VA Health Care: Overview of VA's Capital Asset Management
Published: 2009-06-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Through its Veterans Health Administration (VHA), the Department of Veterans Affairs (VA) operates one of the largest integrated health care systems in the country. In 1999, GAO reported that better management of VA's large inventory of aged capital assets could result in savings that could be used to enhance health care services for veterans. In response, VA initiated a process known as Capital Asset Realignment for Enhanced Services (CARES). Through CARES, VA sought to determine the future resources needed to provide health care to our nation's veterans. This testimony describes (1) how CARES contributes to VHA's capital planning process, (2) the extent to which VA has implemented CARES decisions, and (3) the types of legal authorities that VA has to manage its real property and the extent to which VA has used these authorities. The testimony is based on GAO's body of work on VA's management of its capital assets, including GAO's 2007 report on VA's implementation of CARES (GAO-07-408).
section_title: What GAO Found
paragraphs: The CARES process provides VA with a blueprint that drives VHA's capital planning efforts. As part of the CARES process, VA adapted a model to estimate demand for health care services and to determine the capacity of its current infrastructure to meet this demand. VA continues to use this model in its capital planning process. The CARES process resulted in capital alignment decisions intended to address gaps in services or infrastructure. These decisions serve as the foundation for VA's capital planning process. According to VA officials, all capital projects must be based on demand projections that use the planning model developed through CARES. VA has started implementing some CARES decisions, but does not centrally track their implementation or monitor the impact of their implementation on its mission. VA is in varying stages (e.g., planning or construction) of implementing 34 of the major capital projects that were identified in the CARES process and has completed 8 projects. Our past work found that, while VA had over 100 performance measures to monitor other agency programs and activities, these measures either did not directly link to the CARES goals or VA did not use them to centrally monitor the implementation and impact of CARES decisions. Without this information, VA could not readily assess the implementation status of CARES decisions, determine the impact of such decisions, or be held accountable for achieving the intended results of CARES. VA has recently created the CARES Implementation Working Group, which has identified performance measures for CARES and will monitor the implementation and impact of CARES decisions in the future. VA has a variety of legal authorities available, such as enhanced-use leases, sharing agreements, and others, to help it manage real property. However, legal restrictions and administrative- and budget-related disincentives associated with implementing some authorities affect VA's ability to dispose and reuse property in some locations. For example, legal restrictions limit VA's ability to dispose of and reuse property in West Los Angeles and Sepulveda. Despite these challenges, VA has used these legal authorities to help reduce underutilized space (i.e., space not used to full capacity). In 2008, we reported that VA reduced underutilized space in its buildings by approximately 64 percent from 15.4 million square feet in fiscal year 2005 to 5.6 million square feet in fiscal year 2007. While VA's use of various legal authorities likely contributed to VA's overall reduction of underutilized space since fiscal year 2005, VA does not track the overall effect of using these authorities on space reductions. Not having such information precludes VA from knowing what effect these authorities are having on reducing underutilized or vacant space or knowing which types of authorities have the greatest effect. According to VA officials, VA will institute a system in 2009 that will track square footage reductions at the building level.

section_title: Letter
paragraphs: We appreciate the opportunity to testify on the Department of Veterans  Affairs’ (VA) management of its capital assets. As you know, VA operates  one of the largest health care systems in the country. VA, through its  Veterans Health Administration (VHA), provided health care to almost 5.5  million veterans in 2008. To support its mission, VA has a large inventory  of real property—including over 150 medical centers and over 900  outpatient and ambulatory care clinics. However, many of VA’s facilities  were built more than 50 years ago and are not well suited to providing  accessible, high-quality, cost-effective health care in the 21st century. In  1999, we reported that with better management of its large, aged capital  assets, VA could significantly reduce the funding used to operate and  maintain underused, unneeded, or inefficient properties. We further noted  that the savings could be used to enhance health care services for  veterans. Thus, we recommended that VA develop market-based plans for  realigning its capital assets. In response, VA initiated a process known as  Capital Asset Realignment for Enhanced Services (CARES)— a  comprehensive, long-range assessment of its health care system’s capital  asset requirements. The CARES process included nine distinct steps and  required the time and expertise of many VA officials at the departmental  and network levels. (See table 1.)
Step 1:  VA officials at the departmental and network level develop market areas and submarkets as the planning units for analyzing  Step 2:  VA officials at the departmental level conduct market analyses of veterans’ health care needs using standardized forecasts  of enrollment and service needs and actuarial data.
Step 3:  VA officials at the departmental level identify planning initiatives that addressed apparent gaps between supply and  demand in resources for each market area.
Step 4:  VA officials at the Network level consider different alignment alternatives and develop specific plans for individual markets  that addressed all the planning initiatives identified by VA officials at the departmental level.
Step 5:  The Under Secretary of Health uses the market plans to prepare a Draft National CARES Plan (DNCP) and  Step 6:  The Secretary of Veterans Affairs appoints a commission composed of non-VA executives to make recommendations to  the Secretary to accept, present alternatives to, or reject the recommendations contained in the DNCP.
Step 7:  The Secretary of Veterans Affairs decides whether to accept, reject, or modify the commission’s recommendations  Step 8:  Network officials implement the Secretary’s decisions.
According to VA, the CARES process was a onetime major initiative.  However, its lasting result was to provide a set of tools and processes that  allow VA to continually determine the future resources needed to provide  health care to our nation’s veterans. In May 2004, the Secretary stated that  implementing CARES decisions will require an additional investment of  approximately $1 billion per year for at least the next 5 years, with  substantial infrastructure investments then continuing for the indefinite  future, to modernize VA’s aging infrastructure. Although CARES will  require substantial investment, the Secretary noted that not proceeding  with CARES would require funding to maintain or renovate obsolete  facilities and would leave VA with numerous redundant, outmoded, or  poorly located facilities. The Secretary further stated that through the  CARES process, VA had developed more complete information about the  demand for VA health care and a more comprehensive assessment of its  capital assets than it had ever done before. The Secretary noted that this  information, along with the experience gained through conducting CARES,  positioned VA to continue to expand the accuracy and scope of its  planning efforts.
In my statement today, I will discuss (1) how CARES contributes to VHA’s  capital planning process, (2) the extent to which VA has implemented  CARES decisions, and (3) the types of legal authorities that VA has to  manage its real property and the extent to which VA has used its  authorities to reduce underutilized and vacant property. My comments are  based on our extensive body of work on VA’s management of its capital  assets, including recent reviews of VA’s implementation of CARES and  management of real property, as well as updated information from VA  officials.
subsections: section_title: Background
paragraphs: Over the past decade, VA’s system of health care for veterans has  undergone a dramatic transformation, shifting from predominantly  hospital-based care to primary reliance on outpatient care. As VA  increased its emphasis on outpatient care rather than inpatient care, it was  left with an increasingly obsolete infrastructure, including many hospitals  built or acquired more than 50 years ago in locations that are sometimes  far from where veterans live.
To address its obsolete infrastructure, VA initiated its CARES process— the first comprehensive, long-range assessment of its health care system’s  capital asset requirements since 1981. CARES was designed to assess the  appropriate function, size, and location of VA facilities in light of expected  demand for VA inpatient and outpatient health care services through fiscal  year 2022. Through CARES, VA sought to enhance outpatient and inpatient  care, as well as special programs, such as spinal cord injury, through the  appropriate sizing, upgrading, and locating of VA facilities. Table 2 lists  key milestones of the CARES process.
We have previously reported that a range of capital asset alignment  alternatives were considered throughout the CARES process, which  adheres to capital planning best practices. Moreover, there was relatively  consistent agreement among the DNCP prepared by VA, the CARES  Commission appointed by the VA Secretary to make alignment  recommendations, and the Secretary as to which were the best  alternatives to pursue. Although the Secretary tended to agree with the  CARES Commission’s recommendations, the extent to which he agreed  varied by alignment alternative. In particular, the Secretary always agreed  with the commission’s recommendations to build new facilities, enter into  enhanced use leases, and collaborate with the Department of Defense and  universities, but was less likely to agree with the CARES Commission’s  recommendations to contract out or close facilities. The decisions that  emerged from the CARES process will result in an overall expansion of  VA’s capital assets. According to VA officials, rather than show that VA  should downsize its capital asset portfolio, the CARES process revealed  service gaps and needed infrastructure improvements. We also reported  that a number of factors shaped and in some cases limited the range of  alternatives VA considered during the CARES process. These factors  included competing stakeholder interests; facility condition and location;  veterans’ access to facilities; established relationships between VA and  health care partners, such as DOD and university medical affiliates; and  legal restrictions.
The challenge of misaligned infrastructure is not unique to VA. We  identified federal real property management as a high-risk area in January  2003 because of the nationwide importance of this issue for all federal  agencies. We did this to highlight the need for broad-based transformation  in this area, which, if well implemented, will better position federal  agencies to achieve mission effectiveness and reduce operating costs. But  VA and other agencies face common challenges, such as competing  stakeholder interests in real property decisions. In VA’s case, this involves  achieving consensus among such stakeholders as veterans service  organizations, affiliated medical schools, employee unions, and  communities. We have previously reported that competing interests from  local, state, and political stakeholders have often impeded federal  agencies’ ability to make real property management decisions. As a result  of competing stakeholder interests, decisions about real property often do  not reflect the most cost-effective or efficient alternative that is in the  interest of the agency or the government as a whole but instead reflect  other priorities. In particular, this situation often arises when the federal  government attempts to consolidate facilities or otherwise dispose of  unneeded assets.
section_title: CARES Process and Modeling Tools Drive VHA’s Capital Planning Efforts
paragraphs: Through the CARES process, VA gained the tools and information needed  to plan capital investments. As part of the CARES process, VA modified an  actuarial model that it used to project VA budgetary needs. According to  VA, the modifications enabled the model to produce 20-year forecasts of  the demand for services and provided for more accurate assessments of  veterans’ reliance on VA services, capacity gaps, and market penetration  rates. The information provided by the model allowed VA to identify  service needs and infrastructure gaps, in part by comparing the expected  location of veterans and demand for services in years 2012 through 2022  with the current location and capacity of VA health care services within  each network. In addition to modifying the model, VA conducted facility  condition assessments on all of its real property holdings as part of the  CARES process. These assessments provided VA information about the  condition of its facilities, including their infrastructure needs. VA  continues to use the tools developed through CARES as part of its capital  planning process. For example, VA conducts facility condition  assessments for each real property holding every 3 years on a rotating  basis. In addition, VA uses the modified actuarial model to update its  workload projections each year, which are used to inform the annual  capital budget process.
The CARES process serves as the foundation for VHA’s capital planning  efforts. The first step in VHA’s capital budget process is for networks to  submit conceptual papers that identify capital projects that will address  service or infrastructure gaps identified in the CARES process. The  Capital Investment Panel, which consists of representatives from each VA  administration and staff offices, reviews, scores, and ranks these papers.  The Capital Investment Panel also identifies the proposals that will be sent  forward for additional analysis and review, and may ultimately be included  as part of VA’s budget request. According to VA officials, all capital  projects must be based on the CARES planning model to advance through  VHA’s capital planning process. On the basis of CARES-identified  infrastructure needs and service gaps, VA identified more than 100 major  capital projects in 37 states, the District of Columbia, and Puerto Rico. In  addition to these projects, the CARES planning model identified service  needs and infrastructure gaps at other locations throughout the VA  system. The model is updated annually to reflect new information.
VHA’s 5-year Capital Plan outlines CARES implementation and identifies  priority projects that will improve the environment of care at VA medical  facilities and ensure more effective operations by redirecting resources  from the maintenance of vacant and underutilized buildings to investments  in veterans’ health care. In VA’s fiscal year 2010 budget submission, VA  requested about $1.1 billion to fund 12 VHA major construction projects  and about $507 million for VHA minor construction projects.
section_title: Some CARES Decisions Implemented, but Additional Information Needed to Fully Assess Status and Impact of Decisions
paragraphs: VA has begun implementing some CARES decisions. Specifically, VA is  currently in varying stages (e.g., planning or construction) of  implementing 34 of the major capital projects that were identified in the  CARES process. Eight major capital CARES projects are complete.
Although VA is moving forward with the implementation of some CARES  decisions, we previously reported that a number of VA officials and  stakeholders, including representatives from veteran service organizations  and local community groups, view the implementation process as too  lengthy and lacking transparency. For instance, stakeholders in Big  Spring, Texas, noted that it took almost 2 years for the Secretary to decide  whether to close the facility. During this period, there was a great deal of  uncertainty about the future of the facility. As a result, there were  problems in attracting and retaining staff at the facility, according to  network and local VA officials. We also previously reported that a number  of stakeholders we spoke with indicated that the implementation of  CARES decisions has been influenced by competing stakeholders’  interests—thereby undermining the process. In its February 2004 report,  the CARES Commission also noted that stakeholder and community  pressure can act as a barrier to change, by pressuring VA to maintain  specific services or facilities.
In 2007, we reported that VA does not use, or in some cases does not have,  performance measures to assess its progress in implementing CARES or  whether CARES is achieving the intended results. Performance measures  allow an agency to track its progress in achieving intended results.  Performance measures can also help inform management decision making  by, for example, indicating a need to redirect resources or shift priorities.  In addition, performance measures can be used by stakeholders, such as  veterans’ service organizations or local communities, to hold agencies  accountable for results. Although VA has over 100 performance measures  to monitor other agency programs and activities, these measures either do  not directly link to the CARES goals or VA does not use them to centrally  monitor the implementation and impact of CARES decisions. We also  reported that VA lacked critical data, including data on the cost of and  timelines for implementing CARES projects and the potential savings that  can be generated by realigning resources.
Given the importance of the CARES process, we previously recommended  that VA develop performance measures for CARES. Such measures would  allow VA officials to monitor the implementation and impact of CARES  decisions as well as allow stakeholders to hold VA accountable for results.  In responding to our recommendation, VA created the CARES  Implementation Monitoring Working Group. This working group has  identified performance measures for CARES and the group will monitor  the implementation and impact of CARES decisions.
section_title: VA Has A Variety of Legal Authorities to Manage Real Property, But Does Not Track How Using Them Contributes to the Reduction in Underutilized Property
paragraphs: VA has a variety of legal authorities available to help it manage real  property. These authorities include enhanced-use leases (EUL), sharing  agreements, and outleases. (See table 3 for descriptions of these  authorities.) VA uses these authorities to help reduce underutilized and  vacant property. For example, in 2005, in Lakeside (Chicago), Illinois, VA  reduced its underutilized property at the medical center by nearly 600,000  square feet by using its EUL authority with Northwestern Memorial  Hospital. VA also uses these authorities to generate financial benefits. For  example, the VA Greater Los Angeles Healthcare System enters into a  number of sharing agreements with the film industry. VA officials told us  that these agreements are typically temporary arrangements—sometimes  lasting a few days—during which film production companies use VA  facilities to shoot television or movie scenes. According to VA officials,  these agreements generate roughly $1 million to $2 million a year.
However, legal restrictions associated with implementing some authorities  affect VA’s ability to dispose of and reuse property in some locations. For  example, legal restrictions limit VA’s ability to dispose of and reuse  property in West Los Angeles and North Hills (Sepulveda) California. The  Cranston Act of 1988 precluded VA from taking any action to dispose of  109 of 388 acres in the West Los Angeles medical center and 46 acres of  the Sepulveda ambulatory care center. In 1991, when EUL authority was  provided to VA, VA was prohibited from entering into any EUL relating to  the 109 acres at West Los Angeles unless the lease was specifically  authorized by law or for a childcare center. The Consolidated  Appropriations Act of 2008 expanded the EUL restrictions to include the  entire West Los Angeles medical center. The Consolidated  Appropriations Act of 2008 also prohibits VA from declaring as excess or  otherwise taking action to exchange, trade, auction, transfer, or otherwise  dispose of any portion of the 388 acres within the VA West Los Angeles  medical center.
Budgetary and administrative disincentives associated with some of VA’s  available authorities may also limit VA’s ability to use these authorities to  reduce its inventory of underutilized and vacant property. For example:    VA cannot retain revenue that it obtains from outleases, revocable  licenses, or permits; such receipts must be deposited in the Department of  the Treasury. VA has said that, except for EUL disposals, restrictions on  retaining proceeds from disposal of properties are a disincentive for VA to  dispose of property.
In 2004, VA was authorized until 2011 to transfer real property under its  jurisdiction or control and to retain the proceeds from the transfer in a  capital asset fund for property transfer costs, including demolition,  environmental remediation, and maintenance and repair costs. In our  previous work, we reported several administrative and oversight  challenges with using capital asset funds. Moreover, VA officials told us  that this authority has significant limitations on the use of any funds  generated by disposal. For example, VA officials we spoke with reported  that the capital asset fund is too cumbersome to be used, and VA does not  have immediate access to the funds because they have to be  reappropriated before VA can use them.
The maximum term for an outlease, according to VHA law, is 3 years;  according to VA officials, this time limit can discourage potential lessees  from investing in the property.
Implementing an EUL agreement can take a long time. According to VA  officials, EULs are a relatively new tool, and every EUL is unique and  involves a learning process. In addition, VA officials commented that the  EUL process can be complicated. According to VA officials, the average  time it takes to implement an EUL can range generally from 9 months to 2  years. The officials noted that land due diligence requirements (such as  environmental and historic reviews), public hearings, congressional  notification, lease drafting, negotiation, and other phases contribute to the  length of the overall process. VA has taken actions to reduce the time it  takes to implement an EUL agreement, but despite changes to streamline  the EUL process, some officials stated that it is still time consuming and  cumbersome.
VA can dispose of underutilized and vacant property under the McKinney- Vento Act to other federal agencies and programs for the homeless.  However, VA officials stated that disposing of property under the  McKinney-Vento Act also can be time-consuming and cumbersome.  According to VA officials, the process can average 2 years. Under this law,  all properties that the Department of Housing and Urban Development  deems suitable for use by the homeless go through a 60-day holding  period, during which the property is ineligible for disposal for any other  purpose. Interested representatives of the homeless submit to the  Department of Health and Human Services (HHS) a written notice of their  intent to apply for a property for homeless use during the 60-day holding  period. After applicants have given notice of their intent to apply, they  have up to 90 days to submit their application to HHS, and HHS has the  discretion to extend the time frame if necessary. Once HHS has received  an application, it has 25 days to review, accept, or decline the application.
Furthermore, according to VA officials, VA may not receive compensation  from agreements entered into under the McKinney-Vento Act.
Despite these challenges, VA has used these legal authorities to help  reduce its inventory of unneeded space. In 2008, we reported that VA  reduced underutilized space ( i.e., space not used to full capacity) in its  buildings by approximately 64 percent from 15.4 million square feet in  fiscal year 2005 to 5.6 million square feet in fiscal year 2007. Although the  number of vacant buildings decreased over the period, the amount of  vacant space remained relatively unchanged at 7.5 million square feet. We  estimated VA spent $175 million in fiscal year 2007 operating underutilized  or vacant space at its medical facilities.
While VA’s use of various legal authorities, such as EULs and sharing  agreements, likely contributed to VA’s overall reduction of underutilized  space since fiscal year 2005, VA does not track the overall effect of using  these authorities on its space reductions. Without such information, VA  does not know what effect these authorities are having on its effort to  reduce underutilized or vacant space or which types of authorities have  the greatest effect. We concluded that further reductions in underutilized  and vacant space will largely depend on VA developing a better  understanding of why changes occurred and what impact these  agreements had. Therefore, we recommended in our 2008 report that VA  track, monitor, and evaluate square footage reductions and financial and  nonfinancial benefits resulting from new agreements at the building level  by fiscal year in order to better understand the usefulness of these  authorities and their overall effect on VA’s inventory of underutilized and  vacant property from year to year. The officials said that tracking  financial benefits will require a real property cost accounting system  which VA is in the process of developing. According to VA officials, VA  will institute a system in June 2009 that will track square footage  reductions at the building level, but the system will not track financial  benefits at this level.
Mr. Chairman, this concludes my prepared statement. I would be pleased  to respond to questions from you or other Members of the Subcommittee.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information on this statement, please contact Mark L.  Goldstein at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this statement. Individuals making key contributions to this  testimony were Nikki Clowers, Hazel Gumbs, Edward Laughlin, Susan  Michal-Smith, and John W. Shumann.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.