Veterans' Health Care: VA Uses a Projection Model to Develop Most of Its Health Care Budget Estimate to Inform the President's Budget Request
Published: 2011-01-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Funding for the Department of Veterans Affairs' (VA) health care is determined by Congress in the annual appropriations process. Prior to this process, VA develops a budget estimate of the resources needed to provide health care services to eligible veterans. The Veterans Health Care Budget Reform and Transparency Act of 2009 requires GAO to assess whether the funding requested for VA health care in the President's budget requests submitted to Congress in 2011, 2012, and 2013 is consistent with VA's estimates of the resources needed to provide health care services. In anticipation of these future studies, GAO was asked to obtain information on how VA prepares its health care budget estimate. In this report, GAO describes (1) how VA develops its health care budget estimate, and (2) how VA's health care budget estimate is used in the President's budget request to Congress. To conduct this work, GAO reviewed VA documents on the methods, data, and assumptions used to develop VA's health care budget estimate that informed the President's budget request for fiscal year 2011 and request for advance appropriations for fiscal year 2012. GAO also interviewed VA officials responsible for developing this estimate and staff from the Office of Management and Budget (OMB), which is responsible for overseeing the development and implementation of the federal budget.
section_title: What GAO Found
paragraphs: VA uses what is known as the Enrollee Health Care Projection Model (EHCPM) to develop most of its health care budget estimate and uses other methods for the remainder. Specifically, VA used the EHCPM to estimate the resources needed to meet expected demand for 61 health care services that accounted for 83 percent of VA's health care budget estimate for fiscal year 2011 and similarly for fiscal year 2012. The EHCPM's estimates for these services are based on three basic components: projected enrollment in VA health care, projected use of VA's health care services, and projected costs of providing these services. To make these projections, the EHCPM uses data on the use and cost of these services that reflect data from VA, Medicare, and private health insurers. The EHCPM makes a number of complex adjustments to the data to account for characteristics of VA health care and the veterans who access VA's health care services. For example, these adjustments take into account veterans' age, gender, geographic location, and reliance on VA health care services compared with other sources, such as health care services paid for by Medicare or private health insurers. VA uses other methods to develop nearly all of the remaining portion of its budget estimate for long-term care and other services, as well as initiatives proposed by the Secretary of VA or the President. Long-term care and other services accounted for 16 percent and initiatives accounted for 1 percent of VA's health care budget estimate for fiscal year 2011 and similarly for fiscal year 2012. VA's health care budget estimate is reviewed at successively higher levels. Within the agency, the Secretary of VA reviews the health care budget estimate in the context of departmentwide priorities, including trade-offs between health care and other services. The budget estimate is presented in different ways, including the appropriations accounts structure used by Congress for decision making. OMB considers VA's budget submission in light of presidential priorities and needs governmentwide. VA can appeal decisions before OMB finalizes the President's budget request to Congress. VA and OMB provided technical comments, which GAO incorporated as appropriate.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) operates one of the largest health  care delivery systems in the nation, serving 5.7 million patients and  spending $43.3 billion in fiscal year 2009. The amount VA spends on its  health care services is driven by several factors, including the number of  eligible veterans who choose to seek care and the types and the cost of the  services they receive. VA provides a range of services for eligible  veterans. Many of these services—including primary care, inpatient and  outpatient surgery, prosthetics, mental health services, and prescription  drugs—are part of a uniform medical benefits package VA provides to all  veterans enrolled in VA health care. Other services, such as nursing home  care, are not part of the medical benefits package and are required to be  made available for a more limited veteran population specified in law,  although VA also makes these services available to other veterans on a  discretionary basis.
The amount of funding VA receives for health care is determined by  Congress in the annual appropriations process, during which funds are  also provided for a wide range of other national programs, such as those  serving defense, education, and transportation. Prior to this process, VA  must annually develop a budget estimate of the resources needed for its  health care services, including costs for the administration and operation  of VA facilities. Developing a budget estimate is the first step in a complex,  multistep budget formulation process, which culminates in the President’s  annual budget request to Congress.
As we have previously reported, VA’s formulation of its health care budget  estimate is by its very nature challenging, as it is based on assumptions  and imperfect information used to project the likely quantity and cost of  the health care services VA expects to provide. VA, similar to other  agencies, generally begins work on the budget for a fiscal year that begins  18 months later, meaning that the budget is prepared with uncertainty not  only about program needs, but also about future economic conditions,  presidential policies, and congressional actions. In addition, our prior  work has highlighted some of the challenges VA has faced formulating its  budget estimate, including obtaining sufficient data, making accurate  calculations, and making realistic assumptions. For example, in 2006, we  reported that VA underestimated the cost of serving veterans returning  from military operations in Afghanistan and Iraq due in part to insufficient  data about these veterans, which led to requests for additional funding for  fiscal years 2005 and 2006. In 2009, we reported that VA’s long-term care  estimate for fiscal year 2009 was based on assumptions and projections  that appeared unrealistic.
Congress passed the Veterans Health Care Budget Reform and  Transparency Act of 2009, which provided that VA’s annual  appropriations for health care include advance appropriations that  become available 1 fiscal year after the fiscal year for which the  appropriations act was enacted. The 2009 law also requires that we assess  whether the amount of VA health care funding in the President’s budget  request to Congress is consistent with VA’s estimate of the resources  needed to provide health care services. The law requires that we report on  our analysis within 120 days after the President’s budget requests are  submitted in 2011, 2012, and 2013.
In anticipation of the reports we are required to provide, you expressed  interest in obtaining information on how VA’s health care budget estimate  is prepared. In this report, we describe (1) how VA develops its health care  budget estimate, and (2) how VA’s health care budget estimate is used in  the President’s budget request to Congress.
To describe how VA develops its health care budget estimate, we reviewed  VA documents that describe the methods, types of data, and assumptions  used. Specifically, we reviewed VA documents for the fiscal year 2011  estimate and the fiscal year 2012 estimate. We also interviewed VA  officials to discuss how the methods, types of data, and assumptions are  used to develop VA’s health care budget estimate. Specifically, we spoke  with VA’s Office of Budget and VA’s Veterans Health Administration’s  (VHA) Office of Finance as well as the Office of Enrollment and  Forecasting, which is within the Office of the Assistant Deputy Under  Secretary for Health for Policy and Planning. We also interviewed officials  from VA’s Office of Mental Health Services and the Pharmacy Benefits  Management Services office to understand the subject-matter expertise  these program offices provide in developing VA’s health care budget  estimate. These program offices were selected because the requested  funding levels for these services comprised a substantial proportion of the  President’s budget request for VA health care for fiscal years 2007 through  2010. We used the information obtained from VA’s documents and through  interviews with VA officials to describe how VA develops its health care  budget estimate and to determine the proportion of this estimate that is  developed using each of VA’s methods. To assess the reliability of the data  on the proportion of VA’s budget estimate that is determined using each  method, we obtained and checked the consistency of VA documents that  detail the various estimates and verified the information contained in the  documents with VA officials. We also verified that VA correctly calculated  budget estimates that represented more than 90 percent of VA’s total  health care budget estimate for fiscal year 2011 and for fiscal year 2012.
We verified VA’s calculations using components VA said it used to  compute the estimates. We also relied on our prior work to compare data  and to check for internal consistency. We found the data reliable for our  purposes of describing each component of VA’s health care budget  estimate and the methodology used.
To describe how VA’s health care budget estimate is used in the  President’s budget request to Congress, we reviewed the President’s  budget request for fiscal year 2011, which includes the request for VA  appropriations for fiscal year 2011 and the advance appropriations request  for fiscal year 2012. We also interviewed VA officials involved in VA’s  budget preparation process to discuss internal guidance, the  communication of policy priorities, and the focus of their review. We also  interviewed staff from the Office of Management and Budget (OMB),  which is responsible for overseeing the development and implementation  of the federal budget.
We conducted this performance audit from July 2010 through January  2011 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 operates one of the largest health care delivery systems in the nation,  providing care to a diverse population of veterans. VA operates about 150  hospitals, 130 nursing homes, 950 outpatient clinics, and 230 readjustment  counseling centers—Vet Centers—through 21 regional health care  networks called Veterans Integrated Service Networks. VA is responsible  for providing health care services to various populations—including an  aging veteran population and a growing number of younger veterans  returning from the military operations in Afghanistan and Iraq.
VA is required by law to provide health care services to certain veterans  and may provide care to other veterans. 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 noninstitutional long-term care services provided  in veterans’ own homes and in other locations in the community. VA also  provides some services that are not part of its medical benefits package,  such as nursing home care. The population of veterans to whom VA is  required to provide nursing home care is more limited than the population  to whom VA is required to provide other health care services. VA is  required by law to provide nursing home care to certain veterans needing  such care who also have service-connected disabilities, and VA also makes  nursing home care available to other veterans on a discretionary basis as  resources permit.
VA’s enrollment system includes eight categories for enrollment  established by law to manage access to services in relation to available  resources. The order of priority for the categories is generally based on  service-connected disability, income, or other special status such as  having been a prisoner of war. If sufficient resources are not available to  provide care that is timely and acceptable in quality, VA must restrict  enrollment consistent with its priority categories. VA also provides  enhanced priority status for veterans with combat experience—including  those who participated in Operation Enduring Freedom in Afghanistan,  Operation Iraqi Freedom, and Operation New Dawn in Iraq—for up to   5 years from their date of discharge or release from active-duty service.
Veterans who enroll in VA health care may choose not to access VA’s  health care services in any given year. This is in part because many  veterans have other options, such as Medicare, Medicaid, or private  health insurance, to access and pay for health care services. Enrollees  choose whether to access services through VA or other providers based on  factors such as their proximity to VA providers. Additionally, downturns in  economic conditions may reduce veterans’ access to sources of private  insurance, such as employer-sponsored insurance, and influence enrollees’  choice to access VA health care.
Estimating the resources required to provide health care services to  veterans and developing VA’s budget request is a collaborative process  involving several offices within VA, mainly at VA headquarters. Within VA,  VHA’s Office of Finance is responsible for policy and operational issues  relating to budget formulation for all VHA services. It works with the  Office of the Assistant Deputy Under Secretary for Health for Policy and  Planning, which has responsibilities for managing knowledge and data  related to VHA’s policies and strategic planning. Program offices, which  are responsible for setting policies for providing specific health care  services, provide information to support the budget formulation process.  VA’s Office of Budget is responsible for overseeing the budget formulation  process for the department as a whole on behalf of the Secretary and  submitting VA’s budget request for OMB’s review and consideration in  developing the President’s Budget.
OMB plays a key role in the budget formulation process by providing the  framework for agencies to follow. OMB annually issues Circular No. A-11,  which contains detailed instructions and schedules for the submission of  agencies’ budget estimates. It also includes other material to ensure that  agency budget requests adhere to standardized conventions and formats.  OMB also provides general guidance to federal agencies via bulletins and  memoranda that include, among other things, the President’s priorities to  consider as agencies prepare their budget submissions. Additional  communications between OMB and an agency can occur anytime during  the year.
VA, like other agencies, begins formulating a budget request  approximately 10 months before the President submits the budget to  Congress in early February. This is approximately 18 months before the  start of the fiscal year to which the request relates and about 30 months  prior to the start of the fiscal year to which the advance appropriations  request relates. The formulation of VA’s budget request is a process that  follows the general schedule in table 1.
section_title: VA Develops Most of Its Health Care Budget Estimate Using a Projection Model and Uses Other Methods for the Remaining Portion
paragraphs: VA uses a projection model to develop estimates of the resources needed  to deliver most of the health care services VA provides. These services  accounted for most of VA’s health care budget estimate for fiscal year  2011. VA uses other methods to develop nearly all of the remaining  portions of its health care budget estimate for long-term care and other  services as well as proposed initiatives.
subsections: section_title: VA Uses a Projection Model to Develop Most of Its Health Care Budget Estimate to Meet Expected Demand
paragraphs: VA uses what is known as the Enrollee Health Care Projection Model  (EHCPM)—a model developed in partnership with VA’s actuarial  consultant—to estimate the amount of resources VA will need to meet  the expected demand for most of the health care services VA provides.  These services accounted for 83 percent of VA’s health care budget  estimate for fiscal 2011. VA used the EHCPM to estimate the resources  needed for fiscal year 2011 for 61 health care services, which VA grouped  into seven service types (see app. I for a list of the 61 health care services  that were grouped into the seven service types). Outpatient services  accounted for almost half of the resources VA estimated using the EHCPM  for fiscal year 2011. (See fig. 1.)
The EHCPM is used to estimate needed resources based on the total cost  of providing each health care service. VA officials said this total cost  reflects direct patient costs as well as costs associated with management,  administration, and maintenance of facilities. The EHCPM’s estimates are  based on three basic components: the projected number of veterans who  will be enrolled in VA health care, the projected utilization of VA’s health  care services—that is, the quantity of health care services enrollees are  expected to use—and the projected unit cost of providing these services.  (See fig. 2.) Each component is subject to a number of complex  adjustments to account for the characteristics of VA health care and the  veterans who access VA’s health care services. The EHCPM makes these  projections 3 or 4 years into the future for budget purposes based on data  from the most recent fiscal year. For example, in 2009, VA used data from  fiscal year 2008 to develop its health care budget estimate for the fiscal  year 2011 request, including the advance appropriations request for fiscal  year 2012.
To project the expected number of veterans who will be enrolled in VA  health care, the EHCPM relies on a combination of VA and other federal  data to identify current enrollees and to estimate how many eligible,  nonenrolled veterans will choose to enroll. The EHCPM uses VA data to  identify the number of current enrollees in VA health care and to calculate  historical enrollment rates by various characteristics, including age,  gender, priority level, and geographic location. In addition, the EHCPM  uses data developed by VA that combine federal census data on veterans  and Department of Defense data on service members separated from  active duty since the last decennial census to identify the number of  eligible veterans not currently enrolled in VA health care. The data  developed by VA also incorporate Department of Defense estimates of  how many service members will separate from active duty each year into  the future. The EHCPM uses these data to estimate how many eligible  veterans will choose to enroll in VA health care by applying VA’s historical  enrollment rates to this population.
To project the utilization or the quantity of VA’s health care services  veterans will use and the unit costs of VA’s health care services, VA groups  these services into two major categories in the EHCPM: (1) those services  that VA provides in a manner comparable to other providers, whose  services are paid for by Medicare and private health insurers; and (2) those  services that are unique to or are provided in a different manner by VA.  For example, VA provides services, such as emergency room visits and  physician office visits, in a manner comparable to other providers. In  contrast, VA provides rehabilitation services to homeless veterans and  certain types of prosthetic services that VA officials said are not generally  offered by other providers.
For health care services that VA provides in a manner comparable to other  providers, the EHCPM uses utilization and unit-cost data developed by  VA’s actuarial consultant that reflect data from Medicare and private  health insurers in addition to data from VA’s own experience. VA used  these data for 33 of the 61 health care services whose estimates were  developed by the EHCPM for fiscal year 2011. (See app. I for the data  sources used to generate utilization and unit-cost projections for each of  the 61 health care services for fiscal year 2011.) Data from Medicare and  private health insurers allow the EHCPM to better account for the impact  of a number of factors—such as age, gender, geographic location, and  benefit structure—that may affect utilization and unit-cost projections  because these data represent more than 60 million individuals, compared  with the 8.5 million veterans expected to be enrolled in VA health care in  fiscal year 2011. Additionally, VA officials said that using data from  Medicare and private health insurers allows the EHCPM to account for  enrollees’ utilization of health care services outside of VA health care.
For health care services that are unique to or are provided in a different  manner by VA, the EHCPM uses utilization and unit-cost data from VA’s  own experience. VA used these data for 28 of the 61 health care services  whose estimates were developed by the EHCPM for fiscal year 2011. While  VA data can be used to reasonably estimate the likely demand for these  specific services, VA officials said these data do not allow the EHCPM to  account for as many factors that may affect utilization and unit-cost  projections. For example, VA uses national unit costs in most projections  of services that are unique to VA health care because it lacks sufficient  data to use in the EHCPM to account for geographic variations in the unit  cost of these services.
To project utilization and unit costs using the EHCPM, VA makes a  number of complex adjustments to the utilization and unit-cost data to  account for the characteristics of VA health care and enrolled veterans.  For example, these adjustments take into account enrollees’ age, gender,  priority level, and geographic location. VA also makes additional  adjustments to account for changes expected to occur over time. For  example, adjustments are made to utilization projections to account for  changes in health care practice patterns, such as greater use of magnetic  resonance imaging to diagnose a condition. Additionally, unit-cost  projections are adjusted to account for the effect of inflation on the costs  of labor and supplies.
For services that VA provides in a manner comparable to other providers,  VA also adjusts data from Medicare and private health insurers in the  EHCPM to account for the extent to which enrolled veterans will choose  to access health care services through VA—referred to as reliance on VA  health care—or obtain these services through non-VA sources. VA uses  Medicare data for enrolled veterans to estimate the proportion of each  health care service that veterans age 65 and over access through Medicare  instead of VA. However, VA does not have a comprehensive data source to  estimate the proportion of each health care service that enrolled veterans  under age 65 access through non-VA sources, such as private insurers. To  estimate the proportion of each health care service that enrollees under 65  access through VA and non-VA sources, VA relies on an extrapolation from  its analysis of Medicare data and from data collected through periodic  telephone surveys of enrollees about their use of VA and non-VA health  care services. Additionally, VA adjusts data from Medicare and private  health insurers in the EHCPM to incorporate characteristics unique or  more common to VA health care and its enrollee population. For example,  VA does not require copayments for physician office visits for veterans  that meet certain eligibility criteria and VA’s enrollee population is  predominantly male.
Within VHA’s Office of the Assistant Deputy Under Secretary for Health  for Policy and Planning, the Office of Enrollment and Forecasting has the  lead responsibility for developing the estimates from the EHCPM and  annually updates the assumptions that may affect utilization or unit-cost  projections. VHA’s Office of Enrollment and Forecasting works closely  with VHA’s Office of Finance, which is responsible for coordinating the  process for developing VA’s health care budget estimate. The Office of  Enrollment and Forecasting also consults with VA’s health care program  offices, which provide input ranging from identifying VA’s policy goals for  the health care services they administer to providing subject-matter  expertise on trends expected to affect the delivery of these services. Input  from the program offices is incorporated into the underlying assumptions  used in the EHCPM. For example, VA officials told us that the Office of  Enrollment and Forecasting collaborated with VA’s pharmacy program  office to obtain information about what brand-name drugs are coming off  patent, for which lower-cost, generic alternatives may be available. The  Office of Enrollment and Forecasting incorporated this information into  assumptions used in the EHCPM to project utilization and unit costs for  VA’s pharmacy services. Also, VA officials told us that the Office of Mental  Health Services provided information to the Office of Enrollment and  Forecasting on VA’s increasing provision of mental health services in less  restrictive treatment facilities and outpatient settings, and this information  supported assumptions used in the EHCPM to project utilization of VA’s  mental health services.
VHA’s Office of Enrollment and Forecasting annually briefs VA leadership,  including the VA Secretary and VHA Under Secretary, and OMB on  updates to the EHCPM and assumptions used in the EHCPM to generate  the estimates. According to VHA officials, the briefings are intended to  provide VA and OMB a better understanding of the EHCPM and its  assumptions and facilitate their review of VA’s health care budget  estimate. VA Office of Budget officials said they review the assumptions  used in the EHCPM by comparing them to data on past trends. For  example, VA officials said that the VA Office of Budget along with the  program office for pharmacy services were involved in reviewing  assumptions regarding unit-cost projections for pharmacy services taking  into account VA’s heavy reliance on low-cost, generic drugs.
section_title: VA Uses Other Methods to Develop Portions of Its Health Care Budget Estimate Related to Long- term Care and Other Services
paragraphs: VA uses methods other than the EHCPM to develop estimates of the  amount of resources needed for long-term care and other services. VHA’s  Office of Finance coordinates the development of the estimates for these  services, which accounted for 16 percent of VA’s health care budget  estimate for fiscal year 2011. Long-term care was 13 percent of the overall  budget estimate, and other services accounted for 3 percent.
VA develops its estimates for long-term care by developing separate  estimates for nursing home and noninstitutional care services.  Noninstitutional care services include such services as home-based  primary care and care coordination/home telehealth programs. VA’s  estimates for nursing home and noninstitutional care are based on  projections of the amount of care provided—which is known as  workload—and the unit cost of providing a day of this care. VA multiplies  the workload estimates, unit-cost estimates, and the number of days in the  fiscal year to develop estimates of the amount of resources for both  nursing home care and noninstitutional care. (See fig. 3.) VHA’s Office of  Finance also incorporates input from VHA’s Geriatrics and Extended Care  program office about workload and unit-cost estimates for long-term care  services.
For nursing home care, VA develops workload projections by estimating  the amount of nursing home care in demand by two groups of veterans— high-priority veterans for whom VA is required by law to provide nursing  home care and other veterans for whom such care is provided on a  discretionary basis. VA officials said that when making workload  projections, they consider the resources necessary to serve high-priority  veterans whom VA must serve. In addition, VA’s overall policy goal for  nursing home workload is to keep nursing home workload consistent with  recent experience, as VA focuses on expanding noninstitutional care  services in order to provide long-term care in the least restrictive and most  clinically appropriate settings. The nursing home workload for veterans  whom VA serves on a discretionary basis is contingent on the amount of  care needed to serve those veterans whom VA must serve by law.
VA generally projects unit cost for nursing home care by calculating unit- cost increases observed from recent experience and then using this  information to project future unit costs. For example, VA used the unit- cost increases from fiscal year 2008 to fiscal year 2009 and applied this  percentage increase to project nursing home unit-cost estimates for fiscal  year 2011, except for services delivered through community nursing  homes. VA officials said they began using recent experience as a basis to  estimate unit cost for nursing home care in response to a recommendation  that we made in a 2009 report.
For noninstitutional care, VA’s projected workload for these services is  based on VA’s policy goal of meeting, by fiscal year 2011, the  noninstitutional care needs of veterans who seek such care from VA. VA  projects the demand for noninstitutional care services using information  about the size and demographic characteristics of the enrolled veteran  population. To meet its policy goal, VA has expanded the amount of  noninstitutional care services it has provided. Specifically, VA increased  workload for noninstitutional services by 34 percent from fiscal year 2008  to fiscal year 2009 and projects a 19 percent increase from fiscal year 2010  to fiscal year 2011. VA projected a smaller increase—4 percent—for its  noninstitutional workload between fiscal year 2011 and fiscal year 2012.
VA projects unit cost for noninstitutional care services using the same  general method as for nursing home care—by calculating unit-cost  increases observed from recent experience and then using this  information to project future unit costs. For some services, however, VA  experienced decreases in unit cost from fiscal year 2008 to fiscal year  2009. To develop fiscal year 2011 budget estimates for those services, VA  did not rely on its recent experience and instead chose to assume a unit- cost increase between 4.52 percent and 4.60 percent, depending on the  service.
The remaining services for which VA developed estimates using methods  other than the EHCPM made up 3 percent of VA’s health care budget  estimate for fiscal year 2011. The largest of these services was the Civilian  Health and Medical Program of the Department of Veterans Affairs  (CHAMPVA), which provides health care coverage for spouses and  children of veterans who are permanently and totally disabled from a  service-connected disability. CHAMPVA functions similarly to traditional  health insurance—most care within CHAMPVA is delivered using private- sector health care providers. Therefore, developing estimates of the  resources needed for CHAMPVA requires factoring in utilization patterns  and cost inflation that are generally outside of VA’s control. Budget  estimates for CHAMPVA are developed using a formula that computes the  predicted number of users and costs per-member per-year. Since 2004,  VA’ s Health Administration Center, which oversees administration of  CHAMPVA, has worked with VA’s actuarial consultant to generate  projections of CHAMPVA users that incorporate changes related to the  population of disabled veterans and projections of expected increases and  decreases in the CHAMPVA-eligible population. More recently, the Health  Administration Center and VA’s actuarial consultant added projections of  cost per-member per-year. These costs are calculated by dividing the most  current fiscal year data on total CHAMPVA expenditures by the number of  actual users. Trends are then incorporated to predict the future costs per- member per-year, which is multiplied by projections of the number of  CHAMPVA users to develop CHAMPVA budget estimates.
section_title: VA Also Incorporates Estimates of Resources for Initiatives Proposed by the Secretary or the President
paragraphs: VA also incorporates into its budget estimate the amount of resources  needed for health-care-related initiatives proposed by the Secretary or the  President. For fiscal year 2011, health-care-related initiatives made up   1 percent of VA’s health care budget estimate. Some initiatives can be  implemented within VA’s existing authority, while other initiatives would  require a change in law. These initiatives can vary from year to year  depending on policy priorities. VA officials said the EHCPM can be used to  estimate the resources needed for these initiatives if VA has the data  necessary for the model’s estimates to be useful. If not, VA uses other  estimation methods and sometimes VA receives estimates from OMB.
Estimates for two VA health care initiatives and two presidential health  care initiatives were in the President’s fiscal year 2011 budget request for  VA. For example, one VA initiative focused on expanding telehealth  services for noninstitutional long-term care. The Secretary directed that  VA include $40 million for this initiative in VA’s estimate. Additionally, one  presidential initiative was a governmentwide emphasis on reducing  operating costs associated with maintaining surplus property. For this  initiative, OMB provided VA with estimates of the savings associated with  reducing these operating costs.
VA also developed estimates for the President’s fiscal year 2011 budget  request for 11 proposed health-care-related initiatives that require a  change in law. Some proposed initiatives would increase spending while  others would decrease spending. For example, VA estimated that one  proposed initiative to pay travel expenses for caregivers to support  veterans receiving certain VA health care services would cost $16 million  in fiscal year 2011. For a different proposed initiative, VA estimated  savings of $325,000 in fiscal year 2011 if VA were permitted to stop  reimbursing physicians and dentists for certain continuing education  expenses.
section_title: VA’s Health Care Budget Estimate Informs the Decision- making Process for the President’s Budget Request
paragraphs: VA’s health care budget estimate prepared by VHA is reviewed at  successively higher levels. Within the agency, the Secretary of VA reviews  the health care budget estimate in the context of departmentwide  priorities, including trade-offs between health care and other services.  OMB considers VA’s budget submission in light of presidential priorities  and needs governmentwide. VA and OMB communicate these priorities by  providing guidance.
One source of guidance for developing the budget request is the Secretary  of VA. VA officials told us that each April they issue departmental  guidance that may include funding targets and policy priorities. The  guidance communicates the Secretary’s priorities and may identify the  specific VA services to be emphasized in that year’s budget request. In  addition to preparing the estimate for existing health care services, VHA  may have to estimate the resources required to carry out a new initiative  identified in guidance from the Secretary. VA officials said that in some  years they may direct VHA to estimate the resources needed under  different levels of demand for services to reflect a changing internal or  external environment, such as legislative changes or economic conditions.
Another source of guidance for developing the budget request is OMB,  which issues OMB Circular No. A-11. It includes guidance to agencies for  preparing budget submissions. According to OMB staff, additional  guidance from OMB gives more specific information on priorities or target  funding levels. OMB staff also stated that they maintain ongoing contact  with VA officials as the budget submission is formulated to provide  guidance and to keep apprised of VA budgetary concerns.
The budget estimate for health care services is presented in different ways  for review and decision making. VA must present the budget estimate in  the appropriations accounts’ structure used by Congress, but the budget  estimate is also shown by broad service categories, such as acute, mental  health, and institutional long-term care, and the Secretary’s and  President’s initiatives. For the purpose of presentation in the President’s  Budget, agencies start from the most recently enacted appropriations,  even if the President proposes changes to the structure and purposes of  the appropriations accounts. Congress funds VA health care services in  three appropriations accounts. The three appropriations accounts for VA  health care services are:    Medical Services, which includes funds for health care services provided  to eligible veterans and beneficiaries in VA’s medical centers, outpatient  clinic facilities, contract hospitals, state homes, and outpatient programs  on a fee basis;   Medical Support and Compliance, which includes funds for  management and administration of the VA health care system, including  financial management; and   Medical Facilities, which includes funds for the operation and  maintenance of the VA health care system’s capital infrastructure, such as  costs associated with utilities, facility repair, laundry services, and  groundskeeping.
Figure 4 shows the different structures in which the fiscal year 2011  budget estimate was presented for review and decision making.
Because support and compliance (administrative) costs and facility costs  are not estimated separately by the EHCPM or other methods used by VA  to develop its resource estimates, VHA officials said they generally  distribute the total health care budget request among the three  appropriations accounts based on historical spending trends. Specifically,  VA uses the proportions of funding for health care services,  administration, and facility costs that were obligated in the last budget  year as a baseline and makes adjustments as appropriate. For example, if  VA is requesting a relative increase in maintenance efforts, VA would  increase the share of the budget requested for the Medical Facilities  account. Funding was requested for fiscal year 2011 for the three accounts  in the following proportions: Medical Services at 77 percent, Medical  Support and Compliance at 11 percent, and Medical Facilities at   12 percent.
Officials from VA’s Office of Budget said that they focus on changes from  the previous year and review whether the changes are consistent with past  trends, whether projected trends are consistent with their expectations,  and whether the changes are justified. Given that VA’s Office of Budget  has already reviewed the underlying assumptions in the early stages of  developing the health care budget estimate, VA budget officials said that,  at this point, they ensure that the budget estimate is internally consistent,  the justifications are clear, and the amounts requested are reasonable. For  example, the Office of Budget verifies that the resources requested are  sufficient to cover the salaries for the number of employees included in  the request. The Office of Budget also verifies whether the estimates for  collections and new initiatives are sufficient.
The Secretary of VA considers the health care budget estimate when  assessing resource requirements among competing interests within VA,  particularly in times of fiscal constraints. The departmentwide budget  submission includes resources for the administration of veterans’  compensation and benefit programs as well as proposed investments for  improving the delivery of those benefits using information technology and  for construction projects at hospitals and other facilities. VA officials said  the Secretary most often makes trade-offs in areas such as new initiatives  and new construction. As an example, VA officials said that the Secretary  may want to dedicate more resources for mental health services to reduce  homelessness among veterans than the budget estimate initially provided.  As a result of these trade-offs, VA’s budget request for health care could be  different from the resource estimates developed using the EHCPM and  other methods.
VA’s Office of Budget includes supporting materials accompanying VA’s  budget request that are submitted to OMB. These supporting materials  include narrative statements of selected health care services, such as  mental health and homeless programs. VA also submits additional data to  justify VA’s request for resources. For example, VA submits detailed  estimates from the EHCPM separately to OMB. According to VA officials,  these estimates are used to communicate to decision makers how the  estimated spending for services supports VA’s mission to provide health  care services to veterans instead of listing all the details of health care  services in the budget submission.
In September of each year, VA transmits its departmentwide budget  submission, including its budget estimate for health care, to OMB. OMB  staff stated that they initially review VA’s assumptions, such as economic  assumptions pertaining to inflation, and review cost and utilization trends  used to develop the health care budget estimate. OMB staff also review the  policy priorities in VA’s submission, which includes the funding request for  VA health care, to verify that the President’s priorities are reflected. OMB  staff stated that they also talk with VHA officials to ensure that the  resources requested support the initiatives as described.
Traditionally, OMB issues decisions, known as passback, to VA and other  agencies in late November on the funding and policy proposals to be  included in the President’s budget request. OMB staff said that they  consider broader resource constraints and competing priorities of other  agencies when making decisions about the level of funding for VA’s  services. VA may appeal the decision before OMB finalizes the President’s  budget request. The OMB decision and appeals process can result in a  presidential budget request that is different from VA’s budget submission  to OMB. The budget formulation process culminates with OMB preparing  the accompanying documents submitted to Congress in February.  Concurrently, VA prepares a congressional budget justification that  provides details supporting the policy and funding decisions for the  President’s budget request to Congress.
section_title: Agency Comments
paragraphs: We provided a draft of this report to VA and OMB for comment. VA and  OMB provided technical comments, which we incorporated as  appropriate.
We are sending copies of this report to the Secretary of Veterans Affairs  and the Director of the Office of Management and Budget, and appropriate  congressional committees. In addition, the report will be available at no  charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  Randall B. Williamson at (202) 512-7114 or at williamsonr@gao.gov, or  Denise M. Fantone at (202) 512-6806 or at fantoned@gao.gov. Contact  points for our Offices of Congressional Relations and Public Affairs may  be found on the last page of this report. GAO staff who made key  contributions to this report are listed in appendix II.
section_title: Appendix I: Data Sources for Utilization and Unit-Cost in VA’s Enrollee Health Care Projection Model, Fiscal Year 2011
paragraphs: Skilled nursing facility (non-acute)
Prescription drugs (brand & generic)
section_title: Appendix II: GAO Contacts and Staff Acknowledgments
subsections: section_title: Contacts
section_title: Acknowledgments
paragraphs: In addition to the contacts named above, James C. Musselwhite and  Melissa Wolf, Assistant Directors; Rashmi Agarwal; Deirdre Brown; Amber  G. Edwards; Krister Friday; Lauren Grossman; Tom Moscovitch; Lisa  Motley; Leah Probst; Steve Robblee; and Jessica Smith made key  contributions to this report.
section_title: Related GAO Products
paragraphs: VA Health Care: Spending for and Provision of Prosthetic Items.   GAO-10-935. Washington, D.C.: September 30, 2010.
VA Health Care: Reporting of Spending and Workload for Mental Health  Services Could Be Improved. GAO-10-570. Washington, D.C.: May 28, 2010.
Continuing Resolutions: Uncertainty Limited Management Options and  Increased Workload in Selected Agencies. GAO-09-879. Washington, D.C.:  September 24, 2009.
VA Health Care: Challenges in Budget Formulation and Issues  Surrounding the Proposal for Advance Appropriations. GAO-09-664T.  Washington, D.C.: April 29, 2009.
VA Health Care: Challenges in Budget Formulation and Execution.   GAO-09-459T. Washington, D.C.: March 12, 2009.
VA Health Care: Long-Term Care Strategic Planning and Budgeting  Need Improvement. GAO-09-145. Washington, D.C.: January 23, 2009.
VA Health Care: Budget Formulation and Reporting on Budget  Execution Need Improvement. GAO-06-958. Washington, D.C.:   September 20, 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.
VA Long-Term Care: Trends and Planning Challenges in Providing  Nursing Home Care to Veterans. GAO-06-333T. Washington, D.C.:   January 9, 2006.
VA Long-Term Care: More Accurate Measure of Home-Based Primary  Care Workload Is Needed. GAO-04-913. Washington, D.C.: September 8,  2004.