Veterans' Health Care Budget Estimate: Changes Were Made in Developing the President's Budget Request for Fiscal Years 2012 and 2013
Published: 2011-06-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Veterans Health Care Budget Reform and Transparency Act of 2009 requires GAO to report whether the amounts for the Department of Veterans Affairs' (VA) health care services in the President's budget request are consistent with VA's budget estimates as projected by the Enrollee Health Care Projection Model (EHCPM) and other methodologies. Based on the information VA provided, this report describes (1) the key changes VA identified that were made to its budget estimate to develop the President's budget request for fiscal years 2012 and 2013 and (2) how various sources of funding for VA health care and other factors informed the President's budget request for fiscal years 2012 and 2013. GAO reviewed documents describing VA's estimates projected by the EHCPM and changes made to VA's budget estimate that affect all services, including estimates developed using other methodologies. GAO also reviewed the President's budget request, VA's congressional budget justification, and interviewed VA officials and staff from the Office of Management and Budget (OMB).
section_title: What GAO Found
paragraphs: VA officials identified changes made to its estimate of the resources needed to provide health care services to reflect policy decisions, savings from operational improvements, resource needs for initiatives, and other items to help develop the President's budget request for fiscal years 2012 and 2013. For example, VA's estimate for non-recurring maintenance to repair health care facilities was reduced by $904 million for fiscal year 2012 and $1.27 billion for fiscal year 2013, due to a policy decision to fund other initiatives and hold down the overall budget request for VA health care. VA's estimates were further reduced by $1.2 billion for fiscal year 2012 and $1.3 billion for fiscal year 2013 due to expected savings from operational improvements, such as proposed changes to purchasing and contracting. Other changes had a mixed impact on VA's budget estimate, according to VA officials; some of these changes increased the overall budget estimate, while other changes decreased the overall estimate. The President's request for appropriations for VA health care for fiscal years 2012 and 2013 relied on anticipated funding from various sources. Specifically, of the $54.9 billion in total resources requested for fiscal year 2012, $50.9 billion was requested in new appropriations. This request assumes the availability of $4.0 billion from collections, unobligated balances of multiyear appropriations, and reimbursements VA receives for services provided to other government entities. Of the $56.7 billion in total resources requested for fiscal year 2013, $52.5 billion was requested in new appropriations, and $4.1 billion was anticipated from other funding sources. The President's request for fiscal year 2012 also included a request for about $953 million in contingency funding to provide additional resources should a recent economic downturn result in increased use of VA health care. Contingency funding was not included in the advance appropriations request for fiscal year 2013. Budgeting for VA health care is inherently complex because it is based on assumptions and imperfect information used to project the likely demand and cost of the health care services VA expects to provide. The iterative and multilevel review of the budget estimates can address some of these uncertainties as new information becomes available about program needs, presidential policies, congressional actions, and future economic conditions. As a result, VA's estimates may change to better inform the President's budget request. The President's request for VA health care services for fiscal years 2012 and 2013 was based, in part, on reductions to VA's estimates of the resources required for certain activities and operational improvements. However, in 2006, GAO reported on a prior round of VA's planned management efficiency savings and found that VA lacked a methodology for its assumptions about savings estimates. If the estimated savings for fiscal years 2012 and 2013 do not materialize and VA receives appropriations in the amount requested by the President, VA may have to make difficult trade-offs to manage within the resources provided.
section_title: What GAO Recommends
paragraphs: GAO is not making recommendations in this report. GAO provided a draft of this report to the Secretary of VA and the Director of OMB for comment. VA had no comments on this report. 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. In fiscal year 2010, VA served 6 million  patients and spent $48.2 billion on a range of health care services for  eligible veterans including primary care, inpatient and outpatient surgery,  prosthetics, mental health services, prescription drugs, and nursing home  care. The amount of funding VA receives to provide its health care  services is determined by Congress in the annual appropriations process,  which also provides funds for a wide range of other national programs,  such as those supporting defense, education, and transportation. In  preparation for the appropriations process, VA must develop annually a  budget estimate of the resources needed for its health care services,  including the 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. VA begins developing its budget estimate for  health care services approximately 10 months before the President  submits the budget to Congress in February each year.
As we have previously reported, VA uses what is known as the Enrollee  Health Care Projection Model (EHCPM) to develop most of its estimate of  the resources needed to meet the expected demand for health care  services, and uses other methods to estimate the remaining resources  needed. VA’s estimate of the resources needed is reviewed through  successively higher levels within the agency and revised until consolidated  into a departmentwide annual budget estimate that is submitted to the  Office of Management and Budget (OMB) for review and consideration.  OMB subsequently includes a request for VA in the President’s annual  budget request to Congress, which represents the administration’s  priorities and funding decisions for federal programs, including VA health  care services.
VA’s formulation of its health care budget estimate is inherently complex,  as assumptions and imperfect information are used to project the likely  quantity and cost of the health care services VA expects to provide. Most  of these projections are 3 to 4 years into the future based on data from the  most recent fiscal year. As such, VA’s budget estimate is 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 request is made. In addition, our prior work has highlighted  some of the challenges VA has faced in obtaining sufficient data, making  accurate calculations, and making realistic assumptions when formulating  its budget estimate.
In 2009, the Veterans Health Care Budget Reform and Transparency Act  was enacted and 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 required that we report whether the amounts for VA health care  services in the President’s budget request are consistent with the estimates  of the resources required by VA for the provision of medical care and  services as projected by the EHCPM or using other methodologies. In  response to this act, we report on: 1) the key changes VA identified that  were made to its budget estimate to develop the President’s budget  request for fiscal years 2012 and 2013 and 2) how various sources of  funding for VA health care and other factors informed the President’s  budget request for fiscal years 2012 and 2013.
To describe the key changes VA identified that were made to its budget  estimate for the President’s budget request, we reviewed VA documents  that described the estimate projected by the EHCPM and key changes  made to the estimates for all health care services, including estimates  developed for services using other methodologies for fiscal years 2012 and  2013. We also reviewed the President’s fiscal year 2012 budget request for  VA health care services, including VA’s congressional budget justification  supporting the President’s request. We interviewed VA officials and OMB  staff to discuss these changes.
To describe how various sources of funding and other factors informed  the President’s budget request, we reviewed the President’s request and  VA’s supporting congressional budget justification that detail funds  expected to be available for VA’s health care services. We discussed with  VA officials and OMB staff the availability of resources from prior years,  anticipated collections, and other factors that affected decisions on  funding for VA health care services reflected in the President’s budget  request.
To assess the reliability of the estimates VA provided, changes made to  these estimates, and VA’s sources of funding, we obtained documents  containing these data and verified the consistency of the information in  these documents. We confirmed that the changes to VA’s estimates for  which VA provided documentation were reflected in the President’s  budget request for VA health care services for fiscal year 2012 and for  fiscal year 2013 advance appropriations. We also relied on our prior work  to compare data and check for internal consistency and discussed these  data with VA officials. We found the data reliable for the purpose of  describing certain changes to VA’s budget estimate, the requested amounts  in the President’s budget request, and VA’s sources of funding for fiscal  years 2012 and 2013.
We requested that VA provide us with the components of its total health  care budget estimate that informed the President’s budget request of   $54.9 billion for fiscal year 2012 and $56.7 billion for fiscal year 2013. VA  provided an estimate of $47.1 billion for fiscal year 2012 and $49.8 billion  for fiscal year 2013 as projected by the EHCPM at the beginning of VA’s   10-month budget formulation process. VA did not, however, provide the  estimates it developed at the same point in time, or any other point in time,  for the remainder of the budget estimate using other methodologies. VA  also provided information on certain changes made to the underlying  estimates, including those projected by the EHCPM and those developed  using other methodologies. However, we were unable to determine when  all of these changes were made.
We conducted our work from December 2010 through June 2011 in  accordance with all sections of GAO’s Quality Assurance Framework that  are relevant to our objectives. The framework requires that we plan and  perform the engagement to obtain sufficient and appropriate evidence to  meet our stated objectives and to discuss any limitations in our work. We  believe that the information and data obtained, and the analysis  conducted, provide a reasonable basis for any findings and conclusions in  this product.
subsections: section_title: Background
paragraphs: VA provides health care 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 152 hospitals, 133 nursing homes, 824 community-based  outpatient clinics, and other facilities to provide care to 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 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 long-term care provided in nursing homes.
To meet the expected demand for health care services, VA develops a  budget estimate each year of the resources needed to provide these  services. This budget estimate includes the total cost of providing health  care services, including direct patient costs as well as costs associated  with management, administration, and maintenance of facilities. VA  develops most of its budget estimate using the EHCPM. 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 quantity of  health care services enrollees are expected to use, and the projected unit  cost of providing these 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 2010, VA used data from fiscal year 2009  to develop its health care budget estimate for the fiscal year 2012 request  and advance appropriations request for 2013.
VA uses other methods to estimate needed resources for long-term care,  other services, and health-care-related initiatives proposed by the  Secretary of VA or the President. As previously reported, these methods  estimate needed resources based on factors that may include historical  data on costs and the amount of care provided, VA’s policy goals for health  care services such as long-term care, and predictions of the number of  users. For example, VA’s projections for long-term care for fiscal year 2012  were based on fiscal year 2010 data on the amount of care provided and  the unit cost of providing a day of this care.
Typically, VA’s Veterans Health Administration (VHA) starts to develop a  health care budget estimate approximately 10 months before the President  submits the budget to Congress in February. The budget estimate changes  during the 10-month budget formulation process in part due to  successively higher levels of review in VA and OMB before the President’s  budget request is submitted to Congress. For example, the successively  higher levels of review resulting in the fiscal year 2012 President’s budget  request are described in table 1. The Secretary of VA considers the health  care budget estimate developed by VHA when assessing resource  requirements among competing interests within VA, and OMB considers  overall resource needs and competing priorities of other agencies when  deciding the level of funding requested for VA’s health care services. OMB  issues decisions, known as passback, to VA and other agencies on the  funding and policy proposals to be included in the President’s budget  request. VA has an opportunity to appeal the passback decisions before  OMB finalizes the President’s budget request, which is submitted to  Congress in February. Concurrently, VA prepares a congressional budget  justification that provides details supporting the policy and funding  decisions in the President’s budget request.
Each year, Congress provides funding for VA health care through the  appropriations process. For example, Congress provided new  appropriations of about $48.0 billion for fiscal year 2011 and advance  appropriations of $50.6 billion for fiscal year 2012 for VA health care. In  addition to new appropriations that VA may receive from Congress as a  result of the annual appropriations process, funding may also be available  from unobligated balances from multiyear appropriations, which remain  available for a fixed period of time in excess of 1 fiscal year. For example,  VA’s fiscal year 2011 appropriations provided for some amounts to be  available for 2 fiscal years. These funds may be carried over from fiscal  year 2011 to fiscal year 2012 if they are not obligated by the end of fiscal  year 2011. VA and OMB consider anticipated unobligated balances when  formulating the President’s budget request.
VA has statutory authority to collect amounts from patients, private  insurance companies, and other government entities to be obligated for  health care services. VA collects first-party payments from veterans, such  as copayments for outpatient medications, and third-party payments from  veterans’ private health insurers for deposit into the Medical Care  Collections Fund (MCCF). Amounts in the MCCF are available without  fiscal year limitation for VA health care and expenses of certain activities  related to collections subject to provisions of appropriations acts. VA  also receives reimbursements from services it provides to other  government entities, such as the Department of Defense (DOD), or to  private or nonprofit entities. For example, in 2006, we reported that VA  received reimbursements from other entities by selling laundry services.  These amounts also contribute to decisions on funding in the President’s  budget request.
Congress provides funding for VA health care through three  appropriations accounts:    Medical Services, which funds 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 funds the management and  administration of the VA health care system, including financial  management, human resources, and logistics; and    Medical Facilities, which funds the operation and maintenance of the  VA health care system’s capital infrastructure, such as costs associated  with nonrecurring maintenance, utilities, facility repair, laundry  services, and grounds keeping.
Funding was appropriated for fiscal year 2012 for the three accounts in the  following proportions: Medical Services at 78 percent, Medical Support  and Compliance at 11 percent, and Medical Facilities at 11 percent.
section_title: Changes Were Made to VA’s Budget Estimate Based on Policy Decisions and Other Factors to Help Develop the President’s Budget Request
subsections: section_title: Changes to VA’s Budget Estimate Based on Policy Decisions and Operational Improvements Resulted in Reduced Requested Resource Levels
paragraphs: VA identified several changes that were made to its budget estimate to  help develop the President’s budget request for VA for fiscal years 2012  and 2013. In one change, VA identified that the resources identified in its  budget justification for non-recurring maintenance (NRM) were lower  than the amount estimated using the EHCPM by $904 million for fiscal  year 2012 and $1.27 billion for fiscal year 2013. Funds for NRM are used to  repair and improve VA health care facilities and come from the Medical  Facilities appropriations account. The President’s budget request  reflected resource levels of $869 million for NRM for fiscal year 2012 and  $600 million for fiscal year 2013. OMB staff said that amounts identified for  NRM in VA’s congressional budget justification were lower than estimated  amounts due to a policy decision to fund other initiatives and to hold  down the overall budget request for VA health care without affecting the  quality and timeliness of VA’s health care services. VA officials said NRM  amounts that were identified for fiscal years 2012 and 2013 should be  sufficient to maintain VA health care facilities in their current conditions.
In recent years, VA’s spending on NRM has been greater than the amounts  identified in VA’s budget justifications and reflected in the President’s  budget requests (see table 2). The higher spending is consistent with VA’s  authority to increase or decrease the amounts VA allocates from the  Medical Facilities account for NRM and with congressional committee  report language. While VA’s NRM spending has exceeded amounts  identified in VA’s budget justifications over the last several years, VA’s  projection of the NRM backlog for health care facilities—which reflects  the total amount needed to address facility deficiencies—has increased to  nearly $10 billion.
Changes also were made to EHCPM estimates for health care equipment.  For equipment purchases, VA identified that the resource request in its  budget justification was $15 million lower than the amount estimated  using the EHCPM for fiscal year 2012 and $410 million lower than the  amount estimated using the EHCPM for fiscal year 2013. The President’s  budget reflected a request of $1.034 billion for fiscal year 2012 and   $700 million for fiscal year 2013 to purchase health care equipment. OMB  staff said amounts identified for equipment were lower than estimated  amounts due to a policy decision to fund other initiatives and to hold  down the overall budget request for VA health care without affecting the  quality and timeliness of VA’s health care services.
In addition, estimates of resource needs for employee salaries were  reduced due to the enactment of a law requiring the elimination of across- the-board pay raises for federal employees in 2011 and 2012. This 2-year  pay raise freeze led to a reduction of $713 million for fiscal year 2012 and  $815 million for fiscal year 2013 from VA’s health care budget estimate.  The amount of the reduction was calculated separately from the EHCPM  because the EHCPM does not have an explicit assumption for pay  increases. VA officials said that OMB staff calculated the impact on the  President’s budget request for VA health care for fiscal year 2013. The  lower salary base that resulted from the pay freeze in 2011 and 2012 also  would reduce the overall salary level for fiscal year 2013.
According to VA’s budget justification, VA’s health care budget estimate  was further reduced by $1.2 billion for fiscal year 2012 and by $1.3 billion  for fiscal year 2013 to reflect expected savings from what VA identified as  six operational improvements. Expected savings from these operational  improvements are a result of planned changes in the way VA manages its  health care system to lower costs. The operational improvements for  fiscal years 2012 and 2013 from VA’s budget justification are the following:    Acquisitions. The operational improvements with the largest amount  of estimated cost savings are VA’s proposed changes to its purchasing  and contracting strategies for which VA estimates a savings of   $355 million a year for fiscal years 2012 and 2013. For example, VA  has proposed savings by increasing competition for contracts that were  formerly awarded on a sole-source basis.
Changing rates. VA proposed to purchase dialysis treatments and  other care from civilian providers at Medicare rates instead of current  community rates. VA estimates a savings of $315 million for fiscal year  2012 and $362 for fiscal year 2013 as a result of this rate change.
Fee care. VA proposed initiatives to generate savings from health care  services that VA pays contractors to provide. VA estimates a savings of  $200 million a year for fiscal years 2012 and 2013 from reductions in its  payments for fee-based care.
Realigning clinical staff and resources. VA proposed to realign  clinical staff and resources to achieve savings by using less costly  health care providers. Specifically, VA plans to use selected non- physician providers instead of certain types of physicians, use selected  licensed practical nurses instead of certain types of registered nurses,  and more appropriately align required clinical skills with patient care  needs. VA estimates a savings of $151 million a year for fiscal years  2012 and 2013 from clinical staff and resource realignment.
Medical and administrative support. VA proposed to employ  resources more efficiently in various medical care, administrative, and  support activities at each medical center and in other VA locations. For  example, a VA official said that VA could examine job vacancies for  medical and administrative support to see whether vacant positions  need to be filled. VA estimates a savings of $150 million a year for fiscal  years 2012 and 2013 for this operational improvement.
VA real property. VA proposed initiatives to repurpose its vacant or  underutilized buildings, demolish or abandon other vacant or  underutilized buildings, decrease energy costs, change procurement  practices for building supplies and equipment, and change building- service contracts. VA estimates a savings of $66 million a year for fiscal  years 2012 and 2013 from real property initiatives.
In the past, VA has proposed management efficiencies to achieve savings  in order to reduce the amount of funding needed to provide health care  services. However, in a 2006 report, we reported that VA lacked a  methodology for its assumptions about savings estimates it had detailed  for fiscal years 2003 through 2006, and we concluded that VA may need to  take actions to stay within its level of available resources if VA fell short of  its savings goals. According to VA officials, VA is planning to develop a  system to monitor the operational improvements to determine whether  they were generating the intended savings.
section_title: Changes to VA’s Budget Estimate Based on Administration’s Initiatives Resulted in Increased Requested Resource Levels
paragraphs: VA’s health care budget estimate was increased overall by about   $1.4 billion for fiscal year 2012 and $1.3 billion for fiscal year 2013 to  support health-care-related initiatives proposed by the administration,  according to VA officials. Some of the proposed initiatives can be  implemented within VA’s existing authority, while other initiatives would  require a change in law.
VA officials estimated that the majority of initiatives would increase  resource needs for new health care services or expanded existing services.  Four initiatives which make up over 80 percent of the total amount for  initiatives in the President’s budget request are:    Homeless veterans programs. VA officials estimated that this initiative,  which supports the agency’s goal to end homelessness among veterans,  would increase VA’s resource needs by $460 million for fiscal year 2012  as well as for fiscal year 2013. This would allow VA to expand existing  programs and develop new ones to prevent veterans from becoming  homeless and help those veterans who are currently homeless,  programs such as assisting veterans with acquiring safe housing,  receiving needed health care services, and locating employment  opportunities.
Opening new health care facilities. This initiative would provide VA  with the resources to purchase equipment and supplies and complete  other activities that are necessary to open new VA health care facilities  and begin providing health care services to veterans. VA officials  estimated that this initiative would increase VA’s resource needs by  $344 million for fiscal year 2012 as well as for fiscal year 2013.
Additional services for caregivers. This initiative would give VA the  resources to expand services to caregivers of the most severely  wounded veterans returning from Afghanistan and Iraq, as required by  the Caregivers and Veterans Omnibus Health Services Act of 2010. For  example, this initiative would provide caregivers a monthly stipend and  eligibility to receive VA health care benefits. To provide these  additional services to caregivers, VA officials estimated that the  agency’s resource needs would increase by $208 million for fiscal year  2012 and $248 million for fiscal year 2013.
Benefits for veterans exposed to Agent Orange. This initiative would  provide VA with the resources to implement activities required by the  Agent Orange Act of 1991 that directs the Secretary of VA to extend  health care benefits to veterans with certain conditions, such as some  types of leukemia, who were known to be exposed to Agent Orange  and to issue regulations establishing presumptions of service  connection for diseases that the Secretary finds to be associated with  exposure to an herbicide agent. VA officials estimated that to provide  these additional benefits, its resource needs would increase by   $171 million for fiscal year 2012 and $191 million for fiscal year 2013.
VA officials estimated a small number of initiatives in the President’s  budget request would decrease VA’s spending needs. These initiatives  propose ways for VA to reduce costs. For example, the Medicare  ambulatory rates initiative proposes that Congress amend current law to  allow VA to reimburse vendors for certain types of transportation, such as  ambulances, at the local prevailing Medicare ambulance rate in the  absence of a contract. VA expects that by paying transportation vendors  the Medicare rate over their current billing rate—which VA reported may  be up to three to four times the Medicare rate—VA’s resource needs  related to certain types of transportation would decrease by about   $17 million for fiscal year 2012 as well as for fiscal year 2013.
section_title: Changes to VA’s Estimate Based on More Current Information and Other Factors Had a Mixed Impact on VA’s Estimate
paragraphs: VA’s overall estimate for long-term care and other services was reduced,  according to VA officials and OMB staff, to reflect more current data that  became available during the 10-month budget formulation process. To  meet OMB’s timeline for preparing the President’s budget request, VA  initially produced estimates for long-term care and CHAMPVA services in  May 2010. These estimates were based on a mix of available data  representing the actual amount of care provided and unit costs for these  services to-date and projections for these services for the remainder of the  2010 fiscal year. VA had to project data because only partial-year data  were available in May. Between May and November 2010, VA provided  OMB with periodic updates of the most current data available. OMB staff,  with input from VA officials, finalized the estimate for the President’s  budget request using this information, which according to VA officials and  OMB staff, resulted in a lower estimate overall for long-term care and  other services than the estimate VA produced in May 2010. VA, however,  did not provide us with the amount of the decrease in the estimate.
According to VA officials, VA’s health care budget estimate was increased  by $420 million for fiscal year 2012 and by $434 million for fiscal year 2013  to account for the costs of providing health care to non-veterans, including  active duty service members and other DOD beneficiaries under sharing  agreements, and certain VA employees who are not enrolled as veterans.  Since VA’s estimates from the EHCPM are based on the cost of treating  veterans, the agency developed the estimates for providing health care to  non-veterans separately.
VA’s estimate from the EHCPM was also increased by $220 million for  fiscal year 2012 to reflect enhancements for rural health care for veterans,  according to VA officials. Congress directed VA to spend $250 million on  enhancements for rural health care in fiscal year 2009, and VA made a  policy decision to continue spending this amount on enhancements for  rural health care in subsequent years, according to VA officials. However,  VA was not able to spend the entire $250 million in fiscal year 2009 and  spent only $30 million. Since VA used data from fiscal year 2009 in the  EHCPM to develop its health care budget estimate for fiscal year 2012,  VA’s estimate projected $30 million in spending for enhancements for rural  health care for that fiscal year. As a result, VA’s estimate was increased by  about $220 million to reflect the agency’s planned $250 million spending  for this policy change.
section_title: The President’s Budget Request for VA Health Care Relied on Funding from Various Sources and Included a Request for Contingency Funding
subsections: section_title: The President’s Budget Request for New Appropriations Was Based in Part on Consideration of Collections, Unobligated Balances, and Reimbursements
paragraphs: The President’s request for appropriations for VA health care for fiscal  years 2012 and 2013 relied on anticipated funding from several sources. Of  the $54.9 billion requested by the President for fiscal year 2012 to fund  VA’s health care services, $50.9 billion was requested in new  appropriations. This request was an increase of 5.5 percent from the  amount requested for fiscal year 2011—the lowest requested percent  increase in recent years. The request assumes the availability of about   $4.0 billion from collections, unobligated balances of mulitiyear  appropriations, and reimbursements. Similarly, of the $56.7 billion  requested by the President for fiscal year 2013, $52.5 billion was requested  in new appropriations—an increase of 3.3 percent from the fiscal year  2012 request. About $4.1 billion was expected to be available from other  funding sources. (See table 3.) VA estimates the amount of funding from  these other sources as part of its congressional budget justification  supporting the President’s request.
As table 3 shows, the President’s budget request assumes that VA will  collect about $3.1 billion for fiscal year 2012 and $3.3 billion for fiscal year  2013. These funds are from health insurers of veterans who receive VA  care for nonservice-connected conditions, as well as from other sources,  such as veterans’ copayments. VA has the authority to retain these  collections in the MCCF and may use them without fiscal year limitation  for providing VA medical care and services and for paying departmental  expenses associated with the collections program.
According to VA officials, VA reduced its $3.7 billion estimate for  collections included in the fiscal year 2012 advance appropriations request  by approximately $600 million for the fiscal year 2012 President’s budget  request. VA officials said that because of the depressed economy, fewer  enrollees have comprehensive health insurance that VA can bill for third  party payments for services that VA provides. In addition, even if enrollees  do have health insurance that VA can bill, insurance companies are  increasingly reducing payment amounts to levels stipulated in the insurers’  own policies. Finally, because the enrollee population is aging, the  percentage of enrollees who are Medicare beneficiaries is rising. As a  result, VA is increasingly limited to billing enrollees’ Medicare Supplement  Insurance policies, because fewer enrollees have full health insurance  policies that VA can bill.
The President’s budget request also assumes that VA will have unobligated  balances left from fiscal years 2011 and 2012 totaling $1.1 billion to  obligate in fiscal years 2012 and 2013. Specifically, VA proposes to carry  over $600 million of the funds left from fiscal year 2011 to obligate in fiscal  year 2012 and to carry over $500 million of the funds left from fiscal year  2012 to obligate in fiscal year 2013. VA assumes that Congress will provide  some multiyear funding and thus, VA will be able to carry over any  unobligated balances from one fiscal year to the next fiscal year. The fiscal  year 2011 full-year continuing resolution provided that $1.2 billion would  be available for 2 fiscal years, so VA has the ability to use unobligated  balances in fiscal year 2012, including the $600 million proposed, if that  amount remains available. If the fiscal year 2012 appropriations also  provide funding that is available for 2 fiscal years, VA would be able to  carry over the $500 million in unobligated balances, if available, from fiscal  year 2012 into fiscal year 2013 as proposed.
The President’s budget request also assumes that VA will receive   $343 million and $358 million in reimbursements for fiscal years 2012 and  2013, respectively, from services it provides to other government entities  as well as prior year recoveries. For example, VA receives reimbursements  for medical services it provides under sharing agreements with DOD,  including to TRICARE beneficiaries. VA estimates that prior year  recoveries will be approximately $3 million for each of the fiscal years  2012 and 2013.
section_title: The President’s Budget Request Included Funding Contingent on Certain Conditions
paragraphs: Of the $54.9 billion in total resources requested by the President for fiscal  year 2012, $953 million represents contingency funding to be available  under certain circumstances for health care services, supplies, and  materials. This contingency funding would only be made available to VA  through the Medical Services appropriations account if the Director of  OMB concurs with the Secretary of VA’s determination that economic  conditions warrant the additional funds. The Secretary’s determination  would reflect an examination of national unemployment rates, the quantity  of VA health care services enrollees use, and the amount of spending for  VA’s health care services. According to staff at OMB, any unused  contingency funds would expire at the end of the fiscal year and could not  be used to fund VA health care services in future years.
OMB determined that the contingency funding request for fiscal year 2012  would be the amount projected by the EHCPM with some adjustment for  OMB’s economic assumptions. This amount was calculated by estimating  the potential impact of a recent downturn in the economy on veterans’ use  of VA health care. VA conducted an analysis of unemployment rates and  their effect on enrollees’ use of VA’s health care services. VA showed that  enrollees under age 65 who lost their jobs, and therefore their access to  employer-sponsored health insurance, relied more heavily on VA health  care services. For the first time since developing the model, VA  incorporated unemployment rates into estimates developed using the  EHCPM to estimate the effect of the economic downturn on VA’s needed  resources.
The President’s fiscal year 2012 budget request did not include  contingency funding for fiscal year 2013 advance appropriations because  OMB was uncertain if the increased costs VA anticipated as a result of the  economic downturn would materialize. OMB staff said they planned to  monitor VA’s fiscal year 2011 performance and would request contingency  funding for fiscal year 2013 if needed, as part of the President’s fiscal year  2013 budget request.
section_title: Concluding Observations
paragraphs: Budgeting for VA health care, by its very nature, is complex because  assumptions and imperfect information are used to project the likely  demand and cost of the health care services VA expects to provide. The  complexity is compounded because most of VA’s projections anticipate  events 3 to 4 years into the future. To address these challenges, VA uses an  iterative, multilevel process to mitigate various levels of uncertainty not  only about program needs, but also about presidential policies,  congressional actions, and future economic conditions that may affect  funding needs in the year for which the request is made. VA’s continuing  review of estimates in this iterative process does attempt to address some  of these uncertainties, and as a result, VA’s estimates may change to better  inform the President’s budget request. Essential to the usefulness of these  estimates, as our prior work has shown, is obtaining sufficient data,  making accurate calculations, and making realistic assumptions. However,  the uncertainty inherent in budgeting always remains.
The President’s request for VA health care services for fiscal years 2012  and 2013 was based, in part, on reductions in VA’s estimates for certain  activities that were made using the EHCPM or other methods. The changes  in VA’s estimates reflected a decline in expected spending for these  activities compared to what VA officials said would have been the case if  the management and provision of health care services had continued  unchanged. For example, VA estimated that various operational  improvements would substantially reduce the costs for carrying out some  activities, such as contracting and purchasing, in fiscal years 2012 and  2013. As a result of these anticipated changes, VA estimated that it would  achieve savings that could be used for other purposes. However, in 2006,  we reported on a prior round of VA’s planned management efficiency  savings and found that VA lacked a methodology for its assumptions about  savings estimates. If the estimated savings for fiscal years 2012 and 2013  do not materialize and VA receives appropriations in the amount requested  by the President, VA may have to make difficult tradeoffs to manage  within the resources provided.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Secretary of VA and the Director  of OMB for comment. VA had no comments on this report. OMB provided  technical comments, which we incorporated as appropriate.
We are sending copies of this report to the Secretary of Veterans Affairs,  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 I.
section_title: Appendix I: 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; Matthew Byer;  Jennifer DeYoung; Amber G. Edwards; Krister Friday; Lauren Grossman;  Tom Moscovitch; Lisa Motley; Leah Probst; and Steve Robblee made key  contributions to this report.
section_title: Related GAO Products
paragraphs: 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.
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.
Veterans Affairs: Limited Support for Reported Health Care  Management Efficiency Savings. GAO-06-359R. Washington, D.C.:  February 1, 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.