Testimony 

Before the Subcommittee on Health, 

Committee on Veterans' Affairs, House of 

Representatives

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 9:00 a.m. EDT 

in Charleston, S.C. 

Monday, September 26, 2005 

VA HEALTH CARE 

Preliminary Information on 

the Joint Venture Proposal 

for VA's Charleston Facility 

Statement of Mark L. Goldstein, Director 

Physical Infrastructure Issues 

GAO-05-1041T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-1041T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Mark L. 

Goldstein (202) 512-2834 or 

goldsteinm@gao.gov. 

Highlights of GAO-05-1041T, a testimony 

before the Subcommittee on Health, 

Committee on Veterans' Affairs, House of 

Representatives 

September 26, 2005

VA HEALTH CARE

Preliminary Information on the Joint 

Venture Proposal for VA’s Charleston 

Facility 

The most recent VA facility assessment and the CARES Commission 

concluded that the Charleston medical facility is in overall good condition 

and, with some renovations, can continue to meet veterans’ health care 

needs in the future. VA officials attribute this to VA’s continued capital 

investments in the facility. For example, over the last 5 years, VA has 

invested approximately $11.6 million in nonrecurring maintenance projects, 

such as replacing the fire alarm system and roofing. To maintain the 

facility’s condition over the next 10 years, VA officials from the Charleston 

facility have identified a number of planned capital maintenance and 

improvement projects, totaling approximately $62 million. 

VA and MUSC have collaborated and communicated to a limited extent over 

the past 3 years on a proposal for a joint venture medical center. For 

example, before this summer, VA and MUSC had not exchanged critical 

information that would help facilitate negotiations, such as cost analyses of 

the proposal. As a result of the limited collaboration, negotiations over the 

proposal stalled. However, after a congressional delegation visit in August 

2005, VA and MUSC took steps to move the negotiations forward. 

Specifically, VA and MUSC established four workgroups to examine critical 

issues related to the proposal. 

The MUSC proposal for a new joint venture medical center presents an 

opportunity for exploring new ways of providing health care to Charleston’s 

veterans, but it also raises a variety of complex issues for VA. These include 

the benefits and costs of investing in a joint facility compared with other 

alternatives, legal issues associated with the new facility such as leasing or 

transferring property, and potential concerns of stakeholders, including VA 

patients and employees. The workgroups established by VA and MUSC are 

expected to examine some, but not all, of these issues. Additionally, some 

issues can be addressed through collaboration between VA and MUSC, but 

others may require VA to seek legislative remedies. 

VA Facility in Charleston, South Carolina 

Source: GAO.

The Department of Veterans Affairs 

(VA) maintains partnerships, or 

affiliations, with university medical 

schools to obtain medical services 

for veterans and provide training 

for medical residents. In 2002, the 

Medical University of South 

Carolina (MUSC)—which is 

affiliated with VA’s medical facility 

in Charleston—proposed that VA 

and MUSC enter into a joint 

venture for a new VA facility as 

part of MUSC’s plan to expand its 

medical campus. Under the 

proposal, MUSC and VA would 

jointly construct and operate a new 

medical center in Charleston. 

In 2004, the Capital Asset 

Realignment for Enhanced Services 

(CARES) Commission, an 

independent body charged with 

assessing VA’s capital asset 

requirements, issued its 

recommendations on the 

realignment and modernization of 

VA’s capital assets. Although the 

Commission did not recommend a 

replacement facility for Charleston, 

it did recommend, among other 

things, that VA promptly evaluate 

MUSC’s proposal. 

This testimony discusses GAO’s 

preliminary findings on the (1) 

current condition of the Charleston 

facility, (2) extent to which VA and 

MUSC collaborated on the joint 

venture proposal, and (3) issues for 

VA to consider when exploring the 

opportunity to participate in the 

joint venture. 

VA concurred with GAO’s 

preliminary findings. 
Page 1 GAO-05-1041T 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here in Charleston to provide our preliminary findings 

on the possibility of the Department of Veterans Affairs (VA) and the 

Medical University of South Carolina (MUSC) entering into a joint venture 

for a new medical center in Charleston. For decades VA has developed and 

maintained partnerships, or affiliations, with university medical schools to 

obtain medical services for veterans and provide training and education to 

medical residents. Today, VA has affiliations with 107 medical schools. 

These affiliations—-one of which is with MUSC—help VA fulfill its mission 

of providing health care to the nation’s veterans. For example, many 

MUSC physicians serve as residents at VA’s medical facility in Charleston, 

the Ralph H. Johnson VA Medical Center. This medical facility is an 

important part of the VA health care network, providing over 4,000 

inpatient stays for veterans in 2004. 

To provide health care to veterans, in part through partnerships with 

university medical schools, VA manages a diverse inventory of real 

property. VA reported in February 2005 that its capital assets included 

more than 5,600 buildings and about 32,000 acres of land.1

 However, many 

of VA’s facilities were built more than 50 years ago and are no longer well 

suited to providing accessible, high-quality, cost-effective health care in 

the 21st century. To address its aging infrastructure, VA, in 1999, initiated 

the Capital Asset Realignment for Enhanced Services (CARES) process—

the first comprehensive, long-range assessment of its health care system’s 

capital asset requirements in almost 20 years. In February 2004, the 

CARES Commission—an independent body charged with assessing VA’s 

capital assets—issued its recommendations regarding the realignment and 

modernization of VA’s capital assets necessary to meet the demand for 

veterans’ health care services through 2022. For example, the Commission 

recommended replacing VA facilities in Denver and Orlando. The 

Commission did not recommend replacing the VA facility in Charleston, 

which is a primary, secondary, and tertiary care facility.2

 However, the 

 1

Department of Veterans Affairs, 5-Year Capital Plan 2005-2010 (Washington, D.C.: 

February 2005). 

2

Primary care is defined as health care provided by a medical professional with whom a 

patient has initial contact and by whom the patient may be referred to a specialist for 

further treatment. Secondary care is provided by a specialist or facility upon referral by a 

primary care physician that requires more specialized knowledge, skill, or equipment. 

Tertiary care is highly specialized medical care, usually over an extended period of time, 

that involves advanced and complex procedures and treatments performed by medical 

specialists in state-of-the-art facilities. 
Page 2 GAO-05-1041T 

Commission recommended that, among other things, VA promptly 

evaluate MUSC’s proposal to jointly construct and operate a new medical 

center with VA in Charleston, noting that such an arrangement could serve 

as a possible framework for partnerships in the future. In responding to 

the Commission’s recommendations, the Secretary stated that VA will 

continue to consider options for sharing opportunities with MUSC.3

My statement today will cover the (1) current condition of the Charleston 

facility and the actions VA has taken to implement CARES 

recommendations at the facility, (2) extent to which VA and MUSC 

collaborated on the proposal for a joint medical center, and (3) issues for 

VA to consider when exploring the opportunity to participate in the joint 

venture. My preliminary comments are based on our ongoing work for the 

full Committee as well as GAO’s body of work on VA’s management of its 

capital assets.4

 For our ongoing work, we interviewed VA and MUSC 

officials as well as other stakeholders in the Charleston area, including 

officials from the City of Charleston and the U.S. Navy. We also reviewed 

the CARES Commission’s comments on and recommendations for the 

Charleston facility; documents relating to the MUSC proposal, including 

correspondence between MUSC and VA; federal statutes; and past GAO 

reports. We obtained comments on this testimony from VA and MUSC 

officials, which we incorporated as appropriate. We conducted our work 

from June through September 2005 in accordance with generally accepted 

government auditing standards. 

In summary: 

• The most recent VA facility assessment and the CARES Commission 

concluded that the Charleston facility is in overall good condition and with 

some renovations can continue to meet veterans’ health care needs in the 

future. VA officials attribute the facility’s condition to VA’s continued 

capital investments. For example, over the last 5 years, VA has invested 

approximately $11.6 million in nonrecurring maintenance projects, such as 

replacing the fire alarm system and roofing. The CARES Commission did 

not recommend replacing the Charleston facility; however, the 

Commission recommended renovations of the nursing home care units as 

well as the inpatient wards in order to meet the needs of the projected 

 3

Department of Veterans Affairs, Secretary of Veterans Affairs: CARES Decision 

(Washington, D.C.: May 2004). 

4

See “Related GAO Products” at the end of this testimony. 
Page 3 GAO-05-1041T 

veterans’ population in the Charleston area. The CARES projections 

indicate that demand for inpatient beds at VA’s facility in Charleston will 

increase by 29 percent from 2001 to 2022, while demand for outpatient 

services will increase by 69 percent during the same period. To maintain 

the facility’s condition over the next 10 years, officials from the VA facility 

in Charleston have identified a number of planned capital maintenance 

and improvement projects, including repairing expansion joints, making 

electrical upgrades, and adding a parking deck for patients. VA officials 

estimate that the costs of these planned maintenance and improvement 

projects will total about $62 million. 

• VA and MUSC collaborated and communicated to a limited extent on a 

proposal for a joint venture medical center over the past 3 years. In 

November 2002, the President of MUSC made a proposal to the Secretary 

of VA to participate in a 20-year, multiphase construction plan to replace 

and expand its campus. Under MUSC’s proposal, MUSC would acquire the 

site of the current VA facility in Charleston for part of its expansion 

project and then enter into a joint venture to construct and operate a new 

facility on MUSC property. The CARES Commission recommended that 

VA promptly evaluate MUSC’s proposal to jointly construct and operate a 

new medical center with VA. Although there has been some discussion 

and correspondence between VA and MUSC since 2002 on the joint 

venture proposal, collaboration has been minimal. For example, before 

this summer, VA and MUSC had not exchanged critical information that 

would help facilitate negotiations, such as cost analyses of the proposal. 

As a result of the limited collaboration, negotiations over the proposal 

stalled. After a congressional delegation visited Charleston in August 2005, 

however, VA and MUSC took some initial steps to move the negotiations 

forward. Specifically, VA and MUSC established four workgroups to 

examine critical issues related to the proposal. 

• The MUSC proposal for a new joint venture medical center presents a 

unique opportunity for VA to explore new ways of providing health care to 

Charleston’s veterans now and in the future; however, it also raises a 

variety of complex issues for VA. These include the benefits and costs of 

investing in a joint facility compared with those of other alternatives, such 

as maintaining the existing facility or considering options with other 

health care providers in the area; legal issues associated with the new 

facility, such as leasing or transferring property, contracting, and 

employment; and potential concerns of stakeholders. The workgroups 

established by VA and MUSC are expected to examine some, but not all, of 

these issues. In addition, some issues can be addressed through 

collaboration between VA and MUSC, while others may require VA to seek 

legislative remedies. Until these issues are explored, it will be difficult to 
Page 4 GAO-05-1041T 

make a final decision on whether a joint venture is in the best interest of 

the federal government and the nation’s veterans. 

VA manages a vast medical care network for veterans, providing health 

care services to about 5 million beneficiaries. The estimated cost of these 

services in fiscal year 2004 was $29 billion. According to VA, its health care 

system now includes 157 medical centers, 862 ambulatory care and 

community-based outpatient clinics (CBOC), and 134 nursing homes. VA 

health care facilities provide a broad spectrum of medical, surgical, and 

rehabilitative care. The management of VA’s facilities is decentralized to 

21 regional networks referred to as Veterans Integrated Service Networks 

(networks). The Charleston facility is part of Network 7, or the Southeast 

Network.5

The Charleston medical facility is a part of the VA health care network and 

has served the medical needs of Charleston area veterans since it opened 

in 1966. The Charleston facility is a primary, secondary, and tertiary care 

facility. (See fig. 1.) The facility consists of more than 352,000 square feet 

with 117 medical and surgical beds and 28 nursing home care unit beds; 

according to VA officials, the average daily occupancy rate is about 80 

percent. The outpatient workload was about 460,000 clinic visits in fiscal 

year 2004. VA employs about 1,100 staff at the Charleston facility, which 

has an annual operating budget of approximately $160 million. 

 5

This network encompasses an area containing VA facilities in South Carolina, Georgia, and 

Alabama. 

Background 
Page 5 GAO-05-1041T 

Figure 1: East Side of The Ralph H. Johnson VA Medical Center in Charleston, Adjacent to MUSC Project Construction 

VA’s Charleston medical facility is affiliated with MUSC. MUSC is the main 

source of the Charleston facility’s medical residents, who rotate through 

all major VA clinical service areas. VA also purchases approximately $13 

million in medical care services from MUSC, including gastroenterology, 

infectious disease, internal medicine, neurosurgery, anesthesia, 

pulmonary, cardiovascular perfusion, and radiology services. In addition, 

VA has a medical research partnership with MUSC for a mutually 

Source: GAO.
Page 6 GAO-05-1041T 

supported biomedical research facility, the Thurmond Biomedical 

Research Center. 

MUSC operates a 709 licensed bed acute care hospital in Charleston that 

also provides primary, secondary, and tertiary services. The services 

available through MUSC span the continuum of care with physician 

specialists and subspecialists in medicine, surgery, neurology, 

neurological surgery, psychiatry, radiology, and emergency medicine, 

among other specialties. During a 12-month period ending on June 30, 

2003, MUSC admitted 28,591 patients (including newborns), representing 

an occupancy rate of approximately 78 percent of available beds. 

Outpatient activity for the same period included 6,802 same-day surgeries, 

551,914 outpatient visits, and 35,375 emergency visits. MUSC’s net patient 

service revenue for the fiscal year ending on June 30, 2003, was about $559 

million. 

VA and the CARES Commission concluded that the Charleston facility is in 

overall good condition and, with relatively minor renovations, can 

continue to meet veterans’ health care needs in the future. VA conducts 

facility condition assessments (FCA) at its facilities every 3 years on a 

rotating basis.6

 FCAs evaluate the condition of a VA facility’s essential 

functions—electrical and energy systems, accessibility, sanitation and 

water—and subsequently estimate the useful and remaining life of those 

systems. The Charleston facility’s most recent FCA was conducted in 2003, 

and this assessment showed that the facility currently is in overall good 

condition. According to VA officials, the facility’s current condition is a 

result of targeted capital investments. In particular, VA invested about 

$11.6 million in nonrecurring maintenance projects over the last 5 years. 

Such projects include installing a new fire alarm system, replacing roofing, 

painting the exterior of the building, and upgrading interior lighting. 

The CARES Commission did not recommend replacing VA’s facility in 

Charleston as it did with facilities in some other locations. In assessing the 

capital asset requirements for the Charleston facility, the Commission 

relied on the 2003 FCA and projections of inpatient and outpatient service 

demands through 2022, among other things. These projections indicate 

 6

According to VA officials, FCAs provide VA with a professional assessment of its capital 

assets that facilitates and enables uniformed planning and expenditure of resources. 

Multidisciplinary teams of architects and engineers, in conjunction with facility staff, 

conduct the FCAs. 

VA Determined That 

the Charleston 

Facility Is in Good 

Condition and Is 

Currently Investing in 

Minor Renovations 
Page 7 GAO-05-1041T 

that demand for inpatient beds at VA’s facility in Charleston will increase 

by 29 percent from 2001 to 2022, while demand for outpatient services will 

increase by 69 percent during the same period.7

 Although the CARES 

Commission did not recommend a new facility in Charleston, it did call for 

renovating the nursing home units and the inpatient wards. In his response 

to the Commission’s recommendations, the Secretary agreed to make the 

necessary renovations at the Charleston facility. 

VA officials at the Charleston medical facility have a number of ongoing 

and planned capital maintenance and improvement projects to address the 

CARES Commission recommendations and to maintain the condition of 

the current medical center. For example, two minor capital 

improvements—totaling $6.25 million—are currently under construction.8

These projects include 

• a third floor clinical addition, which will add 20,000 square feet of space to 

the medical center for supply processing and distribution,9

 rehabilitation 

medicine, and prosthetics; and 

• the patient privacy project, which will renovate the surgical in-patient 

ward to provide private and semiprivate bathrooms for veterans. 

Planned capital maintenance and improvements projects over the next 10 

years include electrical upgrades, renovation of several wards to address 

patient privacy concerns, renovation of operating rooms and the intensive 

care units, and the expansion of the specialty care clinics. VA officials 

estimate that the total cost for all planned capital maintenance and 

improvement projects is approximately $62 million. 

In addition to the capital improvement projects at the medical center in 

Charleston, VA is currently constructing a CBOC, in partnership with the 

Navy, at the Naval Weapons Station in Goose Creek, South Carolina. The 

 7

These trends are based on the original CARES workload projections for the Charleston 

facility. VA recently updated the CARES workload projections and the updated projections 

suggest different trends. Neither the original or updated projections, however, factor in the 

potential impact on workload of veterans returning from Afghanistan and Iraq. 

8

According to VA, minor capital improvement projects are those costing less than $7 

million. 

9

Supply processing and distribution is a section of the medical center that is dedicated to 

the receiving, storage, and distribution of medical supplies and the decontamination and 

sterilization of reusable medical supplies and equipment. 
Page 8 GAO-05-1041T 

new clinic will be a joint VA-Navy facility and will help VA address the 

projected increase in demand for outpatient services. The new clinic—

called the Goose Creek CBOC—is scheduled to open in 2008 and will 

serve a projected 8,000 patients who are currently served by VA’s 

Charleston facility. VA estimates its investment in the planning, design, 

and construction of the Goose Creek CBOC will be about $6 million. 

VA and MUSC have collaborated and communicated to a limited extent on 

a proposal for a joint venture medical center over the past 3 years. As a 

result of the limited collaboration, negotiations over the proposal stalled. 

In August 2005, however, initial steps were taken to move the negotiations 

forward. Specifically, four workgroups were created—which include both 

VA and MUSC officials—and tasked with examining critical issues related 

to the proposal. 

Limited Collaboration 

between VA and 

MUSC on a Joint 

Venture Facility 

Characterized 

Negotiations until 

Recently 
Page 9 GAO-05-1041T 

To meet the needs of a growing and aging patient population, MUSC has 

undertaken an ambitious five-phase construction project to replace its 

aging medical campus. Construction on the first phase began in October 

2004. Phase I includes the development of a four-story diagnostic and 

treatment building and a seven-story patient hospitality tower, providing 

an additional 641,000 square feet in clinical and support space—156 beds 

for cardiovascular and digestive disease services, 9 operating rooms, 

outpatient clinics with a capacity of 100,000 visits, and laboratory and 

other ancillary support services. Phase I also includes the construction of 

an atrium connecting the two buildings, a parking structure, and a central 

energy plant. Initial plans for phases II through V include diagnostic and 

treatment space and patient bed towers. As shown in figure 2, phases IV 

and V would be built on VA property. In particular, phase V would be built 

on the site of VA’s existing medical center. MUSC has informed VA about 

its proposed locations for these facilities. According to MUSC officials, 

there are approximately 2 years remaining for the planning of phase II. 

Limited Communication 

and Collaboration Have 

Hampered Negotiations 

over MUSC’s Joint Venture 

Proposal 
Page 10 GAO-05-1041T 

Figure 2: MUSC Construction Plan 

Note: The circle highlights some of VA’s existing property. 

In November 2002, the President of MUSC sent a proposal to the Secretary 

of VA about partnering with MUSC in the construction and operation of a 

new medical center in phase II of MUSC’s construction project. Under 

MUSC’s proposal, VA would vacate its current facility and move to a new 

facility located on MUSC property to the south of phase I. MUSC also 

indicated that sharing medical services would be a component of the joint 

venture—that is, VA and MUSC would enter into sharing agreements to 

buy, sell, or barter medical and support services. VA and MUSC currently 

share some services—for example, VA purchases services for 

gastroenterology, infectious disease, and internal medicine. According to 
Page 11 GAO-05-1041T 

MUSC officials, the joint venture proposal would increase the level of 

sharing of medical services and equipment, which would create cost 

savings for both VA and MUSC. VA officials told us that the proposed joint 

venture between MUSC and VA is unprecedented—that is, should VA 

participate in the joint venture, it would be the first of its kind between VA 

and a medical education affiliate. 

In response to MUSC’s proposal, VA formed an internal workgroup 

composed of officials primarily from VA’s Southeast Network to evaluate 

MUSC’s proposal. The workgroup analyzed the feasibility and cost 

effectiveness of the proposal and issued a report in March 2003, which 

outlined three other options available to VA: replacing the Charleston 

facility at its present location, replacing the Charleston facility on land 

presently occupied by the Naval Hospital in Charleston, or renovating the 

Charleston facility. The workgroup concluded that it would be more cost 

effective to renovate the current Charleston facility than to replace it with 

a new facility. This conclusion was based, in part, on the cost estimates for 

constructing a new medical center. In April 2003, the Secretary of VA sent 

a counterproposal to the President of MUSC, which indicated that VA 

preferred to remain in its current facility. The Secretary indicated, 

however, that if VA agreed to the joint venture, it would rather place the 

new facility in phase III—which is north of phase I—to provide better 

street access for veterans. (See fig. 3 for MUSC’s proposal and VA’s 

counterproposal.) In addition, the Secretary indicated that MUSC would 

need to provide a financial incentive for VA to participate in the joint 

venture. Specifically, MUSC would need to make up the difference 

between the estimated life-cycle costs of renovating the Charleston facility 

and building a new medical center—which VA estimated to be about $85 

million—through negotiations or other means. 
Page 12 GAO-05-1041T 

Figure 3: MUSC’s Proposal and VA’s Counterproposal 

Note: The circle highlights some of VA’s existing property. 

The MUSC President responded to VA’s counterproposal in an April 2003 

letter to the Secretary of VA. In the letter, the MUSC President stated that 

MUSC was proceeding with phase I of the project and that the joint 

venture concept could be pursued during later phases of construction. The 

letter did not specifically address VA’s proposal to locate the new facility 

in phase III, nor the suggestion that MUSC would need to provide some 

type of financial incentive for VA to participate in the joint venture. To 

move forward with phase I, the MUSC President stated that MUSC would 
Page 13 GAO-05-1041T 

like to focus on executing an enhanced use lease (EUL) for Doughty 

Street.10 Although MUSC owns most of the property that will be used for 

phases I through III, Doughty Street is owned by VA and serves as an 

access road to the Charleston facility and parking lots. The planned facility 

for phase I would encompass Doughty Street.11 (See fig. 4.) Therefore, 

MUSC could not proceed with phase I—as originally planned—until MUSC 

secured the rights to Doughty Street. To help its medical affiliate move 

forward with construction, VA executed a EUL agreement with MUSC in 

May 2004 for use of the street.12 According to the terms of the EUL, MUSC 

will pay VA $342,000 for initial use of the street and $171,000 for each of 

the following eight years. 

 10EUL authority allows VA to lease real property under the Secretary’s jurisdiction or 

control to a private or public entity for a term of up to 75 years. EULs must result in a 

beneficial redevelopment/reuse of the affected VA property by the lessee that will include 

space for a VA mission-related activity and/or will provide consideration that can be 

applied to improve health care and services for veterans and their families in the 

community where the site is located. 

11To provide access to the current VA facility, a new street—the Ralph H. Johnson Drive—

will be constructed around MUSC’s new facility. 

12The Secretary of VA and the Medical University Hospital Authority (MUHA), an affiliate of 

MUSC, entered into a 75-year EUL agreement in May 2004 for MUHA use of VA property—a 

one-block segment of Doughty Street. 
Page 14 GAO-05-1041T 

Figure 4: Construction of Phase One of MUSC’s Project 

Note: The photograph shows the initial construction for phase I of MUSC’s project. Doughty Street will 

be encompassed by MUSC’s new facility. 

Although both entities successfully collaborated in executing the 

enhanced use lease for Doughty Street, limited collaboration and 

communication generally characterize the negotiations between MUSC 

and VA over the joint venture proposal. In particular, before this summer, 

VA and MUSC had not exchanged critical information that would help 

Source: GAO.

Doughty Street
Page 15 GAO-05-1041T 

facilitate negotiations. For instance, MUSC did not clearly articulate to VA 

how replacing the Charleston facility, rather than renovating the facility, 

would improve the quality of health care services for veterans or benefit 

VA. MUSC officials had generally stated that sharing services and 

equipment would create efficiencies and avoid duplication, which would 

lead to cost savings. However, MUSC had not provided any analyses to 

support such claims. Similarly, as required by law, VA studied the 

feasibility of coordinating its health care services with MUSC, pending 

construction of MUSC’s new medical center.13 This study was completed in 

June 2004. However, VA officials did not include MUSC officials in the 

development of the study, nor did they share a copy of the completed 

study with MUSC. VA also updated its cost analysis of the potential joint 

venture this spring, but again, VA did not share the results with MUSC. 

Because MUSC was not included in the development of these analyses, 

there was no agreement between VA and MUSC on key input for the 

analyses, such as the specific price MUSC would charge VA for, or the 

nature of, the medical services that would be provided. As a result of the 

limited collaboration and communication, negotiations stalled—prior to 

August 2005, the last formal correspondence between VA and MUSC 

leadership on the joint venture was in April 2003. (See fig. 5 for a time line 

of key events in the negotiations between VA and MUSC.) 

 13The Veterans Health Care, Capital Asset, and Business Improvement Act of 2003, Pub. L. 

No. 108-170, § 232, 117 Stat. 2042, 2052-2053 (2003). 
Page 16 GAO-05-1041T 

Figure 5: Time Line of Key Events in the Negotiations between VA and MUSC 

a

As required by P.L. 108-170 (2003). 

On August 1, 2005, a congressional delegation visited Charleston to meet 

with VA and MUSC officials to discuss the joint venture proposal. After 

this visit, VA and MUSC agreed to establish workgroups to examine key 

issues associated with the joint venture proposal. Specifically, VA and 

MUSC established the Collaborative Opportunities Steering Group 

(steering group). The steering group is composed of five members from 

VA, five members from MUSC, and a representative from the Department 

of Defense (DOD), which is also a stakeholder in the local health care 

market.14 The steering group chartered four workgroups, and according to 

VA: 

• The governance workgroup will examine ways of establishing 

organizational authority within a joint venture between VA and MUSC, 

including shared medical services. 

• The clinical service integration workgroup will identify medical 

services provided by VA and MUSC and opportunities to integrate or share 

 14The Department of Defense currently provides medical services to a number of its 

beneficiaries through the Naval Hospital in Charleston. 

Recent Events Have 

Spurred Discussion and 

Collaboration Between VA 

and MUSC 

Source: GAO.

May 2004: 

VA and MUSC sign enhanced use lease (EUL) 

for Doughty Street.

March 2003: 

VA workgroup completes evaluation 

of proposal.

June 2004: 

VA issues mandated feasibility study of MUSC 

proposal to Congress.a

April 2003: 

VA sends counterproposal to MUSC.

MUSC responds to VA's counterproposal.

November 2002:

MUSC presents joint venture 

proposal to VA.

May 2005:

VA updates cost 

analysis of proposal.

August 2005:

Joint steering 

group and 

workgroups are 

formed.

2002 2003 2004 2005
Page 17 GAO-05-1041T 

these services. 

• The legal workgroup will review federal and state authorities (or identify 

the lack thereof) and legal issues relating to a joint venture with shared 

medical services. 

• The finance workgroup will provide cost estimates and analyses relating 

to a joint venture with shared medical services. 

The workgroups will help VA and MUSC determine if the joint venture 

proposal is mutually beneficial.15 The workgroups are scheduled to provide 

weekly reports to the steering group and a final report to the steering 

group by October 28, 2005. The steering group is scheduled to submit a 

final report by November 30, 2005, to the Deputy Under Secretary for 

Health for Operations and Management and to the President of MUSC. 

The possibility of participating in the joint venture raises a number of 

issues for VA to consider. The proposed joint venture presents a unique 

opportunity for VA to reevaluate how it provides health care services to 

veterans in Charleston. Our ongoing work, as well as our previous work on 

VA’s capital realignment efforts, cost-benefit analysis, organizational 

transformation, and performance management, however, suggests many 

issues to consider before making a decision about a joint venture, 

including governance, legal, and stakeholder issues. Some of these issues 

will be directly addressed by the workgroups, while others, such as the 

concerns of stakeholders, will not. In addition, some issues can be 

addressed through collaboration between VA and MUSC, while others may 

require VA to seek legislative remedies. Among the issues to explore are 

the following: 

• Comparing appropriate options and assessing the costs and 

benefits of all options: According to Office of Management and Budget 

(OMB) guidelines on evaluating capital assets, a comparison of options, or 

alternatives, including the status quo, is critical for ensuring that the best 

alternative is selected.16 In its guidance, OMB encourages decision makers 

 15VA’s Under Secretary for Health directed the workgroups to also examine the potential 

for sharing services with DOD. 

16Office of Management and Budget, Capital Programming Guide, Version 1.0 (Washington, 

D.C.: July 1997). 

Joint Venture 

Proposal Raises a 

Variety of Issues 
Page 18 GAO-05-1041T 

to consider the different ways in which various functions, most notably 

health care service delivery in this case, can be performed. OMB 

guidelines further state that comparisons of costs and benefits should 

facilitate selection among competing alternatives.17 The finance workgroup 

is examining the potential costs for shared services within a joint facility. 

However, it is unclear whether the workgroup will weigh the benefits and 

costs of a new facility against those of other alternatives, including 

maintaining the existing medical center. 

VA will also need to weigh the costs and benefits of investing in a joint 

venture in Charleston against the needs of other VA facilities in the 

network and across the nation. VA did not include the Charleston facility 

on its list of highest priority major medical facility construction 

requirements for fiscal years 2004 through 2010.18 According to VA, the list 

of priorities, which includes 48 projects across the nation, aligns with 

existing CARES recommendations. Nevertheless, exploring the potential 

costs and benefits of a joint venture gives VA an opportunity to reexamine 

how it delivers health care services to the nation’s veterans and uses its 

affiliations with medical universities now and in the future. As we have 

stated in previous reports, given the nation’s long-term fiscal challenges 

and other challenges of the 21st Century, such reexaminations of federal 

programs are warranted.19 Moreover, as the CARES Commission noted, the 

potential joint venture between VA and MUSC is a possible framework for 

future partnerships. 

• Developing a governance plan that outlines responsibilities and 

ensures accountability: If VA and MUSC decide to enter into a joint 

venture for a new facility, they will need a plan for governing the facility. 

Any governance plan would have to maintain VA’s direct authority over 

and accountability for the care of VA patients. In addition, if shared 

medical services are a component of a joint venture between MUSC and 

the VA, the entities will need a mechanism to ensure that the interests of 

 17OMB and GAO have identified benefit-cost analysis as a useful tool for integrating the 

social, environmental, economic, and other effects of investment alternatives and for 

helping decision makers identify the alternative with the greatest net benefits. In addition, 

the systematic process of benefit-cost analysis helps decision makers organize and evaluate 

information about, and determine trade-offs between, alternatives. 

18Department of Veterans’ Affairs, CARES Major Construction Projects FY 2004 – 2010 

(Washington, D.C.: May 2004). 

19GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP (Washington, D.C.: February 2005). 
Page 19 GAO-05-1041T 

the patients served by both are protected today and in the future. For 

instance, VA may decide to purchase operating room services from 

MUSC.20 If the sharing agreement was dissolved at some point in the 

future, it would be difficult for VA to resume the independent provision of 

these services. Also, if MUSC physicians were to treat VA beneficiaries, or 

VA physicians were to treat MUSC patients, each entity would need a clear 

understanding of how to report health information to its responsible 

organization. Therefore, a clear plan for governance would ensure that VA 

and MUSC could continue to serve their patients’ health care needs as well 

as or better than before. 

• Identifying legal issues and seeking legislative remedies: The 

proposed joint venture raises a number of complex legal issues depending 

on the type of joint venture that is envisioned. Many of the legal issues 

that will need to be addressed involve real estate, construction, 

contracting, budgeting, and employment. The following are among some 

of the potential issues relating to a joint venture that VA previously 

identified: 

• What type of interest will VA have in the facility? If MUSC is 

constructing the facility on MUSC property, will VA be entering into a 

leasehold interest in real property or a sharing agreement for space, 

and what are the consequences of each? If the facility is to be located 

on VA property, will it involve a land transfer to MUSC or will VA lease 

the property to MUSC under its authority to enter into a EUL 

agreement? What are the advantages and disadvantages of these 

options? 

• Because MUSC contracting officials do not have the authority to legally 

bind the VA, how would contracting for the services and equipment be 

handled? 

The legal workgroup is currently identifying VA’s and MUSC’s legal 

authorities, or lack thereof, on numerous issues relating to entering into a 

joint venture. Should VA decide to participate in the joint venture, it may 

need to seek additional authority from the Congress. 

 20Such purchases of health care or other services from MUSC would involve contracts that 

VA would have to manage with oversight mechanisms, such as pre- and postaward audits, 

as it now does for current contracts with MUSC. 
Page 20 GAO-05-1041T 

• Involving stakeholders in the decisionmaking process: Participating 

in a joint venture medical center, particularly if it includes significant 

service sharing between VA and MUSC, has significant implications for the 

medical center’s stakeholders, including VA patients, VA employees, and 

the community. These stakeholders have various perspectives and 

expectations—some of which are common to the different groups, while 

others are unique. For example, union representatives and VA officials 

whom we spoke to indicated that VA patients and employees would likely 

be concerned about maintaining the quality of patient care at a new facility 

and access to the current facility during construction. Union 

representatives also said the employees would be concerned about the 

potential for the loss of jobs if VA participated in the joint venture and 

purchased additional services from MUSC. As VA and MUSC move 

forward in negotiations, it will be important for all stakeholders’ concerns 

to be addressed. 

• Developing a system to measure performance and results: If VA and 

MUSC decide to jointly build and operate a new facility in Charleston, it 

will become, as noted in the CARES Commission report, a possible 

framework for future partnerships between VA and other medical 

universities. As a result, a system for measuring whether the new joint 

venture facility is achieving the intended results would be useful.21 In our 

previous work on managing for results, we have emphasized the 

importance of establishing meaningful, outcome-oriented performance 

goals.22 In this case, potential goals could be operational cost savings and 

improved health care for veterans. If the goals are not stated in 

measurable terms, performance measures should be established that 

translate those goals into concrete, observable conditions.23 Such 

measures would enable VA and other stakeholders to determine whether 

progress is being made toward achieving the goals. This information could 

not only shed light on the results of a joint venture in Charleston, but it 

could also enable VA to identify criteria for evaluating other possible joint 

ventures with its medical affiliates in the future. It would also help 

Congress to hold VA accountable for results. 

 21Under the Government Performance and Results Act of 1993 (GPRA), VA is required to 

develop performance goals for its major programs and activities and measures to gauge 

performance. VA’s experience with GPRA could help them develop appropriate goals and 

measures for the joint venture. 

22GAO, Results Oriented Government: Using GPRA to Address 21st Century Challenges, 

GAO-03-1166T (Washington, D.C.: September 2003). 

23GAO, The Results Act: An Evaluator’s Guide to Assessing Agency Annual Performance 

Plans, GAO/GGD-10.1.20 (Washington, D.C.: April 1998).
Page 21 GAO-05-1041T 

In conclusion, Mr. Chairman, we have stated over the past few years that 

federal agencies, including VA, need to reexamine the way they do 

business in order to meet the challenges of the 21st century. To address 

future health care needs of veterans, VA’s challenge is to explore 

alternative ways to fulfill its mission of providing veterans with quality 

health care. The prospect of establishing a joint venture medical center 

with MUSC presents a good opportunity for VA to study the feasibility of 

one method—expanding its relationships with university medical school 

affiliates to include the sharing of medical services in an integrated facility. 

This is just one of several ways VA could provide care to veterans. 

Evaluating this option would involve VA officials, working in close 

collaboration with MUSC officials, weighing the benefits and costs as well 

as the risks involved in a joint venture against those of other alternatives, 

including maintaining the current medical center. Determining whether a 

new facility for Charleston is justified in comparison with the needs of 

other facilities in the VA system is also important. Until these difficult, but 

critical, issues are addressed, a fully-informed final decision on the joint 

venture proposal cannot be made. 

Mr. Chairman, this concludes my prepared statement. I will be happy to 

respond to any questions you or other Members of the Subcommittee may 

have. 

For further information, please contact Mark Goldstein at (202) 512-2834. 

Individuals making key contributions to this testimony include Nikki 

Clowers, Daniel Hoy, Jennifer Kim, Edward Laughlin, Donna Leiss, James 

Musselwhite Jr., Terry Richardson, Susan Michal-Smith, and Michael 

Tropauer. 

Concluding 

Observations 

Contact and 

Acknowledgments 
Page 22 GAO-05-1041T 

VA Health Care: Key Challenges to Aligning Capital Assets and 

Enhancing Veterans’ Care. GAO-05-429. Washington, D.C.: August 5, 2005. 

Federal Real Property: Further Actions Needed to Address Long-standing 

and Complex Problems. GAO-05-848T. Washington, D.C.: June 22, 2005. 

VA Health Care: Important Steps Taken to Enhance Veterans’ Care by 

Aligning Inpatient Services with Projected Needs. GAO-05-160. 

Washington, D.C.: March 2, 2005. 

High-Risk Series: An Update. GAO-05-207. Washington, D.C.: January 

2005. 

VA Health Care: Access for Chattanooga-Area Veterans Needs 

Improvements. GAO-04-162. Washington, D.C.: January 30, 2004. 

Budget Issues: Agency Implementation of Capital Planning Principles Is 

Mixed. GAO-04-138. Washington, D.C.: January 16, 2004. 

Federal Real Property: Vacant and Underutilized Properties at GSA, VA, 

and USPS. GAO-03-747. Washington, D.C.: August 19, 2003. 

VA Health Care: Framework for Analyzing Capital Asset Realignment 

for Enhanced Services Decisions. GAO-03-1103R. Washington, D.C.: 

August 18, 2003. 

Department of Veterans Affairs: Key Management Challenges in Health 

and Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003. 

VA Health Care: Improved Planning Needed for Management of Excess 

Real Property. GAO-03-326. Washington, D.C.: January 29, 2003. 

Major Management Challenges and Program Risks: Department of 

Veterans Affairs. GAO-03-110. Washington, D.C.: January 2003. 

High-Risk Series: Federal Real Property. GAO-03-122. Washington, D.C.: 

January 2003. 

VA Health Care: VA Is Struggling to Address Asset Realignment 

Challenges. GAO/T-HEHS-00-88. Washington, D.C.: April 5, 2000. 

VA Health Care: Improvements Needed in Capital Asset Planning and 

Budgeting. GAO/HEHS-99-145. Washington, D.C.: August 13, 1999. 

Related GAO Products 
Page 23 GAO-05-1041T 

VA Health Care: Challenges Facing VA in Developing an Asset 

Realignment Process. GAO/T-HEHS-99-173. Washington, D.C.: July 22, 

1999. 

VA Health Care: Capital Asset Planning and Budgeting Need 

Improvement. GAO/T-HEHS-99-83. Washington, D.C.: March 10, 1999. 

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