VA Health Care: Challenges in Budget Formulation and Execution
Published: 2009-03-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Veterans Affairs (VA) estimates it will provide health care to 5.8 million patients with appropriations of $41.2 billion in fiscal year 2009. The President has proposed an increase in VA's health care budget for fiscal year 2010 to expand services for veterans. VA's patient population includes aging veterans who need services such as long-term care-- including nursing home and noninstitutional care provided in veterans' homes or community-- and veterans returning from Afghanistan and Iraq. Each year, VA formulates its medical care budget, which involves developing estimates of spending for VA's health care services. VA is also responsible for budget execution-- spending appropriations and monitoring their use. GAO was asked to discuss challenges related to VA's health care services budget formulation and execution. This statement focuses on (1) challenges VA faces in formulating its health care budget, and (2) challenges VA faces in executing its health care budget. This testimony is based on three GAO reports: VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement (GAO-06-958) (Sept. 2006); VA Heath Care: Spending for Mental Health Strategic Plan Initiatives Was Substantially Less Than Planned (GAO-07-66) (Nov. 2006); and VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement (GAO-09-145) (Jan. 2009).
section_title: What GAO Found
paragraphs: VA faces challenges formulating its health care budget each fiscal year. As noted in GAO's 2006 report on VA's overall health care budget, these include making realistic assumptions about the budgetary impact of policy changes, making accurate calculations, and obtaining sufficient data for useful budget projections. For example, GAO found that VA made unrealistic assumptions about how quickly it would realize savings from proposed changes in nursing home policy. While VA took steps to respond to GAO's 2006 recommendations about VA budgeting, recent GAO work found similar issues. In 2009, GAO reported on VA's long-term care budget--namely, on challenges in projecting the amount and cost of VA long-term care. GAO found that in its fiscal year 2009 budget justification, VA used assumptions about the cost of nursing home and noninstitutional care that appeared unrealistically low given recent VA experience and other indicators. VA said it would complete an action plan responding to GAO's 2009 recommendations by the end of March 2009. VA also faces challenges executing its health care budget. These include spending and tracking funds for specific initiatives and providing timely and useful information to Congress on budget execution progress and problems. GAO's 2006 report on VA funding for new mental health initiatives found VA had difficulty spending and tracking funds for initiatives in VA's mental health strategic plan to expand services to address service gaps. The initiatives were to enhance VA's larger mental health program and were to be funded by $100 million in fiscal year 2005. Some VA medical centers did not spend all the funds they had received for the initiatives by the end of the fiscal year, partly due to the time it took to hire staff and renovate space for mental health programs. Also, VA did not track how funding allocated for the initiatives was spent. GAO's 2006 report on VA's overall health care budget found that VA monitored its health care budget execution and identified execution problems for fiscal years 2005 and 2006, but did not report the problems to Congress in a timely way. GAO also found that VA's reporting on budget execution to Congress could have been more informative. VA has not fully implemented one of GAO's two recommendations for improving VA budget execution. Sound budget formulation, monitoring of budget execution, and the reporting of informative and timely information to Congress for oversight continue to be essential as VA addresses budget challenges GAO has identified. Budgeting involves imperfect information and uncertainty, but VA has the opportunity to improve the credibility of its budgeting by continuing to address identified problems. This is particularly true for long-term care, where for several years GAO work has highlighted concerns about workload assumptions and cost projections. By improving its budget process, VA can increase the credibility and usefulness of information it provides to Congress on its budget plans and progress in spending funds. GAO's prior work on new mental health initiatives may provide a cautionary lesson about expanding VA programs--namely, that funding availability does not always mean that new initiatives will be fully implemented in a given fiscal year or that funds will be adequately tracked.

section_title: Letter
paragraphs: I am pleased to be here today as you discuss the Department of Veterans  Affairs’ (VA) health care programs and consider the President’s budget  request for fiscal year 2010. These programs form one of the largest health  care delivery systems in the nation and provide, for eligible veterans, a  range of services, including preventive and primary health care, outpatient  and inpatient services, and prescription drugs. For example, VA provides a  variety of outpatient and inpatient mental health services for veterans with  conditions such as depression, post-traumatic stress disorder, and  substance abuse disorders. VA also provides a range of long-term care  services—including nursing home care and noninstitutional care provided  in veterans’ homes or in the community—for veterans needing assistance  due to chronic illness or physical or mental disability. VA estimated that in  fiscal year 2009, its health care programs would serve 5.8 million patients  with appropriations of $41.2 billion. The President recently proposed an  increase in VA’s health care budget for fiscal year 2010 to expand health  care services for veterans.
VA formulates its health care budget by developing annual estimates of its  likely spending for all of its health care programs and services, and  includes these estimates in its annual congressional budget justification to  the appropriations subcommittees. VA’s formulation of its budget is by its  very nature challenging, as it is based on assumptions and imperfect  information on the health care services VA expects to provide. For  example, VA is responsible for anticipating the service needs of two very  different populations—an aging veteran population and a growing number  of veterans returning from the military operations in Afghanistan and Iraq,  known as Operation Enduring Freedom (OEF) and Operation Iraqi  Freedom (OIF), respectively—calculating the future costs associated with  providing VA services, and using these factors to develop the department’s  budget request submitted to the Office of Management and Budget  (OMB). VA uses an actuarial model to develop the annual budget  estimates for most, but not all, of its health care programs, including  inpatient acute surgery, outpatient care, and prescription drugs. This  model estimates future VA health care costs by using projections of  veterans’ demand for VA’s health care services as well as cost estimates  associated with particular health care services. In fiscal year 2006, VA  used the actuarial model to estimate about 86 percent of its projected  health care spending for that year. VA uses other approaches to develop its  spending estimates for its remaining health care services, such as long- term care. Long-term care accounted for about 10 percent of VA’s  estimated health care spending for fiscal year 2006.
VA is also responsible for executing its budget—a responsibility that  includes spending appropriated funds efficiently and effectively and  monitoring the use of funds throughout the fiscal year to ensure that those  funds are used to provide health care services as authorized. VA typically  receives appropriations that support all its health care services rather than  appropriations specifically for certain types of services. As a result, VA has  considerable discretion in how it allocates its resources among its various  health care services. VA allocates most of the appropriations for its health  care services to VA’s 21 health care networks, which in turn allocate funds  to the medical centers within their networks.
In 2006 and 2009, we issued three reports that examined some of the  challenges VA faces in budget formulation and execution; these reports  pertained to VA’s overall health care budget as well as portions of its  budget that pertain to long-term care and to specific mental health  initiatives. You asked us to discuss budget challenges VA faces related to  its health care programs, and today my remarks are based on our issued  work on this subject. Specifically, I will discuss (1) challenges VA faces  formulating its health care budget, and (2) challenges VA faces executing  its health care budget.
For our 2006 report on VA’s overall health care budget for fiscal years 2005  and 2006, we analyzed and reviewed budget documents, including VA’s  budget justifications for health care programs for fiscal years 2005 and  2006, and interviewed VA officials responsible for VA health care budget  issues and for developing budget projections. In addition, from August to  September 2008, we reviewed VA documents to determine whether VA had  implemented the recommendations we made in our 2006 report. For our  other 2006 report, on VA’s budget for specific mental health initiatives, we  reviewed documents related to the funding of these initiatives. We  interviewed VA headquarters officials responsible for VA’s mental health  services and budget functions. We also conducted site visits and phone  interviews with officials from selected VA health care networks and VA  medical centers. In September 2008, we reviewed VA documents to  determine whether VA had implemented the recommendations we made in  that report. For our 2009 report on VA’s long-term care budget, we  reviewed VA’s fiscal year 2009 congressional budget justification and  related documents. We also interviewed VA officials. We conducted our  work for these performance audits 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: VA Faces Challenges in Formulating Its Health Care Budget
paragraphs: Our prior work highlights some of the challenges VA faces in formulating  its budget. As we reported in 2006, these challenges include making  realistic assumptions about the budgetary impact of some of its policies,  making accurate calculations, and obtaining sufficient data for useful  budget projections. In 2009, we again reported on VA’s budget formulation  challenges—specifically, VA’s challenges projecting the amount of long- term care it will provide and estimating the costs of this care.
subsections: section_title: Challenges Making Realistic Assumptions Related to Proposed Policy Changes, Making Accurate Calculations, and Obtaining Sufficient Data
paragraphs: Our 2006 report on VA’s overall health care budget illustrated that in  formulating its budget, VA faces challenges making realistic assumptions  about the budgetary impact of its proposed policies. We reported that the  President’s requests for additional funding for VA’s medical programs for  fiscal years 2005 and 2006 were in part due to unrealistic assumptions VA  made about how quickly the department would realize savings from  proposed changes in its nursing home policy. Specifically, we found that:    VA’s fiscal year 2005 budget justification included a proposal to reduce the  amount of care VA provides—known as workload—in VA-operated  nursing homes, one of three settings which provide VA nursing home  services. VA assumed that savings from this reduction in workload would  be realized on the first day of fiscal year 2005. VA officials later told us that  this assumption had been unrealistic because of the accelerated time  frame of the planned policy change. The change would have required  transferring or discharging veterans from the nursing homes in an  extremely compressed time frame; moreover, achievement of substantial  savings from this policy would have also likely required reducing the  number of VA employees.
VA’s fiscal year 2006 budget justification included a policy proposal to  reduce patient workload and costs by prioritizing the veterans who would  receive a certain type of VA nursing home care. VA assumed that savings  resulting from the policy change could be realized before the start of the  2006 fiscal year; however, VA officials said they later realized that time  frame was unrealistic.
In our 2006 report, we recommended that VA improve its budget  formulation processes by explaining in its budget justifications the  relationship between the implementation of proposed policy changes and  the expected timing of cost savings to be achieved. VA agreed with this  recommendation and acted on this recommendation in VA’s fiscal year  2009 budget justification.
Our 2006 report also illustrated that VA faces challenges making accurate  calculations during budget formulation. As we reported, VA made  computation errors when estimating the effect of its proposed fiscal year  2006 nursing home policy, and this contributed to requests for  supplemental funding that year. We found that VA underestimated  workload and the costs of providing care in all three of its nursing home  settings. VA officials said that the errors resulted from calculations being  made in haste during the OMB appeal process, and that a more  standardized approach to long-term care calculations could provide  stronger quality assurance to help prevent future mistakes. In 2006, we  recommended that VA strengthen its internal controls to better ensure the  accuracy of calculations it uses in preparing budget requests. VA agreed  with and implemented this recommendation and had the savings estimates  from proposed policy changes in its fiscal year 2009 budget justification  validated by an outside actuarial firm.
In formulating its budget, VA also faces the challenge of obtaining  sufficient data for useful workload projections, as illustrated in our 2006  report. We reported that the President’s requests for additional funding for  VA health care programs in fiscal years 2005 and 2006 were, in part, due to  the lack of sufficient data on how many OEF/OIF veterans VA would care  for in those fiscal years. In its fiscal year 2005 budget justification, VA  projected that it would need to provide care to about 23,500 returning  OEF/OIF veterans. VA subsequently revised its projections to indicate that  VA would serve nearly 100,000 OEF/OIF veterans. According to VA  officials, the original projections for providing care to OEF/OIF veterans  had been understated for fiscal year 2005 in part because the projections  were based on insufficient data on veterans returning from Iraq and  Afghanistan. Insufficient data on returning OEF/OIF veterans continued to  be a challenge in formulating VA’s fiscal year 2006 budget justification. VA  officials told us they did not have sufficient data for that fiscal year due to  challenges obtaining data needed to identify these veterans from the  Department of Defense (DOD). After the President submitted the fiscal  year 2006 budget request, VA determined that it expected to provide care  to approximately 87,000 more veterans than initially projected for fiscal  year 2006. According to VA officials, the agency subsequently began  receiving the DOD data it requires to identify OEF/OIF veterans on a  monthly basis rather than the quarterly reports it used to receive.
section_title: Challenges Projecting the Amount and Cost of Long- Term Care Services
paragraphs: Our recent work on VA’s budget showed how VA continued to face  challenges formulating its budget for long-term care services. In January  2009, we reported on VA’s challenges developing realistic assumptions to  project the amount of noninstitutional long-term care services it would  provide to veterans. We found that, in its fiscal year 2009 budget  justification, VA included a spending estimate for noninstitutional long- term care services that appeared unreliable, in part because this spending  estimate was based on a workload projection that appeared to be  unrealistically high, given recent VA experience providing these services.  Specifically, in an effort to help meet veterans’ demand for  noninstitutional services, VA projected that it would increase its  noninstitutional workload 38 percent from fiscal year 2008 to fiscal year  2009. VA included this projection in the budget despite the fact that from  fiscal year 2006 to fiscal year 2007—the most recent year for which  workload data are available—VA’s actual workload for these services  decreased about 5 percent, rather than increasing as projected. (See fig. 1.)  In its fiscal year 2009 budget justification, VA did not provide information  regarding its plans for how it will increase noninstitutional workload   38 percent from fiscal year 2008 to fiscal year 2009.
To strengthen the credibility of the estimates of long-term care spending in  VA’s budgeting proposals and increase transparency for Congress and  stakeholders, we recommended that in future budget justifications VA use  workload projections for estimating noninstitutional long-term care  spending that are consistent with VA’s recent experience or report the  rationale for using projections that are not. In commenting on a draft of  our report, VA did not indicate whether it agreed with this  recommendation, but stated it would complete an action plan that  responds to the recommendation by the end of March 2009.
In addition to having difficulty developing reliable projections on the  amount of long-term care services it will provide, VA also faces challenges  developing realistic assumptions about the cost of providing these services  when formulating its budget. In January 2009, we reported that VA may  have underestimated its nursing home spending for fiscal year 2009  because it used a cost assumption that appeared unrealistically low, given  both recent VA experience and economic forecasts of increases in health  care costs. To formulate its nursing home spending estimate, VA assumed  that the cost of providing a day of nursing home care would increase   2.5 percent from fiscal year 2008 to fiscal year 2009. However, from fiscal  year 2006 to fiscal year 2007—the most recent year for which actual cost  data are available—the cost to provide this care increased approximately  5.5 percent. Similarly, for fiscal year 2007 to fiscal year 2008, VA estimated  that its nursing home costs would increase approximately 11 percent. In  addition to its recent experience, VA’s 2.5 percent cost increase is also less  than the rate provided in OMB guidance to VA to help with its budget  estimates—which forecasted a rate of inflation for medical services of   3.8 percent for the same time period.
In our January 2009 report, we also found that VA’s estimate of the amount  it would spend for noninstitutional long-term care services in fiscal year  2009 appeared to be unreliable—in part because VA based this estimate on  a cost assumption that appeared unrealistically low, when compared to  VA’s recent experience and to economic forecasts of increases in health  care costs. Specifically, VA assumed that the cost of providing a day of  noninstitutional long-term care would not increase from its fiscal year  2008 level. VA used this assumption to formulate its noninstitutional long- term care spending estimate despite the fact that from fiscal year 2006 to  fiscal year 2007—the most recent year for which actual cost data are  available—the cost of providing these services increased 19 percent. VA’s  cost assumption is also inconsistent with the OMB guidance provided to  VA. In its fiscal year 2009 budget justification, VA did not provide  information regarding its nursing home or noninstitutional cost  assumptions. However, VA officials told us that they made these  assumptions in order to be conservative in VA’s fiscal year 2009 budget  estimates.
To strengthen the credibility of the estimates of long-term care spending in  VA’s budgeting proposals and increase transparency for Congress and  stakeholders, we recommended that VA, in future budget justifications,  use cost assumptions for estimating both nursing home and  noninstitutional long-term care spending that are consistent with VA’s  recent experience or report the rationale for using cost assumptions that  are not. In commenting on a draft of our report, VA did not indicate  whether it agreed with these recommendations, but stated it would  complete an action plan that responds to the recommendations, again by  the end of March 2009.
section_title: VA Faces Challenges in Executing Its Budget for Health Care Services
paragraphs: Our prior work highlights some of the challenges VA faces in executing its  health care budget. These challenges include spending and tracking funds  designated by VA for specific health care initiatives as well as providing  timely and useful information to Congress regarding budget execution  progress and problems.
subsections: section_title: Challenges Spending and Tracking Funds Designated for VA Health Care Initiatives
paragraphs: After formulating its estimates of likely spending on its health care  services, VA is also responsible for executing its budget efficiently and  effectively. However, our 2006 report on VA’s funding for specific mental  health initiatives showed that in executing its budget, VA faces challenges  spending and tracking the use of funds designated by VA for specific VA  health care initiatives, in particular funds that VA intends to use to expand  services to improve access to care for its veteran population. For example,  in 2006, we reported that in fiscal years 2005 and 2006, VA had difficulty  spending and tracking funds it had designated for new initiatives included  in VA’s mental health strategic plan, which were to expand mental health  services in order to address gaps previously identified by VA. These  initiatives—which were to be funded by $100 million in fiscal year 2005  and $200 million in fiscal year 2006—were intended to enhance VA’s larger  mental health program. In both fiscal years, VA allocated funds to VA  medical centers and offices that were to be used for mental health  strategic plan initiatives during those fiscal years, as part of VA’s efforts to  expand these services. As we reported in 2006, VA faced challenges in  both spending the funds and tracking their use in fiscal years 2005 and  2006:    Challenges in spending funds—We found that, by the end of fiscal years  2005 and 2006, some VA medical centers had not spent all of the funds  they had received for mental health strategic plan initiatives for those  fiscal years, according to VA medical center officials and other available  information. In fiscal year 2005, this was due to factors such as the length  of time it took the medical centers to hire new staff and locate or renovate  space for new mental health programs.
Challenges in tracking the use of funds—In both fiscal years, VA did not  have an adequate method in place for tracking spending for its new mental  health strategic plan initiatives. VA did not track how funds allocated for  plan initiatives were spent, and as a result, VA could not determine to what  extent the funds for plan initiatives were spent on those initiatives.
To provide information for improved management and oversight, we  recommended that VA track the extent to which the funds allocated for  mental health strategic plan initiatives are spent for those initiatives. Since  we reported on this issue in November 2006, VA has implemented a  tracking system to monitor spending on mental health strategic plan  initiatives and help determine the extent to which funds allocated for  mental health strategic plan initiatives are spent for those initiatives.
Although VA took steps to address its challenges tracking its spending on  mental health initiatives, our more recent work in 2009 shows how VA  continues to face spending challenges when the department undertakes  efforts to expand services for veterans. In January 2009 we reported that  VA’s fiscal year 2009 budget justification included plans to increase VA’s  spending on noninstitutional long-term care services, in order to partially  close previously identified gaps in the provision of these services. VA  assumed it would be able to increase its noninstitutional workload by   38 percent from fiscal year 2008 to fiscal year 2009. However, in our report  we raised questions about VA’s ability to achieve this increase in  workload. As we noted in our report, VA officials stated that increasing  noninstitutional workload is challenging. Similar to VA’s prior mental  health initiatives, many of VA’s noninstitutional services are provided by  VA personnel, and as a result, VA must take the time to hire and train more  personnel before it has the capacity to serve an increased workload. These  factors suggest that VA may have difficulty spending its resources as  planned. In its budget justification, VA did not explain how it plans to  achieve this increase in noninstitutional workload.
section_title: Challenges Providing Timely and Useful Information to Congress Regarding Budget Execution Progress and Problems
paragraphs: As VA executes its budget, VA also faces the challenge of providing timely  information to Congress about the agency’s progress and any problems the  agency encounters during this process. For example, in our 2006 report on  VA’s overall health care budget, we reported that although VA staff had  closely monitored its budget execution and identified problems for fiscal  years 2005 and 2006, VA did not report this information to Congress in a  timely manner. For example, anticipating challenges in managing within  its resources, VA had closely monitored the fiscal year 2005 budget as  early as October 2004. However, Congress did not learn of the budget  challenges facing VA until April 2005.
In addition, VA faces a challenge in providing information to Congress that  would be useful for congressional oversight of VA’s budget. For example,  in 2006, we also found that VA’s reporting of its budget execution progress  and problems to Congress could have been more informative. In the  appropriations act for fiscal year 2006, Congress included a requirement  for VA to submit quarterly reports regarding the status of the medical  programs budget during that fiscal year. In addition, the conference  report accompanying the appropriations act directed VA to include waiting  list performance measures, among other things. We found that VA did not  include in its quarterly reports certain types of information that would  have been useful for congressional oversight. For example, in its reports to  Congress, VA used a patient workload measure that counted patients only  once no matter how many times they used VA services within the fiscal  year. This measure did not capture the difference between patients  predominantly using low-cost services such as primary care outpatient  visits and those using high-cost services such as acute inpatient hospital  care. In contrast, VA provided in its reports to OMB other workload  measures that provided a more complete picture of whether new patients  were receiving low- or high-cost services. Some of those measures  provided to OMB included a measure of one type of inpatient care— nursing home workload—and the number of outpatient visits.
In addition, in one of its quarterly reports to Congress, VA reported access  measures for existing VA patients—the percentage of primary care and  percentage of specialty care appointments scheduled within 30 days of the  desired date—where VA was exceeding its performance goals. However,  VA did not provide one access measure identified in the conference report:  the time required for new patients to get their first appointment. Although  not the same measure, a similar measure VA produced for other purposes  showed the number of new patients waiting for their first appointment to  be scheduled. This measure showed that the number of new patients  waiting for their first appointment to be scheduled almost doubled from  April 2005 to March 2006, indicating a potential problem in the first quarter  of fiscal year 2006.
We recommended that VA improve its reporting of budget execution  progress to Congress by incorporating measures of patient workload to  capture the costliness of care and a measure of waiting times. These  measures might help alert Congress to potential problems VA may face in  managing within its budget in future years. VA implemented part of this  recommendation in the quarterly report it submitted to Congress in May  2008, in which VA reported two measures related to waiting times.  Although the inclusion of these measures in VA’s quarterly reports can  help facilitate congressional oversight, VA could provide additional  information to inform Congress about the costliness of VA care.
section_title: Concluding Observations
paragraphs: Sound budget formulation, monitoring of budget execution, and the  reporting of informative and timely information to Congress for oversight  continue to be essential as VA addresses budget challenges we have  identified in recent years. While the budget process inevitably involves  imperfect information and uncertainty about future events, VA has the  opportunity to improve the credibility of its budgeting process by  continuing to address problems that we have identified in recent years.  Doing so can increase the credibility and usefulness of information that VA  provides to Congress and affected stakeholders on its annual budget plans  and the progress it makes in spending appropriated funds as planned. This  is particularly the case for long-term care services, where budget workload  assumptions and cost projections, as highlighted by our work for several  years, raise questions regarding the credibility and usefulness of projected  spending estimates. In addition, our prior report on new VA mental health  initiatives to address identified gaps in services may provide a cautionary  lesson regarding the expansion of new VA health care programs more  generally. Namely, that the availability of funding for new health care  initiatives does not in itself mean that these initiatives will be fully  implemented within a given fiscal year—in part because new initiatives  can bring challenges in hiring and training new staff—or that monitoring  and tracking of such funding will be adequate to report the extent to which  new initiatives are being implemented as planned.
Mr. Chairman, this concludes my prepared remarks. I would be happy to  answer any questions you or other members of the Subcommittee may  have.
section_title: Contact and Acknowledgments
paragraphs: For more information regarding this testimony, please contact Randall B.  Williamson at (202) 512-7114 or williamsonr@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. In addition, James C. Musselwhite,  Assistant Director; Deirdre Brown; Robin Burke; and Krister Friday made  key contributions to this testimony.
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