VA operates one of the largest health care delivery systems in the nation, providing care to a diverse population of veterans. VA operates about 150 hospitals, 130 nursing homes, 950 outpatient clinics, and 230 readjustment counseling centers--Vet Centers--through 21 regional health care networks called Veterans Integrated Service Networks. VA is responsible for providing health care services to various populations--including an aging veteran population and a growing number of younger veterans returning from the military operations in Afghanistan and Iraq. VA is required by law to provide health care services to certain veterans and may provide care to other 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 noninstitutional long-term care services provided in veterans' own homes and in other locations in the community. VA also provides some services that are not part of its medical benefits package, such as nursing home care. The population of veterans to whom VA is required to provide nursing home care is more limited than the population to whom VA is required to provide other health care services. VA is required by law to provide nursing home care to certain veterans needing such care who also have service-connected disabilities, and VA also makes nursing home care available to other veterans on a discretionary basis as resources permit. VA's enrollment system includes eight categories for enrollment established by law to manage access to services in relation to available resources. The order of priority for the categories is generally based on service-connected disability, income, or other special status such as having been a prisoner of war. If sufficient resources are not available to provide care that is timely and acceptable in quality, VA must restrict enrollment consistent with its priority categories. VA also provides enhanced priority status for veterans with combat experience--including those who participated in Operation Enduring Freedom in Afghanistan, Operation Iraqi Freedom, and Operation New Dawn in Iraq--for up to 5 years from their date of discharge or release from active-duty service. Veterans who enroll in VA health care may choose not to access VA's health care services in any given year. This is in part because many veterans have other options, such as Medicare, Medicaid, or private health insurance, to access and pay for health care services. Enrollees choose whether to access services through VA or other providers based on factors such as their proximity to VA providers. Additionally, downturns in economic conditions may reduce veterans' access to sources of private insurance, such as employer-sponsored insurance, and influence enrollees' choice to access VA health care. Estimating the resources required to provide health care services to veterans and developing VA's budget request is a collaborative process involving several offices within VA, mainly at VA headquarters. Within VA, VHA's Office of Finance is responsible for policy and operational issues relating to budget formulation for all VHA services. It works with the Office of the Assistant Deputy Under Secretary for Health for Policy and Planning, which has responsibilities for managing knowledge and data related to VHA's policies and strategic planning. Program offices, which are responsible for setting policies for providing specific health care services, provide information to support the budget formulation process. VA's Office of Budget is responsible for overseeing the budget formulation process for the department as a whole on behalf of the Secretary and submitting VA's budget request for OMB's review and consideration in developing the President's Budget. OMB plays a key role in the budget formulation process by providing the framework for agencies to follow. OMB annually issues Circular No. A-11, which contains detailed instructions and schedules for the submission of agencies' budget estimates. It also includes other material to ensure that agency budget requests adhere to standardized conventions and formats. OMB also provides general guidance to federal agencies via bulletins and memoranda that include, among other things, the President's priorities to consider as agencies prepare their budget submissions. Additional communications between OMB and an agency can occur anytime during the year. VA, like other agencies, begins formulating a budget request approximately 10 months before the President submits the budget to Congress in early February. This is approximately 18 months before the start of the fiscal year to which the request relates and about 30 months prior to the start of the fiscal year to which the advance appropriations request relates. The formulation of VA's budget request is a process that follows the general schedule in table 1. VA uses a projection model to develop estimates of the resources needed to deliver most of the health care services VA provides. These services accounted for most of VA's health care budget estimate for fiscal year 2011. VA uses other methods to develop nearly all of the remaining portions of its health care budget estimate for long-term care and other services as well as proposed initiatives. VA uses what is known as the Enrollee Health Care Projection Model (EHCPM)--a model developed in partnership with VA's actuarial consultant--to estimate the amount of resources VA will need to meet the expected demand for most of the health care services VA provides. These services accounted for 83 percent of VA's health care budget estimate for fiscal 2011. VA used the EHCPM to estimate the resources needed for fiscal year 2011 for 61 health care services, which VA grouped into seven service types (see app. I for a list of the 61 health care services that were grouped into the seven service types). Outpatient services accounted for almost half of the resources VA estimated using the EHCPM for fiscal year 2011. (See fig. 1.) The EHCPM is used to estimate needed resources based on the total cost of providing each health care service. VA officials said this total cost reflects direct patient costs as well as costs associated with management, administration, and maintenance of facilities. The EHCPM's estimates are based on three basic components: the projected number of veterans who will be enrolled in VA health care, the projected utilization of VA's health care services--that is, the quantity of health care services enrollees are expected to use--and the projected unit cost of providing these services. (See fig. 2.) Each component is subject to a number of complex adjustments to account for the characteristics of VA health care and the veterans who access VA's health care services. The EHCPM makes these projections 3 or 4 years into the future for budget purposes based on data from the most recent fiscal year. For example, in 2009, VA used data from fiscal year 2008 to develop its health care budget estimate for the fiscal year 2011 request, including the advance appropriations request for fiscal year 2012. To project the expected number of veterans who will be enrolled in VA health care, the EHCPM relies on a combination of VA and other federal data to identify current enrollees and to estimate how many eligible, nonenrolled veterans will choose to enroll. The EHCPM uses VA data to identify the number of current enrollees in VA health care and to calculate historical enrollment rates by various characteristics, including age, gender, priority level, and geographic location. In addition, the EHCPM uses data developed by VA that combine federal census data on veterans and Department of Defense data on service members separated from active duty since the last decennial census to identify the number of eligible veterans not currently enrolled in VA health care. The data developed by VA also incorporate Department of Defense estimates of how many service members will separate from active duty each year into the future. The EHCPM uses these data to estimate how many eligible veterans will choose to enroll in VA health care by applying VA's historical enrollment rates to this population. To project the utilization or the quantity of VA's health care services veterans will use and the unit costs of VA's health care services, VA groups these services into two major categories in the EHCPM: (1) those services that VA provides in a manner comparable to other providers, whose services are paid for by Medicare and private health insurers; and (2) those services that are unique to or are provided in a different manner by VA. For example, VA provides services, such as emergency room visits and physician office visits, in a manner comparable to other providers. In contrast, VA provides rehabilitation services to homeless veterans and certain types of prosthetic services that VA officials said are not generally offered by other providers. For health care services that VA provides in a manner comparable to other providers, the EHCPM uses utilization and unit-cost data developed by VA's actuarial consultant that reflect data from Medicare and private health insurers in addition to data from VA's own experience. VA used these data for 33 of the 61 health care services whose estimates were developed by the EHCPM for fiscal year 2011. (See app. I for the data sources used to generate utilization and unit-cost projections for each of the 61 health care services for fiscal year 2011.) Data from Medicare and private health insurers allow the EHCPM to better account for the impact of a number of factors--such as age, gender, geographic location, and benefit structure--that may affect utilization and unit-cost projections because these data represent more than 60 million individuals, compared with the 8.5 million veterans expected to be enrolled in VA health care in fiscal year 2011. Additionally, VA officials said that using data from Medicare and private health insurers allows the EHCPM to account for enrollees' utilization of health care services outside of VA health care. For health care services that are unique to or are provided in a different manner by VA, the EHCPM uses utilization and unit-cost data from VA's own experience. VA used these data for 28 of the 61 health care services whose estimates were developed by the EHCPM for fiscal year 2011. While VA data can be used to reasonably estimate the likely demand for these specific services, VA officials said these data do not allow the EHCPM to account for as many factors that may affect utilization and unit-cost projections. For example, VA uses national unit costs in most projections of services that are unique to VA health care because it lacks sufficient data to use in the EHCPM to account for geographic variations in the unit cost of these services. To project utilization and unit costs using the EHCPM, VA makes a number of complex adjustments to the utilization and unit-cost data to account for the characteristics of VA health care and enrolled veterans. For example, these adjustments take into account enrollees' age, gender, priority level, and geographic location. VA also makes additional adjustments to account for changes expected to occur over time. For example, adjustments are made to utilization projections to account for changes in health care practice patterns, such as greater use of magnetic resonance imaging to diagnose a condition. Additionally, unit-cost projections are adjusted to account for the effect of inflation on the costs of labor and supplies. For services that VA provides in a manner comparable to other providers, VA also adjusts data from Medicare and private health insurers in the EHCPM to account for the extent to which enrolled veterans will choose to access health care services through VA--referred to as reliance on VA health care--or obtain these services through non-VA sources. VA uses Medicare data for enrolled veterans to estimate the proportion of each health care service that veterans age 65 and over access through Medicare instead of VA. However, VA does not have a comprehensive data source to estimate the proportion of each health care service that enrolled veterans under age 65 access through non-VA sources, such as private insurers. To estimate the proportion of each health care service that enrollees under 65 access through VA and non-VA sources, VA relies on an extrapolation from its analysis of Medicare data and from data collected through periodic telephone surveys of enrollees about their use of VA and non-VA health care services. Additionally, VA adjusts data from Medicare and private health insurers in the EHCPM to incorporate characteristics unique or more common to VA health care and its enrollee population. For example, VA does not require copayments for physician office visits for veterans that meet certain eligibility criteria and VA's enrollee population is predominantly male. Within VHA's Office of the Assistant Deputy Under Secretary for Health for Policy and Planning, the Office of Enrollment and Forecasting has the lead responsibility for developing the estimates from the EHCPM and annually updates the assumptions that may affect utilization or unit-cost projections. VHA's Office of Enrollment and Forecasting works closely with VHA's Office of Finance, which is responsible for coordinating the process for developing VA's health care budget estimate. The Office of Enrollment and Forecasting also consults with VA's health care program offices, which provide input ranging from identifying VA's policy goals for the health care services they administer to providing subject-matter expertise on trends expected to affect the delivery of these services. Input from the program offices is incorporated into the underlying assumptions used in the EHCPM. For example, VA officials told us that the Office of Enrollment and Forecasting collaborated with VA's pharmacy program office to obtain information about what brand-name drugs are coming off patent, for which lower-cost, generic alternatives may be available. The Office of Enrollment and Forecasting incorporated this information into assumptions used in the EHCPM to project utilization and unit costs for VA's pharmacy services. Also, VA officials told us that the Office of Mental Health Services provided information to the Office of Enrollment and Forecasting on VA's increasing provision of mental health services in less restrictive treatment facilities and outpatient settings, and this information supported assumptions used in the EHCPM to project utilization of VA's mental health services. VHA's Office of Enrollment and Forecasting annually briefs VA leadership, including the VA Secretary and VHA Under Secretary, and OMB on updates to the EHCPM and assumptions used in the EHCPM to generate the estimates. According to VHA officials, the briefings are intended to provide VA and OMB a better understanding of the EHCPM and its assumptions and facilitate their review of VA's health care budget estimate. VA Office of Budget officials said they review the assumptions used in the EHCPM by comparing them to data on past trends. For example, VA officials said that the VA Office of Budget along with the program office for pharmacy services were involved in reviewing assumptions regarding unit-cost projections for pharmacy services taking into account VA's heavy reliance on low-cost, generic drugs. VA uses methods other than the EHCPM to develop estimates of the amount of resources needed for long-term care and other services. VHA's Office of Finance coordinates the development of the estimates for these services, which accounted for 16 percent of VA's health care budget estimate for fiscal year 2011. Long-term care was 13 percent of the overall budget estimate, and other services accounted for 3 percent. VA develops its estimates for long-term care by developing separate estimates for nursing home and noninstitutional care services. Noninstitutional care services include such services as home-based primary care and care coordination/home telehealth programs. VA's estimates for nursing home and noninstitutional care are based on projections of the amount of care provided--which is known as workload--and the unit cost of providing a day of this care. VA multiplies the workload estimates, unit-cost estimates, and the number of days in the fiscal year to develop estimates of the amount of resources for both nursing home care and noninstitutional care. (See fig. 3.) VHA's Office of Finance also incorporates input from VHA's Geriatrics and Extended Care program office about workload and unit-cost estimates for long-term care services. For nursing home care, VA develops workload projections by estimating the amount of nursing home care in demand by two groups of veterans-- high-priority veterans for whom VA is required by law to provide nursing home care and other veterans for whom such care is provided on a discretionary basis. VA officials said that when making workload projections, they consider the resources necessary to serve high-priority veterans whom VA must serve. In addition, VA's overall policy goal for nursing home workload is to keep nursing home workload consistent with recent experience, as VA focuses on expanding noninstitutional care services in order to provide long-term care in the least restrictive and most clinically appropriate settings. The nursing home workload for veterans whom VA serves on a discretionary basis is contingent on the amount of care needed to serve those veterans whom VA must serve by law. VA generally projects unit cost for nursing home care by calculating unit- cost increases observed from recent experience and then using this information to project future unit costs. For example, VA used the unit- cost increases from fiscal year 2008 to fiscal year 2009 and applied this percentage increase to project nursing home unit-cost estimates for fiscal year 2011, except for services delivered through community nursing homes. VA officials said they began using recent experience as a basis to estimate unit cost for nursing home care in response to a recommendation that we made in a 2009 report. For noninstitutional care, VA's projected workload for these services is based on VA's policy goal of meeting, by fiscal year 2011, the noninstitutional care needs of veterans who seek such care from VA. VA projects the demand for noninstitutional care services using information about the size and demographic characteristics of the enrolled veteran population. To meet its policy goal, VA has expanded the amount of noninstitutional care services it has provided. Specifically, VA increased workload for noninstitutional services by 34 percent from fiscal year 2008 to fiscal year 2009 and projects a 19 percent increase from fiscal year 2010 to fiscal year 2011. VA projected a smaller increase--4 percent--for its noninstitutional workload between fiscal year 2011 and fiscal year 2012. VA projects unit cost for noninstitutional care services using the same general method as for nursing home care--by calculating unit-cost increases observed from recent experience and then using this information to project future unit costs. For some services, however, VA experienced decreases in unit cost from fiscal year 2008 to fiscal year 2009. To develop fiscal year 2011 budget estimates for those services, VA did not rely on its recent experience and instead chose to assume a unit- cost increase between 4.52 percent and 4.60 percent, depending on the service. The remaining services for which VA developed estimates using methods other than the EHCPM made up 3 percent of VA's health care budget estimate for fiscal year 2011. The largest of these services was the Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA), which provides health care coverage for spouses and children of veterans who are permanently and totally disabled from a service-connected disability. CHAMPVA functions similarly to traditional health insurance--most care within CHAMPVA is delivered using private- sector health care providers. Therefore, developing estimates of the resources needed for CHAMPVA requires factoring in utilization patterns and cost inflation that are generally outside of VA's control. Budget estimates for CHAMPVA are developed using a formula that computes the predicted number of users and costs per-member per-year. Since 2004, VA' s Health Administration Center, which oversees administration of CHAMPVA, has worked with VA's actuarial consultant to generate projections of CHAMPVA users that incorporate changes related to the population of disabled veterans and projections of expected increases and decreases in the CHAMPVA-eligible population. More recently, the Health Administration Center and VA's actuarial consultant added projections of cost per-member per-year. These costs are calculated by dividing the most current fiscal year data on total CHAMPVA expenditures by the number of actual users. Trends are then incorporated to predict the future costs per- member per-year, which is multiplied by projections of the number of CHAMPVA users to develop CHAMPVA budget estimates. VA also incorporates into its budget estimate the amount of resources needed for health-care-related initiatives proposed by the Secretary or the President. For fiscal year 2011, health-care-related initiatives made up 1 percent of VA's health care budget estimate. Some initiatives can be implemented within VA's existing authority, while other initiatives would require a change in law. These initiatives can vary from year to year depending on policy priorities. VA officials said the EHCPM can be used to estimate the resources needed for these initiatives if VA has the data necessary for the model's estimates to be useful. If not, VA uses other estimation methods and sometimes VA receives estimates from OMB. Estimates for two VA health care initiatives and two presidential health care initiatives were in the President's fiscal year 2011 budget request for VA. For example, one VA initiative focused on expanding telehealth services for noninstitutional long-term care. The Secretary directed that VA include $40 million for this initiative in VA's estimate. Additionally, one presidential initiative was a governmentwide emphasis on reducing operating costs associated with maintaining surplus property. For this initiative, OMB provided VA with estimates of the savings associated with reducing these operating costs. VA also developed estimates for the President's fiscal year 2011 budget request for 11 proposed health-care-related initiatives that require a change in law. Some proposed initiatives would increase spending while others would decrease spending. For example, VA estimated that one proposed initiative to pay travel expenses for caregivers to support veterans receiving certain VA health care services would cost $16 million in fiscal year 2011. For a different proposed initiative, VA estimated savings of $325,000 in fiscal year 2011 if VA were permitted to stop reimbursing physicians and dentists for certain continuing education expenses. VA's health care budget estimate prepared by VHA is reviewed at successively higher levels. Within the agency, the Secretary of VA reviews the health care budget estimate in the context of departmentwide priorities, including trade-offs between health care and other services. OMB considers VA's budget submission in light of presidential priorities and needs governmentwide. VA and OMB communicate these priorities by providing guidance. One source of guidance for developing the budget request is the Secretary of VA. VA officials told us that each April they issue departmental guidance that may include funding targets and policy priorities. The guidance communicates the Secretary's priorities and may identify the specific VA services to be emphasized in that year's budget request. In addition to preparing the estimate for existing health care services, VHA may have to estimate the resources required to carry out a new initiative identified in guidance from the Secretary. VA officials said that in some years they may direct VHA to estimate the resources needed under different levels of demand for services to reflect a changing internal or external environment, such as legislative changes or economic conditions. Another source of guidance for developing the budget request is OMB, which issues OMB Circular No. A-11. It includes guidance to agencies for preparing budget submissions. According to OMB staff, additional guidance from OMB gives more specific information on priorities or target funding levels. OMB staff also stated that they maintain ongoing contact with VA officials as the budget submission is formulated to provide guidance and to keep apprised of VA budgetary concerns. The budget estimate for health care services is presented in different ways for review and decision making. VA must present the budget estimate in the appropriations accounts' structure used by Congress, but the budget estimate is also shown by broad service categories, such as acute, mental health, and institutional long-term care, and the Secretary's and President's initiatives. For the purpose of presentation in the President's Budget, agencies start from the most recently enacted appropriations, even if the President proposes changes to the structure and purposes of the appropriations accounts. Congress funds VA health care services in three appropriations accounts. The three appropriations accounts for VA health care services are: Medical Services, which includes funds for 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 includes funds for management and administration of the VA health care system, including financial management; and Medical Facilities, which includes funds for the operation and maintenance of the VA health care system's capital infrastructure, such as costs associated with utilities, facility repair, laundry services, and groundskeeping. Figure 4 shows the different structures in which the fiscal year 2011 budget estimate was presented for review and decision making. Because support and compliance (administrative) costs and facility costs are not estimated separately by the EHCPM or other methods used by VA to develop its resource estimates, VHA officials said they generally distribute the total health care budget request among the three appropriations accounts based on historical spending trends. Specifically, VA uses the proportions of funding for health care services, administration, and facility costs that were obligated in the last budget year as a baseline and makes adjustments as appropriate. For example, if VA is requesting a relative increase in maintenance efforts, VA would increase the share of the budget requested for the Medical Facilities account. Funding was requested for fiscal year 2011 for the three accounts in the following proportions: Medical Services at 77 percent, Medical Support and Compliance at 11 percent, and Medical Facilities at 12 percent. Officials from VA's Office of Budget said that they focus on changes from the previous year and review whether the changes are consistent with past trends, whether projected trends are consistent with their expectations, and whether the changes are justified. Given that VA's Office of Budget has already reviewed the underlying assumptions in the early stages of developing the health care budget estimate, VA budget officials said that, at this point, they ensure that the budget estimate is internally consistent, the justifications are clear, and the amounts requested are reasonable. For example, the Office of Budget verifies that the resources requested are sufficient to cover the salaries for the number of employees included in the request. The Office of Budget also verifies whether the estimates for collections and new initiatives are sufficient. The Secretary of VA considers the health care budget estimate when assessing resource requirements among competing interests within VA, particularly in times of fiscal constraints. The departmentwide budget submission includes resources for the administration of veterans' compensation and benefit programs as well as proposed investments for improving the delivery of those benefits using information technology and for construction projects at hospitals and other facilities. VA officials said the Secretary most often makes trade-offs in areas such as new initiatives and new construction. As an example, VA officials said that the Secretary may want to dedicate more resources for mental health services to reduce homelessness among veterans than the budget estimate initially provided. As a result of these trade-offs, VA's budget request for health care could be different from the resource estimates developed using the EHCPM and other methods. VA's Office of Budget includes supporting materials accompanying VA's budget request that are submitted to OMB. These supporting materials include narrative statements of selected health care services, such as mental health and homeless programs. VA also submits additional data to justify VA's request for resources. For example, VA submits detailed estimates from the EHCPM separately to OMB. According to VA officials, these estimates are used to communicate to decision makers how the estimated spending for services supports VA's mission to provide health care services to veterans instead of listing all the details of health care services in the budget submission. In September of each year, VA transmits its departmentwide budget submission, including its budget estimate for health care, to OMB. OMB staff stated that they initially review VA's assumptions, such as economic assumptions pertaining to inflation, and review cost and utilization trends used to develop the health care budget estimate. OMB staff also review the policy priorities in VA's submission, which includes the funding request for VA health care, to verify that the President's priorities are reflected. OMB staff stated that they also talk with VHA officials to ensure that the resources requested support the initiatives as described. Traditionally, OMB issues decisions, known as passback, to VA and other agencies in late November on the funding and policy proposals to be included in the President's budget request. OMB staff said that they consider broader resource constraints and competing priorities of other agencies when making decisions about the level of funding for VA's services. VA may appeal the decision before OMB finalizes the President's budget request. The OMB decision and appeals process can result in a presidential budget request that is different from VA's budget submission to OMB. The budget formulation process culminates with OMB preparing the accompanying documents submitted to Congress in February. Concurrently, VA prepares a congressional budget justification that provides details supporting the policy and funding decisions for the President's budget request to Congress. We provided a draft of this report to VA and OMB for comment. VA and OMB provided technical comments, which we incorporated as appropriate. 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 Web site at http://www.gao.gov. If you or your staff have any questions about this report, please contact Randall B. Williamson at (202) 512-7114 or at williamsonr@gao.gov, or Denise M. Fantone at (202) 512-6806 or at fantoned@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix II. Skilled nursing facility (non-acute) Prescription drugs (brand & generic) In addition to the contacts named above, James C. Musselwhite and Melissa Wolf, Assistant Directors; Rashmi Agarwal; Deirdre Brown; Amber G. Edwards; Krister Friday; Lauren Grossman; Tom Moscovitch; Lisa Motley; Leah Probst; Steve Robblee; and Jessica Smith made key contributions to this report. VA Health Care: Spending for and Provision of Prosthetic Items. GAO-10-935. Washington, D.C.: September 30, 2010. VA Health Care: Reporting of Spending and Workload for Mental Health Services Could Be Improved. GAO-10-570. Washington, D.C.: May 28, 2010. Continuing Resolutions: Uncertainty Limited Management Options and Increased Workload in Selected Agencies. GAO-09-879. Washington, D.C.: September 24, 2009. VA Health Care: Challenges in Budget Formulation and Issues Surrounding the Proposal for Advance Appropriations. GAO-09-664T. Washington, D.C.: April 29, 2009. VA Health Care: Challenges in Budget Formulation and Execution. GAO-09-459T. Washington, D.C.: March 12, 2009. VA Health Care: Long-Term Care Strategic Planning and Budgeting Need Improvement. GAO-09-145. Washington, D.C.: January 23, 2009. VA Health Care: Budget Formulation and Reporting on Budget Execution Need Improvement. GAO-06-958. Washington, D.C.: September 20, 2006. VA Health Care: Preliminary Findings on the Department of Veterans Affairs Health Care Budget Formulation for Fiscal Years 2005 and 2006. GAO-06-430R. Washington, D.C.: February 6, 2006. VA Long-Term Care: Trends and Planning Challenges in Providing Nursing Home Care to Veterans. GAO-06-333T. Washington, D.C.: January 9, 2006. VA Long-Term Care: More Accurate Measure of Home-Based Primary Care Workload Is Needed. GAO-04-913. Washington, D.C.: September 8, 2004.

Summary:
Funding for the Department of Veterans Affairs' (VA) health care is determined by Congress in the annual appropriations process. Prior to this process, VA develops a budget estimate of the resources needed to provide health care services to eligible veterans. The Veterans Health Care Budget Reform and Transparency Act of 2009 requires GAO to assess whether the funding requested for VA health care in the President's budget requests submitted to Congress in 2011, 2012, and 2013 is consistent with VA's estimates of the resources needed to provide health care services. In anticipation of these future studies, GAO was asked to obtain information on how VA prepares its health care budget estimate. In this report, GAO describes (1) how VA develops its health care budget estimate, and (2) how VA's health care budget estimate is used in the President's budget request to Congress. To conduct this work, GAO reviewed VA documents on the methods, data, and assumptions used to develop VA's health care budget estimate that informed the President's budget request for fiscal year 2011 and request for advance appropriations for fiscal year 2012. GAO also interviewed VA officials responsible for developing this estimate and staff from the Office of Management and Budget (OMB), which is responsible for overseeing the development and implementation of the federal budget. VA uses what is known as the Enrollee Health Care Projection Model (EHCPM) to develop most of its health care budget estimate and uses other methods for the remainder. Specifically, VA used the EHCPM to estimate the resources needed to meet expected demand for 61 health care services that accounted for 83 percent of VA's health care budget estimate for fiscal year 2011 and similarly for fiscal year 2012. The EHCPM's estimates for these services are based on three basic components: projected enrollment in VA health care, projected use of VA's health care services, and projected costs of providing these services. To make these projections, the EHCPM uses data on the use and cost of these services that reflect data from VA, Medicare, and private health insurers. The EHCPM makes a number of complex adjustments to the data to account for characteristics of VA health care and the veterans who access VA's health care services. For example, these adjustments take into account veterans' age, gender, geographic location, and reliance on VA health care services compared with other sources, such as health care services paid for by Medicare or private health insurers. VA uses other methods to develop nearly all of the remaining portion of its budget estimate for long-term care and other services, as well as initiatives proposed by the Secretary of VA or the President. Long-term care and other services accounted for 16 percent and initiatives accounted for 1 percent of VA's health care budget estimate for fiscal year 2011 and similarly for fiscal year 2012. VA's health care budget estimate is reviewed at successively higher levels. Within the agency, the Secretary of VA reviews the health care budget estimate in the context of departmentwide priorities, including trade-offs between health care and other services. The budget estimate is presented in different ways, including the appropriations accounts structure used by Congress for decision making. OMB considers VA's budget submission in light of presidential priorities and needs governmentwide. VA can appeal decisions before OMB finalizes the President's budget request to Congress. VA and OMB provided technical comments, which GAO incorporated as appropriate.