VA Real Property: VHA Should Improve Activation Cost Estimates and Oversight
Released: 2020-01-02T00:00:00

Letter

Background

VA’s mission is to serve America’s veterans and their families, and one of the ways it does so is by providing veterans with medical services. To help meet the health care needs of veterans, VHA is planning to complete approximately 70 new major medical projects between 2020 and 2024. Activation is one of the key steps that must occur before veterans can access care at these facilities.

According to VA’s Activation Process Guide, activation typically involves activities such as planning for, purchasing, and installing new furniture, fixtures, and equipment (FF&E), ordering supplies, and hiring staff. For new buildings, the Guide states that activation activities begin when the building is being designed, continue through construction, and end when the facility is fully operational.

The expenses associated with activation can reflect either one-time purchases or ongoing expenditures. One time purchases—called non- recurring activation expenses—involve the acquisition of assets such as furniture or equipment, or payment to a contractor for services such as equipment installation. Ongoing expenses, or expenses incurred more than once—called recurring activation expenses—are for staff salaries and consumable supplies, such as gowns and gloves. After a facility opens and begins serving patients, facilities are permitted to treat supplies and the salaries of new staff as activation costs until the site is serving enough patients to receive funding through one of VA’s regular funding processes, known as the Veterans Equitable Resource Allocation (VERA). Figure 1 provides examples of recurring and non-recurring activation expenses.

The total cost of activation for major lease and major construction projects can be substantial. The median activation funding that facilities reported spending on major activations from fiscal year 2012 through 2018 was approximately $16 million. The four newest hospitals (in Denver, Las Vegas, Orlando, and New Orleans) spent a cumulative total of more than $1.9 billion for activation during this time period.

The types of facilities undergoing activation can vary in size, services provided, and overall purpose within the VHA healthcare system, as shown in figure 2. For example, a community-based outpatient clinic (CBOC) is typically much smaller than a medical center but can provide primary, specialty, subspecialty, mental health, or any combination of delivery services that can be appropriately provided in an outpatient setting. Large medical centers can provide outpatient services as well as a broad range of inpatient services, including emergency services, surgery, and acute psychiatric care. Smaller facilities may refer patients to medical centers for complex treatment.

National, regional, and local staffs play different roles in the activation process: National: VHA’s Activations Office—under the Office of Capital Asset Management (OCAM)—historically provided ad-hoc support to sites activating a major lease or construction project, such as providing on-site training related to the activation process and facilitating input from subject matter experts within VHA. The office also determines the base amount of activation funding that sites receive. Officials overseeing the office stated that its role is being reassessed and that the type of support it provides for activations may change in light of an internal reorganization and consideration for VA’s future growth plans.

Regional: VHA’s18 regional networks, known as Veterans Integrated Service Networks (VISN), are responsible for the coordination and oversight of all administrative and clinical activities at health care facilities within their specified region. A VISN’s role in activation varies depending on the expertise available at the facility level, but VISNs can help facilities arrange contracts for services (like laundry or hazardous waste removal); review a facility’s budget submissions to VHA; and facilitate discussions with senior management or knowledge-sharing with other sites that have recently completed activation. The VISNs are also responsible for distributing activation funding from VHA.

Local: In addition to providing medical services, medical centers function as administrative hubs for services in the area. As a result, the medical center director is ultimately responsible for activating facilities within the center’s administrative boundary. The medical centers can appoint staff to manage the activities required for activation. These staff can include the activations project manager, financial officers, and subject matter experts like interior designers. As a team, the staff are responsible for developing technical requirements, creating risk mitigation strategies, and deciding key acquisition dates, among other tasks.

Activation Tasks Include Identifying and Fulfilling Staffing, Equipment, and Other Needs Planning and Execution of Activation Tasks Align with Building Acceptance and the First Day of Clinical Services

While VHA has not identified standard milestones for activation, based upon our review of VHA documents and interviews with local and regional VHA officials, we found that two events are especially relevant to the planning and execution of activation activities: (1) building acceptance (when VHA formally takes possession of and occupies a building) and (2) providing medical services to the first patient. Figure 3 describes examples of activation activities in relation to these events, although the actual timing of tasks will vary depending on the needs of individual facilities.

Activation Teams Begin Equipping and Staffing New Facilities Prior to Building Acceptance

Officials from selected facilities said that prior to building acceptance, their activation activities typically focus on determining furniture and equipment needs, placing orders, anticipating staffing needs, and hiring new staff.

Determining furniture and equipment needs is intertwined with the building design process, according to officials from three VHA facilities, because the design of the physical space can dictate what equipment is purchased. For example, a VHA official from one health-care center said that the activations team showed the medical care providers a mock-up of a treatment room and created cardboard models of furniture to help them select items. The official told us that getting the medical care team’s input early in the planning process can avoid the need to make costly changes in order to make the physical space fit the equipment or furniture requested by the medical care providers.

Conversely, the building may be designed to accommodate specific equipment. For example:

Officials from one facility shared the specifications of the radiology equipment with the team designing the building in order to leave a proper amount of space for the equipment.

Similarly, an annex’s activation staff worked with the resident engineer to design an enclosed area separate from their main building for a mobile MRI machine. This design ensured a new MRI machine could be swapped out in the event of a breakdown without causing a disruption to the facility’s operations.

Officials said that they also begin the purchasing process for equipment and furniture prior to building acceptance. VHA officials stated they work backwards from the construction endpoint to determine when to order items. VHA officials told us they need to place orders for certain items— such as high-tech equipment or made-to-order furniture—well in advance of the facility’s opening because the items are known to have long delivery times. For example:

Officials from one clinic reported they ordered their facility’s imaging equipment 22 months before they needed it.

Similarly, an official from a different clinic said that furniture is often not manufactured until it is ordered, so it can take several months to arrive. In contrast, the official said items like a staff refrigerator could be picked up at a local store within days and do not require substantial advance planning.

Facilities also begin planning for their workforce needs prior to building acceptance. For example:

An official from one clinic stated that facilities typically identify their staffing needs during this time period by position, title, and pay.

Officials from an annex said that before their facility’s construction groundbreaking, they discussed how many staff would move from the old facility to the new facility, and how many new staff they expected to hire.

After activation teams determine their staffing needs, facilities hire and begin training new staff. For example:

An official from one clinic said that new staff needed to be trained prior to opening day, so it is not uncommon for staff to be hired and brought on-board before the facility begins providing clinical services.

In the case of a very large facility, such as a medical center, hiring the required staff can require an extensive search that must commence before the building is finished. An official from a medical center said that a shortage of skilled medical workers required a nationwide search for suitable candidates.

New Facilities Prepare for Patient Care after Building Acceptance

Officials said that after a building is accepted as complete, activation typically focuses on tasks associated with moving into the space, such as equipment installation and training staff. For example:

One clinic’s project calendar showed in the weeks leading up to opening day that the activations staff planned to install office furniture such as desks and filing cabinets, as well as to perform checks on biomedical equipment to ensure proper functioning.

Officials from another clinic coordinated equipment and furniture deliveries between the warehouse (where items were being stored) and the new facility.

The extent of staff training after building acceptance depends on the need to familiarize staff with the new facility, and the complexity of services offered. Activation staff might choose to have medical staff become familiar with the new facility by working at the facility prior to new operations. For example:

One clinic’s staff started working in the building before their first patient was seen in order to become familiar with the new space.

An official from a medical center said that facility staff adjusted to operating newer infrastructure, such as learning to operate a modern computerized boiler system. That official also stated that the medical center might need to conduct extensive training exercises to simulate 24/7 inpatient care. In contrast, outpatient facilities that do not operate around the clock may not have these same training needs.

Activation Continues after Facilities Begin Providing Clinical Services

Once a facility begins providing medical care, officials said that activation tasks are typically related to facility operations. These tasks can include on-the-job training in the new space and making necessary adjustments to the facility to ensure it runs properly while concurrently serving new patients. For example:

An official at one clinic said that beginning patient care with a decreased workload, known as a “soft opening,” can help facilitate on- the-job training. The same official explained that this approach allows staff to become accustomed to their new facility’s operations and address any issues that may emerge without the demands of operating at full capacity.

VHA officials from a health care center said that space adjustments included repositioning exam beds and ordering ergonomic chairs.

Officials at several sites stated that they used SharePoint, an internal communication tool, to keep track of needed adjustments. This approach enables staff to monitor ongoing issues during the beginning of new operations, resolve unexpected problems, and track issues as they occur.

Several VHA officials also said that some activation tasks —such as hiring staff—may occur after a facility begins serving patients. If a facility plans on a phased opening, in which some services will not be available on the first day, processes that would typically be completed earlier may take place during this time frame instead. For example, a medical center in our review utilized a phased-opening approach, as it expanded its capabilities with new medical services after opening.

Selected Facilities Provided Most Clinical Services within Expected Time Frames, but Delays Occurred for a Variety of Reasons

The facilities included in our review provided most medical services within planned time frames; however, nearly one-third of services were delayed for various reasons. Overall, 59 of the 87 services were offered within planned time frames (69 percent). Of the 28 services that were not provided on time, staffing, equipment size, “commissioning”, and procurement issues contributed to the delays, according to officials.

Staffing issues delayed a total of 14 services in two of the seven facilities reviewed. One facility had 13 services with delays that ranged from 4 to 6.5 months. Officials said the delays were due to difficulties recruiting the staff necessary for those services, which included various types of surgery, radiology, and mental health, among others. Similarly, difficulties recruiting a dentist at a second facility delayed dental service 4 months beyond the expected delivery time frame.

Equipment at one facility did not fit into some of the rooms and the space needed to be altered in order to accommodate it. Officials said that all 12 services were delayed by approximately 1 month so that the facility could open with all services available, though officials noted that the full extent to which the equipment issues contributed to these delays was unknown (i.e., there could have been other causes that they could not recall.)

Commissioning issues delayed women’s healthcare services at one annex by approximately 1 month. Officials said that the air circulation rate—which needed to be higher in rooms where certain procedures are performed—was inadequate. As a result, the air exchange had to be improved before the facility could begin performing the planned clinical procedures.

Procurement issues led to delays in providing radiology services at one facility. Officials told us that x-ray services were delayed by 3 months because the equipment was ordered through the centralized purchasing process, which took longer than local officials had anticipated.

These delays primarily affected services that were originally planned to be offered within 2 months of building acceptance. While selected facilities planned to offer approximately 92 percent of services within 2 months of building acceptance, as shown in figure 4, 61 percent were actually offered within that time frame.

VHA does not provide a guideline for how much time facilities should need after building acceptance to provide clinical services. Officials explained that the appropriate amount of time will vary based upon the scope of the project, including factors such as the number and kinds of services offered and the level of effort associated with installing the equipment (e.g., a replacement hospital will require more effort than a small outpatient clinic). Thus, we did not determine if facilities were allotting appropriate amounts of time to complete activation activities and serve patients. However, VA’s Activation Process Guide provides some information regarding when full services should be available. The Guide states that clinical services can be added for up to 6 months after opening day (i.e., the first day that patients receive any services at the facility). The Guide further states that facilities may expect to offer services gradually—versus all on opening day—when services are new to an area.

Of the 87 services offered by the facilities in our review, 86 were offered within 6 months of opening day. The remaining service—a clinic that provides colonoscopy and other related procedures at one facility— opened on schedule approximately 11 months after opening day. This facility was replacing another facility that had not previously offered this service. Officials explained that because the service was new, they needed more time to develop and equip the space as well as hire staff, so they planned on offering this service later than services that were being transferred from the previous facility.

VHA Lacks Processes and Clear Definitions to Estimate and Oversee Total Activation Costs

VHA lacks processes to develop total cost estimates for major activations. Without total cost estimates, VHA is unable to determine whether actual activation expenses are higher or lower than planned. Furthermore, VHA does not have documentation that defines allowable activation costs, including what facilities can purchase with activation funding and when facilities should cease spending activation funds. As a result, VHA officials lack critical information to support decision-making about resource allocation, and are not well positioned to effectively identify and investigate deviations from planned spending.

VHA Lacks Processes to Develop Total Activation Cost Estimates and Compare Them against Actual Costs

VHA lacks processes to develop reliable total activation cost estimates for major activation projects and to compare actual costs against these estimates. According to our assessment of information from VHA, the current cost estimation process does not cover the full duration of activation and does not reflect best practices for developing reliable cost estimates. In addition, VHA officials said that until recently, the agency lacked the accounting mechanisms necessary to facilitate comparisons of a project’s total activation costs against estimated costs; however, while VHA now possesses these mechanisms, it has not documented the process for how the new information should be used.

The Activations Office and facility activation staff annually develop cost estimates for the upcoming 3 fiscal years using (1) an activation cost model (the model) and (2) a cost template (the template). According to Activations Office officials, the model is managed by the Activations Office and uses inputs such as a facility’s square footage and project schedule. Activations Office officials also said that the template is typically completed by facility activation staff and includes inputs such as planned clinical services as well as estimated staffing, equipment, and supply costs. While the cost estimate is driven primarily by the model, information in the template is also considered before annual activation funds are distributed, according to Activations Office officials. Figure 5 shows the steps for determining and distributing annual activation funds.

We determined that the model and template do not estimate costs for the entire duration of a facility’s activation. According to our review of facilities’ spending data, activation spending for a given facility can occur over more than 3 fiscal years. All eight of the facilities in our review, for example, spent activation funds over 4 or 5 fiscal years. Thus, the estimate the Activations Office would have developed at the beginning of these projects would not have reflected total activation costs. Moreover, we did not see evidence that VHA medical facilities independently develop total activation cost estimates that are appropriate to compare against total actual costs. None of the eight selected facilities we reviewed could provide total activation cost estimates appropriate for this use, according to officials at each facility. Officials from five facilities stated that they had not developed such estimates, an official from one facility said that an estimate could not be located and probably had never been done, and officials from two facilities said that such documentation could not be located.

VHA officials said that the existing cost estimation tools reflected the budgeting process (i.e., the current fiscal year and two future years) and that they had not previously been required to develop a cost estimate for the entirety of activation. Officials noted that as the Activations Office’s role shifts to include more oversight, it will be important for the Office to have total cost estimates for activation; however, as of September 2019, VHA did not have any specific plans for how to collect estimates for a project’s entire activation cost.

We also found that VHA’s current process for developing activation cost estimates does not fully align with best practices for developing cost estimates as established in the GAO Cost Guide (see table 1 below). VHA’s process minimally met 10 and did not meet 2 of the steps—each of which reflects multiple best practices—required to develop reliable cost estimates. A reliable cost estimate is critical to the success of any program, providing the basis for informed decision-making, realistic budget formulation and program resourcing, and accountability for results. VHA officials acknowledged that following these practices would be valuable for the activations process, and explained that the agency did not previously incorporate these practices because they had not assessed the strength of their activation cost estimation process in this manner.

Lastly, the Activations Office does not compare existing estimates and actual activation costs. While the Activations Office develops activation cost estimates for the upcoming 3 fiscal years and has some capabilities to track activation costs, to date it has not compared the planned costs to actual expenses. According to Activations Office officials, they have historically been unable to track how activation funding was spent at the facility level, which impeded such comparisons. Starting in fiscal year 2020, officials from the Activations Office plan to use accounting codes associated with each activation project, which will allow them to track expenses at the facility level. An internal review conducted in mid-2019 by the department overseeing the Activations Office concluded that the agency needed to regularly assess the extent to which activations spent funds as planned. As of October 2019, however, officials said the office has not documented the process for how they will deploy their new accounting oversight capabilities, including which personnel would be responsible for conducting such comparisons, the frequency of comparisons, and any follow-up steps that would be considered in the event of significant differences.

Without processes for estimating total costs and comparing them against actual expenses, the Activations Office is limited in its ability to improve resource planning, budgeting, and allocation—critical elements that support VA’s stated management priority to enhance data-driven decision-making. Further, guidance from the Office of Management and Budget states that agencies should obtain information on actual project costs and compare them against planned expenses so managers can have a clear understanding of how resources are being used and whether cost goals are being met. Documented processes for cost estimation and comparison would be particularly important in the case of large medical centers, whose activation costs are in the hundreds of millions of dollars.

VHA’s Activations Office Has Not Clearly Defined Allowable Activation Costs or Spending Time Frames

The Activations Office has not clearly defined what officials at local facilities can purchase with activation funding and how long activation funding should continue after opening day. Activations Office officials said that there is a general understanding that some expenses, such as medical equipment for new facilities or services, are activation expenses, and that the Activations Office intends to provide activation funding until the facility begins to receive VERA funding to cover operational expenses. However, there is no policy to inform facility activation staff of what they can purchase with activation funding and when funding will cease. In mid-2019, an internal review conducted by the department overseeing the Activations Office found that the lack of clarity regarding what could or could not be purchased should be remedied; however, as of September 2019, no specific plans have been established to define appropriate purchases.

Officials we spoke with—both at the selected medical facilities and VISNs—expressed uncertainty about what expenses they could pay for using activation funding.

Officials from two of eight facilities told us that there were times when they did not know if they should charge an expense to activation or another funding source, such as construction accounts. For example, officials at one facility told us that they were unsure whether construction or activation funds would pay for the special window blinds needed for the intensive care units.

Officials at four of the VISNs also said that when contacted by medical facility officials for guidance on allowable expenses, there were times when they did not know if facilities should charge an expense to activation or another funding code.

In addition, officials from the selected sites held differing views on how long they were eligible to receive activation funding from the Activations Office. Finance officials for one of the selected facilities said that activation funding is provided for up to 5 years, while officials from several other facilities said that activation funding is available until operational expenses are covered by VERA. Activations Office officials said that the latter interpretation is accurate and that this transition to ongoing VERA support should take place within approximately 2 years after opening day. However, an official from the Activations Office said that a few facilities have received funding from the Activations Office for more than 2 years after opening because there was no clear definition for when activation funding should cease.

The lack of clear definitions regarding what constitutes allowable activation expenses and when activation funding should end limits VHA’s ability to consistently and accurately estimate and track activation costs. For example, similar facilities could develop varying total cost estimates due to different understandings of what expenses are allowable. VA management priorities include making data-driven decisions to improve resource planning, budgeting, and allocation. In addition, Standards for Internal Control in the Federal Government states that management should use quality information to achieve the entity’s objectives. Clear definitions on what expenses facilities should charge to activation accounts, and for how long, would improve the Activations Office’s ability to monitor activation costs and improve resource stewardship.

Conclusions

As VHA undertakes the process of replacing facilities to better reflect its focus on outpatient and specialized care, it is poised to spend hundreds of millions of dollars per year to equip and staff these new sites. However, VHA does not have a clear understanding of total costs and whether individual activation projects are spending funds effectively. Because VHA does not have a process for developing an estimate for the entire activation cost of a project, the agency lacks a critical baseline that can inform future spending decisions. In addition, because VHA lacks a process that describes how officials should compare actual expenses to that estimate, the agency has no mechanism to regularly identify and respond to unplanned differences in activation costs. Furthermore, defining allowable activation expenses would better position VHA to ensure total cost estimates are consistent from facility to facility. Lastly, additional clarification on how to estimate activation costs and compare them against actual expenses would help VHA to more effectively manage the activations process. Without processes and clear definitions associated with activation cost measurement, VHA does not have reasonable assurance that it will be able to effectively manage the resources associated with activation.

Recommendations for Executive Action

We are making the following four recommendations to VA:

The Assistant Deputy Under Secretary for Health for Administrative Operations should develop and document a process for estimating total activation costs for major medical facility projects. This process should reflect the 12 steps for developing a reliable cost estimate outlined in the GAO Cost Guide. (Recommendation 1)

The Assistant Deputy Under Secretary for Health for Administrative Operations should develop and document a process for comparing actual activation costs for major medical facility projects to estimates. This process should identify the personnel responsible for comparing the estimated costs to the actual expenses and document their responsibilities. (Recommendation 2)

The Assistant Deputy Under Secretary for Health for Administrative Operations should define and document what items and services officials can purchase with activation funds. (Recommendation 3)

The Assistant Deputy Under Secretary for Health for Administrative Operations should define and document when facilities should cease to spend activation funds. (Recommendation 4)

Agency Comment

We provided a draft of our report to VA for review and comment. VA provided written comments, which are reprinted in appendix II. VA concurred with all of our recommendations. VA further provided information on how it intends to address our recommendations, with target dates for completion in December 2020.

We are sending this report to the appropriate congressional committees and to the Secretary of the Department of Veterans Affairs. In addition, this report is available at no charge on the GAO website at http://gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-2834 or vonaha@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Other key contributors to this report are listed in appendix III.

Appendix I: Reported Activation Costs at Selected VHA Medical Facilities

To understand the costs of the activations of the eight selected facilities, we asked activation officials at each facility to provide a breakdown of the activation costs by the following categories: (1) Furniture, Fixtures, and Equipment; (2) Staffing; (3) Supplies; (4) Other; and (5) Total Cost. We used these cost categories because these are the categories in the template that facilities complete to estimate activation costs.

Appendix II: Comments from the Department of Veterans Affairs

Appendix III: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact above, Heather Halliwell (Assistant Director); Alison Snyder (Analyst-in-Charge); Rose Almoguera; Brian Bothwell; Geoffrey Hamilton; Jason Lee; Terence Lam; Ethan Levy; Josh Ormond; Daniel Setlow; Laurel Voloder; Mary Weiland; and Elizabeth Wood made key contributions to this report.