VA provides health care services nationwide through a direct delivery system of 172 hospitals, 365 outpatient clinics, and 128 nursing homes. In addition to operating its own nursing homes, VA pays for care provided to veterans by community and state veterans’ nursing homes. VA’s goal is to have 40 percent of those veterans needing VA assistance receive care through contracts with community nursing homes, 30 percent through agreements with state homes, and 30 percent in VA nursing homes. VA has 1,595 hospital beds and 600 nursing home beds in Central Florida that veterans in Orlando and Brevard County may use. These beds are located at VA medical centers in Gainesville, Tampa, and Bay Pines and serve a geographic area commonly referred to as Central Florida. VA also operates outpatient clinics in Orlando and Daytona Beach. The VA hospital in Tampa is about 125 miles west of Brevard and 80 miles west of Orlando. The VA hospital in Gainesville is about 175 miles northwest of Brevard and 109 miles northwest of Orlando. The VA hospital in Bay Pines is about 30 miles west of Tampa. In addition, VA has hospitals and nursing homes in Lake City, Miami, and West Palm Beach, which have a total of 1,367 hospital beds and 480 nursing home beds. VA also operates several outpatient clinics. These facilities, along with those in Central Florida, comprise VA’s Florida facilities. Figure 1 shows the locations of the facilities in Florida, including the former Orlando Naval Hospital and the planned Brevard Hospital. VA’s Under Secretary for Health plans to restructure the Veterans Health Administration and fundamentally change the way that veterans’ health care is provided. His plans include increasing ambulatory care access points, emphasizing primary care, decentralizing decisionmaking, and integrating the delivery assets to provide an interdependent, interlocking system of care. The structural vehicle to do this will be the Veterans Integrated Service Network. The basic budgetary and planning units of health care delivery shifts from individual medical centers to integrated service networks providing for populations of veteran beneficiaries in defined geographical areas. The network director is responsible for consolidating and realigning services within the network. The integrated network for Florida includes all six VA medical centers in Florida plus the medical center in San Juan, Puerto Rico. VA has two basic goals for serving Central Florida veterans. First, VA plans to provide hospital beds comparable to the national level of availability to serve the health care needs of veterans. Second, VA expects to improve the geographic accessibility of VA hospital beds for as many veterans as possible. VA uses an Integrated Planning Model when developing strategic management and operational plans, including construction. VA’s model is primarily driven by three variables to estimate veterans’ future use of VA hospital beds. These variables include veteran population by age groups, average lengths of hospital stays for selected medical services (such as surgery or psychiatry), and the number of patients treated in the selected medical services. In 1982, VA planners conducted a study of the health care needs of Florida veterans, including the projected future use of VA facilities through 1995. In 1991, VA planners updated this study and determined that 710 hospital and nursing home beds were needed in six counties, commonly referred to as East Central Florida. The planners concluded that these beds were needed to make VA health care more geographically accessible to veterans in East Central Florida. VA developed plans to build a 470-bed hospital and 120-bed nursing home in Brevard County and a 120-bed nursing home and outpatient clinic in Orlando. In July 1993, the Defense Base Closure and Realignment Commission recommended closing the Orlando Naval Hospital. In May 1994, the Orlando Naval Training Center Reuse Commission accepted VA’s proposal to convert the 153-bed Naval Hospital into a nursing home and outpatient clinic after the Navy moved out in June 1995. VA announced that this conversion would be done in lieu of its plan to build a new nursing home and clinic. VA estimates that it will spend $1.1 billion over the next 10 years to build and operate the new Brevard Hospital and the nursing homes in Brevard and Orlando. At VA’s request, the Congress provided VA $14 million in fiscal year 1995 to renovate the former Naval Hospital and $17.2 million to develop preliminary designs for a new 470-bed hospital and 120-bed nursing home in Brevard County. VA has requested $154.7 million in its fiscal year 1996 budget to construct the new hospital. VA estimates that it will need $115 million a year to operate the facilities in Brevard and Orlando. Veterans’ use of the 1,595 beds in the three VA hospitals serving Central Florida has decreased over the last 4 years. In 1994, veterans used 1,060 beds a day on average. They used 271 beds in the Gainesville hospital compared with almost 400 beds in both the Tampa and Bay Pines hospitals. Appendix II describes veterans’ use of VA hospitals in Central Florida in more detail. In contrast, veterans’ use of VA nursing home care has increased gradually over the last 4 years. In 1994, veterans occupied about 867 beds a day on average. VA provided about 61.5 percent of this care in its homes; it contracted with community homes for 34 percent and a state home for 4.5 percent. Appendix III describes veterans’ use of VA nursing home care in Central Florida in more detail. Community nursing homes in East Central Florida appear to be able to provide the 240 beds that VA plans to construct. There are 60 nursing homes in East Central Florida that are willing to supply beds for veterans’ use or may be willing to supply beds if contacted by VA. These homes operate 7,176 beds, including 320 beds that were empty at the time of VA’s 1993 survey. VA determined that these 60 homes would be able to provide only 105 beds based on two questionable assumptions concerning bed availability. First, VA assumed that a nursing home was fully occupied if it had an occupancy rate of 95 percent or higher. Second, VA assumed that beds occupied at the time of its survey would not be available for VA’s use. VA’s assumption that community homes are fully occupied at 95 percent of capacity seems inappropriate because VA routinely contracts with homes that have occupancy rates of 95 percent or higher. For example, VA had contracts with 22 homes in East Central Florida, 17 of which had occupancy rates of 95 percent or higher. Similarly, VA had contracts with 86 homes in other parts of Central Florida and 56 of these homes had occupancy rates of 95 percent or higher. Social workers at the three Central Florida hospitals told us that they were able to place veterans in these homes. By assuming that community homes are fully occupied at 95 percent of capacity, VA determined that only 105 of the 320 empty beds in East Central Florida would be available for its use. Of the 215 empty beds that VA excluded, 86 were in the 22 homes with which VA already had contracts. VA’s assumption that occupied beds will not be available appears inappropriate because occupied beds can be expected to turn over frequently during each year and VA should have a reasonable chance to place veterans in some of these beds. The nursing homes in East Central Florida had 6,856 occupied beds at the time of VA’s survey that were excluded from further consideration. Nationwide, about one-half of the patients admitted to community nursing homes stayed fewer than 83 days, according to the latest government survey of nursing homes. Moreover, only about one-fourth stayed longer than 12 months. Community nursing home beds appear to be available at prices that are below VA’s costs to construct and operate the 120 beds proposed at the Brevard and Orlando sites. Nationwide, VA’s contract costs average $106 a day for a bed. By contrast, VA’s costs are estimated to be $207 a day for a VA-constructed and -operated bed. These costs do not include the depreciation charges associated with the costs of initially constructing the VA nursing homes. VA also has some flexibility in placing veterans in community nursing homes in Florida. If veterans’ needs exceed the capacity of homes in East Central Florida, VA also has available beds in 204 community nursing homes in other parts of Central Florida. For example, VA had contracts with 86 homes that had 525 empty beds. Also, 118 other homes had empty beds that VA had determined to be willing and able or who may be willing to serve veterans if contacted by VA. In our view, it is reasonable to consider these community nursing homes as part of the available bed supply. Many of the veterans using the proposed Brevard hospital will likely reside in parts of Central Florida other than the six East Central Florida counties and, thus, would be placed in homes closer to their residences. Appendix IV describes VA’s assessment of its future need for nursing homes and its survey of community nursing homes in greater detail. VA has a large supply of unused beds in its three hospitals now serving Central Florida veterans and the number of unused beds is expected to increase substantially. Moreover, VA’s use of community nursing homes, as previously discussed, will allow VA to add the former Orlando Naval Hospital’s beds to this supply of available hospital beds. To achieve the most prudent and economical use of resources, VA’s hospital planning should be guided by two objectives. First, VA should make the best use of existing capacity before constructing new space. Second, VA should design new construction to meet veterans’ expected use over a facility’s useful life as efficiently and effectively as possible. Toward this end, it appears that converting unused beds to psychiatric care and using the bed capacity in the former Naval Hospital provide a viable lower-cost option to constructing a new hospital. Veterans use of VA beds in its three Central Florida hospitals has declined steadily over the last 4 years. The hospitals have a large supply of unused beds, totaling about 535 daily. Each hospital has more than 160 unused beds. In addition, these hospitals reduced their total bed capacity from 1,858 to 1,595 by removing 263 beds from service and converting the space to other uses, primarily expanded outpatient services such as ambulatory surgery or dialysis.