure 3  The Quadrennial Energy Review of 2015 recommended that the agency analyze the need for additional or expanded regional product reserves by undertaking updated cost-benefit analyses for all of the regions of the United States that have been identified as vulnerable to fuel supply disruptions  In response to this recommendation, DOE studied the costs and benefits of regional petroleum product reserves in the West Coast and Southeast Coast  According to DOE officials, weather events in the Southeast Coast are of higher probability but lower consequence, and events in the West Coast are of lower probability but higher consequence  DOE did not finalize its 2015 studies on regional petroleum product reserves and make them publicly available  However, the draft 2015 studies concluded that a product reserve in the Southeast would provide significant net economic benefits to the region and the United States, particularly in the event of a major hurricane, while further analyses are needed to determine the potential benefits of a reserve on the West Coast  A prior DOE study also suggests that petroleum product reserves merit consideration—in 2011, DOE carried out a cost-benefit study of the establishment of a refined product reserve in the Southeast and estimated that such a reserve would reduce the average gasoline price rise by 50 percent to 70 percent in the weeks immediately after a hurricane landfall, resulting in consumer cost savings, according to the Quadrennial Energy Review of 2015  According to DOE officials, the agency has no plans to conduct additional studies  DOE’s 2016 review of the SPR did not fully assess whether there is a need for additional regional product reserves in other U S  regions identified as vulnerable to fuel supply disruptions, as recommended by DOE’s studies and the 2015 Quadrennial Energy Review  Without completing studies on the costs and benefits of regional petroleum product reserves for all the vulnerable U S  regions and publicly releasing the results, DOE cannot ensure that it and Congress have the information they need to make decisions about whether additional regional product reserves are needed  DOE has taken steps to take into account the effects of congressionally mandated oil sales in its plans for modernizing the SPR, though DOE’s current plans are based on information largely developed prior to the most recent congressionally mandated oil sales  According to DOE, the SPR modernization program is focused on a life extension project to modernize aging infrastructure to ensure the SPR will be able to meet its mission requirements for the next several decades  The project’s scope of work has undergone several revisions since its inception in response to changing conditions and requirements, according to the agency  DOE has estimated the total cost for the SPR’s modernization at up to $1 4 billion  DOE raised about $323 million for modernization through the sale of SPR oil in fiscal year 2017, and the Consolidated Appropriations Act of 2018 provided that DOE is to draw down and sell an amount of crude oil not to exceed $350 million for modernization in fiscal year 2018  As of the end of February 2018, DOE has spent $22 million on modernization efforts and the additional funds will allow DOE to continue moving forward with the project, according to agency officials  According to DOE’s modernization plans, the first major construction is scheduled for fiscal year 2019  However, these plans are largely based on information DOE analyzed before recent congressionally mandated sales of an additional 117 million barrels of oil  Since the most recent mandated sales, DOE has taken steps to update its modernization plans and has changed its assumptions for SPR’s modernization  For example, DOE now assumes that the reserve will hold about 405 million barrels of oil and that one of the four SPR sites may close after congressionally mandated sales are completed at the end of fiscal year 2027, according to agency officials  However, DOE has not fully updated the SPR’s modernization plans based on these assumptions  According to DOE officials, in March 2018, DOE commenced a study—the SPR post-sale configuration study—to examine potential future reserve configurations  This study is to take into account the effects of congressionally mandated sales on the reserve and its modernization, and is targeted for completion in October 2018, according to agency officials  Information from the study will inform DOE’s updates to the SPR’s modernization plans, according to DOE officials  As part of its post-sale configuration study, DOE plans to examine how the agency may handle the potentially excess SPR facilities created by the mandated sales  In January 2017, the SPR had a design capacity to hold 713 5 million barrels of oil and actually held 695 million barrels  As shown in figure 4, without action by DOE to reduce the SPR’s design capacity or otherwise use SPR facilities, congressionally mandated sales will cause excess storage capacity to grow to 308 million barrels or more by the end of fiscal year 2027—meaning that about 43 percent of the SPR’s total design capacity to store oil would be unused  DOE plans to explore some options to use these potentially excess SPR assets in its ongoing post-sale configuration study  In withdrawing oil to meet congressionally mandated oil sales currently in place (290 million barrels through fiscal year 2027), DOE could close at least one SPR site based on our analysis of projected excess storage capacity  For example, if DOE were to close the smallest SPR site, Bayou Choctaw, the agency could also explore selling the connected pipeline and marine terminal, which are currently being leased to a private company  DOE could also consider leasing excess storage capacity to other countries so that they could store oil at the SPR  DOE has not entered into any such leases with other countries and has not considered such leases because, according to DOE, the SPR has historically lacked capacity to store additional oil  DOE has not proposed any of these options or explored the revenue the agency could generate by selling or leasing these assets  According to DOE officials, the agency will examine the feasibility of such options in the ongoing SPR post-sale configuration study  As DOE takes steps to plan for the SPR’s modernization, ongoing uncertainty regarding the SPR’s long-term size and configuration have complicated DOE’s efforts  According to DOE officials, this uncertainty makes it extremely difficult to effectively perform any mid-to long-range planning efforts for the SPR’s modernization project, including the execution of major maintenance projects  Congress has generally set the SPR’s size by mandating purchases or sales of oil, and has established and amended the minimum size of the SPR as it pertains to the release of oil for emergency protection  Since 2015, Congress has, across six pieces of legislation, mandated 290 million barrels in additional oil sales  However, DOE developed its modernization plans in 2016  DOE officials told us they do not know whether additional sales will be mandated over the next 10 years or whether other changes may be required to the configuration of the reserve  Any additional congressionally mandated sales or direction to pursue additional petroleum product reserves would require DOE to again revisit its modernization plans and assessments of the potential uses of any excess SPR assets  Oil market projections also have implications for the future of the SPR  Under current projections, the United States may fluctuate between being a net importer and net exporter over the next several decades  Specifically, the United States is projected to become a net exporter by the late 2020s and would then no longer have a 90-day reserve obligation, but it is projected to return to being a net importer between 2040 and 2050  These projected fluctuations could affect the desired size of the SPR in the future  This uncertainty creates risks for DOE’s modernization plans, as DOE may end up spending funds on facilities that later turn out to be unnecessary should Congress ultimately decide on a larger- or smaller-sized SPR than DOE anticipates  Having a long-term target for the size and configuration of reserves helps other IEA member countries manage their reserves  For example, as previously discussed, unlike the United States, some other IEA members have specified in dynamic terms the amount of reserves to be held, such as days of net import protection or days of consumption, rather than specifying a specific static volume amount  Under such approaches, the amount held varies over time as entities managing the reserve acquire or sell reserves in order to meet the target  Setting a long-term target for the size and configuration of the SPR—taking into account projections for oil production, consumption, and IEA obligations—could better position DOE to ensure that funds spent on the SPR’s modernization do not modernize a system that is no longer needed and that DOE is able to adequately plan for potentially excess SPR assets  In the course of our work, we also identified other options for handling potentially excess SPR assets that DOE is not planning on examining, largely because DOE does not currently have the authority to pursue them, according to agency officials  First, DOE could explore leasing storage capacity to private industry  U S  oil production has generally increased over the last decade  As a result, the private sector may want to lease excess SPR capacity, which may be cheaper than above-ground storage, according to a representative of a private company we spoke with  Fees for doing so could help defray public reserve storage costs  However, officials told us that the Energy Policy and Conservation Act gives DOE authority to lease underutilized storage to other countries, but not to the private sector  Second, if Congress determines that the SPR holds oil in excess of that needed domestically, DOE could explore selling contracts or tickets for the excess oil rather than selling the oil outright  Australian and New Zealand officials told us that if DOE were to sell tickets for SPR oil, tickets would help these countries meet their IEA 90- day reserve obligations  Australian officials told us they have discussed this option with DOE  Currently the United States and Australia have agreed, through an arrangement, to allow Australia to contract for petroleum stocks located in the United States and controlled by commercial entities  According to DOE officials, the arrangement would permit Australia to receive credit from the IEA for tickets it purchases from the U S  private sector  While the arrangement does not cover government-owned oil in the SPR, if it did, based on our analysis, DOE could generate up to approximately $15 million annually if Australia purchased the maximum allowable amount of oil specified in an arrangement through tickets for excess SPR oil  However, although the Energy Policy and Conservation Act allows DOE to lease underutilized storage to other countries, DOE lacks the authority to sell tickets and does not plan to seek this authority, according to DOE officials  DOE officials told us that they do not plan to examine these options  According to DOE’s real property asset management order, the agency is to identify real property assets that are no longer needed to meet the program’s mission needs and that may be candidates for reuse or disposal  Once identified, the agency is to undertake certain actions, including determining whether to dispose of these assets by sale or lease  As part of its SPR post-sale configuration study, DOE plans to determine whether it is appropriate to close SPR facilities, and the relative benefit of any closures would be informed by potential lease revenues from maintaining sites so they could be leased, according to officials  However, without examining a full range of options in the post-sale configuration study, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources  Given changing crude oil and petroleum product market conditions and the constrained budget environment, it is important that DOE ensures the SPR is effective at meeting U S  energy security needs and IEA obligations while being managed and maintained in an efficient manner  In response to congressional direction and recommendations from GAO and DOE Inspector General, DOE conducted a long-term strategic review of the SPR in 2016 after its last comprehensive examination in 2005  In its review, DOE did not determine an optimal size for the SPR, and its analysis was limited in several ways  In particular, DOE did not fully consider recent and expected future changes in crude oil and petroleum market conditions such as the implications of projected fluctuations in U S  net imports or the role that increased levels of private reserves could play in responding to supply disruptions  DOE also did not perform a full cost-benefit analysis of holding different volumes of reserves  Without supplementing its 2016 strategic review by conducting additional analysis, and periodically conducting such analyses going forward, DOE cannot provide information to Congress to inform decisions about the appropriate amounts of crude oil and petroleum products to hold in the SPR and risks holding too much or too little in the SPR to meet the United States’ energy security needs and international obligations  Such information is needed on a timely basis, to reflect the pace of change in oil and petroleum markets and other relevant factors that affect the optimal size of the SPR  Though the SPR has primarily been used in response to domestic supply disruptions, such as hurricanes, the reserve is limited in this role because it is almost entirely composed of crude oil, and not petroleum products  In this regard, the Quadrennial Energy Review of 2015 recommended that DOE analyze the need for additional regional product reserves for U S  regions that have been identified as vulnerable to fuel supply disruptions  DOE has not identified whether additional regional product reserves should be part of the SPR or completed studies of all vulnerable U S  regions, and it has no plans to do so, according to DOE officials  Without conducting or completing studies for all the vulnerable U S  regions and releasing the results, DOE cannot ensure it and Congress have the information they need to make decisions about potential additional regional product reserves  In the face of declining net U S  imports, Congress has taken repeated steps to reduce the size of the reserve  Given that net imports are projected to continue to decline through the late 2020s and fluctuate in the future, there may be additional congressionally mandated SPR oil sales  This has created long-term uncertainty regarding the future size and configuration of the SPR  Congress could address this uncertainty by identifying a long-term target for the size of the SPR—either by volume or in terms tied to factors, such as consumption or net import protection, that affect the country’s energy security needs and IEA obligations  Setting such a long-term target could better position DOE to ensure the efficiency and efficacy of federal funds spent on the reserve  DOE has recently begun to study the potential effects of congressionally mandated sales on its modernization plans  As part of its SPR post-sale configuration study, DOE plans to determine whether it is appropriate to close SPR facilities, and the relative benefit of any closures would be informed by potential lease revenues from maintaining sites so they could be leased, according to officials  However, we identified other options for handling potentially excess SPR assets that DOE is not planning to examine in its study, inconsistent with the agency’s order on real property asset management  Although DOE does not currently have the authority to implement these options, according to officials, examining their potential use, including possible revenue enhancement, could inform Congress as it examines whether it should grant such authority  Without examining a full range of options in the post-sale configuration study for handling potentially excess SPR assets, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources  We are making the following matter for congressional consideration: Congress may wish to consider setting a long-range target for the size and configuration of the SPR that takes into account projections for future oil production, oil consumption, the efficacy of the existing SPR to respond to domestic supply disruptions, and U S  IEA obligations  (Matter 1) We are making four recommendations to DOE: The Secretary of Energy should supplement the agency’s 2016 long-term strategic review by conducting an additional analysis that takes into account private-sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes  (Recommendation 1) The Secretary of Energy should take actions to ensure that the agency periodically conducts and provides to Congress a strategic review of the SPR that, among other things, takes into account changes in crude oil and petroleum product market conditions and contains additional analysis, such as the costs and benefits of a wide range of different SPR sizes  (Recommendation 2) The Secretary of Energy should conduct or complete studies on the costs and benefits of regional petroleum product reserves for all U S  regions that have been identified as vulnerable to fuel supply disruptions, and the Secretary should report the results to Congress  (Recommendation 3) The Secretary of Energy, in completing DOE’s ongoing study on the effects of congressionally mandated sales, should consider a full range of options for handling potentially excess assets and, if needed, request congressional authority for the disposition of these assets  (Recommendation 4) We provided a draft of this report to DOE for review and comment  DOE provided written comments, which are reproduced in appendix I  Of the four recommendations, DOE agreed with two, partially agreed with one, and disagreed with one  Regarding our recommendation that DOE supplement its 2016 long- term strategic review with an additional analysis that takes into account private sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes, the agency partially agreed with the recommendation  DOE agreed to conduct an additional analysis to assess the purpose, goals, and objectives of the SPR, taking into account private sector response, oil market projections, and any other relevant factors, that will lead to an evaluation of possible optimal sizes of the SPR in the future  In response to taking into account the costs and benefits of a wide range of different SPR sizes, DOE stated that the agency determined the projected benefits of a wide range of different SPR sizes ranging from 430 million barrels of oil to 695 million barrels of oil in its 2016 review  However, the minimum SPR size considered by DOE is greater than the projected SPR size after congressionally mandated sales have occurred  Further, the SPR size after congressionally mandated sales is projected to be far in excess of the IEA obligation to hold a minimum of 90 days of net imports  DOE must also consider the minimum size needed to meet its IEA obligations in the event of a collective action  In conducting additional analysis, DOE should consider a smaller lower bound, in line with congressionally mandated sales, for the size of the SPR, and more fully consider the size needed to meet the IEA 90-day net import and collective action obligations  Regarding our recommendation that DOE conduct periodic reviews of the SPR, the agency agreed with the recommendation  DOE stated that a 5-year time interval between reviews would strike an appropriate balance between the need to periodically conduct a strategic assessment and evaluation of the SPR and the limitations on resources to plan and conduct such a review  Regarding our recommendation that DOE conduct or complete studies on the costs and benefits of regional petroleum product reserves, the agency disagreed  DOE stated that it is the agency's position that government owned and operated regional petroleum product reserves are an inefficient and expensive solution to respond to regional fuel supply disruptions  DOE further stated, based on studies done in 2015 that DOE officials told us were pre-decisional and therefore could not be reported, that there are additional concerns associated with government-owned and operated regional refined petroleum product reserves, including little to no storage capacity for lease in commercial terminals and high costs for government owned and operated regional product reserves  However, these same studies took these concerns into account, and concluded that a product reserve in the Southeast would provide significant net economic benefits (benefits minus costs) to the region and the United States in the event of a major hurricane  These studies also concluded that additional analyses are required to inform decisions regarding the potential benefits of a similar reserve on the West Coast  Further, the Quadrennial Energy Review of 2015 recommended that similar analyses be completed for other areas deemed by DOE to be vulnerable to fuel supply disruptions  Therefore, we continue to believe that conducting these analyses, as recommended in the Quadrennial Energy Review of 2015, will provide Congress with information needed to make decisions about regional product reserves  Regarding our recommendation that DOE consider a full range of options for handling potentially excess assets, DOE agreed with the recommendation  DOE stated that in its ongoing study, the agency will include an assessment of disposition options for any potential excess or underutilized SPR assets, to include the need for new legislative authority, as necessary, for the disposition of assets  DOE expects this study to be completed in October 2018  DOE also provided technical comments, which we incorporated, as appropriate  As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@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 key contributions to this report are listed in appendix II  In addition to the individual named above, Quindi Franco (Assistant Director), Nkenge Gibson (Analyst-in-Charge), Philip Farah, Ellen Fried, Cindy Gilbert, Greg Marchand, Celia Mendive, Patricia Moye, Camille Pease, Oliver Richard, Dan Royer, Rachel Stoiko, and Marie Suding made key contributions to this report 

ground_truth: Between fiscal years 2005 and 2016, Congress annually appropriated between $2.5 to $9.6 billion in MILCON funding for the active component of the U.S. military to use for projects worldwide. Reliable project construction cost estimates are of great importance, since those estimates drive these appropriations. House Report 114-537 accompanying a proposed bill authorizing national defense activities for fiscal year 2017 included a provision for GAO to report on DOD's MILCON cost estimating. This report examines the extent to which (1) the active component obligated and expended the MILCON appropriations received during fiscal years 2005-2016, (2) the active component reprogrammed MILCON appropriations during fiscal years 2010 through 2016, and (3) DOD's MILCON cost estimates are reliable for selected projects and DOD's guidance for developing estimates fully incorporates the steps needed for developing reliable estimates. GAO analyzed the active components' MILCON execution data and reviewed DOD's guidance for cost estimating and compared it with the best practices identified in GAO's Cost Estimating and Assessment Guide . During fiscal years 2005 through 2016, Congress appropriated about $66 billion in military construction funds (MILCON) to the active duty Army, Navy, and Air Force (referred to as the active component) for projects. As of September 30, 2016, the active component had obligated all but about $5.1 billion and expended all but about $11 billion of those funds. Of the $5.1 billion remaining unobligated, about $4.6 billion was still available to be obligated because MILCON appropriations are generally available for new obligations for 5 years. According to Department of Defense (DOD) officials, available but unobligated amounts no longer needed may be either taken back by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding. During fiscal years 2010 through 2016, the active component reprogrammed about $1.6 billion in MILCON appropriations to fund emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding. Of this amount, the Army reprogrammed about $789 million; the Navy, about $535 million; and the Air Force, about $295 million. DOD's guidance does not fully incorporate the steps needed for developing reliable estimates and the estimates for three projects that GAO reviewed were not reliable. Specifically, two of the three high-value projects GAO examined experienced a more than 30-percent increase from the initial cost estimates submitted to Congress. GAO determined that DOD cost estimators did not follow all the best practices associated with the four characteristics—comprehensive, well-documented, accurate, and credible—of a reliable estimate for these projects. GAO's Cost Estimating and Assessment Guide identifies 12 steps that, if used, are more likely to result in reliable and valid cost estimates. However, as shown below, DOD's construction guidance—the Unified Facilities Criteria—does not include all of these steps. Until DOD incorporates these steps, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects. GAO recommends that DOD ensure that its cost estimating guidance fully incorporate the steps needed for developing reliable cost estimates. DOD partially concurred with GAO's recommendation and stated that it will issue revised cost guidance in fiscal year 2019 that more fully incorporates those steps that would benefit the military construction program.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.

Report 1: DOD’s MILCON appropriations are used to fund the acquisition, construction, installation, and equipping of temporary or permanent public works, military installations, facilities, and real property needed to support U S  military forces in the United States and overseas  As with other DOD activities, no funds may be appropriated in any fiscal year or obligated or expended for MILCON activities unless such funds have been specifically authorized by law  Each year, the National Defense Authorization Act authorizes amounts to be appropriated in each of the 18 programmatic MILCON appropriations accounts  Individual or conference committee reports accompanying each fiscal year’s National Defense Authorization Act provide specific congressional direction on authorized funding levels designated for specific construction projects supported by the various MILCON accounts  Similarly, conference committee reports or explanatory statements accompanying each fiscal year’s appropriations acts establish appropriated funding levels for MILCON projects  The process through which the active component requests funding for construction projects is supported by DOD’s Form 1391 Military Construction Project Data (Form 1391)  The Form 1391 is to be used to support each project proposed for inclusion in the MILCON appropriations request submitted concurrently with all other DOD appropriations requests annually  The forms are to be used for both new projects as well as urgent unforeseen projects  The Form 1391 describes the scope, total project costs, and estimates of specific project elements  Costs associated with other project elements such as contingency and supervision, inspection, and design are also to be captured and included in the total requested amount  Finally, the Form 1391 is to include a description of the proposed construction and a requirements statement indicating what requirement the project provides  Project budget estimates are initially developed at the installation level and are provided to the next responsible level for review, validation, refinement, prioritization, and approval  Administrative support is to be provided when requested across the departments, but ultimately the installation is the originator and the primary responsible entity in developing the completed Form 1391  MILCON appropriations are generally available for obligation for 5 fiscal years, at which time the appropriation expires  For 5 years after they expire, appropriations are available for limited purposes, such as liquidating obligations made during the period of availability or adjusting contract costs  After these 5 years, any remaining unexpended amounts, whether obligated or unobligated, are canceled and returned to the U S  Treasury  Once funds are returned to the U S  Treasury, they are no longer available for any purposes  DOD obligates its appropriations throughout the period in which the appropriation is available  An “unobligated balance” is the difference between the total appropriation amount and total obligations made against the appropriated amounts  An “unexpended balance” is the total of obligated but unliquidated and unobligated amounts  According to DOD officials, available but unobligated amounts no longer needed may be either rescinded by Congress or reprogrammed to other MILCON projects that the active component identifies as needing additional funding  Reprogrammed amounts may be used to fund other projects where there are shortfalls; for projects authorized by Congress but not specifically funded through the appropriations process; for emergency projects, such as for facilities destroyed by fires  DOD’s flexibility to reprogram without congressional approval is limited by the amount to be reprogrammed to a particular project  DOD’s Financial Management Regulation requires prior congressional approval for a reprogramming that would result in an increase exceeding 25 percent of a project’s authorized base amount or $2 million, whichever is less  Prior approval is not required when established costs or project-related thresholds are not reached  According to DOD officials, reprogrammings requiring congressional approval are called “above-threshold reprogrammings” and those that do not are called “below-threshold reprogrammings ” DOD designates construction agents for the military departments and defense agencies with primary responsibility for developing and refining MILCON proposals and cost estimates, and to manage the design and construction of projects  Typically, the Army Corps of Engineers is the construction agent for Army MILCON-funded projects and the Naval Facilities Engineering Command is the construction agent for Navy and Marine Corps MILCON-funded projects  Either of those DOD entities can be the construction agent for the defense agencies and activities, such as for the Missile Defense Agency or Defense Education Activity, with the approval of the military department having jurisdiction of the real property facility  However, both the Army and the Navy may use each other’s construction agent if it is in the interest of efficiency and cost- effectiveness or when otherwise considered appropriate  The Air Force may use either the Army Corps of Engineers or Naval Facilities Engineering Command for its projects  Additionally, the Air Force Civil Engineer Center, although not a designated construction agent, reviews and approves requirements for Air Force MILCON cost estimates, and in some cases may design and construct Air Force projects where both the Air Force and the commander of the assigned construction agent agree that it is the most efficient, expeditious, and cost-effective means to complete the project  Within DOD there are two levels of military construction guidance: the Unified Facilities Criteria and component-level guidance  The Unified Facilities Criteria are overarching, DOD-wide technical manuals and standards used for planning, design, construction, restoration, and maintenance of DOD facility projects  The Unified Facilities Criteria was designed to standardize and streamline the process for developing, maintaining, and disseminating criteria in support of MILCON  The Unified Facilities Criteria contains guidance describing methods, procedures, and formats for the preparation of construction cost estimates and construction contract modification estimates, among other types of guidance  The Unified Facilities Criteria is to be used to the greatest extent possible by all the DOD regardless of funding source  In addition to the Unified Facilities Criteria, the military departments and agencies have also developed their own internal guidance on MILCON, providing further direction on conducting activities such as cost analysis and determining facility requirements  We developed the GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (Cost Guide) to assist federal agencies in developing reliable cost estimates and also as a tool for evaluating existing cost estimating procedures  To develop the Cost Guide, our cost experts assessed measures applied by cost estimating organizations throughout the federal government and industry and considered best practices for the development of reliable cost estimates  While the Cost Guide has a focus on developing cost estimates in the context of government acquisition programs, it outlines best practices that are generally applicable to cost estimation in a variety of circumstances  These best practices can be used to assess (1) the specific project cost estimates an agency develops to determine whether they meet the four characteristics—comprehensive, well-documented, accurate, and credible—for being reliable and (2) an agency’s cost estimating guidance and procedures to see how well they incorporate all the steps needed for producing a high-quality cost estimate  Figure 1 shows the four characteristics and associated best practices for each that define a reliable cost estimate and table 1 shows the 12 steps identified in the Cost Guide that, if followed correctly, should result in high-quality cost estimates that management can use for making informed decisions  During fiscal years 2005 through 2016, Congress appropriated about $66 billion in MILCON funds to the active component and, as of September 30, 2016, the active component had obligated all but about $5 1 billion and expended all but about $11 billion of those funds  Of the $5 1 billion that remains unobligated, about $4 6 billion was unexpired and available for new obligations (i e , from fiscal year 2013 through 2016 appropriations)  Table 2 shows the active component’s combined MILCON appropriations, obligations, and unexpended funds from fiscal year 2005 through fiscal year 2016  In general, during the early first few years of a MILCON appropriation available for 5 years, it is often likely that most of the funds will remain unobligated  For example, as shown in table 2 above, of the nearly $3 9 billion appropriated for military construction for the active component from the fiscal year 2016-2020 appropriation, only about $1 1 billion had been obligated as of September 30, 2016  This is not surprising given the time that it takes to award, obligate and disburse funds for projects  Ultimately, though, as an appropriation nears its expiration date, all or nearly all of the amounts have generally been obligated  In fact, as shown in table 2, for each MILCON appropriation received by the active component prior to fiscal year 2013 (fiscal years 2005 through 2012), less than 2 percent of each year’s appropriation was unexpended as of September 30, 2016  In appendix II, we provide additional analysis of the active component’s unexpended and unobligated balances, by appropriation year and by military department  Although ultimately, the active component obligates and expends most of its MILCON appropriations, the active component can experience a wide range of differences between initial cost estimates and final costs during the execution of individual MILCON projects, resulting in savings or shortfalls depending on the project  For example, we found that from fiscal year 2010 through fiscal year 2016, the active component achieved about $4 2 billion in MILCON project savings as a result, for example, of canceled projects, projects with lower than expected contractor bids, or the use of less expensive building materials  In appendix III, we provide additional analysis of the active component’s estimated initial costs and the contract award amounts that were funded by MILCON appropriations for fiscal year 2010 through fiscal year 2016  The active component reprogrammed about $1 6 billion in MILCON appropriations to fund shortfalls caused by emergency projects, projects that were authorized but did not receive specific appropriations, and projects needing additional funding in fiscal years 2010 through 2016  Of this amount, the Army reprogrammed about $789 million of about $14 billion in appropriated MILCON funds; the Navy, about $535 million of about $14 billion in appropriated MILCON funds; and the Air Force, about $295 million of about $7 billion in appropriated MILCON funds  Table 3 shows the number and amounts of above-threshold reprogrammings by the active component for fiscal years 2010 through 2016  As seen in table 3, for any given year there are typically hundreds of millions of dollars reprogrammed  There are generally multiple active or canceled projects that result in cost savings, which may be used to fund authorized but not specifically funded projects  Below are three examples where the active component funded MILCON projects with amounts reprogrammed from other projects: Repair Shop at Andersen Air Force Base, Guam: This is an Air Force project to construct a pacific air resiliency low observable/corrosion control/composite repair shop in Guam  It is an authorized project that did not receive specific funding during the appropriation process but was fully funded by reprogrammed cost savings from active construction projects  Congress authorized $34 4 million for the repair shop in fiscal year 2015; however, no funds were specifically appropriated for the project  According to Air Force officials, since this was their top unfunded military construction priority, they used $34 4 million in savings achieved from other projects to construct the repair shop  Table 4 lists the three projects whose MILCON funds were reprogrammed for the repair shop at Andersen Air Force Base in Guam  Training Facility at the Naval Air Station at Mayport, Florida: This is a Navy project to construct a littoral combat ship training facility in Florida  It is a specifically funded project requiring additional funds that received reprogrammed amounts from a canceled project  In fiscal year 2014, the initial cost as listed on the Form 1391 was estimated to be $20 5 million, but project costs increased by 41 percent to an estimated $28 9 million, according to a fiscal year 2016 reprogramming request to Congress  As detailed in the reprogramming request, the Navy attributed the increased cost to underestimated mission simulator and communication line requirements  To fund the increased costs, the Navy used $8 3 million in savings from a canceled project to complete the facility  Table 5 lists the canceled project that resulted in funds being reprogrammed for the training facility at Mayport  Barracks at Presidio of Monterey, California: This is an Army project to construct a trainee barracks in California  It is a specifically funded project in need of additional funds that received reprogrammed amounts from active and canceled construction projects  In fiscal year 2011, the initial cost for the project as listed on the Form 1391 was estimated to be $63 million, but project costs increased by 51 percent to $95 million, according to a fiscal year 2015 reprogramming request to Congress  As detailed in the reprogramming request, the Army attributed the increased costs to a 3-year delay in construction and the need to move the project to a small, steep-terrain site  The reprogramming request further noted that the delay in construction was due to the discovery at the proposed construction site of a seismic fault and a plant that is an endangered species  To fund the increased costs, the Army sought to reprogram funds from the savings achieved from the active and canceled projects  Table 6 lists the projects that generated the reprogrammed funds used for the barracks at Presidio  Our analyses of the cost estimates for three selected projects shows that the cost estimates were not reliable, and DOD’s cost estimating guidance does not fully incorporate all the steps needed for producing reliable estimates  We examined the cost estimates of three high-value military construction projects and noted that the initial cost estimates increased for all three projects, with cost estimates for two of the projects increasing by over 30 percent and the other, by about 7 percent  Specifically: Strategic Command Operations Building, Offutt Air Force Base, Nebraska  The project to construct a nuclear, space, and network command and control operations building for the command at Offutt Air Force Base, Nebraska, increased from an initial cost estimate in fiscal year 2012 of $564 million to $601 million in fiscal year 2014 (or a 7-percent increase)  According to a fiscal year 2014 reprogramming request to Congress, the Air Force attributed the increased cost to the fact that the project team did not appreciate the full scope, complexity, and risk of such an information technology- intensive project  These cost issues are similar to challenges we have reported on for other information technology-intensive MILCON projects  The Air Force is the project owner and the Army Corps of Engineers is the construction agent for this project  Command Headquarters and Cyberspace Operations Building, Fort Meade, Maryland  The project to construct a command headquarters and cyberspace operations building with sensitive compartmented information facility in Fort Meade, Maryland, increased from an initial cost estimate in fiscal year 2013 of $84 million to $110 million in fiscal year 2015 (or a 31-percent increase)  As detailed in the fiscal year 2015 reprogramming request, the Navy attributed the increased cost to higher than expected construction costs due to increased demand on the labor workforce in the Washington, D C /Baltimore area and underestimated electrical power requirements  The Navy is the project owner and the Army Corps of Engineers is the construction agent for this project  Elementary School Camp Foster, Japan  The project to replace an elementary school at Camp Foster, Japan increased from an initial cost estimate in fiscal year 2012 of $79 million to $107 million in fiscal year 2014 (or a 35-percent increase)  As detailed on the fiscal year 2014 reprogramming request, the Department of Defense Education Activity attributed the increased cost to the volatile construction climate in Japan caused by natural disasters; Japanese government policies, economic stimulus, and reform; and the planned developments for the 2020 Tokyo Olympic Games  Although this project is not owned by any of the military departments, it is being managed by the Army Corps of Engineers in its role as a DOD construction agent through which it plays an important role in the development of the construction cost estimate  The Department of Defense Education Activity is the project owner and the Army Corps of Engineers is the construction agent  To determine the reliability of the cost estimates for these three selected projects, we assessed the cost estimates against the best practices for developing a reliable estimate in our Cost Guide  As previously discussed, the Cost Guide defines the four characteristics— comprehensive, well documented, accurate, and credible—of a reliable cost estimate and the associated best practices related to each characteristic  In conducting these assessments, we examined both the Form 1391 estimate (i e , the estimate used to develop the budget) and the independent government estimate i e , (the estimate used to award the contract) for each project  Our analysis of the cost estimates for the three selected projects shows that the cost estimators did not follow all the best practices listed for each of the four characteristics  As a result, none of the characteristics were fully or substantially met  To be reliable, a cost estimate must substantially or fully meet each of the four characteristics  As the Cost Guide states, if any of the characteristics are not met, minimally met, or partially met, then the cost estimate does not fully reflect the characteristics of a high-quality estimate and cannot be considered reliable  Table 7 provides the results of our assessment of the cost estimates for each of the three selected projects  The Cost Guide also identifies 12 steps that, when incorporated into an agency’s cost estimating procedures and guidance, are more likely to result in reliable and valid cost estimates  However, our analysis of DOD’s department-wide cost estimating guidance—the Unified Facilities Criteria—found that the criteria did not include all of these 12 steps  The Unified Facilities Criteria incorporates some of the 12 steps to some degree, but not others, and as a result DOD is at a greater risk of developing estimates that are not reliable  Table 8 provides our assessment of the extent to which DOD’s Unified Facilities Criteria incorporates the 12 steps needed to develop a high-quality, reliable cost estimate  Each of the military departments is required to follow the Unified Facilities Criteria to the greatest extent possible when designing and constructing facilities  However, as shown by the table above, there are shortcomings in these criteria when compared with our Cost Guide  Despite these shortcomings, the military departments have gone beyond the Unified Facilities Criteria and developed their own guidance that more closely aligns with our Cost Guide  For example, for both the “determining the estimating structure” and “obtain the data” steps, we found that all three military departments had developed their own guidance that more closely aligned with the 12 steps than the Unified Criteria did  In addition, some military departments are also making improvements to their cost estimating processes, but these improvements have not been fully implemented yet  For example, the Air Force Civil Engineer Center is implementing a cost estimate improvement plan to include the training of nearly 700 airmen and has conducted a study that directly ties the 12 steps in the Cost Guide to the associated tasks to be completed by the Air Force cost estimator to meet each individual step  However, the actions contained in the cost improvement plan have not been fully implemented and still remain in the concept phase  Similarly, although the Army Corps of Engineers is investigating expanding the use the of cost and schedule risk analysis—which could align with the best practices in the Cost Guide—that the Army currently conducts for selected civil work construction projects to its high-cost military construction projects, the Army has not formally required the use of these tools  In appendix IV, we describe the guidance the military departments have developed beyond the Unified Facilities Criteria  The Cost Guide is designed to establish a consistent methodology that is based on best practices and that can be used across the federal government for developing, managing, and evaluating capital program cost estimates  Air Force and Army Corps of Engineers officials noted that there may be instances in which following all the 12 steps of the Cost Guide for every MILCON project would not be appropriate to the risk level of the project  For example, it may not be realistic or to the military departments’ benefit for the military departments to conduct a sensitivity and uncertainty analysis or develop an independent cost estimate for all the construction projects they initiate every year, especially for low-cost projects  We agree that it may not be suitable to fully apply all 12 of the cost estimating steps in the Cost Guide to all MILCON projects  However, incorporating the 12 steps into the Unified Facilities Criteria would establish consistency across DOD in the cost estimating process by ensuring that, for each MILCON project, each step in the Cost Guide would at least be considered  Furthermore, DOD could choose to establish thresholds—based on, for example, the dollar values of the projects—to guide the services in implementing the 12 steps for the most valuable projects  Skipping or not considering any step of the 12-step cost estimating process, especially for high-value projects such as those in our case studies, increases the risk that cost estimates may use improper assumptions, lack appropriate definition, or be otherwise unreliable  Without improving the Unified Facilities Criteria with respect to cost estimating processes, DOD and the services will not be positioned well to provide reliable cost estimates to DOD and congressional decision- makers  Each year DOD receives billions of dollars in MILCON appropriations to use for projects in the United States and overseas  The quality of project cost estimates are of great importance since those estimates are the basis for DOD’s requests for appropriations  While DOD’s policy is that MILCON cost estimates be prepared as accurately as possible in order to reflect the full cost of constructing DOD facilities, DOD’s Unified Facilities Criteria—the department’s primary construction criteria for developing cost estimates—does not fully incorporate all of the steps needed for producing reliable cost estimates  Until DOD incorporates the 12 steps of high-quality, reliable cost estimating into this department-wide construction criteria, DOD and congressional decision-makers may not have reliable estimates to inform their decisions regarding appropriations and the oversight of projects  We are making one recommendation to DOD: The Secretary of Defense should ensure that the Assistant Secretary of Defense for Energy, Installations, and the Environment work with DOD’s construction agents, military departments, and other offices to improve DOD’s MILCON cost estimating guidance (i e , DOD’s Unified Facilities Criteria) by fully incorporating all the steps needed for developing high- quality reliable cost estimates  (Recommendation 1) We provided a draft of this report to DOD  In written comments, which are reprinted in their entirety in appendix VI, DOD partially concurred with our recommendation  DOD also provided technical comments that have been incorporated into the report as appropriate  DOD partially concurred with our recommendation to improve its cost estimating guidance by fully incorporating all 12 steps needed for developing high-quality, reliable estimates  DOD stated that it did not believe that it is suitable to fully apply all 12 steps to any construction project due to characteristics of the military construction program that DOD believes differ from those of major system or weapon acquisition programs  However, DOD also stated that it concurred with the intent and general applicability of the twelve steps to military construction and that DOD cost estimating guidance lacks specificity in several of these areas  DOD acknowledged that expanding its cost guidance to more fully incorporate these steps would benefit the military construction program, and that it is planning to address this by revising its cost guidance during Fiscal Year 2019  In our report, we recognize that it may not be appropriate to fully apply all 12 steps to each construction project  For example, it may not be realistic or to the military departments’ benefit to conduct a sensitivity and uncertainty analysis or develop an independent cost estimate for all the construction projects they initiate every year, especially for low-cost projects  Accordingly, we did not recommend that DOD fully apply all 12 steps to each construction project, but rather that it fully incorporate the 12 steps into the Unified Facilities Criteria so that, at least, each step is considered for each project  DOD could then choose to establish thresholds—based on, for example, the dollar values of the projects—to determine for which the 12 steps should be fully applied or other circumstances in which some steps might not be applicable  We believe DOD’s planned revisions will meet the general intent of our recommendation  We are sending copies of this report to the appropriate congressional committees; the Secretary of Defense, the Secretaries of the Army, Navy, and Air Force  In addition, the report is available at no charge on the GAO website at http://www gao gov  If you or your staff has any questions about this report, please contact me at (202) 512-4523 or leporeb@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 key contributions to this report are listed in appendix VI  To examine the active component’s military construction (MILCON) obligations and expended balances, we reviewed MILCON appropriations found in appropriations acts, including accompanying explanatory statements and conference committee reports from fiscal year 2005 through 2016  Further, we analyzed the obligation and disbursement data of the active component‘s MILCON accounts, appropriation status reports, bid savings reports, as well as annual reports from the U S  Department of the Treasury  We also collected and compared project data from each of the active component on projects that had been initiated and completed during fiscal year 2010 through fiscal year 2016  Specifically, we compared the initial estimate as shown on the Form 1391—the form DOD uses to submit requirements and justifications in support of its funding requests to Congress—with the contract award amount and analyzed any differences between the two  To examine the amount of MILCON reprogramming during fiscal years 2010 and 2016 by the active component, we reviewed DOD’s requests to Congress to reprogram MILCON funds from one project to another  We calculated the total number of times such requests were made and the dollar amounts for fiscal year 2010 through fiscal year 2016  We selected this time frame because the reprogramming requests were readily available from DOD  In addition, we judgmentally selected three projects from this same time frame and reviewed accompanying Forms 1391 and the reprogramming requests associated with the projects to illustrate instances in which savings from one MILCON project funded another project  We collected and analyzed data for fiscal years 2005 through 2016 on the active component MILCON appropriations, obligations, and disbursements and we collected reprogramming data for fiscal years 2010 through 2016  We assessed the reliability of the data by interviewing knowledgeable officials about the data and the steps that they had taken to verify the data’s accuracy  We determined that the data were sufficiently reliable for our objectives  To determine the extent to which DOD’s MILCON cost estimates are reliable and DOD’s guidance for producing estimates fully incorporates all of the steps needed for developing reliable estimates, we compared the process for developing three selected projects with the characteristics and best practices for developing a reliable estimate identified in GAO’s Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs (the Cost Guide)  This guide is a compilation of cost estimating best practices drawn from across industry and federal government  We selected our projects from the universe of projects that we reasonably expected could have begun execution (i e , projects initiated during fiscal years 2012-2014); projects that were underway, but not substantially completed (i e , between 10- and 75- percent complete); and projects that constituted a significant financial investment (i e , projects with appropriations of $75 million or greater)  Ultimately, of 690 total projects we identified DOD-wide, 13 met these criteria and, from this sample, we selected the 3 projects included in this report: (1) the construction of a replacement elementary school at Camp Foster, Japan; (2) the construction of a Strategic Command operations building at Offutt Air Force Base, Nebraska; and (3) the construction of a Marine Corps command headquarters and cyberspace operations building in Fort Meade, Maryland  In conducting the assessments for these three selected projects, we examined the processes used to develop both the Form 1391 estimate (i e the form DOD uses to submit project-level requirements and justifications in support of its MILCON funding requests to Congress ) and the independent government estimate (i e , the estimate used to award the contract) to determine whether the project cost estimates had the characteristics of a high-quality and reliable cost estimate, as defined in the Cost Guide  These projects are not intended to be a projectable sample, but to illustrate how cost estimates are assessed against best practices  Although the Camp Foster project is not owned by any of the active component, the construction and planning of the project is being led by the Army Corps of Engineers in its capacity as a DOD construction agent and, as such, we decided to include it in our review  Additionally, we reviewed DOD’s Unified Facilities Criteria and the active component’s respective guidance related to MILCON cost estimating and compared them with the steps needed for developing reliable estimates identified in the Cost Guide  We also interviewed military project cost estimators and active component construction agents to discuss the requirements and guidance they follow in preparing, documenting, and reviewing project cost estimates  Table 9 details the documents we reviewed for our cost estimating assessments  We conducted this performance audit from January 2016 to March 2018 in accordance with generally accepted government auditing standards  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives  In this appendix we provide the supporting details on the active component’s unobligated and unexpended balances of military construction (MILCON) appropriations for fiscal years 2005 through 2016  We include details on unobligated and unexpended balances by appropriation year and include individual tables for each military department of the active component  Overall, the active component had high obligation and expenditure rates associated with MILCON appropriations that have expired or been canceled  The Army, the Air Force, and the Navy consistently expended over 90 percent of amounts appropriated in fiscal years 2005 through 2011  This appendix also provides supporting details on the active component’s execution of MILCON appropriations for fiscal years 2010 through 2016  Using Department of Defense (DOD) data, we identified two groups of MILCON projects: congressionally directed and other  “Congressionally directed” projects are those MILCON projects specifically identified in an appropriation act, explanatory statement, and/or committee reports accompanying the appropriation act for a specific fiscal year  “Other” projects refer to congressionally directed MILCON projects identified in an appropriation act, explanatory statement, and/or conference committee reports in a previous fiscal year  Overall, the active component obligated about 89 percent of its fiscal years 2010 through 2012 appropriations for congressionally directed projects whose appropriations expired on September 30, 2017  Tables 10 through 12 present detailed information on unexpended and unobligated balances for each military department of the active component’s MILCON appropriation for fiscal years 2005 through 2016, as reported by DOD as of September 30, 2016  Table 10 shows that for fiscal years 2005 through 2012, the Army expended almost all of its MILCON appropriations  Specifically, with the exception of fiscal year 2012, the Army expended at least 90 percent of its appropriations received each fiscal year for 2005 through 2011  Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations  Table 11 shows that, for fiscal years 2005 through 2013, the Air Force expended almost all of its MILCON appropriations  Specifically, the Air Force expended at least 95 percent of its appropriations received each year for fiscal years 2005 through 2011 and also in fiscal year 2013  Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations  Table 12 shows that for fiscal years 2005 through 2012, the Navy expended almost all of its MILCON appropriations  Specifically, the Navy expended at least 90 percent of its appropriations received each fiscal year for 2005 through 2011  Unexpended rates for amounts appropriated for fiscal years 2014 through 2016 vary and unobligated amounts for these years remain available for new obligations  Tables 13 through 15 provide detailed information on budget execution for each active duty military department’s MILCON appropriation for “congressionally directed” and “other” MILCON projects for fiscal years 2010 through 2016, as reported by DOD as of September 30, 2016  Table13 shows the obligations made by the Army for MILCON appropriations for fiscal years 2010 through 2016  We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects  For fiscal year 2010, using data in the table, we found that about 97 2 percent of obligations were for congressionally directed projects and 2 8 percent were for other projects, as discussed above  In fiscal year 2011, about 94 percent of obligations were for congressionally directed projects and 4 2 percent were for other projects; and in fiscal year 2012, about 86 5 percent of obligations were for congressionally directed projects and 7 2 percent were for other projects  Table 14 shows the obligations made by the Air Force for MILCON appropriations for fiscal years 2010 through 2016  We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects  For fiscal year 2010, using the data listed in the table, we found that 90 5 percent of obligations were for congressionally directed projects and 7 3 percent were for other projects, as discussed above  In fiscal year 2011, about 84 3 percent of obligations were for congressionally directed projects and 12 9 percent were for other projects; and in fiscal year 2012, about 87 5 percent of obligations were for congressionally directed projects and 9 0 percent were for other projects  Table 15 shows the obligations made by the Navy for MILCON appropriations for fiscal years 2010 through 2016  We analyzed the obligations made during these appropriations’ period of availability for congressionally directed and other MILCON projects  For fiscal year 2010, using data in the table, we found that 84 7 percent of obligations were for congressionally directed projects and 15 0 percent were for other projects, as discussed above  In fiscal year 2011, about 87 7 percent of obligations were for congressionally directed projects and 11 8 percent were for other projects; and in fiscal year 2012, about 85 5 percent of obligations were for congressionally directed projects and 13 4 percent for other projects  This appendix provides information on our analysis of DOD’s estimated initial costs and contract award amounts of projects that had been initiated and completed during fiscal year 2010 through fiscal year 2016 by the active component  An official from the Office of the Assistant Secretary of Defense for Energy, Installations, and Environment told us that, to determine whether initial cost estimates were over- or underestimated, a comparison between initial Form 1391 estimates and contract award amounts would be a valid approach since contract award amounts are, in general, estimates of the same requirements identified on a Form 1391  The official also noted that supervision, inspection, overhead, and contingency costs included on a Form 1391 are not included in contract award amounts, which could create differences between the Form 1391 cost estimates and contract award prices  Because of this, we excluded the supervision, inspection, overhead, and contingency costs from the Form 1391 estimates in the table below to eliminate those differences  Form 1391 cost estimates may also vary from contract award amounts for reasons such as changes in project size or scope, changes in project characteristics, unexpectedly high or low contractor bids, or differences in expected building material costs, among other things  A negative percent change from the Form 1391 estimate to the contract award amount indicates the estimated project cost was overestimated and a positive percent change indicates the project was underestimated  We did not determine the precise reasons for any differences between estimated costs and contract award amounts  Table 16 lists information on 414 completed projects funded with military construction (MILCON) appropriations during fiscal year 2010 through fiscal year 2016 sorted by largest percentage overestimated to largest percentage underestimated  The military departments of the active component have gone beyond the Unified Facilities Criteria and developed their own guidance for military construction (MILCON) that more closely aligns with the 12 steps needed for developing high-quality, reliable estimates  Table 17 describes the guidance developed by the military departments to align with those steps  In addition to the contact named above, Maria Storts, Assistant Director; Bonita Anderson; Shawn Arbogast; Ronald Bergman; Brian Bothwell; Robert Brown; Farrah Graham; Mae Jones; Jennifer Leotta; Amie Lesser; Felicia Lopez; Carol Petersen; Vikki Porter; Steve Pruitt; and Karen Richey made key contributions to this report 


Report 2:  We previously found that federal programs should be reexamined if there have been significant changes in the country or the world that relate to the reason for initiating the program  In that report, we found that many federal programs and policies were designed decades ago to respond to trends and challenges that existed at the time of their creation  Moreover, the Office of Management and Budget Circular A-94 for benefit-cost analysis of federal programs includes guidelines that apply to any analysis used to support government decisions to initiate, renew, or expand programs or projects that would result in a series of measurable benefits or costs extending for 3 or more years into the future  Given changing market conditions and future projections, without conducting additional analysis to supplement its 2016 review and thereafter periodically reexamining the SPR to take into account changes in market conditions and include a thorough consideration of the costs and benefits of a wide range of SPR sizes, DOE cannot provide information to Congress to inform decisions about the appropriate size of the SPR and risks holding too much or too little in the SPR to meet the United States’ evolving energy security needs and IEA obligations  DOE has also not fully identified whether additional regional petroleum product reserves should be part of the SPR  Because the SPR stores oil nearly exclusively along the Gulf Coast, the SPR is configured primarily to respond to global oil supply disruptions  However, as we reported in November 2017, the SPR has primarily been used in response to domestic disruptions  The SPR is limited in its ability to respond to domestic disruptions because reserves are almost entirely composed of crude oil and not refined petroleum products, which may not be effective in responding to disruptions that affect the refining sector  For example, as we reported in November 2017, Hurricanes Harvey, Irma, and Maria damaged infrastructure and property, caused the loss of life, and disrupted the operations of refineries representing at least 15 percent of the nation’s refining capacity  DOE has identified regions subject to product supply vulnerabilities as shown in Figure 3  The Quadrennial Energy Review of 2015 recommended that the agency analyze the need for additional or expanded regional product reserves by undertaking updated cost-benefit analyses for all of the regions of the United States that have been identified as vulnerable to fuel supply disruptions  In response to this recommendation, DOE studied the costs and benefits of regional petroleum product reserves in the West Coast and Southeast Coast  According to DOE officials, weather events in the Southeast Coast are of higher probability but lower consequence, and events in the West Coast are of lower probability but higher consequence  DOE did not finalize its 2015 studies on regional petroleum product reserves and make them publicly available  However, the draft 2015 studies concluded that a product reserve in the Southeast would provide significant net economic benefits to the region and the United States, particularly in the event of a major hurricane, while further analyses are needed to determine the potential benefits of a reserve on the West Coast  A prior DOE study also suggests that petroleum product reserves merit consideration—in 2011, DOE carried out a cost-benefit study of the establishment of a refined product reserve in the Southeast and estimated that such a reserve would reduce the average gasoline price rise by 50 percent to 70 percent in the weeks immediately after a hurricane landfall, resulting in consumer cost savings, according to the Quadrennial Energy Review of 2015  According to DOE officials, the agency has no plans to conduct additional studies  DOE’s 2016 review of the SPR did not fully assess whether there is a need for additional regional product reserves in other U S  regions identified as vulnerable to fuel supply disruptions, as recommended by DOE’s studies and the 2015 Quadrennial Energy Review  Without completing studies on the costs and benefits of regional petroleum product reserves for all the vulnerable U S  regions and publicly releasing the results, DOE cannot ensure that it and Congress have the information they need to make decisions about whether additional regional product reserves are needed  DOE has taken steps to take into account the effects of congressionally mandated oil sales in its plans for modernizing the SPR, though DOE’s current plans are based on information largely developed prior to the most recent congressionally mandated oil sales  According to DOE, the SPR modernization program is focused on a life extension project to modernize aging infrastructure to ensure the SPR will be able to meet its mission requirements for the next several decades  The project’s scope of work has undergone several revisions since its inception in response to changing conditions and requirements, according to the agency  DOE has estimated the total cost for the SPR’s modernization at up to $1 4 billion  DOE raised about $323 million for modernization through the sale of SPR oil in fiscal year 2017, and the Consolidated Appropriations Act of 2018 provided that DOE is to draw down and sell an amount of crude oil not to exceed $350 million for modernization in fiscal year 2018  As of the end of February 2018, DOE has spent $22 million on modernization efforts and the additional funds will allow DOE to continue moving forward with the project, according to agency officials  According to DOE’s modernization plans, the first major construction is scheduled for fiscal year 2019  However, these plans are largely based on information DOE analyzed before recent congressionally mandated sales of an additional 117 million barrels of oil  Since the most recent mandated sales, DOE has taken steps to update its modernization plans and has changed its assumptions for SPR’s modernization  For example, DOE now assumes that the reserve will hold about 405 million barrels of oil and that one of the four SPR sites may close after congressionally mandated sales are completed at the end of fiscal year 2027, according to agency officials  However, DOE has not fully updated the SPR’s modernization plans based on these assumptions  According to DOE officials, in March 2018, DOE commenced a study—the SPR post-sale configuration study—to examine potential future reserve configurations  This study is to take into account the effects of congressionally mandated sales on the reserve and its modernization, and is targeted for completion in October 2018, according to agency officials  Information from the study will inform DOE’s updates to the SPR’s modernization plans, according to DOE officials  As part of its post-sale configuration study, DOE plans to examine how the agency may handle the potentially excess SPR facilities created by the mandated sales  In January 2017, the SPR had a design capacity to hold 713 5 million barrels of oil and actually held 695 million barrels  As shown in figure 4, without action by DOE to reduce the SPR’s design capacity or otherwise use SPR facilities, congressionally mandated sales will cause excess storage capacity to grow to 308 million barrels or more by the end of fiscal year 2027—meaning that about 43 percent of the SPR’s total design capacity to store oil would be unused  DOE plans to explore some options to use these potentially excess SPR assets in its ongoing post-sale configuration study  In withdrawing oil to meet congressionally mandated oil sales currently in place (290 million barrels through fiscal year 2027), DOE could close at least one SPR site based on our analysis of projected excess storage capacity  For example, if DOE were to close the smallest SPR site, Bayou Choctaw, the agency could also explore selling the connected pipeline and marine terminal, which are currently being leased to a private company  DOE could also consider leasing excess storage capacity to other countries so that they could store oil at the SPR  DOE has not entered into any such leases with other countries and has not considered such leases because, according to DOE, the SPR has historically lacked capacity to store additional oil  DOE has not proposed any of these options or explored the revenue the agency could generate by selling or leasing these assets  According to DOE officials, the agency will examine the feasibility of such options in the ongoing SPR post-sale configuration study  As DOE takes steps to plan for the SPR’s modernization, ongoing uncertainty regarding the SPR’s long-term size and configuration have complicated DOE’s efforts  According to DOE officials, this uncertainty makes it extremely difficult to effectively perform any mid-to long-range planning efforts for the SPR’s modernization project, including the execution of major maintenance projects  Congress has generally set the SPR’s size by mandating purchases or sales of oil, and has established and amended the minimum size of the SPR as it pertains to the release of oil for emergency protection  Since 2015, Congress has, across six pieces of legislation, mandated 290 million barrels in additional oil sales  However, DOE developed its modernization plans in 2016  DOE officials told us they do not know whether additional sales will be mandated over the next 10 years or whether other changes may be required to the configuration of the reserve  Any additional congressionally mandated sales or direction to pursue additional petroleum product reserves would require DOE to again revisit its modernization plans and assessments of the potential uses of any excess SPR assets  Oil market projections also have implications for the future of the SPR  Under current projections, the United States may fluctuate between being a net importer and net exporter over the next several decades  Specifically, the United States is projected to become a net exporter by the late 2020s and would then no longer have a 90-day reserve obligation, but it is projected to return to being a net importer between 2040 and 2050  These projected fluctuations could affect the desired size of the SPR in the future  This uncertainty creates risks for DOE’s modernization plans, as DOE may end up spending funds on facilities that later turn out to be unnecessary should Congress ultimately decide on a larger- or smaller-sized SPR than DOE anticipates  Having a long-term target for the size and configuration of reserves helps other IEA member countries manage their reserves  For example, as previously discussed, unlike the United States, some other IEA members have specified in dynamic terms the amount of reserves to be held, such as days of net import protection or days of consumption, rather than specifying a specific static volume amount  Under such approaches, the amount held varies over time as entities managing the reserve acquire or sell reserves in order to meet the target  Setting a long-term target for the size and configuration of the SPR—taking into account projections for oil production, consumption, and IEA obligations—could better position DOE to ensure that funds spent on the SPR’s modernization do not modernize a system that is no longer needed and that DOE is able to adequately plan for potentially excess SPR assets  In the course of our work, we also identified other options for handling potentially excess SPR assets that DOE is not planning on examining, largely because DOE does not currently have the authority to pursue them, according to agency officials  First, DOE could explore leasing storage capacity to private industry  U S  oil production has generally increased over the last decade  As a result, the private sector may want to lease excess SPR capacity, which may be cheaper than above-ground storage, according to a representative of a private company we spoke with  Fees for doing so could help defray public reserve storage costs  However, officials told us that the Energy Policy and Conservation Act gives DOE authority to lease underutilized storage to other countries, but not to the private sector  Second, if Congress determines that the SPR holds oil in excess of that needed domestically, DOE could explore selling contracts or tickets for the excess oil rather than selling the oil outright  Australian and New Zealand officials told us that if DOE were to sell tickets for SPR oil, tickets would help these countries meet their IEA 90- day reserve obligations  Australian officials told us they have discussed this option with DOE  Currently the United States and Australia have agreed, through an arrangement, to allow Australia to contract for petroleum stocks located in the United States and controlled by commercial entities  According to DOE officials, the arrangement would permit Australia to receive credit from the IEA for tickets it purchases from the U S  private sector  While the arrangement does not cover government-owned oil in the SPR, if it did, based on our analysis, DOE could generate up to approximately $15 million annually if Australia purchased the maximum allowable amount of oil specified in an arrangement through tickets for excess SPR oil  However, although the Energy Policy and Conservation Act allows DOE to lease underutilized storage to other countries, DOE lacks the authority to sell tickets and does not plan to seek this authority, according to DOE officials  DOE officials told us that they do not plan to examine these options  According to DOE’s real property asset management order, the agency is to identify real property assets that are no longer needed to meet the program’s mission needs and that may be candidates for reuse or disposal  Once identified, the agency is to undertake certain actions, including determining whether to dispose of these assets by sale or lease  As part of its SPR post-sale configuration study, DOE plans to determine whether it is appropriate to close SPR facilities, and the relative benefit of any closures would be informed by potential lease revenues from maintaining sites so they could be leased, according to officials  However, without examining a full range of options in the post-sale configuration study, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources  Given changing crude oil and petroleum product market conditions and the constrained budget environment, it is important that DOE ensures the SPR is effective at meeting U S  energy security needs and IEA obligations while being managed and maintained in an efficient manner  In response to congressional direction and recommendations from GAO and DOE Inspector General, DOE conducted a long-term strategic review of the SPR in 2016 after its last comprehensive examination in 2005  In its review, DOE did not determine an optimal size for the SPR, and its analysis was limited in several ways  In particular, DOE did not fully consider recent and expected future changes in crude oil and petroleum market conditions such as the implications of projected fluctuations in U S  net imports or the role that increased levels of private reserves could play in responding to supply disruptions  DOE also did not perform a full cost-benefit analysis of holding different volumes of reserves  Without supplementing its 2016 strategic review by conducting additional analysis, and periodically conducting such analyses going forward, DOE cannot provide information to Congress to inform decisions about the appropriate amounts of crude oil and petroleum products to hold in the SPR and risks holding too much or too little in the SPR to meet the United States’ energy security needs and international obligations  Such information is needed on a timely basis, to reflect the pace of change in oil and petroleum markets and other relevant factors that affect the optimal size of the SPR  Though the SPR has primarily been used in response to domestic supply disruptions, such as hurricanes, the reserve is limited in this role because it is almost entirely composed of crude oil, and not petroleum products  In this regard, the Quadrennial Energy Review of 2015 recommended that DOE analyze the need for additional regional product reserves for U S  regions that have been identified as vulnerable to fuel supply disruptions  DOE has not identified whether additional regional product reserves should be part of the SPR or completed studies of all vulnerable U S  regions, and it has no plans to do so, according to DOE officials  Without conducting or completing studies for all the vulnerable U S  regions and releasing the results, DOE cannot ensure it and Congress have the information they need to make decisions about potential additional regional product reserves  In the face of declining net U S  imports, Congress has taken repeated steps to reduce the size of the reserve  Given that net imports are projected to continue to decline through the late 2020s and fluctuate in the future, there may be additional congressionally mandated SPR oil sales  This has created long-term uncertainty regarding the future size and configuration of the SPR  Congress could address this uncertainty by identifying a long-term target for the size of the SPR—either by volume or in terms tied to factors, such as consumption or net import protection, that affect the country’s energy security needs and IEA obligations  Setting such a long-term target could better position DOE to ensure the efficiency and efficacy of federal funds spent on the reserve  DOE has recently begun to study the potential effects of congressionally mandated sales on its modernization plans  As part of its SPR post-sale configuration study, DOE plans to determine whether it is appropriate to close SPR facilities, and the relative benefit of any closures would be informed by potential lease revenues from maintaining sites so they could be leased, according to officials  However, we identified other options for handling potentially excess SPR assets that DOE is not planning to examine in its study, inconsistent with the agency’s order on real property asset management  Although DOE does not currently have the authority to implement these options, according to officials, examining their potential use, including possible revenue enhancement, could inform Congress as it examines whether it should grant such authority  Without examining a full range of options in the post-sale configuration study for handling potentially excess SPR assets, DOE risks missing beneficial ways to modernize the SPR while saving taxpayer resources  We are making the following matter for congressional consideration: Congress may wish to consider setting a long-range target for the size and configuration of the SPR that takes into account projections for future oil production, oil consumption, the efficacy of the existing SPR to respond to domestic supply disruptions, and U S  IEA obligations  (Matter 1) We are making four recommendations to DOE: The Secretary of Energy should supplement the agency’s 2016 long-term strategic review by conducting an additional analysis that takes into account private-sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes  (Recommendation 1) The Secretary of Energy should take actions to ensure that the agency periodically conducts and provides to Congress a strategic review of the SPR that, among other things, takes into account changes in crude oil and petroleum product market conditions and contains additional analysis, such as the costs and benefits of a wide range of different SPR sizes  (Recommendation 2) The Secretary of Energy should conduct or complete studies on the costs and benefits of regional petroleum product reserves for all U S  regions that have been identified as vulnerable to fuel supply disruptions, and the Secretary should report the results to Congress  (Recommendation 3) The Secretary of Energy, in completing DOE’s ongoing study on the effects of congressionally mandated sales, should consider a full range of options for handling potentially excess assets and, if needed, request congressional authority for the disposition of these assets  (Recommendation 4) We provided a draft of this report to DOE for review and comment  DOE provided written comments, which are reproduced in appendix I  Of the four recommendations, DOE agreed with two, partially agreed with one, and disagreed with one  Regarding our recommendation that DOE supplement its 2016 long- term strategic review with an additional analysis that takes into account private sector response, oil market projections, and costs and benefits of a wide range of different SPR sizes, the agency partially agreed with the recommendation  DOE agreed to conduct an additional analysis to assess the purpose, goals, and objectives of the SPR, taking into account private sector response, oil market projections, and any other relevant factors, that will lead to an evaluation of possible optimal sizes of the SPR in the future  In response to taking into account the costs and benefits of a wide range of different SPR sizes, DOE stated that the agency determined the projected benefits of a wide range of different SPR sizes ranging from 430 million barrels of oil to 695 million barrels of oil in its 2016 review  However, the minimum SPR size considered by DOE is greater than the projected SPR size after congressionally mandated sales have occurred  Further, the SPR size after congressionally mandated sales is projected to be far in excess of the IEA obligation to hold a minimum of 90 days of net imports  DOE must also consider the minimum size needed to meet its IEA obligations in the event of a collective action  In conducting additional analysis, DOE should consider a smaller lower bound, in line with congressionally mandated sales, for the size of the SPR, and more fully consider the size needed to meet the IEA 90-day net import and collective action obligations  Regarding our recommendation that DOE conduct periodic reviews of the SPR, the agency agreed with the recommendation  DOE stated that a 5-year time interval between reviews would strike an appropriate balance between the need to periodically conduct a strategic assessment and evaluation of the SPR and the limitations on resources to plan and conduct such a review  Regarding our recommendation that DOE conduct or complete studies on the costs and benefits of regional petroleum product reserves, the agency disagreed  DOE stated that it is the agency's position that government owned and operated regional petroleum product reserves are an inefficient and expensive solution to respond to regional fuel supply disruptions  DOE further stated, based on studies done in 2015 that DOE officials told us were pre-decisional and therefore could not be reported, that there are additional concerns associated with government-owned and operated regional refined petroleum product reserves, including little to no storage capacity for lease in commercial terminals and high costs for government owned and operated regional product reserves  However, these same studies took these concerns into account, and concluded that a product reserve in the Southeast would provide significant net economic benefits (benefits minus costs) to the region and the United States in the event of a major hurricane  These studies also concluded that additional analyses are required to inform decisions regarding the potential benefits of a similar reserve on the West Coast  Further, the Quadrennial Energy Review of 2015 recommended that similar analyses be completed for other areas deemed by DOE to be vulnerable to fuel supply disruptions  Therefore, we continue to believe that conducting these analyses, as recommended in the Quadrennial Energy Review of 2015, will provide Congress with information needed to make decisions about regional product reserves  Regarding our recommendation that DOE consider a full range of options for handling potentially excess assets, DOE agreed with the recommendation  DOE stated that in its ongoing study, the agency will include an assessment of disposition options for any potential excess or underutilized SPR assets, to include the need for new legislative authority, as necessary, for the disposition of assets  DOE expects this study to be completed in October 2018  DOE also provided technical comments, which we incorporated, as appropriate  As agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date  At that time, we will send copies to the appropriate congressional committees, the Secretary of Energy, and other interested parties  In addition, the report will be available at no charge on the GAO website at http://www gao gov  If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@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 key contributions to this report are listed in appendix II  In addition to the individual named above, Quindi Franco (Assistant Director), Nkenge Gibson (Analyst-in-Charge), Philip Farah, Ellen Fried, Cindy Gilbert, Greg Marchand, Celia Mendive, Patricia Moye, Camille Pease, Oliver Richard, Dan Royer, Rachel Stoiko, and Marie Suding made key contributions to this report 

ground_truth: The Centers for Medicare & Medicaid Services pays LTCHs for care provided to Medicare beneficiaries. There were about 400 LTCHs across the nation in 2016. The 21st Century Cures Act included a provision for GAO to examine certain issues pertaining to LTCHs. This report examines (1) the health care needs of Medicare beneficiaries who receive services from the two qualifying hospitals; (2) how Medicare LTCH payment polices could affect the two qualifying hospitals; and (3) how the two qualifying hospitals compare with other LTCHs and other facilities that may treat Medicare patients with similar conditions. GAO analyzed the most recently available Medicare claims and other data for the two qualifying hospitals and other facilities that treat patients with spinal cord injuries. GAO also interviewed HHS officials and stakeholders from the qualifying hospitals, other facilities that treat spinal cord patients, specialty associations, and others. GAO provided a draft of this report to HHS. HHS provided technical comments, which were incorporated as appropriate. We also provided the two qualifying hospitals summaries of information we collected from them, to confirm the accuracy of statements included in our draft report. We incorporated their comments, as appropriate. Spinal cord injuries may result in secondary complications that often lead to decreased functional independence and quality of life. The 21st Century Cures Act changed how Medicare pays certain long-term care hospitals (LTCH) that provide spinal cord specialty treatment. For these hospitals, the act included a temporary exception from how Medicare pays other LTCHs. Two LTCHs—Craig Hospital in Englewood, Colorado and Shepherd Center in Atlanta, Georgia—have qualified for this exception. GAO found that most Medicare beneficiaries treated at these two hospitals typically receive specialized care for multiple chronic conditions and other long-term complications that develop after initial injuries, such as pressure ulcers that can result in life-threatening infection. The two hospitals also provide specialty care for acquired brain injuries, such as traumatic brain injuries. GAO's simulations of Medicare payments to these two hospitals using claims data from two baseline years—fiscal years 2013 and 2016—illustrate potential effects of payment policies. LTCHs are paid under a two-tiered system for care provided to beneficiaries: they receive the LTCH standard federal payment rate—or standard rate—for certain patients discharged from the LTCH, and a generally lower rate—known as a “site-neutral” rate—for all other discharges. Under the temporary exception, Craig Hospital and Shepherd Center receive the standard rate for all discharges during fiscal years 2018 and 2019. Assuming their types of discharges remain the same as in fiscal years 2013 and 2016, GAO's simulations of Medicare payments in the baseline years indicate: Most of the discharges we examined would not qualify for the standard rate, if the exception did not apply. Medicare payments would generally decrease under fiscal year 2020 payment policy, once the exception expires. However, the actual effects of Medicare's payment policies on these two hospitals could vary based on factors, including the severity of patient conditions (e.g., Medicare payment is typically higher for more severe injuries), and whether hospitals' discharges meet criteria for the standard rate. Similarities and differences may exist between the two qualifying hospitals and other facilities that treat Medicare patients with spinal cord and brain injuries. Patients with spinal cord and brain injuries may receive care in other LTCHs, but GAO found that most Medicare beneficiaries at these other LTCHs are treated for conditions other than spinal cord and brain injuries. Certain inpatient rehabilitation facilities (IRF) also provide post-acute rehabilitation services to patients with spinal cord and brain injuries. While data limitations make a direct comparison between these facilities and the two qualifying hospitals difficult, GAO identified some similarities and differences. For example, officials from some IRFs we interviewed reported providing several of the same programs and services as the two qualifying hospitals to medically complex patients, but the availability of services and complexity of patients varied. Among other reasons, the different Medicare payment requirements that apply to LTCHs and IRFs affect the types of services they provide and the patients they treat.