United States Government Accountability Office

GAO Report to Congressional Requesters

VA HEALTH CARE

Budget Formulation 

and Reporting on 

Budget Execution 

Need Improvement 

September 2006 

 

GAO-06-958 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2006

VA HEALTH CARE

Budget Formulation and Reporting on 

Highlights of GAO-06-958, a report to Budget Execution Need Improvement 

congressional requesters 

The Department of Veterans Affairs 

(VA) estimates it will serve

5.4 million patients in fiscal year 

2006. Medical services for these

patients are funded with

appropriations, after consideration 

by Congress of the President’s 

budget request. VA formulates the 

medical programs portion of that 

request. VA is also responsible for 

budget execution—using 

appropriations and monitoring 

their use for providing care. For 

fiscal years 2005 and 2006, the 

President requested additional 

funding for VA medical programs, 

beyond what had been originally

requested. 

GAO was asked to examine for 

fiscal years 2005 and 2006 (1) how 

the President’s budget requests for 

VA medical programs were 

formulated, (2) how VA monitored

and reported to Congress on its 

budget execution, and (3) which

key factors in the budget 

formulation process contributed to

requests for additional funding. To

do this, GAO analyzed budget 

documents and interviewed VA and 

Office of Management and Budget

(OMB) officials. 

What GAO Recommends

GAO recommends that VA better 

explain cost savings from proposed

policy changes in budget 

formulation and provide more 

comprehensive reporting on budget 

execution to Congress. VA stated 

that it substantially agreed with 

GAO’s findings and concurred with

the recommendations. 

The formulation of the President’s budget requests for VA medical programs 

for fiscal years 2005 and 2006 was informed by VA’s comparison of its cost 

estimate of projected demand for medical services to its anticipated 

resources. VA projected about 86 percent of its costs using an actuarial 

model that estimated veterans’ demand for health care. To project the costs 

of long-term care (about 10 percent of the funds for VA medical programs in 

each of these years) and the remaining medical care costs (about 4 percent), 

separate estimation approaches were used that did not rely upon an 

actuarial model but used other methods instead. The agency anticipated 

resources based on prior year appropriations, guidance from OMB, and 

other factors. For both fiscal years, VA officials told GAO that projected 

costs—calculated from the actuarial model and other approaches—

exceeded anticipated resources and that they addressed the difference in 

budget requests for those years with cost-saving policy proposals and 

management efficiencies.

 

Although VA staff closely monitored budget execution and identified 

problems for fiscal years 2005 and 2006, VA did not report this information 

to Congress in a sufficiently informative manner. VA closely monitored the 

fiscal year 2005 budget as early as October 2004, anticipating challenges 

managing within its resources. However, Congress did not learn of these 

challenges until April 2005. VA initially planned to manage within its budget 

for fiscal year 2005 by delaying some spending on equipment and 

nonrecurring maintenance and drawing on funds it had planned to carry over 

into 2006. Instead, the President requested additional funds from Congress 

for both fiscal years 2005 (a $975 million supplemental appropriation in June 

2005) and 2006 (a budget amendment of $1.977 billion in July 2005).

Congress included in the 2006 appropriations act a requirement for VA to 

submit quarterly reports regarding the medical programs budget status 

during this fiscal year. These reports have not included some of the 

measures that would be useful for congressional oversight, such as patient 

workload measures to capture costs and the time required for new patients 

to be scheduled for their first primary care appointment. 

Unrealistic assumptions, errors in estimation, and insufficient data were key 

factors in VA’s budget formulation process that contributed to the requests 

for additional funding for fiscal years 2005 and 2006. Unrealistic assumptions 

about how quickly cost savings could be realized from proposed nursing 

home policy changes contributed to the additional requests, as did 

computation errors measuring the estimated effect of one of these changes. 

Insufficient data in VA’s initial budget projections also contributed to the 

additional funding requests. For example, VA underestimated the cost of 

serving veterans returning from Iraq and Afghanistan, in part because 

estimates for fiscal year 2005 were based on data that largely predated the 

Iraq conflict and because according to VA, the agency had challenges for 

fiscal year 2006 in obtaining data from the Department of Defense. 

www.gao.gov/cgi-bin/getrpt?GAO-06-958.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Laurie E. 

Ekstrand at (202) 512-7101 or 

ekstrandl@gao.gov. 
Contents 

Letter 1

Results in Brief 4

Background 6

Formulation of President’s Budget Request for VA Medical 

Programs Informed by Comparing Cost of Projected Demand 

and Anticipated Resources 8 

VA Closely Monitored Budget Execution and Identified Problems, 

but Did Not Report Them in a Timely and Sufficiently 

Informative Manner 13 

Unrealistic Assumptions, Estimation Errors, and Insufficient Data 

Contributed to VA’s Requests for Additional Funding 19 

Conclusions 22

Recommendations for Executive Action 23 

Agency Comments 24 

Appendix I Objectives, Scope, and Methodology 25 

Appendix II Comments from the Department of Veterans 

Affairs 28 

Appendix III GAO Contact and Staff Acknowledgments 31 

Related GAO Products 32 

Table 

Table 1: VA Cost-saving Policies Proposed in the President’s 

Budget Requests for Fiscal Years 2005 and 2006 (Dollars in 

Millions) 12

Page i GAO-06-958 VA Budget Formulation and Reporting
Figures 

Figure 1: Percentage of Projected Costs for VA’s Medical Programs 

Using Various Estimation Approaches 9 

Figure 2: VA’s March 2006 Monthly Report to VA Senior 

Management Indicating Number of New Patients Waiting 

for First Appointment to be Scheduled 18 

Abbreviations 

CHAMPVA Civilian Health and Medical Program of the Department of 

 Veterans Affairs 

DOD Department of Defense 

NCA National Cemetery Administration 

OEF Operation Enduring Freedom 

OIF Operation Iraqi Freedom 

OMB Office of Management and Budget 

VA Department of Veterans Affairs 

VBA Veterans Benefits Administration 

VHA Veterans Health Administration 

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Page ii GAO-06-958 VA Budget Formulation and Reporting
United States Government Accountability Office

Washington, DC 20548 

September 20, 2006 

The Honorable Steve Buyer 

Chairman 

Committee on Veterans’ Affairs 

House of Representatives 

The Honorable Daniel K. Akaka 

Ranking Minority Member 

Committee on Veterans’ Affairs 

United States Senate 

The Honorable Richard J. Durbin 

The Honorable Patty Murray 

The Honorable Ken Salazar 

United States Senate 

The Department of Veterans Affairs (VA) operates one of the largest health 

care delivery systems in the nation. For fiscal year 2006, VA estimates it 

will treat 5.4 million patients with appropriations of $31.5 billion.1

 During 

the past decade the number of patients served by VA has increased 

rapidly, due in part to an expansion of the number of veterans eligible to 

receive care. The Veterans’ Health Care Eligibility Reform Act of 1996 

simplified eligibility standards for veterans in need of hospital and 

outpatient care and made available services that previously had not been 

made available to veterans without service-connected disabilities or low 

incomes.2

 The act required VA to provide a uniform set of medical benefits, 

including hospital and outpatient care, to veterans who are eligible and 

who enroll in its health care system. In addition to the uniform set of 

medical benefits, VA is required to provide certain other services—such as 

 1

Total includes medical care collections, but does not include certain other amounts, such

as appropriations for construction. 

2

Pub. L. No. 104-262, §§ 101, 104, 110 Stat. 3177, 3178-81 and 3182-84. Veterans with low 

incomes are those veterans with annual incomes below a certain threshold. In 2006, the 

income threshold was $26,902 for veterans without dependents.

Page 1 GAO-06-958 VA Budget Formulation and Reporting
nursing home care—to some veterans, but not to others.3

 If sufficient 

resources are not available to provide hospital and outpatient care that is 

timely and acceptable in quality, VA is required to restrict enrollment 

based on veterans’ eligibility priorities.4

For VA, like other agencies, formulation of a budget request begins 

approximately 18 months before the start of the fiscal year to which the 

request relates and about 10 months before transmission of the President’s 

budget request, which usually occurs in early February. For this purpose, 

the Veterans Health Administration (VHA),5

 within VA, develops estimates 

of its medical program budget for agency review and approval. In 

preparing budget estimates, VA and its component organizations—such as 

VHA—use policy and technical guidance from the Office of Management 

and Budget (OMB), while preparing a budget submission to OMB that 

reflects VA priorities. OMB is the office responsible for assisting the 

President in overseeing the preparation of the federal budget and 

supervising its administration. OMB reviews VA’s and other agencies’

budget requests from their submission in September through November 

and then notifies agencies at the end of November on the level of funding 

and policy proposals that will be included in the President’s budget 

request. Agencies have very limited time to appeal these decisions to OMB 

before they start preparing a congressional budget justification—a more 

detailed presentation of the President’s budget request—for their 

appropriations subcommittees’ consideration. Congressional budget 

justifications are submitted to appropriations subcommittees following 

transmission of the President’s budget request. 

 3

The Veterans Millennium Health Care and Benefits Act required VA to provide nursing 

home care to veterans requiring such care with a service-connected disability rated at 

70 percent or greater, those requiring nursing home care because of a condition related to 

their military service who do not have a service-connected disability rating of 70 percent or 

greater, and those who were receiving care in VA nursing homes on the enactment date of 

the act and continue to need that care. Pub. L. No. 106-117, § 101, 113 Stat. 1545, 1547-51 

(codified at 38 U.S.C. § 1710A). The Veterans’ Health Care, Capital Asset, and Business 

Improvement Act of 2003 extended this requirement through 2008. Pub. L. No. 108-170, §

106(b), 117 Stat. 2042, 2046. VA provides most of its nursing home care to veterans who 

receive it on a discretionary basis rather than as required by these acts. 

4

Veterans’ eligibility priority categories are generally determined on the basis of serviceconnected disability and/or income. There are currently eight priority categories. 

5

The VA also provides a comprehensive benefits program, administered by the Veterans

Benefits Administration (VBA), and maintains national cemeteries, administered by the

National Cemetery Administration (NCA). 

Page 2 GAO-06-958 VA Budget Formulation and Reporting
After the President submits his budget request, he may request further 

changes in one of two ways, depending on the timing of the additional 

request. If Congress has not completed action on an appropriations act, 

the President can transmit a budget amendment. If an appropriations act 

has already been enacted, the President can request a supplemental 

appropriation; this is typically done in cases where the need for funds is 

too urgent to postpone until enactment of the following year’s 

appropriations bill. 

Once an appropriations bill becomes law, OMB apportions the funds, 

allowing an agency to obligate and expend the funds as authorized. Each 

agency is responsible for obligating and expending funds efficiently and 

effectively to carry out the programs and activities for which funds were 

appropriated. Carrying out this responsibility is referred to as budget 

execution and requires monitoring throughout the fiscal year to ensure 

that funds are being used as authorized for agency program objectives—in 

the case of VA medical programs to provide quality care to veterans—and 

to ensure compliance with provisions of fiscal law. For example, the 

Antideficiency Act prohibits VA and other agencies from making or 

authorizing obligations6

 or expenditures in excess of the available 

appropriations.7

Congress provided additional funds beyond those initially requested by the 

President for VA medical programs for both fiscal years 2005 and 2006. In

June 2005, the President requested a $975 million supplemental 

appropriation for fiscal year 2005, and in July 2005, the President 

submitted a $1.977 billion budget amendment for fiscal year 2006. These 

additional requests raised concerns in Congress and among stakeholders 

regarding the reasons for the additional requests for funding. At your 

request, we examined for fiscal years 2005 and 2006 (1) how the 

President’s budget requests for VA medical programs were formulated, 

(2) how VA monitored and reported to Congress on its budget execution, 

and (3) which key factors in the budget formulation process contributed to 

the requests for additional funding. 

 6

An obligation is generally a definite commitment that creates a legal liability of the 

government for a payment immediately or in the future. Agencies incur obligations when 

they place orders, award contracts, receive services, and carry out similar transactions 

during a given period that will require payments by an agency during the same or future 

periods. 

7

See 31 U.S.C. § 1341(a)(1)(A). 

Page 3 GAO-06-958 VA Budget Formulation and Reporting
To perform this work, we interviewed VA officials responsible for the 

agency’s medical programs budget issues, and for developing budget 

projections. We also interviewed OMB officials. We analyzed and reviewed 

budget documents including VA’s budget justifications for medical 

programs for fiscal years 2005 and 2006. We also reviewed VA budget 

estimates and other information VA reported that it used either to 

formulate its submissions to OMB for fiscal years 2005 and 2006 or to 

monitor the use of appropriated funds for those fiscal years. Our review of 

how VA monitored its use of funds in the fiscal year 2006 budget includes 

the first 11 months of the fiscal year.8

 This work expands upon the 

preliminary findings that we reported in February 2006.9

 We conducted our 

review from October 2005 through September 2006 in accordance with 

generally accepted government auditing standards. For additional details 

of our scope and methodology, see appendix I. 

The formulation of the President’s budget requests for VA medical 

programs for fiscal years 2005 and 2006 was informed by VA’s comparison 

of its estimation of the cost of projected demand for its medical services to

its anticipated resources. VA projected about 86 percent of its costs using 

an actuarial model that estimated veterans’ demand for health care. In 

addition, VA projected the costs of long-term care, which accounts for 

about 10 percent of the funds requested for VA medical programs in each 

of these fiscal years, and remaining costs for other medical care, about 

4 percent, using separate estimation approaches that did not rely upon an

actuarial model. VA anticipated its resources to provide medical programs 

for fiscal years 2005 and 2006 based on its prior year appropriations, 

guidance published by OMB that outlined the President’s budget priorities, 

and other factors. For both fiscal years, VA officials told us that projected

costs—calculated from the actuarial model and other approaches—

exceeded anticipated resources. VA officials told us they addressed the 

difference in budget requests for those years with cost-saving policy 

proposals and management efficiency savings, which were included in the 

President’s budget requests for fiscal years 2005 and 2006. 

Results in Brief 

 8

Fiscal year 2006 will not be complete until September 30, 2006. 

9

See GAO, VA Health Care: Preliminary Findings on the Department of Veterans Affairs 

Health Care Budget Formulation for Fiscal Years 2005 and 2006, GAO-06-430R 

(Washington, D.C.: Feb. 6, 2006). See Related GAO Products at the end of this report. 

Page 4 GAO-06-958 VA Budget Formulation and Reporting
Although VA staff closely monitored budget execution and identified 

problems for fiscal years 2005 and 2006, VA did not report this information 

to Congress in a timely and sufficiently informative manner. VA closely 

monitored the fiscal year 2005 budget as early as October 2004, because 

the agency anticipated significant challenges to providing care to veterans 

with its appropriations. However, Congress did not learn of these 

challenges until April 2005. VA initially planned to manage within its 

budget for fiscal year 2005 by delaying some spending on equipment and 

nonrecurring maintenance and drawing on funds it had planned to carry 

over into 2006. Instead, in June 2005, with 3 months remaining in the fiscal

year, the President requested a $975 million supplemental appropriation 

from Congress for VA medical programs for that fiscal year. In July 2005, 

the President requested $1.977 billion for fiscal year 2006 through the 

budget amendment process. The appropriations act for fiscal year 2006

included a requirement that VA submit quarterly reports on VHA’s 

financial status. However, VA’s reports have not included some of the 

measures that would assist Congress in its oversight, such as measures of 

patient workload that would capture the costliness of patient care, and the 

time required for new patients to be scheduled for their first health care 

appointment. Moreover, while VA has 12 months to execute its budget, it 

did not submit its first two quarterly reports to Congress until nearly 

2 months after the end of each quarter, using patient workload data that

were as much as 3 months old at the time of submission. These data 

included a combination of actual and estimated number of patients seen.

However, VA submitted its third quarterly report about 1 month after the 

end of the quarter, using estimated data for the number of patients seen. 

Unrealistic assumptions, errors in estimation, and insufficient data were 

key factors in VA’s budget formulation process that contributed to the 

requests for additional funding in fiscal years 2005 and 2006. One factor 

that contributed to these requests was a set of unrealistic assumptions 

about the expected time frame in which cost savings could be realized 

from proposed nursing home policy changes. Computational errors in 

measuring the estimated effect of one of these changes also contributed to 

the additional funding request. Furthermore, insufficient data in VA’s 

initial budget projections contributed to the additional funding requests. 

For example, VA underestimated the cost of serving veterans returning 

from Iraq and Afghanistan, in part because estimates for fiscal year 2005 

were based on data that largely predated the Iraq conflict and because,

according to VA, the agency did not have sufficient data for fiscal year 

2006 due to challenges obtaining data needed to identify these veterans 

from the Department of Defense (DOD). 

Page 5 GAO-06-958 VA Budget Formulation and Reporting
To help improve VA’s formulation of its medical programs budget and

facilitate congressional oversight, we recommend that the Secretary of 

Veterans Affairs take several actions. We recommend that VA improve its 

budget formulation processes by explaining the relationship between 

implementation of proposed policy changes and the expected timing of 

cost savings to be achieved and by strengthening its internal controls to 

better ensure the accuracy of calculations it uses in preparing budget 

requests. We also recommend that VA improve its reporting of budget 

execution progress to Congress by incorporating measures of patient 

workload to capture the costliness of care and a measure of waiting times 

to schedule veterans’ first primary care appointment for new patients. 

VA stated that it substantially agreed with our findings and conclusions, 

and concurred with our recommendations. VA also described steps it has 

taken and plans to take to respond to our recommendations. 

VA, as part of its mission to provide benefits and services to America’s 

veterans, administers one of the nation’s largest health care systems 

through the VHA. As part of a uniform set of medical benefits provided to

eligible veterans who enroll, VA provides a range of services including 

preventive and primary health care, a full range of outpatient and inpatient 

services, and prescription drugs. VA also provides additional services, 

such as nursing home and dental care and other services, as required by 

law, for some veterans and makes these services available to other 

veterans on a discretionary basis as resources permit. One of the largest of 

these programs is VA’s nursing home care program, which provides care in

three settings. VA operates its own nursing homes in 134 locations; it pays

for care under contract in non-VA nursing homes, referred to as 

community nursing homes; and it pays about one-third of the costs per day 

for veterans in state veterans’ nursing homes.10 In its three settings, nursing 

home services are provided to veterans, ranging from short-stay post-acute 

care for patients recovering from a condition such as a stroke to long-stay 

Background 

 10VA also supports state veterans’ nursing homes through grants for construction, 

acquisition, or renovation of existing structures. See GAO, VA Long-Term Care: Data Gaps

Impede Strategic Planning for and Oversight of State Veterans’ Nursing Homes, 

GAO-06-264 (Washington, D.C.: Mar. 31, 2006) and GAO, VA Long-Term Care: Oversight of

Nursing Home Program Impeded by Data Gaps, GAO-05-65 (Washington, D.C.: Nov. 10, 

2004). 

Page 6 GAO-06-958 VA Budget Formulation and Reporting
care for patients who cannot be cared for at home because of severe, 

chronic physical or mental limitations.11

To manage access to hospital and outpatient care in relation to available 

resources, VA established an enrollment system with priority categories, 

as required by the Veterans’ Health Care Eligibility Reform Act of 1996.12

The act called for seven priority categories; subsequent legislation 

provided for eight categories.13 Priority categories are generally

determined by a veteran’s degree of service-connected or other disability 

or on financial need. VA gives veterans in Priority category 1 (with 

50 percent or more service-connected disability) the highest preference for 

services and gives lowest preference to those in Priority category 8 (no 

disability, with income exceeding certain thresholds, and who were 

enrolled as of January 16, 2003). 

The act also required VA to restrict enrollment consistent with its priority 

categories if sufficient resources are not available to provide care that is 

timely and acceptable in quality.14 In January 2003, VA restricted 

enrollment by no longer allowing Priority 8 veterans, those in the lowest 

priority category, to enroll.15 However, Priority 8 veterans who were 

already enrolled as of January 16, 2003, would continue to receive service.

This policy remained in effect as of August 2006. 

In the mid-1990s, VA began to change the way it delivered health care to 

veterans to increase the efficiency of its health care system and to improve 

access to medical services. Applying lessons learned from the private 

sector’s experiences with managed health care, VA began emphasizing 

certain managed care practices, such as primary, outpatient, and 

preventive care, and deemphasizing its reliance on inpatient care. Over the 

10-year period from 1995 through 2004, for example, the ratio of outpatient 

 11VA nursing home care is part of a continuum of long-term care services that VA provides,

including services to veterans in the community and in veterans’ own homes. 

12Pub. L. No. 104-262, § 104(a)(1) 110 Stat. 3177, 3182-83 (codified at 38 U.S.C. § 1705). 

Enrollment is not required to receive nursing home care in any of VA’s three nursing home

settings. 

13Department of Veterans Affairs Health Care Programs Enhancement Act of 2001, Pub. L.

No. 107-135, § 202(a), 115 Stat. 2446, 2457. 

14See 38 U.S.C. § 1705(b)(1). 

15VA announced this change through the publication of an interim final rule in the Federal 

Register. See 68 Fed. Reg. 2670-73 (Jan. 17, 2003). 

Page 7 GAO-06-958 VA Budget Formulation and Reporting
visits to inpatient hospital stays at VA increased from 29 to 1, to 92 to 1, 

reflecting the change in how VA delivers medical care. To support its 

health care reform efforts, VA decentralized the management structure of 

the agency to coordinate the organization of hospitals, outpatient clinics,

and other facilities into 21 regional health care networks. These networks 

have budget and management responsibilities that include allocating 

resources to facilities, clinics, and programs within their networks and 

ensuring access to appropriate health care services. 

The formulation of the President’s budget requests for VA medical 

programs for fiscal years 2005 and 2006 was informed by VA’s comparison 

of its estimation of the cost of projected demand and anticipated 

resources. Estimated costs for medical care exceeded anticipated 

resources in both fiscal years 2005 and 2006, and, in formulating the 

budget, VA addressed the difference with cost-saving policy proposals and 

estimated savings from management efficiencies. 

VA used an actuarial model16 to project demand and costs for about 

86 percent of its medical programs budget estimate for fiscal years 2005

and 2006. (See fig. 1.) For this part of the medical programs budget 

estimate, the model was used to project enrollment in the VA health care 

system and then to estimate VA’s total health care services utilization by 

estimating the proportion of enrollees’ total health care that was expected 

to come from VA. The actuarial model used cost estimates associated with 

particular health care services in conjunction with the enrollment and 

utilization projections to project VA health care costs. The actuarial model 

provided utilization projections for 55 health care services including 

inpatient acute surgery, outpatient care, prescription drugs, and 

prosthetics. The model used private sector benchmarks but made 

allowances for the special characteristics of the VA enrollee population, 

adjusting for age, sex, morbidity of enrollee population, and veterans’ use 

Formulation of 

President’s Budget 

Request for VA

Medical Programs 

Informed by 

Comparing Cost of 

Projected Demand 

and Anticipated 

Resources 

VA Estimated Costs of 

Medical Programs Based 

on Projected Demand for 

Medical Care 

 16VA’s actuarial model was developed under contract by Milliman USA, Inc. 

Page 8 GAO-06-958 VA Budget Formulation and Reporting
of other health care providers reimbursed by payers such as Medicare and 

Medicaid. 

Figure 1: Percentage of Projected Costs for VA’s Medical Programs Using Various

Estimation Approaches

Source: VA.

Actuarial model (about 86%)

● Inpatient care ● Outpatient care ● Prescription drugs ● Other

Long-term care estimate (about 10%) ● Nursing home care ● Home and community-based care

Other methods (about 4%) ● Care for dependents and survivors

 of veterans who are permanently

and totally disabled from a service-

 connected disability (CHAMPVA –

 Civilian Health and Medical Program

 of the Department of Veterans

 Affairs) ● Dental care

4%

10%

86%

●

●

●

VA used a separate estimation approach, rather than an actuarial model, to

project long-term care demand and costs,17 which accounted for about 

10 percent of the funds requested for medical programs for each of the 

fiscal years 2005 and 2006. The long-term care estimation approach 

projected demand by using historical expenditures to calculate the costs 

of treating veterans and multiplying these estimates by projected 

workload, which was calculated based on historical trends and policy 

proposals. VA officials told us that they are working on incorporating the 

projection of long-term care demand and costs into the actuarial model, 

but could not provide a date when this would be completed. Similarly, VA 

used other approaches, rather than an actuarial model, to project demand

and costs for the remaining 4 percent of the medical programs budget 

request for fiscal years 2005 and 2006. These other methodologies included 

 17VA long-term care includes nursing home care provided in VA-operated, state, and 

community nursing homes, and home and community-based care such as in-home care

services and adult day health care centers. 

Page 9 GAO-06-958 VA Budget Formulation and Reporting
adding inflation to actual expenditures and projecting trends based on 

workload, expenditure, and other data provided by program officials. The 

majority of these expenditure projections were for Civilian Health and 

Medical Program of the Department of Veterans Affairs (CHAMPVA)

18 and 

dental care.

The actuarial model projections and the other estimation approaches for 

the fiscal year 2005 budget were developed in March 2003. To estimate 

costs for VA’s medical programs for fiscal year 2005, VA used fiscal year 

2002 data, which were the most current fiscal year data available in the 

spring of 2003. Similarly, VA used fiscal year 2003 data, in the spring of 

2004, to project costs for fiscal year 2006. 

VA Anticipated Resources 

Based on Prior 

Appropriation Levels, OMB 

Guidance, Collections, 

Reimbursements, and 

Projected Carryover of 

Unobligated Funds 

VA anticipated its resources for fiscal years 2005 and 2006 based on its 

prior year appropriations, guidance published by OMB that outlined the 

President’s budget priorities, and other factors. For example, OMB’s 

annual planning guidance for fiscal year 2005, published in April 2003, 

directed executive agencies, including VA, to develop a budget for fiscal 

year 2005 that was within the levels included in the fiscal year 2004 budget.

The guidance noted, for example, that any increases or amounts for new 

initiatives should be offset by reductions in lower priority or ineffective 

programs. 

In addition, VA anticipated its funding based on resources it expected 

from collections, reimbursements,19 and the projected carryover of 

unobligated funds into the next fiscal year. VA may carry over from one 

fiscal year to the next unobligated balances of funds made available 

without fiscal year limitation and other funds appropriated for multiple 

fiscal years. In fiscal year 2004, for example, VA collected $1.7 billion from

veterans and third-party insurers,20 which was available without fiscal year 

 18CHAMPVA provides medical care for dependents and survivors of veterans who are

permanently and totally disabled from a service-connected disability. 

19VA receives reimbursements from services it provides to other government entities, such 

as DOD, or other private or nonprofit entities. For example, VA laundries receive 

reimbursements from other entities by selling laundry services. 

20VA has the authority to collect payments for treatment of veterans’ nonservice-connected 

conditions, that is, injuries or illnesses that were not incurred or aggravated during military

service. VA collects first-party payments from veterans, such as copayments for outpatient

medications and third-party payments from veterans’ private health insurers, including

those companies that self-insure. 

Page 10 GAO-06-958 VA Budget Formulation and Reporting
limitation. VA carried over about $600 million from fiscal year 2004 into 

fiscal year 2005; this amount consisted of collections from prior years and 

multiyear funds that had not been obligated during fiscal year 2004. 

Adjustments Were Made to 

Address the Difference 

Between Projected Costs 

for VA Medical Programs 

and Anticipated Resources 

According to VA officials, for both fiscal years 2005 and 2006, projected 

costs exceeded anticipated resources. VA officials stated that differences 

between projected costs and anticipated resources in budget requests for 

those years were addressed in two ways: (1) cost-saving policy proposals 

and (2) management efficiency savings. 

To develop a budget request consistent with anticipated resources, VA 

officials told us they addressed the difference with cost-saving policy

proposals which were included in the President’s budget requests for 

fiscal years 2005 and 2006. These cost-saving policy proposals totaled 

$494 million and $734 million in fiscal years 2005 and 2006, respectively, 

and were proposed to reduce the total appropriation requested. (See table 

1.) More specifically, a proposed long-term care policy was designed to 

reduce costs by reducing patient workload, while a proposed $250 

enrollment fee and an increase in pharmacy copayments for Priority 7 and 

8 veterans—primarily, those veterans with incomes or net worths above 

applicable thresholds and no service-connected disability—would have 

generated additional resources. The projected savings from these policy

proposals, which were designed to enhance revenue as a means of 

protecting resources, were used to adjust projected costs. VA used the 

actuarial model and long-term care estimates to project savings from these 

proposals. 

Page 11 GAO-06-958 VA Budget Formulation and Reporting
Table 1: VA Cost-saving Policies Proposed in the President’s Budget Requests for 

Fiscal Years 2005 and 2006 (Dollars in Millions) 

Policy proposals Fiscal year 2005 Fiscal year 2006

Long-term care policy proposals to reduce 

average daily censusa

$270 $502

Assess $250 annual enrollment fee for Priority 7 

and 8 veteransb

141 206

Increase pharmacy copayment from $7 to $15 for 

Priority 7 and 8 veteransb

83 26

Total cost-saving policy proposals $494 $734 

Source: GAO analysis of VA data. 

a

Average daily census is a patient workload measure, which represents the total number of days of 

nursing home care provided in a year divided by the number of days in the year. 

b

Priority 7 and 8 veterans are veterans who have either incomes or net worths above applicable 

thresholds, no service-connected disability that results in monetary benefits from VA, and no other 

recognized statuses, such as former prisoners of war. 

In addition to cost-saving policy proposals, VA developed estimates of 

management efficiency savings of $340 million and $590 million in fiscal 

years 2005 and 2006, respectively, which were included in the President’s

budget request. According to VA, these management efficiency savings 

were initiatives designed to reduce costs without reducing quality. In a 

February 2006 report,21 we reported that VA’s total projected management 

efficiency savings in the President’s budget request for fiscal years 2003 

through 2006 were used to fill the gap between the costs associated with 

VA’s projected demand for health care services and anticipated resources. 

In addition, we reported that VA lacked a methodology for measuring the 

dollar effect of the health care management efficiency savings it had 

detailed for fiscal years 2003 through 2006. 

OMB and VA officials told us they did not include management efficiency

savings in the fiscal year 2007 budget request and do not have plans for 

doing so in the future. However, they will continue to include other 

efficiency savings, which VA calls clinical efficiencies, projected by its 

actuarial model. Each year, a workgroup of VA officials and staff from the 

developer of the actuarial model review VA and health care industry 

trends and evaluate specific VA practices expected to affect health care 

service utilization and cost and incorporate these expectations into the 

 21See GAO, Veterans Affairs: Limited Support for Reported Health Care Management 

Efficiency Savings, GAO-06-359R (Washington, D.C.: Feb. 1, 2006).

Page 12 GAO-06-958 VA Budget Formulation and Reporting
actuarial model. For example, VA’s Advanced Clinical Access initiative is 

intended to reduce the need for veterans to visit clinics to receive care by

implementing certain health care practices such as using follow-up 

telephone calls by practitioners to reduce the number of in-person office 

visits. VA officials told us that to calculate the savings from such an 

initiative, the assumptions of reducing patient utilization are built into the 

actuarial model. The actuarial model then produces estimates of the effect

of these efficiencies on the cost of health care services, according to VA 

officials. 

Anticipating challenges in managing its medical care programs within 

available resources, VA closely monitored its medical programs budget 

execution from the beginning of fiscal year 2005. Similarly, in early fiscal

year 2006, the agency tracked how well it was managing to provide care to

veterans with available resources during the 12-month time period. 

However, in fiscal years 2005 and 2006, VA reporting of budget execution

to Congress could have been more timely and informative. 

Recognizing that fiscal year 2005 would be a tight budget year, VA closely

monitored budget execution from the beginning of the fiscal year. In early

fiscal year 2005, VA formed a workgroup, the Budgetary Challenges 

workgroup, to develop a strategy the agency could take to manage within 

its budget. This six-member workgroup was comprised of selected 

network directors and an official from VA headquarters. In December 

2004, in internal briefings to VA’s National Leadership Board, the Deputy 

Under Secretary for Health for Operations and Management, and the 

Deputy Secretary, the workgroup recommended that the agency consider 

a number of budget options to manage within its fiscal year 2005 budget, 

including limiting the implementation of new initiatives and shifting 

resources from equipment and nonrecurring maintenance into direct 

patient care. 

VA Closely Monitored 

Budget Execution and 

Identified Problems, 

but Did Not Report 

Them in a Timely and 

Sufficiently 

Informative Manner 

VA Monitored Budget 

Execution Early,

Anticipating Challenges in 

Providing Medical Care 

with Available Resources 

VA officials told us that in the middle of fiscal year 2005, it became clear 

that demand for health care services was increasing rapidly—confirming 

what they had anticipated at the beginning of the fiscal year—and that 

spending would have to be carefully controlled to manage within its fiscal 

year 2005 budget for the remainder of the year. VA staff identified these 

trends by analyzing the monthly reports they generate for VA senior 

management. In its March 2005 report to senior management, VA found 

Page 13 GAO-06-958 VA Budget Formulation and Reporting
that through January 2005 unique patient workload22 was about 4.1 million, 

5.2 percent above what VA had expected by that time of the fiscal year,

suggesting a potential challenge to managing care with available 

resources. 

On the basis of this close monitoring which began as early as October 

2004, VA took actions to shift resources it had originally allocated for 

equipment and nonrecurring maintenance into direct patient care. VA 

initially planned to manage within its budget for fiscal year 2005 by 

deferring $600 million for equipment and nonrecurring maintenance and 

reducing the fiscal year 2006 carryover balance by $375 million. However, 

with a few months remaining in the fiscal year, in June and July 2005, the

President requested additional VA medical programs funds for fiscal years 

2005 and 2006, asking for $975 million and $1.977 billion, respectively. 

In June 2005, the President submitted a request for supplemental funding 

for fiscal year 2005 that totaled $975 million. VA reported to Congress23

that the following activities contributed to the request: 

• $273 million for medical care services provided to veterans returning from 

Operation Iraqi Freedom (OIF) and Operation Enduring Freedom (OEF),24

• $226 million for long-term care, 

• $200 million for an increase in the number of Priority 1 though 6 veterans 

using VA medical care, 

• $179 million for a greater-than-expected increase in the utilization of 

medical services and intensity of patient workload, 

• $58 million to reduce the number of veterans on waiting lists to receive 

medical care, and 

 22Unique patient workload is a measure that represents an unduplicated count of the

number of patients that used VA within the fiscal year. Therefore, patients are counted only 

once regardless of the number of times they use VA medical services within a fiscal year. 

23Emergency Hearing to Examine the Shortfall in VA’s Medical Care Budget Before the 

Senate Comm. on Veterans’ Affairs, 109th Cong. (June 28, 2005) (statement of R. James 

Nicholson, Secretary, Department of Veterans Affairs); Hearing on the Department of 

Veterans Affairs Health Care Budget Before the House Comm. on Veterans’ Affairs, 109th 

Cong. (June 30, 2005) (statement of R. James Nicholson, Secretary, Department of Veterans 

Affairs). 

24Those who have served, or are now serving, in Operation Iraqi Freedom and Operation

Enduring Freedom may receive care from VA for conditions that are or may be related to

their combat services for a 2-year period following the date of their separation from active

duty without copayment requirements. See 38 U.S.C. § 1710(e)(1)(C) and (e)(3)(C). 

Page 14 GAO-06-958 VA Budget Formulation and Reporting
• $39 million to provide medical care for the health care needs of 

dependents of veterans who are rated as having 100 percent serviceconnected disability. 

In July 2005, the President submitted a budget amendment adding 

$1.977 billion to his fiscal year 2006 request for VA Medical Services 

appropriations. VA testified before the House Committee on Veterans 

Affairs, in July 2005,25 that the following activities contributed to the 

requests for additional funding: 

• $677 million for a 2 percent increase in the number of veterans using VA 

medical care, 

• $600 million to correct an error in VA’s estimate of long-term care costs 

included in the President’s budget, 

• $400 million to cover an unexpected 1.2 percent increase in the average 

cost per patient, and 

• $300 million to replace funds VA planned to carry over from fiscal year 

2005 to fiscal year 2006. 

To support these requests for additional funding for VA medical programs, 

VA officials told us that they chose to highlight activities for fiscal years 

2005 and 2006 that were of high programmatic priority to the 

administration and Congress and could be supported by workload and 

expenditure data (e.g., veterans returning from Iraq and Afghanistan). 

They told us that there were a number of other ways the agency could

have presented the data in the President’s request for additional funding. 

For example, additional funding requested by the President could have 

been categorized by budget object code, which would have listed 

expenditures by broad cost categories including personnel and travel. 

However, VA officials believed that presenting the information primarily 

by programmatic activity would be the most useful for Congress. 

 25Hearing on the Department of Veterans Affairs Proposed Health Care Budget 

Amendment for Fiscal Year 2006 Before the House Comm. On Veterans’ Affairs, 109th 

Cong. (July 21, 2005) (statement of Jonathan B. Perlin, Under Secretary for Health, 

Department of Veterans Affairs). 

Page 15 GAO-06-958 VA Budget Formulation and Reporting
Despite VA’s identification of potential fiscal year 2005 budget challenges 

as early as October 2004, Congress did not learn of these challenges until 

April 2005, when VA reported to Congress that it intended to use funds 

allocated for equipment and nonrecurring maintenance to fund patient 

care. It was not until June 2005, with 3 months remaining in the fiscal year, 

that VA reported in congressional testimonies26 that it had greater-thananticipated workload levels, likely to result in greater-than-anticipated 

costs. It notified Congress at that time that it would not be able to manage 

by using nonrecurring maintenance funds as planned, but rather that the 

President planned to request additional funds from Congress. 

OMB officials told us that they have taken a more active role in monitoring 

VA’s execution of its fiscal year 2006 budget than they did in fiscal year 

2005. VA and OMB officials now meet monthly to discuss the budget 

situation. Further, in fiscal year 2006, VA began preparing a special 

monthly report for OMB. The data in VA’s monthly status reports have 

enabled OMB to help monitor VA’s budget execution during the fiscal year. 

VA’s monthly status reports to OMB provide measures of financial and

workload data. For example, the report includes information on 

obligations and patient workload such as patients by priority category, 

outpatient visits, and nursing home average daily census. 

Following the supplemental appropriation requested in fiscal year 2005 

and the budget amendment requested for fiscal year 2006, Congress 

included a provision in the fiscal year 2006 Military Quality of Life and 

Veterans Affairs Appropriations Act requiring the Secretary of Veterans 

Affairs to submit to the Committees on Appropriations of the U.S. Senate 

and U.S. House of Representatives a quarterly report on the financial 

status of the Veterans Health Administration.27 In addition, the conference 

VA’s Reporting of Budget 

Execution Progress and 

Problems to Congress 

Could Have Been More 

Timely and Informative 

 26Emergency Hearing to Examine the Shortfall in VA’s Medical Care Budget Before the 

Senate Comm. on Veterans’ Affairs, 109th Cong. (June 28, 2005) (statement of R. James 

Nicholson, Secretary, Department of Veterans Affairs); Hearing on the Department of 

Veterans Affairs Health Care Budget Before the House Comm. on Veterans’ Affairs, 109th 

Cong. (June 30, 2005) (statement of R. James Nicholson, Secretary, Department of Veterans 

Affairs). 

27Pub. L. No. 109-114, § 222, 119 Stat. 2372, 2391 (2005). A provision contained in an annual 

appropriation act is not considered permanent legislation unless the language or the nature 

of the provision makes it clear that Congress intended it to be permanent. Because this

provision does not use any language indicating future application, it is not permanent and

applies only to fiscal year 2006. The bill providing for the fiscal year 2007 Department of 

Veterans Affairs appropriations, H.R. 5385, would continue the quarterly report for that

fiscal year. As of August 1, 2006, the bill had been reported out of the House and Senate 

appropriation committees, and had been passed by the House. 

Page 16 GAO-06-958 VA Budget Formulation and Reporting
report accompanying the appropriations act directed VA to include waiting 

list performance measures and whether equipment or nonrecurring 

maintenance funds have been used to pay for operating expenses, among 

other things.28

VA has provided three congressional quarterly reports beginning with a 

report on the first quarter of fiscal year 2006. While VA has 12 months to 

execute its budget, it did not submit its first two quarterly reports to 

Congress until nearly 2 months after the end of each quarter, using patient 

workload data that were as much as 3 months old at the time of

submission. These data included a combination of actual and estimated 

number of patients seen. The third quarterly report was submitted in 

August, about 1 month after the end of the quarter, which was 1 month 

faster than VA provided the first two quarterly reports. The third quarterly 

report used estimated data for the number of unique patients seen. 

We also found that these three quarterly reports did not include 

information identified in the conference report that would be useful for 

congressional oversight. Among measures identified in the conference 

report and not provided by VA in the quarterly report was a particular 

access measure—the time required for new patients to get their first 

appointment. Although not the same measure, a similar measure produced 

in one of VA’s monthly reports to its own senior management for use in 

internal budget formulation showed the number of new patients waiting 

for their first appointment to be scheduled almost doubled over 

11 months, from April 2005 to March 2006, indicating a potential problem 

in the first quarter of fiscal year 2006.

29 (See fig. 2.) However, the quarterly

report for that period shows only the more favorable access measures for 

existing patients—percent of primary care and percent of specialty care 

appointments scheduled within 30 days of desired date—where VA is 

actually exceeding its performance goals. VA did not provide other 

measures requested, such as the status of equipment or nonrecurring 

maintenance funds and whether these funds have been used to pay for 

operating expenses. 

 28See H.R. Conf. Rep. No. 109-305, at 50 (2005).

29VA provided us with more recent data through July 1, 2006, that showed that the number 

of new patients waiting for first appointments had returned to about 15,000 or the same 

level as in April 2005. However, VA has not included these data in its first three quarterly 

reports. 

Page 17 GAO-06-958 VA Budget Formulation and Reporting
Figure 2: VA’s March 2006 Monthly Report to VA Senior Management Indicating Number of New Patients Waiting for First 

Appointment to be Scheduled

0

5,000

10,000

15,000

20,000

25,000

30,000

Feb. Apr. July Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. 

9,722

5,846 5,132

15,211

18,666

21,712

25,739

28,010

26,683

24,576

22,494

23,603

26,214

27,719

29,442

2004 2005 2006

Source: Adapted from VA’s March 2006 report presented to senior management on April 3, 2006.

Number of veterans waiting

Note: New patients are those who have enrolled in the past 12 months and have not been seen in VA 

during the past 24 months. VA officials told us the report reflects 50 outpatient clinics that account for 

about 95 percent of VA’s outpatient visits. Data from 2004 are reported from the middle of the month 

(the 15th) and data for 2005 and 2006 are reported from first day of the month. 

Additionally, we found that information VA provides on patient workload 

in its quarterly reports to congressional committees contrasted with the 

more detailed program and clinical information VA uses to inform the 

President’s budget request for VA medical programs—such as the patient

workload measures used to estimate costs in the actuarial model. The 

information in the quarterly congressional reports also contrasts with the 

more detailed patient workload information that VA provides in its 

monthly reports to OMB. In its quarterly reports, VA uses a patient 

workload measure, “unique patients,” that counts patients only once no 

matter how many times they use VA services within the fiscal year. (For 

example, a patient who used VA health care services in October would not 

be counted again in the patient workload totals for November, December, 

or January, even if that patient used VA medical services again during each

of those months.) However, the unique patient measure does not capture 

the difference between patients predominately using low-cost services, 

such as primary care outpatient visits, at an average $245 each, and 

patients using more high-cost services, such as acute inpatient hospital 

Page 18 GAO-06-958 VA Budget Formulation and Reporting
care, which costs about $1,500 a day, on average. In contrast, VA now 

provides in its monthly reports to OMB other patient workload 

measures—in addition to the number of unique patients—that provide a 

more complete picture of whether new patients are receiving low- or highcost services. Some of the patient workload measures VA provides to OMB 

include nursing home patient workload, as measured by average daily 

census, number of outpatient visits, and patient workload by priority 

category.

30

The requests for additional funding for VA medical programs in fiscal 

years 2005 and 2006 were caused, in part, by unrealistic assumptions, 

errors in estimation, and insufficient data in its budget formulation 

process. Unrealistic assumptions about the expected time frame in which 

the cost savings could be realized from proposed nursing home costsaving policies contributed to the subsequent request for additional 

funding. Further, computational errors in measuring the estimated effect

of one of these cost-saving policies led VA to underestimate resources 

needed in fiscal year 2006. Moreover, insufficient data in VA’s initial 

budget projections contributed to the additional funding requests. For 

example, VA underestimated the cost of serving veterans returning from 

Iraq and Afghanistan, in part because estimates for fiscal year 2005 were 

based on data that largely predated the Iraq conflict and because VA did 

not have sufficient data for fiscal year 2006 due to challenges in obtaining

data needed to identify these veterans from DOD, according to VA 

officials. 

An unrealistic assumption about the expected time frame in which VA 

could implement a fiscal year 2005 proposed nursing home cost-saving 

policy contained in the President’s budget request—a reduction in nursing 

home patient workload in VA-operated nursing homes—contributed to 

$226 million of the request for supplemental funding for that fiscal year,

VA officials said. The President’s fiscal year 2005 budget request for VA 

medical programs included a proposal to reduce patient workload on a 

daily basis— average daily census—from about 12,000 to 8,500 in VAoperated nursing homes. In retrospect, agency officials told us this 

Unrealistic 

Assumptions, 

Estimation Errors, 

and Insufficient Data 

Contributed to VA’s

Requests for 

Additional Funding 

Unrealistic Assumptions 

and Errors in Estimating 

the Effect of Nursing 

Home Policies Contributed 

to Requests for Additional 

Funding 

 30Senior-level managers at managed care organizations typically use a number of measures 

to monitor on a recurring basis changes in patient workload. See Peter R. Kongstvedt, ed., 

The Managed Health Care Handbook (Aspen Publishers, Inc., Gaithersburg, Maryland,

Fourth ed. 2001), pp. 298-299. 

Page 19 GAO-06-958 VA Budget Formulation and Reporting
assumption was particularly unrealistic because of its accelerated time 

frame. VA projected the savings from this reduction in workload would be 

realized on the first day of the fiscal year, a change which would have

required transferring or discharging, in an extremely compressed time 

frame, potentially thousands of veterans, many of whom had severe, 

chronic, physical or mental impairments. These veterans would have had 

to seek financing from other sources, such as Medicaid or private health 

insurance, or paid for their care out of pocket. Moreover, achievement of 

substantial savings from this policy would have also likely required 

reducing the number of VA employees. However, VA included no 

discussion in its budget formulation on how this cost-saving policy was to

be implemented. Furthermore, VA officials told us that because VA had 

established a precedent for providing care to veterans who receive nursing 

home care on a discretionary basis, changing the policy on short notice 

would be difficult. 

Similarly, the fiscal year 2006 President’s budget request for VA medical 

programs included unrealistic assumptions and computational errors in 

estimating savings of a proposed nursing home policy. The assumption 

and estimation errors contributed to $600 million of the budget 

amendment requesting additional funding in fiscal year 2006. The 

President’s fiscal year 2006 budget request for VA medical programs 

included a policy proposal to reduce patient workload and costs by 

prioritizing the veterans31 who would receive long-stay nursing home care 

in its VA-operated nursing homes, community nursing homes, and state 

veterans’ nursing homes. Long-stay care includes nursing home care 

needed by veterans who cannot be cared for at home because of severe, 

chronic physical or mental impairments such as the inability to

independently eat or the need for supervision because of dementia. Under

the proposed policy, many veterans receiving VA nursing home care would 

no longer qualify for long-stay care. 

An unrealistic assumption about the expected time frame in which VA 

could implement the proposed policy contributed to $152 million of the 

$600 million request for additional funding for nursing home care in that 

fiscal year, according to VA officials. While VA had originally assumed the 

savings could be realized in April 2005, before the start of the 2006 fiscal 

 31VA planned to limit long-stay nursing home care to those veterans with higher priority 

status—i.e., those veterans who had a priority status of 1 through 3 and those priority 

4 veterans who were catastrophically disabled. 

Page 20 GAO-06-958 VA Budget Formulation and Reporting
year, VA staff said they later recognized with OMB that this date had been

unrealistic. In addition, VA said that the policy assumed a 90 percent 

reduction in patient workload in state veterans’ nursing home workload 

for patients requiring long-stay nursing home care but that the correct 

estimate was a 20 percent reduction in workload per year. For VAoperated nursing homes, the policy assumed an 80 percent reduction in 

patient workload over 11⁄2 years; however, VA later stated the correct 

estimate was closer to 30 percent. 

Computation errors in estimating the effect of this proposed fiscal year 

2006 policy contributed to about $445 million of the $600 million request 

for additional funding for nursing home care in that fiscal year, according 

to VA officials. In particular, VA underestimated patient workload—

average daily census—and costs in all three nursing home settings. 

Specifically, VA incorrectly estimated that the average daily census in VAoperated nursing homes was 9,795, when the correct estimated patient 

count was 11,151. Similarly, while VA estimated that the per diem rate for 

its homes was $471.16, it was actually $567.52. VA officials said that the

errors in estimating the effect of the proposed nursing home policy 

resulted from calculations being made in haste during the OMB appeal 

process,32 and that a more standardized approach to long-term care 

calculations could provide stronger quality assurance to help prevent 

future mistakes. 

Insufficient Data on 

Certain Activities 

Contributed to the 

Requests for Additional 

Funding in Fiscal Years 

2005 and 2006 

Insufficient data on veterans returning from Iraq and Afghanistan—OIF 

and OEF—accounted for $273 million of the request for supplemental 

funding in fiscal year 2005. According to VA officials, the original cost 

projections for providing care to OIF and OEF veterans were understated 

for fiscal year 2005 in part because they were based on data from fiscal 

year 2002 that predated the Iraq conflict, which began in March 2003. 

While VA originally projected, in its fiscal year 2005 budget formulation, 

that it would need to provide care to about 23,500 returnees from Iraq and 

Afghanistan, revised projections indicated that it would serve about four 

times that number of OIF and OEF veterans, nearly 100,000 returnees for 

fiscal year 2005. 

 32In late November, OMB “passes back” budget decisions to the agencies on the President’s 

budget requests for their programs, a process known as passback. These decisions may 

involve, among other things, funding levels, program policy changes, and personnel 

ceilings. The agencies may appeal decisions with which they disagree.

Page 21 GAO-06-958 VA Budget Formulation and Reporting
Insufficient data on returning OIF and OEF veterans continued to be a 

problem in fiscal year 2006 budget formulation, accounting for 

$276 million of the budget amendment requesting additional funding for 

that year, according to VA officials. VA officials told us they did not have

sufficient data for fiscal year 2006 due to challenges obtaining data needed 

to identify these veterans from DOD. VA later determined in late fiscal 

year 2005, after the President submitted the fiscal year 2006 budget 

request, that it expected to provide care to approximately 87,000 patients 

beyond what it had initially projected. According to VA officials, VA now 

receives the DOD data it requires to identify OIF/OEF veterans on a 

monthly basis rather than the quarterly reports it used to receive. 

However, VA has a 2-month lag in projecting costs associated with treating 

these veterans at VA. 

Insufficient data on whether VA achieved management efficiency savings

may have also contributed to the requests for additional funding. However, 

VA’s calculations of management efficiencies obtained in fiscal year 2005 

were based on the same approach we found to be inadequate in our earlier 

work and therefore are not reliable. Data on whether management 

efficiency savings were achieved for fiscal year 2006 were not available 

during our work because the fiscal year was not complete. Because we 

could not determine if the efficiency savings were achieved, we could not 

conclude whether the estimation of savings was incorrect and therefore 

may have contributed to the request for additional funding. 

VA, like other federal agencies, faces fiscal challenges as demand for its 

services increases while federal resources are constrained. Until recently,

VA had more options to meet this challenge because it could redirect 

resources from more expensive inpatient care to less expensive outpatient 

care to serve more veteran patients as it modernized the delivery of its 

health care services. However, VA’s success in transforming its system to 

emphasize outpatient care means that it will have fewer such options to 

meet future fiscal challenges. In this context, sound budget formulation, 

anticipatory monitoring of budget execution, and the reporting of 

informative and timely information to Congress for oversight will become 

increasingly important in order to provide high-quality, accessible, and 

cost-efficient health care to veterans. Even with these actions, the 

challenge of balancing veterans’ access to health care and the availability 

of federal resources is likely to be more difficult in the future. 

Conclusions 

Page 22 GAO-06-958 VA Budget Formulation and Reporting
The lessons of the last few years show what can happen when budget 

formulation is affected by calculation errors, unrealistic assumptions, and 

insufficient data. Whether due to errors in calculating long-term care 

patient workloads and costs, unrealistic assumptions about the expected 

time frame in which long-term care policies can be changed and lack of 

discussion in budget formulation on how such policies would be 

implemented, or insufficient data on the number of people who will need 

health care, such problems can result in mismatches in projecting service

provision and available resources. Although budget formulation is, by its 

nature, based on assumptions and imperfect information, these 

assumptions and information can be improved based on experience, and 

complemented by reasonable projections for known events that will affect

the agency. Additional measures in VA’s quarterly reports, such as the time 

new patients waited for their first health care appointments and measures 

of patient workload in addition to unique patients, might help alert 

Congress to potential problems VA may face in managing within its budget 

in future years. VA’s budget execution and monitoring in fiscal years 2005 

and 2006 were perhaps more vigilant than in prior years because VA 

expected, from the beginning of fiscal year 2005, that it might experience

difficulties in managing its medical program within available resources. 

When, as a result of this monitoring, VA found potential problems in 

providing medical care programs within its appropriations, its reporting of

the information to Congress was not sufficiently timely or informative. 

More recently, however, VA improved the timeliness of its reporting. VA 

submitted its third quarterly report for fiscal year 2006 more quickly after

the end of the quarter than it had the first two quarterly reports. 

To help improve VA’s budget formulation of its medical programs budget 

and facilitate congressional oversight, we recommend that the Secretary of 

Veterans Affairs take three actions: 

Recommendations for 

Executive Action 

• Explain the relationship between implementation of proposed policy 

changes and the expected timing of when cost savings would be achieved. 

• Improve its internal controls to provide stronger assurance that 

calculations used to formulate policy projections in the President’s budget 

submissions are accurate. 

• Incorporate into VA’s reporting to Congress (1) measures of patient 

workload, in addition to unique patients, that would capture the costliness 

of patient care; and (2) a measure of waiting times to schedule veterans’ 

first primary care appointment for new patients. 

Page 23 GAO-06-958 VA Budget Formulation and Reporting
We received comments on a draft of this report from VA (reproduced in 

app. II). In commenting on the draft, VA stated that it substantially agreed

with our findings and conclusions and concurred with our 

recommendations. VA also described steps it has taken and plans to take 

to respond to our recommendations, including steps it took in developing 

information for the President’s fiscal year 2007 budget request and in 

monitoring the execution of its fiscal year 2006 resources. 

We are sending copies of this report to the Secretary of Veterans Affairs 

and the Director of the Office of Management and Budget, appropriate 

congressional committees, and other interested parties. We will also make 

copies available to others upon request. In addition, this report will be 

available at no charge on GAO’s Web site at http://www.gao.gov. If you or 

your staff have any questions about this report, please contact me at 

(202) 512-7101 or at ekstrandl@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix III. 

Laurie E. Ekstrand 

Director, Health Care 

Agency Comments 

Page 24 GAO-06-958 VA Budget Formulation and Reporting
Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology 

Methodology 

For fiscal years 2005 and 2006, we examined: (1) how the President’s 

budget requests for the Department of Veterans Affairs (VA) medical 

programs were formulated, (2) how VA monitored and reported to 

Congress on its budget execution, and (3) which key factors in the budget

formulation process contributed to the requests for additional funding. 

Our review of how VA monitored its fiscal year 2006 budget includes the 

first 11 months of the fiscal year because the fiscal year was not over when

we completed our work. 

For each of our reporting objectives, we interviewed senior officials in VA

and the Office of Management and Budget (OMB) to determine how the 

President’s budget request for VA medical programs for fiscal years 2005 

and 2006 was formulated, and how VA monitored and reported on its 

budget execution. We interviewed VA officials in Washington, D.C. from 

three primary offices responsible for budget issues related to VA’s medical 

programs: (1) VA’s Office of the Deputy Assistant Secretary for Budget, 

(2) Veterans Health Administration’s (VHA) Office of the Chief Financial

Officer, and (3) VHA’s Office of the Assistant Deputy Under Secretary for 

Health for Policy and Planning. We also interviewed senior officials from 

OMB responsible for VA budget issues to obtain their perspective on the 

President’s budget request for VA’s medical programs and the subsequent 

requests for additional funding for fiscal years 2005 and 2006.

For the purposes of our analysis, the President’s budget request for VA 

medical programs primarily concerned four appropriation accounts: 

(1) medical services, for direct patient care; (2) medical administration, for 

administrative oversight and all information technology; (3) medical 

facilities, for the maintenance and operation of hospitals and other 

structures; and (4) medical research. VA funded nonrecurring 

maintenance, for items such as roof repair, through the appropriations for 

VA medical programs, and funds for these activities are included in our 

analysis. However, we did not include more general construction 

funding—i.e., for major construction and minor construction—in our 

analysis, as these funds are provided in separate appropriations. 

We obtained and analyzed documents and interviewed VA officials about 

how each of the three primary projection methods was used in formulating 

the budget: (1) an actuarial model; (2) a long-term care approach; and 

(3) other methodologies, including adding inflation to actual expenditures. 

For each method, we verified information VA officials told us in interviews 

by analyzing the documents VA provided. For example, we confirmed that 

the actuarial model accounted for about 86 percent of the President’s 

Page 25 GAO-06-958 VA Budget Formulation and Reporting
Appendix I: Objectives, Scope, and 

Methodology 

budget request for VA medical programs for fiscal year 2005 through our 

analysis of documents VA provided.

To determine how VA monitored and reported to Congress on its budget 

execution, we conducted interviews and reviewed copies of monthly 

reports prepared internally for VA senior managers, monthly reports 

prepared for OMB, and quarterly reports prepared for the House and 

Senate Appropriations Committees. For monthly reports prepared for VA 

senior managers, we reviewed both the March 2005 and the March 2006 

monthly reports. We reviewed a monthly report VA prepared for OMB for 

the month of April 2006. For the quarterly reports, we reviewed the first, 

second, and third quarterly reports VA prepared on the fiscal year 2006 

budgets. We analyzed these documents to assess the comprehensiveness 

of the reporting information included in these reports. 

To identify key factors in the budget formulation process that contributed

to the requests for additional funding, we obtained and analyzed a number

of documents detailing estimated savings from various policy proposals, 

calculation errors, and data gaps in the budget formulation process for 

fiscal years 2005 and 2006. For example, we analyzed documents obtained 

from VA showing calculation errors made in estimating the impact of a 

proposed long-term care policy in fiscal year 2006. We also obtained and 

analyzed revised estimates of veterans returning from Iraq and 

Afghanistan and compared these to data available during the fiscal years 

2005 and 2006 budget formulation process. In addition, we reviewed 

publicly available documents such as transcripts of VA testimony to the 

Senate and House Veterans’ Affairs Committees, the VA’s Medical 

Programs Budget Submissions for fiscal years 2005 and 2006, and the 

President’s formal requests to Congress for additional funding for VA 

medical programs for fiscal years 2005 and 2006.

We assessed the reliability of the information we obtained about how VA 

formulated, monitored, and reported on the President’s budget request for 

medical programs in several ways. First, we checked the internal 

consistency of documents VA provided detailing various budget estimates 

for fiscal years 2005 and 2006 and information contained in the President’s

budget request in those years. Second, we interviewed agency officials 

knowledgeable about the data used to formulate, monitor, and report on 

the budget. We determined that the actuarial model appeared reasonable 

for formulating the budget but we did not conduct a separate, detailed 

audit of all data inputs into the actuarial model. Third, we relied on our 

prior work to identify potential issues about data reliability. For example, 

we determined that the assumptions used to project management 

Page 26 GAO-06-958 VA Budget Formulation and Reporting
Appendix I: Objectives, Scope, and 

Methodology 

efficiencies were inaccurate, based on a report we had previously issued.1

We determined that the data we used in our analyses were sufficiently 

reliable for the purposes of this report. 

We performed our review from October 2005 through September 2006 in

accordance with generally accepted government auditing standards. 

 1

See GAO-06-359R. 

Page 27 GAO-06-958 VA Budget Formulation and Reporting
Appendix II: Comments from the Department Appendix II: Comments from the Department of Veterans Affairs 

of Veterans Affairs 

Page 28 GAO-06-958 VA Budget Formulation and Reporting
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 29 GAO-06-958 VA Budget Formulation and Reporting
Appendix II: Comments from the Department 

of Veterans Affairs 

Page 30 GAO-06-958 VA Budget Formulation and Reporting
Appendix III: GAO

St

 Contact and 

aff Acknowledgments

Page 31 GAO-06-958

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact Laurie E. Ekstrand, (202) 512-7101 or ekstrandl@gao.gov. 

James Musselwhite, Assistant Director; Jennie Apter; Denise Fantone; 

Michael Kendix; Dean Koulouris; Tiffany Tanner; Thomas Walke; and Greg 

Whitney made key contributions to this report. 

Acknowledgments 

VA Budget Formulation and Reporting
Related GAO Products 

Page 32 GAO-06-958

Related GAO Products 

VA Long-Term Care: Data Gaps Impede Strategic Planning for and 

Oversight of State Veterans’ Nursing Homes. GAO-06-264. Washington,

D.C.: March 31, 2006. 

VA Health Care: Preliminary Findings on the Department of Veterans

Affairs Health Care Budget Formulation for Fiscal Years 2005 and 

2006. GAO-06-430R. Washington, D.C.: February 6, 2006. 

Veterans Affairs: Limited Support for Reported Health Care

Management Efficiency Savings. GAO-06-359R. Washington, D.C.: 

February 1, 2006. 

VA Long-Term Care: Oversight of Nursing Home Program Impeded by 

Data Gaps. GAO-05-65. Washington, D.C.: November 10, 2004. 

VA Health Care: Resource Allocations to Medical Centers in the Mid 

South Healthcare Network. GAO-04-444. Washington, D.C.: April 21, 2004.

VA Long-Term Care: Service Gaps and Facility Restrictions Limit 

Veterans’ Access to Noninstitutional Care. GAO-03-487. Washington, D.C.: 

May 9, 2003.

Managing for Results: Efforts to Strengthen the Link Between Resources 

and Results at the Veterans Health Administration. GAO-03-10. 

Washington, D.C.: December 10, 2002. 

VA Health Care: Allocation Changes Would Better Align Resources With 

Workload. GAO-02-338. Washington, D.C.: February 28, 2002.

(290530) VA Budget Formulation and Reporting
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