VHA operates one of the nation’s largest health care systems, including 173 hospitals and over 400 outpatient clinics nationwide; VHA had about 45,700 hospital beds nationwide in fiscal year 1996. VHA hospitals also purchase health care from other public and private providers under certain conditions, such as during medical emergencies or when they do not provide the services themselves. VHA served about 2.6 million of the estimated 26 million veterans at a cost of approximately $17 billion in fiscal year 1996. In 1995, VHA restructured its system into 22 service networks covering specified geographic areas that reflect patient referral patterns and the availability of medical services. The Great Lakes network operates eight hospitals that served over 138,000 veterans living in parts of Illinois, Indiana, Michigan, and Wisconsin at a cost of about $915 million in fiscal year 1996. Of these, four are located in the Chicago area (Hines, Lakeside, North Chicago, and West Side). The network also operates 12 outpatient clinics including three in the Chicago area (Evanston, Hyde Park, and Oak Park). The Lakeside and West Side hospitals are located about 6 miles apart in the city of Chicago (within Cook County). Hines Hospital is also located in Cook County approximately 10 miles west of the West Side facility. North Chicago Hospital is located about 35 miles north of the Lakeside and West Side hospitals. Figure 1 shows the location of the four Chicago-area hospitals. The four hospitals spent approximately $563 million serving over 78,000 veterans of an estimated Chicago-area veteran population of 722,900. The hospitals operated 1,665 beds for these veterans, who had over 29,200 inpatient admissions and nearly 905,000 outpatient visits. Hines, Lakeside, and West Side are tertiary care hospitals that provide acute inpatient medical, surgical, and psychiatric care; North Chicago, on the other hand, is a psychiatric center, which provides limited inpatient medical care. (Fig. 2 shows fiscal year 1997 average daily bed use for these facilities.) Veterans’ use of inpatient services has declined in recent years as the Great Lakes network takes steps to meet veterans’ needs in the most appropriate settings. For example, changes in the delivery of health care have allowed the network to perform more surgeries on an outpatient basis. Also, improved utilization review policies and procedures have reduced inappropriate admissions and lengths of hospital stays. These factors, among others, contributed to a 39-percent decline in average daily bed use among the four Chicago-area VHA hospitals since fiscal year 1994. Hines and North Chicago had the largest declines, as figure 3 shows. In contrast, veterans’ use of outpatient services at the four hospitals has increased by about 13 percent since 1994. Hines Hospital accounted for most of this growth, as figure 4 shows. The Great Lakes network expects outpatient usage to continue growing as it takes additional steps to increase veterans’ access to primary care by establishing community-based outpatient clinics (CBOC). The network plans to establish 15 new CBOCs by fiscal year 2000, including 8 in Illinois—2 of which are to be in Chicago. Network officials estimate that it will cost $7.5 million to operate these 15 new CBOCs, which must be financed using existing resources. In addition to serving veterans’ health care needs, VHA has three other medical-related missions: health care education and training, research, and contingency backup to the nation’s defense and disaster medical services. First, VHA’s health care education and training programs help to ensure an adequate supply of clinical care providers for veterans and all U.S. citizens. Each year, VHA budgets an amount for resident training; these funds are allocated to networks on the basis of an annual appropriation. Nationwide, VHA has affiliated with 105 medical schools, which annually train about 33,000 residents in VHA facilities. Residents rotate among medical schools’ hospitals, VHA hospitals, and other facilities; about 9,100 are working in VA facilities each day. VHA reimburses residents about $350 million for work done in VHA facilities. The four Chicago hospitals serve as training sites for 1,335 residents annually through affiliations with four medical schools (see table 1). Second, the mission of VHA’s research program is to contribute to the nation’s knowledge about disease and disability. Each year the Congress appropriates money for medical research. VHA allocates monies to researchers based on headquarters’ review of research proposals. VHA employees who hold faculty appointments at affiliated medical schools perform nearly all VHA-funded research. Nationwide, in fiscal year 1996, VHA spent $257 million for 1,666 research projects. The four Chicago hospitals spent $11.3 million for 124 projects during fiscal year 1996. Third, VHA serves as a contingency backup to DOD medical services, and during national emergencies it supports the National Disaster Medical System. In serving as backup to DOD medical services, VHA will provide as many beds as it can make available. For example, in 1997, VHA plans called for providing 10,781 beds within 72 hours of DOD’s request for assistance in caring for returning casualties, and a maximum of 13,545 beds—about 30 percent of VHA’s total operating beds—available nationwide as soon as possible. Through its ongoing restructuring effort, VHA has taken over 200 integration actions affecting the Lakeside and West Side facilities. In general, these actions involve three types of changes: unifying management of numerous administrative activities instead of using separate management teams at each facility; consolidating some services at a single location rather than continuing to provide them at multiple sites; and reengineering other services by standardizing operating policies, practices, and databases. Based on the extent of unused inpatient capacity and the decreasing demand for services, VHA can meet veterans’ current and future inpatient and outpatient demands by closing one of its four Chicago hospitals. Veterans’ access to VHA care would remain essentially unchanged, because most veterans using the Lakeside and West Side hospitals live in the same area now served by three of the four hospitals. VHA has sufficient capacity available to meet veterans’ needs using three VHA hospitals. VHA’s four Chicago hospitals operated 1,665 medicine, surgery, and psychiatry beds at the beginning of fiscal year 1997. Veterans used an average of 850 of these beds a day during 1997. Of the remaining 815 beds, VHA closed (removed) 639 because of a lack of demand. Moreover, 262 of the 639 beds were closed at Hines. In fact, as table 2 shows, more beds were closed at Hines during fiscal year 1997 than the current demand for beds at either Lakeside or West Side. The remaining 377 closed beds afford VHA greater flexibility to close a Chicago hospital. For example, if VHA closed West Side, then it could use 51 beds at Lakeside, 244 beds at North Chicago, and the 262 beds at Hines. In contrast, if VHA closed Lakeside, then it could use 82 beds at West Side, 244 beds at North Chicago, and 262 beds at Hines. (See table 3.) Chicago-area veterans’ demand for inpatient care (currently at 850 beds) is expected to decrease, which will further increase VHA’s supply of unused beds. This decline in demand for inpatient care is attributable to VHA’s actions expected to improve service delivery efficiency as well as to the decline in the veteran population. For example, VHA estimates that the Chicago-area veteran population will decrease by about 27 percent by the year 2010. This decline is expected to occur at a constant rate, as figure 5 shows. VHA should need fewer beds in the future as the veteran population declines and the demand for inpatient care decreases. In fiscal year 1997, veterans used Chicago beds at the rate of roughly 12 beds per 1,000 veteran users, which was about the same as the fiscal year 1996 VHA national average. If veterans’ use of Chicago hospitals in future years is at the same rate as the past year, then overall use will decline. In 5 years, at the same bed rate, assuming that a 9-percent decrease in the number of veterans will result in an equivalent decrease in veteran users, veterans will need about 58 fewer beds than are currently used. Moreover, if the Chicago hospitals’ efficiency initiatives continue to be successful, further reductions in veterans’ bed use are likely. For example, VHA’s Southwest network has the lowest bed usage of the 22 networks—6 beds per 1,000 veteran users. If the Chicago-area VHA hospitals could achieve this use level, they would need 426 fewer beds to support the inpatient workload. Like VHA, other public and private hospitals in Chicago have many unused beds. VHA has instructed networks to establish integrated systems where VHA hospitals refer patients to local providers for care where and when appropriate to best meet the needs of those veterans. In October 1996, the Congress relaxed the requirements VHA must follow to contract with such hospitals to better meet veterans’ health care needs. This should afford VHA opportunities to meet many veterans’ needs more conveniently and potentially at less cost. Chicago-area hospitals have substantial excess capacity that VHA could use for inpatient services. The Illinois Department of Public Health licensed beds at 71 hospitals to operate in Cook County in 1997. On the basis of the 56 hospitals that responded to a 1995 American Hospital Association survey, these hospitals have more than 5,700 excess beds a day. For example, on any given day, three hospitals located within about six blocks of West Side Hospital—Cook County Hospital, Rush-Presbyterian-St. Luke’s, and the University of Illinois at Chicago—could potentially accommodate nearly 640 inpatients for medical, surgical, and psychiatric services. Similarly, excess bed capacity also exists in the areas surrounding VHA’s Hines, Lakeside, and North Chicago hospitals.