Veterans' Health Care Budget: Improvements Made, but Additional Actions Needed to Address Problems Related to Estimates Supporting President's Request
Published: 2013-08-08T00:00:00

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 on the Presidents annual budget request to Congress for VA health care services. GAOs previous work has focused on issues related to the consistency, transparency, and reliability of information in VAs congressional budget justifications.
Building on GAOs past work and in light of the Presidents most recent request for VA health care, this report examines (1) changes in how VA used the EHCPM to develop VAs budget estimate supporting the Presidents budget request for fiscal year 2014 and changes in how VA reported information related to this estimate in its budget justification; (2) key changes to the Presidents fiscal year 2014 budget request compared to the advance appropriations request for the same year; and (3) the extent to which VA has addressed problems previously identified by GAO related to information in VAs congressional budget justifications. GAO reviewed the Presidents fiscal year 2014 budget request, VAs fiscal year 2014 budget justification, and VA data. GAO interviewed VA officials and staff from the Office of Management and Budget.
section_title: What GAO Found
paragraphs: The Department of Veterans Affairs (VA) expanded the use of the Enrollee Health Care Projection Model (EHCPM) in developing the agencys health care budget estimate that supported the Presidents fiscal year 2014 budget request. VA expanded the use of the EHCPM by using, for the first time, the models estimate for the amount of care providedworkloadto develop estimates of the resources needed for 14 long-term care services. However, VA continued to use the most current expenditure data rather than EHCPM estimates for projecting needed resources for these services due to concerns about the reliability of the EHCPM expenditure data. Using this new blended approach, VA used the EHCPM in whole or in part, to develop estimates for 74 health care services that accounted for more than 85 percent of VAs health care budget estimate. Additionally, VA used a new budget category label for its estimate of certain administrative personnel costs, Administrative Personnel, and identified the types of positions this estimate included. However, VA did not consistently use the new label across its three health care appropriations accounts. Instead, VA used Administration and provided no information clarifying the costs included in the estimates. Further, VA did not disclose all the costs included under Administrative Personnel, nor did VA identify the costs included in one other category containing administrative costs, Administrative Contract Services. The lack of transparency regarding administrative costs and inconsistent labeling resulted in Congress and other users of VAs budget justification not having clear and complete information regarding the agencys estimates for such costs.
The Presidents fiscal year 2014 budget request for VA health care services was about $158 million more than the earlier, advance appropriations request for the same year. The estimate for initiatives increased by $1.021 billion and the estimate for ongoing health care services decreased by $519 million. The increase in the initiatives estimate was further offset by $482 million in estimated savings from new acquisition savings and other initiatives, which resulted in a net increase of $20 million. This increase, along with a decrease of $138 million in anticipated resources from collections and reimbursements, resulted in the net increase of $158 million in the Presidents fiscal year 2014 request.
VA has taken steps to address, in varying degrees, five of the six problems GAO previously identified related to information in VAs budget justification. Specifically, VA has taken steps to improve (1) the transparency of its estimates for initiatives in support of the advance appropriations request, (2) the consistency of the language used to label health care services across its three health care appropriations accounts, (3) the reliability of its estimates for certain facility-related activities, (4) the reliability of its estimate for facility maintenance and improvement, and (5) the reliability of its estimates for proposed savings. However, VA did not address (6) the transparency of its estimates for initiatives and ongoing health care services. While VA improved aspects of the information in its fiscal year 2014 budget justification, it is important that VA ensure that the six recommendations from GAOs prior work regarding such information are fully implemented. Until these recommendations are fully implemented, the problems GAO previously identified will continue to limit for Congress and others the usefulness of information related to the estimates that support the Presidents budget request for VA health care.
section_title: What GAO Recommends
paragraphs: GAO recommends that VA (1) use consistent terminology to label estimates for administrative personnel costs and (2) provide consistent and comprehensive information explaining the costs in each budget category for administrative costs. VA generally agreed with GAOs conclusions and concurred with GAOs recommendations.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) operates one of the largest  health care delivery systems in the nation, serving more than 6.3 million  patients and spending nearly $54 billion in fiscal year 2012. The amount  of funding VA receives for 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 develops an estimate of the resources needed   This budget estimate  to provide its health care services for 2 fiscal years.is one step in a complex, multistep budget formulation process, which  culminates in an appropriations request for VA health care that updates  the earlier, advance appropriations request for the upcoming fiscal year  and an advance appropriations request for the next fiscal year in the  President’s annual budget request to Congress.
The development of VA’s 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. VA uses the Enrollee Health Care Projection Model (EHCPM) to  develop most of the agency’s estimate of the resources needed to meet  the expected demand for VA’s health care services. VA uses other  methods to estimate the remaining resources needed. VA begins to  develop its health care estimate approximately 16 months before the  President submits the budget request to Congress and VA’s projections  are made 3 to 4 years into the future using data from the most recently  completed 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. Further, VA’s budget estimate is revised  during the 16-month budget formulation process in part to account for  more current data as well as in response to successively higher level of  reviews in VA and the Office of Management and Budget (OMB). This  occurs before the President’s budget request is submitted to Congress.
In support of the President’s request, VA prepares an annual budget  justification for Congress. The budget justification provides Congress and  other users with estimates and other information that support the policies  and spending decisions represented in the President’s budget request,  including information on what VA plans to achieve with the resources  requested. In particular, VA’s budget justification includes detailed  information on estimates of funding needed for ongoing health care  services and health-care-related initiatives proposed by the Secretary of  Veterans Affairs and the President. As such, VA’s budget justification is  used to provide Congress and other users with important information  about agency priorities, as well as the implications of the requested  amounts for VA’s provision of health care services to veterans.
Our prior work has highlighted some of the challenges VA has faced  regarding the reliability, transparency, and consistency of its estimates  and information supporting the President’s budget request for VA health  care. For example, in February 2012 we reported that VA’s estimated  savings from some operational improvements—used to support the  President’s budget request for fiscal year 2012 and advance  appropriations request for fiscal year 2013—lacked analytical support or  were flawed, which raised questions regarding the reliability of the  estimated savings. We made a recommendation that VA develop a  sound methodology for estimating any new operational improvements,  and VA concurred with our recommendation.
The Veterans Health Care Budget Reform and Transparency Act of 2009  required us to review the President’s budget request to Congress for VA  health care services for fiscal year 2014 appropriations and advance  appropriations for fiscal year 2015. how VA used the EHCPM to develop VA’s budget estimate supporting the  President’s budget request for fiscal year 2014 and reported information  related to this estimate in its budget justification, (2) key changes in the  President’s fiscal year 2014 budget request compared to the advance  appropriations request for the same year, and (3) the extent to which VA  has addressed problems we have identified related to information  included in the agency’s congressional budget justification.
The Veterans Health Care Budget Reform and Transparency Act of 2009 required us to  review the President’s annual budget request for VA health care. The act required us to  report on our review within 120 days after the President’s budget requests were submitted  in 2011, 2012, and 2013. Pub. L. No. 111-81, § 3, 123 Stat. 2137, 2137–38 (2009),  codified at 38 U.S.C. § 117. estimate projected by the EHCPM and estimates developed for services  using other methodologies for fiscal years 2012, 2013, and 2014. We also  interviewed VA officials to discuss how the methods, types of data, and  assumptions were used to develop VA’s health care budget estimate. We  also reviewed the President’s budget request for VA health care services  for fiscal years 2012, 2013, and 2014, including VA’s congressional  budget justification supporting the President’s request for these years.
To examine key changes between the President’s fiscal year 2014 budget  request and last year’s advance appropriations request for fiscal year  2014, we reviewed and analyzed each request as well as VA documents  and data related to the estimates that support them. We interviewed VA  officials and OMB staff to discuss the key reasons for any differences  between the estimates used to support the two requests. Finally, we  reviewed the budget justification supporting the President’s fiscal year  2014 request in the context of whether it provided Congress relevant  information that could have a significant impact on VA achieving its  objectives, including what VA plans to achieve with the resources  requested. Specifically, we evaluated whether VA informed Congress in  its budget justification about key changes that occurred between the  President’s fiscal year 2014 budget request and the earlier, advance  appropriations request for that same year.
To examine the extent to which VA addressed issues we previously  identified regarding information in VA’s congressional budget justification,  we reviewed VA’s budget justification that supports the President’s fiscal  year 2014 budget request. We also reviewed VA documents and data  that described and supported the amounts VA estimated for initiatives,  non-recurring maintenance (NRM), non-NRM facility-related activities,  and proposed savings. We interviewed VA officials and OMB staff to  discuss the methods VA used to develop these estimates. In addition, we  assessed the amounts estimated for initiatives, NRM, non-NRM activities,  and proposed savings in VA’s budget justification in the context of federal  standards for internal control for information and communication.
Specifically, we evaluated whether VA provided Congress reliable  information for making decisions based on VA’s fiscal year 2014 and  2015 estimates for these activities.
To assess the reliability of VA’s estimates, we obtained documents  supporting these data and verified the consistency of the information in  these documents. We confirmed that the estimates were reflected in the  President’s fiscal year 2014 budget request for VA health care services  and VA’s related budget justification. 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 purposes of  comparing the fiscal year 2014 President’s budget request with the  earlier, advance appropriations request for that year and for examining  whether the issues we previously identified for NRM and operational  improvements continued in the estimates that support the President’s  fiscal year 2014 year budget request.
We conducted this performance audit from February 2013 through August  2013 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: VA provides 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 approximately 150 hospitals, 130 nursing homes, 850  outpatient clinics, as well as 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’s health care budget estimate includes both the total cost of providing  VA health care services as well as estimates of anticipated funding from  several sources. These sources include new appropriations, which refer  to the appropriations to be provided for the upcoming fiscal year, and with  respect to advance appropriations, the next fiscal year. For example, VA  estimated it needed $54.6 billion in new appropriations for fiscal year  2014 and $55.6 billion in advance appropriations for fiscal year 2015. In  addition to new appropriations, sources of funding include resources  expected to be available from unobligated balances and collections and   VA’s  reimbursements that VA anticipates it will receive in the fiscal year. collections include third-party payments from veterans’ private health care  insurance for the treatment of nonservice-connected conditions and  veterans’ copayments for outpatient medications. VA’s reimbursements  include amounts VA receives for services provided under service  agreements with the Department of Defense (DOD).
In its budget justification, VA includes estimates related to the following:
Ongoing health care services, which include acute care,  rehabilitative care, mental health, long-term care, and other health  care programs.
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  of multiyear appropriations, which remain available for a fixed period of time in excess of   1 fiscal year. For example, VA’s fiscal year 2013 appropriations provided that about   $1.95 billion be available for 2 fiscal years. These funds may be carried over from fiscal  year 2013 to fiscal year 2014 if they are not obligated by the end of fiscal year 2013. See  Pub. L. No. 113-6, div. E, tit. II, § 226(b), 127 Stat. 198, 407 (2013).
Initiatives, which are proposals by the Secretary of VA, the President,  or Congress to provide, expand, or create new health care services.  Some of the proposed initiatives can be implemented within VA’s  existing authority, while other initiatives would require a change in  law.
Proposed savings, which are changes in the way VA manages its  health care system to lower costs, such as changes to its purchasing  and contracting strategies.
Collections and reimbursements, which are resources VA expects  to collect from health insurers of veterans who receive VA care for  nonservice-connected conditions and other sources, such as  veterans’ copayments, and resources VA expects to receive as  reimbursement of services provided to other government agencies or  private or nonprofit entities.
Each year, 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 VA’s health care system—including financial  management, human resources, and logistics.
Medical Facilities, which funds the operation and maintenance of the  VA health care system’s capital infrastructure, such as costs  associated with NRM, utilities, facility repair, laundry services, and  groundskeeping.
Advance appropriations for fiscal year 2014 for the three accounts were  made in the following proportions: Medical Services at 80 percent,  Medical Support and Compliance at 11 percent, and Medical Facilities at  9 percent.
In our prior work reviewing the President’s budget requests for VA health  care services, we have reported on a variety of problems related to the  reliability, transparency, and consistency of VA’s estimates and  information included in its congressional budget justifications. In June  2012 we reported that in its fiscal year 2013 budget justification VA was  not transparent about the agency’s fiscal year 2013 estimates for  initiatives and ongoing health care services as well as VA’s estimate for  initiatives in support of the fiscal year 2014 advance appropriations  request. We also raised concerns regarding the reliability of VA’s fiscal  year 2013 estimate for NRM, which did not address the long-standing  pattern in which VA’s NRM spending has exceeded the agency’s  estimates. VA concurred with a recommendation we made to improve  the transparency of its estimates for initiatives and ongoing health care  services, but did not concur with a recommendation related to the  transparency of the agency’s initiative estimate in support of the advance  appropriations request. VA also concurred with a third recommendation  we made to improve the reliability of the agency’s NRM estimates. In  September 2012 we also found that VA did not label health care services  consistently in its budget justifications so that it was clear what services  were being referred to across appropriations accounts. VA agreed with  our recommendation to improve the consistency of the labels used for  health care services. Most recently, in February 2013 we raised concerns  about the reliability of VA’s estimates for non-NRM facility-related  activities.estimates, and VA concurred with our recommendation.
section_title: VA Expanded the Use of the EHCPM to Develop Its Health Care Budget Estimate and Changed How It Reported Information on Certain Administrative Costs
subsections: section_title: VA Expanded the Use of the EHCPM by Using a Blend of EHCPM Estimates of Care Provided and Current Spending Data for Most Long-Term Care Services
paragraphs: VA expanded the use of the EHCPM by using estimates of the amount of  care provided—which is known as workload—from the EHCPM to  estimate resources needed for 14 long-term care services for fiscal years  2014 and 2015. VA included the 14 long-term care services in the  EHCPM, but the agency did not use the estimates of needed resources  developed for fiscal years 2014 and 2015 because, according to VA  officials, the EHCPM expenditure estimates were determined to be too  high to produce reliable estimates of needed resources in light of current  expenditure data. As an alternative, the estimates for fiscal years 2014  and 2015 were based on the most current expenditure data available, as  VA has done in prior years, and workload estimates from the EHCPM.
As a result of this blended approach, VA used the EHCPM, in part or in  whole, to develop estimates for 74 health care services that accounted for  more than 85 percent of VA’s budget estimate supporting the President’s  fiscal year 2014 budget request for VA health care. This represents an  increase compared to last year when VA used the EHCPM to estimate  needed resources for 59 health care services, or approximately   78 percent of the agency’s fiscal year 2013 budget estimate. (See fig. 1.)
While the EHCPM accounted for a larger proportion of VA’s health care  budget that supports the President’s budget request, revisions were made  to the estimates developed by the EHCPM and other methods. As we  have previously reported, these revisions resulted from the iterative and  multilevel review process in VA and OMB and reflect the policy decisions  and more current information, among other things.
section_title: VA Was Inconsistent in Reporting Certain Administrative Costs among Its Three Appropriations Accounts
paragraphs: Another change in VA’s fiscal year 2014 budget justification was how VA  reported its estimate for certain administrative costs. In prior budget  justifications, VA has reported its estimates for administrative personnel  costs under “Administration” and estimates for administrative contracts  under “Administrative Contract Services.” VA reported estimates for these  administrative costs in each of the three appropriations accounts as well  as for “Medical Care,” which reported the total costs for “Administration”  and “Administrative Contract Services” across all three accounts. In its  fiscal year 2014 budget justification, VA used a new budget category  label—“Administrative Personnel”—when reporting estimated costs  related to administrative personnel. VA also identified some of the costs  reported under the new label by providing examples of the types of  positions the agency considers administrative personnel, such as filing  clerks, receptionists, police staff, chaplains, and other staff that are  necessary for the effective operations of VA medical facilities.
However, VA did not consistently use the new “Administrative Personnel”  label in its fiscal year 2014 budget justification. VA used the new label  when reporting its Medical Care estimate for administrative personnel  costs, but not when reporting the agency’s estimates for each of the three  appropriations accounts. Instead, VA used the label “Administration,”  even though the estimates reported under this label—$2.0 billion for  Medical Services, $3.5 billion for Medical Support and Compliance, and  $366 million for Medical Facilities—represented the same personnel costs  in the estimate of $5.9 billion reported for “Administrative Personnel.”  (See table 1.) VA officials explained that the use of “Administrative  Personnel” was incorrect and that the “Administration” label will be used  in future budget justifications. The inconsistency for reporting estimates  for these costs may imply that VA used different labels to report estimates  for different administrative costs. As such, the costs reported under these  labels are unclear to Congress and other users of VA’s budget  justification.
In addition to inconsistent labeling, VA also was not consistent in its  reporting of information on the types of personnel positions included in  the agency’s estimates for administrative personnel costs reported. VA  provided information on the types of personnel positions included in the  total estimate for administrative personnel costs under the budget  category label “Administrative Personnel,” but did not provide similar  information for the estimates for each appropriations account labeled  under “Administration.” By not providing information on the types of  positions included in these estimates, VA was not transparent about how  the information that was provided applied to the estimates of  administrative personnel costs in each of the appropriations accounts. For  example, it is unclear to what extent police staff and chaplains will be  funded across the three appropriations accounts.
Further, VA did not provide complete information on the costs included in  its estimates for “Administrative Personnel” and “Administrative Contract  Services.” Regarding its estimate for “Administrative Personnel” VA did  not disclose that this estimate reflected other costs in addition to those  costs associated with administrative personnel. According to VA officials,  these other costs include those associated with administrative training  programs and summer employment programs and are relatively small  compared to the total estimate for “Administrative Personnel.” Regarding  its estimates for “Administrative Contract Services” VA provided no  information in its budget justification on the types of costs—which include  contracts for maintenance of information technology and  videoconferencing systems, management and professional services,  laundry and dry-cleaning services, and janitorial services—reflected in the  estimates. By not providing complete information on the costs included in  its estimates for “Administrative Personnel” and “Administrative Contract  Services,” VA was not transparent about all the costs reflected in these  estimates. The lack of transparency regarding the costs included in its  estimate of $5.9 billion for administrative personnel and its estimate of  $2.3 billion for administrative contracts is inconsistent with the House  Appropriations Committee’s recent request that more information on  administrative costs be included in VA’s congressional budget justification  and results in incomplete information for congressional deliberation.
section_title: Increase in the Request Compared to the Earlier, Advance Appropriations Request Reflected Changes VA Made to Supporting Estimates
paragraphs: The President’s fiscal year 2014 budget request for VA health care  services was $54.6 billion, about $158 million more than the earlier,  advance appropriations request for the same year. This increase came as  a result of changes made to the estimate supporting the fiscal year 2014  request compared to the estimate for the advance appropriations request.  Specifically, the President’s fiscal year 2014 request reflected an estimate  of funding needed for initiatives that increased by $1.021 billion and an  estimate for ongoing health care services that decreased by $519 million.  This increase in the initiatives estimate was further offset by an estimate  of $482 million in proposed savings from operational improvements and  management initiatives, which resulted in a net increase in expected total  obligations of $20 million. A decrease of $138 million in anticipated  resources from collections and reimbursements with the increase in  expected total obligations resulted in the net increase in the President’s  request of $158 million. (See table 2.)
The following summarizes the changes in VA’s estimates resulting in the  net change of $158 million:  Increase in the estimated funding needed for initiatives.  According to VA officials, as a result of the reduced estimate for  ongoing health care services and the estimated savings from  management initiatives and operational improvements, VA increased  the estimate of funding needed for its initiatives to end homelessness  among veterans, create new models of patient-centered care, and  improve veteran mental health, among others. This estimate reflected  funding needed for initiatives for which funding was not requested in  the fiscal year 2014 advance appropriations request.
Decrease in the estimate for ongoing health care services. VA  used updated assumptions and data in the EHCPM, which lowered its  estimate for ongoing health care services. For example, VA updated  its assumption for civilian employees’ pay in fiscal years 2013 and  2014 to account for the pay freeze which reduced the projected base  salary of VA employees for these fiscal years and into the future. VA  also used updated data from the most recently completed fiscal year  to help ensure that its estimates better reflect current experience.
Increase in estimates of proposed savings from new acquisition  savings and other initiatives. VA identified $482 million in estimated  savings as a result of new initiatives, such as capping travel for VA  employees at 2013 budgeted levels, and other operational  improvements. These savings further reduced expected total  obligations compared to the earlier advance appropriations request for  fiscal year 2014.
Reduction in estimate for collections and reimbursements. The  reduction in collections and reimbursements primarily reflected a  decrease in the amount VA anticipated receiving from  reimbursements, which include fees for services provided under  service agreements with DOD. According to VA officials, the change  to VA’s estimates for reimbursements was based on the use of more  current data and the fact that VA no longer assumes it will be able to  achieve reimbursement “recoveries” from prior fiscal years.
section_title: Steps Taken to Improve the Transparency, Consistency, and Reliability of Information and Estimates in VA’s Budget Justification
paragraphs: VA took steps to address, in varying degrees, five of the six problems we  previously identified related to the reliability, transparency, and  consistency of information in VA’s congressional budget justification. (See  table 3.)
Specifically, VA took steps to address five of our six prior  recommendations to improve estimates and information supporting the  President’s fiscal year 2014 budget request:
Transparency for VA’s estimates for initiatives in support of the  advance appropriations request. VA improved the transparency of  its estimate for initiatives in support of the advance appropriations  request by including a statement in the agency’s budget justification  that indicated the estimate for initiatives did not reflect all the funding  that may be required if the initiatives are to be continued. In June  2012, we reported that VA did not make it clear that part of the  increase in its fiscal year 2013 initiatives estimate occurred because  VA’s earlier estimate in support of the advance appropriations request  did not include funding for all the initiatives the agency intended to  continue.estimate for initiatives in support of the advance appropriations  request by stating whether these estimates reflect all the funding that  may be required if all initiatives are to be continued. Even though the  agency did not concur with our recommendation, VA in its fiscal year  2014 budget justification stated that the final estimate for initiatives  would be determined during the fiscal year 2015 budget process when  updated data on initiatives were available. By clearly stating that its  estimates for initiatives in support of the advance appropriations  request will be addressed in the subsequent year’s budget process,  VA provided new information relevant to understanding the estimates.
We recommended that VA improve the transparency of its
Consistency of language used to label health care services. VA  improved the consistency of the language used to label health care  services throughout its budget justification. In a September 2012  report, we found that VA used inconsistent labels when referring to  the same health care services at different places in its fiscal year 2013   For example, VA referred to mental health  budget justification.services as “psychiatric care” in the detailed presentation of the  Medical Support and Compliance and Medical Facilities accounts and  referred to the same services as “mental health” in the detailed  presentation for the Medical Services account. We recommended that  VA label health care services consistently so it would be clear which  services were being referred to across appropriations accounts. VA  concurred with our recommendation. In its fiscal year 2014 budget  justification, VA used the same label for mental health, inpatient, and  other services across all three appropriations accounts, which it had  not previously done. In doing so, VA improved both the clarity and  usefulness of the information included in its budget justification.
Reliability of estimates for non-NRM facility-related activities. VA  improved the reliability of its estimates for non-NRM facility-related  activities. In a February 2013 report, we found that lower than  estimated spending for non-NRM facility-related activities, such as  utilities and janitorial services, allowed VA to spend significantly more  on NRM than it originally estimated in recent years. We recommended  that VA determine why it has overestimated spending for non-NRM  and use the results to improve future, non-NRM budget estimates. VA  concurred with this recommendation. According to VA officials, the  agency updated assumptions it used to predict growth for non-NRM  facility-related activities in order to better reflect VA’s experience  during the last 3 to 5 fiscal years. For example, in prior years, VA has  estimated spending between $700 and $900 million on “Administrative  Contract Services,” which was at least $360 million more than VA’s  actual spending for this category. VA’s fiscal year 2014 estimate of  $395 million for “Administrative Contract Services” appears to be a  more reliable estimate of spending based on recent experience. By  improving the reliability of information presented in its congressional  budget justification regarding non-NRM facility-related activities, as we  previously recommended, VA improved the usefulness of such  information.
Reliability of estimates for NRM. According to VA officials, the  agency also has taken steps to improve the reliability of its fiscal year  2014 NRM estimate. In June 2012, we reported that VA’s NRM  spending has historically exceeded NRM estimates because these  estimates have not consistently accounted for additional NRM  spending by VA medical facilities. According to officials, VA’s  estimate for NRM was based on a policy decision. We recommended  that VA improve the reliability of its estimates for NRM by accounting  for resources that VA medical facilities have consistently spent for this  purpose. VA concurred with our recommendation. According to VA  officials, the agency revised its method for estimating NRM and  reduced its overall estimate of spending for the Medical Facilities  account, which includes NRM. Specifically, VA officials indicated that  the agency revised its method for estimating NRM to better account  for expected spending. The resulting NRM estimate, combined with  the previously discussed reduction in its non-NRM estimate, resulted  in a decrease in estimated spending for VA’s Medical Facilities  account. In prior years, additional NRM spending was the result of VA  medical facilities using funds from the Medical Facilities account on  NRM that were originally expected to be spent on other activities— such as utilities, grounds maintenance, and janitorial services.  Reductions in the overall amount available from the Medical Facilities  account would reduce the amount available for additional spending for  NRM, so a decrease in VA’s overall estimate for its Medical Facilities  account could potentially reduce the availability of additional  resources for NRM beyond its fiscal year 2014 estimate.
Reliability of estimates for proposed savings. VA has taken steps  to address some, but not all, of our prior concerns regarding the  reliability of its estimates for proposed savings, which included  savings from operational improvements and management initiatives.  In a February 2012 report, we determined that some of the estimates  for operational improvements included in VA’s fiscal year 2012 budget  justification may not have been reliable estimates of future savings.  We concluded that without a sound methodology VA ran the risk of  falling short of its estimated savings, which may ultimately require VA  to make difficult trade-offs to provide health care services with the  available resources. We recommended that VA develop a sound  methodology for estimating proposed savings from its operational  improvements. VA concurred with the recommendation and officials  told us during our prior review that the agency was working to address  deficiencies in its methodology for estimating these savings. The  information that we reviewed on VA’s methodology for estimating  proposed savings for fiscal year 2014 to date confirmed that VA has  taken some steps to address our prior concerns. For example, VA  provided a basis for the assumptions used to calculate some of its  proposed savings from acquisitions and employee travel. However,  the information did not indicate that VA had fully implemented our  recommendation for all operational improvements and management  initiatives included in the estimates for proposed savings.
In regard to the sixth problem we identified, VA did not address a lack of  transparency we previously found regarding its estimates for initiatives  and ongoing health care services. In June 2012, we reported that VA did  not disclose that it used a new reporting approach that combined both  funding for initiatives and funding for certain ongoing health care services  in its initiatives estimate. We recommended that VA improve the  transparency of its estimates for initiatives and ongoing health care  services by stating whether the estimates for initiatives included funding  for ongoing health care services. VA concurred with our recommendation.  According to officials, VA used the same reporting approach for initiatives  in its fiscal year 2014 budget justification as the agency used in its fiscal  year 2013 budget justification. However, we found no statement in the  budget justification indicating this or more specifically whether the  estimates for initiatives included funding for ongoing health care services.  By not stating in its budget justification whether the estimates for  initiatives included funding for ongoing health care services, VA was not  transparent about the total amount of funding the agency may need in  fiscal year 2014 for ongoing health care services that would require  funding regardless of whether funding for certain initiatives continued.
section_title: Conclusions
paragraphs: In its congressional budget justification, VA provides Congress and other  users with information on the agency’s health care budget estimate and  other information that supports the policies and spending decisions  represented in the President’s budget request. In response to our prior  work, VA has taken steps to improve the consistency, reliability, and  transparency of its estimates and information supporting the President’s  budget request for VA health care. In particular, VA has taken steps to  improve (1) the transparency of its estimates for initiatives in support of  the advance appropriations request, (2) the consistency of its language  used to label health care services, (3) the reliability of the estimates for  other facility-related activities funded through the Medical Facilities  account, (4) the reliability of its estimates for NRM, and (5) the reliability  of proposed savings from operational improvements and management  initiatives. However, VA did not indicate whether the estimates it reports  for initiatives included funding needed for ongoing health care services,  as we previously recommended. While VA has addressed to varying  degrees the problems we previously identified, it is important that VA  ensure that the recommendations from our prior work regarding the  information and estimates in VA’s budget justification are fully  implemented. Until these recommendations are fully implemented, the  problems we previously identified will continue to limit the usefulness of  related information to Congress and other users of VA’s budget  justification.
In addition, our work shows that VA made key changes to its budget  methodology—namely, VA used the EHCPM, in part, to develop  estimates for most long-term care services. VA also changed how the  agency reported its estimates for administrative costs, although VA did  not do so consistently and comprehensively throughout its fiscal year  2014 budget justification. VA introduced a new budget category label  “Administrative Personnel” for reporting its total estimate for  administrative personnel costs, but used the old “Administration” label  when reporting estimates for the same costs in each of VA’s three health  care appropriations accounts. Additionally, VA defined some of the costs  included in the “Administrative Personnel” label, but did not do so for  “Administration” or “Administrative Contract Services” in its budget  justification. This lack of transparency as well as the inconsistent labeling  of administrative personnel costs results in unclear and incomplete  information that limits its usefulness to Congress and other users of VA’s  budget justification.
section_title: Recommendations for Executive Action
paragraphs: To improve the clarity and transparency of information in VA’s  congressional budget justifications that support the President’s budget  request for VA health care, we recommend the Secretary of Veterans  Affairs take the following two actions: use consistent terminology to label estimates of administrative  personnel costs and provide consistent and comprehensive information explaining the  costs included in each budget category for administrative costs.
section_title: Agency Comments
paragraphs: We provided a draft of this report to VA and OMB for comment. In its  written comments—reproduced in appendix I—VA generally agreed with  our conclusions and concurred with our recommendations. In concurring  with our first recommendation regarding terminology to label estimates of  administrative personnel costs, VA stated that it will incorporate  consistent terminology to label estimates for administrative and personnel  costs in the fiscal year 2015 President’s budget request. In concurring  with our second recommendation regarding information explaining the  costs included in administrative costs, VA stated that it will provide  consistent and comprehensive information explaining the costs included  in each budget category for administrative costs in the fiscal year 2015  President’s budget request. OMB had no comments.
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 website 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 williamsonr@gao.gov.  Contact points for our Offices of Congressional Relations and Public  Affairs are on the last page of this report. GAO staff who made major  contributions to this report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Veterans Affairs
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, James C. Musselwhite   and Melissa Wolf, Assistant Directors; Kye Briesath, Krister Friday,   Aaron Holling, Felicia Lopez, Lisa Motley, and Brienne Tierney made   key contributions to this report.
section_title: Related GAO Products
paragraphs: Veterans’ Health Care: Improvements Needed to Ensure That Budget  Estimates Are Reliable and That Spending for Facility Maintenance Is  Consistent with Priorities. GAO-13-220. Washington, D.C.: February 22,  2013.
Veterans’ Health Care Budget: Better Labeling of Services and More  Detailed Information Could Improve the Congressional Budget  Justification. GAO-12-908. Washington, D.C.: September 18, 2012.
Veterans’ Health Care Budget: Transparency and Reliability of Some  Estimates Supporting President’s Request Could Be Improved.   GAO-12-689. Washington, D.C.: June 11, 2012.
VA Health Care: Estimates of Available Budget Resources Compared  with Actual Amounts. GAO-12-383R. Washington, D.C.: March 30, 2012.
VA Health Care: Methodology for Estimating and Process for Tracking  Savings Need Improvement. GAO-12-305. Washington, D.C.:   February 27, 2012.
Veterans Affairs: Issues Related to Real Property Realignment   and Future Health Care Costs. GAO-11-877T. Washington, D.C.:   July 27, 2011.
Veterans’ Health Care Budget Estimate: Changes Were Made in  Developing the President’s Budget Request for Fiscal Years 2012 and  2013. GAO-11-622. Washington, D.C.: June 14, 2011.
Veterans’ Health Care: VA Uses a Projection Model to Develop Most of  Its Health Care Budget Estimate to Inform the President’s Budget  Request. GAO-11-205. Washington, D.C.: January 31, 2011.
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.