VA's Health Care Budget: In Response to a Projected Funding Gap in Fiscal Year 2015, VA Has Made Efforts to Better Manage Future Budgets
Published: 2016-06-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: VA projected a funding gap of about $3 billion in its fiscal year 2015 medical services appropriation account, which funds VA health care services except for those authorized under the Veterans Choice Program. To close this gap, VA obtained temporary authority to use up to $3.3 billion from the $10 billion appropriated to the Veterans Choice Fund in August 2014.
GAO was asked to examine VA's fiscal year 2015 projected funding gap and any changes VA has made to prevent potential funding gaps in future years. This report examines (1) the activities or programs that accounted for VA's fiscal year 2015 projected funding gap in its medical services appropriation account and (2) changes VA has made to prevent potential funding gaps in future years.
GAO reviewed VA obligations data and related documents to determine what activities accounted for the projected funding gap in its fiscal year 2015 medical services appropriation account, as well as the factors that contributed to the projected funding gap. GAO interviewed VA officials to identify the steps taken to address the projected funding gap. GAO also examined changes VA made to prevent future funding gaps and reviewed the implementation of these changes at the VAMCs within six VISNs, selected based on geographic diversity.
section_title: What GAO Found
paragraphs: GAO found that two areas accounted for the Department of Veterans Affairs' (VA) fiscal year 2015 projected funding gap of $2.75 billion.
Higher-than-expected obligations for VA's longstanding care in the community (CIC) programs—which allow veterans to obtain care from non-VA providers—accounted for $2.34 billion or 85 percent of VA's projected funding gap. VA officials expected that the Veterans Choice Program—which is a relatively new CIC program implemented in fiscal year 2015 that allows veterans to access care from non-VA providers under certain conditions—would absorb veterans' increased demand for more timely care after public disclosure of long wait times. However, administrative weaknesses slowed enrollment into this program, and use of the Veterans' Choice Fund was far less than expected. Moreover, as utilization of CIC programs overall increased, VA's weaknesses in estimating costs and tracking obligations for CIC services resulted in VA facing a projected funding gap.
Unanticipated obligations for hepatitis C drugs accounted for the remaining $408 million of VA's projected funding gap. VA did not anticipate in its budget the obligations for these costly, new drugs because the drugs did not gain approval from the Food and Drug Administration until fiscal year 2014—after VA had already developed its budget estimate for fiscal year 2015.
To help prevent future funding gaps, VA has made efforts to better estimate costs and track obligations for CIC services and better project future utilization of VA's health care services. Specifically,
VA implemented new policies directing VA medical centers (VAMC) and Veterans Integrated Service Networks (VISN) to better estimate costs for CIC authorizations—by using historical data and correcting for obvious errors—and to better track CIC obligations by comparing estimated costs with estimated obligations, correcting discrepancies, and certifying each month that these steps were completed. These policies are necessary, in part, because deficiencies in VA's financial systems make tracking obligations challenging. The VISNs and associated VAMCs GAO reviewed have implemented these policies.
VA also allocated funds to each VAMC for CIC and hepatitis C drugs and began comparing VAMCs' obligations in these areas to the amount of funds allocated to help ensure that obligations do not exceed budgetary resources.
VA updated the projection it uses to inform budget estimates 3 to 4 years in the future, adding fiscal year 2015 data reflecting increased CIC utilization.
While VA has made these efforts to better manage its budget, uncertainties remain regarding utilization of VA's health care services. For example, utilization of the Veterans Choice Program in fiscal years 2016 and 2017 is uncertain because of continued enrollment delays affecting the program. Moreover, even with improvements to its projection, VA, like other federal agencies, must make tradeoffs in formulating its budget estimate that requires it to balance the expected demand for health care services against other competing priorities.
section_title: What GAO Recommends
paragraphs: GAO is not making any recommendations. After reviewing a draft of this report, VA agreed with what GAO found.

section_title: Letter
paragraphs: The Department of Veterans Affairs’ (VA) Veterans Health Administration  operates one of the largest health care delivery systems in the nation— serving about 6.7 million patients—and had total budgetary resources of  nearly $51 billion for medical services in fiscal year 2015. In June 2015,  VA requested additional amounts from Congress because the agency  projected a funding gap in fiscal year 2015 of about $3 billion in its  medical services appropriation account. To address this projected  funding gap, on July 31, 2015, the VA Budget and Choice Improvement  Act provided VA temporary authority to use up to $3.3 billion from the  Veterans Choice Program appropriation for obligations incurred for other  specified medical services, starting May 1, 2015 until October 1, 2015.  The Veterans Choice Program, which was established by statute in 2014,  generally allows veterans to obtain care from a network of providers when  their local VA medical centers (VAMC) cannot provide the services due to  long wait times or the distance from veterans’ homes.
We and others have reported on past challenges VA has faced regarding  the reliability, transparency, and consistency of its budget estimates for  medical services used to support the President’s budget request, as well  as the agency’s ability to accurately track obligations for medical services.  For example, in February 2012, we reported that VA’s estimated savings  from operational improvements for providing medical services—used to  support both the President’s budget request for fiscal year 2012 and VA’s  advance appropriations request for fiscal year 2013—lacked analytical  support or were flawed, raising questions regarding the reliability of the  estimated savings. In addition, according to VA’s 2014 Performance and  Accountability Report, VA has financial system deficiencies and lacks an  adequate process to validate its reported obligations.
In light of these challenges, coupled with VA’s fiscal year 2015 projected  funding gap, you asked us to examine VA’s efforts to accurately estimate  its budgetary needs for future years and track its obligations for medical  services.
In this report, we examine  1.  the activities or programs that accounted for VA’s fiscal year 2015  projected funding gap in its medical services appropriation account,  and  2.  changes VA has made to prevent potential funding gaps in future  years.
To examine the activities or programs that accounted for this projected  funding gap, we reviewed fiscal year 2015 obligation data and documents  provided by VA, including supporting documents for the President’s fiscal  year 2015 and 2016 budget requests for VA; VA’s requests to Congress  for authority to use other appropriations to address the projected funding  gap; internal memos and communications; and documents related to the  projection model used by VA to estimate the utilization of and associated  costs for activities funded through VA’s medical services appropriation  account. We analyzed this information to examine the activities or  programs in VA’s medical services budget that accounted for the  projected funding gap in fiscal year 2015, as well as the extent to which  and the reasons that each activity or program contributed to the projected  funding gap. We also interviewed officials from VA and staff from the  Office of Management and Budget (OMB) to identify the steps taken to  address the projected funding gap. We conducted a data reliability  assessment of VA’s fiscal year 2015 obligation data that we used, which  included checks for missing values and outliers, and we interviewed  officials from the Office of Finance within the Veterans Health  Administration, who are knowledgeable about the data. As a result of  these steps, we determined that the data were sufficiently reliable for our  objectives.
To examine the changes VA has made or is planning to make to help  prevent potential funding gaps in future years, we obtained and reviewed  VA documents, including VA policy memoranda, internal reports, and  supporting documents for the President’s fiscal year 2017 budget request  and the fiscal year 2018 advance appropriations request for VA, and we  interviewed VA officials. We analyzed this information to identify new or  updated policies or processes for tracking and estimating VA’s obligations  and for developing VA’s future budget estimates. We examined the  implementation of VA’s new or updated processes at six Veterans  Integrated Service Networks (VISN), which we selected based on  geographic diversity. The six VISNs we selected were the Sierra Pacific  Network (VISN 21), the South Central VA Health Care Network (VISN  16), the VA Health Care Network—VISN 4, the VA Midwest Health Care  Network (VISN 23), the VA Southwest Health Care Network (VISN 18),  and the VA Sunshine Health Care Network (VISN 8). The findings from  our analysis are not generalizable beyond the VISNs we reviewed.
We conducted this performance audit from August 2015 to June 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: VA provides medical services to various veteran populations—including  an aging veteran population and a growing number of younger veterans  returning from the military operations in Afghanistan and Iraq. VA  operates approximately 170 VAMCs, 130 nursing homes, and 1,000  outpatient sites of care. In general, veterans must enroll in VA health care  to receive VA’s medical benefits package—a set of services that includes  a full range of hospital and outpatient services, prescription drugs, and  long-term care services provided in veterans’ own homes and in other  locations in the community.
The majority of veterans enrolled in the VA health care system typically  receive care in VAMCs and community-based outpatient clinics, but VA  may also authorize care through community providers to meet the needs  of the veterans it serves. For example, VA may provide care through its  Care in the Community (CIC) programs, such as when a VA facility is  unable to provide certain specialty care services, like cardiology or  orthopedics. CIC services must generally be authorized by a VAMC  provider prior to a veteran receiving care.
In addition to its longstanding CIC programs, VA may also authorize  veterans to receive care from community providers through the Veterans  Choice Program, a new CIC program which was established through the  Veterans Access, Choice, and Accountability Act of 2014 (Choice Act),  enacted on August 7, 2014. Implemented in fiscal year 2015, the  program generally provides veterans with access to care by non-VA  providers when a VA facility cannot provide an appointment within 30  days or when veterans reside more than 40 miles from the nearest VA  facility. The Veterans Choice Program is primarily administered using  contractors, who, among other things, are responsible for establishing  nationwide provider networks, scheduling appointments for veterans, and  paying providers for their services.
The Choice Act also created a separate account, known as the Veterans  Choice Fund, which can only be used to pay for VA obligations incurred  for the Veterans Choice Program. The use of Choice funds for any other  program requires legislative action. The Choice Act appropriated $10  billion to be deposited in the Veterans Choice Fund. Amounts deposited  in the Veterans Choice Fund are available until expended and are  available for activities authorized under the Veterans Choice Program.  However, the Veterans Choice Program activities are only authorized  through August 7, 2017 or until the funds in the Veterans Choice Fund  are exhausted, whichever occurs first.
subsections: section_title: VA’s Budget Process
paragraphs: As part of the President’s request for funding to provide medical services  to veterans, VA develops an annual estimate detailing the amount of  services the agency expects to provide as well as the estimated cost of  providing those services. VA uses the Enrollee Health Care Projection  Model (EHCPM) to develop most elements of the department’s budget  estimate to meet the expected demand for VA medical services. Like  many other agencies, VA begins to develop these estimates  approximately 18 months before the start of the fiscal year for which the  funds are provided. Unlike many agencies, VA’s Veterans Health  Administration receives advance appropriations for health care in addition  to annual appropriations. VA’s EHCPM makes these projections 3 or 4  years into the future for budget purposes based on data from the most  recent fiscal year. In 2012, for example, VA used actual fiscal year 2011  data to develop the budget estimate for fiscal year 2014 and for the  advance appropriations estimate for fiscal year 2015. Similarly, in 2013,  VA used actual fiscal year 2012 data to update the budget estimate for  fiscal year 2015 and develop the advance appropriations estimate for  fiscal year 2016. Given this process, VA’s budget estimates are prepared  in the context of uncertainties about the future—not only about program  needs, but also about future economic conditions, presidential policies,  and congressional actions that may affect the funding needs in the year  for which the estimate is made—which is similar to the budgeting  practices of other federal agencies. Further, VA’s budget estimates are  typically revised during the budget formulation process to incorporate  legislative and department priorities as well as to respond to successively  higher levels of review in VA and OMB.
Each year, Congress provides funding for VA health care primarily  through the following appropriation accounts:
Medical Support and Compliance, which funds, among other things,  the administration of the medical, hospital, nursing home, domiciliary,  construction, supply, and research activities authorized under VA’s  health care system.
Medical Facilities, which funds, among other things, the operation and  maintenance of the Veterans Health Administration’s capital  infrastructure, such as the costs associated with nonrecurring  maintenance, utilities, facility repair, laundry services, and  groundskeeping.
Medical Services, which funds, among other things, health care  services provided to eligible veterans and beneficiaries in VA’s  medical centers, outpatient clinic facilities, contract hospitals, state  homes, and CIC services. With the exception of the Veterans  Choice Program, which is funded through the Veterans Choice Fund,  medical services furnished by community providers have been, and  will continue to be, funded through this appropriation account through  fiscal year 2016.
Starting in fiscal year 2017 and thereafter, with the exception of the  Veterans Choice Program, it is anticipated that Congress will fund  medical services that VA authorizes veterans to receive from  community providers through a new appropriations account—Medical  Community Care—which the VA Budget and Choice Improvement Act  requires VA to include in its annual budget submission.
section_title: Higher-than-Expected Obligations for the CIC Program and Hepatitis C Drugs Accounted for VA’s Fiscal Year 2015 Projected Funding Gap
subsections: section_title: Higher-than-Expected Obligations for VA’s CIC Programs Accounted for 85 Percent of VA’s Projected Fiscal Year 2015 Funding Gap
paragraphs: Higher-than-expected obligations identified by VA in April 2015 for VA’s  CIC programs accounted for $2.34 billion (or 85 percent) of VA’s  projected funding gap of $2.75 billion in fiscal year 2015. These higher- than-expected obligations for VA’s CIC programs were driven by an  increase in utilization of VA medical services across VA, reflecting, in  part, VA’s efforts to improve access to care after public disclosure of long  wait times at VAMCs. VA officials expected that the Veterans Choice  Program would absorb much of the increased demand from veterans for  health care services delivered by non-VA providers. However, veterans’  utilization of Veterans Choice Program services was much lower than  expected in fiscal year 2015. VA had estimated that obligations for the  Veterans Choice Program in fiscal year 2015 would be $3.2 billion, but  actual obligations totaled only $413 million. According to VA officials, the  lower-than-expected utilization of the Veterans Choice Program in fiscal  year 2015 was due, in part, to administrative weaknesses in the program,  such as provider networks that had not been fully established and VAMC  staff who lacked guidance on when to refer veterans to the program, both  of which slowed enrollment in the program. Instead of relying on its  Choice Program, VA provided a greater amount of services through its  CIC programs, resulting in total obligations of $10.2 billion in fiscal year  2015, which VA officials stated were much higher than expected.
The unexpected increase in CIC obligations in fiscal year 2015 exposed  weaknesses in VA’s ability to estimate costs for CIC services and track  associated obligations. While VA officials first became concerned that  CIC obligations might be significantly higher than projected in January  2015, they did not determine that VA faced a projected funding gap until  April 2015—6 months into the fiscal year. VA officials made this  determination after they compared authorizations in the Fee Basis Claims  System (FBCS)—VA’s system for recording CIC authorizations and  estimating costs for this care—with obligations in the Financial  Management System (FMS)—the centralized financial management  system VA uses to track all of its obligations, including those for medical  services. In its 2015 Agency Financial Report (AFR), VA’s independent  public auditor identified the following issues as contributing to a material  weakness in estimating costs for CIC services and tracking CIC  obligations:
VAMCs individually estimate costs for each CIC authorization and  record these estimates in FBCS. This approach leads to  inconsistencies because each VAMC may use different  methodologies to estimate the costs they record. Having more  accurate cost estimates for CIC authorizations is important to help  ensure that VA is aware of the amount of money it must obligate for  CIC services.
VAMCs do not consistently adjust the estimated costs associated with  authorizations for CIC services in FBCS in a timely manner to ensure  greater accuracy, and they do not perform a “look-back” analysis of  historical obligations to validate the reasonableness of estimated  costs. Furthermore, VA does not perform centralized, consolidated,  and consistent monitoring of CIC authorizations.
FBCS is not fully integrated with FMS, VA’s system for recording and  tracking the department’s obligations. As a result, the obligations for  CIC services recorded in the former system may not match the  obligations recorded in the latter. Notably, the estimated costs of CIC  authorizations recorded in FBCS are not automatically transmitted to  VA’s Integrated Funds Distribution, Control Point Activity, Accounting,  and Procurement (IFCAP) system, a procurement and accounting  system used to send budgetary information, such as information on  obligations, to FMS. According to VA officials, because FBCS and  IFCAP are not integrated, at the beginning of each month, VAMC staff  typically record in IFCAP estimated obligations for outpatient CIC  services, and they typically use historical obligations to make these  estimates. Depending on the VAMC, these estimated obligations  may be entered as a single lump sum covering all outpatient care or  as separate estimated obligations for each category of outpatient  care, such as radiology. Regardless of how they are recorded, the  estimated obligations recorded in IFCAP are often inconsistent with  the estimated costs of CIC authorizations recorded in FBCS. In fiscal  year 2015, the estimated obligations that VAMCs recorded in IFCAP  were significantly lower than the estimated costs of outpatient CIC  authorizations recorded in FBCS. VA officials told us that they did not  determine a projected funding gap until April 2015, because they did  not complete their analysis of comparing estimated obligations with  estimated costs until then.
A key factor contributing to the weaknesses identified in VA’s AFR was  the absence of standard policies across VA for estimating and monitoring  the amount of obligations associated with authorized CIC services.  Specifically, in fiscal year 2015, the Chief Business Office within the  Veterans Health Administration had not developed and implemented  standardized and comprehensive policies for VAMCs, VISNs, and the  office itself to follow when estimating costs for CIC authorizations and for  monitoring these obligations. The AFR and VA officials we interviewed  explained that because oversight of the CIC programs was consolidated  under the Chief Business Office in fiscal year 2015 pursuant to the  Choice Act, this office did not have adequate time to implement efficient  and effective procedures for monitoring CIC obligations.
To address the fiscal year 2015 projected funding gap, on July 31, 2015,  VA obtained temporary authority to use up to $3.3 billion in Veterans  Choice Program appropriations for amounts obligated for medical  services from non-VA providers—regardless of whether the obligations  were authorized under the Veterans Choice Program or CIC—for the  period from May 1, 2015 until October 1, 2015. Table 1 shows the  sequence of events that led to VA’s request for and approval of additional  budget authority for fiscal year 2015.
section_title: Unanticipated Obligations for Hepatitis C Drugs Contributed to the Remaining Portion of VA’s Projected Fiscal Year 2015 Funding Gap
paragraphs: Unexpected obligations for new hepatitis C drugs accounted for $0.41  billion of VA’s projected funding gap of $2.75 billion in fiscal year 2015.  Although VA estimated that obligations in this category would be $0.7  billion that year, actual obligations totaled about $1.2 billion.
VA officials told us that VA did not anticipate in its budget the obligations  for new hepatitis C drugs—which help cure the disease—because the  drugs were not approved by the Food and Drug Administration until fiscal  year 2014, after VA had already developed its budget estimate for fiscal  year 2015. According to VA, the new drugs cost between $25,000 and  $124,000 per treatment regimen, and demand for the treatment was  high. Officials told us that about 30,000 veterans received these drugs  in fiscal year 2015.
In October 2014, VA reprogrammed $0.7 billion within its medical  services appropriation account to cover projected obligations for the new  hepatitis C drugs, after VA became aware of the drugs’ approval.  However, in January 2015, VA officials recognized that obligations for the  new hepatitis C drugs would be significantly higher than expected by  year’s end, due to higher-than-expected demand for the drugs. VA  officials told us that they assessed next steps and then limited access to  the drugs to those veterans with the most severe cases of hepatitis C. In  June 2015, VA requested statutory authority to use amounts from the  Veterans Choice Fund to address the projected funding gap.
section_title: VA Has Made Efforts to Prevent Future Funding Gaps, but Uncertainties about Future Utilization of Health Care Services Remain
paragraphs: To help prevent future funding gaps, VA has made efforts to improve its  cost estimates for CIC services and the department’s tracking of  associated obligations. VA has also taken steps to more accurately  estimate future utilization of VA health care services, though uncertainties  about utilization of VA health care services and emerging treatments  remain.
subsections: section_title: VA Has Made Efforts to Improve Cost Estimates and Tracking of Obligations for CIC Services
paragraphs: Faced with a projected funding gap in fiscal year 2015, VA made efforts  to improve its cost estimates for CIC services as well as the department’s  tracking of associated obligations.
First, in August 2015, VA issued a policy to VAMCs for recording  estimated costs for inpatient and outpatient CIC authorizations in FBCS.  This policy, among other things, stipulates that VAMCs are to base  estimated costs on historical cost data provided by VA. These data, which  represent average historical costs for a range of procedures, are intended  to help improve the accuracy of VAMCs’ cost estimates. To help  implement this policy, in December 2015 VA updated its FBCS software  so that the system automatically generates estimated costs for CIC  authorizations based on historical CIC claims data. As a result, in many  cases, VAMC staff will no longer need to individually estimate costs using  various methods and manually record these estimates in FBCS.  Officials we interviewed at six selected VISNs shortly after the  implementation of the software update told us that the update sometimes  produces inaccurate cost estimates or no cost estimates at all. VA  officials told us that the problems affecting the software update were  largely due to VA’s adoption of a revised medical classification system in  October 2015. The change in the classification system meant that there  were relatively few paid claims with the new codes to inform FBCS’s  automated cost estimates for CIC services. VA officials told us they  anticipate this problem diminishing throughout fiscal year 2016 as more  CIC claims using the new codes are paid and as the amount of data used  to inform the cost estimates increase.
Second, in November 2015, VA issued a policy requiring VAMCs to  systematically review and correct potentially inaccurate estimated costs  for CIC authorizations recorded in FBCS, a step which was previously not  required. VA officials told us this policy was created to detect and correct  obvious errors in the cost estimates, such as data entry errors that fall  outside of the range of reasonable cost estimates. Additionally, this policy  requires VISNs to certify monthly to VA’s Chief Business Office that the  appropriate review and corrective actions have been completed. We  found that all six VISNs certified that they had implemented this policy.
Third, in November 2015, VA issued a policy requiring VAMCs to identify  any discrepancies between the estimated costs for CIC authorizations  recorded in FBCS and the amount of estimated obligations recorded in  FMS. VA’s policy also requires VAMCs to correct discrepancies they  identify—such as increasing unreasonably low estimated obligations to  make the estimates more accurate—and document the corrections they  make. This policy also requires VISNs to certify monthly to VA’s Chief  Business Office that the appropriate review and corrective actions have  been taken and appropriately documented. As we previously stated, in  part because FBCS is not fully integrated with FMS, VA officials  concluded this policy was necessary to detect and address discrepancies  between the two systems. According to VA officials, if estimated costs for  CIC authorizations recorded in FBCS are higher than estimated  obligations recorded in FMS, it may leave VA at risk of potentially being  unable to pay for authorized care. Alternatively, if estimated costs for CIC  authorizations recorded in FBCS are lower than estimated obligations  recorded in FMS, VA may be dedicating more resources than needed for  this care.
While we found that all six selected VISNs and the VAMCs they manage  certified that they had implemented this new policy, the methods used to  identify and correct discrepancies between estimated costs for CIC  authorizations in FBCS and the amount of estimated obligations in FMS  varied. Moreover, in some cases, we found that discrepancies VAMCs  identified and associated corrections were not documented or that  documentation lacked specificity, making it difficult to determine whether  appropriate corrections were made. To achieve greater consistency in  how VAMCs implement this new policy, VA officials reviewed VAMCs’  reports and in February 2016, provided VISNs and VAMCs with additional  guidance and best practices for identifying discrepancies and  documenting corrections. For example, VA instructed VAMCs to be as  specific as possible in documenting corrections they make to the  estimated obligations. VA officials also told us that they are developing  additional guidance that would define an acceptable level of variation  between estimated costs for CIC authorizations and the amount of  estimated obligations in FMS. This guidance, once implemented, would  require that VAMCs ensure that estimated costs and estimated  obligations were no more than $50,000 or 10 percent apart, whichever is  less.
Finally, to better track that VAMCs’ obligations for CIC do not exceed  available budgetary resources for fiscal year 2016, VA allocated funds  specifically for CIC to each VAMC. VA officials, including some VISN  officials we interviewed, told us that they identify VAMCs that may be at  risk for exhausting their funds before the end of the fiscal year by  reviewing monthly reports comparing each VAMC’s obligations for CIC to  the amount of funds allocated for that purpose to the VAMC. Officials  from the Office of Finance within the Veterans Health Administration told  us that once a VAMC had obligated all of its CIC funds, it would have to  request realignment of funds from other VA programs, assuming  additional funds could be made available. VA would, in turn, evaluate the  validity of a VAMC’s request. VA is employing a similar process to track  VAMCs’ use of funds for hepatitis C drugs. Officials told us that these  steps are intended to reduce the risk of VAMCs obligating more funds  than VA’s budgetary resources allow.
Despite these efforts, VA still faces challenges accurately estimating CIC  costs and tracking associated obligations, in large part because of the  uncertainty inherent in predicting the CIC services veterans will actually  receive. According to VA Chief Business Office and VISN officials, a  single authorization may allow for multiple episodes of care, such as up to  10 visits to a physical therapist. Alternatively, a veteran may choose not  to seek the care that was authorized. Furthermore, system deficiencies  also complicate both the development of accurate CIC cost estimates and  the tracking of related obligations. Chief Business Office and VISN  officials told us that due to systems limitations, cost estimates for inpatient  CIC authorizations are estimated in FBCS based on a veteran’s diagnosis  at the time the care is authorized and cannot be adjusted if a veteran’s  diagnosis—and associated treatment plan—changes. For example, a  veteran may be authorized to obtain inpatient care to treat fatigue and  nausea, but may be subsequently diagnosed as having a heart attack and  receive costly surgery that was not included in the cost estimate. Chief  Business Office officials told us that while the cost estimate cannot be  adjusted in FBCS, VAMC officials should adjust the estimated obligation  that corresponds to the authorization in IFCAP to reflect the cost  difference; they should also document why they made the adjustment.
To better align cost estimates for CIC authorizations with associated  obligations, in the long term, VA officials told us that VA is exploring  options for replacing IFCAP and FMS, which officials describe as  antiquated systems based on outdated technology. The department has  developed a rough timeline and estimate of budgetary needs to make  these changes. Officials told us that the timeline and cost estimate would  be refined once concrete plans for replacing IFCAP and FMS are  developed. Officials told us that replacing IFCAP and FMS is challenging  due to the scope of the project and the requirement that the replacement  system interface with various VA legacy systems, such as the Veterans  Health Information Systems and Technology Architecture, VA’s system  containing veterans’ electronic health records. Moreover, as we have  previously reported, VA has made previous attempts to update IFCAP  and FMS that were unsuccessful. In October 2009, we reported that  these failures could be attributed to the lack of a reliable implementation  schedule and cost estimates, among other factors.
section_title: VA Is Using More Recent Data to More Accurately Project Future Health Care Utilization, but Uncertainties Remain
paragraphs: To more accurately project future health care utilization of VA services  given the implementation of the Veterans Choice Program, in November  2015 VA took steps to update its EHCPM projection to better inform  future budget estimates. Officials told us that the updated EHCPM  projection in November 2015 included available data from fiscal year  2015 to inform the department’s budget estimate for fiscal years 2017 and  2018. Without the updated projection, VA would have relied on the  EHCPM projection from April 2015 using actual data from fiscal year  2014. The updated EHCPM projection using fiscal year 2015 data  showed increased utilization of CIC services in that year. According to VA  officials, this increase was an unexpected result of implementing the  Veterans Choice Program. Specifically, because of administrative  weaknesses affecting the Veterans Choice Program, veterans seeking  services through this program were generally provided care through other  VA CIC programs instead. Additionally, according to VA, analysis of  fiscal year 2015 data showed that the implementation of the Veterans  Choice Program resulted in veterans relying on VA services rather than  on services provided by other health care benefit programs for a greater  share of their health care needs. VA officials told us that they plan to  continue relying on the EHCPM projection from April of each year using  data from the most recently completed fiscal year and updating the  EHCPM later in the year using more current data.
As we have previously reported, while the EHCPM projection informs  most of VA’s budget estimate, the amount of the estimate is determined  by several factors, including VA policy decisions and the President’s  priorities, and will not necessarily match the EHCPM projection in any  given year. Historically, the final budget estimate for VA has consistently  been lower than the amount projected by the EHCPM. For example, in  December 2015, to develop the budget estimates for fiscal year 2017 and  advance appropriations for fiscal year 2018, VA officials made a policy  decision to use a previous EHCPM projection that does not take into  account the increased utilization of CIC services by veterans in fiscal year  2015. VA officials told us that if demand for VA services exceeds the  amount requested for VA’s Medical Services Account in the President’s  budget request for fiscal year 2017, the difference can be made up by  greater utilization of the Veterans Choice Program. VA officials also told  us that VA will likely request an increase in funding for health care  services in the President’s budget request for fiscal year 2018, which is  expected to be submitted to Congress in February 2017.
To help increase utilization of the Veterans Choice Program, VA issued  policy memoranda to VAMCs in May and October 2015, requiring them to  refer veterans to the Veterans Choice Program if timely care cannot be  delivered by a VAMC, rather than authorizing care through VA’s other  CIC programs. In addition, on July 31, 2015, the VA Budget and Choice  Improvement Act eliminated the requirement that veterans must be  enrolled in the VA health care system by August 2014 in order to receive  care through the program. While data from January 2016 indicate that  utilization of care under the Veterans Choice Program has begun to  increase, VA officials, including at the VISNs we interviewed, expressed  concerns whether existing contracts were sufficient to address veterans’  needs in a timely manner. For example, officials we interviewed from  five of the six selected VISNs cited inadequate provider networks, delays  in scheduling appointments, and delays in providers receiving payment  for services delivered, as factors limiting program utilization. To address  these concerns, VA is granting VAMCs the authority to establish  agreements directly with providers to deliver services through the  Veterans Choice Program and schedule appointments for veterans if VA’s  contractors are unable to schedule them in a timely manner. These  efforts have the potential to increase Veterans Choice Program utilization  beyond the levels VA estimated for fiscal year 2016, which, according to  VA officials, may limit the funds available to the program in fiscal year  2017. Conversely, some of these officials told us that if VA does not  succeed in increasing Veterans Choice Program utilization in fiscal years  2016 and 2017, veterans may have to seek care through other CIC  programs, which may not have the funds available to meet the demand  for services. In either case, according to VA officials, veterans may face  delays in accessing VA health care services.
In addition to the challenges associated with the Veterans Choice  Program, VA, like other health care payers, faces uncertainties estimating  the utilization—and associated costs—of emerging health care  treatments—such as costly drugs to treat chronic diseases affecting  veterans. VA, like other federal agencies, prepares its budget estimate 18  months in advance of the start of the fiscal year for which funds are  provided. At the time VA develops its budget estimate, it may not have  enough information to estimate the likely utilization and costs for health  care services or these treatments with reasonable accuracy. Moreover,  even with improvements to its projection, VA, like other federal agencies,  must make tradeoffs in formulating its budget estimate that requires it to  balance the expected demand for health care services against other  competing priorities.
Close scrutiny and careful monitoring in all these areas should assist VA  in managing its available resources and better protect against a  reoccurrence of budgetary circumstances similar to those that existed in  fiscal year 2015.
section_title: Agency Comments and Our Evaluation
paragraphs: VA provided written comments on a draft of this report, which we have  reprinted in appendix I. While we are not making any recommendations in  this report, in its comments, VA agreed with our findings and reiterated  the uncertainty the department faces in estimating the cost of emerging  health care treatments. VA also provided technical comments on the draft  report, which we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees and the Secretary of Veterans Affairs. In addition, the report  will be available at no charge on the GAO website at http://www.gao.gov.  If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or williamsonr@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs are on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix II.
section_title: Appendix I: Comments from the Department of Veterans Affairs
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Rashmi Agarwal, Assistant  Director; Luke Baron; Krister Friday; Jacquelyn Hamilton; and Michael  Zose made key contributions to this report.
section_title: Related GAO Products
paragraphs: VA’s Health Care Budget: Preliminary Observations on Efforts to Improve  Tracking of Obligations and Projected Utilization. GAO-16-374T.  Washington, D.C.: February 10, 2016.
Veterans’ Health Care Budget: Improvements Made, but Additional  Actions Needed to Address Problems Related to Estimates Supporting  President’s Request. GAO-13-715. Washington, D.C.: August 8, 2013.
Veterans’ Health Care: Improvements Needed to Ensure That Budget  Estimates Are Reliable and That Spending for Facility Maintenance Is  Consistent with Priorities. GAO-13-220. Washington, D.C.: February 22,  2013.
Veterans’ Health Care Budget: Better Labeling of Services and More  Detailed Information Could Improve the Congressional Budget  Justification. GAO-12-908. Washington, D.C.: September 18, 2012.
Veterans’ Health Care Budget: Transparency and Reliability of Some  Estimates Supporting President’s Request Could Be Improved. GAO-12- 689. Washington, D.C.: June 11, 2012.
VA Health Care: Estimates of Available Budget Resources Compared  with Actual Amounts. GAO-12-383R. Washington, D.C.: March 30, 2012.
VA Health Care: Methodology for Estimating and Process for Tracking  Savings Need Improvement. GAO-12-305. Washington, D.C.: February  27, 2012.
Veterans Affairs: Issues Related to Real Property Realignment and  Future Health Care Costs. GAO-11-877T. Washington, D.C.: July 27,  2011.
Veterans’ Health Care Budget Estimate: Changes Were Made in  Developing the President’s Budget Request for Fiscal Years 2012 and  2013. GAO-11-622. Washington, D.C.: June 14, 2011.
Veterans’ Health Care: VA Uses a Projection Model to Develop Most of  Its Health Care Budget Estimate to Inform the President’s Budget  Request. GAO-11-205. Washington, D.C.: January 31, 2011.