Federal Health Care Center: VA and DOD Need to Develop Better Information to Monitor Operations and Improve Efficiency
Published: 2017-01-23T00:00:00

Fast Facts:
VA and DOD integrated their medical facilities in North Chicago as a 5-year demonstration project. Their evaluation report recommended that they continue to operate as an integrated facility, while suggesting some improvements. We reviewed their report and found that it lacked specific time frames and interim milestones for making these improvements, and an updated cost-effectiveness analysis.
We recommended that the agencies develop specific timeframes and milestones to ensure that their recommendations are implemented in a timely manner. We also recommended that VA and DOD conduct a cost-effectiveness analysis of the integrated facility.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The National Defense Authorization Act for Fiscal Year 2010 (NDAA 2010) authorized VA and DOD to establish a 5-year demonstration to integrate their medical facilities in North Chicago, Ill. The NDAA 2010 also required VA and DOD to submit a report of their evaluation of the demonstration and their recommendation as to whether it should continue operating as a fully integrated facility after 5 years. In July 2016, VA and DOD submitted a report to Congress recommending that the FHCC continue operating as an integrated facility.
The NDAA 2015 included a provision for GAO to assess VA and DOD's evaluation to Congress. In this report, GAO assesses VA and DOD's approach for evaluating the FHCC and making the determination to continue operating it as an integrated facility. To do this, GAO reviewed the report to Congress and relevant supporting documents, and interviewed officials about the evaluation. In analyzing the evaluation, GAO used as criteria its prior work on planning practices, evaluating physical infrastructure, and management consolidation initiatives, as well as the Office of Management and Budget's (OMB) capital programming guide.
section_title: What GAO Found
paragraphs: The Department of Veterans Affairs (VA) and the Department of Defense's (DOD) evaluation to determine whether the Captain James A. Lovell Federal Health Care Center (FHCC) should continue operating as an integrated facility or revert to a “joint venture” included conducting both separate and joint reviews. As an integrated facility, the FHCC has a unified governance structure, workforce, and budget. As a joint venture, the departments would continue sharing medical facility space, but would manage their operations with separate governance structures, workforces, and budgets. VA and DOD's joint review team concluded that converting the FHCC to a joint venture was not advisable or achievable because the Navy hospital had been demolished and money to replace it was used to expand the VA facility. In addition, returning the civilian employees from VA's to DOD's personnel system would require complex negotiations that could result in job reclassifications and salary changes. As a result, officials recommended continuing the FHCC as an integrated facility with the implementation of specific recommended improvements with the caveat that no similar integration efforts be undertaken until they “get it right” at the FHCC.
In the report to Congress, VA and DOD outlined 17 recommended improvements for the FHCC but did not include time frames for implementing them. As GAO has previously reported, leading practices for planning call for results-oriented organizations to develop plans that provide tools to assure accountability, such as time frames and interim milestones that could be used to monitor progress, hold staff accountable for achieving desired results, and make mid-course corrections, if needed. Although officials routinely track each improvement through twice monthly meetings, and use a spreadsheet to monitor status and next steps, they have not specified time frames and interim milestones. Without this information, officials cannot ensure that they will implement the recommended improvements in a timely and efficient manner.
The letter that accompanied the report to Congress stated that the FHCC's costs were “very high” and not in keeping with the initial goal of delivering more cost-effective health care. VA and DOD officials told GAO that this statement was based on their contractor's evaluation of the facility, which found that the FHCC was not more cost-effective than a joint venture. Officials told GAO that their contractor's analyses used cost data that ended in fiscal year 2014, and since that time, the FHCC has made improvements they believe would positively impact cost savings. However, officials said that they did not have sufficient time for the contractor to update the analysis after receiving the contractor's report in September 2015, and that one additional year of data would not likely have changed their conclusions or recommendations. According to OMB's capital programming guide, at many key decision points, a cost-effectiveness analysis of operations would be useful to help make decisions. Without an updated cost-effectiveness analysis for the FHCC, officials will not have a baseline from which to measure and track the FHCC's future efficiency, including the effect of the recommended improvements, once implemented.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Secretaries of VA and DOD collaborate to establish time frames and interim milestones for tracking the implementation of the jointly recommended improvements and to conduct a cost-effectiveness analysis for the FHCC. VA and DOD concurred with GAO's recommendations.

section_title: Letter
paragraphs: In October 2010, the Departments of Veterans Affairs (VA) and Defense  (DOD) expanded their efforts to share health care resources through a 5- year demonstration to more fully integrate their medical facilities in North  Chicago, Ill. As authorized by the National Defense Authorization Act for  Fiscal Year 2010 (NDAA 2010), VA and Navy facilities in North Chicago  were integrated into a first-of-its-kind facility known as the Captain James  A. Lovell Federal Health Care Center (FHCC). The 5-year demonstration  was intended to create a national model for the joint delivery of health  care that would be more accessible and less expensive than operating  two federal medical centers serving VA and DOD beneficiaries in the  same area. It was also expected to inform decision makers about  whether this model of care would be effective if replicated at other VA and  DOD locations.
The Secretaries of VA, DOD, and the Navy signed an Executive  Agreement, effective October 1, 2010, which defined the departments’  roles in operating and overseeing the FHCC and outlined requirements in  specific “integration areas,” such as governance, workforce management,  and facility operations, including information technology (IT).  According  to the agreement, the FHCC was intended to meet the health care  missions of both departments—including DOD’s operational readiness  mission—by integrating services previously provided by the former North  Chicago VA Medical Center and the Naval Health Clinic Great Lakes into  a single facility. The agreement also specified that the FHCC was  designed to improve the access, quality, and cost-effectiveness of care,  while providing FHCC leadership with the ability to adopt the most  efficient of the clinical and administrative processes used by VA and  DOD.
The NDAA 2010, as amended by the NDAA for Fiscal Year 2012,  included a provision for us to assess and report on the departments’  progress in implementing the Executive Agreement and the effects of the  Executive Agreement on the provision of care and operation of the facility  at specified times.  We issued reports in response to this provision in  2011, 2012, and 2016.  Overall, we found that although the departments  had made progress in implementing areas of the Executive Agreement,  difficulties with the integration still remained in areas such as IT and  workforce planning. As a result, we made a number of recommendations  to the departments. (See appendix I for an outline of the status of those  recommendations.)
The NDAA 2010 also required the departments to submit a report to the  appropriate committees of Congress no later than 180 days after 5 years  of executing the Executive Agreement (or by March 2016), to include a  comprehensive evaluation of the demonstration and a recommendation  as to whether the FHCC should continue as a fully integrated facility. To  address this requirement, VA and DOD submitted a report of their  evaluation to Congress in July 2016. In the letter that accompanied the  report to Congress, the departments recommended maintaining the  FHCC as an integrated facility with periodic reviews and the  implementation of specific recommended improvements. The  departments also stated that they would not recommend any similar  demonstration projects until they “get it right” at the FHCC.
The Carl Levin and Howard P. “Buck” McKeon National Defense  Authorization Act for Fiscal Year 2015 (NDAA 2015) included a provision  for us to assess the departments’ evaluation for Congress on the FHCC.  In this report, we examine VA and DOD’s approach for evaluating the  FHCC and making the determination to continue operating it as an  integrated facility.
To address our objective, we reviewed VA and DOD’s report to Congress,  including the documents departmental officials reviewed and created in  preparing their report. We interviewed VA, DOD, and FHCC officials to  obtain information on their methodologies, including how they selected  and assessed specific areas of the FHCC and how they identified the  recommended improvements. We also spoke with these officials about  the implementation of the recommended improvements that were outlined  in the report to Congress and reviewed documents related to these  efforts. Finally, we assessed the extent to which VA and DOD’s  methodology aligned with our identified best practices for planning, the  Office of Management and Budget’s (OMB) capital programming guide,  and our previous work on evaluating physical infrastructure and  management consolidation initiatives.
We conducted this performance audit from December 2015 to January  2017 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: Although VA and DOD have shared resources at some level since the  1980s, the FHCC is the first integrated health care center with a unified  governance structure, workforce, and budget.In fiscal year 2015, the  FHCC provided care to about 100,000 patients at a total cost of $474  million.
The Executive Agreement, signed by the Secretaries of VA, DOD, and  the Navy, defines the departments’ sharing relationship at the FHCC and  contains key provisions to be met in 12 integration areas. (See table 1 for  the key provisions in the Executive Agreement.)
According to the governance structure established in the Executive  Agreement, the FHCC is accountable to both VA and DOD, with VA  serving as the lead department. The FHCC director, a VA executive, is  accountable to VA for the fulfillment of the FHCC mission, while the  deputy director, a Navy Captain who rotates approximately every 2 years,  is accountable to the Navy and, ultimately, DOD.
Also in accordance with the Executive Agreement, staff from the Naval  Health Clinic Great Lakes and the North Chicago VA Medical Center  merged to create a single, joint workforce. This included the transfer of  DOD civilian staff employed by the Department of the Navy to VA’s  personnel system.  As of November 2016, the FHCC's workforce included  approximately 3482 civilian, active duty, and contract staff. Civilians  comprised 69 percent (about 2396) of the facility's overall workforce,  while 26 percent (about 907) were active duty servicemembers, and 5  percent (about 179) were contract staff.
The NDAA 2010 established the Joint DOD-VA Medical Facility  Demonstration Fund (Joint Fund) as the funding mechanism for the  FHCC, with VA and DOD both making transfers to the Joint Fund from  their respective appropriations. As authorized in the NDAA 2010, the  Executive Agreement requires a financial reconciliation process that  permits VA and DOD to identify their contributions to the Joint Fund each  year. These contribution proportions are determined based on the  proportion of shared care provided by each department, as well as the  amount each department spent for mission-specific services provided to  its beneficiaries.
section_title: VA and DOD’s Evaluation of the FHCC Involved Multiple Reviews, but Had No Time Frames for Implementing Recommended Improvements or an Updated Cost- Effectiveness Analysis
paragraphs: VA and DOD’s approach for evaluating the FHCC involved both separate  and joint reviews that included the identification of recommended  improvements in their report to Congress. However, the report did not  include time frames for implementing these improvements. Additionally,  although the departments acknowledged the “very high” costs of  operating the FHCC, there was no updated cost-effectiveness analysis  included that would provide a baseline for measuring efficiency.
subsections: section_title: VA and DOD’s Evaluation of the FHCC Included Both Separate and Joint Reviews
paragraphs: VA and DOD’s approach for evaluating the FHCC included conducting  both separate and joint reviews to determine whether it should continue  operating as an integrated facility with a unified governance structure,  workforce, and budget or revert to a “joint venture.” Under a joint venture  arrangement, the departments would continue sharing medical facility  space, but would manage their operations with separate governance  structures, staff, and budgets.
VA and DOD initially conducted separate reviews of the FHCC with their  own subject matter teams. VA established 9 subject matter teams that  began their reviews in August 2015, and DOD established 11 subject  matter teams that began their reviews in June 2015. Officials told us that  the issues selected for review by the subject matter teams were based on  the functional areas of the FHCC, the Executive Agreement, and  requirements in the Duncan Hunter National Defense Authorization Act  for Fiscal Year 2009 (NDAA 2009) that provided guidelines for  establishing the demonstration. According to officials, each team  reviewed the following documents:  the FHCC evaluation conducted by VA and DOD’s contractor,   the FHCC IT evaluation conducted by the Veterans Health  Administration Product Effectiveness group, and other relevant reports, including reviews by GAO and the Institute  of Medicine, as well as the mission and purpose of the facility.
Based on their assessments, each team was asked to recommend  whether the FHCC should continue as an integrated facility or revert to a  joint venture. While the majority of VA’s teams recommended that the  FHCC should continue operating as an integrated facility, the DOD/Navy  teams did not have an overall consensus. (See table 2.) According to a  Navy official, the teams’ recommendations were prioritized based on  DOD’s determination of the importance of their particular area.  Specifically, recommendations of the governance and budget teams were  given a higher priority than the other subject matter teams. As a result,  their recommendations to continue operating the FHCC as an integrated  facility had more weight in DOD’s final determination.
VA and DOD officials met jointly in October 2015 to determine the future  of the FHCC. They reviewed the work of the subject matter teams,  including the teams’ recommendations related to whether the FHCC  should continue operating as an integrated facility as well as specific  improvements the teams recommended implementing if the FHCC  continued to operate as an integrated facility. They also studied the  implications of either operating the FHCC as an integrated facility or  converting it to a joint venture, and concluded that the latter was not  advisable or achievable for two main reasons:
The former Naval Hospital Great Lakes had been demolished, and  funding for the replacement facility was used to expand the former  North Chicago VA Medical Center as part of the demonstration.
Returning all or some of the 470 civilian employees from VA to DOD’s  personnel system would require complex negotiations and could  result in job reclassifications and salary changes.
As a result, the departments jointly recommended continuing the FHCC  as an integrated facility with periodic reviews and the implementation of  17 recommended improvements that had been identified by the subject  matter teams (See table 3.)
section_title: VA and DOD Did Not Provide Time Frames for Implementing the Recommended Improvements for the FHCC in Their Report to Congress
paragraphs: Although the departments’ report to Congress outlined a number of  recommended improvements for the FHCC as part of their decision to  continue operating it as an integrated facility, the report did not include  time frames for implementing them. VA and DOD officials have been  routinely tracking each of the recommended improvements through  meetings held twice monthly, and have developed a spreadsheet that  includes information on status and next steps. However, officials have  not identified time frames as part of their routine tracking efforts.  As we  have previously reported, leading practices for organizational planning  call for results-oriented organizations to develop comprehensive plans  that provide tools to ensure accountability, among other things.
Although officials have defined goals and identified activities for  implementing the recommended improvements, the lack of time frames  and interim milestones suggests they do not have all of the tools needed  to ensure accountability. Time frames and interim milestones could be  used to monitor progress, hold staff accountable for achieving desired  results, and make mid-course corrections, if needed. DOD officials  acknowledged that although a majority of the recommended  improvements do not have this information, the timing for implementing  some improvements is outside their control, such as approval and funding  for IT enhancements. (See recommended improvement 14 in table 3.)   Additionally, according to these officials, the recommendation to conduct  an extensive review and revision of the FHCC Executive Agreement and  associated executive decision memoranda to reduce redundancies will be  a monumental undertaking, and until this review is under way, officials will  not know how much time will be needed to complete these efforts. (See  recommended improvement 2 in table 3.) Furthermore, DOD officials  informed us that two of the recommended improvements do have time  frames, although this is not reflected in the tracking spreadsheet.  Specifically, DOD officials stated that the joint staffing study has a  completion goal of February 2017, and the proposal for future funding for  the FHCC is due to be presented at the April 2017 Advisory Board  meeting. (See recommended improvements 6 and 10, respectively, in  table 3.) Both VA and DOD officials told us that they believe their current  tracking efforts of the recommended improvements are sufficient.  However, without time frames and interim milestones for most of the  recommended improvements, VA and DOD officials are unable to ensure  that these improvements will be implemented in a timely and efficient  manner.
section_title: Despite Acknowledging the Demonstration’s High Costs, VA and DOD Did Not Include an Updated Cost-Effectiveness Analysis of the FHCC in Their Report to Congress
paragraphs: In the letter that accompanied the report to Congress, both departments  acknowledged that the costs associated with the demonstration project  were “very high” and not in keeping with the initial goal of delivering more  cost-effective health care. The letter further noted that the increased costs  were due, in part, to the departments’ inability to appropriately downsize  staff, as well as efforts to integrate their separate information systems.  VA and DOD officials informed us that their statement about the high  costs of the FHCC was based on the FHCC evaluation conducted by their  contractor, Knowesis, which was referenced as an appendix in their  report to Congress. Specifically, the contractor found that integration was  not more cost-effective than a joint venture and that the FHCC was not  consistently performing as well as the separate VA and Navy facilities  were before integration.
The contractor’s analyses of the FHCC’s cost-effectiveness used cost  data that ended in fiscal year 2014. Since that time, the FHCC has had a  change in leadership and has made additional improvements that VA and  DOD officials believe would positively impact cost-savings. Consequently,  VA and DOD officials informed us that they considered asking the  contractor to update its analyses, but ultimately decided against it due to  time constraints and the need to enter into a new contract as the prior one  had expired. Officials also noted that although the FHCC’s costs had  decreased, another analysis with one additional year of data would likely  not have changed the contractor’s conclusions or recommendations.
In addition, VA and DOD officials stated that they did not have sufficient  time to conduct their own analysis with updated cost data to include in the  report to Congress after receiving the contractor’s final report in  September 2015. Instead, officials told us they discussed the increase in  costs that would occur if the integrated facility was converted into a joint  venture, which would result in the establishment of duplicative services  that would be less efficient than the current arrangement. For example,  officials said that the facility would need to have two infection control  programs and two credentialing programs that would have to be staffed  accordingly, resulting in additional costs.
According to OMB’s capital programming guide, at many key decision  points, a cost-benefit or cost-effectiveness analysis of operations would  be useful to help make decisions. Additionally, based on our prior work  on evaluating physical infrastructure and management consolidation  initiatives, the goals and likely costs and benefits of a consolidation are  key questions to consider. Without an updated cost-effectiveness  analysis, VA and DOD do not know the extent to which they are achieving  their initial goal of delivering more cost-effective health care. Such an  analysis would provide a baseline from which to measure and track the  FHCC’s future efficiency, including the effect of the recommended  improvements, once implemented. It may also help facilitate the  identification of any additional improvements and inform other future  efforts to integrate VA and DOD facilities.
section_title: Conclusions
paragraphs: VA and DOD’s recommendation to continue operating the FHCC as an  integrated facility acknowledged the shortcomings and high costs of the  demonstration and recommended not initiating similar efforts until they  are able to “get it right.”  However, despite the departments’  recommended improvements to overcome these shortcomings,  deficiencies in monitoring and accountability may impede their ability to  improve future operations and ensure cost efficiency. Specifically, the  lack of time frames and interim milestones limits the departments’ efforts  to ensure the timely and efficient implementation of their recommended  improvements.  Additionally, without an updated cost-effectiveness  analysis, the departments lack the necessary information to know to what  extent they are achieving their original goal of more cost-effective care,   as well as whether their recommended improvements are contributing to  this goal. Until these deficiencies are addressed, the departments cannot  assure whether they will actually “get it right” at the FHCC, and whether  this integrated model of care could or should be replicated in the future.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretaries of Veterans Affairs and Defense  collaborate to take the following actions: develop time frames and interim milestones for tracking and  implementing each of their jointly developed recommended  improvements; and  conduct a cost-effectiveness analysis for the FHCC to establish a  baseline for measuring the facility’s efficiency over time.
section_title: Agency Comments
paragraphs: VA and DOD each provided written comments on a draft of this report. In  their comments, both departments concurred with our recommendations.  In VA’s written comments, reproduced in appendix II, VA provided  additional information related to implementing each of our  recommendations. Specifically, VA stated that the Veterans Health  Administration would work jointly with DOD to develop time frames and  milestones for the recommended improvements with a target completion  date of April 2017.  VA also stated that FHCC officials are working with  both departments to define a methodology to conduct a cost- effectiveness analysis using existing FHCC data. Once a methodology  has been defined, VA stated that FHCC officials will work with both  departments to complete the analysis with a target completion date of  June 2018. DOD’s written comments, reproduced in appendix III, did not  provide any additional information about implementing our  recommendations. DOD also provided technical comments that we  incorporated, as appropriate.
We are sending copies of this report to the Secretary of Defense,  Secretary of Veterans Affairs, and appropriate congressional committees.  In addition, the report will be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or at draperd@gao.gov. Contact points for our  Office of Congressional Relations and Office of Public Affairs can be  found on the last page of this report. Other major contributors to this  report are listed in appendix IV.
section_title: Appendix I: Status of Prior GAO Recommendations
paragraphs: The Captain James A. Lovell Federal Health Care Center’s (FHCC)  Executive Agreement defines the sharing relationship and roles of the  Department of Veterans Affairs (VA) and Department of Defense (DOD)  and contains key provisions to be met in 12 integration areas. In 2011  and 2012, we reported on the implementation status of the FHCC’s  Executive Agreement integration areas and made a number of  recommendations. Additionally, in 2016, we reported on the ongoing  difficulties that continued at the FHCC and made additional  recommendations.  See table 4 for our previous recommendations and  the status of their implementation.
section_title: Appendix II: Comments from the Department of Veterans Affairs
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix II: GAO Contact and Staff Appendix IV: GAO Contact and Staff Acknowledgments Acknowledgments
subsections: section_title: GAO Contact:
section_title: Staff Acknowledgments:
paragraphs: In addition to the contact named above, Bonnie Anderson, Assistant  Director; Danielle Bernstein, Analyst-in-Charge; Jennie Apter; and Linda  Galib made key contributions to this report. Also contributing were  Jacquelyn Hamilton and David Wise.