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. 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. 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.) 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. 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. 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. 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. 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. 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. 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.

Summary:
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. 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. 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.