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61–758 2011

VETERANS HEALTH ADMINISTRATION 

CONTRACTING AND PROCUREMENT PRACTICES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON VETERANS’ AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 23, 2010 

Serial No. 111–100 

Printed for the use of the Committee on Veterans’ Affairs 

( 


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COMMITTEE ON VETERANS’ AFFAIRS 

BOB FILNER, California, Chairman 

CORRINE BROWN, Florida 

VIC SNYDER, Arkansas 

MICHAEL H. MICHAUD, Maine 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HARRY E. MITCHELL, Arizona 

JOHN J. HALL, New York 

DEBORAH L. HALVORSON, Illinois 

THOMAS S.P. PERRIELLO, Virginia 

HARRY TEAGUE, New Mexico 

CIRO D. RODRIGUEZ, Texas 

JOE DONNELLY, Indiana 

JERRY MCNERNEY, California 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

JOHN H. ADLER, New Jersey 

ANN KIRKPATRICK, Arizona 

GLENN C. NYE, Virginia 

STEVE BUYER, Indiana, Ranking 

CLIFF STEARNS, Florida 

JERRY MORAN, Kansas 

HENRY E. BROWN, JR., South Carolina 

JEFF MILLER, Florida 

JOHN BOOZMAN, Arkansas 

BRIAN P. BILBRAY, California 

DOUG LAMBORN, Colorado 

GUS M. BILIRAKIS, Florida 

VERN BUCHANAN, Florida 

DAVID P. ROE, Tennessee 

MALCOM A. SHORTER, Staff Director 

SUBCOMMITTEE ON HEALTH 

MICHAEL H. MICHAUD, Maine, Chairman 

CORRINE BROWN, Florida 

VIC SNYDER, Arkansas 

HARRY TEAGUE, New Mexico 

CIRO D. RODRIGUEZ, Texas 

JOE DONNELLY, Indiana 

JERRY MCNERNEY, California 

GLENN C. NYE, Virginia 

DEBORAH L. HALVORSON, Illinois 

THOMAS S.P. PERRIELLO, Virginia 

HENRY E. BROWN, JR., South Carolina, 

Ranking 

CLIFF STEARNS, Florida 

JERRY MORAN, Kansas 

JOHN BOOZMAN, Arkansas 

GUS M. BILIRAKIS, Florida 

VERN BUCHANAN, Florida 

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records 

of the Committee on Veterans’ Affairs are also published in electronic form. The printed 

hearing record remains the official version. Because electronic submissions are used to 

prepare both printed and electronic versions of the hearing record, the process of converting 

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process 

is further refined. 


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C O N T E N T S 

September 23, 2010 

Page 

Veterans Health Administration Contracting and Procurement Practices ........ 1 

OPENING STATEMENTS 

Chairman Michael H, Michaud .............................................................................. 1 

Prepared statement of Chairman Michaud .................................................... 46 

Hon. Henry E. Brown, Jr., Ranking Republican Member .................................... 2 

Prepared statement of Congressman Brown .................................................. 46 

Hon. Russ Carnahan, prepared statement of ........................................................ 47 

WITNESSES 

U.S. Government Accountability Office, Debra A. Draper, Ph.D., M.S.H.A., 

Director, Health Care .......................................................................................... 19 

Prepared statement of Dr. Draper .................................................................. 73 

U.S. Department of Veterans Affairs: 

Belinda J. Finn, Assistant Inspector General for Audits and Evaluations, 

Office of Inspector General .............................................................................. 21 

Prepared statement of Ms. Finn .................................................................. 78 

Frederick Downs, Jr., Chief Procurement and Logistics Officer, Veterans 

Health Administration ..................................................................................... 27 

Prepared statement of Mr. Downs ............................................................... 82 

Goold Health Systems, Augusta, ME, James A. Clair, M.P.A., M.S., Chief 

Executive Officer .................................................................................................. 11 

Prepared statement of Mr. Clair ..................................................................... 70 

Mobile Medical International Corporation, St. Johnsbury, VT, Mark T. 

Munroe, Senior Vice President, Sales and Marketing ...................................... 3 

Prepared statement of Mr. Munroe ................................................................ 47 

Modular Building Institute, Lincoln Moss, Senior Vice President and Chief 

Operating Officer, Ramtech Building Systems, Inc., Mansfield, TX ................ 8 

Prepared statement of Mr. Moss ..................................................................... 60 

Robert Bosch Healthcare, Palo Alto, CA, Derek Newell, MPA., MPH, President ....................................................................................................................... 5 

Prepared statement of Mr. Newell .................................................................. 59 

Wise Knowledge Systems, Inc., Piper Creek, TX, Jay Wise, Ph.D., Chief 

Executive Officer .................................................................................................. 9 

Prepared statement of Dr. Wise ...................................................................... 63 

SUBMISSIONS FOR THE RECORD 

The Coalition for Government Procurement, Larry Allen, President, letter ...... 86 

Gordon, Hon. Bart, a Representative in Congress from the State of Tennessee, 

statement .............................................................................................................. 88 

Murfreesboro Pharmaceutical Nursing Supply, Murfreesboro, TN, Richard 

Reeves, Chief Executive Officer, statement ....................................................... 89 

MATERIAL SUBMITTED FOR THE RECORD 

Post-Hearing Questions and Responses for the Record: 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to Mark Munroe, Senior Vice President, Sales 

and Marketing, Mobile Medical International Corporation, letter dated 

October 4, 2010, and Mr. Munroe’s responses ............................................ 91 


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iv 

Post-Hearing Questions and Responses for the Record—Continued 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to Derek Newell, President, Robert Bosch 

Healthcare, letter dated October 4, 2010, and Mr. Newell’s responses, 

dated November 15, 2010 ............................................................................. 92 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to Lincoln Moss, Senior Vice President and Chief 

Operating Officer, Ramtech Building Systems, letter dated October 4, 

2010, and the Modular Building Institutes’ responses, dated November 

3, 2010 ............................................................................................................ 94 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to Jay Wise, Ph.D., Chief Executive Officer, Wise 

Knowledge Systems, Inc., letter dated October 4, 2010, Mr. Wise’s 

responses ....................................................................................................... 95 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to James A. Clair, M.P.A., M.S., Chief Executive 

Officer, Goold Health Systems, letter dated October 4, 2010, and Mr. 

Clair’s responses, letter dated November 23, 2010 .................................... 98 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to Gene L. Dodaro, Acting Comptroller General, 

U.S. Government Accountability Office, letter dated October 4, 2010, 

and response from Debra A. Draper, Ph.D., M.S.H.A., Director, Health 

Care, letter dated November 8, 2010 .......................................................... 99 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs to Hon. George J. Opfer, Inspector General, Office 

of Inspector General, U.S. Department of Veterans Affairs, letter dated 

October 4, 2010, and response from Richard J. Griffin, on behalf of 

Hon. George Opfer, letter dated November 15, 2010 ................................. 104 

Hon. Michael Michaud, Chairman, Subcommittee on Health, Committee 

on Veterans’ Affairs, to Hon. Eric K. Shinseki, Secretary, U.S. Department of Veterans Affairs, letter dated October 4, 2010, and VA responses ........................................................................................................... 106 

Hon. Henry E. Brown, Jr., Ranking Republican Member, Subcommittee 

on Health, Committee on Veterans’ Affairs, to Belinda J. Finn, Assistant Inspector General for Audits and Evaluations, Office of Inspector 

General, U.S. Department of Veterans Affairs, letter dated October 

19, 2010, and response from Richard J. Griffin, on behalf of Hon. 

George Opfer, Inspector General, letter dated November 16, 2010 .......... 120 


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VETERANS HEALTH ADMINISTRATION 

CONTRACTING AND PROCUREMENT 

PRACTICES 

THURSDAY, SEPTEMBER 23, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON VETERANS’ AFFAIRS, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:01 a.m., in 

Room 334, Cannon House Office Building, Hon. Michael Michaud 

[Chairman of the Subcommittee] presiding. 

Present: Representatives Michaud, Brown of Florida, Donnelly, 

Perriello, Brown of South Carolina, and Boozman. 

Also Present: Representative Carnahan. 

OPENING STATEMENT OF CHAIRMAN MICHAUD 

Mr. MICHAUD. As we get started, would the first panel please 

come forward? Good morning. The Subcommittee on Health will 

now come to order. I would like to thank everyone for attending 

this hearing. The purpose of today’s hearing is to investigate potential weaknesses in the Veterans Health Administration’s (VHA’s) 

contracting and procurement practices, and explore ways that we 

can strengthen how VHA contracts and procures medical equipment and health care products for our veterans. 

In recent years, we have seen many reports and studies on the 

contracting and procurement activities of the U.S. Department of 

Veterans Affairs (VA). These reports have identified the need for 

increased transparency and fiscal responsibility, as well as highlighted problems of inadequate competition and lack of accountability and oversight. As a result of these deficiencies in VHA’s contracting and procurement practices, veterans may not be getting 

the latest innovation in health care products. This was also made 

evident in our June Health Subcommittee hearing on wireless 

health care technology, which revealed the difficulties that many 

private companies face in informing VA about their products and 

getting their products in the hands of our veterans. Furthermore, 

we are all aware of the problems of dirty reusable medical equipment at certain VA medical centers. 

Today, we will hear from the U.S. Government Accountability Office (GAO) about a study that they are conducting on the purchasing and tracking of supplies and medical equipment. Their preliminary observations include the potential risk to our veterans’ 

safety when VA is in noncompliance with VA purchasing and trackVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 I:\VA\61758.XXX 61758

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ing requirements. Finally, internal control weaknesses with VHA’s 

use of billions in miscellaneous obligation continues to be a problem because VA contracting officials do not have sufficient control 

over the authorization and use of miscellaneous obligations. It is 

unclear whether these obligations were for legitimate needs. 

I have been very supportive of increasing funding for the VA. 

However, I think we must also make sure that they are using our 

dollars wisely. For instance, the VA does a great job in negotiating 

for lower cost prescription drugs. The cost is estimated in 2011 to 

be $4.8 billion. Even though we are able to negotiate for the lower 

cost prescription drugs, my concern is whether or not the utilization for those prescription drugs are the most cost effective way 

that the VA should be moving forward. And I look forward to hearing from today’s witnesses as we aim to better understand the challenges that face the VHA contracting and procurement practices, 

and work together to find potential solutions to these challenges. 

I want to now recognize my good friend and colleague Mr. Brown 

for any opening statement that he may have. 

[The prepared statement of Chairman Michaud appears on p. 46.] 

OPENING STATEMENT OF HON. HENRY E. BROWN, JR. 

Mr. BROWN OF SOUTH CAROLINA. Thank you, Mr. Chairman, and 

I appreciate you calling this hearing today. I am pleased to be here 

to discuss contracting and procurement issues within the Veterans 

Health Administration. VA’s troubled contracting and procurement 

processes have long been an issue of great concern to this Committee and the subject of various Government Accountability Office 

and VA Office of Inspector General (OIG) reports that continue to 

cite major deficiencies and material weaknesses. Given the wide 

scope of VA’s reach and budget, it is particularly important that we 

ensure that they have the proper procedures and oversight mechanisms in place to ensure that VA’s procurement and contracting is 

done responsibly, appropriately, and with proper oversight. 

In that vein, I am particularly concerned about testimony we will 

hear from the Office of Inspector General that ‘‘data in VA and 

VHA acquisition support information systems is incomplete and 

unreliable.’’ Without accurate data, we have no idea what we are 

doing right or what we are doing wrong, where we are, where we 

are going, or where we need to be. This is unacceptable within a 

system that is responsible for the care of our Nation’s veterans and 

spent a little over $9 billion on health care goods and services last 

fiscal year alone. 

Streamlining contracting and procurement processes to eliminate 

the potential for waste, fraud, and abuse, while at the same time 

improving the cost and comfort of doing business with VA to ensure 

our veteran heroes have access to the highest quality medical care 

is and should be at the top of our priority list. 

I look forward to hearing from the witnesses on our first panel 

about the obstacles to doing business with VHA, and from the government witnesses on our second and third panel about the functioning of VHA’s acquisition system. Although we are nearing the 

end of this legislative session, I am hopeful that we will be able to 

move legislation H.R. 4221, the ‘‘Department of Veterans Affairs 

Acquisition Improvement Act of 2009,’’ introduced by our Ranking 


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Member Steve Buyer. This bill, that I originally cosponsored, would 

correct the long-term procurement issues within VA and provide 

great oversight of VA’s contracting and access management processes. 

I thank you, Mr. Chairman, for being here for this discussion, 

and I yield back the balance of my time. 

[The prepared statement of Congressman Brown appears on 

p. 46.] 

Mr. MICHAUD. Thank you very much, Mr. Brown. Before I begin 

I would like to ask unanimous consent that Mr. Carnahan, who 

will be attending this hearing later, be invited to sit on the dais 

on the Subcommittee on Health today. Hearing no objections, so ordered. I also would like unanimous consent to include all the written testimony in the record. Hearing none, so ordered. 

At this time I would like to introduce the panel. Our first panel 

includes Mark Munroe, who is the Senior Vice President of Sales 

and Marketing for the Mobile Medical International Corporation. 

We have Derek Newell, President of Robert Bosch Healthcare; Linc 

Moss, who is the Senior Vice President and Chief Operating Officer 

for Ramtech Building Systems, Inc. We have Jay Wise, who is from 

Wise Knowledge System, and Jim Clair who is Chief Executive Officer of Goold Health System (GHS). Jim is also accompanied in the 

audience by Lorraine Lachappelle, who is an R.N., and is the Director of Community Assessment. And it is my understanding that 

Lorraine also served in the Army. I want to thank you very much 

for your service on behalf of this great Nation of ours. 

Without any further ado, we will start off with Mr. Munroe. 

STATEMENTS OF MARK T. MUNROE, SENIOR VICE PRESIDENT, 

SALES AND MARKETING, MOBILE MEDICAL INTERNATIONAL 

CORPORATION, ST. JOHNSBURY, VT; DEREK NEWELL, M.P.A., 

MPH, PRESIDENT, ROBERT BOSCH HEALTHCARE, PALO 

ALTO, CA; LINCOLN MOSS, SENIOR VICE PRESIDENT AND 

CHIEF OPERATING OFFICER, RAMTECH BUILDING SYSTEMS, 

INC., MANSFIELD, TX, ON BEHALF OF MODULAR BUILDING 

INSTITUTE (MBI); JAY WISE, PH.D., CHIEF EXECUTIVE OFFICER, WISE KNOWLEDGE SYSTEMS, INC., PIPER CREEK, TX; 

AND JAMES A. CLAIR, M.P.A., M.S., CHIEF EXECUTIVE OFFICER, GOOLD HEALTH SYSTEMS, AUGUSTA, ME 

STATEMENT OF MARK T. MUNROE 

Mr. MUNROE. My name is Mark Munroe, Senior Vice President 

of Sales and Marketing for Mobile Medical. Mobile Medical is an 

international company that develops and manufactures commercial 

and military mobile surgical hospitals, which meet all U.S. health 

care standards. These mobile health care solutions are rapidly 

deployable, fully integrated, self-contained, and present innovative 

solutions for today’s health care delivery needs. My purpose here 

today is to explain how Mobile Medical has worked with VA medical centers throughout the country while describing some of the 

challenges associated with those experiences, and pointing out 

some of our exciting success stories. 


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Let us begin with the New Orleans VA Medical Center. As we 

are all aware, Hurricane Katrina struck New Orleans 5 years ago. 

Since Katrina, the New Orleans VA Medical Center has not provided surgical or endoscopic services to the veterans of New Orleans. Veterans in the New Orleans region must seek health care at 

other facilities within the system. This often causes veterans to 

wait for needed procedures, or travel greater distances to receive 

the care they need. In January 2008, Mobile Medical moved to 

mitigate this disruption of services by responding to a request from 

the New Orleans VA Medical Center leadership for a proposal involving mobile surgery units. 

These units were to be used to meet a variety of needs and to 

serve as a temporary surgical facility during the hospital rebuilding 

process. You will notice on your screen I have brought up an image 

of the mobile surgery unit in what we call transportation mode. 

The New Orleans VA issued a solicitation on FedBizOpps in May 

2009 for mobile surgery units. This solicitation was subsequently 

canceled and redirected to the General Services Administration 

(GSA) Schedule. It should be noted that while Mobile Medical was 

in the process of contracting with GSA, code compliant mobile surgery units did not exist on the GSA Schedule. As a result of this 

action, companies with GSA contracts responded but none of them, 

including the one to whom the GSA solicitation was ultimately 

awarded, met the VA criteria for a history of producing and deploying regulatory compliant mobile surgery units. 

In addition, Mobile Medical learned that its proprietary company 

confidential information provided as part of its January proposal 

had been released to over 70 GSA Schedule holders. Quoting from 

the attached summary of Mobile Medical’s Federal legal action, 

which is in your packet, ‘‘Judge Horn clearly found that the VA’s 

actions were improper and the attempted modification was beyond 

the scope of the GSA Schedule program. An agency placing an 

order under the GSA schedule program may not simply send out 

a request for quotation (RFQ) as, in her words, a ‘solicitation feeler,’ evaluate quotes for items that do not exist on anyone’s GSA 

schedule contract, and then hope a selected contractor can convince 

the GSA a modification is within the scope of their existing contract by the time the agency places an order. Such an end run, 

which occurred in the case, violates even the most basic requirements of fair and open competition for Federal contracts.’’ 

As a small business working in a HUBZone during difficult economic times, the last thing our company ever expected would be 

the need to sue the U.S. Government for actions taken during a 

procurement process. It should be noted that the legal costs alone 

with this process have run Mobile Medical in excess of $300,000. 

Clearly, oversight is necessary to ensure that other small businesses, like Mobile Medical, do not encounter this type of situation. 

Standing in stark contrast to Mobile Medical’s experience in New 

Orleans is our very positive experience serving the needs of veterans at the VA Medical Center in Muskogee, Oklahoma. I am 

going to bring up a few images as we kind of go through that will 

represent some of the interior of the mobile surgery unit as well 

as some of these projects. 


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The leadership at the Muskogee VA Medical Center from the Director to the Contracting Officer, Facilities Engineering, and surgical teams, should be commended for their work on this model 

project. In this forum I am happy to do that today. During a recent 

customer visit, a member of Mobile Medical’s Board of Directors, 

Retired Air Force Surgeon General Paul K. Carlton, learned from 

VA officials that this facility is saving over $9 million in construction costs by closing their operating rooms for the duration of the 

renovation period rather than phasing in their renovation. Quoting 

Dr. Carlton in his report to Mobile Medical, ‘‘the renovation project 

began in 2008 with strong leadership. After researching alternative 

options, the medical center closed five operating rooms and the 

project began using two mobile surgery units,’’ which you see being 

delivered and installed at the facility on your screen. ‘‘By doing this 

they are shaving $9.3 million off the original construction quote for 

the project, even after spending $3.6 million to lease the mobile 

surgery units.’’ The medical center is also avoiding another $14 

million that would have gone to local hospitals to carry the surgical 

center’s case load during the renovation, for a total savings of just 

over $23 million. Included in your packet is that full report. Those 

savings are attached in the executive summary and we urge Members to note that the Senate Military Construction Veterans Affairs 

Subcommittee has also included language in its report to the Senate, Report 111–115, urging the VA to utilize qualified mobile surgical units in OR renovation projects where such utilization clearly 

offers savings. 

A final example of a successful project is the VA Medical Center 

in Miami, Florida. Miami is currently utilizing six mobile surgery 

units during a full operating room renovation project. And this will 

just give you a quick summary of the actual images from 

Muskogee, and now into the Miami project. 

While the Miami project was also challenged through the contracting process, again strong leadership was the key. Dr. Seth 

Spector, Chief of Surgery, has kept the project moving forward and 

in August of this year, Miami was able to turn their operating 

rooms over to the Army Corps of Engineers for renovation, while 

continuing to provide full surgical services to the veterans of the 

Miami service area. 

While 5 minutes, and I apologize for running a bit over, is a 

short time to share with you all of the successes and weaknesses 

in the VA contracting process, I am sure you will find our supporting documentation compelling. I look forward to any questions 

you may have, and thank you for your time this morning. 

[The prepared statement of Mr. Munroe appears on p. 47.] 

Mr. MICHAUD. Thank you very much. Mr. Newell. 

STATEMENT OF DEREK NEWELL, M.P.A., MPH 

Mr. NEWELL. Mr. Chairman and other Members of the Subcommittee, on behalf of Robert Bosch Healthcare, I thank you for 

the opportunity to provide testimony. I am the President of Robert 

Bosch Healthcare, and Bosch which makes the T–400 and the 

Health Buddy systems, provides remote patient monitoring services 

to the Veterans Administration, which allows veterans to remain at 

home and get adequate care while they are in their homes. We 


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have been doing this since 2003 and currently we have over 30,000 

veterans who use our systems, which represents about 70 percent 

of the total telehealth and remote patient monitoring systems used 

by the VA. The population we serve suffers from chronic illnesses 

like congestive heart failure, diabetes, hypertension, and post-traumatic stress disorder. The Health Buddy and the T–400 systems 

collect patient data and vital signs, send those back to clinicians. 

They check for, the system automatically checks for, out of bounds 

indicators and alerts physicians and nurses to possible deterioration and veterans’ health status. And that prevents the exacerbation of the veterans’ systems and alleviates high levels of usage 

of the emergency room by some of these veterans. 

These technologies have demonstrated positive results in improving the health care of our Nation’s veterans population and in reducing costs. There was a study published last year that showed 

a 25-percent reduction in inpatient days and a 19-percent reduction 

in hospital admissions for those veterans that were using our system compared to similar veterans who were not using our systems. 

The VA has been a visionary in building this technology, and improving it, and working with the vendor community to ensure that 

this segment of the health care delivery system within the VA is 

expanded. 

Regarding improvements in the procurement process, between 

the time I was invited to this Committee and today, the VA has 

published a request for procurement (RFP) for the procurement of 

our devices and for remote patient monitoring devices. And we applaud the transition of the procurement to the Denver Acquisition 

Center. So there have been some improvements that I was going 

to recommend that have already occurred, so I am applauding the 

folks within the VA for doing that. This move will integrate and 

mainstream procurement practices for home monitoring technologies, including ours as well as our competitors. The purchasing 

was previously done through individual Veterans Integrated Service Networks (VISNs) through a national contract, through the 

prosthetic center at the VISNs, which results in a high degree of 

variability between the facilities and how they would procure and 

their purchasing practices. Another challenge that has been rectified was that our devices, while prosthetics is good at buying 

wheelchairs and other types of devices that are not connected to 

technology systems and not connected to the Internet, the purchasing practices did not allow for the payment of services and 

other technologies required to operate our systems, such as the 

servers that exist within the VA’s firewall. They buy a computer 

and they want it to connect but they do not want to pay for the 

back end. Or they have, they do not have a mechanism to pay for 

that. They did not, they do now. 

While we compliment the VA’s innovation to date, we believe 

there are a number of ways that Congress could assist the agency 

in improving the procurement process to expedite greater use of remote patient monitoring technology. Based on our experience, I 

suggest the following enhancements that would improve contract 

and procurement processes in the VA. These apply specifically to 

remote patient monitoring but may be able to be used in other 

areas. 


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One is preferred partners. In our particular situation often increased numbers of vendors would increase competition and reduce 

prices for the VA, which is a State objective of the procurement 

process. However, when each vendor must comply with installing 

duplicate sets of servers and security requirements to make our 

systems work, but there is no guarantee of volume in terms of purchase of the devices, having too many vendors may actually cause 

them to amortize the cost of the back end over too few units which 

would have the opposite effect of raising prices. So we would suggest that the VA pick a fewer number of partners, preferred partners, maybe two or three, in areas where there are fixed cost infrastructure requirements associated with technologies that get deployed to the home. Currently in the contract they are going to pick 

up to six vendors. I think that three would probably be more appropriate. 

Targeted innovation. Recently the VA has started communicating 

to partners about its vision of veterans’ health needs and priorities. 

However, this could still be improved. Better education and funding, targeted innovation with preferred partners, would enable us 

to respond in a more timely manner to the VA’s needs and to be 

partners in finding solutions. At present, a majority of our information comes to us when there is a solicitation, which is once every 

5 years. Only then do we have concrete knowledge of their vision, 

and their plans and their goals, and the specific number of units 

that they might buy. And as you can imagine, in a company we 

would need to know what kind of volumes before we would make 

significant investments. 

Two more smaller elements that could help the contracting process and the Federal Supply Schedule (FSS) contracting process, 

moving back to a single point of contact for contract partners would 

allow more efficiency. Currently we interact with a variety of FSS 

contract staff which creates a constant learning curve for them and 

is a challenge for us. Greater sharing of information between the 

VHA and other Federal health care agencies would expedite the 

adoption of telehealth as well as expedite the adoption of best practices, not just for our technology but for other technology. Keeping 

information about the quality of care improvements and cost savings that can be made under wraps can present a challenge when 

you are trying to disseminate effective best practices. 

Mr. Chairman and Members of the Committee, we believe these 

few but concrete specific actions would go a great distance to support the VA’s efforts to expand the use of our technologies and 

other innovative technologies. In this regard, we admire the VA’s 

efforts to date and hope that our years of experience in interacting 

with the agency as a private vendor will be useful to the Committee. We are proud to be partnered with the VA in improving the 

quality of care and reducing the costs of health care for our veterans. I appreciate this opportunity to testify and would be happy 

to answer any questions you may have. 

[The prepared statement of Mr. Newell appears on p. 59.] 

Mr. MICHAUD. Thank you very much, Mr. Newell. Mr. Moss. 


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STATEMENT OF LINCOLN MOSS 

Mr. MOSS. Good morning. Chairman Michaud, Ranking Member 

Brown, and Members of the Committee, my name is Linc Moss. I 

am Senior Vice President and Chief Operating Officer of Ramtech 

Building Systems. Ramtech is a vertically integrated design-build 

commercial modular building construction firm based in Mansfield, 

Texas. I am testifying today on behalf of the Modular Building Institute. MBI is a not-for-profit trade association that was established in 1983 that serves companies involved in the manufacturing and distribution of commercial factory-built structures. 

I appreciate the opportunity to speak to the Committee on ways 

to improve contracting with the Department of Veterans Affairs. 

Throughout the construction industry, there is a concern with the 

VA as to the solicitation of construction projects that call for a delivery system referred to as Design-Bid-Build. This traditional 

project delivery method is often more costly and less efficient than 

other delivery methods and its restrictive nature prohibits alternate forms of construction, such as permanent modular, from being 

able to participate in the bidding process. 

Over the past decade, the use of Design-Build has greatly increased in the United States making it one of the significant 

changes in the construction industry. The Design-Build method 

streamlines project delivery through a single contract between the 

government agency and the contractor. This simple but fundamental difference not only saves money and time, it improves communication between the stakeholders and delivers a project more 

consistent with the agency’s needs. It also allows for all sectors of 

the construction industry to participate. 

The Design-Build project delivery system offers the VA a variety 

of advantages that other construction delivery systems cannot. 

Typically under the Design-Build approach, an agency will contract 

with one entity for both design and construction of the project. By 

greater utilization of the Design-Build delivery system, the VA can 

achieve these goals: faster delivery, greater cost savings, improved 

quality, a single source of responsibility, and reduction in administrative burden. 

As our Nation prepares for an influx of returning warriors, it is 

imperative that we are able to provide them with the services and 

facilities that will help them assimilate into civilian life. By adopting the Design-Build approach, the VA could provide various facilities in a compressed time frame while ensuring that the product 

delivered meets the missions and various quality expectations. 

Design-Build also allows for other sectors of the construction industry that are often excluded from Design-Bid-Build projects to 

compete and bid on VA projects. Alternate design offerings, such as 

modular construction, tilt wall, pre-engineered steel, would be able 

to participate in VA solicitations if they were issued using a Design-Build delivery system. Numerous permanent modular contractors such as Ramtech have performed services for the VA in the 

past, but because of the limited amount of Design-Build solicitations the opportunities are severely restricted. However, in those 

cases where Ramtech did perform on projects the customers were 

extremely satisfied as our building met mission requirements and 


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exceeded quality expectations. In fact, one of the projects was in 

Congressman Brown’s area, and it was a clinic at Myrtle Beach. 

By greater utilizing the Design-Build delivery system in the Department of Veterans Affairs construction policy, the VA would 

greatly increase the amount of projects that alternative construction contractors could participate in. Let me emphasize that alternative construction methods, such a permanent modular are not always the solution, as there is no one perfect building system for 

every application. However, by expanding opportunities for them to 

be part of the process, the Federal Government could be assured 

that it gets the best value by seeing all options before awarding a 

contract. 

Another possible advantage is the fact that one of the missions 

within the Department of Veterans Affairs is the ability for the VA 

to support service-disabled veteran-owned small businesses. Because the Design-Build methodology typically relies on a single 

source for both design and construction of the project, Design-Build 

contractors often partner with architectural and engineering firms 

to assist in the design of the project. This fact facilitates partnering 

between service-disabled veteran-owned small business (SDVOBs) 

and construction firms similar to Ramtech. In the permanent modular construction field, the relationship with a contractor such as 

Ramtech means the SDVOB partner will get approximately 60 percent to 70 percent of the building delivered and installed by the Design-Build firm while the SDVOB partner performs the site work, 

utility connections. Often SDVOBs do not have the logistical capabilities to site build the entire building, but have the ability to perform other critical functions that comprise 30 percent to 40 percent 

of the overall construction project. 

In conclusion, contractors that rely on Design-Build delivery system have, and continue to overcome, obstacles when it comes to 

working with the Department of Veterans Affairs. While businesses 

such as Ramtech are anxious to compete, the current trend of Design-Bid-Build projects issued by the VA severely prohibit that participation. 

On behalf of MBI as well as Ramtech Building Systems, I thank 

you for your time. We will be happy to answer questions. 

[The prepared statement of Mr. Moss appears on p. 60.] 

Mr. MICHAUD. Thank you very much, Mr. Moss. Mr. Wise. 

STATEMENT OF JAY WISE, PH.D. 

Dr. WISE. Thank you for the opportunity to speak this morning. 

My name is Jay Wise, Dr. Jay Wise. I am the President and CEO 

of Wise Knowledge Systems. Wise Knowledge Systems has produced and deployed the medical technology called Knowledge 

Based Expert Systems, KBES. We call it KBES. I am going to abbreviate this to save some time. I am going to have to leave at 

11:00, Mr. Chairman, period, so I have to go. But I want to share 

with you some things that have to do with acquisition in my experience almost daily for the last 6 years with the VA. 

The KBES technology is an interesting tool. It is a decision support technology that keys on entire domains of knowledge. Our cardiac model can assimilate knowledge instantly from 10,000 cardiac 

surgeons and put it on a particular patient. This has resulted in 


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extraordinary savings in cost and some extraordinary care improvements down the road. I am going to kind of zip ahead a little bit. 

Dr. Paul Tibbits, Deputy Chief Information Officer of the VA, we 

met with him and he said that he was aware of the success of Wise 

Knowledge Systems Smart Tool deployed in active military operations for the Navy and the Marine Corps and wanted to find a 

place for it at the VA. I was then sent to visit with a Ms. Lloyd 

at VHA. Ms. Lloyd’s remarks were, ‘‘The VA is broken. KBES 

might be a very good thing for the VA, but that would mean we 

would have to work and people at the VA will not work.’’ Dr. 

Tibbits then said that yes, Ms. Lloyd is right, the VA is broken, 

and nobody around here wants to work. 

Dr. Tibbits then edited and published with our group a very detailed capability assessment of Knowledge Based Expert Systems 

for his office, for the VA, for the medical mission of the VA. It was 

altogether the most glowing analysis we have ever had, and we 

have been tested, quite literally we are on permanent exhibit at the 

Smithsonian. So this is not a new thing. 

Following that, Dr. Tibbits said that Ms. Wendy McCutcheon, a 

person working in one of the acquisition offices, was now the sole 

authority to acquire medical things for the VA, this one person. 

And Ms. McCutcheon said that, ‘‘She did not see any particular 

value in it,’’ and we should start the whole process over. I asked 

them if the fact that I was a veteran-owned small business had any 

bearing on any of this with the GSA. They said, ‘‘No, we will not 

use the GSA, they are not helping us.’’ That is a direct quote. 

On February 23 I spoke again with Chairman Filner, and he invited me to this hearing. That is my testimony. It is quite short. 

I will give you my summary now, all right? 

Since 2004 Wise Knowledge Systems has attempted to provide 

Knowledge Based Expert Systems to the VA. KBES has received 

very positive technical reviews as an advanced modeling and simulation decision support technology from each and every point of 

assessment and testing that it has been sent. That would be all of 

them. In the Navy, in the Marine Corps, at the U.S. Department 

of Defense (DoD), at VA, and in the private sector. Wise Knowledge 

Systems believe there is an important ethical issue for the health 

and medical care of American veterans being crippled by arrogant 

leadership, thus, making the VA fail in part to keep its promise to 

deliver state-of-the-art medicine and health care to American veterans. 

Once a medical technology has been tested, evaluated, praised, 

deployed, and what else, nonresponse is unacceptable. One does not 

do that. And one does not say that the reason we are not going to 

have some is because the VA is broke and nobody around here 

wants to work. 

It is an unfortunate part of our American history that our government made and intentionally broke virtually every treaty with 

American Indian tribes. These treaties or agreements were made 

by our government knowing they would not be kept. The explanation for this fraudulent manipulation was often Indians were not 

people, they are not quite human beings. One wonders if some of 

the VA leadership, and that is in my written testimony, you can 

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taining the status quo of failing to provide these tools when they 

know and have published that it is state of the art, feel that our 

young people in uniform are also not quite people, not quite human 

beings, that their families are not quite human beings. I do not 

know. 

It is clear to me and to my team that the vast majority of individuals at the VA are sincerely dedicated to American veterans and 

do want to work and work hard. Wise Knowledge Systems recommends installing and supporting qualified individuals who have 

the experience and expertise to actually evaluate these sorts of 

things for our veterans. We recommend the VA do the right thing, 

honor your contract with the veterans. 

I want to thank all of you all for having this hearing and giving 

our experience a voice. I am here for a little while to answer any 

questions you may have. I am sorry, Chairman, but I must leave 

at 11:00. I have an engagement, so. 

[The prepared statement of Dr. Wise appears on p. 63.] 

Mr. MICHAUD. Thank you very much, Mr. Wise, for your testimony. And we should be done by then, but if not, feel free to just 

get up and leave. Mr. Clair. 

STATEMENT OF JAMES A. CLAIR, M.P.A., M.S. 

Mr. CLAIR. To Chairman Michaud, to Ranking Member Brown, 

and Members of the Subcommittee, thank you for your kind invitation to discuss the Department of Veterans Affairs procurement 

practices and specifically how the VA might benefit by incorporating certain cost containment strategies within their pharmacy 

benefit management and nursing home care programs. My name is 

Jim Clair, I am the Cheif Executive Officer of Goold Health Systems, and I am accompanied today by Lorraine Lachappelle, a registered nurse, and Goold Health Systems’ Director of Community 

Assessments. 

Goold is a national health care management company that specializes in meeting our clients’ specific health care objectives with 

a special emphasis on cost containment. However, at all times, we 

are driven by evidence-based medicine and achieving clinically effective outcomes. In the interests of time, I am skipping forward to 

page three of my prepared remarks and will concentrate on three 

specific cost containment strategies that we think would benefit the 

VA. 

Number one, medication management. The U.S. Department of 

Health and Human Services recommends medication therapy management (MTM), a program that sets out to ensure optimum therapeutic outcomes, reduce the risks of side effects when using medications, and must be coordinated as part of a care management 

plan. Goold Health Systems expands upon MTM by using predictive modeling to analyze pharmacy and medical claims data to 

measure the probability of exceeding set cost parameters for high 

cost users and complex medical conditions. Problematic patients 

are ultimately placed in an intensive benefit management program 

or a chronic pain management program. We utilize regression analyses that correlate chronic conditions with total drug cost. We then 

identify individuals who would benefit from our targeted interventions. Once in IBM or chronic pain management the patient is 


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linked to one physician prescriber and one pharmacy dispenser for 

management of complex medical conditions and chronic pain 

issues, ensuring that those patients receive appropriate drug therapies. We provide educational materials and monitoring services to 

those individuals to help them better understand their medical conditions as well as work with them on medication adherence and potential drug interactions. 

We also work with their providers to help ensure that optimum 

clinical outcomes are achieved. Savings accrue to our clients because of the intensive involvement of the provider, the patient, and 

the GHS clinical team. Examples would be narcotics use, asthma, 

and COPD. 

Other examples of medical management strategies that we believe would benefit the VA are formulary management, including 

15-day supply limits. GHS performs extensive analyses to identify 

drugs that have high discontinuation rates shortly after the onset 

of therapy. It was reasoned that limiting the number of day supply 

of these first scripts would result in savings from reducing waste. 

About 30 drugs were identified that meet our criteria. These drugs 

tend to have high discontinuation rates due to either significant 

side effects or relative lack of efficacy. Targeted drugs for this effort 

include long acting narcotic stimulants, psychiatric medicines, urinary and continence products, and smoking cessation drugs. 

Another example of formulary management is dose consolidation. 

Many existing drugs now only need to be taken once per day. There 

is a considerable amount of savings available if these drugs are not 

allowed to be used more frequently without good clinical cause. Examples of targeted dose consolidation are Zyprexa and Risperdal, 

two anti-psychotic drugs that have allowed our State clients to save 

over 1 percent of their pre-rebate expenditures annually by aggressively pursuing dose consolidation. 

The second cost containment strategy I would like to discuss is 

pharmacy program integrity, the definition being that it should ensure that our tax dollars are not put at risk through fraudulent violations of the rules or abuses of the system. It should ensure that 

appropriate payments are paid only to legitimate providers for 

services only to eligible beneficiaries. Like many other health care 

managers, Goold Health Systems has significantly expanded our 

program integrity efforts over the last few years. The National 

Healthcare Anti-Fraud Association recently estimated that 3 percent of the health care industry’s expenditures in the United States 

are due to fraudulent activities. This calculates to an annual 

amount of approximately $51 billion. 

In a recent analysis for one of our clients we created a ‘‘monthly 

outlier report’’ on pharmacy expenditures and trends. The analysis 

was performed for each drug filled in the previous month. A review 

of the average amount spent per drug, and the average quantity 

per day supply based on quantity limits was undertaken. Those 

drug claims that fell outside of established guidelines were flagged 

for audit. This resulted in claims being reviewed as a result of improper use of override codes and subsequently many of these 

outlier claims were reversed. For this one client with a pharmacy 

budget of approximately $200 million, small certainly by VA standVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 I:\VA\61758.XXX 61758

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ards, we expect the results of the specific audit to yield between 

$500,000 to $1 million in savings. 

Two other examples of pharmacy program integrity review would 

include automatic early refills. The VA is heavily reliant on mail 

order. It is important that the mail order provider be monitored to 

ensure that mail order pharmacies wait to ask for the patient to 

ask for their medication to be refilled. This does not preclude a 

mail order pharmacy from making outgoing calls to a patient if 

they would like their next dose of medication sent. But it would not 

allow a mail order pharmacy from automatically sending the prescription to them in all cases. 

A second example being something called near duplicates. Each 

medication intended for human use is assigned a number called an 

NDC, a national drug code. It is a unique product identifier that, 

for example, distinguishes an oxycodone 10 milligram tablet from 

an oxycodone 20 milligram tablet, a generic medication. Near duplicates can occur with generics with a different NDC of the same 

drug, same strength, is used a few days after that patient’s first 

prescription was filled. In many cases, this is an appropriate fill 

due to the legitimate loss of medication. However, there can also 

be billing errors or inappropriate dispensing such that these claims 

should be reversed. Monitoring utilization at this level, this granular level, can yield additional savings to the VA if it is not being 

done now. 

The third cost containment strategy I would like to discuss is 

something called long-term care assessments, and it is the reason 

that Ms. Lachappelle is with me. Through the early 1990’s, nursing 

facility costs in one of our client’s States were increasing at annual 

rates far exceeding the general inflation rate, or even the health 

care cost inflation rate. Eligibility determinations for Medicaid 

nursing facility care were determined by the provider, leading to 

much higher utilization rates than otherwise supported by independent review. As a result, Maine State government instituted an 

independent, objective Maine Medicaid eligibility screening process 

with the following objectives: to create a single entry point for medical functional eligibility assessments for long-term care programs; 

to increase consumer participation and control; to educate consumers about in home long-term care programs and other alternatives to nursing and residential facility care, the most expensive 

level of care; and to identify and address caregiver needs; to reduce 

the long-term cost of services by requiring greater emphasis on 

rehab and health promotion; and to reduce the number of unnecessary admissions to increase the number of discharges from and decrease the length of stay in nursing facilities. 

Within strict time parameters set by our client, the GHS screener’s job is to provide an accurate prescreening to determine the 

need for medical functional assessment, maintain the waiting list, 

and refer consumers to appropriate nurses. More importantly, 

when an evaluation is indicated the Goold Health Systems registered nurse conducts an accurate, objective medical functional eligibility assessment using the automated medical eligibility determination tool in a way that is always based on sound clinical judgment and in compliance with appropriate policy. We employ about 


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35 nurses Statewide to do this work, who work with a laptop, portable printer, and cell phone. 

In State fiscal year 2010, we performed over 15,000 assessments. 

The State share of the medical nursing home expenses in 2010 are 

more than 35 percent lower than their State fiscal year 1994 in 

nominal non-inflation adjusted dollars. This is a result of policy 

changes made by the government and the long-term assessment 

process that we conduct. Comparing where the unmanaged nursing 

facility budget was headed to where it actually is today has yielded 

annual State savings that exceed $100 million. 

Mr. Chairman, the VA is a very effective provider of important 

pharmacy and medical benefits to our country’s veterans. The cost 

strategies that I have discussed above have been proven to be very 

effective in containing health care costs for our Medicaid clients. 

We believe that these clinical management approaches can assist 

the VA in further containing costs. Thank you again for the opportunity to testify. My colleague and I would be pleased to answer 

questions you or the Committee may have. 

[The prepared statement of Mr. Clair appears on p. 70.] 

Mr. MICHAUD. Thank you very much, Mr. Clair. I want to thank 

all the panelists for your testimony this morning. It has been very 

enlightening and I look forward to your answering some of the 

questions. I know Mr. Wise has to leave at 11:00. I do not know 

if anyone has any questions for Mr. Wise? So any time you want 

to leave, feel free. We might have questions once we get going, but 

I just wanted to check first. 

Once again, I want to thank everyone for coming. I have a couple 

of questions. Mr. Newell, you mentioned, the Buddy and the components that you have at your company and how you are working 

with the VA system. Do you work also with Federally-qualified 

health care clinics and rural hospitals? And if you do, are there any 

problems associated with rural areas, such as that system not 

working in very rural areas where they might not have cell phone 

service? Or can you expound on that a little bit? 

Mr. NEWELL. Yes, I can. Our systems work great in rural areas. 

There is a challenge in a rural area with getting the system to the 

person and getting it set up at times, because it is a rural area. 

So by definition the logistical challenges of getting the systems to 

the location and set up are still there. But we have solved those. 

Our system works on a plain old telephone line. So as long as there 

is POTS (plain old telephone service) line availability we can deploy the system, and most areas have POTS lines. We also have 

a cellular modem, which we can attach externally to the Health 

Buddy or to the T–400 system, and that will allow it to communicate via whatever cellular network is available in the area. So if 

there is any cellular network available at all, we can connect to it. 

It is very effective for rural health. It is being used, our T–400 

system especially is being used for the home-based primary care 

project within the VA. We also have a video system, which allows 

veterans in rural areas to have a video camera in their home and 

allows the doctors to assess them without bringing them in to the 

VA medical center. Not for obviously extremely serious conditions, 

but as part of their home-based primary care initiative, they are 

allowed to do that. So it has had huge success. We have a project 


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in Alaska, which is not with the Veterans Administration with our 

T–400 system that has been exceedingly successful. And the biggest success in rural areas is the cost of transport of getting somebody who does have an exacerbation from the location to the facility, and that can save tens of thousands of dollars, especially in 

cases like Alaska where they have to be flown in. 

So we have had a huge amount of success in rural areas. And 

it is a huge application for rural areas. I would say we are very 

under-penetrated in terms of the number of people who could benefit from it. Thank you. 

Mr. MICHAUD. Thank you. My next question is, Mr. Clair, you 

mentioned that by utilizing some of the work that you have done 

in different States, VA may be able to save money. The estimated 

cost for prescription drugs in 2011 is $4.8 billion. That is a good 

deal, the VA negotiated for lower cost prescriptions. My concern, 

however, is on utilization within the VA on the drug system. How 

the VA is bigger than a lot of the States. How would you be able 

to help the VA? Can you narrow that down? Or in a small pilot program? And what potential do you think there might be for cost savings within the VA pharmacy benefits program? 

Mr. CLAIR. Thank you, Mr. Chairman. The first thing that we do 

when we work with one of our clients is get the actual drug utilization data. It is very important, as I think all of the Members of the 

Subcommittee know, that the VA has a very effective pricing strategy. They purchase very well. They have very good network and 

communications and distribution systems. But reviewing the utilization data is very important. And what we would be interested in 

doing is some, is getting some subset, a region, a State, an area, 

to be defined by the VA in which we would get pharmacy claims 

and medical claims over a period of time. Hopefully, at least 12 

months worth of data. Load that in and start to have my clinical 

team of doctors and pharmacists and nurses and data analysts reviewing that in order to identify savings opportunities specifically. 

Mr. MICHAUD. Thank you. I do not want to elaborate on nursing 

homes because of my displeasure with VA on how they deal with 

reimbursement for State Veterans Nursing Homes. It is my understanding that the cost of nursing homes within the VA system is 

much higher than at Veterans Nursing Homes. When you have 

worked with nursing homes, how much savings were you able to 

achieve? 

Mr. CLAIR. It is significant. The issue specifically is that if you 

do not have, in effect what we are employed to do is be a gatekeeper into the nursing home facility itself. And if there can be a 

support system that allows one to stay in their home based on their 

acuity and their emotional state, etcetera, you are diverting people 

away from the nursing home level of care and that saves appreciable amounts of money. My calculation in State fiscal year 2010 

is that the savings to one State client was over $100 million. So 

in effect, nursing home expenditures go down. You reinvest some 

of those savings into the community level of care, but overall your 

net savings to the VA would be significant. 

Mr. MICHAUD. Thank you. Mr. Brown. 

Mr. BROWN OF SOUTH CAROLINA. Thank you, Mr. Chairman. 

Thank you, gentlemen, for being here today. Mr. Munroe, in your 


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testimony you state that the New Orleans VA solicitation was redirected through the GSA schedule. What reason did VA give you for 

this move? 

Mr. MUNROE. As you know, there are a number of different procurement methods that the VA can use. The original redirect was 

to facilitate supposedly ease of contracting. And certainly a VA contracting officer’s discretion is to use whatever contracting method 

he or she feels best serves. The challenge that we have with that 

is when you redirect to a method that does not have a solution, you 

cannot then go try to create that solution on the GSA, for example. 

So there were a number of things that happened in that process. 

Our biggest concern in that process is, if you are going to use the 

GSA schedule, use it for what it is worth, or for what it is supposed 

to be used for. Go there, identify the product that exists on a Federal Supply Schedule, and procure it. If it does not exist on the 

Federal Supply Schedule, you cannot then go back to GSA and say, 

‘‘Here are all the requirements that I have. Let us solicit in an 

open forum everybody who has a GSA contract and see if they can 

try to do this.’’ 

So there are a number of different ways that the procurement 

process can happen. The answer that we were given as to why it 

was redirected through the GSA schedule was for pure ease of contracting. Which we are in full support of. If products exist on the 

GSA schedule then an easier process obviously is to use that schedule. But when they do not exist, as you saw from the comments 

that Judge Horn provided, you cannot then go into open solicitation 

and try to convince GSA that that product can exist there as a vendor. 

Mr. BROWN OF SOUTH CAROLINA. So how many units do you have 

now in operation? 

Mr. MUNROE. I am sorry? 

Mr. BROWN OF SOUTH CAROLINA. How many units do you have 

in operation? 

Mr. MUNROE. We have, now we have 12 units within the VA and 

the government health care system. We also provide services to the 

U.S. Navy in their hospitals as well, that use the product for exactly the same reason. 

Mr. BROWN OF SOUTH CAROLINA. But you do not have any in 

New Orleans? 

Mr. MUNROE. We do not, there is nothing in New Orleans right 

now. 

Mr. BROWN OF SOUTH CAROLINA. Where do they get their service? 

Mr. MUNROE. If you are a veteran right now in New Orleans and 

you need endoscopic services, you have to travel 2 hours for those 

services. You have to travel outside of the New Orleans service 

area to another VA service area. 

Mr. BROWN OF SOUTH CAROLINA. What reason did they give you 

for not using your service? 

Mr. MUNROE. Well the intent there was to use the service. They 

started that process. But through an incorrect procurement procedure they stopped. That contract has been awarded to another company. The problem is, that other company does not meet the standards of care that the VA has in all of their medical centers. And 


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you cannot take, you know, our contention with that is, in Miami, 

for example, in Muskogee, in Martinsburg, facilities that members 

have seen and actually gone to, those facilities require the same 

standard of care in a mobile unit as they do in their fixed based 

facility. 

Mr. BROWN OF SOUTH CAROLINA. So when you bring the unit, do 

you bring the medical support staff, too? 

Mr. MUNROE. We do not bring the medical support staff, and that 

is probably the most important part of what we do with the VA. 

In Muskogee what we were told—and let me answer your question. 

We do not bring them because the utilization of the existing medical staff is the key to the project. So the surgeons, the nurses, the 

technicians, the facility is supplying both their equipment, which 

they know how to use, and they are supplying their staff, which 

keeps them productive. In Muskogee, for example, the operating 

room nurse manager told me that if they had to move their patients to the community to render services, she would have lost 80 

percent of her nursing staff. Because they would have not stayed. 

They would have gone to where the patients would have gone. And 

that is part of that overall savings that comes into play. Those are 

the intangibles. They did not lose 80 percent of their staff because 

they are doing it this way. But if they had, what would have been 

both the financial impacts to the VA health system? And more importantly, the service impact to the veterans in that service area? 

Mr. BROWN OF SOUTH CAROLINA. Do you lease the equipment or 

do you sell it? 

Mr. MUNROE. We lease, we do both. But in the VA network, we 

lease. It is an operating lease. So if the renovation project is a 12- 

month, 24-month, 36-month project, it is an operating lease and 

then we remove the equipment at the end. So if you do not mind 

I can just—can you bring that back up for me? 

Mr. BROWN OF SOUTH CAROLINA. Could you tell me how many 

vendors are in the market? 

Mr. MUNROE. Well our, it is my understanding that over the next 

10 years, and I will be curious when some of the other panelists 

come up, over the next 10 years the VA is estimating that there 

will be over a hundred facilities that will go through an operating 

room renovation project. The average number of units that we see 

is around four units in order to be able to service a medical center. 

Mr. BROWN OF SOUTH CAROLINA. But how many vendors are out 

there providing those units? 

Mr. MUNROE. How many VISNs are we in currently? 

Mr. BROWN OF SOUTH CAROLINA. No, how many vendors? How 

many people like you are selling—— 

Mr. MUNROE. Oh, vendors. I am sorry, I thought you were selling 

VISNs. 

Mr. BROWN OF SOUTH CAROLINA. It is a southern thing. 

Mr. MUNROE. That provide a—that is the difference between the 

southern and the Vermont piece of it. So sorry, Chairman Michaud, 

for those of us up in the Northeast. 

Mr. MICHAUD. It took me a while to get used to his accent as 

well, so. 

Mr. BROWN OF SOUTH CAROLINA. Sometimes we have to have an 

interpreter. 


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Mr. MUNROE. VISNs and vendors just got too close there. So 

there are no other vendors in the market today that provide a 

State licensed, and this is the key, State licensed, Medicare certified, JCAHO accredited, mobile surgery unit. So there are no 

other vendors in the United States that provide that level of certification. Does that answer your question? 

Mr. BROWN OF SOUTH CAROLINA. Sure. 

Mr. MUNROE. So, you know, when you look at this 400 square 

foot operating room, it is just over 400, it is 402 square feet, when 

I travel to the Phoenix VA, which has seven operating rooms and 

two special procedure rooms, they are embarrassed to bring me 

into their operating room suites. Because they know that this level 

of care in these mobile units is higher than what they service, than 

what they provide for service today in Phoenix. 

Mr. BROWN OF SOUTH CAROLINA. What would one cost a month 

to lease? 

Mr. MUNROE. The units are $76,000 per month, per unit. 

Mr. BROWN OF SOUTH CAROLINA. To purchase? 

Mr. MUNROE. Two point sixty-seven million dollars. 

Mr. BROWN OF SOUTH CAROLINA. Okay. 

Mr. MUNROE. So if you are doing what I think you are, and you 

understand how many units we have in service in the VA, it does 

not take a lot, and you will see in the packet I provided you, it does 

not take a lot of units to produce a very significant return on investment to the VA. Especially if we believe what they are telling 

us, which is over the next 10 years, 100 facilities will go through 

this renovation project. And I truly believe, in Muskogee for example where they have done in depth financial analysis of this, they 

did the analysis before the units came in. I truly believe the contracting officer when he tells me that they are saving, hard cost 

savings at that facility, $4 million per unit by doing it this way. 

Mr. BROWN OF SOUTH CAROLINA. Okay. Well, I thank you very 

much. 

Mr. MUNROE. Thank you. 

Mr. BROWN OF SOUTH CAROLINA. And I know that my time has 

expired, Mr. Chairman, but I would just like to mention to Mr. 

Moss, I am grateful for that facility at Myrtle Beach. We have doubled and tripled the size in a fairly short period of time. I know 

it took a long time to get the project moving, but once it got on 

board it moved pretty quick. What is the largest facility in which 

you have been able to use the Design-Build method? 

Mr. MOSS. We just completed a 99,000-square foot combined brigade-battalion headquarters building for the Combat Aviation Brigade at Fort Bliss in El Paso. And that was constructed of 100 individual sections in conjunction with site built elements, what we 

refer to as hybrid construction. So. 

Mr. BROWN OF SOUTH CAROLINA. But you do not use modular 

units? 

Mr. MOSS. Pardon me? 

Mr. BROWN OF SOUTH CAROLINA. But you do not use modular 

units? 

Mr. MOSS. Well yes sir, they are. They are built off site. They are 

trucked to the building site and put together, stacked atop one another. 


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Mr. BROWN OF SOUTH CAROLINA. Very good. Sorry, Mr. Chairman, for taking so much time. But thank you, gentlemen. Sorry I 

did not get a chance to ask questions of the other two panelists. 

Mr. MICHAUD. Thank you very much, Mr. Brown. We gave you 

a little extra time for interpretation. Mr. Donnelly. Mr. Carnahan. 

Once again I would like to thank the panel for coming today. I appreciate your testimony, and if there are any additional questions 

we will definitely get in touch with each of you. So once again, 

thank you very much. I would like to ask the second panel to come 

forward. And while they are coming forward I will introduce them. 

The panel includes Debra Draper, who is the Director of Health 

Care for the GAO, and Belinda Finn, who is the Assistant Inspector General for Audits and Evaluation within the VA Office of Inspector General. I would like to thank both of you for coming today, 

and I look forward to your testimony. And we will begin with Ms. 

Draper. 

STATEMENTS OF DEBRA A. DRAPER, PH.D., M.S.H.A., DIRECTOR, HEALTH CARE, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE; AND BELINDA J. FINN, ASSISTANT INSPECTOR GENERAL FOR AUDITS AND EVALUATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS; 

ACCOMPANIED BY MAUREEN REGAN, COUNSELOR, OFFICE 

OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS 

AFFAIRS 

STATEMENT OF DEBRA A. DRAPER, PH.D., M.S.H.A. 

Ms. DRAPER. Mr. Chairman and Members of the Subcommittee, 

thank you for the opportunity to be here today as you discuss VA’s 

contracting and procurement practices. 

My testimony today focuses on the intersection of some of these 

activities and veterans’ safety. 

VA medical centers purchase supplies and equipment that allows 

them to provide a range of health care services to the 5.5 million 

veterans served annually. These purchases include expendable 

medical supplies such as needles, which are used once and discarded and reusable medical equipment such as endoscopes which 

are reused for multiple patients. 

VA has established policies that its medical centers are required 

to follow when purchasing and tracking medical supplies and 

equipment. In part, these policies are intended to help ensure the 

safety of veterans treated in VA facilities. 

For example, VA medical centers need information on the reusable medical equipment in their facilities to ensure that they have 

developed procedures for properly cleaning and disinfecting or 

sterilizing the equipment prior to reuse. 

This information is also critical if a supply item or piece of equipment is the subject of a manufacturer or FDA recall or patient 

safety alert from VA. 

In my testimony today, I will first discuss some preliminary observations from our ongoing work on VA’s oversight of compliance 

with its purchasing and tracking policies for expendable medical 

supplies or reusable medical equipment. 


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These observations are based on site visits to five VA medical 

centers and raised concerns about the safety of veterans receiving 

care at these facilities. I will then discuss steps that VA Headquarters plans to take to improve its oversight of these activities. 

Our initial work has focused on three requirements that we determined were relevant to veterans’ safety. These include ensuring 

Committee review and approval of medical supplies and equipment 

not previously purchased by the facility, obtaining signatures of ordering and approving officials prior to making purchases, and entering information about supplies and equipment in the VA’s inventory management systems. 

At the five VA medical centers we visited, our preliminary work 

identified examples of inconsistent compliance with these three requirements we reviewed. In some cases, noncompliance created potential risk to veterans’ safety. 

At one VA medical center, for example, officials told us that clinical department staff were allowed to purchase certain reusable 

medical equipment such as surgical and dental instruments using 

purchase cards and that these purchases may not have received the 

required Committee review and approval. 

As a result, these purchases may have been made without assurance that they were cost effective and safe for use on veterans. 

Officials at another VA medical center discovered that a staff 

member working in a dialysis department ordered a supply item 

without obtaining the required signature of an approving official. 

The staff member ordered an incorrect item which was subsequently used, resulting in the potential exposure of more than 80 

veterans to infectious diseases such as HIV, hepatitis B, and hepatitis C. 

At a third VA medical center, more than 2,500 veterans were potentially exposed to infectious diseases because according to the facility officials and the VA’s Office of the Inspector General a piece 

of reusable medical equipment was not being properly cleaned and 

disinfected. 

After receiving a patient safety alert from VA, the medical center 

incorrectly concluded that the item was not being used in part because it was not listed in the facility’s inventory. The delayed identification resulted in the item’s continued use and potential exposure of veterans. 

With regard to VA’s plans to improve its oversight of VA medical 

centers’ purchasing and tracking of medical supplies and equipment, VA Headquarters officials told us that they planned to 

change the oversight of the use of their purchase cards, shifting 

greater responsibilities from the medical centers to the VISNs. 

VA is also developing a new inventory management system 

which officials expect will improve their ability to track information 

across facilities. 

To summarize, VA has policies that its medical centers are required to follow with purchasing and tracking expendable medical 

supplies and reusable medical equipment. But based on preliminary observations from our ongoing work, there is inconsistent 

compliance with these requirements, creating potential risk to veterans’ safety. 


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Mr. Chairman, this concludes my opening remarks. I am happy 

to answer any questions. 

[The prepared statement of Dr. Draper appears on p. 73.] 

Mr. MICHAUD. Thank you very much. 

Ms. Finn. 

STATEMENT OF BELINDA J. FINN 

Ms. FINN. Thank you. 

Mr. Chairman and Members of the Subcommittee, thank you for 

this opportunity to testify on the findings of the Office of the Inspector General regarding the Veterans Health Administration’s 

contracting and procurement practices. 

Maureen Regan, Counselor to the Inspector General, joins me at 

the table today. In addition to her legal duties, Ms. Regan manages 

the Office of Contract Review within the OIG. 

In December 2009, the OIG testified on acquisition deficiencies 

in VA. At that time, numerous OIG audits, investigations, reviews, 

and inspections has identified systemic issues such as poor acquisition planning, problematic contract award processes, poorly written 

contracts, and inadequate contract monitoring that negatively affected VA’s ability to attain quality goods and services in a timely 

manner at fair and reasonable prices. 

These acquisition weaknesses significantly impact VHA, which purchased over $9 billion in health care related goods and services 

in fiscal year 2009. 

Since December, we have continued to identify systemic acquisition weaknesses, low levels of compliance with Federal Acquisition 

Regulations (FARs) and VA acquisition regulations, and incomplete 

and unreliable data in VA and VHA acquisition systems. 

For example, two national audits over contracts for patient transportation and Federal Supply Schedule health care staffing services 

found that strengthened procurement practices and contract monitoring could reduce improper payments and overpayments by $130 

million over the next 5 years. 

Additionally, our recent reviews of the VHA’s nonrecurring maintenance contracts funded by the American Recovery and Reinvestment Act of 2009 (ARRA) have found that although VA and VHA 

oversight has improved compliance with FAR competition requirements, the contracting officers were not performing adequate contractor responsibility determinations. 

These determinations are critical to mitigate possible risks to 

ARRA funds and ensure the expeditious completion of VHA 

projects. In fact, 60 of the 65 contracts we reviewed valued at $83 

million lacked adequate contractor responsibility determinations. 

In May 2010, we reported that the VA medical center in Philadelphia had inappropriately purchased brachytherapy services from 

the University of Pennsylvania without a contract between 1999 

and 2005. 

Additionally, OIG health care inspections at community-based 

outpatient clinics have found problems in the administration of 

contracts for clinic operations. 

For example, the Contracting Officer’s Technical Representatives 

(COTRs) are not notifying vendors about patients who should be 

disenrolled. Because VHA pays the contractor a capitated rate for 


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the enrollees, the community-based outpatient clinic (CBOC) vendors may be overpaid. The COTRs were also not consistently holding contractors accountable for meeting performance standards set 

forth in the contracts. 

In fiscal year 2010, the Office of Contract Review has completed 

65 pre-award and 26 post-award reviews. Thirty-two of the preaward reviews were of proposals from VA affiliated institutions for 

sole source health care resource contracts. These reviews identified 

$39 million in potential savings that could be achieved during contract negotiations. 

The Office of Contract Review continues to identify issues with 

a lack of communication between procurement and program officials and inadequate planning for these health care resources contracts. 

The lack of communication and poor planning results in unnecessary contract cost because requirements have not been properly 

identified. The statements of work are inadequate and the estimated quantities are overstated. 

We also routinely find that VHA’s health care resources contracts 

lack adequate oversight to ensure VA receives the services it pays 

for. 

Mr. Chairman, this concludes our oral statement. Myself and Ms. 

Regan would be pleased to answer any questions that you or other 

Members of the Subcommittee may have. 

[The prepared statement of Ms. Finn appears on p. 78.] 

Mr. MICHAUD. Thank you very much for your testimony and 

thank you Ms. Draper, as well. 

Ms. Draper, why are the VA medical centers not entering the information about expendable medical supplies in their system? Do 

you have any idea why they are not doing that? 

Ms. DRAPER. Yes. VA policy requires that all expendable medical 

supplies that are purchased on a recurring basis are to be entered 

into the inventory system. However, policies differ. The policies are 

ambiguous as to what recurring refers to. One refers to at least 

four times per year and others are just basically silent. 

So what we found is that some facilities are entering all medical 

supplies and others are not. So there is confusion at the local level. 

Mr. MICHAUD. Do you feel the VA Central Office provides sufficient guidance to the VA medical centers on implementing its policies on purchasing and tracking? If not, do you have any recommendations of what we can do to make them comply? 

Ms. DRAPER. Yes. Our work is ongoing, so we are continuing to 

look at that area. And we are also going to be planning to talk to 

the VISNs about their role in oversight and compliance. 

As part of our preliminary work, we have found that some policies are ambiguous and some policies appear to be contradictory. I 

can give you an example. 

The purchase of medical equipment with purchase cards. One VA 

policy says that it is not allowed, another says that it is. So that 

is one area that is problematic. 

Another issue is that there is conflicting guidance as to what reusable medical equipment should be inventoried. According to one 

policy, it is defined as equipment that costs more than $5,000 with 

a useful life of 2 years or more. However, reusable medical equipVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 I:\VA\61758.XXX 61758

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ment is any equipment that is designed by the manufacturer to be 

reused for multiple patients and arguably should be tracked. 

Mr. MICHAUD. Ms. Finn, we have heard some concerns that OIG 

has decision-making authority over awarding contracts and that 

has caused some delays in the contracts and procurement process. 

Further, there has been concern that prospective contractors are 

unable to communicate with OIG to better understand why their 

bid has been rejected. 

Could you comment on those two concerns? And what role does 

the OIG have in the contracting and procurement process? 

Ms. REGAN. If it is a Federal Supply Schedule contract or health 

care resource contract that is awarded on a sole source basis, we 

have an agreement with the Department that we do the pre-award 

reviews to look for price reasonableness. We do the review and we 

give a report to the contracting officer with recommendations for 

negotiations. But that is the only role that we have in the contracting process. 

If a vendor believes that there is some part of the process that 

was not done right; as the witness testified before, they were exceeding the scope of the GSA contract for the services, there is a 

protest process either to the contracting officer or the procurement 

executive or to the Government Accountability Office. But we do 

not get involved in that process at all. 

Mr. MICHAUD. Okay. We heard Mr. Wise on the first panel say 

that he feels the VA is broken and that the VA said that. 

Would both of you want to comment on that? If broken, how do 

we fix the problem? 

Ms. FINN. Broken is a very definitive term that has a wide range 

of possibilities. I think there definitely are large areas for improvement in the VHA acquisition processes. As we have testified, we 

see problems again and again with planning for contracting, the 

awarding of contracts, and then the administration of contracts. 

Fixing those issues is going to take a concerted effort; to improve 

the planning through communication between the program officials 

and the contracting officials. A number of the discussions we heard 

from the first panel seem to indicate problems with that type of 

communication. 

Once we have an acquisition strategy, then we need oversight of 

the contracting process to ensure that the contracts are awarded 

properly and competed. 

And, finally, the administration of the contract at the field level 

is always going to require expert and trained Contracting Officer’s 

Technical Representatives to really ensure the contract provisions 

are met. 

Ms. DRAPER. Our work, as I mentioned, we have identified issues 

with some VA purchasing and tracking policies with regard to medical supplies and equipment. And some of the policies are often ambiguous or contradictory. 

And we have also tentatively identified gaps particularly related 

to the inventory management systems that may increase the risk 

or even contribute to patient safety incidents. 

Our work indicates that VA could make improvements by ensuring that their policies are clear and comprehensive and that there 

are clear lines of accountability. Effective oversight and enforceVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 I:\VA\61758.XXX 61758

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ment to ensure compliance are also critical aspects of making those 

improvements. 

Mr. MICHAUD. Thank you. 

Mr. Brown. 

Mr. BROWN OF SOUTH CAROLINA. I thank the panel for being 

here and giving us their insights. 

As I mentioned in my opening statement, I am particularly concerned with your assertion that data in the VA and VHA acquisition support and information system is incomplete and unreliable. 

And how does that compare to other Federal departments? 

Ms. FINN. I do not have total experience with other Federal departments. I can tell you a little bit about the situation in VA. 

We did an audit about 2 years ago of the Electronic Contract 

Management System (ECMS), which is a relatively new vehicle 

within VA to track contract actions. It was established to track contract actions over $25,000. 

At the time we did our first audit, we found a wide range of contracts that were not being placed into the system for many reasons. 

It was difficult to work with and users were not necessarily aware 

of all the requirements. 

With the ARRA requirements, VA and VHA required all of the 

ARRA contracts to be recorded in ECMS. So from our experience, 

we did find a lot more information on those contracts in ECMS, although we still have found issues with the completeness of the data 

in that contracting system. 

Because VA and VHA are so decentralized, it is hard to get all 

of this information together in a system. Ms. Regan might have 

more insight. 

Ms. REGAN. I would say there is also a difference between a contract action and a purchasing action. A lot of purchases are below 

$3,000 for items that are purchased off the Federal Supply Schedule contract or even open market and you are not required to do 

competition. So it is very hard to track individual purchases of an 

item even if the contracting action is in the system. 

One example would be your Federal Supply Schedule contracts. 

The contracting action is in there. It has the pricing structure, but 

it is very difficult to follow who purchases what items off those contracts, especially when it is below the $25,000 threshold. So there 

is no visibility of those types of items out there. 

I know when we do our work, we have to go to the vendors to 

find out exactly what VA purchased. But I will qualify that they 

do have a pretty good system in VA to track purchasing of pharmaceuticals because purchasing is done through a prime vendor. And 

they also have a good system to track prescriptions. We use that 

data consistently and we do get reliable data from the Department 

in that area. 

Mr. BROWN OF SOUTH CAROLINA. How many average vendors do 

you have before you issue a contract? 

Ms. REGAN. It depends on the value of your contract. If you are 

purchasing off a Federal Supply Schedule and it is under $3,000, 

you can issue it without any competition. Up to $25,000, I believe, 

or $100,000, you call up and get some offers from vendors. If it requires a statement of work, you are required to post an RFQ, reVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 I:\VA\61758.XXX 61758

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quest for quotation, on GSA Advantage to get quotes, give it to at 

least three vendors. 

Again, it is the dollar amount, the $3,000, the $100,000 and over 

that makes a difference on how you will do your procurement. 

Mr. BROWN OF SOUTH CAROLINA. I know that one of the members 

of the last panel said that there were too many vendors in the particular field that he was talking about. Some of you were in the 

room when he said that. 

What is too many? 

Ms. REGAN. I am not sure what is too many, but I do know that 

on the VA schedules, the Federal Supply Schedules, he was talking 

about the GSA Schedules. On the VA Federal Supply Schedules, 

anybody purchasing can go to the National Acquisition Center’s 

Web site and actually put in the type of item that they want and 

it will come up with all the vendors. When they buy through the 

prime vendor for pharmaceuticals, the prime vendor has a list of 

every company that sells that drug, particularly generics where you 

have a lot of competition. So it is easier because you have visibility. 

I know in my personal use of the GSA schedules, it is a little 

more difficult because they go by special item number. There may 

be a lot of businesses that fit into the general category, and it is 

very difficult to find those that have specifically what you are looking for. 

So there are a lot of vendors. You could have 70 vendors listed 

for that special item number, but maybe only five of them have exactly what you are looking for. So it is very difficult to find the 

right vendors using GSA Advantage. 

Mr. BROWN OF SOUTH CAROLINA. I know that we ask that we 

give special consideration to disabled veterans, for instance. 

Are they flagged in a way that they would get preferential treatment if they were competitive or how does that work? 

Ms. FINN. In many cases, VHA actually does a set aside for those 

type of procurements and then only vendors who qualify as a service-disabled veteran-owned small business or a veteran-owned 

small business can bid on those contracts. 

Mr. BROWN OF SOUTH CAROLINA. Thank you. I see my time is expired. 

Mr. MICHAUD. Thank you. 

Mr. Carnahan. 

Mr. CARNAHAN. Thank you, Mr. Chairman and Ranking Member. 

I wanted to ask you to comment, if you would, about the specific 

findings with regard to the Cochran VA Medical Center in St. 

Louis. 

Ms. DRAPER. We are actually going there next month. We have 

not conducted that work yet. Our work is ongoing. 

Mr. CARNAHAN. So you have begun that work, but you have not 

made a specific site visit? 

Ms. DRAPER. Yes. The site visit, I think it is going to happen in 

about 2 weeks. It is the first part of October. 

Mr. CARNAHAN. Okay. Well, I would request that you notify us 

when that is going to happen specifically. 

And you mentioned in your report inconsistent policies, noncompliance with oversight, and in particular the situation at the 


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Cochran VA Medical Center where dental instruments were not 

properly sterilized for at least a year. 

What kind of oversight was supposed to be there that was not 

that did not catch that for at least a year’s time? 

Ms. DRAPER. One of the areas that we have found a particular 

concern in our work is that it appears that clinical department 

staff are allowed to purchase specialty items, surgical and dental 

instruments. And often those do not go through the required committee review and approval. 

So the consequence of that is that staff responsible for cleaning 

and reprocessing that equipment is not always aware that it exists 

in the facility. And, actually, we have seen that on other site visits. 

Mr. CARNAHAN. And the steps that are being taken to address 

the inconsistent policies, but also to address the oversight and enforcement of those policies, can you describe what is being done 

now to address that? 

Ms. DRAPER. Yes. As I said, as I mentioned earlier, we are continuing to look at the oversight and compliance responsibilities and 

we are continuing to talk with VA. And we also plan to do additional work with the VISNs to see what their role is. 

Ultimately responsibility for compliance at the facility level lies 

with the facility director and then it is also the responsibility of the 

VISN and VHA to ensure that there is compliance with the policies. 

And as I mentioned, some of the issues arise because there is 

some ambiguity and contradiction in the policies. And, you know, 

our work has identified ambiguity and contradiction within the 

three requirements that we reviewed, and also where there are 

gaps related to the inventory management systems. 

Mr. CARNAHAN. And when will those ambiguities be addressed so 

there is a clear standard throughout the VA? 

Ms. DRAPER. Well, we hope that our report will be issued after 

we finish our next site visit and finish doing our analytical work. 

We are anticipating that the report will be issued in the spring. 

Mr. CARNAHAN. And then, finally, one of the issues that has come 

to light in the conversations back in St. Louis is with regard to employees that have come forward, attempted to come forward. One 

employee talked about some problems early on was actually fired 

some believe in a retaliatory way. Others have been intimidated in 

terms of coming forward with information. 

What is the VA doing in terms of protecting employees that want 

to come forward with information about improvements but also 

being sure that those responsible are being held accountable? 

Ms. DRAPER. Yes. That is not really part of how we have looked 

at our work and that is probably a question that VA might be better able to answer. We are aware of the situation. And as I said, 

we are visiting St. Louis next month, so we will learn more about 

the particular situation there. 

Mr. CARNAHAN. And let me ask the other witness from the OIG 

what steps can or should be taken with regard to those employees 

that may have helpful information in terms of how some of these 

things happen but also how to prevent them going forward so they 

are not being retaliated against when they may have important information to come forward? 


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Ms. FINN. Mr. Carnahan, I cannot address all the ways, but one 

option they have is to call the OIG hotline. We receive numerous 

complaints and questions, concerns from employees and entities 

over the course of a year. And we investigate many of them and 

work to protect the rights of that employee or the complainant. 

Mr. CARNAHAN. All right. I see my time is up, Mr. Chairman. 

Thank you for having me sit in today on this hearing. 

Mr. MICHAUD. Thank you very much, Mr. Carnahan. 

Mr. Boozman, do you have any questions? 

I would like to thank our second panel for coming forward. And 

I am sure there will be more questions that we will submit in writing. So, once again, thank you all for coming. I appreciate it. 

The last panel includes Frederick Downs who is the Chief Procurement and Logistics Officer for VHA. He is accompanied by Dr. 

Andrea Buck who is the National Director of Medicine for VHA. 

I want to thank you very much, Mr. Downs, for coming forward 

and I look forward to your testimony. 

STATEMENT OF FREDERICK DOWNS, JR., CHIEF PROCUREMENT AND LOGISTICS OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY ANDREA BUCK, M.D., J.D., NATIONAL DIRECTOR OF MEDICINE, VETERANS HEALTH ADMINISTRATION, 

U.S. DEPARTMENT OF VETERANS 

Mr. DOWNS. Thank you, Congressman. 

And let me just get a second here to get my papers all straightened out. I was taking a lot of notes during the panels. I would like 

to be able to address those to you. 

Good morning, Chairman and Ranking Member and Members of 

the Subcommittee. Thank you for inviting me to discuss the Veterans Health Administration contracting and procurement practices. 

I have testimony here. I want to make one thing clear on my 

paragraph and then I would like to go right into answering some 

of these questions if that is okay with you. We will get right to it. 

Mr. MICHAUD. Is there any objection? Hearing none, your full 

written testimony will be submitted for the record. 

Mr. DOWNS. First, I want to state that acquisition reform is a 

central piece of the Secretary’s charge to fundamentally change the 

Department of Veterans Affairs in ways that will transform it into 

a 21st Century organization that is people-centric, results driven, 

and forward looking. 

And it is important to know that the integrated operating model 

is the Department’s acquisition and transformation initiative. And 

VHA fully embraces the Secretary’s transformation vision and the 

implementation of this integrated operating model. 

And to go forward with that, you know, listen to the testimony 

first of the folks, the vendors and their concerns, and we want to 

make sure that people understand that we are very open to listening to what is going wrong, but we want to make sure that we are 

open to all the vendors and address their concerns. 

But in the area of the concerns that were addressed by the different individuals, what we attempt to do in VHA and VA is we 

need a level playing field. We have a lot of competition that we 


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need to adhere to as far as making sure that everyone has a fair 

chance to apply for the contracts that we let out. 

Contracting officers are one part of it. The needs of the clinical 

service or the service at hand is another part of it. In the area of 

construction, we have construction in facilities and they have their 

needs and requirements. And what they do is work together as a 

team in putting all of this together. 

Contracting is difficult in the government, complex, but we are 

regulated by the FAR and by both the Federal Acquisition Regulations and the Veterans Administration Acquisition Regulations. 

And so when adhering to those, we follow a certain process and 

procedure to make sure that we are doing the right thing, that we 

are making the processes the way they should be. 

And the competition out there will come to us and they will make 

presentations. We then take that information. We share it with the 

clinical programs or the other programs and they are able then to 

decide whether this is something they need or they do not need. 

And I think in trying to address the concerns of the vendors, we 

are always open for that. And one of the areas that we are very 

conscious of is our small business and what we have done to improve our outreach to the small businesses. 

Within VHA, we have appointed a small business administrator 

or point of contact in my office. At each one of the VISNs, we have 

a small business coordinator. And then they work with the facilities to ensure that when the inquiries come in from the small businesses or the large businesses, there is a point of contact to send 

that person to. 

In my office, we do about 150 meetings a year with vendors. At 

the VISN level, I know that the VISN coordinators for small business say they get four or five inquiries a week from the different 

facilities. We have a brochure that we give to these individuals to 

help them do business with the government. Our job in VHA is to 

help that individual do business with us because we are successful 

if they are successful. 

Now, one of the things that we have as a mantra or a philosophy 

is that we buy American, buy small business. And with that in 

mind, that is how we approach all of this. 

And, in fact, our small business for this year for the service-disabled veteran-owned small businesses, we are at 17 percent. And 

so we address that aggressively. 

In the ARRA funding this year, which VHA had $1 billion, we 

had 98 percent competition and 76 percent of that business went 

to small businesses and 75 percent of that was to service-disabled 

veteran-owned small businesses and veteran-owned businesses. 

That is an indication of the direction that we are going in the future. 

We want to address these problems, but some of these things 

that are perceived as problems are not really problems but are part 

of the process. And we want to make that process as clear and as 

understanding as we can. That is the reason we have this openness 

and allow people to come in and talk to us, to meet with us. 

And I have met with some of these individuals who were on the 

first panel and so we try to work as we should in making sure they 

have the information and learning how to do business with us. 


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[The prepared statement of Mr. Downs appears on p. 82.] 

Mr. MICHAUD. Thank you very much. 

How do you respond to the concerns that GAO and OIG have 

raised in their testimony? When you look at contracts associated 

with the ARRA funds, they found that 60 out of 65 were not in 

compliance with established rules. 

I guess I do have a concern, especially when you are dealing with 

veterans’ health. So how do you address the concerns that GAO 

and OIG raised today and what steps is VA taking to address these 

concerns? How quickly will you be able to address those concerns? 

Mr. DOWNS. Well, sir, we are in the middle of addressing those 

concerns now. Been very active in developing action plans. 

In VHA, what we have done is reorganized into a centralized integrated model and so that all the procurement people throughout 

VHA have been taken out of the chain of command of the local facilities and network directors. They now answer through their 

chain of command straight through to my office. 

The other thing we have done, we have formed what we call 

three service area offices. And in those service area offices, we are 

setting up quality and compliance teams in addition to audit and 

review teams. 

We also have in my office set up a quality officer and her job is 

to develop the policies and procedures, the standardization and to 

do the audits and direct the audits at the local level. 

These problems that were mentioned by the OIG and the GAO 

have us very much concerned, but we have been working hard to 

address those. Certainly we are dealing with, in our area when it 

comes to inventory, for instance, we are dealing with seven antiquated stovepipe systems within each facility for inventory. 

And we have that at 153 or 154 facilities. They were always designed as facility level, never national-level inventory systems. So 

for us to get data to control it from a national level, VISN level, 

even at the facility level is extremely difficult. 

We understand what the problems are and that is the reason we 

have what we call strategic asset management. This was part of 

FLITE, which is the Financial Logistics Integrated Technology Enterprise system, and it was recently canceled. But the SAM, the 

Strategic Asset Management, piece of it is something that was 

handed to us in VHA. And I am not the SAM program management for that. 

We have a pilot program in Milwaukee right now. We have gone 

through our first user’s test, been very successful. And we intend 

to go live in Milwaukee in March 2011 and then we are going to 

have a post alpha time to make little tweaks to it if we need to 

because of the cancellation of Financial Accounting System and 

FLITE. In the data warehouse, some of the IT things that were 

going to be a part of that are now changed and so we are going 

to go through the process of making that alpha product our basic 

inventory model. 

We will then go to the beta stations, approve a concept, and then 

we go nationwide. And we intend to do that, our goal, we think 

2013, 2014, we will be nationwide. 


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Now, what that system allows us to do is to keep track of every 

piece of equipment from the time it comes into the medical center 

to the time it is accessed. 

Then the reporting system is going to be the answer to many of 

the issues and problems brought out here in the OIG and GAO 

when it concerns equipment and supplies. We will be able to keep 

track of that at the facility level, at the VISN level, and at the regional level. In a way, it will be part of the 21st century. 

And these antiquated systems, which are what is hindering us 

now because we are dependent upon manual reports, what we are 

trying to do right now is to hold these people accountable for making sure they are filling out their reports, they are putting information into the Automated Engineering Management System/Medical 

Equipment Reporting System of the Generic Inventory Package. 

So we have a current process in which we are intensifying our 

ability to try and get compliance for them to do that. But until 

then, until we get our national product, we will continue our efforts 

on a facility-by-facility basis. 

We are going through also a logistics transformation in addition 

to our acquisition transformation. We are making tremendous 

strides in logistics. But, again, this was the first time this office 

has existed in VHA and it has been in place for 5 years. And so 

there was no office before. There was no one in VHA to oversee or 

monitor the carrying out of the policies nationwide for almost 25 

years. 

And so what we are doing is making a lot of effort, a lot of effort 

into correcting that by reorganizing, going through a transformation. We are looking at all these policies you have heard 

where it is haphazard. We are standardizing our policy. We are setting up teams to go out and do the audits, the quality review 

teams. 

There is a whole genre of good management kinds of actions we 

are taking to address all of these issues. This is extremely important to us, the patient safety issues. 

I as a patient, I have to tell you in the VHA system, I am driven 

to correct these issues because there are almost six million of us 

using this VHA system. It is imperative that we do a good job with 

it. 

So, yes, we are concerned. We are passionate. We are making the 

changes. We are locked into the processes, so that we are changing 

those processes also and writing new standard operating procedures. 

And all this is being done very rapidly. The acquisition part 

started a year and a half ago. The end of this month, we will finish 

the acquisition part. And the final individuals at the local level who 

are doing purchases will be now a part of our chain of command 

which will address—I have gone too far. 

Mr. MICHAUD. No. You mentioned you are taking the responsibility from the local level down to your office. And that was done 

what, a year and a half ago? 

Mr. DOWNS. January of 2009 or January, February of 2009 was 

when we started the process. 


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Mr. MICHAUD. When you started. How do you look at, for instance, whether the VA actually does do a good job in purchasing 

prescription drugs, which cost $4.8 billion in 2011? 

I do not know if it is the best question for you, Mr. Downs, or 

Dr. Buck. My concern is, even though you might be in compliance 

with whatever procedures the VA has set up, what about the utilization rate of those drugs? 

As you heard from the first panel, distributing a 15-day supply, 

instead of a 30-day supply or a 2-month supply, could actually save 

dollars in the pharmacy area. Are you focused on that as well? 

Mr. DOWNS. No, sir. Dr. Buck or myself would not be involved 

with that. That is a clinical decision by the pharmacists and clinicians. And we can take that for the record, but certainly not one 

I can answer. 

[The VA provided the response in subsequent information, which 

appears on p. 34.] 

Mr. MICHAUD. Okay. Thank you. 

And my last question is, we heard Mr. Wise on the first panel 

quote a VA employee who admitted the VA is broken. 

Mr. DOWNS. Well, we have about 300,000 employees and there 

are certainly some who are unhappy with it. But the individual in 

mind, and I know the individual, it is not broken. I have tried to 

compare this many times. 

We are doing, in VHA at least, we do about 320,000 purchases 

a month. We are taking care of six million patients a year. We 

have the largest health care system in the United States. We are 

able to provide the service that the veterans need. And we are getting the job done day to day and it is proven by the fact that we 

are considered one of the top health caregivers in the United 

States. 

And so we are getting the job done. So it is not that we are broken. What it is is that we have a system. The clinical change started in the 1990s when Dr. Kaiser turned this upside down and 

made quality patient care number one. But the infrastructure to 

support that, the supply, service, and the others, they were sort of 

disbanded and left to the field to do what they wanted to do. Those 

roles and responsibilities of the logistics people, the function still 

remained, they just got spread out. And that is one of the reasons 

that you hear about we have different policies and such. 

Okay. One of the things that we are doing is bringing this back 

together because we need to have the infrastructure to support that 

top-quality health care. And that is the reason that logistics and 

acquisition are so important. 

I am in charge of VHA’s complete supply chain. And we have 

been working to correct all of those kinds of issues about how we 

bring it back together at the facility level, to the VISN level, how 

we then make that into a strategic plan to go into the future to 

meet the Secretary and Under Secretary for Health’s objectives of 

keeping that health care where it needs to be. 

So that is the reason we are so desperate, not desperate, we are 

so intense to try and make sure that we are speeding up this process of making these corrections. But we are still limited. We need 

to go through the testing process, for instance, on the SAM project. 


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On the logistics side, we are going through a lot of changes at 

the local level. And like I said, we just within the last year and a 

half have been able to put this organization into place, my Systematic Analysis of Operations (SAOs), my logistics transformation. 

My Deputy in Procurement has only been on board for 6 weeks. 

My Deputy in Logistics has only been on board since December. 

And my Deputy in Prosthetics has been on board for 2 years. So 

we have a complete infrastructure that we have put together within VHA and that is the reason we are moving smartly forward to 

correct these issues. 

We have the people in place. We have a lot more folks that we 

need to put into place both at our level and at the field level to ensure that the work starts getting done the way it should be and 

that we are doing audits and follow-ups, compliance and reviews, 

and have reports and metrics to back up what we are doing, all 

part of a very large plan, sir. 

Mr. MICHAUD. Thank you. 

Mr. Brown. 

Mr. BROWN OF SOUTH CAROLINA. Thank you, Mr. Downs. I appreciate you being here today. 

And I think those numbers put things back in perspective. It is 

a big process. It is a big operation and sometimes they try to micromanage one or two issues. I know we have been talking about it 

for a long time and I’m not sure this is a proper question for you. 

But seamless transition from the DoD to VA, do you know how 

the progress of that is proceeding? 

Mr. DOWNS. No, sir. I am not able to answer that question. 

Mr. BROWN OF SOUTH CAROLINA. Okay. In the previous panel, 

they mentioned that there would be some relative savings if you 

did not go to the automatic prescription refill. 

What do you think? 

Mr. DOWNS. Well, that, sir, I have not studied that. I do not 

know. Again, the pharmacy people would be the best ones to answer that. I have not done an analysis on that. 

Mr. BROWN OF SOUTH CAROLINA. I was just trying to evaluate it 

in my own mind. It seemed to me that it is a really convenient item 

not to worry about if you have blood pressure medicine coming, 

whether you have to make a call. It seemed to me the logistics of 

doing that would be certainly something that we would expense. 

And if you are going to save money by not getting the medicine 

to the veteran, then I think that it would cost more to get the person back on blood pressure medicine regularly than it would be to 

send that prescription in the first place. 

So I am not sure exactly what kind of savings would be attributed to that, or whether there would be any. There may be a downside to the administrative costs. 

Mr. DOWNS. I was not sure of that either, sir. And like I said, 

I cannot address it professionally. I just know that as a patient, 

when I need to renew my blood pressure medicine, I just call and 

record and the next thing I know, it shows up on my doorstep. 

Mr. BROWN OF SOUTH CAROLINA. Right. 

Mr. DOWNS. So that is a pretty effective process. 

Mr. BROWN OF SOUTH CAROLINA. You are not on automatic refill? 


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Mr. DOWNS. It is an automatic refill. I mean, I call them and 

they send it. 

Mr. BROWN OF SOUTH CAROLINA. But you still have to make the 

call? 

Mr. DOWNS. I make the call, yes. But that is a patient safety factor, I would think. 

Mr. BROWN OF SOUTH CAROLINA. I see. Okay. 

Mr. DOWNS. Because I am only allowed six refills and then I 

have to go back in to the doctor. 

Mr. BROWN OF SOUTH CAROLINA. To get another prescription? 

Mr. DOWNS. That kind of a thing. 

Mr. BROWN OF SOUTH CAROLINA. Okay. Very good. Thanks for 

being here today. I have no further questions. 

Mr. DOWNS. Okay. 

Mr. MICHAUD. I have a question for Dr. Buck. You are the National Director of Medicine, so what do you do over in VHA? Is it 

establish policy or—— 

Dr. BUCK. Presently I am located in the Office of Patient Care 

Services and that is actually the area that I am in of subspecialty 

care. And it is primarily a policymaking function. 

Mr. MICHAUD. Okay. I will ask you the question I asked Mr. Downs since you are in the policy area. When you look at the $4.8 

billion that VA spends on drugs, what is the policy of the VA on 

utilization? This gets back to Mr. Brown’s question. When a prescription runs out, do you automatically send the prescriptions to 

the veteran or do you give them a 15-day supply? Can you address 

the utilization issue? 

Dr. BUCK. Sir, the way that our policymaking functions are organized, there is actually a separate pharmacy division, which has 

the expertise of doctorates in pharmacy who actually are responsible for the policymaking functions for pharmacy. 

So, unfortunately, those folks are not represented here today, so 

I cannot answer your question. 

Mr. MICHAUD. But as a doctor—— 

Dr. BUCK. Yes, sir. 

Mr. MICHAUD [continuing]. Utilization, is there a problem with 

utilization or could you see that there is a problem with utilization? 

Dr. BUCK. Sir, honestly I speak generally. The one thing that I 

do is I always try to answer the questions as honestly as possible. 

And the one thing that I strenuously avoid doing is answering one 

incorrectly. And that is what I would do in this case because I do 

not have that information. 

Mr. MICHAUD. Now, I guess my concern is, and I have heard it 

actually in the private sector, where you have these drug manufacturers—— 

Dr. BUCK. Uh-huh. 

Mr. MICHAUD [continuing]. With a very cozy relationship with 

doctors, such as pharmacists within VA. And my concern is that we 

are probably spending billions of dollars more than we have to on 

drugs for our veterans. 

I want to make sure they get, you know, the prescriptions that 

they need. But I am also concerned about the waste in the system. 

And even though the procurement might not address that issue, it 

is part of the VA system. 


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And that is why as a doctor, I was just curious about whether 

or not you see utilization as a problem, not necessarily what the 

VA might be doing, but as a doctor, whether that could be a problem and whether we might be able to address it to actually save 

some money in the pharmacy area. 

But we will forward that question to someone within the VA that 

actually can address it. 

[The VA subsequently provided the following information:] 

Question: When I look at the $4.8 billion that VA spends on drugs, what 

is the policy of the VA as far as utilization issues? Is there a problem with 

utilization? 

Response: The Department of Veterans Affairs (VA) does not have a problem with drug utilization. Minor adjustments and corrections need to be 

continually made in any health care system, including VA, to assure drug 

utilization is consistent with emerging medical evidence and meets the 

needs of patients. In VA, medication utilization is guided by an extremely 

well-managed formulary process whose origin dates to the 1950s. VA has 

been a pioneer in the area of formulary management for nearly 60 years 

and is regarded by many experts as an industry benchmark in the United 

States for cost-effective, safe, evidenced based formulary management. 

Formulary Management Infrastructure 

The organizational responsibility for facilitating VA’s formulary management process rests with the Pharmacy Benefits Management (PBM) office 

which is organizationally aligned under the Office of Patient Care Services 

(PCS), which in turn is aligned under the office of the Under Secretary for 

Health (U.S.H). In 1996, VA established a National Formulary process to 

augment and eventually replace independent local formulary practices 

which had been in use across the system. The purpose of implementing a 

national formulary process was to assist practitioners in clinical decisionmaking, to standardize and improve quality of patient care, to promote 

seamless portability of mediation access from one facility to another, to promote cost-effective evidence-based prescribing practices and to develop and 

disseminate clinically relevant pharmacoepidemiologic data. Within PCS, 

the PBM coordinates formulary management activities using a variety of 

subject matter experts organized into two primary decision-making bodies, 

the Medical Advisory Panel (MAP) and the Veterans Integrated Service 

Networks (VISN) Pharmacist Executives (VPEs). 

The MAP provides physician oversight of the formulary process and is comprised of 12 practicing VA physicians including general internists, as well 

as specialists practicing in the areas of cardiology, critical care, endocrinology, geriatrics, infectious disease, and psychiatry; VA PBM clinical pharmacist specialists; a VPE and one physician from the Department of Defense. The MAP provides clinical oversight of the formulary management 

process. The VPE committee includes pharmacist representatives from each 

of VA’s 21 VISNs, a representative from VA’s National Center for Patient 

Safety (NCPS), a physician representative from the MAP and representatives from the DoD. This group provides operational and clinical oversight 

of the formulary management process. 

Formulary Management Process 

VA policy (VHA Handbook 1108.08; http://www1.va.gov/vhapublications/ 

ViewPublication.asp?publID=1834) requires that drugs newly approved by 

the Food and Drug Administration (FDA) and which have utility in VA, be 

automatically reviewed for potential addition to the VA National Formulary 

(VANF); this review occurs as soon as sufficient safety and efficacy information becomes available. The VA policy for updating the VANF specifies additional triggers for updating the VANF. Requests for change in VANF status may be submitted to the PBM by a VISN Formulary Committee, the 

VPE Committee, the MAP Committee, a VHA Chief Medical Consultant, or 

a VHA Chief Medical Officer. An individual or group of physicians may submit a request for VANF addition through their VISN Formulary Committee(s). In addition, the VA uses its evidence-based drug class reviews to 

pursue contracting opportunities within or across drug classes, allowing for 


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lower acquisition prices for pharmaceuticals, while maintaining or improving the quality of drug therapy. A review may also be initiated if new safety 

data becomes available that may require discussion of removal of a medication from the VANF, or implementation of restrictions to ensure safe and 

appropriate use of the medication. 

The review process for a medication consists of an extensive and in-depth 

evaluation of the published literature in order to determine the efficacy of 

the medication, with an emphasis on results reported for a patient population similar to the Veteran community; the potential for adverse events 

and long-term safety; and the cost-effectiveness compared to other available 

treatments. This review process begins with the PBM clinical pharmacist 

specialist, in consultation with MAP members and/or VA’s physician subject 

matter experts, representing a variety of subspecialty disciplines. Input is 

also sought from VA clinicians and experts in the field. 

The philosophy for VA’s formulary management process is an unwavering 

reliance on well-researched, well-documented clinical evidence demonstrating that a specific drug can provide an expected cost-effective benefit 

for the Veteran population. According to an analysis of the VANF in 2001, 

the Institute of Medicine (IOM) stated: 

‘‘The VA National Formulary and formulary system that enable the VHA 

to make quality choices among drugs and negotiate favorable prices 

should be maintained . . . The VHA should continue to make careful 

choices among drugs, based first on quality considerations but with an 

understanding of cost implications, and should negotiate the best prices 

possible using the leverage of committed use and the ability to drive market share.’’ 

The cost of a medication is only one factor when considering the overall cost 

and quality of therapy; however, VA has been able maintain or improve the 

quality of medication therapy, while also keeping the price of medications 

low as shown in Chart 1 and Chart 2 below. 

Chart 1: VA Average Cost of a 30-day Equivalent Outpatient Prescription 

Note: The VA average cost of a 30-day equivalent outpatient prescription 

changed from $13.03 in FY 1999 to $12.64 in FY 2009, a 3.0 percent decrease over a 10-year period. 


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Chart 2: VA Average Outpatient Prescription Drug Cost Per Unique Patient 

Note: The VA average outpatient prescription drug cost per unique patient 

changed from $599 in FY 1999 to $697 in FY 2009, a 16 percent increase 

over a 10-year period. 

VA prescription drug costs per patient include all patients receiving drugs. 

In contrast, other prescription benefit plans report per member per month 

or per member per year, which underestimates costs because members that 

do not use the benefit are counted in the calculation. Patients served by 

other prescription benefit plans are typically younger with fewer chronic 

diseases than patients served by VA; therefore their prescription costs 

would be expected to be lower than VA’s costs. Indeed, a recent study using 

data from the Medical Expenditure Panel Survey from the Agency for 

Health care Research and Quality (AHRQ) showed that Veterans who use 

the VA have substantially more medical and psychiatric issues than those 

that do not use the VA. Despite these differences, VA’s costs are significantly lower than other health plans. These comparisons are illustrated 

below in Chart 3. 

According to a presentation entitled, ‘‘Overview and Update on DoD Pharmacy’’ presented at the 2010 Military Health System Conference, the pharmaceutical cost per Department of Defense eligible beneficiaries aged 65 

and older was $1,927 in FY 2009, compared to $686 in the same age group 

in VA during the same time period. The report is available at http:// 

www.health.mil/Libraries/2010lMHSlConferencelPresentations/M36lT 

lMcGinnis.pdf. 

According to the Pharmacy Benefit Management Institute (PBMI) 2009 

Prescription Drug Benefit Cost and Plan Design Survey, completed by 417 

employers representing 7,041,676 members, the average net prescription 

drug cost per retiree per month extrapolates to $1,770 per member per 

year. In comparison, the VA average prescription drug cost per unique patient in FY 2009 was $697 and VA’s cost is a gross cost; it does not subtract 

first party co-payments. The report is available at http:// 

www .benefit design report.com/ Drug Cost Highlights / Per Member Per Month 

Metrics/tabid/88/Default.aspx. 

According to Express Scripts, the overall per member per year drug cost 

was $911 based on the 36 million lives in the commercial client groups. In 

comparison, the VA average prescription drug cost per unique patient in FY 


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2009 was $697; again, other plans have younger, healthier patients than 

VA’s patients and include all members, and unlike VA, patients are included regardless of whether or not they use the prescription benefit. The 

report is available at http://www.express-scripts.com/research/studies/ 

drugtrendreport/2009/dtrFinal.pdf. 

Chart 3: VA Average Outpatient Prescription Drug Cost per Unique Patient 

Compared to Other Prescription Benefit Plans 

According to the Kaiser Family Foundation’s (KFF) May 2010 Prescription 

Drug Trends report, industry data show that retail prescription prices 

(which reflect both manufacturer price changes for existing drugs and 

changes in use to newer, higher-priced drugs) rose from an average price 

of $38.43 in 1998 to $71.69 in 2008. The increase over the 10-year period 

is 87 percent. The change in prescription prices for VA over nearly the 

same 10-year period (FY 1999 to FY 2009) was a DECREASE of 3 percent. 

The report is available at http://www.kff.org/rxdrugs/upload/3057–08.pdf. 

The comparison is illustrated in Chart 4. 


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Chart 4: VA Average Cost of a 30-day Equivalent Outpatient Prescription 

Compared to Retail Prices 

In response to recommendations from a 2001 U.S. Government Accountability Office (GAO) report and the 2001 IOM report on the VA formulary, 

VA monitors utilization and conducts safety and efficacy reviews using a 

central drug utilization analysis database. The results of these analyses are 

then used to assess future needs. One of the ways the database is utilized 

is to identify potential areas for managing drug costs through cost-avoidance initiatives. These are developed nationally, and may be implemented 

at the VISN or local medical care facility level. The intent of the program 

is to actively pursue pharmacy efficiencies and appropriateness of use for 

selected pharmaceuticals and reduce the variance in drug cost per patient 

across the system, while ensuring there is no negative impact on the quality of care. The program was formally initiated in Fiscal Year 2007 and has 

resulted in substantial cost avoidance and a subsequent reduction in the 

variance in drug cost per patient. The program documented cost avoidance 

of $264 Million in FY 2007, $354 Million in FY 2008, $191 Million in FY 

2009 and $112 Million projected for FY 2010. As a result of these efforts, 

the variance in cost per patient has decreased substantially as show in the 

chart below. 


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Chart 5: VA Average Outpatient Prescription Cost per Unique Patient by 

VISN 

Note: The variance in VA average outpatient prescription cost per unique patient decreased significantly from FY 1999 to FY 2009. 

VA’s primary motivation in formulary management has always been and always will be to improve the quality of care for Veterans. Economic considerations though important, are secondary compared to safety and efficacy. VA 

has often been criticized for not adding recently approved medications to 

the VANF, or for unduly restricting medications, and has been the subject 

of inquiries and investigations prompted by these criticisms by the Institute 

of Medicine, the Government Accountability Office and the Office of the Inspector General. Although some of the external reviews conducted to date 

made suggestions for minor process improvements, in general, VA’s processes were determined to be safe and cost-effective and formulary decisions 

were determined to be based on sound reviews of the medical evidence. 

During 2008 and 2009, VA PBM–MAP and VPEs reviewed 61 medications 

for potential VANF inclusion; 11 were added to the VANF, and 50 were approved for use via the non-formulary process. Criteria for use or additional 

restrictions were developed for 25 medications to ensure their safe and appropriate use. As described previously, extensive evidence-based reviews 

are conducted (refer to documents posted to http://www.pbm.va.gov) for 

VANF consideration or for developing guidance on a medication’s place in 

therapy. 

Consideration for VANF listing includes whether the medication is applicable to the VA population (e.g., medications for pediatric use will typically 

not be added, or for rare conditions not expected to be seen in the Veteran 

population), whether a medication will provide benefit over an existing 

VANF agent, and whether adequate safety data are available. Often, 

amedication may not be added to VANF at the time of initial review due 

to unanswered questions about long-term safety or lack of comparison data 

to less expensive or generic medications that are readily available on the 

VANF for the management of the majority of Veteran patients. An example 

of a medication that was not added to the VANF due to lack of long-term 

safety and efficacy outcome data compared to other available agents on the 

VANF was cerivastatin (Baycol®), a medication used to treat hyperlipidemia (high cholesterol), which is a common condition in the Veteran patient 


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population. The VA formulary included medications within this class with 

proven benefit in reducing cardiovascular morbidity and mortality that had 

been shown to be safe in treating patients with hyperlipidemia). 

Cerivastatin was marketed as a more potent agent; however, it did not have 

the long-term outcome data as with the other available agents. Subsequently, cerivastatin was removed from the market after deaths due to kidney failure. Rofecoxib (Vioxx®) was another example of a drug never placed 

on the VANF and withdrawn from the market due to cardiovascular toxicity 

associated with death. 

Via a formal Memorandum of Understanding, the VA PBM works closely 

with the FDA through VAMedSAFE, a group within the PBM tasked with 

identifying and responding to medication safety signals via communication 

and guidance on improving the safe use of pharmaceuticals in VA. A recent 

example of the efforts of VAMedSAFE is the identification of a safety signal 

for the drug varenicline (Chantix®) which is used for smoking cessation, 

and the risk for serious adverse events including the potential for suicidal 

thoughts and actions. This resulted in safety communications disseminated 

to VA health care professionals, letters to Veteran patients, and modification to the VA criteria for use of this medication. Another safety initiative 

was to restrict the use of rosiglitazone (Avandia®) a drug used for diabetes 

that was found to be associated with an increased risk for heart attack and 

death. Prior to the safety signal, this medication was already restricted in 

VA patients, well before its use was being curtailed in other health care 

systems. In response to VA’s action in restricting the medication from use 

in new patients and to provide guidance for alternate therapies, on October 

18, 2007 it was stated in the New York Times (http://www.nytimes.com/ 

2007/10/18/business/18drug.html?lr=2&adxnnl=1&oref=slogin&adxnnlx=11 

92713524-bGMLReuAbDJNXwuo9QSfEw) that: 

‘‘The Department of Veterans Affairs has decided to severely limit the use 

of Avandia, the once-popular drug for Type 2 diabetes, delivering another 

blow to the products maker . . .’’ The VA was also criticized by the manufacturer, quoted to be ‘‘. . . surprised and disappointed by the V.A. Central Office decision . . . We do not believe it is in the best interest of patients.’’ 

More recently, the FDA has made similar recommendations restricting the 

use of rosiglitazone due to the safety concerns and after considering the risk 

vs. benefit of treatment with this drug. 

We are extremely proud of VA’s formulary management program. We have 

carefully developed and refined the VA formulary process over the past 15 

years and are fortunate to have a process that meets the needs of Veterans 

in an evidence-based, comprehensive, safe, and efficient manner. VA’s prescription benefit is a national plan that is managed by practicing VA physicians and pharmacists. While we value the products the pharmaceutical industry offers for use, the industry itself has no role in determining VA’s 

need for their products, nor how those products are managed. VA has effectively neutralized the inappropriate impact the pharmaceutical industry 

can potentially have on health care delivery by a strict reliance on published evidence and by curtailing the marketing and advertising strength 

of the industry. Using a structured and evidence-based formulary management process benefits Veterans by assuring the VA prescription benefit is 

first and foremost safe, and then that it is cost-effective and sustainable 

well into the future. The clinical guidance and formulary recommendations 

of the VA PBM–MAP and VPEs are routinely accessed by State Medicaid 

programs, other health care organizations and providers, and the international pharmacy community and are a valuable public resource for those 

entities as they develop their own formulary policies and initiatives. 

Question: When you look at when someone runs out, do you automatically 

send the prescriptions to the veteran or do you give them a 15-day supply? 

Response: VA does not automatically send prescription refills to patients 

who run out of medication. Patients whose providers have authorized refills 

for a prescription may request a refill up to 10 days before their supply is 

exhausted. Patients have several ways to requests refills including via automated telephone request lines, via the internet, via mail and in person at 

the pharmacy window. The latter method is encouraged only for patients 

who have failed to reorder their medications 10 days before their supplies 


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ran out and who are in danger of interrupting their therapy if they do not 

get an emergency supply. In these cases, up to a 10-day partial supply of 

medication is commonly provided, with the full refill being sent in the mail. 

Question: Now, I guess my concern is, and I have heard it actually in the 

private sector, where you have these drug manufacturers having a cozy relationship with doctors, whether it is a doctor or within the pharmacy system within the VA. And my concern is that we are probably spending billions of dollars more than we have to in drugs, you know, for our Veterans. 

Response: VA is cognizant of potential for conflicts of interest, especially 

in regard to formulary management. In order to become a member of the 

voting bodies of the MAP and VPEs, an individual is unable to have financial ties to a drug manufacturer within the previous 12 months. In addition, 

each PBM clinical pharmacist specialist, MAP physician, and VPE completes an annual Confidential Financial Disclosure or in some cases, Public 

Financial Disclosure Report and is subject to the requirements of the Ethical Standards of Conduct for Employees of the Executive Branch. Each 

MAP and VPE meeting or conference call agenda where VA formulary 

issues are discussed includes a listing of the drug manufacturers at the end 

of the discussion item. Per VHA HANDBOOK 1004.07 Financial Relationships between VHA Health Care Professionals and Industry, verbal disclosures are solicited by the chairperson at the beginning of each of these 

meetings (and at appropriate times during that meeting for any late-arriving members). Any reported financial disclosures or perceived conflicts of 

interest are recorded in the minutes for that meeting and the individual is 

asked to recuse themselves from the discussion and are not allowed to participate in the voting for that issue. Requests for VA National Formulary 

addition initiated by a VA provider require accompanying disclosure of any 

potential conflicts of interest. 

In order for the VA formulary process to succeed, the MAP and VPEs understand the value of input from VA providers in the field treating the Veteran; however, it is important that comments are free from potential bias. 

Therefore, a request for financial disclosure accompanies all new molecular 

entity drug monographs, criteria for use, and drug class reviews when soliciting input from field clinicians. In an effort to improve the process of requesting disclosure of financial relationships and interpreting comments received that may have a perceived conflict of interest, the MAP and VPEs 

recently invited a Medical Ethicist with the VA National Center for Ethics 

in Health care to discuss implementation of VHA Handbook 1004.07 Financial Relationships between VHA Health Care Professionals and Industry, 

which is consistent with current MAP and VPE requirements (http:// 

www1.va.gov/vhapublications/ViewPublication.asp?publID=2102; excerpt 

below): 

‘‘Responsibilities: 

1. Health Care Professionals are responsible for: 

• Avoiding or managing conflicts of interest 

• Certifying in VetPro as part of the VHA credentialing process: I understand that my professional obligations can be compromised by financial 

conflicts of interest; therefore, I will avoid conflicts or seek guidance in 

their management. 

2. Service Chiefs are responsible for: 

• Ensuring that VHA health care professional staff members are oriented 

to the types of financial relationships with industry that pose a potential 

for conflicts of interest. 

• Reinforcing expectations regarding professional norms and conflicts of 

interest by, for example: 

• Reviewing individual prescribing data received from local P&T Committees. 

• Scrutinizing staff requests to use leave to participate in industry-sponsored events. 

• Assessing potential conflicts of interest in staff topic selection for presentations at VA facilities. 

3. Members of VHA decision-making and advisory groups are responsible for: 


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• Making real-time verbal disclosures of potentially conflict-creating financial relationships with industry. 

4. Chairpersons of decision-making and advisory groups are responsible for: 

• Soliciting and managing follow-up on verbal disclosure of members’ financial relationships. 

The handbook applies to any full-time, part-time, or without compensation 

employee or trainee (i.e., physicians, advanced practice nurses, psychologists, 

physician assistants, pharmacists, other associated health practitioners with 

prescriptive authority, and certain administrators) in VHA who makes treatment recommendations that pertain to commercial products or are involved 

in making formulary decisions, in developing clinical practice guidelines or 

institutional policies on care, or in other activities within the health care system that can have a significant effect on the range of treatment options 

available to patients. 

Financial relationships that either constitute a conflict of interest or give the 

appearance of a conflict, including: 

1. Compensation for participation as a member, presenter, moderator, etc., 

on an industry-funded speaker’s bureau. 

2. Compensation for participation as an advisor, consultant, member, presenter, moderator, etc., on an industry-funded advisory board. 

3. Compensation for participation as an author on an industry-funded publication. 

4. Paid expert witness testimony provided on behalf of industry. 

5. Industry-funded education or research grants, honoraria, or low interest 

loans. 

6. Compensation for a paid role (Medical Director, Board Member, Resident 

or Trainee Representative, etc.) on a pharmaceutical, biotechnology, medical device, product, equipment, or technology company or their proxies. 

7. Compensation for participation as developer, speaker, moderator, 

attendee, etc., of industry-funded Continuing Medical Education (CME) 

or other industry-sponsored programs, such as lectures, dinner meetings, 

or teleconferences.’’ 

In addition, VHA Handbook 2003.060Business Relationships between VHA 

Staff and Pharmaceutical Industry Representatives (which is currently undergoing revision via the regulatory process) includes policy to control access of pharmaceutical representatives to VA providers in an effort to minimize disruption of patient care activities and to ensure that only VA approved guidance are promoted by the pharmaceutical industry representative. Only medications that are available on the VANF may be discussed, 

any speaker at an educational program sponsored by industry must disclose 

their financial relationship to the audience and meals may not be provided 

at such meetings. Also per the policy, medication samples (often used in an 

effort for providers in the private sector to begin to prescribe the medication) are not allowed to be distributed directly from the provider to the patient in VA. 

Disclosure of any potential conflict of interest or financial relationship in 

the formulary decision-making process is also addressed in the Principles 

of a Sound Formulary System, which are endorsed by the VA PBM, which 

was a core participant in the Coalition that developed the recommendations. The Principles recognize that: 

‘‘The formulary system, when properly designed and implemented, can 

promote rational, clinically appropriate, safe, and cost-effective drug therapy. The Coalition has enumerated these principles, however, because it 

recognizes that patient care may be compromised if a formulary system is 

not optimally developed, organized and administered. This document contains ‘‘Guiding Principles’’ that the Coalition believes must be present for 

a drug formulary system to appropriately serve the patients it covers.’’ 

By all measures, it is very unlikely that VA is spending more that it has 

to for drugs. VA has a long history of being a national leader in drug safety 

and evidence-based, cost-effective prescribing habits which underscore its 

independence from influence by the pharmaceutical industry. 

Attachments: 


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[The attachments referenced below will be retained in the Committee files. Some attachments are accessible online at the Internet 

links listed.] 

VHA HANDBOOK 1108.08VHA Formulary Management Process, February 

26, 2009. Available at http://www1.va.gov/vhapublications/View Publication.asp?publID=1834 

VHA HANDBOOK 1004.07Financial Relationships between VHA Health 

Care Professionals and Industry, October 21, 2009. Available at http:// 

www1.va.gov/vhapublications/ViewPublication.asp?publID=2102 

VHA DIRECTIVE 2003.060Business Relationships between VHA Staff and 

Pharmaceutical Industry Representatives, October 21, 2003. 

Description and Analysis of the VA National Formulary. Institute of Medicine. January 1, 2000. 

VA Drug Formulary: Better Oversight Is Required, but Veterans Are Getting 

Needed Drugs. U.S. Government Accountability Office. January 29, 2001. 

Available at http://www.gao.gov/new.items/d01183.pdf 

VA Drug Formulary: Drug Review Process Is Standardized at the National 

Level, but Actions Are Needed to Ensure Timely Adjudication of Nonformulary Drug Requests. U.S. Government Accountability Office. August 31, 

2010. Available at http://www.gao.gov/new.items/d10776.pdf 

Aspinall SL, Banthin, JS, Good, CB, Miller, GE, Cunningham FE. VA Pharmacy Users: How They Differ from Other Veterans. Am J Manag Care. 

2009; 15(10) 701–708. 

Sales MM, Cunningham FE, Glassman PA, Valentino MA, Good CB. Pharmacy Benefits Management in the Veterans Health Administration: 1995– 

2003. Am J Manag Care 2005;11:104–12. 

Principles of a Sound Formulary Drug System. U.S. Pharmacopeia. October 

2000. Available at http://www.usp.org/hqi/patientSafety/resources/sound 

FormularyPrinciples.html 

V.A. is Limiting Use of Diabetes Drug, New York Times, October 18, 2007 

available at http://www.nytimes.com/2007/10/18/business/18drug.html?lr= 

2&adxnnl=1&oref=slogin&adxnnlx=1192713524-bGMLReuAbDJNXwuo9QS 

fEw 

FDA significantly restricts access to the diabetes drug Avandia, FDA News 

Release, September 23, 2010 available at http://www.fda.gov/newsevents/ 

newsroom/pressannouncements/UCM226975.htm 

Mr. MICHAUD. My last question involves concerns I have heard 

from veteran service organizations at the local level, on the time 

it takes to get an answer from the Central Office when trying to 

get VA to move quickly in a certain area. 

Since we are centralizing everything, Mr. Downs, in your operation, how can you assure the Subcommittee that VA is going to 

do everything both accurately and in a timely manner as well? Are 

there any assurance you can give us that you will be moving forward quickly, but also ensuring accuracy? 

Mr. DOWNS. Yes, sir. The key to the way we have centralized 

within VHA and the integrated model is that we have centralized 

direction but decentralized execution. So the acquisition people are 

in place at the medical center to do that day-to-day buying. The 

contracting officers are located within the VISN. They work there 

with teams with the facilities to purchase and to develop the contracts that are necessary for the purchases that are required to 

keep the medical center going. 

The feedback mechanism, also we have what we call network 

contract managers at the VISN level, and they coordinate their activities with the nurse care managers (NCMs). They are responVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 I:\VA\61758.XXX 61758

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sible for them. And one of the things that we have is the need to 

always make sure that we have a customer service relationship 

with the facility, the clinical folks and all the people that we deal 

with. 

That has been an ongoing issue with the National Leadership 

Board. This week, I met with them and we went through that process. Two of the network directors are part of what we have called 

an Acquisition Committee. And so they give me feedback from the 

network director’s point of view. I have three facility directors on 

there. They give me feedback. 

I have also acquisition, my network contract manager, SAOs on 

that Committee along with the CLOs or chief logistics officers. So 

I have my field input coming in at all three levels. We have discussed with them policy because if we are going to have policy, 

they need to be able to carry it out. They need to be a part of it. 

And that ability to do that day-to-day purchasing is what is key. 

Now, some of the veterans I know and reference, they worry 

about, you know, are we going to be able to provide service to 

them. Yes, indeed. 

And the issue of rural health which has come in the conversations and the testimony has to do with can the veteran out in the 

rural area get the same kind of service. And, again, that is a balance because we want to serve that veteran there if it is a veteran 

who needs a prosthetic device. And the reason we want them to 

come down to the medical center for a review when they want a 

new one is to see if their health has changed or there has been 

some condition that needs to be addressed. 

The VA has reached out and we try to also provide service in the 

area. We do that through fee basis or whatever necessary means 

that it takes to make sure that veterans are being served where 

they are. We do not want them to make those unnecessary trips 

down, but sometimes from a clinical aspect they need to be looked 

at by the medical team. 

Other times we have the medical team that we will contract with 

in the local area. So it is a judgment call, sir, about how that is 

done. And we are trying to stay on top of all of those kind of issues 

because the veteran is the key person. And, again, it is judgment 

calls. It takes logic and common sense and certainly good communication between the patient and the VA as we try to work out a 

solution for them. 

Mr. MICHAUD. Well, thank you very much. 

I am awfully glad to hear that because, as I discussed with you 

the other day, that is a concern I have heard from veterans in really rural areas; having to drive 4 or 5 hours to go to the medical 

facility. And if they miss their appointment because of a snowstorm, then it is another month or so before they can get back for 

another appointment. That is a huge concern that I have heard 

from veterans who live in rural areas. 

Mr. DOWNS. And I brought that up to the network directors at 

the National Leadership Board and they all agree with what I told 

you is that that was a mistake. When those things happen, that 

is a mistake because when a vet comes down like that and for some 

reason the doctor cannot be there or whatever happens and what 


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they try to do is we put the patient up for a day or a night in the 

hotel and arrange to get it redone the next day. 

So we have a policy in place at the facility to make sure that the 

vet is taken care of. But there are times when things like that do 

happen. But all the network directors assured me that, oh, no, they 

have policies in place out there at the facility level to make sure 

that those long kinds of trips do not happen. And they do happen, 

but we try to make sure it does not happen very many times anyway. 

Mr. MICHAUD. Well, thank you very much, Mr. Downs. I appreciate your testimony this morning and Dr. Buck’s as well. 

I know there will be some more questions that we will be submitting to you in writing and hopefully we can get responses as quickly as possible. 

Mr. Boozman. 

If there are no other questions, I want to thank all three panels 

for your testimony this morning. It has been very helpful and I 

look forward to working with you as we try to sort out some of the 

issues dealing with contracting and procurement. 

So if there are no other questions, I declare the hearing adjourned. 

[Whereupon, at 11:58 a.m., the Subcommittee was adjourned.] 


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A P P E N D I X 

Prepared Statement of Hon. Michael H. Michaud, Chairman, 

Subcommittee on Health 

The Subcommittee on Health will now come to order. I would like to thank everyone for attending this hearing. 

The purpose of today’s hearing is to investigate potential weaknesses in VHA’s 

contracting and procurement practices and explore ways that we can strengthen 

how VHA contracts and procures medical equipments and health care products for 

our veterans. 

In recent years, we have seen many reports and studies on VA’s contracting and 

procurement activities. These reports have identified the need for increased transparency and fiscal responsibility, as well as highlighted problems of inadequate competition and lack of accountability and oversight. 

As a result of these deficiencies in VHA’s contracting and procurement practices, 

veterans may not be getting the latest innovations in health care products. This was 

made evident at our June Health Subcommittee hearing on wireless health technologies and the difficulties that many private companies faced in informing VA 

about their products and getting their products in the hands of our veterans. 

Furthermore, we are all aware of the problem of dirty reusable medical equipments at certain VA medical centers. Today, we will hear from GAO about a study 

that they are conducting on the purchasing and tracking of supplies and medical 

equipment. Their preliminary observations include the potential risks to veterans’ 

safety when there is noncompliance with VA purchasing and tracking requirements. 

Finally, internal control weaknesses with VHA’s use of billions in miscellaneous 

obligations continues to be problem. Because VA contracting officials don’t have sufficient controls over the authorization and use of miscellaneous obligations, it is unclear whether these obligations were for legitimate needs. 

As we can see, the implications of contracting and procurement deficiencies go beyond the fiscal component to have a potentially negative impact on the health care 

that our veterans receive. 

I look forward to hearing from today’s witnesses, as we aim to better understand 

the challenges facing VHA contracting and procurement practices and work together 

to find potential solutions to these challenges. 

f 

Prepared Statement of Hon. Henry E. Brown, Jr., Ranking Republican 

Member, Subcommittee on Health 

Thank you, Mr. Chairman, and good morning. 

I’m pleased to be here today to discuss contracting and procurement issues within 

the Veterans Health Administration (VHA). 

VA’s troubled contracting and procurement processes have long been an issue of 

great concern to this Committee and the subject of various Government Accountability Office (GAO) and VA Office of Inspector General (OIG) reports that continue 

to cite major deficiencies and material weaknesses. 

Given the wide scope of VHA’s reach and budget, it is particularly important that 

we ensure that they have the proper procedures and oversight mechanisms in place 

to ensure that VHA procurement and contracting is done responsibly, appropriately, 

and with proper oversight. 

In that vein, I am particularly concerned about testimony we will hear by the Office of Inspector General that ‘‘. . . data in VA and VHA acquisition support information systems is incomplete and unreliable.’’ 

Without accurate data, we have no idea what we’re doing right, what we’re doing 

wrong, where we are, where we’re going, and where we need help. 


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This is unacceptable within a system that is responsible for the care of our Nation’s veterans and spent a little over nine billion dollars on health care goods and 

services last fiscal year alone. 

Streamlining contracting and procurement processes to eliminate the potential for 

waste, fraud, and abuse while at the same time improving the cost and comfort of 

doing business with VA to ensure our veteran heroes have access to the highest 

quality medical care is and should be at the top of our priority list. 

I look forward to hearing from the witnesses on our first panel about the obstacles 

to doing business with VHA and from the government witnesses on our second and 

third panels about the functioning of VHA’s acquisition system. 

Although we are nearing the end of this legislative session, I am hopeful that we 

will be able to move legislation, H.R. 4221, the Department of Veterans Affairs Acquisition Improvement Act of 2009, introduced by our Ranking Member, Steve 

Buyer. This bill that I am an original cosponsor of would correct the long-term procurement issues within VA and provide greater oversight of VA’s contracting and 

asset management processes. 

I thank you all for being here for this discussion and I yield back the balance of 

my time. 

f 

Prepared Statement of Hon. Russ Carnahan, a Representative in Congress 

from the State of Missouri 

Mr. Chairman, thank you for holding this important hearing on VA Health Administration Contracting and Procurement Practices. I appreciate the attention that 

is being given to this topic and hope that today’s hearing provides insight into contracting and procurement practices that are working and suggestions on how to improve those that are ineffective. 

In July, the House Committee on Veterans Affairs held a much needed field hearing in St. Louis, to address safety lapses at the John Cochran VA Medical Center, 

after 1812 veterans throughout the St. Louis and Illinois area received notification 

that they could have been exposed to blood borne pathogens such as Hepatitis B, 

Hepatitis C, and HIV while receiving dental care at the medical center. Since the 

hearing, I have been encouraged to hear that the Veterans Health Administration 

has implemented some new and more stringent oversight measures for reusable 

medical equipment and expendable medical supplies (like those used in dental clinics and endoscopy clinics). 

However, it is painfully clear that much more work is needed. 

It is critical that the VA identify and rectify any existing problems in regards to 

the purchasing and tracking of reusable medical equipment and expendable medical 

supplies. Yes, contracting and procurement are just small pieces of a much larger 

issue. But the VA must make considerable improvements to all policies and procedures at every step of the process, to make sure that incidents like the one at 

John Cochran Medical Center never happen again, and take whatever steps needed 

to ensure that our veterans are receiving the best health care. 

To all the witnesses today—thank you for taking time out of your busy schedules 

to appear before us. I look forward to hearing your testimony. 

f 

Prepared Statement of Mark T. Munroe, Senior Vice President, Sales and 

Marketing, Mobile Medical International Corporation, St. Johnsbury, VT 

On behalf of Mobile Medical International Corporation, of St. Johnsbury, 

Vermont, I want to thank Chairman Filner, Chairman Michaud and the rest of the 

Members of the Subcommittee for allowing me to testify here today. My name is 

Mark Munroe, Senior Vice President of Sales and Marketing for Mobile Medical. 

Mobile Medical is an international company that develops and manufactures commercial and military mobile surgical hospitals which meet all U.S. health care 

standards. These mobile health care solutions are rapidly deployable, fully integrated, self-contained and present innovative solutions for today’s health care delivery needs. My purpose here today is to explain how Mobile Medical has worked with 

VA medical centers throughout the country, while describing some of the challenges 

associated with those experiences and pointing out some of our exciting success stories. 

Let’s begin with the New Orleans VA medical center. As you are aware, Hurricane Katrina struck New Orleans 5 years ago. Since Katrina, the New Orleans VA 


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Medical Center has not provided surgical or endoscopic services to the veterans of 

New Orleans. Veterans in the New Orleans region must seek out care at other facilities within the system. This often causes veterans to wait for needed procedures, 

or travel greater distances to receive the care they need. In January 2009, Mobile 

Medical moved to mitigate this disruption of services by responding to a request 

from the New Orleans VA Medical Center leadership for a proposal involving mobile 

surgery units. These units were to be used to meet a variety of needs and to serve 

as a temporary surgical facility during the hospital re-building process. 

The New Orleans VA issued a solicitation on FedBizOps in May 2009 for mobile 

surgery units. This solicitation was subsequently cancelled and re-directed to the 

GSA schedule. It should be noted that while Mobile Medical was in the process of 

contracting with GSA, code compliant mobile surgery units did not exist on the GSA 

schedule. As a result of this action, companies with GSA contracts responded, but 

none of them, including the one to whom the GSA solicitation was ultimately awarded, met the VA criteria for a history of producing and deploying regulatory compliant Mobile Surgery Units. In addition, Mobile Medical learned that its proprietary 

company confidential information, provided as part of its January proposal, had 

been released to over 70 GSA schedule holders. Quoting from the attached summary 

of Mobile Medical’s Federal legal action, ‘‘Judge Horn clearly found that the VA’s 

actions were improper and the attempted modification was beyond the scope of the 

GSA schedule program. An agency placing an order under the GSA schedule program may not simply send out an RFQ as a ‘‘solicitation feeler,’’ evaluate quotes 

for items that do not exist on anyone’s GSA schedule contract, and then hope a selected contractor can convince the GSA a modification is within scope of their existing contract by the time the agency places an order. Such an end-run, which occurred in the case, violates even the most basic requirements of fair and open competition for Federal contracts.’’ 

As a small business working in a hub zone during difficult economic times, the 

last thing our company ever expected would be the need to sue the U.S. Government 

for actions taken during a procurement process. It should be noted that the legal 

costs alone with this process have run in excess of $300,000 dollars. Clearly oversight is necessary to ensure that other small businesses like Mobile Medical do not 

encounter this type of situation. 

Standing in stark contrast to Mobile Medical’s experience in New Orleans is our 

very positive experience serving the needs of veterans at the VA Medical Center in 

Muskogee, Oklahoma. At the Muskogee VA, Mobile Medical is providing two mobile 

surgery units in support of a full operating suite renovation project. The leadership 

at the Muskogee VA Medical Center, from the Director to the contracting officer, 

facilities engineering and surgical team, should be commended for their work on 

this model project. In this forum I am pleased to do that today. During a recent 

customer visit, a member of Mobile Medical’s Board of Directors, retired Air Force 

Surgeon General, Paul K. Carlton, learned from VA officials that this facility is saving over $9 million dollars in construction costs by closing all of their operating 

rooms for the duration of the renovation period rather than phasing in the renovation. Quoting Dr. Carlton in his report to Mobile Medical, ‘‘the renovation project 

began in 2008 with strong leadership. After researching alternative options, the 

Medical Center closed five operating rooms and the project began using two Mobile 

Surgery Units. By doing this they are shaving $9.3 million dollars off the original 

construction quote for the project, even after spending $3.6 million to lease the mobile surgical units.’’ The medical center is also avoiding another $14 million dollars 

that would have gone to local hospitals to carry the center’s surgical caseload during 

the renovation for a total savings of $23.3 million dollars.’’ Included in your packet 

is a copy of Dr. Carlton’s full report to Mobile Medical. General Carlton’s findings 

at the VA medical center in Muskogee support Mobile Medical’s previous testimony 

to this Committee that a project utilizing 5 mobile units to support OR renovations 

projects around the country over a 3-year period would save the VA $90 million dollars. Those savings are in the attached executive summary and we urge Members 

to note that the Senate Military Construction/Veterans Affairs Subcommittee has 

included language in its report to the Senate (Report Number 111–226) urging the 

VA to utilize qualified mobile surgical units in OR renovation projects where such 

utilization clearly offers savings. I have attached the report language to my testimony. Mobile Medical has continually pointed out the significant cost avoidance that 

the VA can achieve nationally by applying the methods described above in many VA 

OR renovation projects. The Senate Mil/Con Appropriations Committee has responded with its recommendation to the VA. We restate again today our belief that 

20 mobile surgical units could save over $1.5 billion dollars in 5 years of OR renovation scenarios. 


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1FSS schedules are most commonly referred to as ‘‘GSA Schedules’’ or Multiple Award Schedules (‘‘MAS’’). To avoid confusion, the memorandum will refer to the FSS program as the ‘‘GSA 

Schedule Program.’’ Under the GSA Schedule program, Government customers have access to 

over 11 million commercial supplies and services at volume pricing. The items must be ‘‘commercially available’’ to qualify. Because these items are pre-qualified, commercial items, the GSA 

has pre-determined these items satisfy all FAR competition and price requirements. 

Items may be reviewed through the GSA Schedule List, which contain a list of all GSA Schedules. Government contractors in turn enter into ‘‘schedule contracts’’ with the GSA in order to 

offer products through the GSA Schedule Program. This memorandum will refer to these contract holders as ‘‘GSA Schedule Contractors.’’ 

For more information, please visit: http://www.gsa.gov/portal/content/104447. 

2 No. 10–148C, Court of Federal Claims, August 31, 2010. 

A final example of a successful project is the VA medical center in Miami, Florida. 

Miami is currently utilizing six Mobile Units during a full operating room renovation project. While the Miami project was also challenged through the contracting 

process, again strong leadership was the key. Dr. Seth Spector, Chief of Surgery, 

has kept the project moving forward and in August of this year Miami was able to 

turn their operating rooms over to the Army Corp of Engineers for renovation, while 

continuing to provide full surgical services to the veteran’s of the Miami service 

area. 

While 5 minutes is a short time to share with you all of the successes and weaknesses in the VA contracting process, I am sure you will find our supporting documentation compelling. I look forward to any questions you may have and thank you 

for your time this morning. 

Summary Federal Claims Court File No. 10–148C 

On August 31, 2010, the Court of Federal Claims issued an Order acknowledging 

the Department of Veterans Affairs (‘‘VA’’) misused the General Services Administration’s (‘‘GSA’’) Federal Supply Schedule (‘‘FSS’’ or ‘‘GSA Schedule’’) 1 by attempting to purchase sophisticated mobile surgery units off of the GSA Schedule through 

an improper, out-of-scope modification to an existing GSA Schedule Contract that 

does not offer mobile surgery units. While the Court dismissed the case on other, 

unrelated grounds, the Court acknowledged Mobile Medical International Corporation (‘‘MMIC’’) was correct in asserting the modifications were beyond the scope of 

the GSA Schedule Contractor’s existing products. Therefore, the VA clearly acted 

improperly for attempting to use the GSA Schedule program to buy a sophisticated 

product (mobile surgery units) that were not otherwise on the GSA schedule. 

The case, Mobile Medical International Corporation v. United States, 2 arose of out 

sole source negotiations between MMIC and the New Orleans Veterans Affairs Medical Clinic in New Orleans, Louisiana. Hurricane Katrina devastated the New Orleans Clinic, seriously impacting the VA’s ability to offer crucial surgical procedures 

to New Orleans area veterans. As an industry leader and prior sole source provider 

to the VA, the VA naturally reached out to MMIC to help develop and meet the VA’s 

needs regarding temporary surgical solutions. 

However, these fair and open negotiations were derailed when personnel within 

the VA decided that MMIC’s product—sophisticated, fully integrated mobile surgical 

suites that meet all JCAHO and Medicare standards of care for performing invasive 

surgery—could be purchased not from MMIC and not through an open competition 

of contractors who purport to compete with MMIC, but instead through the GSA 

Schedule program. 

As discussed in Footnote 1, generally a ‘‘GSA buy’’ is only appropriate for ‘‘commercial’’ items or services, like a flatbed truck or a box of pencils. Mobile surgical 

trailers, on the other hand, are niche items and are not currently offered through 

the GSA Schedule program. To purchase a sophisticated, niche product like mobile 

surgery units, the VA should have engaged in open competition to obtain a fair and 

realistic price and to ensure fair access to the award. 

But instead of fair, open competition for these mobile surgical trailers (pursuant 

to FAR 15), the VA attempted to avoid FAR 15’s competition requirements and instead sought to modify existing products already offered by a GSA Schedule Contractor. Ultimately, the VA sought to convert a basic expandable truck, commonly 

used for sports broadcasting, into the same code compliant operating room offered 

by MMIC. The Contracting Officer contended, in response to MMIC’s protest, ‘‘that 

the new trailers merely ‘modified the already available [expanding trailer] with in 

scope customizations the [VA] required.’ ’’ 


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But the Court determined, even ‘‘[t]aking a liberal view of the trailers offered by 

[the GSA Schedule Contractor] on its modified GSA schedule contract, it would appear that the modified trailers differ significantly from the original expanding trailer and lab trailer on [their] original GSA schedule contract.’’ ‘‘In sum,’’ the Court 

concluded, ‘‘[the GSA Schedule Contractor] was offering non-FSS items in response 

to the FSS RFQ, although its FSS modifications were later approved. The modifications to [its] GSA schedule contract departed so far from the original schedule as 

to render the modified [expandable trailers], certainly with respect to the surgical 

and endoscopy trailers, outside the scope of its FSS contract as reasonably interpreted.’’ 

Although Judge Horn dismissed the action on other, technical grounds related to 

Federal jurisdiction and standing, Judge Horn clearly found that the VA’s actions 

were improper and the attempted modification was beyond the scope of the GSA 

schedule program. An agency placing an order under the GSA schedule program 

may not simply send out an RFQ as a ‘‘solicitation feeler,’’ evaluate quotes for items 

that do not exist on anyone’s GSA schedule contract, and then hope a selected contractor can convince the GSA a modification is within scope of their existing contract by the time the agency places an order. Such an end-run, which occurred in 

the instant case, violates even the most basic requirements of fair and open competition for Federal contracts. 

Texas A&M 

Health Science Center 

Office of Homeland Security 

College Station, TX. 

September 15, 2010 

Mr. Rick Cochran 

President and Chief Executive Officer 

Mobile Medical International Corporation 

2176 Portland Street, Suite 4 

St. Johnsbury, VT 05819 

Subject: Muskogee VA Medical Center Findings 

Mr. Cochran: 

Thank you for the opportunity to represent MMIC as a member of the Board of 

Directors at my recent site visit to the Muskogee VA Medical Center. My findings, 

which clearly offer a substantial savings to the Medical Center and importantly, no 

loss of services for our Veterans, are as follows: 

1. The renovation project began in 2008 with strong leadership and after researching alternative options, the Medical Center closed five operating rooms 

and the project began using two Mobile Surgery UnitsTM away from the old 

operating suites, but still attached to the facility. 

2. The overall project timeline for completion of the renovation is 1 year, and is 

on track. 

3. By using two Mobile Surgery UnitsTM the Muskogee VA Medical Center stated 

they are saving four times the amount of a more costly phased in renovation. 

The phased method would have included splitting the project to keep one half 

of the operating rooms open at a time; therefore, significantly increasing, by 

four times the current amount, what the total project cost would have been. 

4. By keeping surgical procedures in house, this is allowing utilization of the OR 

staff members; rather than potential for loss of the staff during the renovation. 

5. Hard cost savings: 

a. OR renovation would have cost $17.2M using a split method. It cost $4.3M 

to do all at once=a hard cost savings of $12.9M. Then subtract the $3.6M 

to rent the units from the savings of $12.9M=$9.3M total cost savings, not 

avoidance, savings! 

b. Lower infection rates by at least a factor of two or three. Documented during actual split operation renovation projects. Each wound infection is estimated to cost $20,000, so the expected 1.5 percent wound infection rate 

would have yielded 1200 cases x 1.5 percent=18 cases during normal operations. If the infection rate doubled, we would have seen 36 wound infections, plus a tremendous amount of misery for the patient. This method 

avoided that extra 18 wound infections, saving 18 x $20,000=$360K. 


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c. Total cost savings then total $9.3M plus $360K=$9.66M. 

6. In addition there are other positives to consider: IF the OR’s were closed and 

cases sent downtown, THEN: 

a. At 600 cases per room per year, each case costing $12,000 to send downtown, that means each room was worth at least $7.2M. The total cost of 

renting the units was $3.6M. So the cost avoidance would be 2 × 

$7.2=$14.4, minus the cost of leasing the units at $3.6 meant a cost avoidance of at least $10.8M! The VA, when they saw these numbers, said the 

real cost would be some multiple of $12,000—probably at least 3 times as 

much. That meant a cost avoidance of at least 3 × $14.4 = $43.2M minus 

the cost of the units at $3.6M = $39.6M by using the two Mobile Surgery 

UnitsTM! 

b. The medical centers would have had to close without the ability to do emergency surgical cases. 

c. The OR staff could have been lost entirely, no work. The VA could have had 

trouble finding staff again. 

d. The VA could not have fulfilled its readiness mission. 

In conclusion, hard cost savings of $9.66M plus additional cost avoidance of up 

to $39.6M, plus the other positives make this a very wise decision for the VA system! This method should be evaluated for use throughout the entire VA system. 

Sincerely, 

Paul K. Carlton, Jr., MD, FACS 

LtGen, USAF, MC, retired 

Director, Office of Innovations and Preparedness 

CALENDAR NO. 469 

111TH CONGRESS 2D SESSION 

SENATE REPORT 111–226 

MILITARY CONSTRUCTION AND VETERANS AFFAIRS, AND 

RELATED AGENCIES APPROPRIATION BILL, 2011 

JULY 19, 2010.—Ordered to be printed 

MR. JOHNSON, from the Committee on Appropriations, submitted the following 

REPORT 

[TO ACCOMPANY S. 3615] 

The Committee on Appropriations reports the bill (S. 3615) making appropriations 

for military construction, the Department of Veterans Affairs, and related agencies 

for the fiscal year ending September 30, 2011, and for other purposes, reports favorably thereon and recommends that the bill do pass. 

Amounts in new budget authority 

Total of fiscal year 2011 bill as reported to the Senate ......................$143,530,131,000 

Total of fiscal year 2012 advance appropriations included in this 

bill ........................................................................................................ 50,610,985,000 

Amount of 2010 appropriations ............................................................ 182,750,300,000 

Amount of 2011 budget estimate .......................................................... 143,531,666,000 

Bill as recommended to Senate compared to— 

Amount of 2010 appropriations .....................................................¥39,220,169,000 

Amount of 2011 budget estimate .................................................. ¥1,535,000 

57-470PDF 


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Page 47 

Cost Saving Initiative.—Over the past decade, the Department has undertaken an 

effort to modernize its medical facilities through new construction and renovation. 

This recapitalization effort is imperative to the delivery of high quality medical care. 

Often when a new surgical ward or other treatment facility undergoes construction, 

the VA has to find alternative areas for treatment or contract care to non-VA medical providers. The Committee believes that the VA could achieve cost savings during renovation or construction by either leasing or purchasing mobile units. The 

Committee encourages the Department to launch a pilot project in at least two 

VISNs that have renovation or construction projects underway, to lease or purchase 

mobile surgical units through a full and open competition while construction is underway. Additionally, the VA should develop metrics for a cost benefit analysis to 

determine whether this approach has achieved savings versus contracting care 

through local medical providers. 


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Presentation by 

Mobile Medical International Corporation 

World-class mobile medical facilities for commercial, military, international 

and emergency response applications 

2176 Portland Street • St. Johnsbury, VT • USA • (802) 748–2322 

www.mobile-medical.com 


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f 

Prepared Statement of Derek Newell, MPA., MPH, President, 

Robert Borsch Healthcare, Palo Alto, CA 

Mr. Chairman and other Members of the Committee: Thank you for giving me the 

opportunity to provide testimony to the Committee. My name is Derek Newell and 

I am President of Robert Bosch Health care. Bosch, which makes the Health Buddy 

and T–400 remote monitoring devices, has been providing remote patient monitoring 

in the Veterans Health Administration (VA) since 2003 and is the largest provider 

of in-home monitoring services to the VA. Bosch serves over 30,000 veteran patients 

and accounts for approximately 70 percent of the remote monitoring devices used 

by the veteran population. 

The population we serve suffers from chronic illnesses like congestive heart failure, diabetes and lung disease, and most have more than one condition. The Health 

Buddy and the T–400 Systems collect patient symptoms and vital signs, such as 

blood pressure or blood sugar levels, and provide education and self-support tools 

through a series of questions answered by patients. The responses are prioritized 

by risk and transmitted to care managers within the VA. This risk stratified output 

then enables care managers to quickly determine what kind of intervention is necessary for each patient, preventing escalation of symptoms. 

These technologies have demonstrated positive results in improving the health 

care of our Nation’s veterans’ population and in reducing costs, for example, 25 percent reduction in inpatient days and 19 percent reduction in hospital admissions. 

The VA has been visionary in building upon the successes of this rapidly emerging 

segment of the health care delivery system. 

Regarding improvements in the procurement process, first, we applaud the transition of procurement and purchasing of home monitoring devices to the Denver Acquisitions Center, which will integrate and mainstream procurement practices for 

home monitoring technologies, including the Health Buddy, and T–400. The purchasing was previously done through the prosthetics department, which is excellent 

at purchasing physical objects, but is not accustomed to purchasing devices that also 

have content, applications and services integrated with them. Our devices are required to be connected to our data centers and to be available to upload data from 

the veteran and download content and programs for the veteran. Moving the procurement to the Denver Acquisitions Center allows separate payment for materials, 


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applications, content and services, which will be increasingly important as these elements become increasingly intertwined with physical devices. 

While we compliment the VA’s innovation to date, we believe there are a number 

of ways that Congress could assist the agency in improving the contract and procurement process to expedite greater use of home-based remote health care and 

other innovative technologies. 

Based on our experience, I suggest the following enhancements that would improve contract and procurement processes in the VA. 

• Preferred Partners: The cost of some of the systems and technologies, as well 

as the cost of continual innovation, require vendors to have some reasonable 

sense that they will have a successful relationship with the VA. Currently, remote monitoring vendors need to commit to installing hardware in a data center 

within the VA as well as within a backup data center within the VA. After this 

they are free to sell their technologies to the related VISN’s, but there is no 

guarantee on how many units the VA will buy or how many units any vendor 

would sell. Rather than have a broad spectrum of vendors (the current proposal 

is 6), we recommend a more limited number of vendors with a larger commitment to and from each vendor (maximum 3 vendors). This would meet the VA 

goals of ensuring adequate competition within the VA and avoiding major supply disruptions if one vendor has financial or production problems, but it would 

also ensure a viable market for each vendor within the VA. 

Targeted Innovation: Recently the VA has started communicating to partners 

about its vision of veterans’ health needs and priorities, however this could still be 

improved. Better communication and funding targeted innovation with preferred 

partners would enable us to respond in a more timely manner to the needs of the 

VA and to be partners in finding solutions. At present, a majority of our information 

comes only when a solicitation is released. Only then do we have a concrete knowledge of the VA’s national perspective and the goals and priorities. The short turnaround cycles for proposal submissions do not allow for the innovation that would 

be possible with longer planning cycles. The recent Innovation grants proposed and 

funded by the VA are a step in the right direction. 

• Introduce continuity into the FSS contracting process by appointing a 

single point of contact for partners. Currently we interact with a variety of FSS 

contract staff, which creates a constant learning curve for them. We encourage 

a move back to FSS’s former process of a consistent point of contact, which 

would streamline information flow and trim down bottlenecks. 

• Greater sharing of information between VHA and other Federal health care 

agencies could expedite telehealth adoption rates by the VA and those agencies. 

We believe poor information-sharing hampers agencies’ ability to make midcourse program corrections and, by keeping information ‘‘under wraps,’’ effectively limits adoption of emerging and known best practices. 

Mr. Chairman and Members of the Committee, we believe these few but concrete 

and specific actions would go a great distance to support the VA’s efforts to expand 

the use of telehealth technologies. In this regard, we admire the VA’s efforts to date 

and hope that our years of experience in interacting with the agency as a private 

vendor will be of use to the Committee. 

I appreciate this opportunity to testify and would be happy to answer any questions you might have. 

f 

Prepared Statement of Lincoln Moss, Senior Vice President and 

Chief Operating Officer, Ramtech Building Systems, Inc., Mansfield, TX, 

on behalf of Modular Building Institute 

Chairman Michaud, Ranking Member Stearns and Members of the Committee, I 

am Linc Moss, Senior Vice President and Chief Operating Officer of Ramtech Building Systems, Inc. a vertically integrated design-build commercial modular construction firm based in Mansfield, Texas. I am testifying today on behalf of MBI—the 

Modular Building Institute—a not-for-profit trade association established in 1983 

that serves to represent companies involved in the manufacturing and distribution 

of commercial factory-built structures. 

MBI appreciates the opportunity to speak to the Committee on ways to improve 

contracting with the Department of Veterans’ Affairs (VA). Throughout the construction industry there has been concern with the VA as to the solicitation of construction projects that call for a delivery system referred to as ‘‘Design-Bid-Build.’’ 


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This traditional project delivery method is often more costly and less efficient than 

other delivery methods and its restrictive nature prohibits alternate forms of construction such as permanent modular, tilt-wall and pre-engineered steel construction from being able to participate in the bidding process. Within the last few 

months there have been two separate RFP’s issued by the VA that Ramtech was 

interested in bidding on. However, because the RFP was issued using a Design-BidBuild approach, Ramtech and other alternative forms of construction firms were unable to participate. 

As is explained in greater detail throughout this testimony, the Department of 

Veterans’ Affairs could greatly improve the way it solicits construction projects if it 

utilized an alternate project delivery system known as ‘‘Design-Build.’’ Over the past 

decade, the use of Design-Build has greatly increased in the United States, making 

it one of the most significant changes in the construction industry. The Design-Build 

method, which has been embraced by several government agencies, including the 

United States Army Corps of Engineers (USACE), streamlines project delivery 

through a single contract between the government agency and the contractor. This 

simple but fundamental difference not only saves money and time, improves communication between stakeholders, and delivers a project more consistent with the agency’s needs, it also allows for all sectors of the construction industry to participate. 

The Increased Use of a Design-Build Delivery System—How would it benefit 

the Department of Veterans’ Affairs? 

The Design-Build project delivery system offers the VA a variety of advantages 

that other construction delivery systems cannot. Typically, under the Design-Build 

approach, an agency will contract with one entity to both design and construct the 

project. This is in contrast with Design-Bid-Build, where an agency has to contract 

with multiple entities for various design and construction scopes during the construction project. 

By greater utilization of the Design-Build delivery system, the Department of Veterans Affairs can achieve these goals: 

• Faster Delivery—collaborative project management means work is completed 

faster with fewer problems; 

• Cost Savings—an integrated team is geared toward efficiency and innovation. 

Furthermore, with Design Build, construction costs are often known far earlier 

than in other delivery methods. Because one entity is typically responsible for 

the entire project, they are able to predict costs more accurately than when a 

Design-Bid-Build system is utilized. The contracting for Design-Build services 

allows the agency several decision points during design. The decision to proceed 

with the project is made before substantial design expenditure and with knowledge of final project costs; 

• Quality—Design-Builders meet performance needs, not minimum design requirements, often developing innovations to deliver a better project than initially foreseen; 

• Single Entity Responsibility—one entity is held accountable for cost, schedule and performance. With both design and construction in the hands of a single 

entity, there is a single point of responsibility for quality, cost, and schedule adherence. The firm is motivated to deliver a successful project by fulfilling multiple objectives, such as with the budget and schedule for completion. With Design-Build, the owner is able to focus on timely decision-making, rather than 

on coordination between designer and builder; 

• Reduction in Administrative Burden—owners can focus on the project rather than managing separate contracts; 

• Reduced Risk—the Design-Build team assumes additional risk. Performance 

aspects of cost, schedule and quality are clearly defined and responsibilities balanced. Change orders due to errors are virtually eliminated, because the designbuilder had responsibility for developing drawings and specifications as well as 

constructing a fully-functioning facility. 

Just to underscore the benefits of a Design-Build project delivery system, the Construction Industry Institute, in collaboration with Pennsylvania State University 

performed a study examining the various construction methods and found that: 

• Unit Cost: Design-Build was typically 6 percent less costly than a Design-BidBuild system; 

• Delivery Speed: Design-Build was 33 percent faster than Design-Bid-Build; 

• Quality: Design-Build met and exceeded quality expectations at all levels 

Unfortunately, the Department of Veterans’ Affairs has been unwilling to embrace 

the Design-Build construction method as much as other Federal Agencies. According 


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to VA personnel, only 30 percent of VA solicitations call for a Design-Build delivery 

system, while the rest rely on a Design-Bid-Build delivery method. 

As our Nation prepares for an influx of returning warriors, it is imperative that 

we are able to provide them with the services that will help them assimilate into 

civilian life. Medical clinics, dental facilities, physical rehabilitation facilities, mental health treatment facilities as well as interim veteran housing will need to be 

provided in an efficient and cost effective manner. By adopting the Design-Build approach, the VA could provide these facilities in a compressed time frame while ensuring that the product delivered is top quality. 

A Design-Build System Opens Opportunities for Alternative Design Offerings 

By utilizing a Design-Build philosophy, the Department of Veterans Affairs could 

allow for sectors of the construction industry, such as modular construction, tilt-wall 

and pre-engineered steel to offer products as well as project means and methods 

that are currently not exercised due to the restrictive nature of Design-Bid-Build 

project delivery methods. 

Numerous permanent modular contractors such as Ramtech have performed services for the VA facilities but because of the limited amount of Design-Build solicitations, the opportunities are severely limited. 

Recently, the National Institute of Standards and Technology (NIST) released a 

report identifying modular construction as an underutilized resource and a breakthrough for the U.S. construction industry to advance its competitiveness and efficiency. One of the findings in the NIST report was ‘‘Greater use of prefabrication, preassembly, modularization, and off-site fabrication techniques and 

processes.’’ 

For those of us who specialize in alternative construction such as permanent modular, this report simply validated what has been known for a long time: Construction methods such as permanent modular leads to improved efficiency and productivity. 

By greater utilizing the Design-Build delivery system into the Department of Veterans’ Affairs construction policies, the VA could greatly increase the amount of 

projects that contractors utilizing alternative forms of construction could participate 

in and therefore experience the benefits as outlined in the NIST report. 

Let me emphasize that alternative construction methods such as permanent modular are not always the solution. There is no one perfect building system for every 

application. However, by expanding opportunities for them to be part of the process 

the Federal Government can be assured that it gets the ‘best value’ by seeing all 

the options before awarding a contract. 

The Design-Build Delivery System Enhances Service-Disabled, VeteranOwned Small Business Participation 

Because the Design-Build method typically relies on a single source for both the 

design and construction of the project, Design-Build contractors often partner with 

architectural/engineering firms to assist in the design of the project. This fact facilitates partnering between Service Disabled, Veteran-Owned Small Business with 

construction firms such as Ramtech that perform the work. 

Because of this direct working relationship between the SDVOB and the DesignBuild contractor, the project is consolidated eliminating unnecessary levels within 

the project structure. Because the Design-Build method encourages these relationships, businesses such as those that comprise the membership of MBI have forged 

excellent partnerships with SDVOB’s to perform on projects for various government 

agencies. 

In the permanent modular construction field, a relationship with a contractor 

such as Ramtech means that a SDVOB partner will get approximately 60–70 percent of the building delivered and installed by Ramtech while a SDVOB partner performs the site work, utility connections, foundation and roof. SDVOB’s often do not 

have the logistical capability to site- build an entire building, but they have the ability to perform other critical functions that comprise 30–40 percent of the project. 

Undoubtedly, one of the top goals of the VA is to ensure that there are increased 

contracting opportunities for SDVOB’s with the VA. To that end, MBI feels that 

simple changes could greatly increase SDVOB participation in construction projects. 

One way to expand the involvement of Service Disabled, Veteran Owned 

Businesses is by encouraging and expanding the use of the Design-Build 

approach. 

Conclusion 

Contractors that rely on a Design-Build delivery system have, and continue to 

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fairs. While businesses such as Ramtech are anxious to compete, the current trend 

of Design-Bid-Build projects issued by the VA inevitably prohibits that participation. 

The construction industry has seen great advances over the past 10 years, and 

one of those is the Design-Build delivery system. More and more contractors are beginning to utilize Design-Build because of the advantages that are offered. However, 

until agencies such as the VA decide to solicit more projects using a Design-Build 

method, these companies will be unable to participate. The members of MBI ask 

that the Veterans’ Affairs Committee look into the issues discussed today in the 

hopes of improving the way the VA procures construction projects. Our recommendations would ensure that the Federal Government gets the ‘best value’ and 

also maximizes opportunities among SDVOB’s and alternative construction methods. 

On behalf of MBI, as well as on behalf of Ramtech Building Systems, Inc, I thank 

you for your time and attention to these matters. It is our hope the Committee can 

continue to rely on MBI as a valuable resource when it comes to issues relating to 

the construction industry. 

Respectfully Submitted. 

f 

Prepared Statement of Jay Wise, Ph.D., Chief Executive Officer, 

Wise Knowledge Systems, Inc., Piper Creek, TX 

Introduction 

Wise Knowledge Systems, Inc. (WKS) has produced the Knowledge-based Expert 

Systems (KBES) application as an advanced modeling and simulation/decision discovery and support tool. KBES keys on continual input from whole communities of 

domain experts to evaluate situations and decisions and produce information on optimized strategic actions. This cumulative knowledge continually refines the KBES 

output resulting in a very current and very accurate contribution to actionable 

knowledge. 


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KBES is a learning tool that continually evolves via the use of the experts. 

KBES is accurate at a minimum of 95 percent, and has received important validation and praise from mathematicians at major universities, the Office of the Chief 

of Naval Operations, juried scientific journals, the Smithsonian Institute where it 

is part of their collection, and, in the private sector. KBES has been successfully 

deployed in both private sector operations, and in active military operations. 


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The production of the dynamic assessment of medical readiness for the Navy produced highly accurate and user friendly information on current and future state of 

medical readiness with modeling and simulation to produce optimized strategies for 

medical readiness. 

The architecture of all KBES models and applications supports the interchange 

of values for ‘‘triggers’’ that can open new pathways and establish a different or new 

decision and optimized strategic interventions. All of the KBES analytical engines 

are modular and can be used individually or in tandem. 


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The four KBES analysis engines work both individually and in combination. The 

output of these analyses is actionable action based on the sum of the knowledge of 

the domain experts using the application. In certain cases, the analyses can produce 

a decision or suggest an action that is not part of the typical responses and thereby 

improve the final outcome. 


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Excerpts, reviews and deployment details for all WKS KBES models, technology, 

and applications are available both on request and at the WKS Web site: 

wiseknowledgesystems.com. 

Precise dates and times and full transcripts of meetings and conversations are 

available on request. 

The following is a very small sample of the documents, and communications for 

WKS and the VA since 2004. 

Overview 

10/15/2007 

Dr. Wise met in Washington with Dr. Paul Tibbits. Dr Tibbits says he is aware 

of WKS’ KBES as successfully applied to the Navy Shipboard Medical Administrative Readiness Tool (SMART). Dr. Tibbits says he wishes to identify the best application of the KBES technology for the VA. 

Wise Knowledge Systems, Inc. has received positive praise following analysis of 

KBES technology by: 

Paul Tibbits, M.D.–Veterans Administration 

Roy Pratt–HP 

Joe Goodin–Office of the Chief of Naval Operations 

The Smithsonian Institute 

Dr. John Sharp–UMKC School of Medicine 

Frank Sisti–Software Engineering Institute 

Dr. Dale Alverson–Telemedicine Director, University of New Mexico 

Ciro Rodriquez–U.S. Congress, House of Representatives 

W.C. Vanderwagen, M.D.–Indian Health Service 

Wendell Porth–St. Lukes Lutheran Hospital 

Richard A. Cooper–Trinity University, Department of Mathematics 

Bill Silva–Dyncorp 

Wise Knowledge Systems, Inc. clients, since 1985 

Although WKS continued to provide the full information/material to Dr. Tibbits 

since our initial meeting with him, the following individuals have, in meeting with 

WKS, said initially that they have either not received any information from Dr. 

Tibbits, and/or, they have not reviewed the material. Following their review 

with Dr. Wise each said that the KBES application would support the VA/ 

VHA health mission with veterans. Other than Ms. Lloyd, VHA, and Ms. 

McCutcheon, VA OAL, each said that they would recommend a pilot KBS 

project for VA to Dr. Tibbits. Importantly, Dr. Tibbits wrote the most positive 

evaluation of KBES for the VA, yet he failed to put KBES on the ‘‘list’’ for 

prioritization for acquisition. Other than Ms. McCutcheon, each of these individuals said they would not acquire KBES because: ‘‘the VA is broken, nobody here wants to work/it is hard to find anybody at the VA who wants to 

work, and the VA is not mature to use this technology’’. 

This response may be seen as rather extraordinary when one reviews the assessment given by Dr. Tibbits himself, and by Joe Goodin of the Office of The Chief of 

Naval Operations. 


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The following is the SPAWAR evaluation as edited by Dr. Paul Tibbits. 

POINT PAPER 

10 Sept 2009 

Subj: Use of modeling and expert system to strengthen system development lifecycle 

(SDLC), as related to IT systems capacity planning. 

BACKGROUND 

On an enterprise level, the SDLC processes present at the VA are still too fragmented, with multiple opportunities for improvement in process documentation, 

modeling, and standardization, as well as accuracy of capacity forecasting and adherence to software efficiency constraints. 

If applied properly, the use of the modeling and exper systems approach has the 

potential to provide significant value to the SDLC processes by: 

• Facilitating process and data discussions with stakeholders; 

• Modeling transaction volumes based on actual vs paper based processes and 

‘‘what if’’ variations in between; 

• Aligning SDLC processes and organizations; 

• Identifying potential root cause issues based on similar process data; 

• Supporting change and communications. 

• Deploying in a modular, flexible, and secure manner with lowest possible risk 

of poor systems performance. 


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The implementation of modeling and expert systems methodology could yield 

early benefits in facilitation and communications while benefits surrounding toolsets 

and data modeling would be limited until process alignment has been achieved and 

initial data is available for use in the models. 

ANALYSIS 

MODELING AND EXPERT SYSTEMS METHODOLOGY

There are a variety of commercial approaches to use of modeling and expert systems which approach process modeling, knowledge management, and data analysis 

in a proprietary manner. 

Value in process modeling, knowledge management, and data analysis are typically seen in 3 discrete areas: Communications facilitated by the knowledge, data 

gathering, modeling process; the extensibility of the models themselves; and the potential for root cause analysis and process improvement based on data and structural analysis. 

• Communications facilitation value is typically measured as ‘‘soft’’ returns. Benefits can be seen in training/mentoring, team building, and other areas of organizational and individual development. 

• Model extensibility value can be measured by perceived benefits to functionally 

related processes which allow for value to be replicated with less cost and/or as 

ongoing management tools such as dashboards and training toolsets. 

• Root cause analysis can be an outcome of both modeling and data analysis. 

• Value in data analysis is dependent on the amount and type of data available. 

Detailed data modeling implies sufficient data to make it useful for achieving 

buy in on outcomes 

• Benefits of data analysis are limited typically by confidence in models and 

quality of data. The confidence in the model is based on the transparency of 

the modeling process and the facilitation approach. The quality of data is 

often in question when processes are not standardized or if stakeholders are 

not involved in developing underlying assumptions. 

MODELING AND EXPERT SYSTEMS

• Are flexible and modular. 

• Have been deployed on a number of databases and operating environments. 

• Can receive either ‘‘stand alone,’’ ‘‘batch,’’ or ‘‘real-time’’ data inputs based on 

standard data base sharing techniques. 

• Have been accredited and deployed in DoD environments. 

• Can be a reasonable methodology for leveraging benefits in a secure and flexible 

manner. 

Ms. McCutcheon simply said ‘‘I see no value in it. You (WKS) can start 

over with the VA!’’ 

These individuals are: 

Navy Captain Christine Boltz 

Greg Donham—VA 

Navy Commander Margret Beaubein 

Dr. Julius Chou 

Ms. Susan Lloyd—VHA 

Dr. Michael 

Valivullah—VA 

Dr. Pat Pearcy—SPAWAR 

Ms. Wendy McCutcheon—VA OAL 

Dr. Tibbits says his efforts and funds are spent to ‘‘support the status quo’’ at the 

VA. Dr. Tibbits says ‘‘I will just go down the hall and get the money from my boss’’. 

Dr. Tibbits said that Ms. McCutcheon was now the sole authority for acquisition for 

the VA for health and medical applications and that the first people funded by her 

office were ‘‘raving’’ about her performance. 

Dr. Tibbits and Ms. McCutcheon say that, though they know WKS is a 

Veteran owned small business, they will not consider Wise Knowledge Systems, Inc. using the GSA, because the ‘‘GSA is not helping us (VA)’’. 

Cathy Wiblemo of Chairman Filner’s office reports she has heard/seen nothing in 

response to Chairman Filner’s request to the Secretary of the VA for the Secretary’s 

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spond by November 16, 2007’’, Ms. Wiblemo has said there remains no response by 

the Office of the Secretary of the VA to this request by Chairman Filner. 

Following a conversation with Chairman Filner’s staff, Chairman Filner and I 

spoke and he invited me to testify at this hearing. 

Summary 

Since 2004, WKS has been in communication with leadership at the VA to develop 

an understanding of a potentially important, potentially life saving, resource allocation technology to the VA. This is WKS Knowledge-Based Expert System (KBES) 

technology. KBES has received very positive technical reviews as an advanced modeling and simulation decision, support technology from every point of assessment to 

which it has been assigned by both the Navy and the VA, and in the private sector. 

The critical health area of CRTBI and the fundamental nature of SDLC development for the VA make positive movement on these topics significant to the mission 

of the VA. There is clearly an important ethical issue of the VA being enabled 

to keep its promise and deliver its mission to American veterans. 

Once a technology has been tested, evaluated, praised, and successfully focused 

on an emergent health issues or in support of technology that supports health; nonresponse is an unacceptable option. The leadership at the VA, their staff and colleagues all seem to agree that the KBES technology could be very good for the VA, 

but some persons of authority have decided that they will not attempt to acquire 

or apply KBES because the VA is’’ not mature, is broken, and that the people at 

the VA do not want to work’’. These individuals at VA seem to be defaulting the 

responsibility for a decision. Failing that they simply do not respond. 

It is an unfortunate part of our American history that treaties (contracts) were 

made with the American Indian tribes to remove them as an obstacle to what was 

called progress. These treaties or agreements were made by our government knowing they would not be kept. The explanation for this fraudulent manipulation was 

often that ‘‘Indians are not people/they are not human beings’’. One wonders if the 

individuals mentioned above at the VA, in maintaining the ‘‘status Quo’’, failing to 

provide state-of-the-art medical and health care to our young people enlisting in the 

service, while referring to the VA as ‘‘immature, broken and not willing to work’’, 

also considers these young Americans as ‘‘not human beings’’. 

This arrogant and non-productive behavior is not appropriate when the health 

and lives of American Veterans, and their families are at risk. 

While it is clear that the vast majority of individuals at the VA are sincerely dedicated to American veterans and do want to work for the mission of the VA, there 

remains a few in leadership positions who frustrate the evolution of the medical responses and capabilities now available to the VA. WKS recommends installing and 

supporting qualified individuals in these important positions who have the experience and expertise to follow up on positive evaluations, and acquire state-of-the-art 

advanced medical and health care technology, like KBES. Saying that ‘‘the VA is 

broken and nobody here wants to work’’ as the rationale for non-acquisition of proven technologies does not support the critical mission of the VA, nor does it compliment those at the VA who work hard and are not broken and give much more 

than for hollow lip service for American veterans. We all look forward to a more 

positive approach to acquisition for the future of the VA and American veterans. Do 

the right thing. Honor the contract with American veterans. 

I want to thank the Committee and in particular Chairman Dr. Bob Filner for 

giving our experience a voice. I will try to answer any questions you may have now. 

Respectfully presented. 

Jay Wise 

Wise Knowledge Systems 

f 

Prepared Statement of James A. Clair, M.P.A., M.S., Chief Executive Officer, 

Goold Health Systems, Augusta, ME 

Chairman Michaud, Ranking Member Brown, and Members of the Subcommittee: 

thank you for your kind invitation to discuss Department of Veterans’ Affairs (VA) 

procurement practices and, specifically, how the VA might benefit by incorporating 

certain cost containment strategies within their pharmacy benefit management 

(PBM) and Nursing Home Care programs. I am accompanied today by Lorraine 

Lachapelle, RN, Goold Health Systems’ Director of Community Assessments. 

Goold Health Systems is a national health care management company that specializes in meeting our clients’ specific health care objectives with a special emphasis on cost containment. At all times we are driven by evidence-based medicine and 


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achieving clinically effective outcomes. We manage certain health benefits as directed by our clients in a very detailed, granular level so that health care costs are 

contained and, in many cases, reduced on a per user per year (PUPY) basis. 

Our work is accomplished in ‘‘clinical-analyst teams’’ that are lead by Goold doctors, pharmacists and nurses who team with our data analysts, software developers, 

database administrators and project managers to achieve effective cost-containment 

strategies for our clients. Our primary clients are the State Medicaid Agencies. We 

have offices in Augusta, Maine; Atlanta, Georgia; Cheyenne, Wyoming; and Des 

Moines, Iowa. 

GHS provides four major business offerings to our clients: (1) pharmacy benefits 

services administration; (2) community assessment services; (3) medical prior authorizations; and (4) business outsourcing services. My testimony today will be focused on items 1 and 2 above. 

I would like to preface my remarks by stating that the VA does a very good job 

at providing pharmacy services. They purchase in a very cost-effective manner, have 

a modern and effective dispensing network and have deployed many effective technical and clinical solutions so that our Nation’s veterans receive the services they 

require. 

My testimony focuses on three ways in which the VA can enhance the monitoring 

and evaluation of certain health benefits so that veterans receive their services: 

• Medication Management 

• Pharmacy Program Integrity 

• Long-Term Care Assessments 

1. Medication Management 

The U.S. Department of Health and Human Services’ (U.S. DHHS) Centers for 

Medicare and Medicaid Services (CMS) recommends Medication Therapy Management (MTM)—a program that sets out to ensure optimum therapeutic outcomes, reduce the risks of side-effects when using medications and must be coordinated as 

part of a care management plan. GHS then expands upon MTM by using predictive 

modeling to analyze pharmacy and medical claims data to measure the probability 

of exceeding set cost parameters for high cost users and complex medical conditions. 

Problematic patients are ultimately placed in an Intensive Benefits Management 

(IBM) or Chronic Pain Management (CPM) program. We utilize regression analyses 

that correlate chronic conditions with total drug cost; we then identify individuals 

who would benefit from our targeted interventions. Once in IBM or CPM the patient 

is linked to one physician/prescriber and one pharmacy/dispenser for management 

of complex medical conditions and chronic pain issues, ensuring that those patients 

receive appropriate drug therapies. We provide educational materials and monitoring services to those individuals to help them better understand their medical 

conditions, as well as work with them on medication adherence and potential drug 

interactions. We also work with their providers to help ensure that optimal clinical 

outcomes are achieved. Savings accrue to our clients because of the intensive involvement of the provider, patient and GHS clinical team. Examples of health conditions we focus on for IBM have been narcotics use, asthma & Chronic Obstructive 

Pulmonary Disease (COPD). 

Other examples of Medication Management strategies involve formulary management, which uses our clinical and analytical expertise to most effectively manage 

the drug benefit, including: 

Formulary Management: 15 Days Supply Limit 

GHS performs extensive analyses to identify drugs that have high discontinuation rates shortly after the onset of therapy. It was reasoned that limiting the 

number of days supply of these first scripts would result in savings from reducing waste. About 30 drugs were identified that met our criteria. These drugs 

tend to have high discontinuation rates due to either significant side effects or 

relative lack of efficacy. Targeted areas for this effort include long-acting narcotics, stimulants, psychiatric medicines, urinary and continence products, and 

smoking cessation drugs (e.g, Chantix). 

Formulary Management: Dose Consolidation 

Many existing drugs now only need to be taken once per day. There is a considerable amount of savings available if these drugs are not allowed to be used 

more frequently without good clinical cause. Examples of targeted dose consolidation are Zyprexa and Risperdal, two anti-psychotic drugs that have allowed 

our State clients to save over 1 percent of their pre-rebate expenditures annually by aggressively pursuing dose consolidation. 


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2. Pharmacy Program Integrity 

Program Integrity by definition should ensure that our tax dollars are not put at 

risk through fraudulent violations of the rules or abuses of the system. It should 

ensure that appropriate payments are paid only to legitimate providers for services 

only to eligible beneficiaries. 

Like many other health care managers, we have significantly expanded our Program Integrity efforts over the last few years. Some health care expert’s have found 

that as much as 10 percent of all payments in health care can be attributed to 

fraud, waste or abuse. The National Health Care Anti-Fraud Association estimated 

that 3 percent of the health care industry’s expenditures in the United States are 

due to fraudulent activities. This calculates to an annual amount of approximately 

$51 billion. 

In a recent analysis for one of our State clients we created a ‘‘Monthly Outlier 

Report’’ on pharmacy expenditures and trends. The analysis was performed for each 

drug filled in the previous month, a review of the average amount spent per drug 

and the average quantity per days supply based on quantity limits was undertaken. 

Those drug claims that fell outside established guidelines were flagged for audit. 

This resulted in claims being reviewed as a result of improper use of override codes 

and, subsequently, many of these outlier claims were reversed. For this one State 

client with a pharmacy budget of approximately $200 million per year, we expect 

the results of this specific audit to yield between $500,000 to $1 Million dollars in 

savings. 

By way of example I have listed below two other areas of pharmacy practice that 

are prime candidates for Program Integrity review: 

Automatic Early Refills 

In pharmacy benefit programs like the VA, where there is a heavy reliance on 

mail order, it is important that the mail order provider be monitored to ensure 

that mail order pharmacies wait for the patient to ask for their medication to 

be refilled. This doesn’t preclude a mail order pharmacy from making outgoing 

calls to ask a patient if they would like their next dose of medication sent, but 

it would not allow a mail order pharmacy from automatically sending the prescription to them in all cases. 

Near Duplicates 

Each medication intended for human use is assigned a number called an NDC 

(National Drug Code). It is a unique product identifier that, for example, distinguishes an Oxycodone 10 milligram (mg) tablet from an Oxycodone 20 mg tablet. 

‘‘Near duplicates’’ can occur with generics when a different NDC of the same 

drug/same strength is used a few days after that patient’s first prescription was 

filled. In many cases, this is an appropriate fill due to the legitimate loss of 

medication. However, these can also be billing errors or inappropriate dispensing such that these claims should be reversed. Monitoring utilization at 

this level can yield additional savings to the VA if it is not being done now. 

3. Long-Term Care Assessments 

Through the early 1990’s Nursing Facilities (NF) Medicaid costs were increasing 

at annual rates far exceeding the general inflation rate or even the higher rate at 

which health care costs were increasing. Eligibility determinations for Medicaid NF 

care were determined by the provider, leading to much higher utilization rates than 

otherwise supported by independent review. As a result Maine State Government 

instituted an independent, objective Maine Medicaid eligibility screening process 

with the following objectives: to create a single entry for medical/functional eligibility assessments for long-term care (LTC) programs; to increase consumer participation and control; to educate consumers about in-home long-term care programs 

and other alternatives to nursing and residential facility care; to identify and address caregiver needs; to reduce the long-term costs of services by requiring greater 

emphasis on rehabilitation and health promotion; and to reduce the number of unnecessary admissions to, increase the number of discharges from, and decrease the 

length of stay in, nursing facilities. 

Within strict time parameters set by our client, the GHS Intake Screener’s job is: 

to provide accurate prescreening to determine the need for a medical/functional assessment, maintain a waiting list for assessment as needed and refer consumers to 

appropriate resources. 

When an evaluation is indicated, the GHS Registered Nurse (RN): conducts an accurate, objective medical/functional eligibility assessment using the automated Medical Eligibility Determination (MED) tool in a way that is always based on sound 


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clinical judgment and in compliance with appropriate policy; and provides timely information about all long-term care service options, including a thorough explanation 

of consumer-directed options, regardless of payment source. 

GHS employs approximately 35 nurses who perform the LTC assessments on-site 

with the assistance of a laptop, portable printer and cell phone. 

In State Fiscal Year 2010 (ending June 30, 2010), we performed over 15,000 assessments. The State’s share of the Medicaid NF expenses in 2010 are more than 

35 percent lower than their SFY 1994 peak in nominal (non-inflation adjusted) dollars. This is the result of some policy changes made by Maine State Government 

and the LTC Assessment process. Comparing where the unmanaged NF budget was 

headed to where it actually is today has yielded annual State savings that exceed 

$100 million. 

It is important to point out that the State of Maine has invested some of the annual cost-savings toward a stronger network of Home-Based Care (HBC) services so 

that those clients determined to be eligible to remain in their home setting would 

have the supporting services available to them. 

Conclusion 

Mr. Chairman, the VA is a very effective provider of important pharmacy and 

medical benefits to our country’s veterans. The strategies described above have been 

proven to be very effective in containing health care costs for our Medicaid clients. 

We believe that these clinical management approaches can assist the VA in further 

containing costs. 

Thank you again for the opportunity to testify. My colleague and I would be 

pleased to answer any questions you may have. 

f 

Prepared Statement of Debra A. Draper, Ph.D., M.S.H.A., Director, 

Health Care, U.S. Government Accountability Office 

VA Health Care: Preliminary Observations on the Purchasing 

and Tracking of Supplies and Medical Equipment and the 

Potential Impact on Veterans’ Safety 

GAO Highlights 

Why GAO Did This Study 

VA clinicians use expendable medical supplies—disposable items that are generally used one time—and reusable medical equipment (RME), which is designed to 

be reused for multiple patients. VA has policies that VA medical centers (VAMC) 

must follow when purchasing such supplies and equipment and tracking—that is, 

accounting for—these items at VAMCs. 

GAO was asked to evaluate VA’s purchasing and tracking of expendable medical 

supplies and RME and their potential impact on veterans’ safety. This testimony is 

based on GAO’s ongoing work and provides preliminary observations on (1) the extent of compliance with VA’s requirements for purchasing and tracking of expendable medical supplies and RME and (2) steps VA plans to take to improve its oversight of VAMCs’ purchasing and tracking of expendable medical supplies and RME. 

GAO reviewed VA policies and selected three requirements that GAO determined 

to be relevant to patient safety. At each of the five VAMCs GAO visited, GAO reviewed documents used to identify issues related to the three requirements and 

interviewed officials to gather further information on these issues. The VAMCs GAO 

visited represent different surgical complexity groups, sizes of veteran populations 

served, and geographic regions. GAO also interviewed VA headquarters officials and 

obtained and reviewed documents regarding VA headquarters’ oversight. GAO 

shared the information in this statement with VA officials. 

What GAO Found 

During its preliminary work at the five selected VAMCs, GAO found inconsistent 

compliance with the three VA purchasing and tracking requirements selected for review. Noncompliance with these requirements created potential risks to veterans’ 

safety. 

• Requirement for VAMC committee review and approval. At two of the VAMCs, 

officials stated that the required designated committee review and approval occurred for all of the expendable medical supplies and RME that the VAMCs had 

not previously purchased. These reviews are designed to evaluate the cost of the 

purchase as well as its likely impact on veterans’ care. However, at the remainVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00077 Fmt 6604 Sfmt 6621 I:\VA\61758.XXX 61758

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1The management of VAMCs is decentralized to the 21 VISNs. 

2See, for example, VA Handbook 7176, Supply, Processing and Distribution (SPD) Operational 

Requirements (Aug. 16, 2002) and Veterans Health Administration (VHA) Handbook 1761.02, 

VHA Inventory Management (Oct. 20, 2009). 3 Reprocessing refers to the steps by which RME is prepared for reuse, and includes cleaning 

and disinfecting or sterilizing the medical equipment. 

ing three VAMCs, officials stated that the required committee review and approval of the expendable medical supplies, such as those used in conjunction 

with dialysis machines, did not always occur. As a result, these purchases were 

made without evaluating the likely impact on veterans’ care. • Requirement for signatures of purchasing and approving officials. At one of the 

VAMCs, VAMC officials discovered that a staff member in a dialysis department ordered an expendable medical supply item for use in dialysis machines, 

without obtaining the required signature of an approving official. That staff 

member ordered an incorrect item, the use of which presented a risk of exposing 

veterans to infectious diseases, such as Human Immunodeficiency Virus. • Requirement for entering information in VA’s inventory management systems. 

Officials from one of the five VAMCs told GAO that information about expendable medical supplies that were ordered on a recurring basis was entered into 

the appropriate inventory management system, as required. At the remaining 

four VAMCs, officials told GAO that information about certain expendable medical supplies—those used in a limited number of clinical departments such as 

dialysis departments—was not always entered into the system. This lack of information can pose a potential risk to veterans’ safety; in the event of a recall 

of these items, these VAMCs may have difficulty determining whether they possess the targeted item. 

VA reports that it plans to improve its oversight of VAMCs’ purchasing and tracking of expendable medical supplies and RME. For example, VA headquarters officials stated that, effective October 1, 2010, VA plans to shift greater responsibility 

for reviews of purchase card transactions from the VAMCs to the Veterans Integrated Service Networks, which are responsible for overseeing VAMCs. VA headquarters officials also told GAO that VA is developing a new inventory management 

system, which it expects will help improve VA’s ability to track information about 

expendable medical supplies and RME across VAMCs. VA expects this new system 

to be operational in March 2011. 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today as you discuss the Department of Veterans Affairs’ 

(VA) contracting and procurement practices. VA operates one of the largest integrated health care delivery systems in the United States, providing care to over 5.5 

million veterans annually. Organized into 21 Veterans Integrated Service Networks 

(VISN), VA’s health care system includes 153 VA medical centers (VAMC) nationwide that offer a variety of outpatient, residential, and inpatient services.1 These 

services range from primary care to complex specialty care, such as cardiac and spinal cord injury care. In providing these health care services to veterans, VA clinicians at VAMCs use supplies and equipment that must be purchased by VA. These 

include expendable medical supplies, such as needles and scalpel blades, which are 

generally used once, and reusable medical equipment (RME), which is designed to 

be reused for multiple patients and includes such equipment as endoscopes and 

some surgical instruments. 

VA has established policies that VAMCs are required to follow when purchasing 

items such as expendable medical supplies or RME and tracking—that is, accounting for—these items at their facilities.2 For example, VA requires that a designated 

VAMC committee review and approve purchases of any expendable medical supplies 

or RME that the VAMC has not previously purchased. VA also requires that 

VAMCs enter information about certain expendable medical supplies and certain 

RME at their facilities into the appropriate inventory management system. VA’s 

purchasing and tracking policies help ensure that VAMCs make effective use of 

available resources and that they know which supplies and equipment are being 

used at their facilities. 

VA’s purchasing and tracking policies are also designed, in part, to help ensure 

the safety of veterans who receive care at VAMCs. For example, VAMCs need information on the RME in use at their facilities in order to ensure that they have procedures for properly reprocessing3 these items. VAMCs also need information on the 


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4 A patient safety alert is a notification sent to VAMCs from VA’s National Center for Patient 

Safety regarding veterans’ safety. 5We reviewed applicable VA policies, including VA Handbook 7176, Supply, Processing and 

Distribution (SPD) Operational Requirements (Aug. 16, 2002); Department of Veterans Affairs, 

VA Financial Policies and Procedures, Volume II, Chapter 6, Miscellaneous Obligations (Jan. 

2009); VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 2009); and VA Directive 

1725.1, Accountability (Apr. 5, 1996). 6We are continuing to review VA’s policies to determine whether additional requirements relate to these patient safety incidents and should be included in our ongoing work. 7 VA assigns each VAMC a complexity score between 1 and 3 (level 1 is broken down further 

into 1a, 1b, and 1c), with level 1 being the most complex, using a facility complexity model. That 

model uses multiple variables to measure facility complexity arrayed along 4 categories, namely 

patient population served, clinical services offered, education and research complexity, and administrative complexity. 8We reviewed minutes from the following committees: commodity standards, equipment, infection control, medical executive, and reusable medical equipment. 

supplies and equipment in use in their facilities in order to determine when they 

have expendable medical supplies or RME that are the subject of a manufacturer 

or U.S. Food and Drug Administration (FDA) recall or a patient safety alert.4

Congressional committees and certain Members of Congress have raised questions 

about VAMCs’ purchasing and tracking of expendable medical supplies and RME 

and their potential impact on veterans’ safety. My testimony today consists of preliminary observations as part of our ongoing work on VA’s oversight of compliance 

with its policies for purchasing and tracking expendable medical supplies and RME. 

These observations, based on site visits to five selected VAMCs, raise concerns about 

the safety of veterans receiving care at these facilities. We cannot determine the extent to which the purchasing and tracking problems in the five selected VAMCs reflect the broader VA health care system. 

In my remarks today I will provide preliminary observations on (1) the extent of 

compliance with VA’s requirements for purchasing and tracking of expendable medical supplies and RME and (2) steps VA headquarters plans to take to improve its 

oversight of VAMCs’ purchasing and tracking of expendable medical supplies and 

RME. 

To identify the extent of VAMCs’ compliance with VA’s requirements for purchasing and tracking of expendable medical supplies and RME, we reviewed VA 

policies5 and selected three purchasing and tracking requirements that we determined were relevant to veterans’ safety issues. The requirements we selected are 

(1) having a designated VAMC committee review and approve purchases of any expendable medical supplies and RME that the VAMC has not previously purchased, 

(2) obtaining signatures of purchasing and approving officials, and (3) entering information about expendable medical supplies and RME at VAMCs into VA’s inventory management systems. We selected these requirements to inform our discussions with VAMC officials about patient safety incidents related to the purchase and 

tracking of expendable medical supplies and RME that were identified at certain 

VAMCs in 2009.6 We judgmentally selected five VAMCs to visit: the VAMCs in Albany, New York; Cheyenne, Wyoming; Detroit, Michigan; Miami, Florida; and Palo 

Alto, California. These VAMCs represent different surgical complexity groups,7 sizes 

of veteran populations served, and geographic regions. At the five VAMCs, we reviewed applicable VAMC committee meeting minutes8 and other documentation 

used to identify problems related to the three purchasing and tracking requirements 

we selected for our review. We also interviewed VAMC officials to gather additional 

information on these problems. To obtain information on steps VA headquarters 

plans to take to improve its oversight of VAMCs’ purchasing and tracking of expendable medical supplies and RME, we interviewed VA headquarters officials responsible for overseeing VAMCs’ purchasing of expendable medical supplies and RME. 

In addition, we obtained and reviewed relevant documents regarding VA headquarters’ oversight, including internal reports and policy memorandums. We shared 

the information provided in this statement with VA headquarters officials. 

We are conducting this performance audit in accordance with generally accepted 

government auditing standards. We conducted the work for this statement from 

March 2010 to September 2010. The audit 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. 

Background 

VA policy specifies how VAMCs can purchase expendable medical supplies and 

RME. VAMCs can purchase expendable medical supplies and RME through their acVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00079 Fmt 6604 Sfmt 6621 I:\VA\61758.XXX 61758

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9GIP is used to track additional items besides expendable medical supplies, including nonmedical supplies. 10 AEMS/MERS is used to track additional equipment besides RME, including information 

technology equipment. 11Generally, a VAMC’s commodity standards committee reviews and approves purchases of 

expendable medical supplies and a VAMC’s equipment committee reviews and approves purchases of RME. 12See VA Handbook 7176, Supply, Processing and Distribution (SPD) Operational Requirements (Aug. 16, 2002). 13Department of Veterans Affairs, VA Financial Policies and Procedures, Volume II, Chapter 

6, Miscellaneous Obligations (Jan. 2009). 14See VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 2009) and VA Directive 

1725.1, Accountability (Apr. 5, 1996). 

quisition departments or through purchase card holders, who have been granted the 

authority to make such purchases. Purchase cards are issued to certain VAMC staff, 

including staff from clinical departments, to acquire a range of goods and services, 

including those used to provide care to veterans. According to VA, as of the third 

quarter of 2010, there were about 27,000 purchase cards in use across VA’s health 

care system. 

VA has two inventory management systems, which VAMCs use to track the type 

and quantity of supplies and equipment in the facilities. Each VAMC is responsible 

for maintaining its own systems and for entering information about certain expendable medical supplies and certain RME in the facilities into the appropriate system. 

Specifically, the Generic Inventory Package (GIP) is used to track information about 

expendable medical supplies that are ordered on a recurring basis.9 The Automated 

Engineering Management System/Medical Equipment Reporting System (AEMS/ 

MERS) is used to track information about RME that is valued at $5,000 or more 

and has a useful life of 2 years or more.10 VAMC officials told us they use information about the items in their facilities for a variety of purposes, for example, to readily determine whether they have expendable medical supplies or RME that are the 

subject of a manufacturer or FDA recall or a patient safety alert. 

VA’s purchasing and tracking policies include the following three requirements for 

VAMCs: 

1. A designated VAMC committee must review and approve proposed purchases 

of any expendable medical supplies or RME that have not been previously purchased by the VAMC.11 The Committee, which typically includes administrative staff and clinicians from various departments, reviews the proposed purchases to evaluate the cost of the purchase as well as its likely impact on veterans’ care.12 For example, the Committee that reviews and approves proposed 

RME purchases often includes a representative from the department responsible for reprocessing RME, in order to determine whether the VAMC has the 

capability to reprocess—clean and disinfect or sterilize—the item correctly and 

that staff are appropriately trained to do so. Proper reprocessing of RME is important to ensure that RME is safe to use and that veterans are not exposed 

to infectious diseases, such as Human Immunodeficiency Virus (HIV), during 

treatment. 

2. All approvals for purchases of expendable medical supplies or RME must be 

signed by two officials, the official placing the order and the official responsible 

for approving the purchase.13

3. VAMCs must enter information on all expendable medical supplies that are ordered on a recurring basis and all RME that is valued at $5,000 or more and 

has a useful life of 2 years or more into the appropriate inventory management 

system, either GIP or AEMS/MERS.14 VA does not require information about 

RME that is valued at less than $5,000 to be entered into AEMS/MERS. 

GAO’s Preliminary Work Identified Examples of Inconsistent Compliance 

with VA’s Purchasing and Tracking Requirements at Five Selected 

VAMCs 

At the five VAMCs we visited, our preliminary work identified examples of inconsistent compliance with the three purchasing and tracking requirements we selected 

for our review. In some cases, noncompliance with these requirements created potential risks to veterans’ safety. We are continuing to conduct this work. 

VAMC committee review and approval. 

• Officials at two of the five VAMCs we visited stated that VAMC committees reviewed and approved all of the expendable medical supplies the VAMCs purchased for the first time. However, at the remaining three VAMCs, officials told 


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15 As of June 2, 2010, the VAMC reported that all testing has been completed and that no 

veterans have acquired infectious diseases as a result of this incident. The VAMC found that 

one of the 83 veterans identified was dialyzed on an uncontaminated machine and therefore this 

veteran was not notified or tested for these infectious diseases. 16 VAMC officials stated that they also checked GIP to determine whether the auxiliary water 

tube was listed and determined that it was not listed in that inventory management system. 

According to a VA headquarters official, the auxiliary water tube is not required to be entered 

in GIP because it is not ordered on a recurring basis. 

us that VAMC committees did not conduct these reviews in all cases. Officials 

from these three VAMCs told us that certain expendable medical supplies—for 

example, new specialty supplies—were purchased without VAMC committee review and approval. Specialty supplies, such as those used in conjunction with 

dialysis machines, are expendable medical supplies that are only used in a limited number of clinical departments. Without obtaining that review and approval, however, the VAMCs purchased these supplies without evaluating their 

cost effectiveness or likely impact on veterans’ care. 

• At one VAMC we visited, officials told us that clinical department staff were 

permitted to purchase certain RME—surgical and dental instruments—using 

purchase cards and that these purchases were not reviewed and approved by 

a committee. Therefore, the VAMC had no assurance that RME purchased by 

clinical department staff using purchase cards had been reviewed and approved 

by a committee before it was purchased for the first time. As a result, these 

purchases may have been made without assurance that they were cost effective 

and safe for use on veterans and that the VAMC had the capability and trained 

staff to reprocess these items correctly. 

Signatures of purchasing and approving officials. 

• At one of the five VAMCs we visited, VAMC officials discovered that one staff 

member working in a dialysis department purchased specialty supplies without 

obtaining the required signature of an appropriate approving official. That staff 

member was responsible for ordering an item for use in 17 dialysis machines 

that was impermeable to blood and would thus prevent blood from entering the 

dialysis machine. However, the staff member ordered an incorrect item, which 

was permeable to blood, allowing blood to pass into the machine. After the item 

was purchased, the incorrect item was used for 83 veterans, resulting in potential cross-contamination of these veterans’ blood, which may have exposed them 

to infectious diseases, such as HIV, Hepatitis B, and Hepatitis C.15

Entry of information about items into VA’s inventory management systems. 

• At the time of our site visits, officials from one of the five VAMCs we visited 

told us that information about expendable medical supplies that were ordered 

on a recurring basis was entered into GIP, as required. In contrast, officials at 

the remaining four VAMCs told us that information about certain expendable 

supplies that were ordered on a recurring basis, such as specialty supplies, was 

not always entered into GIP. Since our visit, one of the four VAMCs has reported that it has begun to enter all expendable medical supplies that are ordered on a recurring basis, including specialty supplies, into GIP. By not following VA’s policy governing GIP, VAMCs have an incomplete record of the expendable medical supplies in use at their facilities. This lack of information can 

pose a potential risk to veterans’ safety. For example, VAMCs may have difficulty ensuring that expired supplies are removed from patient care areas. In 

addition, in the event of a manufacturer or FDA recall or patient safety alert 

related to a specialty supply, VAMCs may have difficulty determining whether 

they possess the targeted expendable medical supply. 

• Officials at one VAMC we visited told us about an issue related to tracking 

RME in AEMS/MERS that contributed to a patient safety incident, even though 

the VAMC was not out of compliance with VA’s requirement for entering information on RME into AEMS/MERS. Specifically, because VA policy does not require RME valued under $5,000 to be entered into AEMS/MERS, an auxiliary 

water tube, a type of RME valued under $5,000 that is used with a colonoscope, 

was not listed in AEMS/MERS.16 According to VAMC officials and the VA Office 

of the Inspector General, in response to a patient safety alert that was issued 

on the auxiliary water tube in December 2008, officials from the VAMC checked 

their inventory management systems and concluded—incorrectly—that the tube 


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17See VA Office of the Inspector General, Use and Reprocessing of Flexible Fiberoptic 

Endoscopes at VA Medical Facilities, 09–01784–146 (Washington, DC: June 2009). 18 As of August 17, 2010, the VAMC reported that it has successfully notified 2,523 of the 

2,526 veterans of possible exposure to infectious diseases and that there were 17 new positive 

test results. VA reports that these results are not necessarily linked to RME issues and it is 

continuing its evaluation. 19SAM will be used to track additional items besides expendable medical supplies and RME. 

was not used at the facility.17 However, in March 2009, the VAMC discovered 

that the tube was in use and was not being reprocessed correctly, potentially 

exposing 2,526 veterans to infectious diseases, such as HIV, Hepatitis B, and 

Hepatitis C.18

In addition, officials from VA headquarters told us that when information about 

certain RME is entered into AEMS/MERS, it is sometimes done inconsistently. The 

officials explained that this is because AEMS/MERS allows users to enter different 

names for the same type of RME. As a result, in the case of a manufacturer or FDA 

recall or patient safety alert related to a specific type of RME, VAMCs may have 

difficulty determining whether they have that specific type of RME. 

VA Reports It Plans to Change Its Oversight of Purchasing and Tracking 

During our preliminary work, we discussed with VA headquarters officials examples of steps VA plans to take to improve its oversight of VAMCs’ purchasing and 

tracking of expendable medical supplies and RME. For example, VA plans to change 

its oversight of the use of purchase cards. Specifically, VA headquarters officials told 

us that designated VAMC staff are currently responsible for reviewing purchase 

card transactions to ensure that purchases are appropriate. However, one VA headquarters official stated that these reviews are currently conducted inconsistently, 

with some being more rigorous than others. VA headquarters officials stated that 

VA plans to shift greater responsibility for these reviews from the VAMCs to the 

VISNs, effective October 1, 2010. In addition, VA plans to standardize the reviews 

by, for example, adding a checklist for reviewers. Because this change has not yet 

been implemented across VA, we can not evaluate the extent to which it will address the appropriateness of purchases using purchase cards. 

Our preliminary work also shows that VA plans to create a new inventory management system. VA headquarters officials told us that they are developing a new 

inventory management system—Strategic Asset Management (SAM)—which will replace GIP and AEMS/MERS and will include standardized names for expendable 

medical supplies and RME.19 According to these officials, SAM will help address inconsistencies in how information about these items is entered into the inventory 

management systems. VA headquarters officials stated that SAM will help improve 

VA’s ability to monitor information about expendable medical supplies and RME 

across VAMCs. VA provided us with an implementation plan for SAM, which stated 

that this new system would be operational in March 2011. At this time, we have 

not done work to determine whether this date is realistic or what challenges VA 

will face in implementing it. 

Mr. Chairman, this concludes my statement. I would be pleased to respond to any 

questions you or other Members of the Committee may have. 

GAO Contacts and Staff Acknowledgments 

For further information about this statement, please contact Debra A. Draper at 

(202) 512–7114 or draperd@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this testimony. Key 

contributors to this statement were Randall B. Williamson, Director; Mary Ann 

Curran, Assistant Director; David Barish; Alana Burke; Krister Friday; Melanie 

Krause; Lisa Motley; and Michael Zose. 

f 

Prepared Statement of Belinda J. Finn, Assistant Inspector General for 

Audits and Evaluations, Office of Inspector General, 

U.S. Department of Veterans Affairs 

Mr. Chairman and Members of the Subcommittee, thank you for this opportunity 

to testify on the findings of the Office of Inspector General (OIG) on the Veterans 

Health Administration’s (VHA) contracting and procurement practices and possible 

solutions to VHA procurement problems. I am accompanied today by Maureen 

Regan, Counselor to the Inspector General. 


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1Statement of Maureen T. Regan, Counselor to the Inspector General, Office of Inspector General, Department of Veterans Affairs, Before the Subcommittee on Oversight and Investigations, 

Committee on Veterans Affairs, United States House of Representatives, December 16, 2009. 

Background 

In December 2009, the OIG testified on acquisition deficiencies in VA.1 At that 

time, numerous OIG audits, investigations, reviews, and inspections had identified 

systemic issues such as poor acquisition planning, problematic contract award processes, poorly written contracts, and inadequate contract monitoring that impacted 

VA’s efforts to effectively and economically deliver goods and services to VA facilities. Our testimony also addressed concerns that procurement problems led to inadequate competition for contracts, the misuse of funds, and a general lack of assurance that VA procurements achieved fair and reasonable prices or were in the best 

interest of the Government. We attributed many of these systemic procurement 

problems to VA’s decentralized organizational structure for procurement activities, 

inadequate oversight and accountability, and inaccurate and incomplete procurement data. 

Update 

Our work since we testified in December continues to identify systemic weaknesses in procurement practices that negatively impact VA’s ability to obtain quality 

goods and services in a timely manner at fair and reasonable prices. We also continue to identify compliance issues with Federal Acquisition Regulations (FAR) and 

VA Acquisition Regulations (VAAR) and find that data in the VA and VHA acquisition support information systems is incomplete and unreliable. The impact of these 

weaknesses is significant for VHA because of the high dollar cost of health care-related goods and services—$9.05 billion spent in fiscal year (FY) 2009—and because 

they negatively impact VHA’s oversight and ability to make good decisions. 

I will now discuss the results of recent work which continues to highlight weaknesses in VHA’s acquisition processes. 

Audit of Oversight of Patient Transportation Contracts 

Our May report on patient transportation services contracts, Audit of Oversight 

of Patient Transportation Contracts, (Report Number 09–01958–155, May 17, 2010), 

found that VHA missed opportunities to provide full and open competition in their 

efforts to solicit offers from potential contractors and make contract awards. Contracting officers (COs) did not properly plan and prioritize for the time needed to 

open new solicitations needed for ambulance services, medical car patient transportation, and other patient transportation requirements. 

We identified 9 of 36 patient transportation contracts, with an estimated value 

of about $12.3 million, that were inappropriately awarded as sole-source and then 

were extended for up to 6 months after the contract expired. According to COs that 

we interviewed, this was due to acquisition staff shortages that increased their 

workload and resulted in insufficient time to solicit new contracts. For seven of nine 

contracts, the required information, including the number of trips and the type of 

equipment needed, was not provided by the requesting service in order to develop 

an accurate solicitation proposal. In 14 of the 36 contracts (39 percent) we reviewed, 

basic contract documentation required by the FAR such as price negotiation memoranda, determinations of price reasonableness, best value analyses, notices of 

awards, insurance certificates, and Contracting Officer Technical Representatives 

(COTRs) designation letters were missing. We also found that COs did not adequately monitor the contractor performance which we estimated could result in VHA 

overpaying contractors as much as $91.8 million over the next 5 years if COTRs did 

not consistently review contractor invoices and verify the appropriateness of charged 

mileage rates and additional mileage charges. 

This national audit highlights serious weaknesses in acquisition award and administration processes that fail to adequately protect VHA’s contractual interests. 

VHA needs to provide more oversight to ensure it has adequate statements of work 

that can guide its staff to know what VHA is buying and measure contractor performance effectively. 

VHA Recovery Act Audits 

We have issued two audit reports dealing with VHA Recovery Act contract awards 

for non-recurring maintenance (NRM) projects, American Recovery and Reinvestment Act Oversight Advisory Report—VHA Non-Recurring Maintenance Contract 

Award Oversight Needs Strengthening (Report Number 09–01814–97, March 15, 

2010) and American Recovery and Reinvestment Act Oversight Advisory Report: VetVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00083 Fmt 6604 Sfmt 6621 I:\VA\61758.XXX 61758

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erans Health Administration’s Efforts to Meet Competition Requirements and Monitor Recovery Awards (Report Number 09–00969–248, September 17, 2010). 

Our March review found that COs failed to maximize competition because they 

did not consistently and properly publicize solicitations in FedBizOpps, as required. 

The more recent September review, which was conducted after the Office of Acquisition, Logistics, and Construction (OAL&C) issued policy guidance and VHA increased its oversight of these awards, found that VHA achieved a competition rate 

of over 98 percent. These contracts, where VHA oversight processes generally ensured COs used competition and properly assessed bids, demonstrate how strengthened national and field-level acquisition oversight and governance structures can 

improve competition and reduce unnecessary sole-source contracting. 

Although oversight improved compliance with FAR competition requirements, we 

found that COs were not performing adequate contractor responsibility determinations to mitigate possible risks to Recovery Act funds and to ensure VHA received 

the best value. Sixty of the 65 contracts (92 percent) we reviewed, valued at $83.1 

million, lacked adequate contractor responsibility determinations. This occurred because guidance from OAL&C failed to include all elements required to make contract award responsibility determinations. Additionally, some COs did not address 

all the elements because they relied heavily on their prior experiences with prospective contractors, instead of checking the General Service Administration’s Excluded 

Parties List System or obtaining reports to assess the contractor’s current financial 

resources as required. 

Federal Supply Schedule Contracts for Professional and Allied Services 

Our June report, Audit of VISN Procurement Practices for FSS Professional and 

Allied Health care Staffing Services (Report Number 08–00270–162, June 7, 2010) 

found that health care services orders were not being adequately reviewed and had 

ordering and competition issues. Task orders issued by VA entities against these 

schedules totaled $339 million in FY 2009. 

Review of these health care services orders supported that: 

• Contracting officers had not adequately assessed Federal Supply Schedule (FSS) 

health care staffing services vendors’ price quotes to ensure the reasonableness 

of prices. 

• Contracting officers did not ensure labor rates for FSS health care services orders remained at or below FSS not to exceed (NTE) rates. 

• Contracting officers did not effectively evaluate all-inclusive FSS health care 

staffing services orders to prevent improper payments. We found that improper 

payments occurred when order prices exceeded FSS NTE rates and FSS vendors 

received unsupported travel reimbursements. 

Weaknesses related to ordering and competition issues included: 

• Contracting officers did not ensure adequate competition when they failed to 

issue requests for quotations to a minimum of three FSS health care staffing 

vendors. 

• Contracting officers did not adequately plan when they used local contracts to 

order health care staffing services even though the same vendors offered the 

same services for less on the FSS. 

• Controls were not adequate to prevent Medical staff from bypassing contracting 

officers and making unauthorized commitments when they inappropriately 

placed orders directly with FSS vendors. 

As a result we concluded that Veterans Integrated Service Network (VISN) procurement practices and ordering procedures are not consistently ensuring the proper, cost effective use of FSS health care staffing services contracts, the integrity of 

the FSS procurement process, and compliance with the FAR. We reported that 

strengthened FSS health care staffing services procurement practices could reduce 

VHA expenses and improper payments by at least $7.7 million annually or $38.5 

million over the next 5 years. 

A companion report also found similar systemic weaknesses in acquisition processes, Review of Federal Supply Schedule 621 I—Professional and Allied Health care 

Staffing Services (Report Number 08–02969–165, June 7, 2010). This report details 

how VHA paid more than fair and reasonable prices due in part to a failure by contracting officers at VA’s National Acquisition Center to comply with FSS contract 

requirements and award contracts with fair and reasonable pricing. 

Other Reports 

Our inspection of the Brachytherapy program at the VA Medical Center in Philadelphia, Health care Inspection Review of Brachytherapy Treatment of Prostate CanVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00084 Fmt 6604 Sfmt 6621 I:\VA\61758.XXX 61758

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2 Community Based Outpatient Clinic Reviews-Smithville, MS and Memphis, TN; Knoxville, 

TN; and Norton, VA; Chattanooga and Nashville, TN (Report Number 10–00627–174, June 16, 

2010). 3 Community Based Outpatient Clinic Reviews-Macon and Albany, GA; Beaver Dam, WV and 

Rockford, IL; Sioux City, IA and Aberdeen, SD; and Waterlook, IA and Galesburg, IL (Report 

Number 09–01446–37, December 2, 2009). 

cer, Philadelphia, Pennsylvania and Other VA Medical Centers (Report Number 09– 

02815–143, May 3, 2010), revealed that between 1999 and April 2005, the Medical 

Center inappropriately purchased services from the University of Pennsylvania 

without a contract in place. Since April 2005, the Medical Center was purchasing 

services under an interim contract that was issued and extended in violation of VA 

policy. The interim contract was inappropriately extended despite the fact that VA 

had received a proposal from the University for a long-term contract. Further, a preaward review provided to the contracting officer showed that the prices being paid 

under the interim contract were significantly higher than what was determined to 

be fair and reasonable. In addition, we found that the COTR was approving payments without verifying that the services were provided and approving payments 

for engineering services that were outside the scope of the interim contract. 

Our continuing health care inspections of the administration of Community Based 

Outpatient Clinic (CBOC) contracts have identified deficiencies in contract administration that have resulted in overpayments that may be uncollectible. The reviews 

found that COTRs were not complying with their responsibilities under the contract 

to notify vendors of patients who were disenrolled because they had not been seen 

within a 12-month period, had changed to another clinic, or who had died. Because 

payment under these contracts is set at a capitated rate, VA overpaid for veterans 

who should have been taken off the rolls. The inspections also found that COTRs 

were not consistently holding contractors accountable for meeting performance 

standards set forth in CBOC contracts. For example, at one clinic a COTR was required to assess the contractor’s compliance with access to care and entry of medical 

data benchmarks on a quarterly basis and assess penalties for noncompliance. However, the COTR had completed only one assessment during the calendar year reviewed.2 In a similar case involving a different CBOC, OIG inspectors found that 

the former and current COTRs on a CBOC contract did not assess whether the contractor met performance criteria and whether financial penalties applied.3 Good administration of CBOC contracts is critical because VHA had more than 200 contracted CBOCs nationwide as of July 2009. 

OIG Contract Review Work 

Our Office of Contract Review (OCR) conducts pre-award, post-award, drug pricing, and special reviews of vendor proposals and contracts through a reimbursable 

agreement with VA’s OAL&C. The majority of reviews are related to FSS contracts 

awarded by the VA National Acquisition Center for pharmaceutical, medical and 

surgical supplies, and equipment; and contracts for health care resources awarded 

by VA medical facilities. In FY 2010 to date, OCR completed 65 pre-award and 26 

post-award reviews. The pre-award reviews identified more than $370 million in 

cost savings that could be achieved during contract negotiations and post-award reviews recovered more than $20 million for VA’s Supply Fund. 

Pre-award reviews are required for both FSS and health care resources proposals 

where the estimated contract costs exceed predetermined dollar thresholds. The preaward reviews provide valuable information to assist contracting officers in negotiating fair and reasonable contract prices. Of the 65 pre-award reviews, 32 were for 

health care resource proposals. The potential cost savings for these proposals was 

more than $39 million. 

OCR continues to identify information submitted by vendors that is not accurate, 

complete, and current that would result in VA paying inflated contract prices. Also, 

OCR continues to identify the lack of communication between procurement and program officials and inadequate planning as a management challenge for health care 

resources contracts. The lack of communication and poor planning results in higher 

and unnecessary contract costs because requirements have not been properly identified, the statements of work are inadequate, and the estimated quantities are overstated. We also routinely find that VHA’s health care resources contracts lack adequate oversight provisions to ensure VHA receives the services it pays for. 

Post-award reviews are conducted to determine if a contractor submitted accurate, 

complete, and current pricing data to the contracting officer during negotiations as 

required by the terms of the contract. These reviews also determine whether the 

vendor adhered to other terms and conditions of the contract such as the Price Reductions Clause. Post-award reviews include OCR’s efforts to ensure pharmaceutical 


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vendors are in compliance with statutory drug pricing provisions contained in Section 603 of P.L. 102–585, The Veterans Health Care Act of 1992, which sets statutory price limits of covered drugs for VA, the Department of Defense, the United 

States Public Health Service, and the Coast Guard. OCR’s post-award program is 

a significant factor in the success of VA’s voluntary disclosure program where a vendor can disclose non-compliance with contract terms and conditions that resulted in 

the Government overpaying for goods or services and reimbursement agreements 

are established. These voluntary disclosures are typically resolved administratively 

but are referred to the Department of Justice if warranted. 

Recent VA Actions 

VA has made progress in the development of its acquisition workforce. VA established its Acquisition Academy in September 2008 to address growing acquisition 

workforce challenges. VA’s acquisition workforce, consisting of COs, COTRS, and 

program/project managers, has lost institutional knowledge through downsizing and 

retirements and is trying to keep pace with the increasingly numerous and complex 

contracts needed to support VA’s mission. 

VA’s recent implementation of an automated acquisition information system, 

eCMS, to monitor contracts and orders demonstrates the potential eCMS has to increase transparency and VA acquisition oversight capabilities at the local and national levels. However, we are continuing to find VHA and VA need to ensure that 

staff properly and consistently use the system across the country for all procurements at or above $25,000. Before VA can consistently rely on this acquisition information system to leverage its significant buying power, it must have assurance that 

the system provides adequate visibility and transparency over complete and accurate information. 

Conclusion 

VHA needs to ensure that its program offices and acquisition personnel are engaging in disciplined acquisition practices that consistently protect the Government’s 

interests. VHA cannot realize its full buying potential unless it better ensures compliance with regulations and establishes visibility and transparency over purchases. 

We understand that VA recognizes deficiencies in its acquisition processes and infrastructure and has taken steps to strengthen contracting practices. However, 

many of VA’s reforms are still in the early process of planning and implementation. 

Our oversight will continue to provide valuable information to VA and Congress as 

VA pursues its acquisition initiatives. Future OIG work will focus on the effectiveness of VA’s efforts to improve the skills and competencies of its acquisition workforce, program managers, and program staff serving as COTRs because the performance of these key personnel is critical to the improvements VA needs to make in 

its acquisition processes. 

Mr. Chairman, this concludes my statement and we would be pleased to answer 

any questions that you or other Members of the Subcommittee may have on these 

issues. 

f 

Prepared Statement of Frederick Downs, Jr., Chief Procurement and 

Logistics Officer, Veterans Health Administration, 

U.S. Department of Veterans Affairs 

Good morning Chairman Michaud, Ranking Member Brown, and Members of the 

Subcommittee. Thank you for inviting me to discuss the Veterans Health Administration (VHA) Contracting and Procurement practices. 

Acquisition reform is a central piece of the Secretary’s charge to fundamentally 

change the Department of Veterans Affairs (VA) in ways that will transform it into 

a 21st Century organization that is people-centric, results-driven, and forward-looking. 

VA is in the process of developing a strategic roadmap to guide this acquisition 

transformation, while ensuring that we always remain focused on satisfying Veterans’ needs and customer service expectations, while controlling costs. A central 

part of this effort is establishing an Integrated Operating Model for the Department 

to provide a strong management infrastructure across functional work domains. 

This will ensure that service delivery requirements are fully satisfied, necessary innovation and improvements are achieved, and accountability is fixed for performance outcomes at all levels throughout the Department. A top initiative under the 

Integrated Operating Model is the Department’s Acquisition Transformation initiaVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00086 Fmt 6604 Sfmt 6621 I:\VA\61758.XXX 61758

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tive. VHA fully embraces the Secretary’s transformation vision and the implementation of this Integrated Operating Model. 

VA is committed to providing the most advanced, creative, and innovative technologies to meet the needs of our Veterans. Within VHA, our health care experts 

are directly involved in patient care and provide input on current practices, while 

developing technical knowledge to drive the selection and purchase of new technologies. As new technologies become available, VHA staff members from clinical, 

logistics and acquisition disciplines form a team to carefully review potential applications before determining which advances to adopt. VHA leadership is committed 

to obtaining the most advanced and innovative technologies while improving the 

guidance, oversight, and business processes associated with contracting and procurement in the delivery of services to our Veterans. 

My testimony today will cover VHA’s recent reorganization of contracting and procurement processes, highlighting the strengths of our program. I will also touch on 

issues of particular interest to the Subcommittee, including the use of purchase 

cards at VHA medical centers. Finally, I will conclude with a brief discussion of how 

VA uses innovative technologies to better serve Veterans. 

Reorganization of VHA Acquisitions 

VHA continues to transform and improve its acquisition operations. This year we 

have implemented a new acquisition business model that promotes centralized decision-making and decentralized execution. VHA has realigned its acquisition staff 

under a centralized structure with three regional offices. These regional offices will 

concentrate on running an acquisition organization with a deliberate approach to 

training and oversight. The four major focus areas of our organization are: 

1. Customer and stakeholder satisfaction; 

2. Operational regional service area offices; 

3. Performance monitors; and 

4. Seamless transition. 

VHA’s primary goal in reorganizing its acquisition operations is to transform into 

a customer-focused organization through the effective and innovative use of acquisition policies, procedures and processes to provide the best possible care to our Veterans and reduce the risk of patient safety. Veterans Integrated Service Network 

(VISN) Directors and the Network Contract Managers will collaboratively prepare 

Customer Service Agreements. The agreements will focus on establishing customer 

service measures that meet the intent of regulations established in the Federal Acquisition Regulation (FAR) and Veterans Affairs Acquisition Regulation (VAAR) 

while simultaneously providing excellent customer service and patient care. VHA 

leadership has communicated clear expectations for each acquisition organization 

and provided appropriate training to staff to ensure they are competent and effective leaders within the organization. 

All acquisition personnel previously reporting to the VISN or Medical Center Directors have now been realigned under the Procurement and Logistics Office 

(PL&O). This Office has created three Service Area Offices based on geographic location: Pittsburgh, PA, Minneapolis, MN, and Sacramento, CA. VHA has created several goals for these Service Area Offices: 

• Achieve cost savings of 3.5 percent in fiscal years 2010 and 2011, as identified 

in the Office of Management and Budget’s (OMB) Improving Government Acquisition Initiative; 

• Enforce standardization of contract requirements; and 

• Establish staff as business consultants and value-added team members for 

VHA. 

To achieve the cost savings goal, VHA will leverage its buying power by combining procurements across the country to obtain more favorable pricing and discounts. VHA also intends to reduce the administrative costs associated with Interagency Acquisitions, for example the requirements sent to the Army Corps of Engineers, by bringing these services back into VHA. VHA has further stepped up efforts 

to decrease the use of sole source and other high-risk contracts, focusing instead on 

increasing competition and securing better prices. This reorganization will help ensure fiscal responsibility for the Department and for the American taxpayer. This 

structure allows the VHA PL&O to drive organizational standardization and individual performance, while promoting direct responsibility and accountability 

through a professional certified workforce. 

VHA’s reorganization also included developing quality assurance and compliance 

programs to promote standardization and greater compliance with Federal regulations and policies. The quality assurance program is designed to plan, implement, 


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monitor, identify and correct processes. It establishes checks and balances as required by the VA Office of Acquisition and Logistics Information Letter 001AL–09– 

02, Integrated Oversight Process, dated June 19, 2009. The overall goal is to implement an oversight process that is efficient in how time and resources are allocated 

and effective by holding acquisition professionals responsible for building quality 

into the acquisition process. 

The VHA Operations Quality Assurance Office provides direct oversight to VHA 

acquisition activities and conducts yearly site visits to Service Area Offices. The 

Quality Compliance Office provides the Chief Procurement Office a comprehensive 

assessment of the entire acquisition program, not just individual procurement actions. The compliance program’s key elements include: (1) organizational management; (2) human capital; (3) acquisition planning and information management; and 

(4) contracting. The goals of the quality compliance program are to ensure compliance with VA policies, procedures and regulations; determine if the processes are 

helping us achieve our stated objectives; validate our processes and discover ‘‘best 

practices’’ to improve our business model; and establish an ISO9001:2008 Quality 

Management Standards organization. ISO9001:2008 is a family of standards for 

quality management systems developed by the International Organization for 

Standardization. Combined, the Quality Assurance and Quality Compliance programs will provide oversight necessary for VHA to become a world-class professional 

acquisition organization. In sum, this reorganization improves oversight, performance, and customer service, and ensures VA policies and procedures are followed. 

All of this contributes directly to achieving the Department’s mission and improving 

patient care. 

Purchase Cards 

As part of the overall VHA acquisition reorganization, VHA is establishing a centralized purchase card program under the Network Contract Managers. VHA’s 

PL&O has implemented VISN Purchase Card Manager and Purchase Card Coordinators to monitor all credit card transactions within a VISN. These coordinators 

previously reported to their own facility. Reporting to centralized Network Contract 

Managers increases oversight of the facility level. Under the existing structure, most 

purchase card coordinators fulfill this responsibility as a collateral duty and do not 

report to an acquisition professional. Full-time, dedicated VISN Purchase Card 

Managers and Purchase Card Coordinators will conduct daily reviews of transactions, increase the number of audits and other reporting mechanisms for oversight, and will be dedicated to monitoring the purchase card program. 

Based on an audit of VHA government purchase card practices issued in 2008 by 

VA’s Office of the Inspector General, VHA implemented training to approving officials on using the revised approving official checklist to ensure cardholders maintain 

adequate documentation to support their purchases. On February 18, 2010, the Deputy Under Secretary for Health for Operations and Management mandated that all 

purchase card approving officials receive this training. Each VISN Purchase Card 

Manager submitted written certification when the training was complete. Moreover, 

to monitor the appropriate use of purchase cards, VHA Handbook 1730.1 requires 

the Facility Director to perform an annual review of the Purchase Card Program 

and provide certification of the program to their respective VISN Director by June 

30 of each year. The Handbook also requires the VISN Purchase Card Program 

Managers chair an annual review team and conduct site reviews at each facility 

within their area of responsibility. Managers conduct reviews using several audit 

guides in addition to the requirements identified in the 1730.1 Handbook. VHA’s 

P&LO is developing standard operating procedures that address cardholder audits 

and site reviews, and these tools will be the standard practice for all VISNs. 

Health Care Resources 

VHA provides care to Veterans directly in a VHA facility or indirectly through either fee-basis care or through contracts with local providers. This strategic mix of 

in-house and external care provides Veterans the full continuum of health care services covered under our benefits package. VHA health care resource contracting is 

accomplished under the provision of VA Directive 1663, ‘‘Health Care Resources 

Contracting.’’ VA’s Directive 1663 further implements provisions of Public Law 104– 

262, ‘‘The Veterans Health Care Eligibility Reform Act of 1996,’’ which significantly 

expanded VA’s health care resources sharing authority in title 38 United States 

Code (U.S.C.) sections 8151 through 8153. 

VHA medical center directors and VISN directors determine when additional 

health care resources are required. It is VHA policy to provide Veterans care within 

the VA system whenever feasible. However, there are times when VHA is unable 

to provide care within the system. For example, VHA may have difficulty recruiting 


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a qualified clinician. In these cases, the medical center director must first consider 

sending patients to another VHA medical center. Contracting for necessary services 

will only be considered if other options within VHA are not appropriate or viable. 

If contracting for services is required, a competitive bid is the first option considered. 

There are two principal avenues to contract for health care services: conventional 

commercial providers and academic affiliates. VHA’s academic affiliates (schools of 

medicine, academic medical centers and their associated clinical practices) provide 

a large proportion of contracted clinical care both within and outside of VHA. All 

non-competitive VHA health care resource contracts $500,000 or more and competitive contracts over $1.5 million are reviewed through a thorough process that includes the Office of General Counsel (for legal sufficiency), VHA’s Patient Care Services (for quality and safety), VHA’s Office of Academic Affiliations (for affiliate relations assessment), and VHA’s PL&O (for acquisition technical review for policy compliance). 

VHA exercises its responsibility to provide quality contracted care to Veterans 

through several clinical and administrative oversight mechanisms. This includes 

credentialing and privileging, quality and patient safety monitoring, and specific 

quality of care provisions included in the contract itself. Facility directors are responsible for ensuring that these oversight mechanisms are consistently and effectively applied to all in-house contracted care. All applicable VHA quality and patient 

safety standards must be met for medical services provided under contract in a VHA 

facility. Ensuring quality standards for VHA contracted care outside of a facility is 

more difficult, but VHA includes language in contracts that allows for industry 

standard accreditation or certification requirements, clinical reporting, and oversight. The Office of Acquisition, Logistics, and Construction is in the process of developing policy to implement Federal Acquisition Certification (FAC) for Contracting 

Officers’ Technical Representatives (COTR). The new guidance will requires training 

to maintain or be designated as a COTR. This will further help ensure health care 

staff are well-trained to manage important health care contracts. 

VHA Logistics 

VHA’s P&LO also develops and fosters best practices in logistics for VHA. 

Through the VHA Acquisition Board, P&LO develops the annual VHA Acquisition 

plan that forms the basis for VHA’s acquisition strategy. This strategy seeks to procure high quality health care products and services in the most cost effective manner. P&LO develops and implements a comprehensive plan for the standardization 

of health care supplies and equipment. This includes developing and administering 

clinical product user groups. P&LO is also responsible for improving supply chain 

management within VHA, which includes establishing and monitoring logistics 

benchmarking data. P&LO serves as the liaison for logistics staff in each of the 21 

VISNs. 

VHA’s supply chain processes utilize the Integrated Funds distribution Control 

Point Activity, Accounting and Procurement (IFCAP) module that includes a Generic Inventory Package (GIP). The GIP system fully integrates and allows for a 

seamless relationship between purchasing and expendable supply inventory. Use of 

GIP allows logistical managers to automate inventory practices that track expendable items from purchase until use by the end user. VHA tracks over 1,300 inventories consisting of 928,816 line items. The inventories include medical, surgical, 

dental, imaging, and laboratory supplies, as well as engineering and environmental 

management supplies. 

VHA classifies equipment as non-expendable or expendable and tracks this equipment in the Automated Engineering Management System/Medical Equipment Reporting System (AEMS/MERS). For AEMS/MERS, this includes tracking the location of equipment, maintaining ownership, and submitting a work order as needed. 

VHA currently tracks over 17,000 equipment lists, which make up 2.1 million pieces 

of equipment. Through the 3rd quarter of fiscal year 2010, VHA has inventoried 

13,000 of these equipment lists, ensuring that equipment is found and being used 

properly. The remaining 4,000 lists are expected to be inventoried in the 4th quarter 

of 2010. 

VHA continues to make improvements to the lifecycle management of equipment 

and expendable supplies. These improvements have included updating policies and 

procedures over the last 2 years, providing new training programs for logistical 

staff, improving oversight through management reports on equipment, and strengthening communication channels with stakeholders in engineering, bio-medical engineering, and information technology. 


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Medical Equipment in VHA 

VHA has approximately $5 billion worth of medical equipment in service at more 

than 1,400 sites of care with over 750,000 discrete devices in hundreds of different 

categories. VHA centralized the responsibility for medical equipment maintenance, 

including all equipment in all clinical departments, within Biomedical Engineering 

(BME). BME provides corrective maintenance, periodic maintenance and training, 

and education to ensure safe, high quality care. BME works directly with clinicians, 

logisticians and acquisitions staff to facilitate the strategic purchasing of equipment. 

BME strategically identifies equipment due for replacement, conducts market research, defines functional requirements with clinicians, writes specifications and 

statements of work, leads in the technical evaluation of proposals and is the contracting officer’s technical representative (COTR) on contracts. When combined with 

our logistics and centralized procurement functions, a VISN-focused BME program 

is allowing VHA to improve its maintenance and technology management, realize 

cost savings, and strategically lead VHA to provide the best health care possible to 

our Nation’s Veterans. 

Conducting Business with VHA 

VHA’s mission is to honor American’s Veterans by providing exceptional health 

care that improves their health and well-being. VHA will continue to use and support new and innovative technologies to enhance the quality of life for Veterans. 

Providing service, supply and construction acquisitions are central to VHA’s success 

in meeting its mission. We purchase these goods and services on national, regional, 

and local levels. Acquisitions are accomplished by sealed bidding, negotiation, or 

simplified acquisition procedures. Purchases are accomplished through the use of 

mandatory sources such as VA’s Federal Supply Schedules Parts 65 and 66. A significant portion, however, is acquired from sources obtained through the publication 

of solicitations in the Federal Business Opportunities (FedBizOpps), commercial advertising, or any other accepted means that will provide the procuring activity with 

a sufficient number of responsible bidders and offerors to ensure full and open competition. The most suitable, efficient, and economical procedure will be used, taking 

into consideration the circumstances of each acquisition. 

Conclusion 

Mr. Chairman, this concludes my statement. Thank you again for the opportunity 

to speak about VHA’s reorganized contracting and procurement functions. Our recent reorganization establishes more accountable business practices that allow VHA 

to continue to provide the highest quality of care for our Veterans at the best rate 

of return for the American taxpayer. I am prepared to respond to any questions you 

or the Members of the Subcommittee may have at this time. 

f 

The Coalition for Government Procurement 

Washington, DC. 

September 20, 2010 

The Honorable Michael H. Michaud 

Chairman, House Veterans’ Affairs Subcommittee on Health 

338 Cannon House Office Building 

Washington, D.C. 20515 

Re: Hearing on ‘‘VHA Contracting and Procurement Practices’’ before the 

Subcommittee on Health of the U.S. House of Representatives Committee 

on Veterans’ Affairs 

Dear Chairman Michaud: 

On behalf of the Coalition for Government Procurement (Coalition), I am writing 

to thank you for your offer to submit for the record the Coalition’s views on contracting with the Department of Veterans Affairs (VA). We submit our remarks for 

the hearing on ‘‘VHA Contracting and Procurement Practices’’ before the Subcommittee on Health of the U.S. House of Representatives Committee on Veterans’ 

Affairs on September 23, 2010. 

The Coalition for Government Procurement (CGP) is a multi-industry association 

representing over 330 member companies that sell commercial products and services 

to the Federal Government, including pharmaceutical and medical device manufacturers that sell commercial products to the Federal Government primarily through 

the Federal Supply Schedules administered by the VA under a delegation of authority from the General Services Administration (GSA). 


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We are writing today based on our members’ experiences with the VA National 

Acquisition Center (NAC). Three years ago we reached out to the VA NAC with concerns about the timeliness of contract actions and the significant delays our members were experiencing. At that time, we were told by VA officials that they had 

just gone through personnel changes and to please give them time to adjust. We 

agreed to give NAC officials time to reorganize and bring new hires up to speed. 

Our members have been patient and since then have experienced reorganization 

at the VA NAC designed to improve efficiency. Today, however, the VA NAC remains among the slowest contracting centers in government acquisition. The length 

of time needed to negotiate Federal Supply Schedule (FSS) contracts and contract 

modifications has worsened not improved, and is particularly slow when compared 

to FSS contract actions at the General Services Administration. 

The Coalition has enjoyed strong relationships with VA officials at the VA NAC 

and here in Washington, DC, and has discussed with them our concerns. However, 

VA officials in Washington have been reluctant to meet with us, despite our members accounting for a significant amount of the business that runs through the VA 

NAC. By comparison, the Coalition regularly meets with officials from GSA concerning the Schedules program that GSA administers. 

Last year, the VA NAC reorganized in an effort to resolve problems with the 

length of time it takes to process contract actions, including awards and modifications. In order to streamline the process and prevent backlogs, the VA changed the 

system of assigning contracting officers from one in which contracting officers were 

assigned to contractors for the life of the contract, commencing with pre-award negotiations. Under the reorganization, the contracting officer assigned to negotiate the 

contract has no responsibility for administering the contract. Post-award, the contracting officer processing a modification request or answering a question is the next 

available one, not the same one, much like a call-in center, and thus there is no 

familiarity with the contractor or continuity of service. 

Survey Results 

The Coalition surveyed all of our health care members doing business with the 

VA regarding their experience with the VA NAC since the reorganization. All ratings were made in comparison to members’ contracting experience prior to the reorganization. Over 40 members responded. These companies account for well over half 

of the total sales made through NAC FSS contracts. As such, we believe that these 

results show that the NAC currently cannot keep pace with innovations and new 

products that could have a significant impact on the care provided to veterans. 

Based on the survey results, there is no question in our members’ minds the VA 

NAC is broken. 

A summary of the survey results are below: 

• 85 percent said the VA NAC was more efficient before the reorganization • Over 75 percent said the timeliness of VA NAC Contracting Officers in responding to their questions regarding the administration of their contract was below 

average or poor 

• 74 percent said the timeliness of VA NAC Contracting Officers in responding 

to their needs was below average or poor 

• 75 percent said their experience in adding products or services to their contract 

was below average or poor 

• 66 percent said their experience with the VA NAC concerning contract modifications was below average or poor 

• 46 percent said the original award process took over 1 year 

• 48 percent said it took over 6 months for their last modification request to be 

processed 

• Over 50 percent said the knowledge level of the Contracting Officers assisting 

them was below average or poor 

• 59 percent said their experience in adjusting prices on their contract was below 

average or poor 

• Over 78 percent ranked their overall experience with the VA NAC as below average or poor 

Reform 

Clearly, there are opportunities for procurement reforn1 at the VA NAC. First, 

we would encourage the Subcommittee to look at management of the NAC. Our 

members did not experience the contracting issues expressed in the survey results 

previously. It is worth noting that at least one prior NAC Executive Director was 

a pharmacist at the VHA, came up through the FSS program ranks, and understood 

how the program worked. After the prior Executive Director left, there was 


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a 2-year long search tor his replacement. The problems began in the past three to 

4 years since his departure and have been exacerbated by the reorganization. 

In fairness to the NAC, in our view, one of the primary reasons the procurement 

system at the NAC is broken is the inappropriate insertion of the VA Office of Inspector General (OIG) into the contracting process. We believe the OIG has an important and necessary role to play in preventing fraud and abuse and assisting the 

Contracting Officers’ determination of fair and reasonable prices. That role does not 

include serving as a defacto program manager looking over the shoulders of Contracting Officers and second guessing their decisions to award contracts. Particularly with respect to pre-award audits, the OIG should be in a supportive role and 

not assume primary price negotiation and decision-making responsibility. In short, 

the OIG should not have operational responsibility, but that is what the case is 

here. 

The Coalition is very familiar with the role of the GSA OIG and regularly interfaces with that office. In our experience, the GSA OIG acts within the customary 

role of an IG. As a result, contracting officers at GSA are more willing to work with 

contractors and are far more flexible regarding the supporting documentation necessary for them to establish fair and reasonable prices. We believe it is the VA’s 

requirement for pre-award audits on most FSS contracts and contract modifications, 

and the usurpation by the VA OIG of the contracting officer’s role as the determinator of fair and reasonable prices that is the cause of the sustained delays in contract actions at the NAC. 

Our survey results are clear on this issue. When asked ‘‘In your negotiations with 

the VA, what did your CO rely on?’’, many members said the VA OIG Pre-Award 

Audit. We hear frequently from our members that after receiving and accepting an 

offer from a Contracting Officer, the OIG will step in and make the Contracting Officer withdraw the offer. There will never be true reform unless the VA OIG understands its role and operates appropriately. 

A final issue of concern is the grade of VA Contracting Officers. Our understanding is that VA CO’s are one grade below the level of their colleagues in other 

agencies. This makes it difficult for the VA to retain experienced, senior level contracting officials. The VA should give serious consideration to increasing the grade 

of its Contracting Officers in order to attract and retain high caliber personnel. 

Recommendations 

1. The VA should reconsider the reorganization of the NAC 

2. The VA OIG Must Operate appropriately, and not as a defacto program manager 

3. The VA should increase the grade of its Contracting Officers 

The Coalition appreciates the opportunity to provide input on this important 

topic. 

Sincerely, 

Larry Allen 

f 

President 

Statement of Hon. Bart Gordon, a Representative in Congress from the 

State of Tennessee 

Thank you, Chairman Michaud and Ranking Member Brown, for holding this important hearing on the Contracting and Procurement Practices of the Veterans 

Health Administration. As I am not a member of this committee, I appreciate the 

opportunity to submit my statement and questions for the record. 

The VA Consolidated Mail Outpatient Pharmacy (CMOP) program is an important resource for our veterans. The program provides mail order refills of prescriptions to veterans using advanced automated systems at seven facilities located 

throughout the country. This provides an efficient, effective and safe manner for our 

veterans to receive the medication they need without having to leave home. 

I am submitting this statement today to seek clarification of the VA’s decision to 

switch from blister pack to bottle delivery in the distribution of medication through 

the Mid-South CMOP. My primary concern is ensuring the VA conducts the most 

efficient and effective policy for all United States veterans and taxpayers. 

Seven years ago, Murfreesboro Pharmaceutical Nursing Supply (MPNS) was 

awarded a contract with the Mid-South CMOP to supply veterans in the region with 


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the delivery of medication through the outpatient program. MPNS was specifically 

contracted to supply this medication in blister packs because, at that time, the VA 

determined them to be safer and more efficient for the veteran and the delivery 

process than the traditional method in a 120cc bottle. 

The contract has been extended six times but expired January 31, 2010. In May 

of this year, the VA announced it would no longer provide this medication in blister 

packs, but instead would switch to bottles. 

Seven years ago, MPNS advised the VA and was later contracted specifically to 

provide blister packs. Blister packs maintain the integrity of the medication during 

transport, and avoid theft by being less-easily detected during delivery. Over these 

years, MPNS has provided a cost efficient and effective service without issue. 

Why now, in 2010, is the VA changing a process that has worked effectively? An 

individual analysis by the company estimates it can save the VA more than 

$300,000 per year by continuing to provide the medication under existing procedures. 

Three weeks ago, I asked for documentation of the business case review that was 

cited by the VA as a reason for changing its existing policy to use blister packs. On 

September 22, I received a chart of final numbers showing differences between the 

CMOP automated fill procedure and the MPNS manual fill. I have yet to receive 

any documentation of the methodology used in determining these numbers, and I 

am requesting it again now. 

This is one small instance in an incredibly complex system. If the VA feels a 

change in policy is prudent, I respect and applaud that decision. But before we 

change procedure, we must be sure that this change is necessary and warranted. 

My concern is that this change will not only cost jobs, but also cost the taxpayers 

and veterans. 

f 

Statement of Richard Reeves, Chief Executive Officer, Murfreesboro 

Pharmaceutical Nursing Supply, Murfreesboro, TN 

Mr. Chairman and Members of the Subcommittee, on behalf of Murfreesboro 

Pharmaceutical Nursing Supply (MPNS) located in Murfreesboro, TN, and its 20 

employees, I am pleased to submit the following statement for the record. 

At the outset, I want to commend you and the Subcommittee for holding this important hearing. As a Veteran, I truly believe that our collective effort to provide 

the brave men and women who fight on behalf of our country with the best quality 

health care is one of our most fundamental responsibilities. Having been a proud 

participant in the contracting process that delivers medication to our Veteran’s, I 

am pleased to see the Subcommittee take a comprehensive view of the Department 

of Veteran’s Affairs (VA) contracting practices. 

As a matter of background, MPNS was founded in 1982 to provide pharmacies 

a user-friendly solution to regulatory changes in the long-term care industry. The 

solution MPNS brought to the table was providing long term care pharmacies FDA 

compliant and cGMP adhering repackaged unit dose medications in a universal format from a centralized closed door pharmacy. 

In 2003, the VA, and in particular the Consolidated Mail Outpatient Pharmacy 

(CMOP) approached MPNS to provide recommendations and advice on more effective formats for the delivery of medication than traditional 120cc bottles. The VA 

had grown concerned that this particular medication (for erectile dysfunction) was 

not being delivered in the most optimal nor cost effective manner. We concurred! 

Seems that this particular medication was only to be delivered in doses of 2, 4 

or 6 pills and in a 120cc bottle. In the course of delivery, it sounded as though there 

were 6 marbles in a bottle, making the medication a prime target for tampering or 

theft and re-sale. 

MPNS recommended going with a solution of blister packs. This delivery method 

would meet the standards of the CMOP in correcting their concerns and also save 

significant revenue for the VA that we would hope would be directed to other programs for our Veteran’s returning from combat. For the past 7 years, the Mid-South 

CMOP has been the only one utilizing this automated method and MPNS has been 

providing the service with no complaint. 

Mr. Chairman, the use of blister packs with pharmacies is a crucial delivery 

method that should be considered for all medications and with each CMOP. I first 

recommended this method to the CMOP not for my own purposes, but because it 

is simply the safest and most economical format for the delivery of medication under 

any circumstance. 


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The following are just a few of the key issues comparing blister pack delivery to 

bottle delivery: 

A 120cc vial (bottle) costs the CMOP 60–65 cents per prescription due to the 

added cost of the bottle. This is twice the amount of the blister pack. The blister 

pack is priced based on a per tablet charge of 8 cents. Delivery of the medication 

was based on packages of 2, 4 or 6 tablets per childproof vial. Most deliveries averaged 4 tablets for an average cost of 32 cents per delivery. At no time should a delivery in this scenario exceed 48 cents. From our experience with ED medication and 

based on 1 million deliveries, using blister packs can save the VA around $300,000 

annually. There will be times when the delivery of medication will include medication that far exceeds our example, making the bottle delivery more cost effective. 

However, for smaller deliveries, the CMOP should not give up it’s ability to provide 

medication on a per pill cost and utilize a more effective means of delivery of that 

medication. 

In addition to the cost of the medication, you must consider the integrity of the 

medication. In some cases the dosage can be diminished in the delivery process if 

it is chipped as a result of the medication rattling in a bottle. This issue also addresses discretion related to the mailing of the product. One of the participating factors in the Mid-South CMOP using blister packs had been an issue of discretion and 

concern over theft. 

Finally, every year, millions of prescription bottles find their way into our landfills. VA should be taking a responsible look at ways they can decrease their participation in this issue by finding more environmentally responsible formats of delivery 

such as blister packs. 

Mr. Chairman, our goal today is to inform you of this issue. We respectfully request that the Subcommittee work with the VA to develop a plan for all upcoming 

procurements through the CMOP to utilize blister packs wherever possible. Further, 

we believe that the VA should use its upcoming CMOP procurements to test automated blister pack delivery against automated bottle delivery methods between two 

willing CMOP’s to determine which method is more cost effective. 

Thank you. 


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MATERIAL SUBMITTED FOR THE RECORD 

Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Mr. Mark Munroe 

Senior Vice President, Sales and Marketing 

Mobile Medical International Corporation 

P.O. Box 672 

2176 Portland Street 

St. Johnsbury, VT 05819 

Dear Mr. Munroe: 

Thank you for your testimony at the U.S. House of Representatives Committee 

on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. Are there any other recommendations for improving the contracting process at 

VHA that you would like to share with us? 

2. To what do you attribute the notable differences in your contracting experiences with the Muskogee, Miami, and New Orleans VAMCs? You cited strong 

leadership at the Muskogee VAMCS. Have there also been specific policies that 

may have contributed to these very different experiences? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

U.S. House of Representatives—Committee on Veterans’ Affairs 

Subcommittee on Health 

‘‘VHA Contracting and Procurement Practices’’ 

September 23, 2010 

Mobile Medical International Corporation 

Response to Questions 

Question 1: Are there any other recommendations for improving the contracting 

process at VHA that you would like to share with us? 

Response: Yes. There are a number of standards which MMIC would recommend 

be implemented to help facilitate and improve the contract in process. They are: 

1. Standards initially need to be developed that take into consideration the medical requirements at all VA medical centers. 

2. Standards need to be religiously followed and not be deviated from without 

proper documentation. 

3. Quality of care for our veterans needs to be placed at the top of those standards. 

4. During any acquisition process an acquisition plan needs to be developed. That 

plan needs to be followed and plan should be the same across all Medical Centers. 

Question 2: To what do you attribute the notable differences in your contracting 

experiences with the Muskogee, Miami, and New Orleans VAMCs? You cited strong 

leadership at the Muskogee VAMCS. Have there also been specific policies that may 

have contributed to these very different experiences? 

Response: At the Muskogee VAMC strong leadership was the key. However, 

Muskogee’s use of an acquisition plan that was not only developed across all divisions, but also followed by each division was forefront in their success. A policy 


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which requires each medical center to develop and follow such a plan should be implemented. Contents of a sample plan are attached to this response. 

Additionally, health and safety of all Veterans serviced was placed at the forefront 

in Muskogee. During an open solicitation for a solution, Muskogee leadership did 

not waiver from the following requirements that the chosen solution: 

1. Have a history of success at other VA and government owned Medical Centers 

2. Demonstrate a history of: 

a. JCAHO accreditation 

b. Medicare Certification 

c. State Licensure 

Acquisition Plan 

Acquisition Background and Objectives 

Statement of Need 

Cost 

Capability or Performance 

Delivery or Performance-Period Requirements 

Trade-Offs 

Risks 

Plan of Action 

Sources 

Competition 

Source-Selection Procedures 

Acquisition Considerations 

Budgeting and Funding 

Product or Service Descriptions 

Contractor versus Government Performance 

Inherently Governmental Functions 

Management Information Requirements 

Test and Evaluation 

Logistics Considerations 

Contractor Access to Federally-Controlled Facilities and/or Information 

Contract Administration 

Other Considerations 

Milestones for the Acquisition Cycle 

Acquisition Plan Preparation Participants 

f 

Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Mr. Derek Newell 

President 

Robert Bosch Healthcare 

2400 Geng Road, Suite 200 

Palo Alto, CA 94303 

Dear Mr. Newell: 

Thank you for your testimony at the U.S. House of Representatives Committee 

on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. Are there any other recommendations for improving the contracting process at 

VHA that you would like to share with us? 

2. In your testimony, you noted that home health device companies contracting 

with VA may need to make an investment, such as installing hardware, without any certainty as to how many units of the device VA will purchase. How 

does VA currently address this concern of prospective contractors? 

3. In your testimony you mentioned that companies such as Bosch often do not 

understand the innovations that VA is looking for until a solicitation is issued. 

Can you please expand on the benefits that the innovation grants can have for 


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remedying this gap between the VA and prospective contractors? What other 

measures might VA take? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

Bosch Healthcare Responses to Veterans Health Subcommittee Questions 

November 15, 2010 

Question 1: Are there any other recommendations for improving the contracting 

process at VHA that you would like to share with us? 

Response: As the largest health care provider in the Nation, the VHA is a leader 

in the establishment and use of new and innovative care technologies, such as telehealth. As a result, the private health care system often follows the VHA’s lead in 

the use and deployment of these technologies. Vendors routinely offer the VHA the 

newest and most cutting edge technologies, often developed prior to a private sector 

demand—making the VHA the first customer for new technologies and products. 

However, the VHA’s Federal Supply Schedule contracts contain sales provisions that 

require prior sales of devices in the commercial sector. This is problematic because, 

as noted earlier, the commercial sector often follows—rather than leads—the VHA’s 

vision for and procurement of new technologies. Therefore, Bosch Health care recommends that the VHA develop a contracting mechanism that would allow and encourage VHA adoption of new technologies without provisions requiring prior commercial sales. 

Question 2: In your testimony, you noted that home health device companies contracting with VA may need to make an investment, such as installing hardware, 

without any certainty as to how many units of the device VA will purchase. How 

does VA currently address this concern of prospective contractors? 

Response: Our experience has been that VA is attempting to address this concern through monthly contracting fees (per patient per month) where investment 

costs are incorporated into the ‘‘General Services’’ fees. In theory, this practice could 

work; however, the VHA generally is only willing to guarantee a minimal number 

of devices for purchase. Thus, the number of devices that VHA is willing to guarantee falls short of the number needed to minimize the investment risk of its partners. We recommend that when entering agreements, the VHA work with its vendors to jointly establish the number of devices that is sufficient to incentivize private sector investment without placing undue burden on the VA budget. 

Question 3: In your testimony you mentioned that companies such as Bosch often 

do not understand the innovations that VA is looking for until a solicitation is 

issued. Can you please expand on the benefits that the innovation grants can have 

for remedying this gap between the VA and prospective contractors? What other 

measures might VA take? 

Response: The Innovation Grants are a good start to a partnership with the private sector to spur development and testing of innovative products and methodologies. However, this type of endeavor is more suited for the innovations of industry 

rather than fulfillment of the VHA’s vision. As a result, we believe another approach 

is also in order—one that would allow the VHA to share its vision of the tools, devices, methodologies, and processes that are needed for next generation health care. 

Such an approach would include a complete technology roadmap consisting of 

VHA’s vision, its short- and long-term goals, and its ideas about specific technology 

solutions that would meet those goals. In turn, this would create the clarity and 

transparency needed for vendors to address the VA’s specific needs and plan for the 

future. This challenge can be achieved by VA communicating more frequently with 

its industry partners, and should include (1) a focus on the health specialty or VHA 

product line in question, (2) what VHA believes is currently working or not working 

in that area, and (3) its ‘‘wish list’’ for future product development. 

f 


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Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Mr. Lincoln Moss 

Senior Vice President and Chief Operating Officer 

Ramtech Building Systems 

1400 U.S. Highway 287 South 

Mansfield, TX 76063 

Dear Mr. Moss: 

Thank you for your testimony at the U.S. House of Representatives Committee 

on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. Are there any other recommendations for improving the contracting process at 

VHA that you would like to share with us? 

2. In your contact with VA, what opportunities have you had to express your 

views on the merits of moving from a design-bid-build approach to a designbuild approach, or other changes in the procurement process that you feel 

would represent an improvement? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

Modular Building Institute 

Committee on Veterans’ Affairs, Subcommittee on Health 

United States House of Representatives 

Follow-Up Questions on VHA Contracting and Procurement Practices 

Wednesday, November 3, 2010 

Question 1: Are there any other recommendations for improving the contracting 

process at VHA that you would like to share with us? 

Response: The primary focus of our testimony on VHA Contracting and Procurement Practices was the advantage to the Department of Veterans Affairs that a Design-Build project delivery system offered over traditional Design-Bid-Build. We are 

firmly convinced that by adopting a culture that embraces Design-Build, the VHA 

will achieve greater efficiency and value in future construction projects. 

Not only are there less ‘‘moving parts’’ to the process, this approach allows alternate forms of constructions to participate, potentially increasing value even further. 

As an industry, MBI understands it is vitally important that veterans play an active 

role in the Contracting process when it comes to working with the Department of 

Veterans Affairs and the VHA. It is our goal to ensure that when it comes to construction projects, veteran involvement increases. It is our belief that the VHA and 

the VA, in general should incorporate the changes discussed in our September 23rd 

Testimony to maximize veteran involvement. 

If this simple but fundamental construction policy was changed it would reflect 

greater opportunities for design-build contractors, who, in turn, would be able to 

partner with veteran-owned businesses to complete projects. 

Undoubtedly, one of the top goals of the VA is to ensure that there are increased 

contracting opportunities for SDVOBs with the VA. To that end, MBI feels this one 

change could greatly increase SDVOB participation in construction projects. 

Question 2: In your contact with VA, what opportunities have you had to express 

your views on the merits of moving from a Design-Bid-Build approach to a DesignBuild approach, or other changes in the procurement process that you feel would 

represent an improvement? 


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Response: While MBI has reached out to the Department of Veterans Affairs, Office of Construction on this matter, to date, we have not received a response to our 

request for a meeting to discuss the current construction policies within the VA. 

MBI remains committed to working on this issue through all appropriate channels 

and is continuing to pursue the VA to discuss this matter in greater detail. 

f 

Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Jay Wise, Ph.D. 

Chief Executive Officer 

Wise Knowledge Systems, Inc. 

6210 Bear Creek Road 

Pipe Creek, TX 78063 

Dear Dr. Wise: 

Thank you for your testimony at the U.S. House of Representatives Committee 

on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. Are there any other recommendations for improving the contracting process 

at VHA that you would like to share with us? 

2. In your testimony you cited leadership concerns with bearing on the VA contracting and procurement process. In addition to these concerns, are there 

structural or policy barriers that have played a role in your experience with 

VA? 

3. Has the KBES been tested and deployed? If so, where? What were the results? 

4. What do you think would be the best application of the medical KBES for the 

VA at this time? 

5. What evidence do we have that KBES could materially support the VA in its 

attempt to improve diagnosis and treatment of Traumatic Brain Injury? 

6. Is KBES being used in military medicine now? 

7. What do you recommend that VA do with your KBES technology? 

8. Why do you believe that VA failed to acquire KBES after some staff had initially positively discussed its potential use in the VA system? 

9. Did VA promise you a contract? 

10. What would it cost and how long would it take for VA to contract with you? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

Questions and Responses for Chairman Michaud: Wise Knowledge Systems 

Dr. Jay Wise 

For Chairman Michaud 

Question 1: Are there any other recommendations for improving the contracting 

process at VHA that you would like to share with us? 

Response: The first most important recommendation would be to install and support individuals who have a real interest and energy for helping our veterans, rather than dismissing promising technology because ‘‘nobody at the VA wants to 

work’’. 

Secondly, you might consider the advantage of installing an ad hoc panel of scientists to evaluate technologies presented to the VA/VHA. These would need to be 

‘‘honest third party’’ individuals whose central concern is the welfare of our vetVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00099 Fmt 6621 Sfmt 6621 I:\VA\61758.XXX 61758

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erans. Please note that WKS was told that they did not need to go thru the evaluation procedure because we were a proved technology used in the DoD, years ago, 

when Wise Knowledge Systems (WKS) first contacted the VA! Had WKS had that 

opportunity, much of this unfortunate history might have been avoided. 

Question 2: Leadership concerns and obstacles to VA contracting and procurement processes. Structural and policy barriers. 

Response: Again, the policies of the VA, while not entirely understood here at 

WKS, seem sufficient to provide the VA/VHA with strategically sound technologies. 

The key issue is that individuals such as Dr. Paul Tibbits, CIO of the VA, and 

Ms. Lloyd of the VHA, and others, seem both overwhelmed by the ‘‘portfolio’’ of 

technology they deal with, and the situation they repeatedly reported: ‘‘the VA 

is broken and nobody here wants to work’’. 

Question 3: Has IKBES been tested and deployed? If so, where? What were the 

results? 

Response: Please see our written testimony for the documents that support the 

successes in application, deployment, and testing for KBES. Please especially note 

the correspondence from Joe Goodin of the Navy. 

A full description of the architecture, application, and results of application of 

KBES is available to you on request. 

KBES has received positive test validation and deployment successes in active 

military operations with the Navy SMART (Shipboard Medical Administrative 

Readiness Tool). We refer you to the letter from Joe Goodin of the Office of Naval 

Operations. Additionally KBES medical applications have received validation and 

praise in application in the private sector in cardiac care optimization, neonatal disease mapping, juried scientific journals (please refer to our written testimony), 

and is part of the collection at the Smithsonian Institute. As deployed, the KBES 

analyses are proven to be 95 percent accurate, or better, in providing decision support and optimizing medical outcomes. 

Wise Knowledge Systems, Inc. has received positive praise following analysis of KBES technology by: 

Paul Tibbits, M.D.—Veterans Administration 

Roy Pratt—–HP 

Joe Goodin—Office of the Chief of Naval Operations 

The Smithsonian Institute 

Dr. John Sharp—UMKC School of Medicine 

Frank Sisti—Software Engineering Institute 

Dr. Dale Alverson—Telemedicine Director, University of New Mexico 

Ciro Rodriquez—U.S. Congress, House of Representatives 

W.C. Vanderwagen, M.D.—Indian Health Service 

Wendell Porth—St. Luke’s Lutheran Hospital 

Bill Silva—Dyncorp 

Wise Knowledge Systems, Inc. clients, since 1985 

Question 4: What do you think would be the best application of the medical 

KBES would be for the VA at this time? 

Response: WKS feels that the most strategically significant and efficient se of 

the medical KBE at this time would be to be deployed in support of the emerging 

science associated with Combat Related Traumatic Brain Injury (CRTBI). An 

SOW and details for this deployment were provided, repeatedly, to Dr. Tibbits who 

agreed that there could be great benefit from KBES supporting the work on CRTBI, 

and then changed his focus to another project when he ’’could not find a customer’’. 

Question 5: What evidence do we have that KBES could materially support the 

VA in its attempt to improve diagnosis and treatment of Traumatic Brain Injury? 

Response: Please review the KBES successes reflected in our correspondence in 

our written testimony. KBES has successfully supported major advances in the 

treatment of very complex medical issues including Medical Readiness for our Navy. 

Our private sector successes includes the improvement of the diagnosis and treatment strategies for acute myocardial infarction resulting in a significant reduction of the length of stay and cost of cardiac care, and better positive outcome; and the mapping and strategic intervention plans for Neonatal Respiratory Distress Syndrome. 


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While CRTBI is a very complex issue, WKS believes it will benefit from the robust 

analytic and predictive capabilities of KBES, just as the previous applications have 

benefited. 

Question 6: Is KBES being used in military medicine now? 

Response: No. Please refer to our written testimony for the explanation from the 

Navy. 

Question 7: What do you recommend that the VA do with your KBES technology? 

Response: With the license from WKS, the VA could use KBES in any situation 

that would be improved by accurate and responsive outcome prediction and the deployment of positive strategic actions. 

KBES supports planning, decision discovery and support, in very large and complex human issues. 

Medicine might be the most appropriate and urgent application, but very likely, 

not the only application for the VA. 

Question 8: Why do you believe that VA failed to acquire KBES after some staff 

had initially positively discussed its potential use in the VA? 

Response: WKS was told that the reason there would be no acquisition of KBES 

by the VA was because ‘‘the VA is immature (Dr. Pat Pearcy at SPAWAR, and 

Dr. Mike Valivullah at VA), the VA is broken, and nobody at the VA wants 

to work (Dr. Paul Tibbits, Deputy CIO of VA, Ms Lloyd VHA, and others)’’. WKS 

was told that the acquisition of the KBES technology would mean ‘‘work’’ for the 

VA. 

Please note, in meeting, each of these individuals praised the KBES technology, 

saying it would help the VA medical mission, and other than Ms. Lloyd, that they 

would recommend a ‘‘pilot’’ project to Dr. Tibbits for funding. 

Question 9: Did VA promise you a contract? 

Response: Yes. 

On multiple occasions, Dr. Paul Tibbits, Deputy CIO of VA, said he had ‘‘no 

problem contracting directly’’ with WKS. 

Dr. Tibbits has said ’’I will just go down the hall and get the money from 

my boss,’’ and ‘‘I will ask SPAWAR (Dr. Pat Pearcy) to do a contract with 

you now’’. 

Question 10: What would it cost and how long would it take for VA to contract 

with you? 

Response: VA contracting with WKS should be very straightforward. 

WKS is VA a GSA veteran owned certified small business. 

The VA (Dr. Tibbits and others) have said they would not use the GSA in 

acquisition, as ‘‘the GSA is not helping us’’. 

The license for the WKS KBES technology is $450k, and depending on the scope 

of the project (looking at an estimate for CRTBI) the development cost should be 

circa $350k-$450k. 

WKS’ interest in pursuing this issue is the welfare of our veterans. Finances are 

of lesser concern to WKS. 

If the VA will use KBES to benefit our veterans, these costs may be able to be 

lowered. 

The typical time required to produce a medical KBES is about 6 months. CRTBI 

may take just a bit longer. We will know more on that once we have begun the development process. 

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Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Mr. James A. Clair, M.P.A., M.S. 

Chief Executive Officer 

Goold Health Systems 

45 Commerce Drive, Suite 5 

P.O. Box 1090 

Augusta, ME 04332 

Dear Mr. Clair: 

Thank you for your testimony at the U.S. House of Representatives Committee 

on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. Are there any other recommendations for improving the contracting process at 

VHA that you would like to share with us? 

2. In your testimony, you discussed how Goold Healthcare Systems can work with 

VA to improve their pharmacy benefits program. Other witnesses have cited 

a concern that, prior to a solicitation being issued, they have little understanding of VA’s goals and perspective. Have you encountered the same issues, 

or have you been able to communicate with VA? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

Goold Health Systems 

Augusta, ME. 

November 23, 2010 

The Honorable Michael H. Michaud 

Chairman, Subcommittee on Health 

Committee of Veterans’ Affairs 

U.S. House of Representatives 

335 Cannon House Office Building 

Washington, DC 20515 

Dear Congressman Michaud, 

I am writing in response to your October 4th letter in which you asked two questions to follow-up on the September 23rd oversight hearing on ‘‘VHA Contracting 

and Procurement Practices.’’ 

Listed below are your questions along with my responses: 

Question 1: Are there any other recommendations for improving the contracting 

process at VHA that you would like to share with us? 

GHS Response: I recommend that the VHA publish the means by which they 

monitor, audit and analyze existing VHA contracts so that the public can understand the value of the services each vendor/contractor/subcontractor provides to the 

VHA. A more public contract review process will help Congress, and the public, understand that the VHA is continuously monitoring, and improving, their contract 

oversight process. 

In addition, I recommend that the VHA more earnestly seek out small companies 

with whom they can provide contracting opportunities. Smaller companies can very 

often provide services in a more efficient, nimble and cost-effective manner than 

their larger competitors yet can presently be eliminated from consideration due to 

contract requirements that favor the larger companies. 


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Question 2: In your testimony, you discussed how Goold Health Systems can 

work with VA to improve their pharmacy benefits program. Other witnesses have 

cited a concern that, prior to a solicitation being issued, they have little understanding of VA’s goals and perspective. Have you encountered the same issues, or 

you have you been able to communicate with VA? 

GHS Response: Goold Health Systems has never competed for work at the VA. 

Therefore, we don’t have a perspective on the degree to which they communicate 

their goals and perspectives (and timelines and objectives) about the matters for 

which they solicit bids. 

We have extensive experience competing in other public solicitations and know 

that the best procurements are those that are open, well-communicated and fairly 

judged. The best results for the public agency are when they have a wealth of qualified competitors submitting proposals at optimally competitive prices. 

I want to thank you and the Subcommittee Members again for the opportunity 

to testify on September 23rd and to provide additional recommendations now so that 

the VHA procurement practices are optimally effective. 

I would be pleased to answer your questions or provide any additional information. 

Sincerely, 

James A. Clair 

f 

Chief Executive Officer 

Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Gene L. Dodaro 

Acting Comptroller General of the United States 

U.S. Government Accountability Office 

441 G Street, NW 

Washington, D.C. 20548 

Dear Comptroller General Dodaro: 

Thank you for the testimony of Debra A. Draper, Director, Health Care, at the 

U.S. House of Representatives Committee on Veterans’ Affairs Subcommittee on 

Health oversight hearing on ‘‘VHA Contracting and Procurement Practices,’’ which 

took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. How were the incidents mentioned in Ms. Draper’s testimony discovered? 

• How were patients impacted by these incidents? 

• Could these incidents have been prevented by VAMCs following the policies 

GAO identified? 

2. Why are committee reviews important for patient safety? 

3. Why are VAMCs not always following the required committee review and approval process? 

4. In her testimony, Ms. Draper mentioned VA’s double signature policy related 

to the purchasing of supplies and equipment. Could you please elaborate on 

how this policy is connected to patient safety? 

5. Why are VAMCs not entering information about expendable medical supplies 

in GIP? 

6. Does VA headquarters provide sufficient guidance to VAMCs on implementing 

its policies on purchasing and tracking of expendable medical supplies and reusable medical equipment? 

7. Will VA’s new inventory management system, Strategic Asset Management, 

address the problems about items not being listed in VA’s inventory management systems? 

8. Is it a violation of VA policy to purchase instruments, such as surgical or dental instruments, with purchase cards? What about other reusable medical 

equipment? 


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9. What gaps has GAO identified in VA’s requirements for tracking medical 

equipment in its inventory management systems? 

10. Why is oversight of VA’s policies on purchasing and tracking important for 

patient safety? 

11. Is VA doing enough oversight of VAMCs’ purchasing and tracking policies? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

U.S. Government Accountability Office 

Washington, DC. 

November 8, 2010 

The Honorable Michael H. Michaud 

Chairman 

Subcommittee on Health 

Committee on Veterans’ Affairs 

House of Representatives 

Subject: Responses to Questions for the Record; Hearing Entitled Veterans Health 

Administration Contracting and Procurement Practices 

Dear Mr. Chairman, 

This letter responds to your October 4, 2010, request that we address several 

questions for the record related to the Subcommittee’s September 23, 2010, hearing 

on the Veterans Health Administration’s contracting and procurement practices. 

Our responses to the questions, which are in the enclosure, are based on our ongoing work on the Department of Veterans Affairs’ oversight of compliance with its 

policies for purchasing and tracking expendable medical supplies and reusable medical equipment. Our response to these questions is based on work we performed in 

accordance with generally accepted government auditing standards. 

If you have any questions about our responses or need additional information, 

please contact me on (202) 512–7114 or at draperd@gao.gov. 

Sincerely yours, 

Debra A. Draper 

Director, Health Care 

Enclosure 

Questions for the Record Submitted by the Honorable Michael H. Michaud 

for Debra A. Draper, Ph.D., M.S.H.A., Director, Health Care 

U.S. Government Accountability Office 

Veterans Health Administration Contracting and Procurement Practices 

Subcommittee on Health, Committee on Veterans’ Affairs 

U.S. House of Representatives 

September 23, 2010 

Question 1: How were the incidents mentioned in Ms. Draper’s testimony discovered? 

Response: The incident in which an incorrect expendable medical supply item 

was purchased and subsequently used in dialysis machines, which resulted in the 

potential cross-contamination of veterans’ blood, was discovered by VA medical center (VAMC) staff on October 21, 2009 during an annual, routine maintenance inspection of the VAMC’s dialysis machines. Initially the incident was presumed to 

be the result of a defect in the machine. On October 26, 2009, the VAMC staff contacted the manufacturer and during discussions with the manufacturer determined 

that an incorrect expendable medical supply item had been purchased and was in 


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1 Reprocessing refers to the steps by which RME is prepared for reuse and includes cleaning 

and disinfecting or sterilizing the medical equipment. 2The VAMC reported that it was unable to contact the remaining three veterans. 

use in the machines. That incorrect item allowed veterans’ blood to pass into the 

machine during treatment and resulted in potential cross-contamination with the 

blood of veterans who were subsequently treated using these machines. 

Another incident, which involved the improper reprocessing 1 of an auxiliary water 

tube, a type of reusable medical equipment (RME) used with a colonoscope, was discovered by VAMC staff in March 2009. Initially, in response to a VA patient safety 

alert that was issued on the auxiliary water tube in December 2008, officials from 

the VAMC checked their inventory management systems and concluded—incorrectly—that the tube was not used at the facility because it was not listed in the 

facility’s inventory management systems. However, during an in-depth inspection of 

the facility’s reprocessing activities, which consisted of searching all clinical areas 

of the VAMC for RME, VAMC staff determined that the auxiliary water tube was, 

in fact, being used at the facility. 

• How were patients impacted by these incidents? 

According to VAMC staff, the incident in which an incorrect expendable medical 

supply item was purchased and subsequently used in dialysis machines potentially 

exposed 83 veterans to infectious diseases, such as Human Immunodeficiency Virus 

(HIV), Hepatitis B, and Hepatitis C. As of June 2, 2010, the VAMC reported that 

testing for 82 of the 83 veterans had been completed and that no veterans had acquired infectious diseases as a result of this incident. The VAMC found that one 

of the 83 veterans identified was dialyzed on an uncontaminated machine and therefore this veteran was not notified or tested for these infectious diseases. 

According to VAMC staff, the incident that involved the improper reprocessing of 

an auxiliary water tube potentially exposed 2,526 veterans to infectious diseases, 

such as HIV, Hepatitis B, and Hepatitis C. As of August 17, 2010, the VAMC reported that it had successfully notified 2,523 of the 2,526 veterans of possible exposure to infectious diseases and that there were 17 new positive test results. VA reports that these results are not necessarily linked to RME issues and is continuing 

its evaluation.2

• Could these incidents have been prevented by VAMCs following the 

policies GAO identified? 

The incident in which an incorrect expendable medical supply item was purchased 

and subsequently used in dialysis machines may have been prevented had the 

VAMC followed VA’s purchasing policies. VA policy requires that a designated 

VAMC committee review and approve proposed purchases of any expendable medical supplies that have not been previously purchased by the VAMC. However, the 

incorrect item that was used in conjunction with the dialysis machines was not reviewed and approved by a VAMC committee. If the item had gone through the Committee review and approval process, a clinical representative on the Committee may 

have recognized that it was inappropriate for use in dialysis machines and not approved the purchase. Furthermore, VA policy requires that all approvals for purchases of expendable medical supplies must be signed by two officials, the official 

placing the order and the official responsible for approving the purchase. However, 

the staff member working in the dialysis department purchased the incorrect item 

without obtaining the signature of an approving official. An approving official may 

have recognized that the item was inappropriate for use in dialysis machines and 

not approved the purchase. 

The incident that involved the incorrect reprocessing of an auxiliary water tube 

may have been recognized 3 months earlier, and fewer veterans would have been 

potentially exposed to improperly reprocessed RME, had the auxiliary water tube 

been listed in one of the facility’s inventory management systems. However, VA policy does not currently require information about RME valued under $5,000 that is 

not purchased on a recurring basis to be entered into an inventory management system. This incident does not indicate a lack of compliance with VA’s requirement for 

entering information on RME into an inventory management system, because the 

auxiliary water tube is valued at less than $5,000 and is not purchased on a recurring basis. However, this incident exposed a gap in VA policy with regard to tracking RME. In part because the item was not listed in the facility’s inventory management system, personnel incorrectly concluded that the item was not in use. 

Question 2: Why are Committee reviews important for patient safety? 


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3See VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 2009) and VHA Handbook 1730.01, Use and Management of the Purchase Card Program (Aug. 27, 2008). 

Response: The Committee review and approval process is important for patient 

safety because Committees review and approve proposed purchases to evaluate the 

cost effectiveness of the purchase, as well as its likely impact on veterans’ care. 

Therefore, without this review, the VAMC has no assurance that expendable medical supplies and RME that are purchased are appropriate or safe for use on veterans. For example, the Committee that reviews and approves proposed RME purchases often includes a representative from the department responsible for reprocessing the RME. This individual serves on the Committee to determine whether the 

VAMC has the capability to reprocess the RME correctly and to ensure that staff 

is appropriately trained to do so. Proper reprocessing of RME is important to ensure 

that veterans are not exposed to infectious diseases during treatment. 

Question 3: Why are VAMCs not always following the required Committee review and approval process? 

Response: We are unable to determine why VAMCs do not always follow VA’s 

required Committee review and approval process. However, we found several instances at the VAMCs we visited in which clinical department staff placed orders 

for expendable medical supplies or surgical instruments, a type of RME, directly 

with the vendor instead of following this process. In these cases, officials outside the 

clinical departments may not be aware that the supplies have been ordered. 

Question 4: In her testimony, Ms. Draper mentioned VA’s double signature policy 

related to the purchasing of supplies and equipment. Could you please elaborate on 

how this policy is connected to patient safety? 

Response: While one purpose of this policy is to prevent fraudulent purchases 

from occurring through segregating purchasing responsibilities, such as completing 

a purchase order and approving a purchase order, this policy is also connected to 

patient safety as it helps VAMCs identify whether proposed purchases are correct 

and appropriate for the clinical department making the purchase. 

Question 5: Why are VAMCs not entering information about expendable medical 

supplies in the Generic Inventory Package (GIP)? 

Response: We are continuing to evaluate why VAMCs are not entering information about expendable medical supplies in GIP. Based on our preliminary work we 

have found that officials from one VAMC we visited incorrectly believed that VA policy does not require expendable medical supplies used in only one clinical department to be entered into GIP. In contrast, officials from another VAMC correctly believed that VA policy requires them to enter information about all expendable medical supplies in GIP regardless of whether they are used facility-wide or only in a 

limited number of clinical departments. However, this facility had difficulty ensuring that supplies that are ordered by clinical department staff on a recurring basis 

are actually entered into GIP. 

Question 6: Does VA headquarters provide sufficient guidance to VAMCs on implementing its policies on purchasing and tracking of expendable medical supplies 

and reusable medical equipment? 

Response: We are continuing to evaluate whether VA headquarters provides sufficient guidance to VAMCs on implementing VA’s policies on purchasing and tracking of expendable medical supplies and RME; however, we found that in some cases 

these policies lack clarity or appear to contradict each other. For example, VHA 

Handbook 1761.02 states that purchase cards are not authorized for purchasing 

equipment, while VHA Handbook 1730.01 states that ‘‘national policy allows purchase cards to be used for repair and equipment purchase.’’ 3

Question 7: Will VA’s new inventory management system, Strategic Asset Management, address the problems about items not being listed in VA’s inventory management systems? 

Response: Because Strategic Asset Management (SAM) is not expected to be 

operational until March 2011, we cannot determine if the problems we identified 

would be fully addressed by the implementation of SAM. However, it does appear 

that this system will address the problem of inconsistent naming of RME in VA’s 

inventory management systems as it is expected to help standardize names for all 

expendable medical supplies and RME. Inconsistent naming of RME in VA’s inventory management systems makes it difficult for VAMCs to locate a specific type of 

RME in response to a manufacturer or FDA recall or patient safety alert. 


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4See VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 2009) and VHA Handbook 1730.01, Use and Management of the Purchase Card Program (Aug. 27, 2008). 

Question 8: Is it a violation of VA policy to purchase instruments, such as surgical or dental instruments, with purchase cards? 

Response: According to a VA headquarters official, it is not a violation of VA policy for clinical department staff to purchase instruments using purchase cards because instruments are not considered to be ‘‘equipment’’ for purposes of VA’s purchasing and tracking policies, even though they are a type of RME. However, we 

have found that this may contribute to a potential patient safety concern because 

at some VAMCs, purchases made by clinical department staff using purchase cards 

were not always reviewed and approved as required by a Committee and that the 

department responsible for reprocessing the instruments may be unaware of the 

purchases. To prevent this problem from occurring, some VAMCs we visited have 

developed policies that prohibit clinical department staff from purchasing instruments using purchase cards. 

• What about other reusable medical equipment? 

We have found that VA’s policies on purchasing equipment appear to contradict 

each other. VHA Handbook 1761.02 states that purchase cards are not authorized for purchasing equipment, while VHA Handbook 1730.1 states that ‘‘national policy allows purchase cards to be used for repair and equipment purchase.’’ 4

VA headquarters officials told us that clinical department staff is not permitted 

to purchase RME using purchase cards. However, VA headquarters officials also 

told us that some VAMC staff members may be granted the authority by a 

VAMC Committee to use purchase cards to purchase RME. 

Question 9: What gaps has GAO identified in VA’s requirements for tracking 

medical equipment in its inventory management systems? 

Response: We are continuing to evaluate VA’s requirements for tracking medical 

equipment and expendable medical supplies in its inventory management systems. 

Through our preliminary work, we have identified, for example, a gap in VA’s requirements for tracking medical equipment in the Automated Engineering Management System/Medical Equipment Reporting System (AEMS/MERS)—VA’s inventory 

management system for equipment. VA policy only requires RME costing $5,000 or 

more and with a useful life of 2 years or more to be entered in AEMS/MERS. Certain RME costs less than $5,000 and would therefore not be required to be entered 

in AEMS/MERS. This means that VAMCs’ inventory of medical equipment could be 

incomplete. This gap has important patient safety implications. For example, in response to a VA patient safety alert that was issued on the auxiliary water tube in 

December 2008, officials from one VAMC checked their inventory management systems and concluded—incorrectly—that an auxiliary water tube, a type of RME, was 

not used at the facility. However, in March 2009, the VAMC discovered that the 

tube was in use and was not being reprocessed correctly, potentially exposing veterans to infectious diseases. 

Question 10: Why is oversight of VA’s policies on purchasing and tracking important for patient safety? 

Response: Oversight of VAMC’s compliance with VA’s policies on purchasing and 

tracking is important for patient safety because compliance with these policies can 

help prevent patient safety incidents. For example, compliance can help prevent the 

purchase of incorrect medical supplies and the purchase of RME that VAMC staff 

members are not trained to reprocess or that the VAMC cannot reprocess correctly 

because it lacks the appropriate equipment. Compliance with these policies can also 

help ensure that VAMCs do not use expired supplies and that they are able to identify supplies and equipment that are the subject of a patient safety alert or a recall 

in a timely manner. 

Question 11: Is VA doing enough oversight of VAMCs’ purchasing and tracking 

policies? 

Response: We are continuing to evaluate the oversight of compliance with VA’s 

purchasing and tracking requirements by VA headquarters, selected Veterans Integrated Service Networks, and selected VAMCs. 

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Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Honorable George J. Opfer 

Inspector General 

Office of the Inspector General 

U.S. Department of Veterans Affairs 

801 I Street, N.W. 

Washington, D.C. 20002 

Dear Inspector General Opfer: 

Thank you for the testimony of Belinda J. Finn, Assistant Inspector General for 

Audits and Evaluations, at the U.S. House of Representatives Committee on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and 

Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. During OIG’s audit of oversight over patient transportation contracts, you 

found that contracting officers cited staff shortages and heavy workloads as a 

factor contributing to the issues you unearthed surrounding these contracts. 

Were there other factors as well? Are shortages in contracting officers a common problem within VHA, and if so, how can this issue be addressed? 

Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

U.S. Department of Veterans Affairs 

Office of Inspector General 

Washington, DC. 

November 15, 2010 

The Honorable Michael H. Michaud 

Chairman 

Subcommittee on Health 

Committee on Veterans’ Affairs 

United States House of Representatives 

Washington, DC 20515 

Dear Mr. Chairman: 

This is in response to your October 4, 2010, letter following the September 23, 

2010, hearing on VHA Contracting and Procurement Practices. Enclosed is our response to the additional hearing question. 

Thank you for your interest in the Department of Veterans Affairs. 

Sincerely, 

/s/Richard J. Griffin for 

GEORGE J. OPFER 

Inspector General 

Enclosure 


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Questions From the Honorable Michael Michaud 

For Belinda Finn, Assistant Inspector General for Audits and Evaluations 

Office of Inspector General, U.S. Department of Veterans Affairs 

Before the Subcommittee on Health 

Committee on Veterans’ Affairs 

United States House of Representatives 

Hearing on VHA Contracting and Procurement Practices 

Question 1: During OIG’s audit of oversight over patient transportation contracts, you found that contracting officers cited staff shortages and heavy workloads 

as a factor contributing to the issues you unearthed surrounding these contracts. 

Were there other factors as well? Are shortages in contracting officers a common 

problem within VHA, and if so, how can this issue be addressed? 

Response: Our current work shows that contracting staff inexperience is also a 

challenge and that staff could benefit from training. With the loss of institutional 

knowledge resulting from retirements, VA’s acquisition workforce has been strained 

to keep pace with the increased amount of and complexities associated with 

outsourced work in support of VA’s mission. In response to this challenge, VA created an Acquisition Academy to address the growing acquisition workforce challenge 

facing the Department to help meet required certification standards for the acquisition workforce. 

Our audits and reviews frequently report that contracting officers staffing shortages are an issue. The total staff authorized for Veterans Integrated System Network (VISN) contracting activities is 2,111 full time equivalents (FTEs). In June of 

2010, the vacancy rate was approximately 28 percent; by September 30, 2010, the 

vacancy rate was just under 10 percent. 

VA has developed a workforce modeling tool to determine whether staffing levels 

are sufficient to meet the demands of the workload. However, to remain useful this 

tool needs constant maintenance including the monitoring of current contract workload and staffing levels. Indications are that the information in this tool has not 

been kept current. Also, VA’s Electronic Contract Management System (eCMS) has 

a workload data tool that provides the functionality needed for the purpose of monitoring workload and staffing levels. VA and Veterans Health Administration acquisition management need to decide which tool is best suited to monitor workload, determine appropriate staffing, and commit the resources to maintain and monitor 

workload and staffing levels. 

To address staff shortages, VA can aggressively pursue options to recruit staff 

trained in acquisition support activities or provide more opportunities for VA staff 

to assume these mission-critical responsibilities. In addition, VA should consider 

evaluating the adequacy of the training provided at the VA Acquisition Academy to 

VISN contracting officers, Contracting Officers Technical Representatives, and other 

acquisition support staff. During 2010 audit work, we performed a survey of VISN 

Network Contract Managers (NCMs). Nine out of 16 NCMs, who reported taking 

training at the Academy, responded that the training contracting officers receive 

from the Academy did not adequately prepare them to support the needs of program 

officials and comply with acquisition laws, regulations, and VA policy. When asked 

to explain why the training was not adequate, NCMs recommended that training 

needed to be more tailored to the VA environment. NCMs also responded that there 

was a need for health care contract training. 

Another step that could improve the development of VA’s acquisition workforce is 

to ensure the entire VA procurement force is trained and uses the same acquisition 

support information system. Use of eCMS is mandated, however the system is not 

fully utilized and information within the system is often incomplete. VA can develop 

specific performance measures that align with the performance related to the use, 

quality, and completeness of the information in eCMS. VA’s ability to obtaining reliable information and transparency over all acquisitions and to assess how well these 

acquisitions complied with laws, regulations and policies is key to helping identify 

systemic weaknesses in acquisition practices and to tailor training requirements to 

address deficiencies in the future. 

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Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 4, 2010 

Honorable Eric K. Shinseki 

Secretary 

U.S Department of Veterans Affairs 

810 Vermont Avenue, NW 

Washington, D.C. 20420 

Dear Honorable Shinseki: 

Thank you for the testimony of Frederick Downs, Jr., Chief Procurement and Logistics Officer in the Veterans Health Administration, and Dr. Andrea Buck, National Director of Medicine, at the U.S. House of Representatives Committee on Veterans’ Affairs Subcommittee on Health oversight hearing on ‘‘VHA Contracting and 

Procurement Practices,’’ which took place on September 23, 2010. 

Please provide answers to the following questions by Monday, November 15, 2010, 

to Jeff Burdette, Legislative Assistant to the Subcommittee on Health. 

1. Does the VA have any policies in place that limit the dispensing of the initial 

supply of expensive brand name drugs that have high discontinuation rates? 

If yes, can you define, by therapeutic drug class or NDC, the types of drugs 

that have less than 30-day or 90-day supplies? If not, can you explain your 

rationale? 

2. As you know, pharmacy high-cost users account for a disproportionately high 

percentage of a plan’s drug expenditures. Are there any programs in place to 

identify, monitor then manage, the drug utilization for these members? Please 

explain. 

3. Management of narcotic use is a balance between pain management and potential abuse. Are there programs in place to identify, monitor then manage 

VA patients using chronic pain medication? Please explain. 

4. Prescription refills of maintenance medications are a routine event in most 

cases. However, issues can arise for non-maintenance medications. Can you 

please explain how early refills for non-maintenance drugs are presently managed? 

5. How do you respond to the concerns that GAO and OIG raised in their testimony? What steps has VHA taken to address contracting and procurement 

weaknesses and deficiencies that GAO and OIG have identified over the 

years? 

6. What are the different ways that vendors can get their products to veterans? 

Are there multiple ways to do this and what is VHA doing to ensure that 

there is transparency this process? 

7. Would VA be willing to share de-identified pharmacy and medical claims data 

for an independent review, providing the entity performing the reviews signed 

a Non-Disclosure and HIPAA Business Associate Agreement? 

8. In his testimony, Mr. Downs noted that ‘‘as new technologies become available, VHA staff members from clinical, logistics and acquisition disciplines 

form a team to carefully review potential applications before determining 

which advances to adopt’’. This is contrary to what we heard at a recent 

Health Subcommittee hearing on wireless health technologies. We heard 

about the lack of transparency and the difficulties that companies face in informing VHA about their products. Can you explain this disconnect? 

9. How does the VHA Procurement and Logistics Office prioritize procurement 

requests from the program office? 

10. What coordination exists between the VHA Procurement and Logistics Office 

and the VHA policy/program offices? 

11. In his testimony, Mr. Downs referred to VHA’s use of the Generic Inventory 

Package and how VHA tracks over 1,300 expendable inventories consisting of 

928,816 line items. Is there a threshold, such as a dollar amount, that dictates which expendable equipments are entered into the Generic Inventory 

Package? 

a. What is the difference between the GIP and the Automated Engineering 

Management System/Medical Equipment Reporting System (AEMS/ 

MERS)? Do the two programs overlap in function? 

12. GAO identified gaps in VA policies regarding entering information on expendable medical supplies and RME into VA’s inventory management systems. 

Does VA have plans to address those gaps so that VAMCs will have an accuVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00110 Fmt 6621 Sfmt 6621 I:\VA\61758.XXX 61758

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rate record of the medical supplies and medical equipment they use? If so, 

how does VA plan to do so? 

13. Please describe VA’s current oversight to ensure that VAMCs comply with 

VA’s policies for purchasing and tracking of expendable medical supplies and 

reusable medical equipment. Does VA plan to strengthen its oversight and, 

if so, what steps does VA plan to take to do this? 

14. What role do the VISNS currently have in overseeing VAMC compliance with 

VA’s policies on purchasing and tracking of expendable medical supplies and 

reusable medical equipment? Please describe any plans VA Central Office has 

to change or enhance this oversight. 

15. How will SAM enhance VA’s ability to oversee purchasing and tracking of expendable medical supplies and reusable medical equipment by VAMCs? 

16. Could you explain the relationship between the VHA Procurement and Logistics Office and the central VA National Acquisition Center? Under what circumstances does a local VA medical center obtain goods through the VHA 

Procurement and Logistics Officer versus the VA National Acquisition Center? 

17. How does VA central office monitor VISNs to ensure that they are adequately 

overseeing VAMC compliance with VA’s policies on purchasing expendable 

medical supplies and reusable medical equipment? 

18. What oversight do VAMC acquisition and Materiel Management (A&MMS) 

departments receive from the VISN and VA central office regarding compliance with 1) VA’s prime vendor program; 2) small business programs and socioeconomic goals; 3) the Federal supply schedule program; and 4) general 

purchasing and acquisition policies. 

19. What steps is VA taking to standardize certain types of reusable medical 

equipment, such as using the same type of colonoscopes, across VAMCs? 

20. 20) How will VAMCs be impacted by VHA’s new acquisitions and contracting policy requiring all items over $3,000 to be purchased by a VISN-level contracting officer, which goes into effect on October 1, 2010? 

21. When are VAMCs required to make purchases from prime vendors? 

22. Please describe the process by which VAMCs may negotiate prices under the 

Federal supply schedule program. To what extent are VAMCs successful at 

negotiating lower prices under the Federal supply schedule program. 

23. Please describe the extent to which VAMCs met the prescribed small business 

programs and socioeconomic goals in fiscal year 2008 and 2009? What steps 

have VAMCs taken to meet these goals? 

24. Could you explain the process of how VA medical centers obtain and provide 

Durable Medical Equipment (DME) to veteran patients? 

25. Is there a dollar threshold for local medical center acquisitions? Could the 

local VA medical center make acquisitions using government purchase cards? 

26. The VHA Operations Quality Assurance Office provides direct oversight to 

VHA acquisition activities and conducts annual site visits to Service Area Offices. Has the VHA Operations Quality Assurance Office identified the same 

weaknesses that GAO and OIG have found over the years? Also, GAO and 

OIG have independence and can expose problems without any fear or recourse. What assurances does the VHA Operations Quality Assurance Office 

have that they will not face any retribution from their oversight activities and 

that their findings will be taken seriously? 

27. Does VHA use competitive bidding in the procurement of DME such as beds, 

wheelchairs, walkers? 

28. It is my understanding that the Prosthetics and Clinical Logistics Office 

(P&CLO) generally oversees DME procurement and utilization, but medical 

facilities administer the home oxygen and respiratory services locally to provide eligible VA patients home oxygen and respiratory services, is that correct? If so, could you explain why home oxygen and respiratory services are 

administered locally, whereas other DME purchases are overseen and administered by the Prosthetics and Clinical Logistics Office? 

29. It is my understanding that VHA uses several contracting mechanisms for acquisition of pharmaceuticals, medical and surgical supplies, prosthetics, information technology. For example VA uses the Federal Supply Schedule (FSS), 

Blanket Purchase Agreements (BPA), National Contracts, etc, when procuring 

pharmaceuticals for veterans. Could you explain to the Committee what 

mechanisms are used to purchase medical and surgical supplies, prosthetics, 

and medical information technology? What office or offices in VHA oversees 

these acquisitions? 

30. As you are aware, VA and DoD have made substantial progress in increasing 

joint procurement activities since December 1999. This was done to eliminate 


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redundancies in purchases. Could you please provide the Committee with an 

update of current joint DoD–VA procurement activities? How do VA and DoD 

collaborate to make medical acquisitions? 

31. In Mr. Downs’ testimony, he noted that all acquisition personnel previously 

reporting to the VISN or medical center directors have now been realigned 

under the VHA Procurement and Logistics Office. When did this change take 

place and what are some improvements that you have observed as a result 

of this change? 

32. In 2006, Secretary Nicholson signed VA Directive 1663 which established specific policies and procedures for the award of sole-source health care resource 

contracts to VA affiliated institutions. An OIG audit issued in September 

2008, showed that VHA entities were not complying with the Directive. 

a. What actions have you taken since the OIG Audit was issued to ensure 

compliance with this Directive? 

b. What percentage of health care resource contracts awarded by VHA in FY 

2009 and FY 2010 complied with the Directive? 

c. Given the significant potential cost savings identified by the pre-awards, 

what actions have you taken to ensure that all proposals for contracts with 

an estimated value $500,000 or more are referred to the OIG for a preaward? 

33. To optimize the performance of VA’s acquisition system, the former Secretary 

of Veterans Affairs established a Procurement Reform Task Force in June 

2001 and a final report was released in May 2002. It is my understanding 

that the VA began implementing recommendations made by the Task Force. 

Were the recommendations fully implemented? Have there been any new initiatives to improve VA’s medical acquisition system?. 

34. I understand you signed an executive decision memorandum April 29, 2010, 

which directed the Chief Acquisition Officer to implement the Acquisition 

Transformation Initiative at VA. Under this initiative, VA is to establish a 

strategic acquisition center to implement strategic sourcing initiatives for VA 

and handle contracting requirements exceeding field purchasing thresholds. 

However, I recently learned VHA is moving forward to increase its contracting workforce by an additional 400 FTE, and is currently advertising senior executive positions for VHA’s three Service Area Offices. How does VHA’s 

actions in this regard comport to Secretary Shinseki’s direction to the Chief 

Acquisition Officer? What is the rationale and justification behind such an increase given the new strategic acquisition center will provide contracting support to VHA above a notional threshold for field purchases? Will this not complicate the Chief Acquisition Officer’s ability to implement the Secretary’s Acquisition Transformation Initiative? 

a. Another key change is that all acquisition authorities will flow from the 

Chief Acquisition Officer in the Office of Acquisition, Logistics, and Construction to the Heads of Contracting Activities who will be directly accountable to the Chief Acquisition Officer for ensuring compliance with enterprise policies, processes, and systems. 

i. What actions are being taken by VHA to ensure that the proper flow 

of information from the Chief Acquisition Officer to the Head of Contracting Activities in VHA? 

ii. What actions are being taken by VHA to ensure the HCA’s implement 

these policies, processes, and systems, and are held accountable? 

35. I’m interested in some general statistics about the contracts that VA awards. 

How many contracts did VHA award in fiscal year 2009? What percentage of 

the contracts were competitive versus sole-source contracts? What was the 

percentage of performance-based contracts? 

36. In 2010, OIG’s Office of Contract Review conducted pre-award reviews of 32 

health care resource proposals. These reviews identified $39 million in potential cost savings that could be realized during negotiations. 

a. What is the amount spent annually on contracts awarded on a sole-source 

basis to VA affiliated institutions? 

b. What actions have you taken or are you planning to take to ensure that 

the cost savings identified in the pre-award reports are realized by negotiating lower prices? 


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Thank you again for taking the time to answer these questions. The Committee 

looks forward to receiving your answers by November 15, 2010. 

Sincerely, 

MICHAEL H. MICHAUD 

Chairman 

Questions for the Record 

Chairman Michaud 

House Veterans’ Affairs Subcommittee on Health Oversight hearing on 

‘‘VHA Contracting and Procurement Practices’’ 

September 23, 2010 

Question 1: Does the VA have any policies in place that limit the dispensing of 

the initial supply of expensive brand name drugs that have high discontinuation 

rates? If yes, can you define, by therapeutic drug class or NDC, the types of drugs 

that have less than 30-day or 90-day supplies? If not, can you please explain your 

rationale? 

Response: There is not a national policy; however, Veterans Integrated Service 

Networks (VISNs) and facilities are not prohibited from having policies and procedures in place to limit initial supplies of medications. These regional and local policies and procedures are typically based on drug safety, cost, and utilization patterns. 

Each VISN Pharmacist Executive (VPE) and Chief of Pharmacy has access to a 

business analysis tool for data mining to assist in identifying regional and/or local 

patterns in drug utilization where limits on initial dispensing of certain medications 

may be required. The following are known examples where VISNs and/or facilities 

have implemented initial supply limits: atypical antipsychotics, pain medications, 

warfarin, growth factors, oncology medications, cholinesterase inhibitors, 

erythropoiesis-stimulating agents, and non-formulary brand name medications. 

Question 2: As you know, pharmacy high-cost users account for a disproportionately high percentage of a plan’s drug expenditures. Are there any programs in 

place to identify, monitor then manage the drug utilization for these members? 

Please explain. 

Response: VA prescription drug costs per patient include all patients receiving 

drugs from VA pharmacies. In contrast, other prescription benefits plans report per 

member per month or per member per year, which underestimates costs because 

members that do not use the benefit are counted in the calculation. Patients served 

by other prescription benefit plans are typically younger with fewer chronic diseases 

than patients served by VA; therefore their prescription costs would be expected to 

be lower than VA’s costs. Despite these differences, VA’s costs are significantly 

lower than other health plans. VA closely manages drug utilization for all patients, 

not just high-cost users, to ensure safe, effective and appropriate medication use. 

According to a presentation entitled ‘‘Overview and Update on DoD Pharmacy’’ 

presented at the 2010 Military Health System Conference, the pharmaceutical cost 

per Department of Defense eligible beneficiaries aged 65 and older was $1,927 in 

fiscal year (FY) 2009, compared to $686 in the same age group in VA during the 

same time period. According to the Pharmacy Benefit Management Institute (PBMI) 

2009 Prescription Drug Benefit Cost and Plan Design Survey, completed by 417 employers representing 7,041,676 members, the average net prescription drug cost per 

retiree per month extrapolates to $1,770 per member per year. In comparison, the 

VA average prescription drug cost per unique patient in FY 2009 was $697 and VA’s 

cost is a gross cost; it does not subtract first party co-payments. According to Express Scripts, the overall per member per year drug cost was $911 based on the 36 

million lives in the commercial client groups. In comparison, the VA average prescription drug cost per unique patient in FY 2009 was $697; again, other plans have 

younger, healthier patients than VA’s patients and include all members, and unlike 

VA, patients are included regardless of whether or not they use the prescription 

benefit. 

VA Pharmacy Benefits Management Services (PBM) monitors utilization and conducts safety and efficacy reviews using a central drug utilization analysis database. 

The results of these analyses are then used to assess future needs. One of the ways 

the database is utilized is to identify potential areas for managing drug costs 

through cost-avoidance initiatives. These are developed nationally, and may be imVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00113 Fmt 6621 Sfmt 6621 I:\VA\61758.XXX 61758

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plemented at the VISN or local medical care facility level. The intent of the program 

is to actively pursue pharmacy efficiencies and appropriateness of use for selected 

pharmaceuticals and reduce the variance in drug cost per patient across the system 

while assuring no negative impact on the quality of care. The program was formally 

initiated in FY 2007 and has resulted in substantial cost avoidance and a subsequent reduction in the variance in drug cost per patient. The program documented 

cost avoidance of $264 Million in FY 2007, $354 Million in FY 2008, $191 Million 

in FY 2009 and $112 Million projected for FY 2010. As a result of these efforts, the 

variance in cost per patient has decreased substantially between VISNs. VA’s average cost of a 30-day equivalent outpatient prescription changed from $13.03 in FY 

1999, to $12.64 in FY 2009, a 3.0 percent decrease over a 10-year period. 

Question 3: Management of narcotic use is a balance between pain management 

and potential abuse. Are there programs in place to identify, monitor then manage 

VA patients using chronic pain medication? Please explain. 

Response: VHA appreciates the important balance between meeting the needs of 

Veterans with pain by providing access to opioid analgesic medications and concerns 

about patient opioid misuse, abuse, and addiction and public safety concerns related 

to diversion. VHA has been in the forefront of efforts to address this issue and has 

developed a comprehensive approach for promoting safe and effective use of opioids. 

In October 2009, as directed by Congress, VHA published a comprehensive policy 

for pain management (VHA Directive 2009–053). The policy articulates standards 

for pain assessment and treatment including parameters for safe and effective prescribing of opioid analgesics. Earlier in 2007, VHA launched a comprehensive 

Opioid-High Alert Medication Initiative to address concerns about safe prescribing 

of opioids in both inpatient and outpatient settings. Parameters of safe prescribing 

were established, and a comprehensive approach to dissemination and implementation of these standards was undertaken. A recent Health Analysis and Information 

Group (HAIG) Pain Management Survey documented a high level of implementation 

of these standards across VHA facilities. 

A key to safe and effective use of opioids for the management of pain is the education and training of both prescribers to assure their competencies in this practice 

area and the education of patients and families about benefits and risks of opioid 

analgesics. In 2010, VHA and DoD collaborated in the publication of a Chronic 

Opioid Therapy Clinical Practice Guideline (CPG) that articulates state-of-thescience practice recommendations for the use of this class of medications. The CPG 

specifically addresses the balance of promoting effective use of these medications for 

the management of chronic pain and strategies for evaluating and mitigating risk. 

Supporting the CPG is a comprehensive, web-based educational program available 

on the VHA’s Learning Management System (LMS). Both the CPG and LMS course 

on opioid therapy recommend the use of a Opioid Pain Care Agreement as a key 

resource for promoting education of patients and family members about the potential benefits and risks of chronic opioid therapy, for establishing the parameters of 

safe prescribing of opioid therapy, and for generally promoting well-informed shared 

medical decision-making involving prescribers and patients. Currently under review 

in the VA Central Office concurrence process, is a VHA Directive, a national standard Opioid Pain Care Agreement and supplemental patient educational tools to be 

used for these purposes. Finally, this comprehensive approach is supported by a variety of additional educational efforts including workshops at national pain management leadership conferences and regularly scheduled educational teleconferences. 

Through the national Pharmacy Benefits Management Services (PBM), VHA also 

conducts semi-annual opioid prescription reviews that identify patients who obtain 

prescription fills from more than one facility either within Veterans Integrated Service Networks or VISNs (‘‘Multi-site’’) or between VISNs (‘‘Multi-VISN’’). After contacting providers and patients, locally designated personnel identify the one site 

that will fill future opioid prescriptions. Local personnel may take additional steps 

as indicated to address any patient drug-seeking or other aberrant drug-related behaviors. These prescription reviews have reduced the number of Multi-site and 

Multi-VISN opioid prescription fills since their inception in late 2002. 

In addition to the Multi-site and Multi-VISN opioid prescription surveillances, the 

PBM has recently implemented semi-annual Large Dose opioid prescription reviews 

that identify patients who have been prescribed aberrantly large doses of opioids, 

defined as the top 10 largest quantities of opioids in each VISN. Locally designated 

personnel evaluate the Large Dose patient cases for appropriateness in terms of 

quality of care and safety using a protected peer review process. 


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Question 4: Prescriptions refills of maintenance medications are a routine event 

in most cases. However, issues can arise for non-maintenance medications. Can you 

please explain how early refills for non-maintenance drugs are presently managed? 

Response: In VA, all refills are managed by the facility where the prescription 

was originally written. The VA computer system automatically builds a 10 day early 

window into the request process for all refillable prescriptions. This has the effect 

of generally ensuring that patients receive the next refill in plenty of time. In all 

cases, the patient must request a refill; they are not automatically sent. This is done 

to avoid waste by sending patients prescriptions that have been discontinued or 

modified by their provider and to prevent unsafe conditions resulting from the stockpiling of unneeded medications. Requests for refills beyond the 10-day window are 

handled on a case-by-case basis by local pharmacy staff members based on the 

unique situations encountered by patients. In some cases, a partial quantity may 

be dispensed to bridge the patient’s supply until receipt of the regularly scheduled 

refill or until the next medical appointment. Requests for early fills for controlled 

substances are generally referred to the patient’s provider as running out of these 

medications can signal a change in medical condition or potential misuse. 

Question 5: How do you respond to the concerns that GAO and OIG raised in 

their testimony? What steps has VHA taken to address contracting and procurement 

weaknesses and deficiencies that GAO and OIG have identified over the years? 

Response: The acquisition concerns raised by GAO and OIG during their testimony are valid. VHA has taken several steps to address acquisition deficiencies including: realigning VHA’s acquisition workforce and establishing a VHA Compliance/Quality division responsible for tracking, reviewing and addressing recommendations. 

The purpose of the realignment was to provide decision makers with the appropriate authority to execute strategic procurement programs, improve procurement 

oversight and create the best opportunity for stewardship. The realignment created 

a regional infrastructure with three service area office’s being responsible for regions of 6–8 Networks or Program Offices. Each Service Area Offices (SAO) includes 

the following staff: SAO Director, SAO Deputy Director, Quality Reviewers, Training Officers, Data/Program Analysts, Finance/Budget Specialists and an Administrative Officer dedicated to regional management of the Networks. At the national 

level, the VHA Procurement & Logistics Office (P&LO) monitors the metrics established for each SAO to determine if the SAO regions are compliant with procurement regulations and guidelines. This robust system drastically improved the oversight and monitoring of procurement functions. 

In addition, the National VHA Quality/Compliance team is responsible for ensuring that the recommendations made by the OIG/GAO are instituted and all Networks comply with the requirements. This team tracks the OIG/GAO audits and 

monitors the associated recommendations. This team is also responsible for conducting random internal audits to ensure continued compliance. 

Question 6: What are the different ways that vendors can get their products to 

Veterans? Are there multiple ways to do this and what is VHA doing to ensure 

there is transparency in this process? 

Response: A vendor can get their products to Veterans by identifying and responding to procurement opportunities in their product or service area by visiting 

the FedBizOpps (FBO) Web site at www.fbo.gov. The FBO site is the Federal Civilian and Military Government single point of entry for business opportunities over 

$25,000. A vendor can also establish a General Service Administration (GSA) Federal Supply Schedule (FSS) contract. Federal agencies can use Government-wide Acquisition Contracts (GWACs) and GSA FSS contracts to make purchases for commonly used products and services. These opportunities are typically not advertised 

on the FBO Web site, they are normally competed among pre-qualified vendors 

under contract. VHA ensures transparency by advertising procurement opportunities above $25,000 and competing procurements, to the maximum extent possible. 

Question 7: Would VA be willing to share de-identified pharmacy and medical 

claims data for an independent review, providing the entity performing the reviews 

signed a Non-Disclosure and HIPAA Business Associate Agreement? 

Response: VA can provide de-identified health care claims data upon request 

through FOIA. These are very large files and a focused request would be more appropriate. VA can provide fee claims data, although at this point approximately 5 

percent of claims are received electronically and it is unlikely that a review of this 

very small percentage of claims would realize any significant result. 


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Given the potential volume for these files, there will likely be costs to the VA to 

provide these data. 

Representatives from the Chief Business Office would be more than happy to 

meet with any vendor to discuss tools they may have that could improve our health 

care claims processing. 

Question 8: In his testimony, Mr. Downs noted that ‘‘as new technologies become 

available, VHA staff members from clinical, logistics and acquisition disciplines form 

a team to carefully review potential applications before determining which advances 

to adopt’’. This is contrary to what we heard at a recent Health Subcommittee hearing on wireless health technologies. We heard about the lack of transparency and 

the difficulties that companies face in informing VHA about their products. Can you 

explain this disconnect? 

Response: VHA’s statement is accurate. As new technologies become available, 

VHA staff members from clinical, logistics, and acquisition disciplines form a team 

to carefully review potential applications before determining which advances to 

adopt. There are many standards that must be met and verified before we can allow 

health information to be broadcast via various wireless mediums. As such, some 

wireless health technologies present unique challenges to the VA as one of our primary concerns is to protect Veterans’ health information. This does not mean VHA 

is not pursuing these technologies; however, the team must validate that the technology meets VHA’s predetermined requirements before recommending a potential 

wireless technology solution. Additionally, VHA is not able to review every vendor’s 

technological solution; but VHA makes a concerted effort to meet with as many vendors as possible. 

Question 9: How do VHA Procurement and Logistics Office prioritize procurement requests from the program office? 

Response: Procurement requests from the program offices are prioritized based 

on the needs of the requesting service. VHA acquisition staff work with their respective customers to establish priorities given: (1) When the procurement is needed and 

(2) dollar value and complexity of the procurement. 

Question 10: What coordination exists between the VHA Procurement and Logistics Office and VHA policy/program offices? 

Response: On all issues impacting VHA acquisition, the VHA Procurement and 

Logistics Office (P&LO) closely coordinates with the appropriate VHA policy/program offices. When an acquisition policy, process, procedure or other change within 

acquisition is anticipated, P&LO identifies the appropriate stakeholders and develops a plan of action including determining the impact on: (1) Leadership; (2) stakeholders; (3) resource management; (4) budget/finance; (5) personnel; and (6) operations. This information is communicated with the appropriate offices; and the identified implementation team works with the VHA policy/program offices to accomplish the established objectives. 

Question 11: In his testimony, Mr. Downs referred to VHA’s use of the Generic 

Inventory Package and how VHA tracks over 1,300 expendable inventories consisting of 928,816 line items. Is there a threshold, such as a dollar amount that dictates which expendable equipments are entered into the Generic Inventory Package? 

Response: No, there is not a threshold to determine which expendable equipment 

is entered into the Generic Inventory Package (GIP). 

Question 11(a): What is the difference between the GIP and the Automated Engineering Management System/Medical Equipment Reporting System (AEMS/ 

MERS)? Do the two programs overlap in function? 

Response: The GIP is the inventory system utilized for consumable supplies. To 

date, VHA tracks over 1,300 expendable inventories consisting of 928,816 line items. 

The Automated Engineering Management System/Medical Equipment Reporting 

System (AEMS/MERS) is utilized to maintain equipment inventory and maintenance information for Non-Expendable (NX) Items (Equipment items which have 

been formally classified as NX and assigned a category stock number by the cataloging division of Office of Acquisition, Logistics, and Construction). The two programs do not overlap in function. 

Question 12: GAO identified gaps in VA policies regarding entering information 

on expendable medical supplies and RME into VA’s inventory management systems. 

Does VA have plans to address those gaps so that VAMCs will have an accurate 


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record of the medical supplies and medical equipment they use? If so, how does VA 

plan to do so? 

Response: Yes. P&LO is currently collaborating with the VACO Medicine Program office (responsible for programmatic oversight of reusable medical equipment 

processes), and the VACO Real Time Location System (RTLS) Program office in 

identifying and pursuing supply and equipment tracking technology, which will address those gaps which have been identified. It is expected that the technology ultimately adopted will be in collaboration with the Strategic Asset Management (SAM) 

initiatives so that this technology can be integrated with and incorporated into VA’s 

overall SAM system, anticipated to begin national deployment in Fiscal Year 2013. 

Question 13: Please describe VA’s current oversight to ensure that VAMCs comply with VA’s policies for purchasing and tracking of expendable medical supplies 

and reusable medical equipment. Does VA plan to strengthen its oversight and, if 

so, what steps does VA plan to take to do this? 

Response: P&LO currently monitors and reports performance achievements in 

the management of consumable and NX items for all facilities and at a VISN and 

national level. This oversight is based upon established performance thresholds for 

effective management of consumable supplies based upon GIP data reports and NX 

inventory compliance reports. In addition to these reports, the Office of Business 

Oversight—Management Quality Assurance Section conducts assessment reviews of 

facilities, comparing actual records and business processes at a site to those requirements contained within VA and VHA policy and directives. P&LO currently has an 

initiative under way to enhance the Logistics Operations Team by building an assessment and compliance team, which will be charged with ongoing assessment and 

assistance activities directed to all facilities. 

Question 14: What role does the VISNs currently have in overseeing VAMC compliance with VA’s policies on purchasing and tracking of expendable medical supplies and reusable medical equipment? Please describe any plans VA Central Office 

has to change or enhance this oversight. 

Response: VISNs, through the network Chief Logistics Officer (CLO) with programmatic oversight responsibility are expected to ensure compliance with VA and 

VHA level policy on tracking of expendable supplies and NX equipment. P&LO currently has an initiative under way to enhance the Logistics Operations Team by 

building an assessment and compliance team, which will be charged with ongoing 

assessment and assistance activities directed to all facilities. Additionally, P&LO is 

pursuing an initiative directed towards a standardized network level Logistics organization, to include staffing requirements designed to enhance overall program oversight. 

Question 15: How will SAM enhance VA’s ability to oversee purchasing and 

tracking of expendable medical supplies and reusable medical equipment by 

VAMCs? 

Response: The SAM initiative is designed to centralize the consumable and NX 

equipment asset data from all field level sites to a centralized database, utilizing 

nationally standardized item nomenclature. Standardizing the data will enhance 

VA’s ability to track and monitor all assets within the system in a consistent manner. 

Question 16: Could you explain the relationship between the VHA Procurement 

and Logistics Office and central VA National Acquisition Center? Under what circumstances does a local VA medical center obtain goods through the VHA Procurement and Logistics Officer versus the VA National Acquisition Center? 

Response: The National Acquisition Center (NAC) has responsibility for National 

Contracts and Blanket Purchase Agreements, in support of National Standardization, which are established under the Federal Supply Schedule Program. All of these 

programs are open to VA medical centers. Most of these contracts and agreements 

include other Government agencies such as the Department of Defense, Indian 

Health Service and Bureau of Prisons. Most of the solicitations for these contracts 

and agreements are competitive, best value procurements. Essentially, the NAC establishes National contracts that can be utilized by the Networks under P&LO. The 

local VA Medical Centers (VAMCs) do not obtain goods or services through P&LO 

instead the procurements are accomplished through the Network procurement activities that report to the P&LO infrastructure. The VAMC procurement activity 

makes the determination of whether to use the NAC or local procurement process 


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based on whether the requirement is National in scope or whether this requirement 

presents an opportunity for National standardization. 

Question 17: How does VA Central Office monitor VISNs to ensure that they are 

adequately overseeing VAMC compliance with VA’s policies on purchasing expendable medical supplies and reusable equipment? 

Response: P&LO is establishing a methodology to monitor Network compliance 

with VA policy on purchasing supplies and reusable medical equipment. P&LO’s initiative to enhance the Logistics Operations infrastructure, as referenced in 13 and 

14 above, will increase the level of oversight and monitoring related to the request, 

review, and approval processes. Additionally, the acquisition realignment initiative 

will enhance compliance with the appropriate sourcing related to this issue. 

Question 18: What oversight do VAMC acquisition and Materiel Management 

(A&MMS) departments receive from the VISNs and VA central office regarding compliance with 1) VA’s prime vendor program; 2) small business programs and socioeconomic goals; 3) the supply schedule program; and 4) general purchasing and acquisition policies? 

Response: VA’s prime vendor programs: Network and VAMC Logistics program 

offices are provided with VA Medical/Surgical Prime Vendor (MSPV), Pharmaceutical Prime Vendor (PPV) and Subsistence Prime Vendor (SPV) reports of compliance related to commitment versus actual expenditures, as well as, order fill rates 

and invoice/payment processes. P&LO receives compliance reports from the NAC, 

reviews and disseminates these reports to identify out of line situations and requests appropriate corrective action on the part of the network Chief Logistics Officer, who is expected to effect the corrective action through program oversight communication with the deficient VAMC Logistics Manager. 

Small business programs and socioeconomic goals: VHA socioeconomic spend goals 

are incorporated into the annual P&LO performance metrics, as well as the performance plans of VISN leadership. These metrics are monitored throughout the 

year by VA Central Office leadership and VISN Directors. 

The supply schedule program: Oversight of the VA Federal Supply Schedule (FSS) 

program fall within the auspices of the VA Office of Acquisition, Logistics and Construction (OALC). The National Acquisition Center is a strategic purchasing arm of 

the VA, and maintains and administers the FSS program. 

General purchasing and acquisition policies: It is the responsibility of OALC to 

develop, communicate, and enforce policies to ensure VA complies with Federal 

laws, policies, and regulations governing procurement and logistics activities. VHA 

does not create acquisition policy, but rather institutes standard operating procedures to ensure uniformity of contracting efforts and practices throughout the 

VISNs and operating locations. 

Question 19: What steps is VA taking to standardize certain types of reusable 

medical equipment, such as using the same type of colonoscopes, across VAMCs? 

Response: VA chartered an Integrated Procurement Team (IPT) to address lease 

versus purchase options as a way to standardize gastrointestinal (GI) endoscopes 

across VAMCs. The IPT recommended leases as the best method to ensure standardization of GI endoscopes across VAMCs. Leases allow upgrade to current generation technology through lease amendments as new technology becomes available, ongoing refresher training for personnel on care and handling of the equipment, and 

continuous maintenance for the endoscopes at a fixed price. This allows facilities the 

flexibility to trade up or trade out as needed without having to maintain an inventory of GI endoscopes of varying age. However, the lease must be amended at an 

increased cost to add or substitute a newer model. 

The lease recommendation from the IPT team was accepted and the medical facilities in the field have received instruction from the Deputy Under Secretary for 

Health for Operations and Management to implement standardization of endoscopes 

through leasing as early as possible in the current fiscal year. 

Question 20: How will VAMCs be impacted by VHA’s new acquisitions and contracting policy requiring all items over $3,000 to be purchased by a VISN-level contracting officer, which goes into effect on October 1, 2010? 

Response: VAMCs will be minimally impacted by requiring purchases above 

$3,000 to be completed by the Network Contracting Activities (NCA). The purchasing agents previously responsible for these purchases were realigned under the 

NCA. Therefore, the workload for these purchases will be readily absorbed by the 

NCA. 


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Question 21: When are VAMCs required to make purchases from prime vendors? 

Response: VAMCs are required to make purchases from prime vendors when the 

items required are included under the umbrella of the prime vendor contract. Exceptions are provided for emergency or non-core list items. 

Question 22: Please describe the process by which VAMCs may negotiate prices 

under the Federal supply schedule program. To what extent are VAMCs successful 

at negotiating lower prices under the Federal supply schedule program? 

Response: In accordance with the Federal Acquisition Regulations (Part 8), 

prices found within the General Services Administration and the Federal Supply 

System GSA/FSS programs have already been determined to be fair and reasonable. 

However, VHA contracting officers do attempt to seek additional price considerations when placing orders. It is mandatory to request a price discount when orders 

are placed in excess of the per-contract maximum order threshold. In an effort to 

better leverage VA and government-wide spending, the VHA CLOs have been evaluating commonly-procured and high volume medical/surgical items purchased under 

the FSS program. Prices of competing vendors have been analyzed, so greater negotiating power can be achieved in the future. 

Question 23: Please describe the extent to which VAMCs meet the prescribed 

small business programs and socioeconomic goals in fiscal year 2008 and 2009. 

What steps have VAMCs taken to meet these goals? 

Response: In FY 2010, VHA exceeded the small business goals in all except two 

categories (refer to the chart below). In FY 2009, VHA exceeded the small business 

goals in all except two categories (refer to the chart below). In FY 2008, VHA exceeded the small business goals in all except one category (refer to the chart below). 

Each Network has a Small Business Liaison responsible for working with the Network Contract Activities to meet socioeconomic goals. The steps taken for VAMCs 

to meet these goals include: participation in small business vendor outreach and 

monthly National small business conferences to discuss small business concerns, 

and provide training on FAR Part 19 compliance and other special small business 

programs/initiatives. 

FY 2010 VHA Small Business Accomplishments 

VA–Wide Goal 

SDVOSB 

(10%) 

VOSB 

(12%) 

8(a) 

(0%) 

SDB 

(5%) 

WOSB 

(5%) 

HUBZone (3%) SB 

(33.5%) 

SDB + 

8(a) 

(5%) 

VHA Accomplishments l7.7% 20.2% .7% 6.7% 3.3% 2.2% 35.1% 7.4% 

FY 2009 VHA Small Business Accomplishments 

VA–Wide Goal 

SDVOSB 

(7%) 

VOSB 

(10%) 

18(a) 

(0%) 

SDB 

(5%) 

WOSB 

(5%) 

HUBZone 

(3%) 

SB 

(28.7%) 

SDB + 

8(a) 

(5%) 

VHA Accomplishments 15.65% 18.69% 1.02% 7.24% 3.61% 2.21% 34.58% 8.26% 

FY 2008 VHA Small Business Accomplishments 

VA–Wide Goal 

SDVOSB 

(10%) 

VOSB 

(12%) 

8(a) 

(0%) 

SDB 

(5%) 

WOSB 

(5%) 

HUBZone (3%) SB 

(33.5%) 

SDB + 

8(a) 

(5%) 

VHA Accomplishments 11.67% 14.89% 1.95% 7.26% 4.53% 3.10% 38.33% 9.21% 

Question 24: Could you explain the process of how VA medical centers obtain 

and provide Durable Medical Equipment (DME) to Veterans patients? 

Response: Every VAMC has a Prosthetic and Sensory Aids Service (PSAS) that 

is responsible for the procurement of all devices for the personal use of a Veteran. 

Whenever a qualified VA clinician determines that a particular device is needed, an 

electronic request is sent to PSAS to determine if this is something that can be 

stock issued directly to the patient, mailed from stock to the Veteran, or purchased 

from a vendor and shipped to either the hospital, third party vendor, or to the VetVerDate Mar 15 2010 13:48 Mar 03, 2011 Jkt 061758 PO 00000 Frm 00119 Fmt 6621 Sfmt 6621 I:\VA\61758.XXX 61758

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eran’s home for installation and training. The method that is pursued is based upon 

the availability of the prescribed item, any fitting or training required for it, and 

other logistical issues such as size or timing. The provision of these items is a very 

personalized approach specific to the needs and preferences of each Veteran. If not 

stock issued the same day, all requests are initially acted upon within 5 days. VHA 

has been monitoring this for several years and has steadily increased the complexity 

and compliance standards for the delivery of goods to Veterans. 

Question 25: Is there a dollar threshold for local medical center acquisitions? 

Could the local VA medical center make acquisitions using government purchase 

cards? 

Response: No, there is no dollar threshold for local VA medical center acquisitions. The VAMC determines which purchases should be made by acquisition versus 

small purchasing based on the dollar value and complexity of the procurement. 

The VAMCs are able to make acquisitions using the purchase card. However, the 

purchasing ability is limited by the given purchase card holder’s authority. To monitor the purchase card program, centralized purchase card program managers have 

been established at every Network. Additionally, facility purchase card coordinators 

are being realigned under the purchase card managers in the acquisition chain of 

command. 

Question 26: The VHA Operations Quality Assurance Office provides direct oversight to VHA acquisition activities and conducts annual site visits to Service Area 

Offices. Has the VHA Operations Quality Assurance Office identified the same 

weaknesses that GAO and OIG have found over the years? Also, GAO and OIG have 

independence and can expose problems without any fear or recourse. What assurances does the VHA Operations Quality Assurance Office have that they will not 

face any retribution from their oversight activities and that their findings will be 

taken seriously? 

Response: The VHA Quality Assurance Office (QA) has been able to validate that 

weaknesses identified in the OIG/GAO report exist. The VHA QA office has been 

working with the QA staff at each Network on establishing action plans to address 

the deficiencies identified in the OIG/GAO audits. Additionally, the QA office works 

with the compliance team to identify key areas to review during internal audits. 

P&LO leadership has clearly delineated the roles and responsibilities of this office. All Service Area Offices (SAOs) and staff are aware of the role of QA, and acknowledge that their quality team must work closely with QA to address all recommendations and findings. The QA office will not face retribution and their findings will be taken seriously because the QA office reports to P&LO independently 

of the SAOs. As such, P&LO will ensure that there is no retribution and will monitor the implementation and execution of QA recommendations as part of the SAO 

performance. 

Question 27: Does VA use competitive bidding in the procurement of DME such 

as beds, wheelchairs, and walkers? 

Response: The Prosthetic and Sensory Aids Service has been very aggressive in 

its approach to competitive bidding. For high volume or high cost items, VHA has 

been pursuing national contracts in conjunction with the National Acquisition Center. We analyze our extensive database to look for opportunities to use our economies of scale by securing national contracts. These national contracts not only guarantee a lower price for the government, but they also elevate the standard of care 

being provided to Veterans because VHA identifies what features and criteria a device must have to meet VHA’s requirements. We also work closely with the Office 

of Small and Disadvantaged Business Utilization (OSDBU) to ensure that we are 

meeting small business goals to the maximum extent possible, while meeting the 

needs of the Veteran and the agency. Between FY 2002–FY 2009, VHA realized a 

cost savings of over $380 million by using National contracts. 

Question 28: It is my understanding that the Prosthetics and Clinical Logistics 

Office (P&CLO) generally oversees DME procurement and utilization, but medical 

facilities administer the home oxygen and respiratory services locally to provide eligible VA patients home oxygen and respiratory services, is that correct? If so, could 

you explain why home oxygen and respiratory services are administered locally, 

whereas, other DME purchases are overseen and administered by the Prosthetics 

and Clinical Logistics Office? 

Response: We apologize if we were unclear in a previous answer that led you 

to believe this. The Prosthetic and Sensory Aids Service out of Central Office creates 

policy covering all items and services for the personal use of the Veteran including 


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home respiratory care, durable medical equipment, and home and vehicle adaptations, but all of these procurements are actually handled by the local medical centers’ Prosthetic and Sensory Aids Services. 

Question 29: It is my understanding that VHA uses several contracting mechanisms for acquisition of pharmaceuticals, medical and surgical supplies, prosthetics, 

and information technology. For example VA uses the Federal Supply Schedule 

(FSS), Blanket Purchase Agreements (BPA), National Contracts, etc, when procuring pharmaceuticals for Veterans. Could you explain to the Committee what 

mechanisms are used to purchase medical and surgical supplies, prosthetics, and 

medical information technology? What office or offices in VHA oversees these acquisitions? 

Response: The methods used to purchase pharmaceuticals, medical and surgical 

supplies, prosthetics and information technology vary depending on the acquisition. 

VHA procures in compliance with Federal Acquisition Regulations (FAR) and VA 

Acquisition Regulations (VAAR). The methods used to purchase pharmaceuticals, 

medical and surgical supplies, prosthetics and information technology include: 1. 

FAR/VAAR Part 8—required sources of Supplies and Services i.e. AbilityOne, Federal Prison Industries, FSS, etc.; 2. FAR/VAAR Part 15—contracting by negotiation: 

best value, tradeoff or lowest price technically acceptable source selections using full 

and open competition; 3. FAR/VAAR Part 13—Simplified Acquisitions; 4. FAR/VAAR 

Part 19—Small Business Set-Asides; 5. use of contract vehicles such as GovernmentWide Acquisition Contracts, Multiple-Award Contracts; 6. Prime Vendor Programs 

(Med/Sug, Pharmaceutical and Subsistence; 7. National Contracts and 8. utilizing 

unique statutory authorities under 38 U.S.C. 8127 & 8128 (Veterans First Program); 38 U.S.C. 8123 (Procurement of Prosthetic Appliances). In VHA, P&LO oversees these acquisition through SAO oversight and management of field acquisition 

activities. 

Question 30: As you are aware, VA and DoD have made substantial progress in 

increasing joint procurement activities since December 1999. This was done to eliminate redundancies in purchases. Could you please provide the Committee with an 

update of current joint DoD–VA procurement activities? How do VA and DoD collaborate to make medical acquisitions? 

Response: The need for more initiatives within the medical/surgical commodity 

is evident. As a formal work group of the joint VA/DoD Health Executive Council 

(HEC), the Acquisition and Medical Materiel Work Group meets regularly to discuss 

ways to increase joint contracts and sales. High on the work group’s agenda are initiatives and strategies to affect the expansion of the medical/surgical joint contracts. 

During the past year, DoD and VA awarded four new joint radiology contracts. 

These contracts were: ICAD, Aurora Advanced Breast Imaging, iCRco and 

Neurologica. In addition to these awards, four new offers for new joint radiology contracts were received during this year’s open season from Bronchus Technology, 

Technical Communities, Ultrasonix and Insighttec. The VA National Acquisition 

Center (NAC) and the DLA Troop Support Medical work on potential joint contracts. 

For radiation therapy, DoD and VA awarded 10 follow-on contracts. 

There are currently eighty-six joint national contracts for pharmaceutical, two 

Blanket Purchase Agreements, seven pending contracts (at NAC going through the 

award process) and thirty-one proposed contracts which may or may not come to 

contracting as they are currently undergoing clinical review. 

A comparison of joint contract sales (in millions) is shown below. A total of 27.4 

percent of all contract sales are joint/shared sales. 

Commodity FY 2010 (thru 

2nd Qtr) 

FY 2009 (thru 

2nd Qtr) 

Change (thru 

2nd Qtr) 

Pharmaceuticals $86.98 $96.75 ($9.77) 

Medical/Surgical 

Supplies $0.015 $0.016 ($0.001) 

Equipment $223.5 $368.63 ($145.13) 

Total $310.50 $465.40 ($154.90) 


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Question 31: In Mr. Down’s testimony, he noted that all acquisition personnel 

previously reporting to the VISN or medical center directors have now been realigned under the VHA Procurement and Logistics Office. When did this change 

take place and what are some improvements that you have observed as a result of 

this change? 

Response: On January 27, 2009, all acquisition workforce members that reported 

to the Network/Program Contract Managers (NCM/PCMs) were realigned under the 

new acquisition organization. The improvements that have been observed since this 

change include: (1) Transformation into a customer-focused organization; (2) improved fiscal responsibility; (3) increased performance oversight; (4) improved ability 

to implement and enforce acquisition metrics; (5) increased ability to involve customers in the full acquisition cycle; (5) increased opportunity for cost savings; and 

(6) standardized processes and procedures throughout the Service Area Office regions. These improvements have been validated through the various Network performance metrics established and reviewed by P&LO. These metrics include: procurement action lead time (tracks the amount of time from a completed acquisition 

package to award); purchase cards (verify that the purchase card holders reconciliations are performed within 30 days); customer survey (measures the level of customer satisfaction) ; electronic contract management system (eCMS) compliance (ensures procurement actions above $25,000 are in eCMS); unauthorized commitments 

(tracks the number and dollar value of unauthorized commitments); and socioeconomic goals (identifies percent of awards in the socioeconomic categories). 

The second phase of the acquisition realignment occurred on October 1, 2010. As 

of this date, all warranted purchasing agents realigned under the acquisition chain 

of command. This change will allow VHA to improve training, oversight and management of all warranted individuals with purchasing responsibilities. 

Question 32: In 2006, Secretary Nicholson signed VA Directive 1663, which established specific policies and procedures for the award of sole-source health care 

resource contracts to VA affiliated institutions. An OIG audit issued in September 

2008 showed that VHA entities were not complying with the Directive. 

Question 32(a): What actions have you taken since the OIG Audit was issued 

to ensure compliance with this Directive? 

Response: A memorandum was issued to the field by the Medical Sharing Director on August 2008, defining the review process and thresholds. 

Integrated Oversight Process (IOP) Review Checklists have been developed to 

identify the steps as required in VA Directive 1663, which include verification of the 

OIG pre-negotiation review defined in VA Directive paragraph 4.b.8. 

Question 32(b): What percentage of health care resource contracts awarded by 

VHA in FY 2009 and FY 2010 complied with the Directive? 

Response: Presently, this information is not known. For future purposes, the 

Medical Sharing Office could generate a monthly or quarterly report and have the 

SAO certify that pre-negotiation reviews were conducted in accordance with the directive. 

Question 32(c): Given the significant potential cost savings identified by the preawards, what actions have you taken to ensure that all proposals for contracts with 

an estimated value of $500,000 or more are referred to the OIG for a pre-award? 

Response: Using the IOP Checklists as mentioned above, allows for a quality 

check point to ensure appropriate reviews are conducted. If an OIG review has not 

been completed as required, it will be noted during the pre-award Contract Review 

Team (over $500K) or Contract Review Board (over $5M) review. 

Question 33: To optimize the performance of VA’s acquisition system, the former 

Secretary of Veterans Affairs established a Procurement Reform Task Force in June 

2001 and a final report was released in May 2002. It is my understanding that the 

VA began implementing recommendations made by the Task Force. Were the recommendations fully implemented? Have there been any new initiatives to improve 

VA’s medical acquisition system? 

Response: VA continues to improve its medical acquisition system through the 

Acquisitions Realignment. The purpose of the realignment was to provide decision 

makers with the appropriate authority to execute strategic procurement programs, 

improve procurement oversight and create the best opportunity for stewardship. The 

realignment infrastructure ensures increased oversight and compliance with procurement regulations. These changes should effectively address the recommendations from the 2002 Procurement Reform Task Force. 


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Question 34: I understand you signed an executive decision memorandum April 

29, 2010, which directed the Chief Acquisition Officer to implement the Acquisition 

Transformation Initiative at VA. Under this initiative, VA is to establish a strategic 

acquisition center to implement strategic sourcing initiatives for VA and handle contracting requirements exceeding field purchasing thresholds. However, I recently 

learned VHA is moving forward to increase its contracting workforce by an additional 400 FTE, and is currently advertising senior executive positions for VHA’s 

three SAOs. How does VHA’s actions in this regard comport to Secretary Shinseki’s 

direction to the Chief Acquisition Officer? What is the rationale and justification behind such an increase given the new strategic acquisition center will provide contracting support to VHA above a national threshold for field purchases? Will this 

not complicate the Chief Acquisition Officer’s ability to implement the Secretary’s 

Acquisition Transformation Initiative? 

Response: The VHA contracting workforce increases are to supplant the lack of 

personnel increases over the last several years. Within many VISNs there has been 

no increase in contracting personnel over the past 7 years, while there has been a 

substantial increase in workload. Additional personnel are required at the VHA 

level due to workload increases created as VHA corrects deficiencies in its acquisition programs. VHA fully supports the Integrated Acquisition Model, and requires 

additional staff to support this initiative. P&LO used the VA OALC staffing tool to 

determine additional staffing needs. OALC’s staffing tool validated that VHA needed to hire an additional 399 acquisition staff. However, this staff number was based 

only on a $7.4 billion VHA spend; the actual spend for FY 2009 was $11.3 billion. 

VHA will request assistance from OALC to re-run the staffing tool using the final 

FY 2010 amount spent, which was approximately $13 billion. 

Currently, VHA has 1,575 operational acquisition staff and 194 existing 1105 purchasing staff. This is significant because in FY 2009, VHA assumed additional contracting responsibilities for VHA Central Office Programs, absorbed the workload 

from over 1,000 non-acquisition staff and received an increase in workload from the 

reduction of the use of Miscellaneous Obligations (1358s). The ongoing VHA Acquisition Realignment established the proper acquisition structure and will drastically 

improve VHA Acquisition Operations. We do not see this as overlapping with the 

Strategic Acquisition Center implementation or complicating the implementation of 

the Secretary’s Acquisition Transformation Initiative. Instead, this further supports 

the agency-wide goal to improve acquisition. Essentially, VHA’s realignment and potential staffing increases create an acquisition infrastructure that supports both the 

integrated acquisition model and Secretary’s Acquisition Transformation Initiative. 

With regard to the Service Area Office Director positions; these positions were 

originally proposed as Senior Executive (SES) positions in the 

PricewaterhouseCoopers Study (PWC). The study indicated that SES positions for 

the VHA Service Area Offices (SAO) are reasonable due to the scope, size and complexity of VHA Acquisition operations, including interactions with National Unions, 

VISN Network Directors, Medical Center Directors and senior health care professionals. In addition to the approval of the SES positions in August 2010, VHA also 

received approval to upgrade the Network Contract Managers from GS–14s to GS– 

15s. The actions being taken to upgrade positions and obtain additional staff will 

ensure succession planning and compliance with the SAO SES recommendation in 

the PWC study. 

Question 34(a): Another key change is that all acquisition authorities will flow 

from the Chief Acquisition Officer in the Office of Acquisition, Logistics, and Construction to the Heads of Contracting Activities who will be directly accountable to 

the Chief Acquisition Officer for ensuring compliance with enterprise policies, processes, and systems. 

Question 34(i): What actions are being taken by VHA to ensure the proper flow 

of information from the Chief Acquisition Officer to the Head of Contracting Activities in VHA? 

Response: The Chief Acquisition Officer provides information directly to the 

Head Contracting Activity in VHA. In addition, when acquisition information is provided to the Chief Procurement and Logistics Officer (CP&LO), the CP&LO ensures 

that VHA’s HCA is informed and advised on the potential impact on VHA acquisition activities. 

Question 34(ii): What actions are being taken by VHA to ensure the HCA implements these policies, processes, and systems are held accountable? 

Response: As new policies, processes and systems are implemented, the VHA 

Quality Assurance (QA) team develops a plan of action and/or standard operating 


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procedure, if necessary. The QA works closely with the SAOs to ensure that SAO 

and VISN staff are informed and trained on the new policies, processes and/or systems. To ensure compliance, the QA team conducts compliance reviews at the SAO 

level; corrective action is initiated as necessary. The SAO level QA staff implements 

the corrective action at the VISN level. 

Question 35: I’m interested in some general statistics about the contracts that 

VA awards. How many contracts did VHA award in fiscal year 2009? What percentage of the contracts was competitive versus sole-source contracts? What was the percentage of performance-based contracts? 

Response: The total contract actions awarded by VHA in 2009 were 71,695, of 

which 22 percent were noncompetitive; 25 percent were performance based and 

15.65 percent were awarded to Service-Disabled Veteran Owned Small Businesses 

(SDVOSBs). 

Question 36: In 2010, OIG’s Office of Contract Review conducted pre-award reviews of 32 health care resources proposals. These reviews identified $39 million in 

potential cost savings that could be realized during negotiations. 

Question 36(a): What is the amount spent annually on contracts on a sole-source 

basis to VA affiliated institutions? 

Response: Annually, approximately $181 million is awarded on a sole-source 

basis to VA affiliated institutions. In FY 2010, 9 percent of health care resource contracts were awarded sole-source to VA Affiliated institutions; none of these institutions are SDVOSBs. 

Question 36(b): What actions have you taken or are you planning to take to ensure that the cost of savings identified in the pre-award reports are realized by negotiating lower prices? 

Response: VHA has created a Cost Price Work Group to identify best practices 

to develop training information for the VHA contracting officers. VHA has requested 

assistance from OALC in defining the duties, responsibilities and authorities in regard to Medical Sharing. 

f 

Committee on Veterans’ Affairs 

Subcommittee on Health 

Washington, DC. 

October 19, 2010 

Belinda J. Finn 

Assistant Inspector General for Audits and Evaluations 

U.S. Department of Veterans Affairs 

Office of Inspector General 

801 I Street, NW 

Washington, DC 20001 

Dear Ms. Finn: 

Thank you for testifying at the House Committee on Veterans Affairs’ Subcommittee on Health oversight hearing on ‘‘VHA Contracting and Procurement 

Practices’’ held on September 23, 2010. We would greatly appreciate if you would 

provide answers to the enclosed follow-up questions in writing by Friday, November 

19, 2010. 

Due to the delay in receiving mail, please also provide your responses to Dolores 

Dunn, Minority Staff Director to the Subcommittee on Health. If you have any further questions, please call (202) 225–3527. 

Sincerely, 

Henry E. Brown, Jr. 

Ranking Member 


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Office of Inspector General 

Washington, DC, 

November 16, 2010 

The Honorable Henry E. Brown, Jr. 

Ranking Member 

Subcommittee on Health 

Committee on Veterans’ Affairs 

United States House of Representatives 

Washington, DC 20515 

Dear Congressman Brown: 

This is in response to your October 19, 2010, letter following the September 23, 

2010, hearing on VHA Contracting and Procurement Practices. Enclosed are our responses to the additional hearing questions. 

Thank you for your interest in the Department of Veterans Affairs. 

Sincerely, 

/s/ by Richard J. Griffin for 

GEORGE J. OPFER 

Inspector General 

Enclosure 

Questions from the Honorable Henry Brown, Jr. 

For Belinda Finn, Assistant Inspector General for Audits and Evaluations 

Office of Inspector General, U.S. Department of Veterans Affairs 

Before the Subcommittee on Health, Committee on Veterans’ Affairs 

United States House of Representatives 

Hearing on VHA Contracting and Procurement Practices 

Question 1: Please comment on the development of the VA’s acquisition workforce. What further steps would you recommend VA take to ensure it has acquisition 

staff with the skill sets needed to provide appropriate contract oversight? 

Response: To further develop VA’s acquisition workforce, VA could consider evaluating the adequacy of the training provided at the VA Acquisition Academy to Veterans Integrated Service Network (VISN) contracting officers, Contracting Officers 

Technical Representatives, and other acquisition support staff. During fiscal year 

2010 audit work, we performed a survey of VISN Network Contract Managers 

(NCMs). Nine out of 16 NCMs, who reported taking training at the Academy, responded that the training contracting officers receive from the Academy did not adequately prepare them to support the needs of program officials and comply with acquisition laws, regulations, and VA policy. When asked to explain why the training 

was not adequate, NCMs recommended that the training needed to be more tailored 

to the VA environment. NCMs also responded that there was a need for health care 

contract training. 

Another step that could improve the development of VA’s acquisition workforce is 

to ensure the entire VA procurement workforce is trained and uses the same acquisition support information system. Use of the Electronic Contract Management System (eCMS) is mandated, however the system is not fully utilized and information 

within the system is often incomplete. VA can develop specific performance measures on the use, quality, and completeness of the information in eCMS. VA’s ability 

to obtain reliable information and transparency over all acquisitions and to assess 

how well these acquisitions complied with laws, regulations and policies is key to 

helping identify systemic weaknesses in acquisition practices and to tailor training 

requirements to address deficiencies in the future. 

Question 2: What can VA do to ensure the completeness and accuracy of information in the system? Note we have addressed how improving the eCMS program is 

needed to promote visibility and transparency in VA acquisition processes in our 

September 23, 2010 testimony. 

Response: In response to the above-referenced survey, VISN NCMs identified the 

need to integrate eCMS with the Integrated Funds Distribution, Control Point Activity, Accounting and Procurement system (IFCAP) to ensure VA and the Veterans 

Health Administration (VHA) information systems are connected and compatible. In 


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our July 2009 audit, we recommended VA determine the feasibility of integrating 

eCMS with IFCAP or the Financial Management System in order to avoid or minimize the duplicate data entry and streamline the process. VA agreed to implement 

this integration. Once in place, we expect that the integration will help strengthen 

the management of VA’s acquisition processes. 

VA recently reported to Office of Inspector General (OIG) auditors that VA’s vendor is scheduled to complete a release of eCMS in November 2010, which will provide drop down lists for improved data consistency. The release will also incorporate 

mandatory data elements. Furthermore, VA reported to the OIG that an Action Review and Approval process will be introduced in calendar year 2011. This feature 

will provide business rules to enforce compliance at selected acquisition process 

milestones. After these changes are implemented, VA can consult with NCMs to determine whether these improvements effectively meet their needs and if other improvements to eCMS are needed. VA can greatly benefit from fully leveraging the 

use of eCMS from the standpoint of relying on a standardized management tool to 

improve the procurement process; however, VA cannot fully realize the benefits 

without ensuring the tool properly integrates with existing and planned financial 

systems. 

Question 3: In a written statement submitted for the September 23, 2010, hearing on VHA procurement, the Coalition for Government Procurement (Coalition) alleges numerous problems with the timeliness of awards at VA’s National Acquisition 

Center (NAC). The Coalition alleges that one of the primary reasons the NAC is broken is the ‘‘inappropriate insertion of the VA Office of Inspector General (OIG) into 

the contracting process.’’ The Coalition implies that the OIG has assumed primary 

price negotiation and decision-making responsibility for contracts negotiated by the 

NAC. The Coalition also asserts that it hears ‘‘frequently from its members that 

after receiving and accepting an offer from a Contracting Officer, the OIG will step 

in and make the Contracting Officer withdraw its offer.’’ Please explain the role of 

the OIG with respect to contracts awarded at the NAC and address in your response 

whether the statements by the Coalition are accurate. 

Response: We have had the opportunity to review the statement submitted for 

the record to the Subcommittee on Health by Mr. Larry Allen on behalf of the Coalition for Government Procurement (Coalition). As way of background information, 

one component of the OIG is the Office of Contract Review (OCR). This group of 

25 auditors and management analysts is responsible for conducting pre-award reviews of proposals submitted to the NAC by vendors seeking Federal Supply Schedule (FSS) contracts or modifications to those contracts and proposals for sole-source 

health care resource contracts. These reviews provide information and recommendations to VA contracting officers for use during contract negotiations. These services 

have been provided to VA since 1993 under a reimbursable agreement between the 

OIG and VA’s Office of Acquisition and Logistics. 

We also note that the Coalition is not a vendor, does not contract with VA, and 

to our knowledge, has not participated in the contracting process with VA on behalf 

of any of its members. Furthermore, the OIG and the Coalition have not engaged 

in discussions during any pre- or post-award review. 

The Coalition’s assertion regarding OIG actions in the contracting process are erroneous. The OIG has never assumed primary price negotiation and decision-making authority in the award of a contract or modification. During contract negotiations, contracting officers can, and do, consult with OCR staff who conducted the 

pre-award review to clarify findings and recommendations or seek additional review. 

Any involvement by OCR during contract negotiations is at the request of the contracting officer and does not constitute ‘‘primary negotiation or decision-making authority’’ or ‘‘operational responsibility’’ as alleged by the Coalition. 

The Coalition criticizes VA’s decision to conduct pre-award reviews of proposals 

submitted by vendors to determine whether the prices offered are fair and reasonable. The basis of the criticism is that this process is the cause for delays in award. 

The Coalition’s position is not unexpected because these reviews often find that 

prices offered by vendors are not fair and reasonable when compared to those paid 

by commercial customers. As noted in our written statement, in 2010 pre-award reviews identified over $370 million in potential cost savings if the contracting entity 

negotiated fair and reasonable prices. In the past 5 fiscal years, the potential cost 

savings identified in the pre-award reviews exceeded $1.54 billion. These reviews 

have consistently shown that vendors fail to provide accurate, current, and complete 

information with their proposals. Although it can take up to 90 days to conduct 

these reviews, they are necessary to ensure that VA pays fair and reasonable prices 

for commercial products and services. 


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VA’s pre-award program has been cited by the Government Accountability Office 

(GAO) as a best practice (Contract Management: Further Efforts Needed To Sustain 

VA’s Progress in Purchasing Medical Products and Services, June 22, 2004). In a 

separate report, Contract Management: Opportunities To Improve Pricing of GSA 

Multiple Award Schedules Contracts (issued on February 11, 2005), GAO stated: 

The more than 1,200 FSS and 330 national contracts that VA has awarded have 

resulted in more competitive prices and have yielded substantial savings. VA 

has achieved these favorable prices and savings, in part, by exercising its audit 

rights and access to contractor data to pursue best prices aggressively for medical supplies and services. For example, pre-award audits of vendors’ contract 

proposals and post-award audits of vendors’ contract actions resulted in savings 

of about $240 million during fiscal years 1999 to 2003. 

In the report, GAO was critical of GSA’s failure to conduct pre-award and postaward audits and its negative impact on Government pricing. GAO also noted in 

this report that the price negotiation tools available to contracting entities to analyze information provided by vendors and make price reasonableness determinations 

were not effective. 

The Coalition also criticizes VA contracting officers for relying on the pre-award 

review during negotiations. The criticism is based on the results of a survey question asking Coalition members: ‘‘In your negotiations with the VA, what did your 

CO rely on.’’ The Coalition states that many members responded ‘‘the VA–OIG PreAward Audit.’’ It is understandable that the Coalition and its members see this as 

a negative because the use of the pre-award report often results in the negotiation 

of lower prices. As a result, the profits the vendor anticipates receiving by charging 

VA more than fair and reasonable prices for products and services are decreased. 

Contracting Officers should be applauded for relying on the information obtained 

during the pre-award review to negotiate lower pricing for VA. 

The Coalition further alleges that that after receiving and accepting an offer from 

a contracting officer, the OIG will step in and make the contracting officer withdraw 

the offer. However, the Coalition did not provide any evidence to support this allegation. This scenario could not happen because the OIG does not have any authority 

to make a contracting officer withdraw an offer that has been accepted. Such an action could only be taken by the contracting officer or someone within the contracting 

officer’s chain of command. In addition, if a vendor believes VA has acted inappropriately during the award process, the vendor has the right to file a protest. To our 

knowledge, no protest has been filed alleging inappropriate actions by the OIG during contract negotiations. 

Æ 


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