VA provides health care through a direct delivery system of 173 hospitals and over 200 free-standing clinics nationwide. VA facilities also purchase health care from other public and private providers under certain conditions, such as medical emergencies. VA served over 2.6 million veterans at a cost of about $16.2 billion in fiscal year 1995. In 1995, VA restructured its system into 22 VISNs. Each contains from 5 to 11 hospitals, as well as several clinics, covering a specified geographic area that reflects patient referral patterns and the availability of medical services. The networks are responsible for consolidating and realigning services within their areas to provide an interlocking, interdependent system of care. VA expects to improve efficiency by trimming management layers, consolidating redundant medical services, and better using available private and public resources. Another important change in the VA health care system is an enhanced focus on the provision of primary care and an increased emphasis on shifting care from inpatient to outpatient settings. VA is in the process of implementing a primary care approach in all of its clinics. Under primary care, veterans are expected to enroll in an outpatient clinic, where they are assigned to a primary care physician or physician group. When needed, VA primary care physicians refer veterans to VA or community hospitals. Because non-VA physicians do not have admitting rights to VA hospitals, the workload of VA hospitals is driven almost entirely through referrals from its outpatient clinics. Northern California and parts of Nevada are served by the Sierra Pacific Network. The network operates the hospital beds in the Travis joint venture project as well as hospitals in Reno, Nevada, and in Fresno, San Francisco, and Palo Alto (with divisions in Livermore, Palo Alto, and Menlo Park). It also operates outpatient clinics at each of these locations as well as satellite outpatient clinics in Martinez, Redding, Oakland, Sacramento, and San Jose. Although the Air Force operates an outpatient clinic at DGMC, VA does not currently have an outpatient clinic at Travis. Figure 1 shows the location of the major VA facilities in the Sierra Pacific Network. (Figure notes on next page) The proposed Travis project is located in the Sierra Pacific Network’s Northern California Health Care System. NCHCS includes the clinics in Martinez, Oakland, Redding, and Sacramento and the hospital beds at Travis Air Force Base. NCHCS primarily serves veterans east of the San Francisco Bay and in the northern part of the state. Currently, the only VA hospital beds operated in this area are the 55 beds in the joint venture at Travis. Travis Air Force Base is located about 50 miles northeast of San Francisco and about 77 miles northeast of Palo Alto. It is about 44 miles southwest of Sacramento, 34 miles northeast of Martinez, 41 miles northeast of Oakland, and 179 miles south of Redding. The proposed Travis project service area is shown in figure 2. McClellan Hospital at Mather Air Force Base The 14 counties are Alameda, Butte, Colusa, Contra Costa, Glenn, Sacramento, Shasta, Siskiyou, Solano, Sutter, Tehama, Trinity, Yolo, and Yuba. The NCHCS service area continues to include the large veteran population in the East Bay (Oakland/Martinez) and Sacramento areas. Table 1 shows the number of veterans living in the four counties in the NCHCS service area with the largest veteran populations. Through its construction planning, VA expects to improve the geographic accessibility of VA hospital and outpatient care for veterans currently served by NCHCS, as well as for those who have not previously sought care from VA. When VA closed its hospital in Martinez, much of the area was left with limited access to VA hospital and outpatient care. In fiscal year 1991, the Martinez hospital had an average daily census of 235 patients. Although the Martinez hospital served veterans from much of northern California, most users came from the East Bay and Sacramento areas. In 1991, the Congress appropriated emergency funds to construct a replacement outpatient clinic and a nursing home on the grounds of the closed hospital. The replacement clinic—a prototype for the VA system—became operational in November 1992. It included modern ambulatory surgery capabilities, sophisticated imaging technology, and attractive surroundings. Construction of the nursing home was delayed pending demolition of the hospital building, but the nursing home is scheduled to open in the fall of 1996. In 1992, VA planners conducted a study to determine where to build a replacement hospital. The options considered included partially renovating and seismically retrofitting the closed Martinez hospital, constructing a new hospital in Sacramento, constructing dual hospitals in Martinez and Sacramento, and constructing a joint venture hospital at Travis Air Force Base. Although the dual hospital option was judged to offer the greatest improvement in accessibility, the cost was considered prohibitive. After further negotiations with the affected parties, which resulted in the Air Force’s offer to allow VA to establish some hospital beds at DGMC on an interim basis and reduce the number of beds to be included in the final construction project, VA decided on the 243-bed joint venture, including 170 new beds and 73 existing beds. Although VA sought funding for the hospital project in its fiscal year 1996 budget submission, the Congress did not fund the hospital aspect of the project. Instead, the Congress provided $25 million to construct only an outpatient clinic at Travis. Rather than going forward with construction of the clinic, however, VA, in its fiscal year 1997 budget submission, requested $32 million toward construction of the entire original $211 million project. Moreover, VA estimates that it will need about $67 million more in one-time activation costs for the completed facility and about $72 million a year to operate it. The proposed Travis project would probably add to existing excess hospital beds both in the VA system and in the community. Moreover, not enough low-income and service-connected veterans live near Travis Air Force Base to support a clinic of the size VA proposes. To support the clinic, VA would need to focus on attracting large numbers of higher-income veterans with no service-connected disabilities or attracting veterans from other NCHCS clinics. The 1992 decision to add 170 new hospital beds at Travis has essentially been overcome by events. Both VA and the private sector are increasingly shifting care to outpatient settings, decreasing demand for hospital care. Not only has VA been able to meet the demands for hospital care through use of existing VA and community beds, but there is also significant excess hospital capacity in VA, DOD, and community facilities. To support the proposed number of beds planned for the Travis project, VA would need to more than triple the number of people it serves. Such an increase in market share appears unlikely because the veteran population in the service area is projected to decrease by about 25 percent between 1995 and 2010. To the extent that VA is successful in increasing its market share by attracting veterans currently using community hospitals, the financial viability of community hospitals, particularly those in the vicinity of Travis Air Force Base, might be adversely affected. VA’s position that it needs to build 170 more hospital beds at Travis is based on the assumption that veterans will demand hospital care in 2005 at the same rate they did between 1989 and 1991. This assumption appears flawed given the changing health care delivery market. Because the data used in VA’s integrated planning model are several years old, the model does not fully reflect the decrease in hospital utilization occurring because of changes in medical practice and medical technology. For example, a few years ago, it was common practice for patients to remain in the hospital for 1 to 2 weeks following surgery. Now, however, it is common medical practice to get patients out of bed the day of or day after major surgery and to discharge them within a few days. In addition, new techniques, such as less invasive laparoscopic surgery, help shorten lengths of stay for those patients requiring hospital admission. Similarly, advances in medical technology and techniques, such as laser surgery, permit many procedures to be safely performed on an outpatient basis. Moreover, in the past few years, VA has made major strides toward shifting care to outpatient settings. For example, the performance expectations that the under secretary for health set for VISN directors establish goals for increasing both the percentage of surgeries performed on an outpatient basis and the percentage of hospital admissions shifted to outpatient settings. The NCHCS clinics served more veterans in fiscal 1995 than they did in 1992, and fewer veterans were admitted to hospitals in 1995 than in 1990, the last full year that the Martinez hospital was open. This reduced usage seems consistent with VA’s shifting of care from inpatient to outpatient settings. With the establishment of the recently constructed Martinez outpatient clinic, NCHCS became a model for the rest of the VA system. The Martinez clinic offers modern ambulatory surgery and sophisticated imaging technology, permitting much care to be delivered on an outpatient basis. The bed days of care provided to veterans served by the Martinez clinic are among the lowest in the VA system, according to the VISN director. The ambulatory surgery and imaging capabilities at Martinez also help reduce hospital admissions from other VA clinics. For example, the Sacramento and Oakland clinics refer some patients to Martinez for ambulatory surgery rather than admitting them to a hospital. As the Oakland, Sacramento, and Redding clinics’ ability to perform outpatient surgery is expanded, further reductions in hospital admissions might well result. VA is also moving towards nonhospital settings for patients who need subacute care. In 1991, VA provided a considerable amount of such care in its hospitals, and the 1992 plans for the proposed Travis project, for example, included 56 nonacute beds. The NCHCS clinics at Oakland, Martinez, and Sacramento—the primary clinics likely to generate admissions to the VA hospital at Travis—currently serve all veterans seeking outpatient care and place all veterans requiring hospital care in a VA or community bed. However, network and NCHCS officials told us, and we observed during our visits, that these clinics operate inefficiently, in part, because of space constraints, such as the lack of sufficient numbers of examining rooms.