[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




 
                     VETERANS HEALTH ADMINISTRATION
                 CONTRACTING AND PROCUREMENT PRACTICES

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 23, 2010

                               __________

                           Serial No. 111-100

                               __________

       Printed for the use of the Committee on Veterans' Affairs


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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   Malcom A. Shorter, Staff Director

                         SUBCOMMITTEE ON HEALTH

                  MICHAEL H. MICHAUD, Maine, Chairman

CORRINE BROWN, Florida               HENRY E. BROWN, Jr., South 
VIC SNYDER, Arkansas                 Carolina, Ranking
HARRY TEAGUE, New Mexico             CLIFF STEARNS, Florida
CIRO D. RODRIGUEZ, Texas             JERRY MORAN, Kansas
JOE DONNELLY, Indiana                JOHN BOOZMAN, Arkansas
JERRY McNERNEY, California           GUS M. BILIRAKIS, Florida
GLENN C. NYE, Virginia               VERN BUCHANAN, Florida
DEBORAH L. HALVORSON, Illinois
THOMAS S.P. PERRIELLO, Virginia

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                           September 23, 2010

                                                                   Page
Veterans Health Administration Contracting and Procurement 
  Practices......................................................     1

                           OPENING STATEMENTS

Chairman Michael H, Michaud......................................     1
    Prepared statement of Chairman Michaud.......................    46
Hon. Henry E. Brown, Jr., Ranking Republican Member..............     2
    Prepared statement of Congressman Brown......................    46
Hon. Russ Carnahan, prepared statement of........................    47

                               WITNESSES

U.S. Government Accountability Office, Debra A. Draper, Ph.D., 
  M.S.H.A., Director, Health Care................................    19
    Prepared statement of Dr. Draper.............................    73
U.S. Department of Veterans Affairs:
  Belinda J. Finn, Assistant Inspector General for Audits and 
    Evaluations, Office of Inspector General.....................    21
      Prepared statement of Ms. Finn.............................    78
  Frederick Downs, Jr., Chief Procurement and Logistics Officer, 
    Veterans Health Administration...............................    27
      Prepared statement of Mr. Downs............................    82

                                 ______

Goold Health Systems, Augusta, ME, James A. Clair, M.P.A., M.S., 
  Chief Executive Officer........................................    11
    Prepared statement of Mr. Clair..............................    70
Mobile Medical International Corporation, St. Johnsbury, VT, Mark 
  T. Munroe, Senior Vice President, Sales and Marketing..........     3
    Prepared statement of Mr. Munroe.............................    47
Modular Building Institute, Lincoln Moss, Senior Vice President 
  and Chief Operating Officer, Ramtech Building Systems, Inc., 
  Mansfield, TX..................................................     8
    Prepared statement of Mr. Moss...............................    60
Robert Bosch Healthcare, Palo Alto, CA, Derek Newell, MPA., MPH, 
  President......................................................     5
    Prepared statement of Mr. Newell.............................    59
Wise Knowledge Systems, Inc., Piper Creek, TX, Jay Wise, Ph.D., 
  Chief Executive Officer........................................     9
    Prepared statement of Dr. Wise...............................    63

                       SUBMISSIONS FOR THE RECORD

The Coalition for Government Procurement, Larry Allen, President, 
  letter.........................................................    86
Gordon, Hon. Bart, a Representative in Congress from the State of 
  Tennessee, statement...........................................    88
Murfreesboro Pharmaceutical Nursing Supply, Murfreesboro, TN, 
  Richard Reeves, Chief Executive Officer, statement.............    89

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Questions and Responses for the Record:

    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to Mark Munroe, Senior Vice 
      President, Sales and Marketing, Mobile Medical 
      International Corporation, letter dated October 4, 2010, 
      and Mr. Munroe's responses.................................    91
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to Derek Newell, President, 
      Robert Bosch Healthcare, letter dated October 4, 2010, and 
      Mr. Newell's responses, dated November 15, 2010............    92
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to Lincoln Moss, Senior Vice 
      President and Chief Operating Officer, Ramtech Building 
      Systems, letter dated October 4, 2010, and the Modular 
      Building Institutes' responses, dated November 3, 2010.....    94
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to Jay Wise, Ph.D., Chief 
      Executive Officer, Wise Knowledge Systems, Inc., letter 
      dated October 4, 2010, Mr. Wise's responses................    95
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to James A. Clair, M.P.A., 
      M.S., Chief Executive Officer, Goold Health Systems, letter 
      dated October 4, 2010, and Mr. Clair's responses, letter 
      dated November 23, 2010....................................    98
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to Gene L. Dodaro, Acting 
      Comptroller General, U.S. Government Accountability Office, 
      letter dated October 4, 2010, and response from Debra A. 
      Draper, Ph.D., M.S.H.A., Director, Health Care, letter 
      dated November 8, 2010.....................................    99
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs to Hon. George J. Opfer, 
      Inspector General, Office of Inspector General, U.S. 
      Department of Veterans Affairs, letter dated October 4, 
      2010, and response from Richard J. Griffin, on behalf of 
      Hon. George Opfer, letter dated November 15, 2010..........   104
    Hon. Michael Michaud, Chairman, Subcommittee on Health, 
      Committee on Veterans' Affairs, to Hon. Eric K. Shinseki, 
      Secretary, U.S. Department of Veterans Affairs, letter 
      dated October 4, 2010, and VA responses....................   106
    Hon. Henry E. Brown, Jr., Ranking Republican Member, 
      Subcommittee on Health, Committee on Veterans' Affairs, to 
      Belinda J. Finn, Assistant Inspector General for Audits and 
      Evaluations, Office of Inspector General, U.S. Department 
      of Veterans Affairs, letter dated October 19, 2010, and 
      response from Richard J. Griffin, on behalf of Hon. George 
      Opfer, Inspector General, letter dated November 16, 2010...   120


                     VETERANS HEALTH ADMINISTRATION
                 CONTRACTING AND PROCUREMENT PRACTICES

                              ----------                              


                      THURSDAY, SEPTEMBER 23, 2010

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:01 a.m., in 
Room 334, Cannon House Office Building, Hon. Michael Michaud 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Michaud, Brown of Florida, 
Donnelly, Perriello, Brown of South Carolina, and Boozman.
    Also Present: Representative Carnahan.

             OPENING STATEMENT OF CHAIRMAN MICHAUD

    Mr. Michaud. As we get started, would the first panel 
please come forward? Good morning. The Subcommittee on Health 
will now come to order. I would like to thank everyone for 
attending this hearing. The purpose of today's hearing is to 
investigate potential weaknesses in the Veterans Health 
Administration's (VHA's) contracting and procurement practices, 
and explore ways that we can strengthen how VHA contracts and 
procures medical equipment and health care products for our 
veterans.
    In recent years, we have seen many reports and studies on 
the contracting and procurement activities of the U.S. 
Department of Veterans Affairs (VA). These reports have 
identified the need for increased transparency and fiscal 
responsibility, as well as highlighted problems of inadequate 
competition and lack of accountability and oversight. As a 
result of these deficiencies in VHA's contracting and 
procurement practices, veterans may not be getting the latest 
innovation in health care products. This was also made evident 
in our June Health Subcommittee hearing on wireless health care 
technology, which revealed the difficulties that many private 
companies face in informing VA about their products and getting 
their products in the hands of our veterans. Furthermore, we 
are all aware of the problems of dirty reusable medical 
equipment at certain VA medical centers.
    Today, we will hear from the U.S. Government Accountability 
Office (GAO) about a study that they are conducting on the 
purchasing and tracking of supplies and medical equipment. 
Their preliminary observations include the potential risk to 
our veterans' safety when VA is in noncompliance with VA 
purchasing and tracking requirements. Finally, internal control 
weaknesses with VHA's use of billions in miscellaneous 
obligation continues to be a problem because VA contracting 
officials do not have sufficient control over the authorization 
and use of miscellaneous obligations. It is unclear whether 
these obligations were for legitimate needs.
    I have been very supportive of increasing funding for the 
VA. However, I think we must also make sure that they are using 
our dollars wisely. For instance, the VA does a great job in 
negotiating for lower cost prescription drugs. The cost is 
estimated in 2011 to be $4.8 billion. Even though we are able 
to negotiate for the lower cost prescription drugs, my concern 
is whether or not the utilization for those prescription drugs 
are the most cost effective way that the VA should be moving 
forward. And I look forward to hearing from today's witnesses 
as we aim to better understand the challenges that face the VHA 
contracting and procurement practices, and work together to 
find potential solutions to these challenges.
    I want to now recognize my good friend and colleague Mr. 
Brown for any opening statement that he may have.
    [The prepared statement of Chairman Michaud appears on p. 46
.]

         OPENING STATEMENT OF HON. HENRY E. BROWN, JR.

    Mr. Brown of South Carolina. Thank you, Mr. Chairman, and I 
appreciate you calling this hearing today. I am pleased to be 
here to discuss contracting and procurement issues within the 
Veterans Health Administration. VA's troubled contracting and 
procurement processes have long been an issue of great concern 
to this Committee and the subject of various Government 
Accountability Office and VA Office of Inspector General (OIG) 
reports that continue to cite major deficiencies and material 
weaknesses. Given the wide scope of VA's reach and budget, it 
is particularly important that we ensure that they have the 
proper procedures and oversight mechanisms in place to ensure 
that VA's procurement and contracting is done responsibly, 
appropriately, and with proper oversight.
    In that vein, I am particularly concerned about testimony 
we will hear from the Office of Inspector General that ``data 
in VA and VHA acquisition support information systems is 
incomplete and unreliable.'' Without accurate data, we have no 
idea what we are doing right or what we are doing wrong, where 
we are, where we are going, or where we need to be. This is 
unacceptable within a system that is responsible for the care 
of our Nation's veterans and spent a little over $9 billion on 
health care goods and services last fiscal year alone.
    Streamlining contracting and procurement processes to 
eliminate the potential for waste, fraud, and abuse, while at 
the same time improving the cost and comfort of doing business 
with VA to ensure our veteran heroes have access to the highest 
quality medical care is and should be at the top of our 
priority list.
    I look forward to hearing from the witnesses on our first 
panel about the obstacles to doing business with VHA, and from 
the government witnesses on our second and third panel about 
the functioning of VHA's acquisition system. Although we are 
nearing the end of this legislative session, I am hopeful that 
we will be able to move legislation H.R. 4221, the ``Department 
of Veterans Affairs Acquisition Improvement Act of 2009,'' 
introduced by our Ranking Member Steve Buyer. This bill, that I 
originally cosponsored, would correct the long-term procurement 
issues within VA and provide great oversight of VA's 
contracting and access management processes.
    I thank you, Mr. Chairman, for being here for this 
discussion, and I yield back the balance of my time.
    [The prepared statement of Congressman Brown appears on 
p. 46.]
    Mr. Michaud. Thank you very much, Mr. Brown. Before I begin 
I would like to ask unanimous consent that Mr. Carnahan, who 
will be attending this hearing later, be invited to sit on the 
dais on the Subcommittee on Health today. Hearing no 
objections, so ordered. I also would like unanimous consent to 
include all the written testimony in the record. Hearing none, 
so ordered.
    At this time I would like to introduce the panel. Our first 
panel includes Mark Munroe, who is the Senior Vice President of 
Sales and Marketing for the Mobile Medical International 
Corporation. We have Derek Newell, President of Robert Bosch 
Healthcare; Linc Moss, who is the Senior Vice President and 
Chief Operating Officer for Ramtech Building Systems, Inc. We 
have Jay Wise, who is from Wise Knowledge System, and Jim Clair 
who is Chief Executive Officer of Goold Health System (GHS). 
Jim is also accompanied in the audience by Lorraine 
Lachappelle, who is an R.N., and is the Director of Community 
Assessment. And it is my understanding that Lorraine also 
served in the Army. I want to thank you very much for your 
service on behalf of this great Nation of ours.
    Without any further ado, we will start off with Mr. Munroe.

STATEMENTS OF MARK T. MUNROE, SENIOR VICE PRESIDENT, SALES AND 
   MARKETING, MOBILE MEDICAL INTERNATIONAL CORPORATION, ST. 
  JOHNSBURY, VT; DEREK NEWELL, M.P.A., MPH, PRESIDENT, ROBERT 
  BOSCH HEALTHCARE, PALO ALTO, CA; LINCOLN MOSS, SENIOR VICE 
    PRESIDENT AND CHIEF OPERATING OFFICER, RAMTECH BUILDING 
  SYSTEMS, INC., MANSFIELD, TX, ON BEHALF OF MODULAR BUILDING 
INSTITUTE (MBI); JAY WISE, PH.D., CHIEF EXECUTIVE OFFICER, WISE 
 KNOWLEDGE SYSTEMS, INC., PIPER CREEK, TX; AND JAMES A. CLAIR, 
 M.P.A., M.S., CHIEF EXECUTIVE OFFICER, GOOLD HEALTH SYSTEMS, 
                          AUGUSTA, ME

                  STATEMENT OF MARK T. MUNROE

    Mr. Munroe. My name is Mark Munroe, Senior Vice President 
of Sales and Marketing for Mobile Medical. Mobile Medical is an 
international company that develops and manufactures commercial 
and military mobile surgical hospitals, which meet all U.S. 
health care standards. These mobile health care solutions are 
rapidly deployable, fully integrated, self-contained, and 
present innovative solutions for today's health care delivery 
needs. My purpose here today is to explain how Mobile Medical 
has worked with VA medical centers throughout the country while 
describing some of the challenges associated with those 
experiences, and pointing out some of our exciting success 
stories.
    Let us begin with the New Orleans VA Medical Center. As we 
are all aware, Hurricane Katrina struck New Orleans 5 years 
ago. Since Katrina, the New Orleans VA Medical Center has not 
provided surgical or endoscopic services to the veterans of New 
Orleans. Veterans in the New Orleans region must seek health 
care at other facilities within the system. This often causes 
veterans to wait for needed procedures, or travel greater 
distances to receive the care they need. In January 2008, 
Mobile Medical moved to mitigate this disruption of services by 
responding to a request from the New Orleans VA Medical Center 
leadership for a proposal involving mobile surgery units.
    These units were to be used to meet a variety of needs and 
to serve as a temporary surgical facility during the hospital 
rebuilding process. You will notice on your screen I have 
brought up an image of the mobile surgery unit in what we call 
transportation mode. The New Orleans VA issued a solicitation 
on FedBizOpps in May 2009 for mobile surgery units. This 
solicitation was subsequently canceled and redirected to the 
General Services Administration (GSA) Schedule. It should be 
noted that while Mobile Medical was in the process of 
contracting with GSA, code compliant mobile surgery units did 
not exist on the GSA Schedule. As a result of this action, 
companies with GSA contracts responded but none of them, 
including the one to whom the GSA solicitation was ultimately 
awarded, met the VA criteria for a history of producing and 
deploying regulatory compliant mobile surgery units.
    In addition, Mobile Medical learned that its proprietary 
company confidential information provided as part of its 
January proposal had been released to over 70 GSA Schedule 
holders. Quoting from the attached summary of Mobile Medical's 
Federal legal action, which is in your packet, ``Judge Horn 
clearly found that the VA's actions were improper and the 
attempted modification was beyond the scope of the GSA Schedule 
program. An agency placing an order under the GSA schedule 
program may not simply send out a request for quotation (RFQ) 
as, in her words, a `solicitation feeler,' evaluate quotes for 
items that do not exist on anyone's GSA schedule contract, and 
then hope a selected contractor can convince the GSA a 
modification is within the scope of their existing contract by 
the time the agency places an order. Such an end run, which 
occurred in the case, violates even the most basic requirements 
of fair and open competition for Federal contracts.''
    As a small business working in a HUBZone during difficult 
economic times, the last thing our company ever expected would 
be the need to sue the U.S. Government for actions taken during 
a procurement process. It should be noted that the legal costs 
alone with this process have run Mobile Medical in excess of 
$300,000. Clearly, oversight is necessary to ensure that other 
small businesses, like Mobile Medical, do not encounter this 
type of situation.
    Standing in stark contrast to Mobile Medical's experience 
in New Orleans is our very positive experience serving the 
needs of veterans at the VA Medical Center in Muskogee, 
Oklahoma. I am going to bring up a few images as we kind of go 
through that will represent some of the interior of the mobile 
surgery unit as well as some of these projects.
    The leadership at the Muskogee VA Medical Center from the 
Director to the Contracting Officer, Facilities Engineering, 
and surgical teams, should be commended for their work on this 
model project. In this forum I am happy to do that today. 
During a recent customer visit, a member of Mobile Medical's 
Board of Directors, Retired Air Force Surgeon General Paul K. 
Carlton, learned from VA officials that this facility is saving 
over $9 million in construction costs by closing their 
operating rooms for the duration of the renovation period 
rather than phasing in their renovation. Quoting Dr. Carlton in 
his report to Mobile Medical, ``the renovation project began in 
2008 with strong leadership. After researching alternative 
options, the medical center closed five operating rooms and the 
project began using two mobile surgery units,'' which you see 
being delivered and installed at the facility on your screen. 
``By doing this they are shaving $9.3 million off the original 
construction quote for the project, even after spending $3.6 
million to lease the mobile surgery units.'' The medical center 
is also avoiding another $14 million that would have gone to 
local hospitals to carry the surgical center's case load during 
the renovation, for a total savings of just over $23 million. 
Included in your packet is that full report. Those savings are 
attached in the executive summary and we urge Members to note 
that the Senate Military Construction Veterans Affairs 
Subcommittee has also included language in its report to the 
Senate, Report 111-115, urging the VA to utilize qualified 
mobile surgical units in OR renovation projects where such 
utilization clearly offers savings.
    A final example of a successful project is the VA Medical 
Center in Miami, Florida. Miami is currently utilizing six 
mobile surgery units during a full operating room renovation 
project. And this will just give you a quick summary of the 
actual images from Muskogee, and now into the Miami project.
    While the Miami project was also challenged through the 
contracting process, again strong leadership was the key. Dr. 
Seth Spector, Chief of Surgery, has kept the project moving 
forward and in August of this year, Miami was able to turn 
their operating rooms over to the Army Corps of Engineers for 
renovation, while continuing to provide full surgical services 
to the veterans of the Miami service area.
    While 5 minutes, and I apologize for running a bit over, is 
a short time to share with you all of the successes and 
weaknesses in the VA contracting process, I am sure you will 
find our supporting documentation compelling. I look forward to 
any questions you may have, and thank you for your time this 
morning.
    [The prepared statement of Mr. Munroe appears on p. 47.]
    Mr. Michaud. Thank you very much. Mr. Newell.

             STATEMENT OF DEREK NEWELL, M.P.A., MPH

    Mr. Newell. Mr. Chairman and other Members of the 
Subcommittee, on behalf of Robert Bosch Healthcare, I thank you 
for the opportunity to provide testimony. I am the President of 
Robert Bosch Healthcare, and Bosch which makes the T-400 and 
the Health Buddy systems, provides remote patient monitoring 
services to the Veterans Administration, which allows veterans 
to remain at home and get adequate care while they are in their 
homes. We have been doing this since 2003 and currently we have 
over 30,000 veterans who use our systems, which represents 
about 70 percent of the total telehealth and remote patient 
monitoring systems used by the VA. The population we serve 
suffers from chronic illnesses like congestive heart failure, 
diabetes, hypertension, and post-traumatic stress disorder. The 
Health Buddy and the T-400 systems collect patient data and 
vital signs, send those back to clinicians. They check for, the 
system automatically checks for, out of bounds indicators and 
alerts physicians and nurses to possible deterioration and 
veterans' health status. And that prevents the exacerbation of 
the veterans' systems and alleviates high levels of usage of 
the emergency room by some of these veterans.
    These technologies have demonstrated positive results in 
improving the health care of our Nation's veterans population 
and in reducing costs. There was a study published last year 
that showed a 25-percent reduction in inpatient days and a 19-
percent reduction in hospital admissions for those veterans 
that were using our system compared to similar veterans who 
were not using our systems. The VA has been a visionary in 
building this technology, and improving it, and working with 
the vendor community to ensure that this segment of the health 
care delivery system within the VA is expanded.
    Regarding improvements in the procurement process, between 
the time I was invited to this Committee and today, the VA has 
published a request for procurement (RFP) for the procurement 
of our devices and for remote patient monitoring devices. And 
we applaud the transition of the procurement to the Denver 
Acquisition Center. So there have been some improvements that I 
was going to recommend that have already occurred, so I am 
applauding the folks within the VA for doing that. This move 
will integrate and mainstream procurement practices for home 
monitoring technologies, including ours as well as our 
competitors. The purchasing was previously done through 
individual Veterans Integrated Service Networks (VISNs) through 
a national contract, through the prosthetic center at the 
VISNs, which results in a high degree of variability between 
the facilities and how they would procure and their purchasing 
practices. Another challenge that has been rectified was that 
our devices, while prosthetics is good at buying wheelchairs 
and other types of devices that are not connected to technology 
systems and not connected to the Internet, the purchasing 
practices did not allow for the payment of services and other 
technologies required to operate our systems, such as the 
servers that exist within the VA's firewall. They buy a 
computer and they want it to connect but they do not want to 
pay for the back end. Or they have, they do not have a 
mechanism to pay for that. They did not, they do now.
    While we compliment the VA's innovation to date, we believe 
there are a number of ways that Congress could assist the 
agency in improving the procurement process to expedite greater 
use of remote patient monitoring technology. Based on our 
experience, I suggest the following enhancements that would 
improve contract and procurement processes in the VA. These 
apply specifically to remote patient monitoring but may be able 
to be used in other areas.
    One is preferred partners. In our particular situation 
often increased numbers of vendors would increase competition 
and reduce prices for the VA, which is a State objective of the 
procurement process. However, when each vendor must comply with 
installing duplicate sets of servers and security requirements 
to make our systems work, but there is no guarantee of volume 
in terms of purchase of the devices, having too many vendors 
may actually cause them to amortize the cost of the back end 
over too few units which would have the opposite effect of 
raising prices. So we would suggest that the VA pick a fewer 
number of partners, preferred partners, maybe two or three, in 
areas where there are fixed cost infrastructure requirements 
associated with technologies that get deployed to the home. 
Currently in the contract they are going to pick up to six 
vendors. I think that three would probably be more appropriate.
    Targeted innovation. Recently the VA has started 
communicating to partners about its vision of veterans' health 
needs and priorities. However, this could still be improved. 
Better education and funding, targeted innovation with 
preferred partners, would enable us to respond in a more timely 
manner to the VA's needs and to be partners in finding 
solutions. At present, a majority of our information comes to 
us when there is a solicitation, which is once every 5 years. 
Only then do we have concrete knowledge of their vision, and 
their plans and their goals, and the specific number of units 
that they might buy. And as you can imagine, in a company we 
would need to know what kind of volumes before we would make 
significant investments.
    Two more smaller elements that could help the contracting 
process and the Federal Supply Schedule (FSS) contracting 
process, moving back to a single point of contact for contract 
partners would allow more efficiency. Currently we interact 
with a variety of FSS contract staff which creates a constant 
learning curve for them and is a challenge for us. Greater 
sharing of information between the VHA and other Federal health 
care agencies would expedite the adoption of telehealth as well 
as expedite the adoption of best practices, not just for our 
technology but for other technology. Keeping information about 
the quality of care improvements and cost savings that can be 
made under wraps can present a challenge when you are trying to 
disseminate effective best practices.
    Mr. Chairman and Members of the Committee, we believe these 
few but concrete specific actions would go a great distance to 
support the VA's efforts to expand the use of our technologies 
and other innovative technologies. In this regard, we admire 
the VA's efforts to date and hope that our years of experience 
in interacting with the agency as a private vendor will be 
useful to the Committee. We are proud to be partnered with the 
VA in improving the quality of care and reducing the costs of 
health care for our veterans. I appreciate this opportunity to 
testify and would be happy to answer any questions you may 
have.
    [The prepared statement of Mr. Newell appears on p. 59.]
    Mr. Michaud. Thank you very much, Mr. Newell. Mr. Moss.

                   STATEMENT OF LINCOLN MOSS

    Mr. Moss. Good morning. Chairman Michaud, Ranking Member 
Brown, and Members of the Committee, my name is Linc Moss. I am 
Senior Vice President and Chief Operating Officer of Ramtech 
Building Systems. Ramtech is a vertically integrated design-
build commercial modular building construction firm based in 
Mansfield, Texas. I am testifying today on behalf of the 
Modular Building Institute. MBI is a not-for-profit trade 
association that was established in 1983 that serves companies 
involved in the manufacturing and distribution of commercial 
factory-built structures.
    I appreciate the opportunity to speak to the Committee on 
ways to improve contracting with the Department of Veterans 
Affairs. Throughout the construction industry, there is a 
concern with the VA as to the solicitation of construction 
projects that call for a delivery system referred to as Design-
Bid-Build. This traditional project delivery method is often 
more costly and less efficient than other delivery methods and 
its restrictive nature prohibits alternate forms of 
construction, such as permanent modular, from being able to 
participate in the bidding process.
    Over the past decade, the use of Design-Build has greatly 
increased in the United States making it one of the significant 
changes in the construction industry. The Design-Build method 
streamlines project delivery through a single contract between 
the government agency and the contractor. This simple but 
fundamental difference not only saves money and time, it 
improves communication between the stakeholders and delivers a 
project more consistent with the agency's needs. It also allows 
for all sectors of the construction industry to participate.
    The Design-Build project delivery system offers the VA a 
variety of advantages that other construction delivery systems 
cannot. Typically under the Design-Build approach, an agency 
will contract with one entity for both design and construction 
of the project. By greater utilization of the Design-Build 
delivery system, the VA can achieve these goals: faster 
delivery, greater cost savings, improved quality, a single 
source of responsibility, and reduction in administrative 
burden.
    As our Nation prepares for an influx of returning warriors, 
it is imperative that we are able to provide them with the 
services and facilities that will help them assimilate into 
civilian life. By adopting the Design-Build approach, the VA 
could provide various facilities in a compressed time frame 
while ensuring that the product delivered meets the missions 
and various quality expectations.
    Design-Build also allows for other sectors of the 
construction industry that are often excluded from Design-Bid-
Build projects to compete and bid on VA projects. Alternate 
design offerings, such as modular construction, tilt wall, pre-
engineered steel, would be able to participate in VA 
solicitations if they were issued using a Design-Build delivery 
system. Numerous permanent modular contractors such as Ramtech 
have performed services for the VA in the past, but because of 
the limited amount of Design-Build solicitations the 
opportunities are severely restricted. However, in those cases 
where Ramtech did perform on projects the customers were 
extremely satisfied as our building met mission requirements 
and exceeded quality expectations. In fact, one of the projects 
was in Congressman Brown's area, and it was a clinic at Myrtle 
Beach.
    By greater utilizing the Design-Build delivery system in 
the Department of Veterans Affairs construction policy, the VA 
would greatly increase the amount of projects that alternative 
construction contractors could participate in. Let me emphasize 
that alternative construction methods, such a permanent modular 
are not always the solution, as there is no one perfect 
building system for every application. However, by expanding 
opportunities for them to be part of the process, the Federal 
Government could be assured that it gets the best value by 
seeing all options before awarding a contract.
    Another possible advantage is the fact that one of the 
missions within the Department of Veterans Affairs is the 
ability for the VA to support service-disabled veteran-owned 
small businesses. Because the Design-Build methodology 
typically relies on a single source for both design and 
construction of the project, Design-Build contractors often 
partner with architectural and engineering firms to assist in 
the design of the project. This fact facilitates partnering 
between service-disabled veteran-owned small business (SDVOBs) 
and construction firms similar to Ramtech. In the permanent 
modular construction field, the relationship with a contractor 
such as Ramtech means the SDVOB partner will get approximately 
60 percent to 70 percent of the building delivered and 
installed by the Design-Build firm while the SDVOB partner 
performs the site work, utility connections. Often SDVOBs do 
not have the logistical capabilities to site build the entire 
building, but have the ability to perform other critical 
functions that comprise 30 percent to 40 percent of the overall 
construction project.
    In conclusion, contractors that rely on Design-Build 
delivery system have, and continue to overcome, obstacles when 
it comes to working with the Department of Veterans Affairs. 
While businesses such as Ramtech are anxious to compete, the 
current trend of Design-Bid-Build projects issued by the VA 
severely prohibit that participation.
    On behalf of MBI as well as Ramtech Building Systems, I 
thank you for your time. We will be happy to answer questions.
    [The prepared statement of Mr. Moss appears on p. 60.]
    Mr. Michaud. Thank you very much, Mr. Moss. Mr. Wise.

                  STATEMENT OF JAY WISE, PH.D.

    Dr. Wise. Thank you for the opportunity to speak this 
morning. My name is Jay Wise, Dr. Jay Wise. I am the President 
and CEO of Wise Knowledge Systems. Wise Knowledge Systems has 
produced and deployed the medical technology called Knowledge 
Based Expert Systems, KBES. We call it KBES. I am going to 
abbreviate this to save some time. I am going to have to leave 
at 11:00, Mr. Chairman, period, so I have to go. But I want to 
share with you some things that have to do with acquisition in 
my experience almost daily for the last 6 years with the VA.
    The KBES technology is an interesting tool. It is a 
decision support technology that keys on entire domains of 
knowledge. Our cardiac model can assimilate knowledge instantly 
from 10,000 cardiac surgeons and put it on a particular 
patient. This has resulted in extraordinary savings in cost and 
some extraordinary care improvements down the road. I am going 
to kind of zip ahead a little bit.
    Dr. Paul Tibbits, Deputy Chief Information Officer of the 
VA, we met with him and he said that he was aware of the 
success of Wise Knowledge Systems Smart Tool deployed in active 
military operations for the Navy and the Marine Corps and 
wanted to find a place for it at the VA. I was then sent to 
visit with a Ms. Lloyd at VHA. Ms. Lloyd's remarks were, ``The 
VA is broken. KBES might be a very good thing for the VA, but 
that would mean we would have to work and people at the VA will 
not work.'' Dr. Tibbits then said that yes, Ms. Lloyd is right, 
the VA is broken, and nobody around here wants to work.
    Dr. Tibbits then edited and published with our group a very 
detailed capability assessment of Knowledge Based Expert 
Systems for his office, for the VA, for the medical mission of 
the VA. It was altogether the most glowing analysis we have 
ever had, and we have been tested, quite literally we are on 
permanent exhibit at the Smithsonian. So this is not a new 
thing.
    Following that, Dr. Tibbits said that Ms. Wendy McCutcheon, 
a person working in one of the acquisition offices, was now the 
sole authority to acquire medical things for the VA, this one 
person. And Ms. McCutcheon said that, ``She did not see any 
particular value in it,'' and we should start the whole process 
over. I asked them if the fact that I was a veteran-owned small 
business had any bearing on any of this with the GSA. They 
said, ``No, we will not use the GSA, they are not helping us.'' 
That is a direct quote.
    On February 23 I spoke again with Chairman Filner, and he 
invited me to this hearing. That is my testimony. It is quite 
short. I will give you my summary now, all right?
    Since 2004 Wise Knowledge Systems has attempted to provide 
Knowledge Based Expert Systems to the VA. KBES has received 
very positive technical reviews as an advanced modeling and 
simulation decision support technology from each and every 
point of assessment and testing that it has been sent. That 
would be all of them. In the Navy, in the Marine Corps, at the 
U.S. Department of Defense (DoD), at VA, and in the private 
sector. Wise Knowledge Systems believe there is an important 
ethical issue for the health and medical care of American 
veterans being crippled by arrogant leadership, thus, making 
the VA fail in part to keep its promise to deliver state-of-
the-art medicine and health care to American veterans.
    Once a medical technology has been tested, evaluated, 
praised, deployed, and what else, nonresponse is unacceptable. 
One does not do that. And one does not say that the reason we 
are not going to have some is because the VA is broke and 
nobody around here wants to work.
    It is an unfortunate part of our American history that our 
government made and intentionally broke virtually every treaty 
with American Indian tribes. These treaties or agreements were 
made by our government knowing they would not be kept. The 
explanation for this fraudulent manipulation was often Indians 
were not people, they are not quite human beings. One wonders 
if some of the VA leadership, and that is in my written 
testimony, you can read who is what, one wonders if some of the 
VA leadership maintaining the status quo of failing to provide 
these tools when they know and have published that it is state 
of the art, feel that our young people in uniform are also not 
quite people, not quite human beings, that their families are 
not quite human beings. I do not know.
    It is clear to me and to my team that the vast majority of 
individuals at the VA are sincerely dedicated to American 
veterans and do want to work and work hard. Wise Knowledge 
Systems recommends installing and supporting qualified 
individuals who have the experience and expertise to actually 
evaluate these sorts of things for our veterans. We recommend 
the VA do the right thing, honor your contract with the 
veterans.
    I want to thank all of you all for having this hearing and 
giving our experience a voice. I am here for a little while to 
answer any questions you may have. I am sorry, Chairman, but I 
must leave at 11:00. I have an engagement, so.
    [The prepared statement of Dr. Wise appears on p. 63.]
    Mr. Michaud. Thank you very much, Mr. Wise, for your 
testimony. And we should be done by then, but if not, feel free 
to just get up and leave. Mr. Clair.

           STATEMENT OF JAMES A. CLAIR, M.P.A., M.S.

    Mr. Clair. To Chairman Michaud, to Ranking Member Brown, 
and Members of the Subcommittee, thank you for your kind 
invitation to discuss the Department of Veterans Affairs 
procurement practices and specifically how the VA might benefit 
by incorporating certain cost containment strategies within 
their pharmacy benefit management and nursing home care 
programs. My name is Jim Clair, I am the Cheif Executive 
Officer of Goold Health Systems, and I am accompanied today by 
Lorraine Lachappelle, a registered nurse, and Goold Health 
Systems' Director of Community Assessments.
    Goold is a national health care management company that 
specializes in meeting our clients' specific health care 
objectives with a special emphasis on cost containment. 
However, at all times, we are driven by evidence-based medicine 
and achieving clinically effective outcomes. In the interests 
of time, I am skipping forward to page three of my prepared 
remarks and will concentrate on three specific cost containment 
strategies that we think would benefit the VA.
    Number one, medication management. The U.S. Department of 
Health and Human Services recommends medication therapy 
management (MTM), a program that sets out to ensure optimum 
therapeutic outcomes, reduce the risks of side effects when 
using medications, and must be coordinated as part of a care 
management plan. Goold Health Systems expands upon MTM by using 
predictive modeling to analyze pharmacy and medical claims data 
to measure the probability of exceeding set cost parameters for 
high cost users and complex medical conditions. Problematic 
patients are ultimately placed in an intensive benefit 
management program or a chronic pain management program. We 
utilize regression analyses that correlate chronic conditions 
with total drug cost. We then identify individuals who would 
benefit from our targeted interventions. Once in IBM or chronic 
pain management the patient is linked to one physician 
prescriber and one pharmacy dispenser for management of complex 
medical conditions and chronic pain issues, ensuring that those 
patients receive appropriate drug therapies. We provide 
educational materials and monitoring services to those 
individuals to help them better understand their medical 
conditions as well as work with them on medication adherence 
and potential drug interactions.
    We also work with their providers to help ensure that 
optimum clinical outcomes are achieved. Savings accrue to our 
clients because of the intensive involvement of the provider, 
the patient, and the GHS clinical team. Examples would be 
narcotics use, asthma, and COPD.
    Other examples of medical management strategies that we 
believe would benefit the VA are formulary management, 
including 15-day supply limits. GHS performs extensive analyses 
to identify drugs that have high discontinuation rates shortly 
after the onset of therapy. It was reasoned that limiting the 
number of day supply of these first scripts would result in 
savings from reducing waste. About 30 drugs were identified 
that meet our criteria. These drugs tend to have high 
discontinuation rates due to either significant side effects or 
relative lack of efficacy. Targeted drugs for this effort 
include long acting narcotic stimulants, psychiatric medicines, 
urinary and continence products, and smoking cessation drugs.
    Another example of formulary management is dose 
consolidation. Many existing drugs now only need to be taken 
once per day. There is a considerable amount of savings 
available if these drugs are not allowed to be used more 
frequently without good clinical cause. Examples of targeted 
dose consolidation are Zyprexa and Risperdal, two anti-
psychotic drugs that have allowed our State clients to save 
over 1 percent of their pre-rebate expenditures annually by 
aggressively pursuing dose consolidation.
    The second cost containment strategy I would like to 
discuss is pharmacy program integrity, the definition being 
that it should ensure that our tax dollars are not put at risk 
through fraudulent violations of the rules or abuses of the 
system. It should ensure that appropriate payments are paid 
only to legitimate providers for services only to eligible 
beneficiaries. Like many other health care managers, Goold 
Health Systems has significantly expanded our program integrity 
efforts over the last few years. The National Healthcare Anti-
Fraud Association recently estimated that 3 percent of the 
health care industry's expenditures in the United States are 
due to fraudulent activities. This calculates to an annual 
amount of approximately $51 billion.
    In a recent analysis for one of our clients we created a 
``monthly outlier report'' on pharmacy expenditures and trends. 
The analysis was performed for each drug filled in the previous 
month. A review of the average amount spent per drug, and the 
average quantity per day supply based on quantity limits was 
undertaken. Those drug claims that fell outside of established 
guidelines were flagged for audit. This resulted in claims 
being reviewed as a result of improper use of override codes 
and subsequently many of these outlier claims were reversed. 
For this one client with a pharmacy budget of approximately 
$200 million, small certainly by VA standards, we expect the 
results of the specific audit to yield between $500,000 to $1 
million in savings.
    Two other examples of pharmacy program integrity review 
would include automatic early refills. The VA is heavily 
reliant on mail order. It is important that the mail order 
provider be monitored to ensure that mail order pharmacies wait 
to ask for the patient to ask for their medication to be 
refilled. This does not preclude a mail order pharmacy from 
making outgoing calls to a patient if they would like their 
next dose of medication sent. But it would not allow a mail 
order pharmacy from automatically sending the prescription to 
them in all cases.
    A second example being something called near duplicates. 
Each medication intended for human use is assigned a number 
called an NDC, a national drug code. It is a unique product 
identifier that, for example, distinguishes an oxycodone 10 
milligram tablet from an oxycodone 20 milligram tablet, a 
generic medication. Near duplicates can occur with generics 
with a different NDC of the same drug, same strength, is used a 
few days after that patient's first prescription was filled. In 
many cases, this is an appropriate fill due to the legitimate 
loss of medication. However, there can also be billing errors 
or inappropriate dispensing such that these claims should be 
reversed. Monitoring utilization at this level, this granular 
level, can yield additional savings to the VA if it is not 
being done now.
    The third cost containment strategy I would like to discuss 
is something called long-term care assessments, and it is the 
reason that Ms. Lachappelle is with me. Through the early 
1990's, nursing facility costs in one of our client's States 
were increasing at annual rates far exceeding the general 
inflation rate, or even the health care cost inflation rate. 
Eligibility determinations for Medicaid nursing facility care 
were determined by the provider, leading to much higher 
utilization rates than otherwise supported by independent 
review. As a result, Maine State government instituted an 
independent, objective Maine Medicaid eligibility screening 
process with the following objectives: to create a single entry 
point for medical functional eligibility assessments for long-
term care programs; to increase consumer participation and 
control; to educate consumers about in home long-term care 
programs and other alternatives to nursing and residential 
facility care, the most expensive level of care; and to 
identify and address caregiver needs; to reduce the long-term 
cost of services by requiring greater emphasis on rehab and 
health promotion; and to reduce the number of unnecessary 
admissions to increase the number of discharges from and 
decrease the length of stay in nursing facilities.
    Within strict time parameters set by our client, the GHS 
screener's job is to provide an accurate prescreening to 
determine the need for medical functional assessment, maintain 
the waiting list, and refer consumers to appropriate nurses. 
More importantly, when an evaluation is indicated the Goold 
Health Systems registered nurse conducts an accurate, objective 
medical functional eligibility assessment using the automated 
medical eligibility determination tool in a way that is always 
based on sound clinical judgment and in compliance with 
appropriate policy. We employ about 35 nurses Statewide to do 
this work, who work with a laptop, portable printer, and cell 
phone.
    In State fiscal year 2010, we performed over 15,000 
assessments. The State share of the medical nursing home 
expenses in 2010 are more than 35 percent lower than their 
State fiscal year 1994 in nominal non-inflation adjusted 
dollars. This is a result of policy changes made by the 
government and the long-term assessment process that we 
conduct. Comparing where the unmanaged nursing facility budget 
was headed to where it actually is today has yielded annual 
State savings that exceed $100 million.
    Mr. Chairman, the VA is a very effective provider of 
important pharmacy and medical benefits to our country's 
veterans. The cost strategies that I have discussed above have 
been proven to be very effective in containing health care 
costs for our Medicaid clients. We believe that these clinical 
management approaches can assist the VA in further containing 
costs. Thank you again for the opportunity to testify. My 
colleague and I would be pleased to answer questions you or the 
Committee may have.
    [The prepared statement of Mr. Clair appears on p. 70.]
    Mr. Michaud. Thank you very much, Mr. Clair. I want to 
thank all the panelists for your testimony this morning. It has 
been very enlightening and I look forward to your answering 
some of the questions. I know Mr. Wise has to leave at 11:00. I 
do not know if anyone has any questions for Mr. Wise? So any 
time you want to leave, feel free. We might have questions once 
we get going, but I just wanted to check first.
    Once again, I want to thank everyone for coming. I have a 
couple of questions. Mr. Newell, you mentioned, the Buddy and 
the components that you have at your company and how you are 
working with the VA system. Do you work also with Federally-
qualified health care clinics and rural hospitals? And if you 
do, are there any problems associated with rural areas, such as 
that system not working in very rural areas where they might 
not have cell phone service? Or can you expound on that a 
little bit?
    Mr. Newell. Yes, I can. Our systems work great in rural 
areas. There is a challenge in a rural area with getting the 
system to the person and getting it set up at times, because it 
is a rural area. So by definition the logistical challenges of 
getting the systems to the location and set up are still there. 
But we have solved those. Our system works on a plain old 
telephone line. So as long as there is POTS (plain old 
telephone service) line availability we can deploy the system, 
and most areas have POTS lines. We also have a cellular modem, 
which we can attach externally to the Health Buddy or to the T-
400 system, and that will allow it to communicate via whatever 
cellular network is available in the area. So if there is any 
cellular network available at all, we can connect to it.
    It is very effective for rural health. It is being used, 
our T-400 system especially is being used for the home-based 
primary care project within the VA. We also have a video 
system, which allows veterans in rural areas to have a video 
camera in their home and allows the doctors to assess them 
without bringing them in to the VA medical center. Not for 
obviously extremely serious conditions, but as part of their 
home-based primary care initiative, they are allowed to do 
that. So it has had huge success. We have a project in Alaska, 
which is not with the Veterans Administration with our T-400 
system that has been exceedingly successful. And the biggest 
success in rural areas is the cost of transport of getting 
somebody who does have an exacerbation from the location to the 
facility, and that can save tens of thousands of dollars, 
especially in cases like Alaska where they have to be flown in.
    So we have had a huge amount of success in rural areas. And 
it is a huge application for rural areas. I would say we are 
very under-penetrated in terms of the number of people who 
could benefit from it. Thank you.
    Mr. Michaud. Thank you. My next question is, Mr. Clair, you 
mentioned that by utilizing some of the work that you have done 
in different States, VA may be able to save money. The 
estimated cost for prescription drugs in 2011 is $4.8 billion. 
That is a good deal, the VA negotiated for lower cost 
prescriptions. My concern, however, is on utilization within 
the VA on the drug system. How the VA is bigger than a lot of 
the States. How would you be able to help the VA? Can you 
narrow that down? Or in a small pilot program? And what 
potential do you think there might be for cost savings within 
the VA pharmacy benefits program?
    Mr. Clair. Thank you, Mr. Chairman. The first thing that we 
do when we work with one of our clients is get the actual drug 
utilization data. It is very important, as I think all of the 
Members of the Subcommittee know, that the VA has a very 
effective pricing strategy. They purchase very well. They have 
very good network and communications and distribution systems. 
But reviewing the utilization data is very important. And what 
we would be interested in doing is some, is getting some 
subset, a region, a State, an area, to be defined by the VA in 
which we would get pharmacy claims and medical claims over a 
period of time. Hopefully, at least 12 months worth of data. 
Load that in and start to have my clinical team of doctors and 
pharmacists and nurses and data analysts reviewing that in 
order to identify savings opportunities specifically.
    Mr. Michaud. Thank you. I do not want to elaborate on 
nursing homes because of my displeasure with VA on how they 
deal with reimbursement for State Veterans Nursing Homes. It is 
my understanding that the cost of nursing homes within the VA 
system is much higher than at Veterans Nursing Homes. When you 
have worked with nursing homes, how much savings were you able 
to achieve?
    Mr. Clair. It is significant. The issue specifically is 
that if you do not have, in effect what we are employed to do 
is be a gatekeeper into the nursing home facility itself. And 
if there can be a support system that allows one to stay in 
their home based on their acuity and their emotional state, 
etcetera, you are diverting people away from the nursing home 
level of care and that saves appreciable amounts of money. My 
calculation in State fiscal year 2010 is that the savings to 
one State client was over $100 million. So in effect, nursing 
home expenditures go down. You reinvest some of those savings 
into the community level of care, but overall your net savings 
to the VA would be significant.
    Mr. Michaud. Thank you. Mr. Brown.
    Mr. Brown of South Carolina. Thank you, Mr. Chairman. Thank 
you, gentlemen, for being here today. Mr. Munroe, in your 
testimony you state that the New Orleans VA solicitation was 
redirected through the GSA schedule. What reason did VA give 
you for this move?
    Mr. Munroe. As you know, there are a number of different 
procurement methods that the VA can use. The original redirect 
was to facilitate supposedly ease of contracting. And certainly 
a VA contracting officer's discretion is to use whatever 
contracting method he or she feels best serves. The challenge 
that we have with that is when you redirect to a method that 
does not have a solution, you cannot then go try to create that 
solution on the GSA, for example. So there were a number of 
things that happened in that process. Our biggest concern in 
that process is, if you are going to use the GSA schedule, use 
it for what it is worth, or for what it is supposed to be used 
for. Go there, identify the product that exists on a Federal 
Supply Schedule, and procure it. If it does not exist on the 
Federal Supply Schedule, you cannot then go back to GSA and 
say, ``Here are all the requirements that I have. Let us 
solicit in an open forum everybody who has a GSA contract and 
see if they can try to do this.''
    So there are a number of different ways that the 
procurement process can happen. The answer that we were given 
as to why it was redirected through the GSA schedule was for 
pure ease of contracting. Which we are in full support of. If 
products exist on the GSA schedule then an easier process 
obviously is to use that schedule. But when they do not exist, 
as you saw from the comments that Judge Horn provided, you 
cannot then go into open solicitation and try to convince GSA 
that that product can exist there as a vendor.
    Mr. Brown of South Carolina. So how many units do you have 
now in operation?
    Mr. Munroe. I am sorry?
    Mr. Brown of South Carolina. How many units do you have in 
operation?
    Mr. Munroe. We have, now we have 12 units within the VA and 
the government health care system. We also provide services to 
the U.S. Navy in their hospitals as well, that use the product 
for exactly the same reason.
    Mr. Brown of South Carolina. But you do not have any in New 
Orleans?
    Mr. Munroe. We do not, there is nothing in New Orleans 
right now.
    Mr. Brown of South Carolina. Where do they get their 
service?
    Mr. Munroe. If you are a veteran right now in New Orleans 
and you need endoscopic services, you have to travel 2 hours 
for those services. You have to travel outside of the New 
Orleans service area to another VA service area.
    Mr. Brown of South Carolina. What reason did they give you 
for not using your service?
    Mr. Munroe. Well the intent there was to use the service. 
They started that process. But through an incorrect procurement 
procedure they stopped. That contract has been awarded to 
another company. The problem is, that other company does not 
meet the standards of care that the VA has in all of their 
medical centers. And you cannot take, you know, our contention 
with that is, in Miami, for example, in Muskogee, in 
Martinsburg, facilities that members have seen and actually 
gone to, those facilities require the same standard of care in 
a mobile unit as they do in their fixed based facility.
    Mr. Brown of South Carolina. So when you bring the unit, do 
you bring the medical support staff, too?
    Mr. Munroe. We do not bring the medical support staff, and 
that is probably the most important part of what we do with the 
VA. In Muskogee what we were told--and let me answer your 
question. We do not bring them because the utilization of the 
existing medical staff is the key to the project. So the 
surgeons, the nurses, the technicians, the facility is 
supplying both their equipment, which they know how to use, and 
they are supplying their staff, which keeps them productive. In 
Muskogee, for example, the operating room nurse manager told me 
that if they had to move their patients to the community to 
render services, she would have lost 80 percent of her nursing 
staff. Because they would have not stayed. They would have gone 
to where the patients would have gone. And that is part of that 
overall savings that comes into play. Those are the 
intangibles. They did not lose 80 percent of their staff 
because they are doing it this way. But if they had, what would 
have been both the financial impacts to the VA health system? 
And more importantly, the service impact to the veterans in 
that service area?
    Mr. Brown of South Carolina. Do you lease the equipment or 
do you sell it?
    Mr. Munroe. We lease, we do both. But in the VA network, we 
lease. It is an operating lease. So if the renovation project 
is a 12-month, 24-month, 36-month project, it is an operating 
lease and then we remove the equipment at the end. So if you do 
not mind I can just--can you bring that back up for me?
    Mr. Brown of South Carolina. Could you tell me how many 
vendors are in the market?
    Mr. Munroe. Well our, it is my understanding that over the 
next 10 years, and I will be curious when some of the other 
panelists come up, over the next 10 years the VA is estimating 
that there will be over a hundred facilities that will go 
through an operating room renovation project. The average 
number of units that we see is around four units in order to be 
able to service a medical center.
    Mr. Brown of South Carolina. But how many vendors are out 
there providing those units?
    Mr. Munroe. How many VISNs are we in currently?
    Mr. Brown of South Carolina. No, how many vendors? How many 
people like you are selling----
    Mr. Munroe. Oh, vendors. I am sorry, I thought you were 
selling VISNs.
    Mr. Brown of South Carolina. It is a southern thing.
    Mr. Munroe. That provide a--that is the difference between 
the southern and the Vermont piece of it. So sorry, Chairman 
Michaud, for those of us up in the Northeast.
    Mr. Michaud. It took me a while to get used to his accent 
as well, so.
    Mr. Brown of South Carolina. Sometimes we have to have an 
interpreter.
    Mr. Munroe. VISNs and vendors just got too close there. So 
there are no other vendors in the market today that provide a 
State licensed, and this is the key, State licensed, Medicare 
certified, JCAHO accredited, mobile surgery unit. So there are 
no other vendors in the United States that provide that level 
of certification. Does that answer your question?
    Mr. Brown of South Carolina. Sure.
    Mr. Munroe. So, you know, when you look at this 400 square 
foot operating room, it is just over 400, it is 402 square 
feet, when I travel to the Phoenix VA, which has seven 
operating rooms and two special procedure rooms, they are 
embarrassed to bring me into their operating room suites. 
Because they know that this level of care in these mobile units 
is higher than what they service, than what they provide for 
service today in Phoenix.
    Mr. Brown of South Carolina. What would one cost a month to 
lease?
    Mr. Munroe. The units are $76,000 per month, per unit.
    Mr. Brown of South Carolina. To purchase?
    Mr. Munroe. Two point sixty-seven million dollars.
    Mr. Brown of South Carolina. Okay.
    Mr. Munroe. So if you are doing what I think you are, and 
you understand how many units we have in service in the VA, it 
does not take a lot, and you will see in the packet I provided 
you, it does not take a lot of units to produce a very 
significant return on investment to the VA. Especially if we 
believe what they are telling us, which is over the next 10 
years, 100 facilities will go through this renovation project. 
And I truly believe, in Muskogee for example where they have 
done in depth financial analysis of this, they did the analysis 
before the units came in. I truly believe the contracting 
officer when he tells me that they are saving, hard cost 
savings at that facility, $4 million per unit by doing it this 
way.
    Mr. Brown of South Carolina. Okay. Well, I thank you very 
much.
    Mr. Munroe. Thank you.
    Mr. Brown of South Carolina. And I know that my time has 
expired, Mr. Chairman, but I would just like to mention to Mr. 
Moss, I am grateful for that facility at Myrtle Beach. We have 
doubled and tripled the size in a fairly short period of time. 
I know it took a long time to get the project moving, but once 
it got on board it moved pretty quick. What is the largest 
facility in which you have been able to use the Design-Build 
method?
    Mr. Moss. We just completed a 99,000-square foot combined 
brigade-battalion headquarters building for the Combat Aviation 
Brigade at Fort Bliss in El Paso. And that was constructed of 
100 individual sections in conjunction with site built 
elements, what we refer to as hybrid construction. So.
    Mr. Brown of South Carolina. But you do not use modular 
units?
    Mr. Moss. Pardon me?
    Mr. Brown of South Carolina. But you do not use modular 
units?
    Mr. Moss. Well yes sir, they are. They are built off site. 
They are trucked to the building site and put together, stacked 
atop one another.
    Mr. Brown of South Carolina. Very good. Sorry, Mr. 
Chairman, for taking so much time. But thank you, gentlemen. 
Sorry I did not get a chance to ask questions of the other two 
panelists.
    Mr. Michaud. Thank you very much, Mr. Brown. We gave you a 
little extra time for interpretation. Mr. Donnelly. Mr. 
Carnahan. Once again I would like to thank the panel for coming 
today. I appreciate your testimony, and if there are any 
additional questions we will definitely get in touch with each 
of you. So once again, thank you very much. I would like to ask 
the second panel to come forward. And while they are coming 
forward I will introduce them. The panel includes Debra Draper, 
who is the Director of Health Care for the GAO, and Belinda 
Finn, who is the Assistant Inspector General for Audits and 
Evaluation within the VA Office of Inspector General. I would 
like to thank both of you for coming today, and I look forward 
to your testimony. And we will begin with Ms. Draper.

   STATEMENTS OF DEBRA A. DRAPER, PH.D., M.S.H.A., DIRECTOR, 
HEALTH CARE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND BELINDA 
      J. FINN, ASSISTANT INSPECTOR GENERAL FOR AUDITS AND 
 EVALUATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
  VETERANS AFFAIRS; ACCOMPANIED BY MAUREEN REGAN, COUNSELOR, 
   OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS 
                            AFFAIRS

         STATEMENT OF DEBRA A. DRAPER, PH.D., M.S.H.A.

    Ms. Draper. Mr. Chairman and Members of the Subcommittee, 
thank you for the opportunity to be here today as you discuss 
VA's contracting and procurement practices.
    My testimony today focuses on the intersection of some of 
these activities and veterans' safety.
    VA medical centers purchase supplies and equipment that 
allows them to provide a range of health care services to the 
5.5 million veterans served annually. These purchases include 
expendable medical supplies such as needles, which are used 
once and discarded and reusable medical equipment such as 
endoscopes which are reused for multiple patients.
    VA has established policies that its medical centers are 
required to follow when purchasing and tracking medical 
supplies and equipment. In part, these policies are intended to 
help ensure the safety of veterans treated in VA facilities.
    For example, VA medical centers need information on the 
reusable medical equipment in their facilities to ensure that 
they have developed procedures for properly cleaning and 
disinfecting or sterilizing the equipment prior to reuse.
    This information is also critical if a supply item or piece 
of equipment is the subject of a manufacturer or FDA recall or 
patient safety alert from VA.
    In my testimony today, I will first discuss some 
preliminary observations from our ongoing work on VA's 
oversight of compliance with its purchasing and tracking 
policies for expendable medical supplies or reusable medical 
equipment.
    These observations are based on site visits to five VA 
medical centers and raised concerns about the safety of 
veterans receiving care at these facilities. I will then 
discuss steps that VA Headquarters plans to take to improve its 
oversight of these activities.
    Our initial work has focused on three requirements that we 
determined were relevant to veterans' safety. These include 
ensuring Committee review and approval of medical supplies and 
equipment not previously purchased by the facility, obtaining 
signatures of ordering and approving officials prior to making 
purchases, and entering information about supplies and 
equipment in the VA's inventory management systems.
    At the five VA medical centers we visited, our preliminary 
work identified examples of inconsistent compliance with these 
three requirements we reviewed. In some cases, noncompliance 
created potential risk to veterans' safety.
    At one VA medical center, for example, officials told us 
that clinical department staff were allowed to purchase certain 
reusable medical equipment such as surgical and dental 
instruments using purchase cards and that these purchases may 
not have received the required Committee review and approval.
    As a result, these purchases may have been made without 
assurance that they were cost effective and safe for use on 
veterans.
    Officials at another VA medical center discovered that a 
staff member working in a dialysis department ordered a supply 
item without obtaining the required signature of an approving 
official. The staff member ordered an incorrect item which was 
subsequently used, resulting in the potential exposure of more 
than 80 veterans to infectious diseases such as HIV, hepatitis 
B, and hepatitis C.
    At a third VA medical center, more than 2,500 veterans were 
potentially exposed to infectious diseases because according to 
the facility officials and the VA's Office of the Inspector 
General a piece of reusable medical equipment was not being 
properly cleaned and disinfected.
    After receiving a patient safety alert from VA, the medical 
center incorrectly concluded that the item was not being used 
in part because it was not listed in the facility's inventory. 
The delayed identification resulted in the item's continued use 
and potential exposure of veterans.
    With regard to VA's plans to improve its oversight of VA 
medical centers' purchasing and tracking of medical supplies 
and equipment, VA Headquarters officials told us that they 
planned to change the oversight of the use of their purchase 
cards, shifting greater responsibilities from the medical 
centers to the VISNs.
    VA is also developing a new inventory management system 
which officials expect will improve their ability to track 
information across facilities.
    To summarize, VA has policies that its medical centers are 
required to follow with purchasing and tracking expendable 
medical supplies and reusable medical equipment. But based on 
preliminary observations from our ongoing work, there is 
inconsistent compliance with these requirements, creating 
potential risk to veterans' safety.
    Mr. Chairman, this concludes my opening remarks. I am happy 
to answer any questions.
    [The prepared statement of Dr. Draper appears on p. 73.]
    Mr. Michaud. Thank you very much.
    Ms. Finn.

                  STATEMENT OF BELINDA J. FINN

    Ms. Finn. Thank you.
    Mr. Chairman and Members of the Subcommittee, thank you for 
this opportunity to testify on the findings of the Office of 
the Inspector General regarding the Veterans Health 
Administration's contracting and procurement practices.
    Maureen Regan, Counselor to the Inspector General, joins me 
at the table today. In addition to her legal duties, Ms. Regan 
manages the Office of Contract Review within the OIG.
    In December 2009, the OIG testified on acquisition 
deficiencies in VA. At that time, numerous OIG audits, 
investigations, reviews, and inspections has identified 
systemic issues such as poor acquisition planning, problematic 
contract award processes, poorly written contracts, and 
inadequate contract monitoring that negatively affected VA's 
ability to attain quality goods and services in a timely manner 
at fair and reasonable prices.
    These acquisition weaknesses significantly impact VHA, 
which purchased over $9 billion in health care related goods 
and services in fiscal year 2009.
    Since December, we have continued to identify systemic 
acquisition weaknesses, low levels of compliance with Federal 
Acquisition Regulations (FARs) and VA acquisition regulations, 
and incomplete and unreliable data in VA and VHA acquisition 
systems.
    For example, two national audits over contracts for patient 
transportation and Federal Supply Schedule health care staffing 
services found that strengthened procurement practices and 
contract monitoring could reduce improper payments and 
overpayments by $130 million over the next 5 years.
    Additionally, our recent reviews of the VHA's nonrecurring 
maintenance contracts funded by the American Recovery and 
Reinvestment Act of 2009 (ARRA) have found that although VA and 
VHA oversight has improved compliance with FAR competition 
requirements, the contracting officers were not performing 
adequate contractor responsibility determinations.
    These determinations are critical to mitigate possible 
risks to ARRA funds and ensure the expeditious completion of 
VHA projects. In fact, 60 of the 65 contracts we reviewed 
valued at $83 million lacked adequate contractor responsibility 
determinations.
    In May 2010, we reported that the VA medical center in 
Philadelphia had inappropriately purchased brachytherapy 
services from the University of Pennsylvania without a contract 
between 1999 and 2005.
    Additionally, OIG health care inspections at community-
based outpatient clinics have found problems in the 
administration of contracts for clinic operations.
    For example, the Contracting Officer's Technical 
Representatives (COTRs) are not notifying vendors about 
patients who should be disenrolled. Because VHA pays the 
contractor a capitated rate for the enrollees, the community-
based outpatient clinic (CBOC) vendors may be overpaid. The 
COTRs were also not consistently holding contractors 
accountable for meeting performance standards set forth in the 
contracts.
    In fiscal year 2010, the Office of Contract Review has 
completed 65 pre-award and 26 post-award reviews. Thirty-two of 
the pre-award reviews were of proposals from VA affiliated 
institutions for sole source health care resource contracts. 
These reviews identified $39 million in potential savings that 
could be achieved during contract negotiations.
    The Office of Contract Review continues to identify issues 
with a lack of communication between procurement and program 
officials and inadequate planning for these health care 
resources contracts.
    The lack of communication and poor planning results in 
unnecessary contract cost because requirements have not been 
properly identified. The statements of work are inadequate and 
the estimated quantities are overstated.
    We also routinely find that VHA's health care resources 
contracts lack adequate oversight to ensure VA receives the 
services it pays for.
    Mr. Chairman, this concludes our oral statement. Myself and 
Ms. Regan would be pleased to answer any questions that you or 
other Members of the Subcommittee may have.
    [The prepared statement of Ms. Finn appears on p. 78.]
    Mr. Michaud. Thank you very much for your testimony and 
thank you Ms. Draper, as well.
    Ms. Draper, why are the VA medical centers not entering the 
information about expendable medical supplies in their system? 
Do you have any idea why they are not doing that?
    Ms. Draper. Yes. VA policy requires that all expendable 
medical supplies that are purchased on a recurring basis are to 
be entered into the inventory system. However, policies differ. 
The policies are ambiguous as to what recurring refers to. One 
refers to at least four times per year and others are just 
basically silent.
    So what we found is that some facilities are entering all 
medical supplies and others are not. So there is confusion at 
the local level.
    Mr. Michaud. Do you feel the VA Central Office provides 
sufficient guidance to the VA medical centers on implementing 
its policies on purchasing and tracking? If not, do you have 
any recommendations of what we can do to make them comply?
    Ms. Draper. Yes. Our work is ongoing, so we are continuing 
to look at that area. And we are also going to be planning to 
talk to the VISNs about their role in oversight and compliance.
    As part of our preliminary work, we have found that some 
policies are ambiguous and some policies appear to be 
contradictory. I can give you an example.
    The purchase of medical equipment with purchase cards. One 
VA policy says that it is not allowed, another says that it is. 
So that is one area that is problematic.
    Another issue is that there is conflicting guidance as to 
what reusable medical equipment should be inventoried. 
According to one policy, it is defined as equipment that costs 
more than $5,000 with a useful life of 2 years or more. 
However, reusable medical equipment is any equipment that is 
designed by the manufacturer to be reused for multiple patients 
and arguably should be tracked.
    Mr. Michaud. Ms. Finn, we have heard some concerns that OIG 
has decision-making authority over awarding contracts and that 
has caused some delays in the contracts and procurement 
process. Further, there has been concern that prospective 
contractors are unable to communicate with OIG to better 
understand why their bid has been rejected.
    Could you comment on those two concerns? And what role does 
the OIG have in the contracting and procurement process?
    Ms. Regan. If it is a Federal Supply Schedule contract or 
health care resource contract that is awarded on a sole source 
basis, we have an agreement with the Department that we do the 
pre-award reviews to look for price reasonableness. We do the 
review and we give a report to the contracting officer with 
recommendations for negotiations. But that is the only role 
that we have in the contracting process.
    If a vendor believes that there is some part of the process 
that was not done right; as the witness testified before, they 
were exceeding the scope of the GSA contract for the services, 
there is a protest process either to the contracting officer or 
the procurement executive or to the Government Accountability 
Office. But we do not get involved in that process at all.
    Mr. Michaud. Okay. We heard Mr. Wise on the first panel say 
that he feels the VA is broken and that the VA said that.
    Would both of you want to comment on that? If broken, how 
do we fix the problem?
    Ms. Finn. Broken is a very definitive term that has a wide 
range of possibilities. I think there definitely are large 
areas for improvement in the VHA acquisition processes. As we 
have testified, we see problems again and again with planning 
for contracting, the awarding of contracts, and then the 
administration of contracts.
    Fixing those issues is going to take a concerted effort; to 
improve the planning through communication between the program 
officials and the contracting officials. A number of the 
discussions we heard from the first panel seem to indicate 
problems with that type of communication.
    Once we have an acquisition strategy, then we need 
oversight of the contracting process to ensure that the 
contracts are awarded properly and competed.
    And, finally, the administration of the contract at the 
field level is always going to require expert and trained 
Contracting Officer's Technical Representatives to really 
ensure the contract provisions are met.
    Ms. Draper. Our work, as I mentioned, we have identified 
issues with some VA purchasing and tracking policies with 
regard to medical supplies and equipment. And some of the 
policies are often ambiguous or contradictory.
    And we have also tentatively identified gaps particularly 
related to the inventory management systems that may increase 
the risk or even contribute to patient safety incidents.
    Our work indicates that VA could make improvements by 
ensuring that their policies are clear and comprehensive and 
that there are clear lines of accountability. Effective 
oversight and enforcement to ensure compliance are also 
critical aspects of making those improvements.
    Mr. Michaud. Thank you.
    Mr. Brown.
    Mr. Brown of South Carolina. I thank the panel for being 
here and giving us their insights.
    As I mentioned in my opening statement, I am particularly 
concerned with your assertion that data in the VA and VHA 
acquisition support and information system is incomplete and 
unreliable.
    And how does that compare to other Federal departments?
    Ms. Finn. I do not have total experience with other Federal 
departments. I can tell you a little bit about the situation in 
VA.
    We did an audit about 2 years ago of the Electronic 
Contract Management System (ECMS), which is a relatively new 
vehicle within VA to track contract actions. It was established 
to track contract actions over $25,000.
    At the time we did our first audit, we found a wide range 
of contracts that were not being placed into the system for 
many reasons. It was difficult to work with and users were not 
necessarily aware of all the requirements.
    With the ARRA requirements, VA and VHA required all of the 
ARRA contracts to be recorded in ECMS. So from our experience, 
we did find a lot more information on those contracts in ECMS, 
although we still have found issues with the completeness of 
the data in that contracting system.
    Because VA and VHA are so decentralized, it is hard to get 
all of this information together in a system. Ms. Regan might 
have more insight.
    Ms. Regan. I would say there is also a difference between a 
contract action and a purchasing action. A lot of purchases are 
below $3,000 for items that are purchased off the Federal 
Supply Schedule contract or even open market and you are not 
required to do competition. So it is very hard to track 
individual purchases of an item even if the contracting action 
is in the system.
    One example would be your Federal Supply Schedule 
contracts. The contracting action is in there. It has the 
pricing structure, but it is very difficult to follow who 
purchases what items off those contracts, especially when it is 
below the $25,000 threshold. So there is no visibility of those 
types of items out there.
    I know when we do our work, we have to go to the vendors to 
find out exactly what VA purchased. But I will qualify that 
they do have a pretty good system in VA to track purchasing of 
pharmaceuticals because purchasing is done through a prime 
vendor. And they also have a good system to track 
prescriptions. We use that data consistently and we do get 
reliable data from the Department in that area.
    Mr. Brown of South Carolina. How many average vendors do 
you have before you issue a contract?
    Ms. Regan. It depends on the value of your contract. If you 
are purchasing off a Federal Supply Schedule and it is under 
$3,000, you can issue it without any competition. Up to 
$25,000, I believe, or $100,000, you call up and get some 
offers from vendors. If it requires a statement of work, you 
are required to post an RFQ, request for quotation, on GSA 
Advantage to get quotes, give it to at least three vendors.
    Again, it is the dollar amount, the $3,000, the $100,000 
and over that makes a difference on how you will do your 
procurement.
    Mr. Brown of South Carolina. I know that one of the members 
of the last panel said that there were too many vendors in the 
particular field that he was talking about. Some of you were in 
the room when he said that.
    What is too many?
    Ms. Regan. I am not sure what is too many, but I do know 
that on the VA schedules, the Federal Supply Schedules, he was 
talking about the GSA Schedules. On the VA Federal Supply 
Schedules, anybody purchasing can go to the National 
Acquisition Center's Web site and actually put in the type of 
item that they want and it will come up with all the vendors. 
When they buy through the prime vendor for pharmaceuticals, the 
prime vendor has a list of every company that sells that drug, 
particularly generics where you have a lot of competition. So 
it is easier because you have visibility.
    I know in my personal use of the GSA schedules, it is a 
little more difficult because they go by special item number. 
There may be a lot of businesses that fit into the general 
category, and it is very difficult to find those that have 
specifically what you are looking for.
    So there are a lot of vendors. You could have 70 vendors 
listed for that special item number, but maybe only five of 
them have exactly what you are looking for. So it is very 
difficult to find the right vendors using GSA Advantage.
    Mr. Brown of South Carolina. I know that we ask that we 
give special consideration to disabled veterans, for instance.
    Are they flagged in a way that they would get preferential 
treatment if they were competitive or how does that work?
    Ms. Finn. In many cases, VHA actually does a set aside for 
those type of procurements and then only vendors who qualify as 
a service-disabled veteran-owned small business or a veteran-
owned small business can bid on those contracts.
    Mr. Brown of South Carolina. Thank you. I see my time is 
expired.
    Mr. Michaud. Thank you.
    Mr. Carnahan.
    Mr. Carnahan. Thank you, Mr. Chairman and Ranking Member.
    I wanted to ask you to comment, if you would, about the 
specific findings with regard to the Cochran VA Medical Center 
in St. Louis.
    Ms. Draper. We are actually going there next month. We have 
not conducted that work yet. Our work is ongoing.
    Mr. Carnahan. So you have begun that work, but you have not 
made a specific site visit?
    Ms. Draper. Yes. The site visit, I think it is going to 
happen in about 2 weeks. It is the first part of October.
    Mr. Carnahan. Okay. Well, I would request that you notify 
us when that is going to happen specifically.
    And you mentioned in your report inconsistent policies, 
noncompliance with oversight, and in particular the situation 
at the Cochran VA Medical Center where dental instruments were 
not properly sterilized for at least a year.
    What kind of oversight was supposed to be there that was 
not that did not catch that for at least a year's time?
    Ms. Draper. One of the areas that we have found a 
particular concern in our work is that it appears that clinical 
department staff are allowed to purchase specialty items, 
surgical and dental instruments. And often those do not go 
through the required committee review and approval.
    So the consequence of that is that staff responsible for 
cleaning and reprocessing that equipment is not always aware 
that it exists in the facility. And, actually, we have seen 
that on other site visits.
    Mr. Carnahan. And the steps that are being taken to address 
the inconsistent policies, but also to address the oversight 
and enforcement of those policies, can you describe what is 
being done now to address that?
    Ms. Draper. Yes. As I said, as I mentioned earlier, we are 
continuing to look at the oversight and compliance 
responsibilities and we are continuing to talk with VA. And we 
also plan to do additional work with the VISNs to see what 
their role is.
    Ultimately responsibility for compliance at the facility 
level lies with the facility director and then it is also the 
responsibility of the VISN and VHA to ensure that there is 
compliance with the policies.
    And as I mentioned, some of the issues arise because there 
is some ambiguity and contradiction in the policies. And, you 
know, our work has identified ambiguity and contradiction 
within the three requirements that we reviewed, and also where 
there are gaps related to the inventory management systems.
    Mr. Carnahan. And when will those ambiguities be addressed 
so there is a clear standard throughout the VA?
    Ms. Draper. Well, we hope that our report will be issued 
after we finish our next site visit and finish doing our 
analytical work. We are anticipating that the report will be 
issued in the spring.
    Mr. Carnahan. And then, finally, one of the issues that has 
come to light in the conversations back in St. Louis is with 
regard to employees that have come forward, attempted to come 
forward. One employee talked about some problems early on was 
actually fired some believe in a retaliatory way. Others have 
been intimidated in terms of coming forward with information.
    What is the VA doing in terms of protecting employees that 
want to come forward with information about improvements but 
also being sure that those responsible are being held 
accountable?
    Ms. Draper. Yes. That is not really part of how we have 
looked at our work and that is probably a question that VA 
might be better able to answer. We are aware of the situation. 
And as I said, we are visiting St. Louis next month, so we will 
learn more about the particular situation there.
    Mr. Carnahan. And let me ask the other witness from the OIG 
what steps can or should be taken with regard to those 
employees that may have helpful information in terms of how 
some of these things happen but also how to prevent them going 
forward so they are not being retaliated against when they may 
have important information to come forward?
    Ms. Finn. Mr. Carnahan, I cannot address all the ways, but 
one option they have is to call the OIG hotline. We receive 
numerous complaints and questions, concerns from employees and 
entities over the course of a year. And we investigate many of 
them and work to protect the rights of that employee or the 
complainant.
    Mr. Carnahan. All right. I see my time is up, Mr. Chairman. 
Thank you for having me sit in today on this hearing.
    Mr. Michaud. Thank you very much, Mr. Carnahan.
    Mr. Boozman, do you have any questions?
    I would like to thank our second panel for coming forward. 
And I am sure there will be more questions that we will submit 
in writing. So, once again, thank you all for coming. I 
appreciate it.
    The last panel includes Frederick Downs who is the Chief 
Procurement and Logistics Officer for VHA. He is accompanied by 
Dr. Andrea Buck who is the National Director of Medicine for 
VHA.
    I want to thank you very much, Mr. Downs, for coming 
forward and I look forward to your testimony.

   STATEMENT OF FREDERICK DOWNS, JR., CHIEF PROCUREMENT AND 
    LOGISTICS OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. 
  DEPARTMENT OF VETERANS AFFAIRS; ACCOMPANIED BY ANDREA BUCK, 
  M.D., J.D., NATIONAL DIRECTOR OF MEDICINE, VETERANS HEALTH 
          ADMINISTRATION, U.S. DEPARTMENT OF VETERANS

    Mr. Downs. Thank you, Congressman.
    And let me just get a second here to get my papers all 
straightened out. I was taking a lot of notes during the 
panels. I would like to be able to address those to you.
    Good morning, Chairman and Ranking Member and Members of 
the Subcommittee. Thank you for inviting me to discuss the 
Veterans Health Administration contracting and procurement 
practices.
    I have testimony here. I want to make one thing clear on my 
paragraph and then I would like to go right into answering some 
of these questions if that is okay with you. We will get right 
to it.
    Mr. Michaud. Is there any objection? Hearing none, your 
full written testimony will be submitted for the record.
    Mr. Downs. First, I want to state that acquisition reform 
is a central piece of the Secretary's charge to fundamentally 
change the Department of Veterans Affairs in ways that will 
transform it into a 21st Century organization that is people-
centric, results driven, and forward looking.
    And it is important to know that the integrated operating 
model is the Department's acquisition and transformation 
initiative. And VHA fully embraces the Secretary's 
transformation vision and the implementation of this integrated 
operating model.
    And to go forward with that, you know, listen to the 
testimony first of the folks, the vendors and their concerns, 
and we want to make sure that people understand that we are 
very open to listening to what is going wrong, but we want to 
make sure that we are open to all the vendors and address their 
concerns.
    But in the area of the concerns that were addressed by the 
different individuals, what we attempt to do in VHA and VA is 
we need a level playing field. We have a lot of competition 
that we need to adhere to as far as making sure that everyone 
has a fair chance to apply for the contracts that we let out.
    Contracting officers are one part of it. The needs of the 
clinical service or the service at hand is another part of it. 
In the area of construction, we have construction in facilities 
and they have their needs and requirements. And what they do is 
work together as a team in putting all of this together.
    Contracting is difficult in the government, complex, but we 
are regulated by the FAR and by both the Federal Acquisition 
Regulations and the Veterans Administration Acquisition 
Regulations. And so when adhering to those, we follow a certain 
process and procedure to make sure that we are doing the right 
thing, that we are making the processes the way they should be.
    And the competition out there will come to us and they will 
make presentations. We then take that information. We share it 
with the clinical programs or the other programs and they are 
able then to decide whether this is something they need or they 
do not need.
    And I think in trying to address the concerns of the 
vendors, we are always open for that. And one of the areas that 
we are very conscious of is our small business and what we have 
done to improve our outreach to the small businesses.
    Within VHA, we have appointed a small business 
administrator or point of contact in my office. At each one of 
the VISNs, we have a small business coordinator. And then they 
work with the facilities to ensure that when the inquiries come 
in from the small businesses or the large businesses, there is 
a point of contact to send that person to.
    In my office, we do about 150 meetings a year with vendors. 
At the VISN level, I know that the VISN coordinators for small 
business say they get four or five inquiries a week from the 
different facilities. We have a brochure that we give to these 
individuals to help them do business with the government. Our 
job in VHA is to help that individual do business with us 
because we are successful if they are successful.
    Now, one of the things that we have as a mantra or a 
philosophy is that we buy American, buy small business. And 
with that in mind, that is how we approach all of this.
    And, in fact, our small business for this year for the 
service-disabled veteran-owned small businesses, we are at 17 
percent. And so we address that aggressively.
    In the ARRA funding this year, which VHA had $1 billion, we 
had 98 percent competition and 76 percent of that business went 
to small businesses and 75 percent of that was to service-
disabled veteran-owned small businesses and veteran-owned 
businesses. That is an indication of the direction that we are 
going in the future.
    We want to address these problems, but some of these things 
that are perceived as problems are not really problems but are 
part of the process. And we want to make that process as clear 
and as understanding as we can. That is the reason we have this 
openness and allow people to come in and talk to us, to meet 
with us.
    And I have met with some of these individuals who were on 
the first panel and so we try to work as we should in making 
sure they have the information and learning how to do business 
with us.
    [The prepared statement of Mr. Downs appears on p. 82.]
    Mr. Michaud. Thank you very much.
    How do you respond to the concerns that GAO and OIG have 
raised in their testimony? When you look at contracts 
associated with the ARRA funds, they found that 60 out of 65 
were not in compliance with established rules.
    I guess I do have a concern, especially when you are 
dealing with veterans' health. So how do you address the 
concerns that GAO and OIG raised today and what steps is VA 
taking to address these concerns? How quickly will you be able 
to address those concerns?
    Mr. Downs. Well, sir, we are in the middle of addressing 
those concerns now. Been very active in developing action 
plans.
    In VHA, what we have done is reorganized into a centralized 
integrated model and so that all the procurement people 
throughout VHA have been taken out of the chain of command of 
the local facilities and network directors. They now answer 
through their chain of command straight through to my office.
    The other thing we have done, we have formed what we call 
three service area offices. And in those service area offices, 
we are setting up quality and compliance teams in addition to 
audit and review teams.
    We also have in my office set up a quality officer and her 
job is to develop the policies and procedures, the 
standardization and to do the audits and direct the audits at 
the local level.
    These problems that were mentioned by the OIG and the GAO 
have us very much concerned, but we have been working hard to 
address those. Certainly we are dealing with, in our area when 
it comes to inventory, for instance, we are dealing with seven 
antiquated stovepipe systems within each facility for 
inventory.
    And we have that at 153 or 154 facilities. They were always 
designed as facility level, never national-level inventory 
systems. So for us to get data to control it from a national 
level, VISN level, even at the facility level is extremely 
difficult.
    We understand what the problems are and that is the reason 
we have what we call strategic asset management. This was part 
of FLITE, which is the Financial Logistics Integrated 
Technology Enterprise system, and it was recently canceled. But 
the SAM, the Strategic Asset Management, piece of it is 
something that was handed to us in VHA. And I am not the SAM 
program management for that.
    We have a pilot program in Milwaukee right now. We have 
gone through our first user's test, been very successful. And 
we intend to go live in Milwaukee in March 2011 and then we are 
going to have a post alpha time to make little tweaks to it if 
we need to because of the cancellation of Financial Accounting 
System and FLITE. In the data warehouse, some of the IT things 
that were going to be a part of that are now changed and so we 
are going to go through the process of making that alpha 
product our basic inventory model.
    We will then go to the beta stations, approve a concept, 
and then we go nationwide. And we intend to do that, our goal, 
we think 2013, 2014, we will be nationwide.
    Now, what that system allows us to do is to keep track of 
every piece of equipment from the time it comes into the 
medical center to the time it is accessed.
    Then the reporting system is going to be the answer to many 
of the issues and problems brought out here in the OIG and GAO 
when it concerns equipment and supplies. We will be able to 
keep track of that at the facility level, at the VISN level, 
and at the regional level. In a way, it will be part of the 
21st century.
    And these antiquated systems, which are what is hindering 
us now because we are dependent upon manual reports, what we 
are trying to do right now is to hold these people accountable 
for making sure they are filling out their reports, they are 
putting information into the Automated Engineering Management 
System/Medical Equipment Reporting System of the Generic 
Inventory Package.
    So we have a current process in which we are intensifying 
our ability to try and get compliance for them to do that. But 
until then, until we get our national product, we will continue 
our efforts on a facility-by-facility basis.
    We are going through also a logistics transformation in 
addition to our acquisition transformation. We are making 
tremendous strides in logistics. But, again, this was the first 
time this office has existed in VHA and it has been in place 
for 5 years. And so there was no office before. There was no 
one in VHA to oversee or monitor the carrying out of the 
policies nationwide for almost 25 years.
    And so what we are doing is making a lot of effort, a lot 
of effort into correcting that by reorganizing, going through a 
transformation. We are looking at all these policies you have 
heard where it is haphazard. We are standardizing our policy. 
We are setting up teams to go out and do the audits, the 
quality review teams.
    There is a whole genre of good management kinds of actions 
we are taking to address all of these issues. This is extremely 
important to us, the patient safety issues.
    I as a patient, I have to tell you in the VHA system, I am 
driven to correct these issues because there are almost six 
million of us using this VHA system. It is imperative that we 
do a good job with it.
    So, yes, we are concerned. We are passionate. We are making 
the changes. We are locked into the processes, so that we are 
changing those processes also and writing new standard 
operating procedures.
    And all this is being done very rapidly. The acquisition 
part started a year and a half ago. The end of this month, we 
will finish the acquisition part. And the final individuals at 
the local level who are doing purchases will be now a part of 
our chain of command which will address--I have gone too far.
    Mr. Michaud. No. You mentioned you are taking the 
responsibility from the local level down to your office. And 
that was done what, a year and a half ago?
    Mr. Downs. January of 2009 or January, February of 2009 was 
when we started the process.
    Mr. Michaud. When you started. How do you look at, for 
instance, whether the VA actually does do a good job in 
purchasing prescription drugs, which cost $4.8 billion in 2011?
    I do not know if it is the best question for you, Mr. 
Downs, or Dr. Buck. My concern is, even though you might be in 
compliance with whatever procedures the VA has set up, what 
about the utilization rate of those drugs?
    As you heard from the first panel, distributing a 15-day 
supply, instead of a 30-day supply or a 2-month supply, could 
actually save dollars in the pharmacy area. Are you focused on 
that as well?
    Mr. Downs. No, sir. Dr. Buck or myself would not be 
involved with that. That is a clinical decision by the 
pharmacists and clinicians. And we can take that for the 
record, but certainly not one I can answer.
    [The VA provided the response in subsequent information, 
which appears on p. 34.]
    Mr. Michaud. Okay. Thank you.
    And my last question is, we heard Mr. Wise on the first 
panel quote a VA employee who admitted the VA is broken.
    Mr. Downs. Well, we have about 300,000 employees and there 
are certainly some who are unhappy with it. But the individual 
in mind, and I know the individual, it is not broken. I have 
tried to compare this many times.
    We are doing, in VHA at least, we do about 320,000 
purchases a month. We are taking care of six million patients a 
year. We have the largest health care system in the United 
States. We are able to provide the service that the veterans 
need. And we are getting the job done day to day and it is 
proven by the fact that we are considered one of the top health 
caregivers in the United States.
    And so we are getting the job done. So it is not that we 
are broken. What it is is that we have a system. The clinical 
change started in the 1990s when Dr. Kaiser turned this upside 
down and made quality patient care number one. But the 
infrastructure to support that, the supply, service, and the 
others, they were sort of disbanded and left to the field to do 
what they wanted to do. Those roles and responsibilities of the 
logistics people, the function still remained, they just got 
spread out. And that is one of the reasons that you hear about 
we have different policies and such.
    Okay. One of the things that we are doing is bringing this 
back together because we need to have the infrastructure to 
support that top-quality health care. And that is the reason 
that logistics and acquisition are so important.
    I am in charge of VHA's complete supply chain. And we have 
been working to correct all of those kinds of issues about how 
we bring it back together at the facility level, to the VISN 
level, how we then make that into a strategic plan to go into 
the future to meet the Secretary and Under Secretary for 
Health's objectives of keeping that health care where it needs 
to be.
    So that is the reason we are so desperate, not desperate, 
we are so intense to try and make sure that we are speeding up 
this process of making these corrections. But we are still 
limited. We need to go through the testing process, for 
instance, on the SAM project.
    On the logistics side, we are going through a lot of 
changes at the local level. And like I said, we just within the 
last year and a half have been able to put this organization 
into place, my Systematic Analysis of Operations (SAOs), my 
logistics transformation.
    My Deputy in Procurement has only been on board for 6 
weeks. My Deputy in Logistics has only been on board since 
December. And my Deputy in Prosthetics has been on board for 2 
years. So we have a complete infrastructure that we have put 
together within VHA and that is the reason we are moving 
smartly forward to correct these issues.
    We have the people in place. We have a lot more folks that 
we need to put into place both at our level and at the field 
level to ensure that the work starts getting done the way it 
should be and that we are doing audits and follow-ups, 
compliance and reviews, and have reports and metrics to back up 
what we are doing, all part of a very large plan, sir.
    Mr. Michaud. Thank you.
    Mr. Brown.
    Mr. Brown of South Carolina. Thank you, Mr. Downs. I 
appreciate you being here today.
    And I think those numbers put things back in perspective. 
It is a big process. It is a big operation and sometimes they 
try to micromanage one or two issues. I know we have been 
talking about it for a long time and I'm not sure this is a 
proper question for you.
    But seamless transition from the DoD to VA, do you know how 
the progress of that is proceeding?
    Mr. Downs. No, sir. I am not able to answer that question.
    Mr. Brown of South Carolina. Okay. In the previous panel, 
they mentioned that there would be some relative savings if you 
did not go to the automatic prescription refill.
    What do you think?
    Mr. Downs. Well, that, sir, I have not studied that. I do 
not know. Again, the pharmacy people would be the best ones to 
answer that. I have not done an analysis on that.
    Mr. Brown of South Carolina. I was just trying to evaluate 
it in my own mind. It seemed to me that it is a really 
convenient item not to worry about if you have blood pressure 
medicine coming, whether you have to make a call. It seemed to 
me the logistics of doing that would be certainly something 
that we would expense.
    And if you are going to save money by not getting the 
medicine to the veteran, then I think that it would cost more 
to get the person back on blood pressure medicine regularly 
than it would be to send that prescription in the first place.
    So I am not sure exactly what kind of savings would be 
attributed to that, or whether there would be any. There may be 
a downside to the administrative costs.
    Mr. Downs. I was not sure of that either, sir. And like I 
said, I cannot address it professionally. I just know that as a 
patient, when I need to renew my blood pressure medicine, I 
just call and record and the next thing I know, it shows up on 
my doorstep.
    Mr. Brown of South Carolina. Right.
    Mr. Downs. So that is a pretty effective process.
    Mr. Brown of South Carolina. You are not on automatic 
refill?
    Mr. Downs. It is an automatic refill. I mean, I call them 
and they send it.
    Mr. Brown of South Carolina. But you still have to make the 
call?
    Mr. Downs. I make the call, yes. But that is a patient 
safety factor, I would think.
    Mr. Brown of South Carolina. I see. Okay.
    Mr. Downs. Because I am only allowed six refills and then I 
have to go back in to the doctor.
    Mr. Brown of South Carolina. To get another prescription?
    Mr. Downs. That kind of a thing.
    Mr. Brown of South Carolina. Okay. Very good. Thanks for 
being here today. I have no further questions.
    Mr. Downs. Okay.
    Mr. Michaud. I have a question for Dr. Buck. You are the 
National Director of Medicine, so what do you do over in VHA? 
Is it establish policy or----
    Dr. Buck. Presently I am located in the Office of Patient 
Care Services and that is actually the area that I am in of 
subspecialty care. And it is primarily a policymaking function.
    Mr. Michaud. Okay. I will ask you the question I asked Mr. 
Downs since you are in the policy area. When you look at the 
$4.8 billion that VA spends on drugs, what is the policy of the 
VA on utilization? This gets back to Mr. Brown's question. When 
a prescription runs out, do you automatically send the 
prescriptions to the veteran or do you give them a 15-day 
supply? Can you address the utilization issue?
    Dr. Buck. Sir, the way that our policymaking functions are 
organized, there is actually a separate pharmacy division, 
which has the expertise of doctorates in pharmacy who actually 
are responsible for the policymaking functions for pharmacy.
    So, unfortunately, those folks are not represented here 
today, so I cannot answer your question.
    Mr. Michaud. But as a doctor----
    Dr. Buck. Yes, sir.
    Mr. Michaud [continuing]. Utilization, is there a problem 
with utilization or could you see that there is a problem with 
utilization?
    Dr. Buck. Sir, honestly I speak generally. The one thing 
that I do is I always try to answer the questions as honestly 
as possible. And the one thing that I strenuously avoid doing 
is answering one incorrectly. And that is what I would do in 
this case because I do not have that information.
    Mr. Michaud. Now, I guess my concern is, and I have heard 
it actually in the private sector, where you have these drug 
manufacturers----
    Dr. Buck. Uh-huh.
    Mr. Michaud [continuing]. With a very cozy relationship 
with doctors, such as pharmacists within VA. And my concern is 
that we are probably spending billions of dollars more than we 
have to on drugs for our veterans.
    I want to make sure they get, you know, the prescriptions 
that they need. But I am also concerned about the waste in the 
system. And even though the procurement might not address that 
issue, it is part of the VA system.
    And that is why as a doctor, I was just curious about 
whether or not you see utilization as a problem, not 
necessarily what the VA might be doing, but as a doctor, 
whether that could be a problem and whether we might be able to 
address it to actually save some money in the pharmacy area.
    But we will forward that question to someone within the VA 
that actually can address it.
    [The VA subsequently provided the following information:]

        Question: When I look at the $4.8 billion that VA spends on 
        drugs, what is the policy of the VA as far as utilization 
        issues? Is there a problem with utilization?

        Response: The Department of Veterans Affairs (VA) does not have 
        a problem with drug utilization. Minor adjustments and 
        corrections need to be continually made in any health care 
        system, including VA, to assure drug utilization is consistent 
        with emerging medical evidence and meets the needs of patients. 
        In VA, medication utilization is guided by an extremely well-
        managed formulary process whose origin dates to the 1950s. VA 
        has been a pioneer in the area of formulary management for 
        nearly 60 years and is regarded by many experts as an industry 
        benchmark in the United States for cost-effective, safe, 
        evidenced based formulary management.

        Formulary Management Infrastructure

        The organizational responsibility for facilitating VA's 
        formulary management process rests with the Pharmacy Benefits 
        Management (PBM) office which is organizationally aligned under 
        the Office of Patient Care Services (PCS), which in turn is 
        aligned under the office of the Under Secretary for Health 
        (U.S.H). In 1996, VA established a National Formulary process 
        to augment and eventually replace independent local formulary 
        practices which had been in use across the system. The purpose 
        of implementing a national formulary process was to assist 
        practitioners in clinical decision-making, to standardize and 
        improve quality of patient care, to promote seamless 
        portability of mediation access from one facility to another, 
        to promote cost-effective evidence-based prescribing practices 
        and to develop and disseminate clinically relevant 
        pharmacoepidemiologic data. Within PCS, the PBM coordinates 
        formulary management activities using a variety of subject 
        matter experts organized into two primary decision-making 
        bodies, the Medical Advisory Panel (MAP) and the Veterans 
        Integrated Service Networks (VISN) Pharmacist Executives 
        (VPEs).

        The MAP provides physician oversight of the formulary process 
        and is comprised of 12 practicing VA physicians including 
        general internists, as well as specialists practicing in the 
        areas of cardiology, critical care, endocrinology, geriatrics, 
        infectious disease, and psychiatry; VA PBM clinical pharmacist 
        specialists; a VPE and one physician from the Department of 
        Defense. The MAP provides clinical oversight of the formulary 
        management process. The VPE committee includes pharmacist 
        representatives from each of VA's 21 VISNs, a representative 
        from VA's National Center for Patient Safety (NCPS), a 
        physician representative from the MAP and representatives from 
        the DoD. This group provides operational and clinical oversight 
        of the formulary management process.

        Formulary Management Process

        VA policy (VHA Handbook 1108.08; http://www1.va.gov/
        vhapublications/ViewPublication.asp?pub_ID=1834) requires that 
        drugs newly approved by the Food and Drug Administration (FDA) 
        and which have utility in VA, be automatically reviewed for 
        potential addition to the VA National Formulary (VANF); this 
        review occurs as soon as sufficient safety and efficacy 
        information becomes available. The VA policy for updating the 
        VANF specifies additional triggers for updating the VANF. 
        Requests for change in VANF status may be submitted to the PBM 
        by a VISN Formulary Committee, the VPE Committee, the MAP 
        Committee, a VHA Chief Medical Consultant, or a VHA Chief 
        Medical Officer. An individual or group of physicians may 
        submit a request for VANF addition through their VISN Formulary 
        Committee(s). In addition, the VA uses its evidence-based drug 
        class reviews to pursue contracting opportunities within or 
        across drug classes, allowing for lower acquisition prices for 
        pharmaceuticals, while maintaining or improving the quality of 
        drug therapy. A review may also be initiated if new safety data 
        becomes available that may require discussion of removal of a 
        medication from the VANF, or implementation of restrictions to 
        ensure safe and appropriate use of the medication.

        The review process for a medication consists of an extensive 
        and in-depth evaluation of the published literature in order to 
        determine the efficacy of the medication, with an emphasis on 
        results reported for a patient population similar to the 
        Veteran community; the potential for adverse events and long-
        term safety; and the cost-effectiveness compared to other 
        available treatments. This review process begins with the PBM 
        clinical pharmacist specialist, in consultation with MAP 
        members and/or VA's physician subject matter experts, 
        representing a variety of subspecialty disciplines. Input is 
        also sought from VA clinicians and experts in the field.

        The philosophy for VA's formulary management process is an 
        unwavering reliance on well-researched, well-documented 
        clinical evidence demonstrating that a specific drug can 
        provide an expected cost-effective benefit for the Veteran 
        population. According to an analysis of the VANF in 2001, the 
        Institute of Medicine (IOM) stated:

           ``The VA National Formulary and formulary system that enable 
        the VHA to make quality choices among drugs and negotiate 
        favorable prices should be maintained . . . The VHA should 
        continue to make careful choices among drugs, based first on 
        quality considerations but with an understanding of cost 
        implications, and should negotiate the best prices possible 
        using the leverage of committed use and the ability to drive 
        market share.''

        The cost of a medication is only one factor when considering 
        the overall cost and quality of therapy; however, VA has been 
        able maintain or improve the quality of medication therapy, 
        while also keeping the price of medications low as shown in 
        Chart 1 and Chart 2 below.

Chart 1: VA Average Cost of a 30-day Equivalent Outpatient Prescription

[GRAPHIC] [TIFF OMITTED] T1758A.001


         Note: The VA average cost of a 30-day equivalent outpatient 
        prescription changed from $13.03 in FY 1999 to $12.64 in FY 
        2009, a 3.0 percent decrease over a 10-year period. 
   Chart 2: VA Average Outpatient Prescription Drug Cost Per Unique 
                                Patient
[GRAPHIC] [TIFF OMITTED] T1758A.002


         Note: The VA average outpatient prescription drug cost per 
        unique patient changed from $599 in FY 1999 to $697 in FY 2009, 
        a 16 percent increase over a 10-year period.

        VA prescription drug costs per patient include all patients 
        receiving drugs. In contrast, other prescription benefit plans 
        report per member per month or per member per year, which 
        underestimates costs because members that do not use the 
        benefit are counted in the calculation. Patients served by 
        other prescription benefit plans are typically younger with 
        fewer chronic diseases than patients served by VA; therefore 
        their prescription costs would be expected to be lower than 
        VA's costs. Indeed, a recent study using data from the Medical 
        Expenditure Panel Survey from the Agency for Health care 
        Research and Quality (AHRQ) showed that Veterans who use the VA 
        have substantially more medical and psychiatric issues than 
        those that do not use the VA. Despite these differences, VA's 
        costs are significantly lower than other health plans. These 
        comparisons are illustrated below in Chart 3.

        According to a presentation entitled, ``Overview and Update on 
        DoD Pharmacy'' presented at the 2010 Military Health System 
        Conference, the pharmaceutical cost per Department of Defense 
        eligible beneficiaries aged 65 and older was $1,927 in FY 2009, 
        compared to $686 in the same age group in VA during the same 
        time period. The report is available at http://www.health.mil/
        Libraries/2010_MHS_Conference_Presentations/M36_T
        _McGinnis.pdf.

        According to the Pharmacy Benefit Management Institute (PBMI) 
        2009 Prescription Drug Benefit Cost and Plan Design Survey, 
        completed by 417 employers representing 7,041,676 members, the 
        average net prescription drug cost per retiree per month 
        extrapolates to $1,770 per member per year. In comparison, the 
        VA average prescription drug cost per unique patient in FY 2009 
        was $697 and VA's cost is a gross cost; it does not subtract 
        first party co-payments. The report is available at http://www 
        .benefit design report.com/ Drug Cost Highlights / Per Member 
        Per Month
        Metrics/tabid/88/Default.aspx.

        According to Express Scripts, the overall per member per year 
        drug cost was $911 based on the 36 million lives in the 
        commercial client groups. In comparison, the VA average 
        prescription drug cost per unique patient in FY 2009 was $697; 
        again, other plans have younger, healthier patients than VA's 
        patients and include all members, and unlike VA, patients are 
        included regardless of whether or not they use the prescription 
        benefit. The report is available at http://www.express-
        scripts.com/research/studies/drugtrendreport/2009/dtrFinal.pdf.

   Chart 3: VA Average Outpatient Prescription Drug Cost per Unique 
          Patient Compared to Other Prescription Benefit Plans

[GRAPHIC] [TIFF OMITTED] T1758A.003


        According to the Kaiser Family Foundation's (KFF) May 2010 
        Prescription Drug Trends report, industry data show that retail 
        prescription prices (which reflect both manufacturer price 
        changes for existing drugs and changes in use to newer, higher-
        priced drugs) rose from an average price of $38.43 in 1998 to 
        $71.69 in 2008. The increase over the 10-year period is 87 
        percent. The change in prescription prices for VA over nearly 
        the same 10-year period (FY 1999 to FY 2009) was a DECREASE of 
        3 percent. The report is available at http://www.kff.org/
        rxdrugs/upload/3057-08.pdf. The comparison is illustrated in 
        Chart 4.

Chart 4: VA Average Cost of a 30-day Equivalent Outpatient Prescription 
                       Compared to Retail Prices

[GRAPHIC] [TIFF OMITTED] T1758A.004


        In response to recommendations from a 2001 U.S. Government 
        Accountability Office (GAO) report and the 2001 IOM report on 
        the VA formulary, VA monitors utilization and conducts safety 
        and efficacy reviews using a central drug utilization analysis 
        database. The results of these analyses are then used to assess 
        future needs. One of the ways the database is utilized is to 
        identify potential areas for managing drug costs through cost-
        avoidance initiatives. These are developed nationally, and may 
        be implemented at the VISN or local medical care facility 
        level. The intent of the program is to actively pursue pharmacy 
        efficiencies and appropriateness of use for selected 
        pharmaceuticals and reduce the variance in drug cost per 
        patient across the system, while ensuring there is no negative 
        impact on the quality of care. The program was formally 
        initiated in Fiscal Year 2007 and has resulted in substantial 
        cost avoidance and a subsequent reduction in the variance in 
        drug cost per patient. The program documented cost avoidance of 
        $264 Million in FY 2007, $354 Million in FY 2008, $191 Million 
        in FY 2009 and $112 Million projected for FY 2010. As a result 
        of these efforts, the variance in cost per patient has 
        decreased substantially as show in the chart below.
Chart 5: VA Average Outpatient Prescription Cost per Unique Patient by 
                                  VISN

[GRAPHIC] [TIFF OMITTED] T1758A.005


        Note: The variance in VA average outpatient prescription cost 
        per unique patient decreased significantly from FY 1999 to FY 
        2009.

        VA's primary motivation in formulary management has always been 
        and always will be to improve the quality of care for Veterans. 
        Economic considerations though important, are secondary 
        compared to safety and efficacy. VA has often been criticized 
        for not adding recently approved medications to the VANF, or 
        for unduly restricting medications, and has been the subject of 
        inquiries and investigations prompted by these criticisms by 
        the Institute of Medicine, the Government Accountability Office 
        and the Office of the Inspector General. Although some of the 
        external reviews conducted to date made suggestions for minor 
        process improvements, in general, VA's processes were 
        determined to be safe and cost-effective and formulary 
        decisions were determined to be based on sound reviews of the 
        medical evidence.

        During 2008 and 2009, VA PBM-MAP and VPEs reviewed 61 
        medications for potential VANF inclusion; 11 were added to the 
        VANF, and 50 were approved for use via the non-formulary 
        process. Criteria for use or additional restrictions were 
        developed for 25 medications to ensure their safe and 
        appropriate use. As described previously, extensive evidence-
        based reviews are conducted (refer to documents posted to 
        http://www.pbm.va.gov) for VANF consideration or for developing 
        guidance on a medication's place in therapy.

        Consideration for VANF listing includes whether the medication 
        is applicable to the VA population (e.g., medications for 
        pediatric use will typically not be added, or for rare 
        conditions not expected to be seen in the Veteran population), 
        whether a medication will provide benefit over an existing VANF 
        agent, and whether adequate safety data are available. Often, 
        amedication may not be added to VANF at the time of initial 
        review due to unanswered questions about long-term safety or 
        lack of comparison data to less expensive or generic 
        medications that are readily available on the VANF for the 
        management of the majority of Veteran patients. An example of a 
        medication that was not added to the VANF due to lack of long-
        term safety and efficacy outcome data compared to other 
        available agents on the VANF was cerivastatin (Baycol), a 
        medication used to treat hyperlipidemia (high cholesterol), 
        which is a common condition in the Veteran patient population. 
        The VA formulary included medications within this class with 
        proven benefit in reducing cardiovascular morbidity and 
        mortality that had been shown to be safe in treating patients 
        with hyperlipidemia). Cerivastatin was marketed as a more 
        potent agent; however, it did not have the long-term outcome 
        data as with the other available agents. Subsequently, 
        cerivastatin was removed from the market after deaths due to 
        kidney failure. Rofecoxib (Vioxx) was another example of a 
        drug never placed on the VANF and withdrawn from the market due 
        to cardiovascular toxicity associated with death.

        Via a formal Memorandum of Understanding, the VA PBM works 
        closely with the FDA through VAMedSAFE, a group within the PBM 
        tasked with identifying and responding to medication safety 
        signals via communication and guidance on improving the safe 
        use of pharmaceuticals in VA. A recent example of the efforts 
        of VAMedSAFE is the identification of a safety signal for the 
        drug varenicline (Chantix) which is used for smoking 
        cessation, and the risk for serious adverse events including 
        the potential for suicidal thoughts and actions. This resulted 
        in safety communications disseminated to VA health care 
        professionals, letters to Veteran patients, and modification to 
        the VA criteria for use of this medication. Another safety 
        initiative was to restrict the use of rosiglitazone (Avandia) 
        a drug used for diabetes that was found to be associated with 
        an increased risk for heart attack and death. Prior to the 
        safety signal, this medication was already restricted in VA 
        patients, well before its use was being curtailed in other 
        health care systems. In response to VA's action in restricting 
        the medication from use in new patients and to provide guidance 
        for alternate therapies, on October 18, 2007 it was stated in 
        the New York Times (http://www.nytimes.com/2007/10/18/business/
        18drug.html?_r=2&adxnnl=1&oref=slogin&adxnnlx=11 92713524-
        bGMLReuAbDJNXwuo9QSfEw) that:

           ``The Department of Veterans Affairs has decided to severely 
        limit the use of Avandia, the once-popular drug for Type 2 
        diabetes, delivering another blow to the products maker . . .'' 
        The VA was also criticized by the manufacturer, quoted to be 
        ``. . . surprised and disappointed by the V.A. Central Office 
        decision . . . We do not believe it is in the best interest of 
        patients.''

        More recently, the FDA has made similar recommendations 
        restricting the use of rosiglitazone due to the safety concerns 
        and after considering the risk vs. benefit of treatment with 
        this drug.

        We are extremely proud of VA's formulary management program. We 
        have carefully developed and refined the VA formulary process 
        over the past 15 years and are fortunate to have a process that 
        meets the needs of Veterans in an evidence-based, 
        comprehensive, safe, and efficient manner. VA's prescription 
        benefit is a national plan that is managed by practicing VA 
        physicians and pharmacists. While we value the products the 
        pharmaceutical industry offers for use, the industry itself has 
        no role in determining VA's need for their products, nor how 
        those products are managed. VA has effectively neutralized the 
        inappropriate impact the pharmaceutical industry can 
        potentially have on health care delivery by a strict reliance 
        on published evidence and by curtailing the marketing and 
        advertising strength of the industry. Using a structured and 
        evidence-based formulary management process benefits Veterans 
        by assuring the VA prescription benefit is first and foremost 
        safe, and then that it is cost-effective and sustainable well 
        into the future. The clinical guidance and formulary 
        recommendations of the VA PBM-MAP and VPEs are routinely 
        accessed by State Medicaid programs, other health care 
        organizations and providers, and the international pharmacy 
        community and are a valuable public resource for those entities 
        as they develop their own formulary policies and initiatives.

        Question: When you look at when someone runs out, do you 
        automatically send the prescriptions to the veteran or do you 
        give them a 15-day supply?

        Response: VA does not automatically send prescription refills 
        to patients who run out of medication. Patients whose providers 
        have authorized refills for a prescription may request a refill 
        up to 10 days before their supply is exhausted. Patients have 
        several ways to requests refills including via automated 
        telephone request lines, via the internet, via mail and in 
        person at the pharmacy window. The latter method is encouraged 
        only for patients who have failed to reorder their medications 
        10 days before their supplies ran out and who are in danger of 
        interrupting their therapy if they do not get an emergency 
        supply. In these cases, up to a 10-day partial supply of 
        medication is commonly provided, with the full refill being 
        sent in the mail.

        Question: Now, I guess my concern is, and I have heard it 
        actually in the private sector, where you have these drug 
        manufacturers having a cozy relationship with doctors, whether 
        it is a doctor or within the pharmacy system within the VA. And 
        my concern is that we are probably spending billions of dollars 
        more than we have to in drugs, you know, for our Veterans.

        Response: VA is cognizant of potential for conflicts of 
        interest, especially in regard to formulary management. In 
        order to become a member of the voting bodies of the MAP and 
        VPEs, an individual is unable to have financial ties to a drug 
        manufacturer within the previous 12 months. In addition, each 
        PBM clinical pharmacist specialist, MAP physician, and VPE 
        completes an annual Confidential Financial Disclosure or in 
        some cases, Public Financial Disclosure Report and is subject 
        to the requirements of the Ethical Standards of Conduct for 
        Employees of the Executive Branch. Each MAP and VPE meeting or 
        conference call agenda where VA formulary issues are discussed 
        includes a listing of the drug manufacturers at the end of the 
        discussion item. Per VHA HANDBOOK 1004.07 Financial 
        Relationships between VHA Health Care Professionals and 
        Industry, verbal disclosures are solicited by the chairperson 
        at the beginning of each of these meetings (and at appropriate 
        times during that meeting for any late-arriving members). Any 
        reported financial disclosures or perceived conflicts of 
        interest are recorded in the minutes for that meeting and the 
        individual is asked to recuse themselves from the discussion 
        and are not allowed to participate in the voting for that 
        issue. Requests for VA National Formulary addition initiated by 
        a VA provider require accompanying disclosure of any potential 
        conflicts of interest.

        In order for the VA formulary process to succeed, the MAP and 
        VPEs understand the value of input from VA providers in the 
        field treating the Veteran; however, it is important that 
        comments are free from potential bias. Therefore, a request for 
        financial disclosure accompanies all new molecular entity drug 
        monographs, criteria for use, and drug class reviews when 
        soliciting input from field clinicians. In an effort to improve 
        the process of requesting disclosure of financial relationships 
        and interpreting comments received that may have a perceived 
        conflict of interest, the MAP and VPEs recently invited a 
        Medical Ethicist with the VA National Center for Ethics in 
        Health care to discuss implementation of VHA Handbook 1004.07 
        Financial Relationships between VHA Health Care Professionals 
        and Industry, which is consistent with current MAP and VPE 
        requirements (http://www1.va.gov/vhapublications/
        ViewPublication.asp?pub_ID=2102; excerpt below):

        ``Responsibilities:

        1.  Health Care Professionals are responsible for:

            Avoiding or managing conflicts of interest
            Certifying in VetPro as part of the VHA 
        credentialing process: I understand that my professional 
        obligations can be compromised by financial conflicts of 
        interest; therefore, I will avoid conflicts or seek guidance in 
        their management.

        2.  Service Chiefs are responsible for:

            Ensuring that VHA health care professional staff 
        members are oriented to the types of financial relationships 
        with industry that pose a potential for conflicts of interest.
            Reinforcing expectations regarding professional 
        norms and conflicts of interest by, for example:

              Reviewing individual prescribing data received 
        from local P&T Committees.
              Scrutinizing staff requests to use leave to 
        participate in industry-sponsored events.
              Assessing potential conflicts of interest in 
        staff topic selection for presentations at VA facilities.

        3.  Members of VHA decision-making and advisory groups are 
        responsible for:

            Making real-time verbal disclosures of potentially 
        conflict-creating financial relationships with industry.

        4.  Chairpersons of decision-making and advisory groups are 
        responsible for:

            Soliciting and managing follow-up on verbal 
        disclosure of members' financial relationships.

        The handbook applies to any full-time, part-time, or without 
        compensation employee or trainee (i.e., physicians, advanced 
        practice nurses, psychologists, physician assistants, 
        pharmacists, other associated health practitioners with 
        prescriptive authority, and certain administrators) in VHA who 
        makes treatment recommendations that pertain to commercial 
        products or are involved in making formulary decisions, in 
        developing clinical practice guidelines or institutional 
        policies on care, or in other activities within the health care 
        system that can have a significant effect on the range of 
        treatment options available to patients.

        Financial relationships that either constitute a conflict of 
        interest or give the appearance of a conflict, including:

        1.  Compensation for participation as a member, presenter, 
        moderator, etc., on an industry-funded speaker's bureau.
        2.  Compensation for participation as an advisor, consultant, 
        member, presenter, moderator, etc., on an industry-funded 
        advisory board.
        3.  Compensation for participation as an author on an industry-
        funded publication.
        4.  Paid expert witness testimony provided on behalf of 
        industry.
        5.  Industry-funded education or research grants, honoraria, or 
        low interest loans.
        6.  Compensation for a paid role (Medical Director, Board 
        Member, Resident or Trainee Representative, etc.) on a 
        pharmaceutical, biotechnology, medical device, product, 
        equipment, or technology company or their proxies.
        7.  Compensation for participation as developer, speaker, 
        moderator, attendee, etc., of industry-funded Continuing 
        Medical Education (CME) or other industry-sponsored programs, 
        such as lectures, dinner meetings, or teleconferences.''

        In addition, VHA Handbook 2003.060Business Relationships 
        between VHA Staff and Pharmaceutical Industry Representatives 
        (which is currently undergoing revision via the regulatory 
        process) includes policy to control access of pharmaceutical 
        representatives to VA providers in an effort to minimize 
        disruption of patient care activities and to ensure that only 
        VA approved guidance are promoted by the pharmaceutical 
        industry representative. Only medications that are available on 
        the VANF may be discussed, any speaker at an educational 
        program sponsored by industry must disclose their financial 
        relationship to the audience and meals may not be provided at 
        such meetings. Also per the policy, medication samples (often 
        used in an effort for providers in the private sector to begin 
        to prescribe the medication) are not allowed to be distributed 
        directly from the provider to the patient in VA.

        Disclosure of any potential conflict of interest or financial 
        relationship in the formulary decision-making process is also 
        addressed in the Principles of a Sound Formulary System, which 
        are endorsed by the VA PBM, which was a core participant in the 
        Coalition that developed the recommendations. The Principles 
        recognize that:

           ``The formulary system, when properly designed and 
        implemented, can promote rational, clinically appropriate, 
        safe, and cost-effective drug therapy. The Coalition has 
        enumerated these principles, however, because it recognizes 
        that patient care may be compromised if a formulary system is 
        not optimally developed, organized and administered. This 
        document contains ``Guiding Principles'' that the Coalition 
        believes must be present for a drug formulary system to 
        appropriately serve the patients it covers.''

        By all measures, it is very unlikely that VA is spending more 
        that it has to for drugs. VA has a long history of being a 
        national leader in drug safety and evidence-based, cost-
        effective prescribing habits which underscore its independence 
        from influence by the pharmaceutical industry.
        Attachments:
        [The attachments referenced below will be retained in the 
        Committee files. Some attachments are accessible online at the 
        Internet links listed.]

        VHA HANDBOOK 1108.08VHA Formulary Management Process, February 
        26, 2009. Available at http://www1.va.gov/vhapublications/View 
        Publication.asp?pub_ID=1834

        VHA HANDBOOK 1004.07Financial Relationships between VHA Health 
        Care Professionals and Industry, October 21, 2009. Available at 
        http://www1.va.gov/vhapublications/
        ViewPublication.asp?pub_ID=2102

        VHA DIRECTIVE 2003.060Business Relationships between VHA Staff 
        and Pharmaceutical Industry Representatives, October 21, 2003.

        Description and Analysis of the VA National Formulary. 
        Institute of Medicine. January 1, 2000.

        VA Drug Formulary: Better Oversight Is Required, but Veterans 
        Are Getting Needed Drugs. U.S. Government Accountability 
        Office. January 29, 2001. Available at http://www.gao.gov/
        new.items/d01183.pdf

        VA Drug Formulary: Drug Review Process Is Standardized at the 
        National Level, but Actions Are Needed to Ensure Timely 
        Adjudication of Nonformulary Drug Requests. U.S. Government 
        Accountability Office. August 31, 2010. Available at http://
        www.gao.gov/new.items/d10776.pdf

        Aspinall SL, Banthin, JS, Good, CB, Miller, GE, Cunningham FE. 
        VA Pharmacy Users: How They Differ from Other Veterans. Am J 
        Manag Care. 2009; 15(10) 701-708.

        Sales MM, Cunningham FE, Glassman PA, Valentino MA, Good CB. 
        Pharmacy Benefits Management in the Veterans Health 
        Administration: 1995-2003. Am J Manag Care 2005;11:104-12.

        Principles of a Sound Formulary Drug System. U.S. Pharmacopeia. 
        October 2000. Available at http://www.usp.org/hqi/
        patientSafety/resources/sound FormularyPrinciples.html

        V.A. is Limiting Use of Diabetes Drug, New York Times, October 
        18, 2007 available at http://www.nytimes.com/2007/10/18/
        business/18drug.html?_r= 
        2&adxnnl=1&oref=slogin&adxnnlx=1192713524-bGMLReuAbDJNXwuo9QS 
        fEw

        FDA significantly restricts access to the diabetes drug 
        Avandia, FDA News Release, September 23, 2010 available at 
        http://www.fda.gov/newsevents/newsroom/pressannouncements/
        UCM226975.htm

    Mr. Michaud. My last question involves concerns I have 
heard from veteran service organizations at the local level, on 
the time it takes to get an answer from the Central Office when 
trying to get VA to move quickly in a certain area.
    Since we are centralizing everything, Mr. Downs, in your 
operation, how can you assure the Subcommittee that VA is going 
to do everything both accurately and in a timely manner as 
well? Are there any assurance you can give us that you will be 
moving forward quickly, but also ensuring accuracy?
    Mr. Downs. Yes, sir. The key to the way we have centralized 
within VHA and the integrated model is that we have centralized 
direction but decentralized execution. So the acquisition 
people are in place at the medical center to do that day-to-day 
buying. The contracting officers are located within the VISN. 
They work there with teams with the facilities to purchase and 
to develop the contracts that are necessary for the purchases 
that are required to keep the medical center going.
    The feedback mechanism, also we have what we call network 
contract managers at the VISN level, and they coordinate their 
activities with the nurse care managers (NCMs). They are 
responsible for them. And one of the things that we have is the 
need to always make sure that we have a customer service 
relationship with the facility, the clinical folks and all the 
people that we deal with.
    That has been an ongoing issue with the National Leadership 
Board. This week, I met with them and we went through that 
process. Two of the network directors are part of what we have 
called an Acquisition Committee. And so they give me feedback 
from the network director's point of view. I have three 
facility directors on there. They give me feedback.
    I have also acquisition, my network contract manager, SAOs 
on that Committee along with the CLOs or chief logistics 
officers. So I have my field input coming in at all three 
levels. We have discussed with them policy because if we are 
going to have policy, they need to be able to carry it out. 
They need to be a part of it. And that ability to do that day-
to-day purchasing is what is key.
    Now, some of the veterans I know and reference, they worry 
about, you know, are we going to be able to provide service to 
them. Yes, indeed.
    And the issue of rural health which has come in the 
conversations and the testimony has to do with can the veteran 
out in the rural area get the same kind of service. And, again, 
that is a balance because we want to serve that veteran there 
if it is a veteran who needs a prosthetic device. And the 
reason we want them to come down to the medical center for a 
review when they want a new one is to see if their health has 
changed or there has been some condition that needs to be 
addressed.
    The VA has reached out and we try to also provide service 
in the area. We do that through fee basis or whatever necessary 
means that it takes to make sure that veterans are being served 
where they are. We do not want them to make those unnecessary 
trips down, but sometimes from a clinical aspect they need to 
be looked at by the medical team.
    Other times we have the medical team that we will contract 
with in the local area. So it is a judgment call, sir, about 
how that is done. And we are trying to stay on top of all of 
those kind of issues because the veteran is the key person. 
And, again, it is judgment calls. It takes logic and common 
sense and certainly good communication between the patient and 
the VA as we try to work out a solution for them.
    Mr. Michaud. Well, thank you very much.
    I am awfully glad to hear that because, as I discussed with 
you the other day, that is a concern I have heard from veterans 
in really rural areas; having to drive 4 or 5 hours to go to 
the medical facility. And if they miss their appointment 
because of a snowstorm, then it is another month or so before 
they can get back for another appointment. That is a huge 
concern that I have heard from veterans who live in rural 
areas.
    Mr. Downs. And I brought that up to the network directors 
at the National Leadership Board and they all agree with what I 
told you is that that was a mistake. When those things happen, 
that is a mistake because when a vet comes down like that and 
for some reason the doctor cannot be there or whatever happens 
and what they try to do is we put the patient up for a day or a 
night in the hotel and arrange to get it redone the next day.
    So we have a policy in place at the facility to make sure 
that the vet is taken care of. But there are times when things 
like that do happen. But all the network directors assured me 
that, oh, no, they have policies in place out there at the 
facility level to make sure that those long kinds of trips do 
not happen. And they do happen, but we try to make sure it does 
not happen very many times anyway.
    Mr. Michaud. Well, thank you very much, Mr. Downs. I 
appreciate your testimony this morning and Dr. Buck's as well.
    I know there will be some more questions that we will be 
submitting to you in writing and hopefully we can get responses 
as quickly as possible.
    Mr. Boozman.
    If there are no other questions, I want to thank all three 
panels for your testimony this morning. It has been very 
helpful and I look forward to working with you as we try to 
sort out some of the issues dealing with contracting and 
procurement.
    So if there are no other questions, I declare the hearing 
adjourned.
    [Whereupon, at 11:58 a.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              

        Prepared Statement of Hon. Michael H. Michaud, Chairman,
                         Subcommittee on Health

    The Subcommittee on Health will now come to order. I would like to 
thank everyone for attending this hearing.
    The purpose of today's hearing is to investigate potential 
weaknesses in VHA's contracting and procurement practices and explore 
ways that we can strengthen how VHA contracts and procures medical 
equipments and health care products for our veterans.
    In recent years, we have seen many reports and studies on VA's 
contracting and procurement activities. These reports have identified 
the need for increased transparency and fiscal responsibility, as well 
as highlighted problems of inadequate competition and lack of 
accountability and oversight.
    As a result of these deficiencies in VHA's contracting and 
procurement practices, veterans may not be getting the latest 
innovations in health care products. This was made evident at our June 
Health Subcommittee hearing on wireless health technologies and the 
difficulties that many private companies faced in informing VA about 
their products and getting their products in the hands of our veterans.
    Furthermore, we are all aware of the problem of dirty reusable 
medical equipments at certain VA medical centers. Today, we will hear 
from GAO about a study that they are conducting on the purchasing and 
tracking of supplies and medical equipment. Their preliminary 
observations include the potential risks to veterans' safety when there 
is noncompliance with VA purchasing and tracking requirements.
    Finally, internal control weaknesses with VHA's use of billions in 
miscellaneous obligations continues to be problem. Because VA 
contracting officials don't have sufficient controls over the 
authorization and use of miscellaneous obligations, it is unclear 
whether these obligations were for legitimate needs.
    As we can see, the implications of contracting and procurement 
deficiencies go beyond the fiscal component to have a potentially 
negative impact on the health care that our veterans receive.
    I look forward to hearing from today's witnesses, as we aim to 
better understand the challenges facing VHA contracting and procurement 
practices and work together to find potential solutions to these 
challenges.

                                 
   Prepared Statement of Hon. Henry E. Brown, Jr., Ranking Republican
                     Member, Subcommittee on Health

    Thank you, Mr. Chairman, and good morning.
    I'm pleased to be here today to discuss contracting and procurement 
issues within the Veterans Health Administration (VHA).
    VA's troubled contracting and procurement processes have long been 
an issue of great concern to this Committee and the subject of various 
Government Accountability Office (GAO) and VA Office of Inspector 
General (OIG) reports that continue to cite major deficiencies and 
material weaknesses.
    Given the wide scope of VHA's reach and budget, it is particularly 
important that we ensure that they have the proper procedures and 
oversight mechanisms in place to ensure that VHA procurement and 
contracting is done responsibly, appropriately, and with proper 
oversight.
    In that vein, I am particularly concerned about testimony we will 
hear by the Office of Inspector General that ``. . . data in VA and VHA 
acquisition support information systems is incomplete and unreliable.''
    Without accurate data, we have no idea what we're doing right, what 
we're doing wrong, where we are, where we're going, and where we need 
help.
    This is unacceptable within a system that is responsible for the 
care of our Nation's veterans and spent a little over nine billion 
dollars on health care goods and services last fiscal year alone.
    Streamlining contracting and procurement processes to eliminate the 
potential for waste, fraud, and abuse while at the same time improving 
the cost and comfort of doing business with VA to ensure our veteran 
heroes have access to the highest quality medical care is and should be 
at the top of our priority list.
    I look forward to hearing from the witnesses on our first panel 
about the obstacles to doing business with VHA and from the government 
witnesses on our second and third panels about the functioning of VHA's 
acquisition system.
    Although we are nearing the end of this legislative session, I am 
hopeful that we will be able to move legislation, H.R. 4221, the 
Department of Veterans Affairs Acquisition Improvement Act of 2009, 
introduced by our Ranking Member, Steve Buyer. This bill that I am an 
original cosponsor of would correct the long-term procurement issues 
within VA and provide greater oversight of VA's contracting and asset 
management processes.
    I thank you all for being here for this discussion and I yield back 
the balance of my time.

                                 
 Prepared Statement of Hon. Russ Carnahan, a Representative in Congress
                       from the State of Missouri

    Mr. Chairman, thank you for holding this important hearing on VA 
Health Administration Contracting and Procurement Practices. I 
appreciate the attention that is being given to this topic and hope 
that today's hearing provides insight into contracting and procurement 
practices that are working and suggestions on how to improve those that 
are ineffective.
    In July, the House Committee on Veterans Affairs held a much needed 
field hearing in St. Louis, to address safety lapses at the John 
Cochran VA Medical Center, after 1812 veterans throughout the St. Louis 
and Illinois area received notification that they could have been 
exposed to blood borne pathogens such as Hepatitis B, Hepatitis C, and 
HIV while receiving dental care at the medical center. Since the 
hearing, I have been encouraged to hear that the Veterans Health 
Administration has implemented some new and more stringent oversight 
measures for reusable medical equipment and expendable medical supplies 
(like those used in dental clinics and endoscopy clinics).
    However, it is painfully clear that much more work is needed.
    It is critical that the VA identify and rectify any existing 
problems in regards to the purchasing and tracking of reusable medical 
equipment and expendable medical supplies. Yes, contracting and 
procurement are just small pieces of a much larger issue. But the VA 
must make considerable improvements to all policies and procedures at 
every step of the process, to make sure that incidents like the one at 
John Cochran Medical Center never happen again, and take whatever steps 
needed to ensure that our veterans are receiving the best health care.
    To all the witnesses today--thank you for taking time out of your 
busy schedules to appear before us. I look forward to hearing your 
testimony.

                                 
 Prepared Statement of Mark T. Munroe, Senior Vice President, Sales and
 Marketing, Mobile Medical International Corporation, St. Johnsbury, VT

    On behalf of Mobile Medical International Corporation, of St. 
Johnsbury, Vermont, I want to thank Chairman Filner, Chairman Michaud 
and the rest of the Members of the Subcommittee for allowing me to 
testify here today. My name is Mark Munroe, Senior Vice President of 
Sales and Marketing for Mobile Medical. Mobile Medical is an 
international company that develops and manufactures commercial and 
military mobile surgical hospitals which meet all U.S. health care 
standards. These mobile health care solutions are rapidly deployable, 
fully integrated, self-contained and present innovative solutions for 
today's health care delivery needs. My purpose here today is to explain 
how Mobile Medical has worked with VA medical centers throughout the 
country, while describing some of the challenges associated with those 
experiences and pointing out some of our exciting success stories.
    Let's begin with the New Orleans VA medical center. As you are 
aware, Hurricane Katrina struck New Orleans 5 years ago. Since Katrina, 
the New Orleans VA Medical Center has not provided surgical or 
endoscopic services to the veterans of New Orleans. Veterans in the New 
Orleans region must seek out care at other facilities within the 
system. This often causes veterans to wait for needed procedures, or 
travel greater distances to receive the care they need. In January 
2009, Mobile Medical moved to mitigate this disruption of services by 
responding to a request from the New Orleans VA Medical Center 
leadership for a proposal involving mobile surgery units. These units 
were to be used to meet a variety of needs and to serve as a temporary 
surgical facility during the hospital re-building process.
    The New Orleans VA issued a solicitation on FedBizOps in May 2009 
for mobile surgery units. This solicitation was subsequently cancelled 
and re-directed to the GSA schedule. It should be noted that while 
Mobile Medical was in the process of contracting with GSA, code 
compliant mobile surgery units did not exist on the GSA schedule. As a 
result of this action, companies with GSA contracts responded, but none 
of them, including the one to whom the GSA solicitation was ultimately 
awarded, met the VA criteria for a history of producing and deploying 
regulatory compliant Mobile Surgery Units. In addition, Mobile Medical 
learned that its proprietary company confidential information, provided 
as part of its January proposal, had been released to over 70 GSA 
schedule holders. Quoting from the attached summary of Mobile Medical's 
Federal legal action, ``Judge Horn clearly found that the VA's actions 
were improper and the attempted modification was beyond the scope of 
the GSA schedule program. An agency placing an order under the GSA 
schedule program may not simply send out an RFQ as a ``solicitation 
feeler,'' evaluate quotes for items that do not exist on anyone's GSA 
schedule contract, and then hope a selected contractor can convince the 
GSA a modification is within scope of their existing contract by the 
time the agency places an order. Such an end-run, which occurred in the 
case, violates even the most basic requirements of fair and open 
competition for Federal contracts.''
    As a small business working in a hub zone during difficult economic 
times, the last thing our company ever expected would be the need to 
sue the U.S. Government for actions taken during a procurement process. 
It should be noted that the legal costs alone with this process have 
run in excess of $300,000 dollars. Clearly oversight is necessary to 
ensure that other small businesses like Mobile Medical do not encounter 
this type of situation.
    Standing in stark contrast to Mobile Medical's experience in New 
Orleans is our very positive experience serving the needs of veterans 
at the VA Medical Center in Muskogee, Oklahoma. At the Muskogee VA, 
Mobile Medical is providing two mobile surgery units in support of a 
full operating suite renovation project. The leadership at the Muskogee 
VA Medical Center, from the Director to the contracting officer, 
facilities engineering and surgical team, should be commended for their 
work on this model project. In this forum I am pleased to do that 
today. During a recent customer visit, a member of Mobile Medical's 
Board of Directors, retired Air Force Surgeon General, Paul K. Carlton, 
learned from VA officials that this facility is saving over $9 million 
dollars in construction costs by closing all of their operating rooms 
for the duration of the renovation period rather than phasing in the 
renovation. Quoting Dr. Carlton in his report to Mobile Medical, ``the 
renovation project began in 2008 with strong leadership. After 
researching alternative options, the Medical Center closed five 
operating rooms and the project began using two Mobile Surgery Units. 
By doing this they are shaving $9.3 million dollars off the original 
construction quote for the project, even after spending $3.6 million to 
lease the mobile surgical units.'' The medical center is also avoiding 
another $14 million dollars that would have gone to local hospitals to 
carry the center's surgical caseload during the renovation for a total 
savings of $23.3 million dollars.'' Included in your packet is a copy 
of Dr. Carlton's full report to Mobile Medical. General Carlton's 
findings at the VA medical center in Muskogee support Mobile Medical's 
previous testimony to this Committee that a project utilizing 5 mobile 
units to support OR renovations projects around the country over a 3-
year period would save the VA $90 million dollars. Those savings are in 
the attached executive summary and we urge Members to note that the 
Senate Military Construction/Veterans Affairs Subcommittee has included 
language in its report to the Senate (Report Number 111-226) urging the 
VA to utilize qualified mobile surgical units in OR renovation projects 
where such utilization clearly offers savings. I have attached the 
report language to my testimony. Mobile Medical has continually pointed 
out the significant cost avoidance that the VA can achieve nationally 
by applying the methods described above in many VA OR renovation 
projects. The Senate Mil/Con Appropriations Committee has responded 
with its recommendation to the VA. We restate again today our belief 
that 20 mobile surgical units could save over $1.5 billion dollars in 5 
years of OR renovation scenarios.
    A final example of a successful project is the VA medical center in 
Miami, Florida. Miami is currently utilizing six Mobile Units during a 
full operating room renovation project. While the Miami project was 
also challenged through the contracting process, again strong 
leadership was the key. Dr. Seth Spector, Chief of Surgery, has kept 
the project moving forward and in August of this year Miami was able to 
turn their operating rooms over to the Army Corp of Engineers for 
renovation, while continuing to provide full surgical services to the 
veteran's of the Miami service area.
    While 5 minutes is a short time to share with you all of the 
successes and weaknesses in the VA contracting process, I am sure you 
will find our supporting documentation compelling. I look forward to 
any questions you may have and thank you for your time this morning.

                               __________

             Summary Federal Claims Court File No. 10-148C
    On August 31, 2010, the Court of Federal Claims issued an Order 
acknowledging the Department of Veterans Affairs (``VA'') misused the 
General Services Administration's (``GSA'') Federal Supply Schedule 
(``FSS'' or ``GSA Schedule'') \1\ by attempting to purchase 
sophisticated mobile surgery units off of the GSA Schedule through an 
improper, out-of-scope modification to an existing GSA Schedule 
Contract that does not offer mobile surgery units. While the Court 
dismissed the case on other, unrelated grounds, the Court acknowledged 
Mobile Medical International Corporation (``MMIC'') was correct in 
asserting the modifications were beyond the scope of the GSA Schedule 
Contractor's existing products. Therefore, the VA clearly acted 
improperly for attempting to use the GSA Schedule program to buy a 
sophisticated product (mobile surgery units) that were not otherwise on 
the GSA schedule.
---------------------------------------------------------------------------
    \1\ FSS schedules are most commonly referred to as ``GSA 
Schedules'' or Multiple Award Schedules (``MAS''). To avoid confusion, 
the memorandum will refer to the FSS program as the ``GSA Schedule 
Program.'' Under the GSA Schedule program, Government customers have 
access to over 11 million commercial supplies and services at volume 
pricing. The items must be ``commercially available'' to qualify. 
Because these items are pre-qualified, commercial items, the GSA has 
pre-determined these items satisfy all FAR competition and price 
requirements.
    Items may be reviewed through the GSA Schedule List, which contain 
a list of all GSA Schedules. Government contractors in turn enter into 
``schedule contracts'' with the GSA in order to offer products through 
the GSA Schedule Program. This memorandum will refer to these contract 
holders as ``GSA Schedule Contractors.''
    For more information, please visit: http://www.gsa.gov/portal/
content/104447.
---------------------------------------------------------------------------
    The case, Mobile Medical International Corporation v.  United 
States, \2\ arose of out sole source negotiations between MMIC and the 
New Orleans Veterans Affairs Medical Clinic in New Orleans, Louisiana. 
Hurricane Katrina devastated the New Orleans Clinic, seriously 
impacting the VA's ability to offer crucial surgical procedures to New 
Orleans area veterans. As an industry leader and prior sole source 
provider to the VA, the VA naturally reached out to MMIC to help 
develop and meet the VA's needs regarding temporary surgical solutions.
---------------------------------------------------------------------------
    \2\ No. 10-148C, Court of Federal Claims, August 31, 2010.
---------------------------------------------------------------------------
    However, these fair and open negotiations were derailed when 
personnel within the VA decided that MMIC's product--sophisticated, 
fully integrated mobile surgical suites that meet all JCAHO and 
Medicare standards of care for performing invasive surgery--could be 
purchased not from MMIC and not through an open competition of 
contractors who purport to compete with MMIC, but instead through the 
GSA Schedule program.
    As discussed in Footnote 1, generally a ``GSA buy'' is only 
appropriate for ``commercial'' items or services, like a flatbed truck 
or a box of pencils. Mobile surgical trailers, on the other hand, are 
niche items and are not currently offered through the GSA Schedule 
program. To purchase a sophisticated, niche product like mobile surgery 
units, the VA should have engaged in open competition to obtain a fair 
and realistic price and to ensure fair access to the award.
    But instead of fair, open competition for these mobile surgical 
trailers (pursuant to FAR 15), the VA attempted to avoid FAR 15's 
competition requirements and instead sought to modify existing products 
already offered by a GSA Schedule Contractor. Ultimately, the VA sought 
to convert a basic expandable truck, commonly used for sports 
broadcasting, into the same code compliant operating room offered by 
MMIC. The Contracting Officer contended, in response to MMIC's protest, 
``that the new trailers merely `modified the already available 
[expanding trailer] with in scope customizations the [VA] required.' ''
    But the Court determined, even ``[t]aking a liberal view of the 
trailers offered by [the GSA Schedule Contractor] on its modified GSA 
schedule contract, it would appear that the modified trailers differ 
significantly from the original expanding trailer and lab trailer on 
[their] original GSA schedule contract.'' ``In sum,'' the Court 
concluded, ``[the GSA Schedule Contractor] was offering non-FSS items 
in response to the FSS RFQ, although its FSS modifications were later 
approved. The modifications to [its] GSA schedule contract departed so 
far from the original schedule as to render the modified [expandable 
trailers], certainly with respect to the surgical and endoscopy 
trailers, outside the scope of its FSS contract as reasonably 
interpreted.''
    Although Judge Horn dismissed the action on other, technical 
grounds related to Federal jurisdiction and standing, Judge Horn 
clearly found that the VA's actions were improper and the attempted 
modification was beyond the scope of the GSA schedule program. An 
agency placing an order under the GSA schedule program may not simply 
send out an RFQ as a ``solicitation feeler,'' evaluate quotes for items 
that do not exist on anyone's GSA schedule contract, and then hope a 
selected contractor can convince the GSA a modification is within scope 
of their existing contract by the time the agency places an order. Such 
an end-run, which occurred in the instant case, violates even the most 
basic requirements of fair and open competition for Federal contracts.

                               __________

                                                          Texas A&M
                                              Health Science Center
                                        Office of Homeland Security
                                               College Station, TX.
                                                 September 15, 2010

Mr. Rick Cochran
President and Chief Executive Officer
Mobile Medical International Corporation
2176 Portland Street, Suite 4
St. Johnsbury, VT 05819

Subject: Muskogee VA Medical Center Findings

Mr. Cochran:

    Thank you for the opportunity to represent MMIC as a member of the 
Board of Directors at my recent site visit to the Muskogee VA Medical 
Center. My findings, which clearly offer a substantial savings to the 
Medical Center and importantly, no loss of services for our Veterans, 
are as follows:

    1.  The renovation project began in 2008 with strong leadership and 
after researching alternative options, the Medical Center closed five 
operating rooms and the project began using two Mobile Surgery Units/
TM/ away from the old operating suites, but still attached to the 
facility.
    2.  The overall project timeline for completion of the renovation 
is 1 year, and is on track.
    3.  By using two Mobile Surgery Units/TM/ the Muskogee VA Medical 
Center stated they are saving four times the amount of a more costly 
phased in renovation. The phased method would have included splitting 
the project to keep one half of the operating rooms open at a time; 
therefore, significantly increasing, by four times the current amount, 
what the total project cost would have been.
    4.  By keeping surgical procedures in house, this is allowing 
utilization of the OR staff members; rather than potential for loss of 
the staff during the renovation.
    5.  Hard cost savings:

       a.  OR renovation would have cost $17.2M using a split method. 
It cost $4.3M to do all at once=a hard cost savings of $12.9M. Then 
subtract the $3.6M to rent the units from the savings of $12.9M=$9.3M 
total cost savings, not avoidance, savings!
       b.  Lower infection rates by at least a factor of two or three. 
Documented during actual split operation renovation projects. Each 
wound infection is estimated to cost $20,000, so the expected 1.5 
percent wound infection rate would have yielded 1200 cases x 1.5 
percent=18 cases during normal operations. If the infection rate 
doubled, we would have seen 36 wound infections, plus a tremendous 
amount of misery for the patient. This method avoided that extra 18 
wound infections, saving 18 x $20,000=$360K.
       c.  Total cost savings then total $9.3M plus $360K=$9.66M.

    6.  In addition there are other positives to consider: IF the OR's 
were closed and cases sent downtown, THEN:

       a.  At 600 cases per room per year, each case costing $12,000 to 
send downtown, that means each room was worth at least $7.2M. The total 
cost of renting the units was $3.6M. So the cost avoidance would be 2  
$7.2=$14.4, minus the cost of leasing the units at $3.6 meant a cost 
avoidance of at least $10.8M! The VA, when they saw these numbers, said 
the real cost would be some multiple of $12,000--probably at least 3 
times as much. That meant a cost avoidance of at least 3  $14.4 = 
$43.2M minus the cost of the units at $3.6M = $39.6M by using the two 
Mobile Surgery Units/TM/!
       b.  The medical centers would have had to close without the 
ability to do emergency surgical cases.
       c.  The OR staff could have been lost entirely, no work. The VA 
could have had trouble finding staff again.
       d.  The VA could not have fulfilled its readiness mission.

    In conclusion, hard cost savings of $9.66M plus additional cost 
avoidance of up to $39.6M, plus the other positives make this a very 
wise decision for the VA system! This method should be evaluated for 
use throughout the entire VA system.

            Sincerely,

                                     Paul K. Carlton, Jr., MD, FACS
                                           LtGen, USAF, MC, retired
                   Director, Office of Innovations and Preparedness

                               __________

                            Calendar No. 469
                       111TH CONGRESS 2d SESSION
                         SENATE REPORT 111-226
            MILITARY CONSTRUCTION AND VETERANS AFFAIRS, AND
               RELATED AGENCIES APPROPRIATION BILL, 2011
                 July 19, 2010.--Ordered to be printed
   Mr. Johnson, from the Committee on Appropriations, submitted the 
                               following
                                 REPORT
                         [To Accompany S. 3615]
    The Committee on Appropriations reports the bill (S. 3615) making 
appropriations for military construction, the Department of Veterans 
Affairs, and related agencies for the fiscal year ending September 30, 
2011, and for other purposes, reports favorably thereon and recommends 
that the bill do pass.

Amounts in new budget authority

Total of fiscal year 2011 bill as reported to the Senate$143,530,131,000
Total of fiscal year 2012 advance appropriations 
    included in this bill...............................  50,610,985,000
Amount of 2010 appropriations........................... 182,750,300,000
Amount of 2011 budget estimate.......................... 143,531,666,000
Bill as recommended to Senate compared to--
    Amount of 2010 appropriations....................... -39,220,169,000
    Amount of 2011 budget estimate......................      -1,535,000

57-470PDF

                               __________
Page 47

    Cost Saving Initiative.--Over the past decade, the Department has 
undertaken an effort to modernize its medical facilities through new 
construction and renovation. This recapitalization effort is imperative 
to the delivery of high quality medical care. Often when a new surgical 
ward or other treatment facility undergoes construction, the VA has to 
find alternative areas for treatment or contract care to non-VA med-
ical providers. The Committee believes that the VA could achieve cost 
savings during renovation or construction by either leasing or 
purchasing mobile units. The Committee encourages the Department to 
launch a pilot project in at least two VISNs that have renovation or 
construction projects underway, to lease or purchase mobile surgical 
units through a full and open competition while construction is 
underway. Additionally, the VA should develop metrics for a cost 
benefit analysis to determine whether this approach has achieved 
savings versus contracting care through local medical providers.

                               __________
      
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    [GRAPHIC] [TIFF OMITTED] T1758A.007
    

    [GRAPHIC] [TIFF OMITTED] T1758A.008
    

                            Presentation by
                Mobile Medical International Corporation
    World-class mobile medical facilities for commercial, military, 
           international and emergency response applications
2176 Portland Street   St. Johnsbury, VT   USA  
                             (802) 748-2322
                         www.mobile-medical.com
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       Prepared Statement of Derek Newell, MPA., MPH, President,
                Robert Borsch Healthcare, Palo Alto, CA

    Mr. Chairman and other Members of the Committee: Thank you for 
giving me the opportunity to provide testimony to the Committee. My 
name is Derek Newell and I am President of Robert Bosch Health care. 
Bosch, which makes the Health Buddy and T-400 remote monitoring 
devices, has been providing remote patient monitoring in the Veterans 
Health Administration (VA) since 2003 and is the largest provider of 
in-home monitoring services to the VA. Bosch serves over 30,000 veteran 
patients and accounts for approximately 70 percent of the remote 
monitoring devices used by the veteran population.
    The population we serve suffers from chronic illnesses like 
congestive heart failure, diabetes and lung disease, and most have more 
than one condition. The Health Buddy and the T-400 Systems collect 
patient symptoms and vital signs, such as blood pressure or blood sugar 
levels, and provide education and self-support tools through a series 
of questions answered by patients. The responses are prioritized by 
risk and transmitted to care managers within the VA. This risk 
stratified output then enables care managers to quickly determine what 
kind of intervention is necessary for each patient, preventing 
escalation of symptoms.
    These technologies have demonstrated positive results in improving 
the health care of our Nation's veterans' population and in reducing 
costs, for example, 25 percent reduction in inpatient days and 19 
percent reduction in hospital admissions. The VA has been visionary in 
building upon the successes of this rapidly emerging segment of the 
health care delivery system.
    Regarding improvements in the procurement process, first, we 
applaud the transition of procurement and purchasing of home monitoring 
devices to the Denver Acquisitions Center, which will integrate and 
mainstream procurement practices for home monitoring technologies, 
including the Health Buddy, and T-400. The purchasing was previously 
done through the prosthetics department, which is excellent at 
purchasing physical objects, but is not accustomed to purchasing 
devices that also have content, applications and services integrated 
with them. Our devices are required to be connected to our data centers 
and to be available to upload data from the veteran and download 
content and programs for the veteran. Moving the procurement to the 
Denver Acquisitions Center allows separate payment for materials, 
applications, content and services, which will be increasingly 
important as these elements become increasingly intertwined with 
physical devices.
    While we compliment the VA's innovation to date, we believe there 
are a number of ways that Congress could assist the agency in improving 
the contract and procurement process to expedite greater use of home-
based remote health care and other innovative technologies.
    Based on our experience, I suggest the following enhancements that 
would improve contract and procurement processes in the VA.

      Preferred Partners: The cost of some of the systems and 
technologies, as well as the cost of continual innovation, require 
vendors to have some reasonable sense that they will have a successful 
relationship with the VA. Currently, remote monitoring vendors need to 
commit to installing hardware in a data center within the VA as well as 
within a backup data center within the VA. After this they are free to 
sell their technologies to the related VISN's, but there is no 
guarantee on how many units the VA will buy or how many units any 
vendor would sell. Rather than have a broad spectrum of vendors (the 
current proposal is 6), we recommend a more limited number of vendors 
with a larger commitment to and from each vendor (maximum 3 vendors). 
This would meet the VA goals of ensuring adequate competition within 
the VA and avoiding major supply disruptions if one vendor has 
financial or production problems, but it would also ensure a viable 
market for each vendor within the VA.

    Targeted Innovation: Recently the VA has started communicating to 
partners about its vision of veterans' health needs and priorities, 
however this could still be improved. Better communication and funding 
targeted innovation with preferred partners would enable us to respond 
in a more timely manner to the needs of the VA and to be partners in 
finding solutions. At present, a majority of our information comes only 
when a solicitation is released. Only then do we have a concrete 
knowledge of the VA's national perspective and the goals and 
priorities. The short turnaround cycles for proposal submissions do not 
allow for the innovation that would be possible with longer planning 
cycles. The recent Innovation grants proposed and funded by the VA are 
a step in the right direction.

      Introduce continuity into the FSS contracting process by 
appointing a single point of contact for partners. Currently we 
interact with a variety of FSS contract staff, which creates a constant 
learning curve for them. We encourage a move back to FSS's former 
process of a consistent point of contact, which would streamline 
information flow and trim down bottlenecks.
      Greater sharing of information between VHA and other 
Federal health care agencies could expedite telehealth adoption rates 
by the VA and those agencies. We believe poor information-sharing 
hampers agencies' ability to make mid-course program corrections and, 
by keeping information ``under wraps,'' effectively limits adoption of 
emerging and known best practices.

    Mr. Chairman and Members of the Committee, we believe these few but 
concrete and specific actions would go a great distance to support the 
VA's efforts to expand the use of telehealth technologies. In this 
regard, we admire the VA's efforts to date and hope that our years of 
experience in interacting with the agency as a private vendor will be 
of use to the Committee.
    I appreciate this opportunity to testify and would be happy to 
answer any questions you might have.

                                 
     Prepared Statement of Lincoln Moss, Senior Vice President and
Chief Operating Officer, Ramtech Building Systems, Inc., Mansfield, TX,
                on behalf of Modular Building Institute

    Chairman Michaud, Ranking Member Stearns and Members of the 
Committee, I am Linc Moss, Senior Vice President and Chief Operating 
Officer of Ramtech Building Systems, Inc. a vertically integrated 
design-build commercial modular construction firm based in Mansfield, 
Texas. I am testifying today on behalf of MBI--the Modular Building 
Institute--a not-for-profit trade association established in 1983 that 
serves to represent companies involved in the manufacturing and 
distribution of commercial factory-built structures.
    MBI appreciates the opportunity to speak to the Committee on ways 
to improve contracting with the Department of Veterans' Affairs (VA). 
Throughout the construction industry there has been concern with the VA 
as to the solicitation of construction projects that call for a 
delivery system referred to as ``Design-Bid-Build.'' This traditional 
project delivery method is often more costly and less efficient than 
other delivery methods and its restrictive nature prohibits alternate 
forms of construction such as permanent modular, tilt-wall and pre-
engineered steel construction from being able to participate in the 
bidding process. Within the last few months there have been two 
separate RFP's issued by the VA that Ramtech was interested in bidding 
on. However, because the RFP was issued using a Design-Bid-Build 
approach, Ramtech and other alternative forms of construction firms 
were unable to participate.
    As is explained in greater detail throughout this testimony, the 
Department of Veterans' Affairs could greatly improve the way it 
solicits construction projects if it utilized an alternate project 
delivery system known as ``Design-Build.'' Over the past decade, the 
use of Design-Build has greatly increased in the United States, making 
it one of the most significant changes in the construction industry. 
The Design-Build method, which has been embraced by several government 
agencies, including the United States Army Corps of Engineers (USACE), 
streamlines project delivery through a single contract between the 
government agency and the contractor. This simple but fundamental 
difference not only saves money and time, improves communication 
between stakeholders, and delivers a project more consistent with the 
agency's needs, it also allows for all sectors of the construction 
industry to participate.
The Increased Use of a Design-Build Delivery System_How would it 
        benefit the Department of Veterans' Affairs?
    The Design-Build project delivery system offers the VA a variety of 
advantages that other construction delivery systems cannot. Typically, 
under the Design-Build approach, an agency will contract with one 
entity to both design and construct the project. This is in contrast 
with Design-Bid-Build, where an agency has to contract with multiple 
entities for various design and construction scopes during the 
construction project.
    By greater utilization of the Design-Build delivery system, the 
Department of Veterans Affairs can achieve these goals:

      Faster Delivery--collaborative project management means 
work is completed faster with fewer problems;
      Cost Savings--an integrated team is geared toward 
efficiency and innovation. Furthermore, with Design Build, construction 
costs are often known far earlier than in other delivery methods. 
Because one entity is typically responsible for the entire project, 
they are able to predict costs more accurately than when a Design-Bid-
Build system is utilized. The contracting for Design-Build services 
allows the agency several decision points during design. The decision 
to proceed with the project is made before substantial design 
expenditure and with knowledge of final project costs;
      Quality--Design-Builders meet performance needs, not 
minimum design requirements, often developing innovations to deliver a 
better project than initially foreseen;
      Single Entity Responsibility--one entity is held 
accountable for cost, schedule and performance. With both design and 
construction in the hands of a single entity, there is a single point 
of responsibility for quality, cost, and schedule adherence. The firm 
is motivated to deliver a successful project by fulfilling multiple 
objectives, such as with the budget and schedule for completion. With 
Design-Build, the owner is able to focus on timely decision-making, 
rather than on coordination between designer and builder;
      Reduction in Administrative Burden--owners can focus on 
the project rather than managing separate contracts;
      Reduced Risk--the Design-Build team assumes additional 
risk. Performance aspects of cost, schedule and quality are clearly 
defined and responsibilities balanced. Change orders due to errors are 
virtually eliminated, because the design-builder had responsibility for 
developing drawings and specifications as well as constructing a fully-
functioning facility.

    Just to underscore the benefits of a Design-Build project delivery 
system, the Construction Industry Institute, in collaboration with 
Pennsylvania State University performed a study examining the various 
construction methods and found that:

      Unit Cost: Design-Build was typically 6 percent less 
costly than a Design-Bid-Build system;
      Delivery Speed: Design-Build was 33 percent faster than 
Design-Bid-Build;
      Quality: Design-Build met and exceeded quality 
expectations at all levels

    Unfortunately, the Department of Veterans' Affairs has been 
unwilling to embrace the Design-Build construction method as much as 
other Federal Agencies. According to VA personnel, only 30 percent of 
VA solicitations call for a Design-Build delivery system, while the 
rest rely on a Design-Bid-Build delivery method.
    As our Nation prepares for an influx of returning warriors, it is 
imperative that we are able to provide them with the services that will 
help them assimilate into civilian life. Medical clinics, dental 
facilities, physical rehabilitation facilities, mental health treatment 
facilities as well as interim veteran housing will need to be provided 
in an efficient and cost effective manner. By adopting the Design-Build 
approach, the VA could provide these facilities in a compressed time 
frame while ensuring that the product delivered is top quality.
A Design-Build System Opens Opportunities for Alternative Design 
        Offerings
    By utilizing a Design-Build philosophy, the Department of Veterans 
Affairs could allow for sectors of the construction industry, such as 
modular construction, tilt-wall and pre-engineered steel to offer 
products as well as project means and methods that are currently not 
exercised due to the restrictive nature of Design-Bid-Build project 
delivery methods.
    Numerous permanent modular contractors such as Ramtech have 
performed services for the VA facilities but because of the limited 
amount of Design-Build solicitations, the opportunities are severely 
limited.
    Recently, the National Institute of Standards and Technology (NIST) 
released a report identifying modular construction as an underutilized 
resource and a breakthrough for the U.S. construction industry to 
advance its competitiveness and efficiency. One of the findings in the 
NIST report was ``Greater use of prefabrication, preassembly, 
modularization, and off-site fabrication techniques and processes.''
    For those of us who specialize in alternative construction such as 
permanent modular, this report simply validated what has been known for 
a long time: Construction methods such as permanent modular leads to 
improved efficiency and productivity.
    By greater utilizing the Design-Build delivery system into the 
Department of Veterans' Affairs construction policies, the VA could 
greatly increase the amount of projects that contractors utilizing 
alternative forms of construction could participate in and therefore 
experience the benefits as outlined in the NIST report.
    Let me emphasize that alternative construction methods such as 
permanent modular are not always the solution. There is no one perfect 
building system for every application. However, by expanding 
opportunities for them to be part of the process the Federal Government 
can be assured that it gets the `best value' by seeing all the options 
before awarding a contract.
The Design-Build Delivery System Enhances Service-Disabled, Veteran-
        Owned Small Business Participation
    Because the Design-Build method typically relies on a single source 
for both the design and construction of the project, Design-Build 
contractors often partner with architectural/engineering firms to 
assist in the design of the project. This fact facilitates partnering 
between Service Disabled, Veteran-Owned Small Business with 
construction firms such as Ramtech that perform the work.
    Because of this direct working relationship between the SDVOB and 
the Design-Build contractor, the project is consolidated eliminating 
unnecessary levels within the project structure. Because the Design-
Build method encourages these relationships, businesses such as those 
that comprise the membership of MBI have forged excellent partnerships 
with SDVOB's to perform on projects for various government agencies.
    In the permanent modular construction field, a relationship with a 
contractor such as Ramtech means that a SDVOB partner will get 
approximately 60-70 percent of the building delivered and installed by 
Ramtech while a SDVOB partner performs the site work, utility 
connections, foundation and roof. SDVOB's often do not have the 
logistical capability to site- build an entire building, but they have 
the ability to perform other critical functions that comprise 30-40 
percent of the project.
    Undoubtedly, one of the top goals of the VA is to ensure that there 
are increased contracting opportunities for SDVOB's with the VA. To 
that end, MBI feels that simple changes could greatly increase SDVOB 
participation in construction projects.
    One way to expand the involvement of Service Disabled, Veteran 
Owned Businesses is by encouraging and expanding the use of the Design-
Build approach.
Conclusion
    Contractors that rely on a Design-Build delivery system have, and 
continue to overcome obstacles when it comes to working with the 
Department of Veterans Affairs. While businesses such as Ramtech are 
anxious to compete, the current trend of Design-Bid-Build projects 
issued by the VA inevitably prohibits that participation.
    The construction industry has seen great advances over the past 10 
years, and one of those is the Design-Build delivery system. More and 
more contractors are beginning to utilize Design-Build because of the 
advantages that are offered. However, until agencies such as the VA 
decide to solicit more projects using a Design-Build method, these 
companies will be unable to participate. The members of MBI ask that 
the Veterans' Affairs Committee look into the issues discussed today in 
the hopes of improving the way the VA procures construction projects. 
Our recommendations would ensure that the Federal Government gets the 
`best value' and also maximizes opportunities among SDVOB's and 
alternative construction methods.
    On behalf of MBI, as well as on behalf of Ramtech Building Systems, 
Inc, I thank you for your time and attention to these matters. It is 
our hope the Committee can continue to rely on MBI as a valuable 
resource when it comes to issues relating to the construction industry.
    Respectfully Submitted.

                                 
    Prepared Statement of Jay Wise, Ph.D., Chief Executive Officer,
             Wise Knowledge Systems, Inc., Piper Creek, TX

Introduction
    Wise Knowledge Systems, Inc. (WKS) has produced the Knowledge-based 
Expert Systems (KBES) application as an advanced modeling and 
simulation/decision discovery and support tool. KBES keys on continual 
input from whole communities of domain experts to evaluate situations 
and decisions and produce information on optimized strategic actions. 
This cumulative knowledge continually refines the KBES output resulting 
in a very current and very accurate contribution to actionable 
knowledge.

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[GRAPHIC] [TIFF OMITTED] T1758A.016


    KBES is a learning tool that continually evolves via the use of the 
experts.
[GRAPHIC] [TIFF OMITTED] T1758A.017


    KBES is accurate at a minimum of 95 percent, and has received 
important validation and praise from mathematicians at major 
universities, the Office of the Chief of Naval Operations, juried 
scientific journals, the Smithsonian Institute where it is part of 
their collection, and, in the private sector. KBES has been 
successfully deployed in both private sector operations, and in active 
military operations.
    The production of the dynamic assessment of medical readiness for 
the Navy produced highly accurate and user friendly information on 
current and future state of medical readiness with modeling and 
simulation to produce optimized strategies for medical readiness.

[GRAPHIC] [TIFF OMITTED] T1758A.018


[GRAPHIC] [TIFF OMITTED] T1758A.019


    The architecture of all KBES models and applications supports the 
interchange of values for ``triggers'' that can open new pathways and 
establish a different or new decision and optimized strategic 
interventions. All of the KBES analytical engines are modular and can 
be used individually or in tandem.

[GRAPHIC] [TIFF OMITTED] T1758A.020


    The four KBES analysis engines work both individually and in 
combination. The output of these analyses is actionable action based on 
the sum of the knowledge of the domain experts using the application. 
In certain cases, the analyses can produce a decision or suggest an 
action that is not part of the typical responses and thereby improve 
the final outcome.

[GRAPHIC] [TIFF OMITTED] T1758A.021


    Excerpts, reviews and deployment details for all WKS KBES models, 
technology, and applications are available both on request and at the 
WKS Web site: wiseknowledgesystems.com.
    Precise dates and times and full transcripts of meetings and 
conversations are available on request.
    The following is a very small sample of the documents, and 
communications for WKS and the VA since 2004.
Overview
    10/15/2007
    Dr. Wise met in Washington with Dr. Paul Tibbits. Dr Tibbits says 
he is aware of WKS' KBES as successfully applied to the Navy Shipboard 
Medical Administrative Readiness Tool (SMART). Dr. Tibbits says he 
wishes to identify the best application of the KBES technology for the 
VA.
    Wise Knowledge Systems, Inc. has received positive praise following 
analysis of KBES technology by:

  Paul Tibbits, M.D.-Veterans Administration
  Roy Pratt-HP
  Joe Goodin-Office of the Chief of Naval Operations
  The Smithsonian Institute
  Dr. John Sharp-UMKC School of Medicine
  Frank Sisti-Software Engineering Institute
  Dr. Dale Alverson-Telemedicine Director, University of New Mexico
  Ciro Rodriquez-U.S. Congress, House of Representatives
  W.C. Vanderwagen, M.D.-Indian Health Service
  Wendell Porth-St. Lukes Lutheran Hospital
  Richard A. Cooper-Trinity University, Department of Mathematics
  Bill Silva-Dyncorp
  Wise Knowledge Systems, Inc. clients, since 1985

    Although WKS continued to provide the full information/material to 
Dr. Tibbits since our initial meeting with him, the following 
individuals have, in meeting with WKS, said initially that they have 
either not received any information from Dr. Tibbits, and/or, they have 
not reviewed the material. Following their review with Dr. Wise each 
said that the KBES application would support the VA/VHA health mission 
with veterans. Other than Ms. Lloyd, VHA, and Ms. McCutcheon, VA OAL, 
each said that they would recommend a pilot KBS project for VA to Dr. 
Tibbits. Importantly, Dr. Tibbits wrote the most positive evaluation of 
KBES for the VA, yet he failed to put KBES on the ``list'' for 
prioritization for acquisition. Other than Ms. McCutcheon, each of 
these individuals said they would not acquire KBES because: ``the VA is 
broken, nobody here wants to work/it is hard to find anybody at the VA 
who wants to work, and the VA is not mature to use this technology''.
    This response may be seen as rather extraordinary when one reviews 
the assessment given by Dr. Tibbits himself, and by Joe Goodin of the 
Office of The Chief of Naval Operations.

[GRAPHIC] [TIFF OMITTED] T1758A.022


    The following is the SPAWAR evaluation as edited by Dr. Paul 
Tibbits.

                              POINT PAPER

                                                       10 Sept 2009
Subj: Use of modeling and expert system to strengthen system 
development lifecycle (SDLC), as related to IT systems capacity 
planning.

                               BACKGROUND

    On an enterprise level, the SDLC processes present at the VA are 
still too fragmented, with multiple opportunities for improvement in 
process documentation, modeling, and standardization, as well as 
accuracy of capacity forecasting and adherence to software efficiency 
constraints.
    If applied properly, the use of the modeling and exper systems 
approach has the potential to provide significant value to the SDLC 
processes by:

      Facilitating process and data discussions with 
stakeholders;
      Modeling transaction volumes based on actual vs paper 
based processes and ``what if'' variations in between;
      Aligning SDLC processes and organizations;
      Identifying potential root cause issues based on similar 
process data;
      Supporting change and communications.
      Deploying in a modular, flexible, and secure manner with 
lowest possible risk of poor systems performance.

    The implementation of modeling and expert systems methodology could 
yield early benefits in facilitation and communications while benefits 
surrounding toolsets and data modeling would be limited until process 
alignment has been achieved and initial data is available for use in 
the models.

                                ANALYSIS
                Modeling and Expert Systems Methodology

    There are a variety of commercial approaches to use of modeling and 
expert systems which approach process modeling, knowledge management, 
and data analysis in a proprietary manner.
    Value in process modeling, knowledge management, and data analysis 
are typically seen in 3 discrete areas: Communications facilitated by 
the knowledge, data gathering, modeling process; the extensibility of 
the models themselves; and the potential for root cause analysis and 
process improvement based on data and structural analysis.

      Communications facilitation value is typically measured 
as ``soft'' returns. Benefits can be seen in training/mentoring, team 
building, and other areas of organizational and individual development.
      Model extensibility value can be measured by perceived 
benefits to functionally related processes which allow for value to be 
replicated with less cost and/or as ongoing management tools such as 
dashboards and training toolsets.
      Root cause analysis can be an outcome of both modeling 
and data analysis.

        Value in data analysis is dependent on the amount and 
type of data available. Detailed data modeling implies sufficient data 
to make it useful for achieving buy in on outcomes
        Benefits of data analysis are limited typically by 
confidence in models and quality of data. The confidence in the model 
is based on the transparency of the modeling process and the 
facilitation approach. The quality of data is often in question when 
processes are not standardized or if stakeholders are not involved in 
developing underlying assumptions.

                      Modeling and Expert Systems

      Are flexible and modular.
      Have been deployed on a number of databases and operating 
environments.
      Can receive either ``stand alone,'' ``batch,'' or ``real-
time'' data inputs based on standard data base sharing techniques.
      Have been accredited and deployed in DoD environments.
      Can be a reasonable methodology for leveraging benefits 
in a secure and flexible manner.

    Ms. McCutcheon simply said ``I see no value in it. You (WKS) can 
start over with the VA!''

    These individuals are:

  Navy Captain Christine Boltz
  Greg Donham--VA
  Navy Commander Margret Beaubein
  Dr. Julius Chou
  Ms. Susan Lloyd--VHA
  Dr. Michael
  Valivullah--VA
  Dr. Pat Pearcy--SPAWAR
  Ms. Wendy McCutcheon--VA OAL

    Dr. Tibbits says his efforts and funds are spent to ``support the 
status quo'' at the VA. Dr. Tibbits says ``I will just go down the hall 
and get the money from my boss''. Dr. Tibbits said that Ms. McCutcheon 
was now the sole authority for acquisition for the VA for health and 
medical applications and that the first people funded by her office 
were ``raving'' about her performance.
    Dr. Tibbits and Ms. McCutcheon say that, though they know WKS is a 
Veteran owned small business, they will not consider Wise Knowledge 
Systems, Inc. using the GSA, because the ``GSA is not helping us 
(VA)''.
    Cathy Wiblemo of Chairman Filner's office reports she has heard/
seen nothing in response to Chairman Filner's request to the Secretary 
of the VA for the Secretary's office to ``provide the Committee with 
evaluation and feedback of SMART. Please respond by November 16, 
2007'', Ms. Wiblemo has said there remains no response by the Office of 
the Secretary of the VA to this request by Chairman Filner.
    Following a conversation with Chairman Filner's staff, Chairman 
Filner and I spoke and he invited me to testify at this hearing.
Summary
    Since 2004, WKS has been in communication with leadership at the VA 
to develop an understanding of a potentially important, potentially 
life saving, resource allocation technology to the VA. This is WKS 
Knowledge-Based Expert System (KBES) technology. KBES has received very 
positive technical reviews as an advanced modeling and simulation 
decision, support technology from every point of assessment to which it 
has been assigned by both the Navy and the VA, and in the private 
sector. The critical health area of CRTBI and the fundamental nature of 
SDLC development for the VA make positive movement on these topics 
significant to the mission of the VA. There is clearly an important 
ethical issue of the VA being enabled to keep its promise and deliver 
its mission to American veterans.
    Once a technology has been tested, evaluated, praised, and 
successfully focused on an emergent health issues or in support of 
technology that supports health; non-response is an unacceptable 
option. The leadership at the VA, their staff and colleagues all seem 
to agree that the KBES technology could be very good for the VA, but 
some persons of authority have decided that they will not attempt to 
acquire or apply KBES because the VA is'' not mature, is broken, and 
that the people at the VA do not want to work''. These individuals at 
VA seem to be defaulting the responsibility for a decision. Failing 
that they simply do not respond.
    It is an unfortunate part of our American history that treaties 
(contracts) were made with the American Indian tribes to remove them as 
an obstacle to what was called progress. These treaties or agreements 
were made by our government knowing they would not be kept. The 
explanation for this fraudulent manipulation was often that ``Indians 
are not people/they are not human beings''. One wonders if the 
individuals mentioned above at the VA, in maintaining the ``status 
Quo'', failing to provide state-of-the-art medical and health care to 
our young people enlisting in the service, while referring to the VA as 
``immature, broken and not willing to work'', also considers these 
young Americans as ``not human beings''.
    This arrogant and non-productive behavior is not appropriate when 
the health and lives of American Veterans, and their families are at 
risk.
    While it is clear that the vast majority of individuals at the VA 
are sincerely dedicated to American veterans and do want to work for 
the mission of the VA, there remains a few in leadership positions who 
frustrate the evolution of the medical responses and capabilities now 
available to the VA. WKS recommends installing and supporting qualified 
individuals in these important positions who have the experience and 
expertise to follow up on positive evaluations, and acquire state-of-
the-art advanced medical and health care technology, like KBES. Saying 
that ``the VA is broken and nobody here wants to work'' as the 
rationale for non-acquisition of proven technologies does not support 
the critical mission of the VA, nor does it compliment those at the VA 
who work hard and are not broken and give much more than for hollow lip 
service for American veterans. We all look forward to a more positive 
approach to acquisition for the future of the VA and American veterans. 
Do the right thing. Honor the contract with American veterans.
    I want to thank the Committee and in particular Chairman Dr. Bob 
Filner for giving our experience a voice. I will try to answer any 
questions you may have now.
    Respectfully presented.
    Jay Wise
    Wise Knowledge Systems

                                 
  Prepared Statement of James A. Clair, M.P.A., M.S., Chief Executive 
                                Officer,
                   Goold Health Systems, Augusta, ME

    Chairman Michaud, Ranking Member Brown, and Members of the 
Subcommittee: thank you for your kind invitation to discuss Department 
of Veterans' Affairs (VA) procurement practices and, specifically, how 
the VA might benefit by incorporating certain cost containment 
strategies within their pharmacy benefit management (PBM) and Nursing 
Home Care programs. I am accompanied today by Lorraine Lachapelle, RN, 
Goold Health Systems' Director of Community Assessments.
    Goold Health Systems is a national health care management company 
that specializes in meeting our clients' specific health care 
objectives with a special emphasis on cost containment. At all times we 
are driven by evidence-based medicine and achieving clinically 
effective outcomes. We manage certain health benefits as directed by 
our clients in a very detailed, granular level so that health care 
costs are contained and, in many cases, reduced on a per user per year 
(PUPY) basis.
    Our work is accomplished in ``clinical-analyst teams'' that are 
lead by Goold doctors, pharmacists and nurses who team with our data 
analysts, software developers, database administrators and project 
managers to achieve effective cost-containment strategies for our 
clients. Our primary clients are the State Medicaid Agencies. We have 
offices in Augusta, Maine; Atlanta, Georgia; Cheyenne, Wyoming; and Des 
Moines, Iowa.
    GHS provides four major business offerings to our clients: (1) 
pharmacy benefits services administration; (2) community assessment 
services; (3) medical prior authorizations; and (4) business 
outsourcing services. My testimony today will be focused on items 1 and 
2 above.
    I would like to preface my remarks by stating that the VA does a 
very good job at providing pharmacy services. They purchase in a very 
cost-effective manner, have a modern and effective dispensing network 
and have deployed many effective technical and clinical solutions so 
that our Nation's veterans receive the services they require.
    My testimony focuses on three ways in which the VA can enhance the 
monitoring and evaluation of certain health benefits so that veterans 
receive their services:

      Medication Management
      Pharmacy Program Integrity
      Long-Term Care Assessments
1. Medication Management
    The U.S. Department of Health and Human Services' (U.S. DHHS) 
Centers for Medicare and Medicaid Services (CMS) recommends Medication 
Therapy Management (MTM)--a program that sets out to ensure optimum 
therapeutic outcomes, reduce the risks of side-effects when using 
medications and must be coordinated as part of a care management plan. 
GHS then expands upon MTM by using predictive modeling to analyze 
pharmacy and medical claims data to measure the probability of 
exceeding set cost parameters for high cost users and complex medical 
conditions. Problematic patients are ultimately placed in an Intensive 
Benefits Management (IBM) or Chronic Pain Management (CPM) program. We 
utilize regression analyses that correlate chronic conditions with 
total drug cost; we then identify individuals who would benefit from 
our targeted interventions. Once in IBM or CPM the patient is linked to 
one physician/prescriber and one pharmacy/dispenser for management of 
complex medical conditions and chronic pain issues, ensuring that those 
patients receive appropriate drug therapies. We provide educational 
materials and monitoring services to those individuals to help them 
better understand their medical conditions, as well as work with them 
on medication adherence and potential drug interactions. We also work 
with their providers to help ensure that optimal clinical outcomes are 
achieved. Savings accrue to our clients because of the intensive 
involvement of the provider, patient and GHS clinical team. Examples of 
health conditions we focus on for IBM have been narcotics use, asthma & 
Chronic Obstructive Pulmonary Disease (COPD).
    Other examples of Medication Management strategies involve 
formulary management, which uses our clinical and analytical expertise 
to most effectively manage the drug benefit, including:

      Formulary Management: 15 Days Supply Limit
       GHS performs extensive analyses to identify drugs that have high 
discontinuation rates shortly after the onset of therapy. It was 
reasoned that limiting the number of days supply of these first scripts 
would result in savings from reducing waste. About 30 drugs were 
identified that met our criteria. These drugs tend to have high 
discontinuation rates due to either significant side effects or 
relative lack of efficacy. Targeted areas for this effort include long-
acting narcotics, stimulants, psychiatric medicines, urinary and 
continence products, and smoking cessation drugs (e.g, Chantix).

      Formulary Management: Dose Consolidation
       Many existing drugs now only need to be taken once per day. 
There is a considerable amount of savings available if these drugs are 
not allowed to be used more frequently without good clinical cause. 
Examples of targeted dose consolidation are Zyprexa and Risperdal, two 
anti-psychotic drugs that have allowed our State clients to save over 1 
percent of their pre-rebate expenditures annually by aggressively 
pursuing dose consolidation.
2. Pharmacy Program Integrity
    Program Integrity by definition should ensure that our tax dollars 
are not put at risk through fraudulent violations of the rules or 
abuses of the system. It should ensure that appropriate payments are 
paid only to legitimate providers for services only to eligible 
beneficiaries.
    Like many other health care managers, we have significantly 
expanded our Program Integrity efforts over the last few years. Some 
health care expert's have found that as much as 10 percent of all 
payments in health care can be attributed to fraud, waste or abuse. The 
National Health Care Anti-Fraud Association estimated that 3 percent of 
the health care industry's expenditures in the United States are due to 
fraudulent activities. This calculates to an annual amount of 
approximately $51 billion.
    In a recent analysis for one of our State clients we created a 
``Monthly Outlier Report'' on pharmacy expenditures and trends. The 
analysis was performed for each drug filled in the previous month, a 
review of the average amount spent per drug and the average quantity 
per days supply based on quantity limits was undertaken. Those drug 
claims that fell outside established guidelines were flagged for audit. 
This resulted in claims being reviewed as a result of improper use of 
override codes and, subsequently, many of these outlier claims were 
reversed. For this one State client with a pharmacy budget of 
approximately $200 million per year, we expect the results of this 
specific audit to yield between $500,000 to $1 Million dollars in 
savings.
    By way of example I have listed below two other areas of pharmacy 
practice that are prime candidates for Program Integrity review:

      Automatic Early Refills
       In pharmacy benefit programs like the VA, where there is a heavy 
reliance on mail order, it is important that the mail order provider be 
monitored to ensure that mail order pharmacies wait for the patient to 
ask for their medication to be refilled. This doesn't preclude a mail 
order pharmacy from making outgoing calls to ask a patient if they 
would like their next dose of medication sent, but it would not allow a 
mail order pharmacy from automatically sending the prescription to them 
in all cases.

      Near Duplicates
       Each medication intended for human use is assigned a number 
called an NDC (National Drug Code). It is a unique product identifier 
that, for example, distinguishes an Oxycodone 10 milligram (mg) tablet 
from an Oxycodone 20 mg tablet.

       ``Near duplicates'' can occur with generics when a different NDC 
of the same drug/same strength is used a few days after that patient's 
first prescription was filled. In many cases, this is an appropriate 
fill due to the legitimate loss of medication. However, these can also 
be billing errors or inappropriate dispensing such that these claims 
should be reversed. Monitoring utilization at this level can yield 
additional savings to the VA if it is not being done now.
3. Long-Term Care Assessments
    Through the early 1990's Nursing Facilities (NF) Medicaid costs 
were increasing at annual rates far exceeding the general inflation 
rate or even the higher rate at which health care costs were 
increasing. Eligibility determinations for Medicaid NF care were 
determined by the provider, leading to much higher utilization rates 
than otherwise supported by independent review. As a result Maine State 
Government instituted an independent, objective Maine Medicaid 
eligibility screening process with the following objectives: to create 
a single entry for medical/functional eligibility assessments for long-
term care (LTC) programs; to increase consumer participation and 
control; to educate consumers about in-home long-term care programs and 
other alternatives to nursing and residential facility care; to 
identify and address caregiver needs; to reduce the long-term costs of 
services by requiring greater emphasis on rehabilitation and health 
promotion; and to reduce the number of unnecessary admissions to, 
increase the number of discharges from, and decrease the length of stay 
in, nursing facilities.
    Within strict time parameters set by our client, the GHS Intake 
Screener's job is: to provide accurate prescreening to determine the 
need for a medical/functional assessment, maintain a waiting list for 
assessment as needed and refer consumers to appropriate resources.
    When an evaluation is indicated, the GHS Registered Nurse (RN): 
conducts an accurate, objective medical/functional eligibility 
assessment using the automated Medical Eligibility Determination (MED) 
tool in a way that is always based on sound clinical judgment and in 
compliance with appropriate policy; and provides timely information 
about all long-term care service options, including a thorough 
explanation of consumer-directed options, regardless of payment source.
    GHS employs approximately 35 nurses who perform the LTC assessments 
on-site with the assistance of a laptop, portable printer and cell 
phone.
    In State Fiscal Year 2010 (ending June 30, 2010), we performed over 
15,000 assessments. The State's share of the Medicaid NF expenses in 
2010 are more than 35 percent lower than their SFY 1994 peak in nominal 
(non-inflation adjusted) dollars. This is the result of some policy 
changes made by Maine State Government and the LTC Assessment process. 
Comparing where the unmanaged NF budget was headed to where it actually 
is today has yielded annual State savings that exceed $100 million.
    It is important to point out that the State of Maine has invested 
some of the annual cost-savings toward a stronger network of Home-Based 
Care (HBC) services so that those clients determined to be eligible to 
remain in their home setting would have the supporting services 
available to them.
Conclusion
    Mr. Chairman, the VA is a very effective provider of important 
pharmacy and medical benefits to our country's veterans. The strategies 
described above have been proven to be very effective in containing 
health care costs for our Medicaid clients. We believe that these 
clinical management approaches can assist the VA in further containing 
costs.
    Thank you again for the opportunity to testify. My colleague and I 
would be pleased to answer any questions you may have.

                                 
   Prepared Statement of Debra A. Draper, Ph.D., M.S.H.A., Director,
           Health Care, U.S. Government Accountability Office

       VA Health Care: Preliminary Observations on the Purchasing
         and Tracking of Supplies and Medical Equipment and the
                  Potential Impact on Veterans' Safety

                             GAO Highlights

Why GAO Did This Study
    VA clinicians use expendable medical supplies--disposable items 
that are generally used one time--and reusable medical equipment (RME), 
which is designed to be reused for multiple patients. VA has policies 
that VA medical centers (VAMC) must follow when purchasing such 
supplies and equipment and tracking--that is, accounting for--these 
items at VAMCs.
    GAO was asked to evaluate VA's purchasing and tracking of 
expendable medical supplies and RME and their potential impact on 
veterans' safety. This testimony is based on GAO's ongoing work and 
provides preliminary observations on (1) the extent of compliance with 
VA's requirements for purchasing and tracking of expendable medical 
supplies and RME and (2) steps VA plans to take to improve its 
oversight of VAMCs' purchasing and tracking of expendable medical 
supplies and RME. GAO reviewed VA policies and selected three 
requirements that GAO determined to be relevant to patient safety. At 
each of the five VAMCs GAO visited, GAO reviewed documents used to 
identify issues related to the three requirements and interviewed 
officials to gather further information on these issues. The VAMCs GAO 
visited represent different surgical complexity groups, sizes of 
veteran populations served, and geographic regions. GAO also 
interviewed VA headquarters officials and obtained and reviewed 
documents regarding VA headquarters' oversight. GAO shared the 
information in this statement with VA officials.

What GAO Found
    During its preliminary work at the five selected VAMCs, GAO found 
inconsistent compliance with the three VA purchasing and tracking 
requirements selected for review. Noncompliance with these requirements 
created potential risks to veterans' safety.

      Requirement for VAMC committee review and approval. At 
two of the VAMCs, officials stated that the required designated 
committee review and approval occurred for all of the expendable 
medical supplies and RME that the VAMCs had not previously purchased. 
These reviews are designed to evaluate the cost of the purchase as well 
as its likely impact on veterans' care. However, at the remaining three 
VAMCs, officials stated that the required committee review and approval 
of the expendable medical supplies, such as those used in conjunction 
with dialysis machines, did not always occur. As a result, these 
purchases were made without evaluating the likely impact on veterans' 
care.
      Requirement for signatures of purchasing and approving 
officials. At one of the VAMCs, VAMC officials discovered that a staff 
member in a dialysis department ordered an expendable medical supply 
item for use in dialysis machines, without obtaining the required 
signature of an approving official. That staff member ordered an 
incorrect item, the use of which presented a risk of exposing veterans 
to infectious diseases, such as Human Immunodeficiency Virus.
      Requirement for entering information in VA's inventory 
management systems. Officials from one of the five VAMCs told GAO that 
information about expendable medical supplies that were ordered on a 
recurring basis was entered into the appropriate inventory management 
system, as required. At the remaining four VAMCs, officials told GAO 
that information about certain expendable medical supplies--those used 
in a limited number of clinical departments such as dialysis 
departments--was not always entered into the system. This lack of 
information can pose a potential risk to veterans' safety; in the event 
of a recall of these items, these VAMCs may have difficulty determining 
whether they possess the targeted item.

    VA reports that it plans to improve its oversight of VAMCs' 
purchasing and tracking of expendable medical supplies and RME. For 
example, VA headquarters officials stated that, effective October 1, 
2010, VA plans to shift greater responsibility for reviews of purchase 
card transactions from the VAMCs to the Veterans Integrated Service 
Networks, which are responsible for overseeing VAMCs. VA headquarters 
officials also told GAO that VA is developing a new inventory 
management system, which it expects will help improve VA's ability to 
track information about expendable medical supplies and RME across 
VAMCs. VA expects this new system to be operational in March 2011.

                               __________

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today as you discuss the Department of 
Veterans Affairs' (VA) contracting and procurement practices. VA 
operates one of the largest integrated health care delivery systems in 
the United States, providing care to over 5.5 million veterans 
annually. Organized into 21 Veterans Integrated Service Networks 
(VISN), VA's health care system includes 153 VA medical centers (VAMC) 
nationwide that offer a variety of outpatient, residential, and 
inpatient services.\1\ These services range from primary care to 
complex specialty care, such as cardiac and spinal cord injury care. In 
providing these health care services to veterans, VA clinicians at 
VAMCs use supplies and equipment that must be purchased by VA. These 
include expendable medical supplies, such as needles and scalpel 
blades, which are generally used once, and reusable medical equipment 
(RME), which is designed to be reused for multiple patients and 
includes such equipment as endoscopes and some surgical instruments.
---------------------------------------------------------------------------
    \1\ The management of VAMCs is decentralized to the 21 VISNs.
---------------------------------------------------------------------------
    VA has established policies that VAMCs are required to follow when 
purchasing items such as expendable medical supplies or RME and 
tracking--that is, accounting for--these items at their facilities.\2\ 
For example, VA requires that a designated VAMC committee review and 
approve purchases of any expendable medical supplies or RME that the 
VAMC has not previously purchased. VA also requires that VAMCs enter 
information about certain expendable medical supplies and certain RME 
at their facilities into the appropriate inventory management system. 
VA's purchasing and tracking policies help ensure that VAMCs make 
effective use of available resources and that they know which supplies 
and equipment are being used at their facilities.
---------------------------------------------------------------------------
    \2\ See, for example, VA Handbook 7176, Supply, Processing and 
Distribution (SPD) Operational Requirements (Aug. 16, 2002) and 
Veterans Health Administration (VHA) Handbook 1761.02, VHA Inventory 
Management (Oct. 20, 2009).
---------------------------------------------------------------------------
    VA's purchasing and tracking policies are also designed, in part, 
to help ensure the safety of veterans who receive care at VAMCs. For 
example, VAMCs need information on the RME in use at their facilities 
in order to ensure that they have procedures for properly 
reprocessing\3\ these items. VAMCs also need information on the 
supplies and equipment in use in their facilities in order to determine 
when they have expendable medical supplies or RME that are the subject 
of a manufacturer or U.S. Food and Drug Administration (FDA) recall or 
a patient safety alert.\4\
---------------------------------------------------------------------------
    \3\ Reprocessing refers to the steps by which RME is prepared for 
reuse, and includes cleaning and disinfecting or sterilizing the 
medical equipment.
    \4\ A patient safety alert is a notification sent to VAMCs from 
VA's National Center for Patient Safety regarding veterans' safety.
---------------------------------------------------------------------------
    Congressional committees and certain Members of Congress have 
raised questions about VAMCs' purchasing and tracking of expendable 
medical supplies and RME and their potential impact on veterans' 
safety. My testimony today consists of preliminary observations as part 
of our ongoing work on VA's oversight of compliance with its policies 
for purchasing and tracking expendable medical supplies and RME. These 
observations, based on site visits to five selected VAMCs, raise 
concerns about the safety of veterans receiving care at these 
facilities. We cannot determine the extent to which the purchasing and 
tracking problems in the five selected VAMCs reflect the broader VA 
health care system.
    In my remarks today I will provide preliminary observations on (1) 
the extent of compliance with VA's requirements for purchasing and 
tracking of expendable medical supplies and RME and (2) steps VA 
headquarters plans to take to improve its oversight of VAMCs' 
purchasing and tracking of expendable medical supplies and RME.
    To identify the extent of VAMCs' compliance with VA's requirements 
for purchasing and tracking of expendable medical supplies and RME, we 
reviewed VA policies\5\ and selected three purchasing and tracking 
requirements that we determined were relevant to veterans' safety 
issues. The requirements we selected are (1) having a designated VAMC 
committee review and approve purchases of any expendable medical 
supplies and RME that the VAMC has not previously purchased, (2) 
obtaining signatures of purchasing and approving officials, and (3) 
entering information about expendable medical supplies and RME at VAMCs 
into VA's inventory management systems. We selected these requirements 
to inform our discussions with VAMC officials about patient safety 
incidents related to the purchase and tracking of expendable medical 
supplies and RME that were identified at certain VAMCs in 2009.\6\ We 
judgmentally selected five VAMCs to visit: the VAMCs in Albany, New 
York; Cheyenne, Wyoming; Detroit, Michigan; Miami, Florida; and Palo 
Alto, California. These VAMCs represent different surgical complexity 
groups,\7\ sizes of veteran populations served, and geographic regions. 
At the five VAMCs, we reviewed applicable VAMC committee meeting 
minutes\8\ and other documentation used to identify problems related to 
the three purchasing and tracking requirements we selected for our 
review. We also interviewed VAMC officials to gather additional 
information on these problems. To obtain information on steps VA 
headquarters plans to take to improve its oversight of VAMCs' 
purchasing and tracking of expendable medical supplies and RME, we 
interviewed VA headquarters officials responsible for overseeing VAMCs' 
purchasing of expendable medical supplies and RME. In addition, we 
obtained and reviewed relevant documents regarding VA headquarters' 
oversight, including internal reports and policy memorandums. We shared 
the information provided in this statement with VA headquarters 
officials.
---------------------------------------------------------------------------
    \5\ We reviewed applicable VA policies, including VA Handbook 7176, 
Supply, Processing and Distribution (SPD) Operational Requirements 
(Aug. 16, 2002); Department of Veterans Affairs, VA Financial Policies 
and Procedures, Volume II, Chapter 6, Miscellaneous Obligations (Jan. 
2009); VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 2009); 
and VA Directive 1725.1, Accountability (Apr. 5, 1996).
    \6\ We are continuing to review VA's policies to determine whether 
additional requirements relate to these patient safety incidents and 
should be included in our ongoing work.
    \7\ VA assigns each VAMC a complexity score between 1 and 3 (level 
1 is broken down further into 1a, 1b, and 1c), with level 1 being the 
most complex, using a facility complexity model. That model uses 
multiple variables to measure facility complexity arrayed along 4 
categories, namely patient population served, clinical services 
offered, education and research complexity, and administrative 
complexity.
    \8\ We reviewed minutes from the following committees: commodity 
standards, equipment, infection control, medical executive, and 
reusable medical equipment.
---------------------------------------------------------------------------
    We are conducting this performance audit in accordance with 
generally accepted government auditing standards. We conducted the work 
for this statement from March 2010 to September 2010. The audit 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives.
Background
    VA policy specifies how VAMCs can purchase expendable medical 
supplies and RME. VAMCs can purchase expendable medical supplies and 
RME through their acquisition departments or through purchase card 
holders, who have been granted the authority to make such purchases. 
Purchase cards are issued to certain VAMC staff, including staff from 
clinical departments, to acquire a range of goods and services, 
including those used to provide care to veterans. According to VA, as 
of the third quarter of 2010, there were about 27,000 purchase cards in 
use across VA's health care system.
    VA has two inventory management systems, which VAMCs use to track 
the type and quantity of supplies and equipment in the facilities. Each 
VAMC is responsible for maintaining its own systems and for entering 
information about certain expendable medical supplies and certain RME 
in the facilities into the appropriate system. Specifically, the 
Generic Inventory Package (GIP) is used to track information about 
expendable medical supplies that are ordered on a recurring basis.\9\ 
The Automated Engineering Management System/Medical Equipment Reporting 
System (AEMS/MERS) is used to track information about RME that is 
valued at $5,000 or more and has a useful life of 2 years or more.\10\ 
VAMC officials told us they use information about the items in their 
facilities for a variety of purposes, for example, to readily determine 
whether they have expendable medical supplies or RME that are the 
subject of a manufacturer or FDA recall or a patient safety alert.
---------------------------------------------------------------------------
    \9\ GIP is used to track additional items besides expendable 
medical supplies, including non-medical supplies.
    \10\ AEMS/MERS is used to track additional equipment besides RME, 
including information technology equipment.
---------------------------------------------------------------------------
    VA's purchasing and tracking policies include the following three 
requirements for VAMCs:

    1.  A designated VAMC committee must review and approve proposed 
purchases of any expendable medical supplies or RME that have not been 
previously purchased by the VAMC.\11\ The Committee, which typically 
includes administrative staff and clinicians from various departments, 
reviews the proposed purchases to evaluate the cost of the purchase as 
well as its likely impact on veterans' care.\12\ For example, the 
Committee that reviews and approves proposed RME purchases often 
includes a representative from the department responsible for 
reprocessing RME, in order to determine whether the VAMC has the 
capability to reprocess--clean and disinfect or sterilize--the item 
correctly and that staff are appropriately trained to do so. Proper 
reprocessing of RME is important to ensure that RME is safe to use and 
that veterans are not exposed to infectious diseases, such as Human 
Immunodeficiency Virus (HIV), during treatment.
---------------------------------------------------------------------------
    \11\ Generally, a VAMC's commodity standards committee reviews and 
approves purchases of expendable medical supplies and a VAMC's 
equipment committee reviews and approves purchases of RME.
    \12\ See VA Handbook 7176, Supply, Processing and Distribution 
(SPD) Operational Requirements (Aug. 16, 2002).
---------------------------------------------------------------------------
    2.  All approvals for purchases of expendable medical supplies or 
RME must be signed by two officials, the official placing the order and 
the official responsible for approving the purchase.\13\
---------------------------------------------------------------------------
    \13\ Department of Veterans Affairs, VA Financial Policies and 
Procedures, Volume II, Chapter 6, Miscellaneous Obligations (Jan. 
2009).
---------------------------------------------------------------------------
    3.  VAMCs must enter information on all expendable medical supplies 
that are ordered on a recurring basis and all RME that is valued at 
$5,000 or more and has a useful life of 2 years or more into the 
appropriate inventory management system, either GIP or AEMS/MERS.\14\ 
VA does not require information about RME that is valued at less than 
$5,000 to be entered into AEMS/MERS.
---------------------------------------------------------------------------
    \14\ See VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 
2009) and VA Directive 1725.1, Accountability (Apr. 5, 1996).
---------------------------------------------------------------------------
GAO's Preliminary Work Identified Examples of Inconsistent Compliance 
        with VA's Purchasing and Tracking Requirements at Five Selected 
        VAMCs
    At the five VAMCs we visited, our preliminary work identified 
examples of inconsistent compliance with the three purchasing and 
tracking requirements we selected for our review. In some cases, 
noncompliance with these requirements created potential risks to 
veterans' safety. We are continuing to conduct this work.
 VAMC committee review and approval.

      Officials at two of the five VAMCs we visited stated that 
VAMC committees reviewed and approved all of the expendable medical 
supplies the VAMCs purchased for the first time. However, at the 
remaining three VAMCs, officials told us that VAMC committees did not 
conduct these reviews in all cases. Officials from these three VAMCs 
told us that certain expendable medical supplies--for example, new 
specialty supplies--were purchased without VAMC committee review and 
approval. Specialty supplies, such as those used in conjunction with 
dialysis machines, are expendable medical supplies that are only used 
in a limited number of clinical departments. Without obtaining that 
review and approval, however, the VAMCs purchased these supplies 
without evaluating their cost effectiveness or likely impact on 
veterans' care.
      At one VAMC we visited, officials told us that clinical 
department staff were permitted to purchase certain RME--surgical and 
dental instruments--using purchase cards and that these purchases were 
not reviewed and approved by a committee. Therefore, the VAMC had no 
assurance that RME purchased by clinical department staff using 
purchase cards had been reviewed and approved by a committee before it 
was purchased for the first time. As a result, these purchases may have 
been made without assurance that they were cost effective and safe for 
use on veterans and that the VAMC had the capability and trained staff 
to reprocess these items correctly.

 Signatures of purchasing and approving officials.

      At one of the five VAMCs we visited, VAMC officials 
discovered that one staff member working in a dialysis department 
purchased specialty supplies without obtaining the required signature 
of an appropriate approving official. That staff member was responsible 
for ordering an item for use in 17 dialysis machines that was 
impermeable to blood and would thus prevent blood from entering the 
dialysis machine. However, the staff member ordered an incorrect item, 
which was permeable to blood, allowing blood to pass into the machine. 
After the item was purchased, the incorrect item was used for 83 
veterans, resulting in potential cross-contamination of these veterans' 
blood, which may have exposed them to infectious diseases, such as HIV, 
Hepatitis B, and Hepatitis C.\15\
---------------------------------------------------------------------------
    \15\ As of June 2, 2010, the VAMC reported that all testing has 
been completed and that no veterans have acquired infectious diseases 
as a result of this incident. The VAMC found that one of the 83 
veterans identified was dialyzed on an uncontaminated machine and 
therefore this veteran was not notified or tested for these infectious 
diseases.

 Entry of information about items into VA's inventory management 
---------------------------------------------------------------------------
        systems.

      At the time of our site visits, officials from one of the 
five VAMCs we visited told us that information about expendable medical 
supplies that were ordered on a recurring basis was entered into GIP, 
as required. In contrast, officials at the remaining four VAMCs told us 
that information about certain expendable supplies that were ordered on 
a recurring basis, such as specialty supplies, was not always entered 
into GIP. Since our visit, one of the four VAMCs has reported that it 
has begun to enter all expendable medical supplies that are ordered on 
a recurring basis, including specialty supplies, into GIP. By not 
following VA's policy governing GIP, VAMCs have an incomplete record of 
the expendable medical supplies in use at their facilities. This lack 
of information can pose a potential risk to veterans' safety. For 
example, VAMCs may have difficulty ensuring that expired supplies are 
removed from patient care areas. In addition, in the event of a 
manufacturer or FDA recall or patient safety alert related to a 
specialty supply, VAMCs may have difficulty determining whether they 
possess the targeted expendable medical supply.
      Officials at one VAMC we visited told us about an issue 
related to tracking RME in AEMS/MERS that contributed to a patient 
safety incident, even though the VAMC was not out of compliance with 
VA's requirement for entering information on RME into AEMS/MERS. 
Specifically, because VA policy does not require RME valued under 
$5,000 to be entered into AEMS/MERS, an auxiliary water tube, a type of 
RME valued under $5,000 that is used with a colonoscope, was not listed 
in AEMS/MERS.\16\ According to VAMC officials and the VA Office of the 
Inspector General, in response to a patient safety alert that was 
issued on the auxiliary water tube in December 2008, officials from the 
VAMC checked their inventory management systems and concluded--
incorrectly--that the tube was not used at the facility.\17\ However, 
in March 2009, the VAMC discovered that the tube was in use and was not 
being reprocessed correctly, potentially exposing 2,526 veterans to 
infectious diseases, such as HIV, Hepatitis B, and Hepatitis C.\18\
---------------------------------------------------------------------------
    \16\ VAMC officials stated that they also checked GIP to determine 
whether the auxiliary water tube was listed and determined that it was 
not listed in that inventory management system. According to a VA 
headquarters official, the auxiliary water tube is not required to be 
entered in GIP because it is not ordered on a recurring basis.
    \17\ See VA Office of the Inspector General, Use and Reprocessing 
of Flexible Fiberoptic Endoscopes at VA Medical Facilities, 09-01784-
146 (Washington, DC: June 2009).
    \18\ As of August 17, 2010, the VAMC reported that it has 
successfully notified 2,523 of the 2,526 veterans of possible exposure 
to infectious diseases and that there were 17 new positive test 
results. VA reports that these results are not necessarily linked to 
RME issues and it is continuing its evaluation.

    In addition, officials from VA headquarters told us that when 
information about certain RME is entered into AEMS/MERS, it is 
sometimes done inconsistently. The officials explained that this is 
because AEMS/MERS allows users to enter different names for the same 
type of RME. As a result, in the case of a manufacturer or FDA recall 
or patient safety alert related to a specific type of RME, VAMCs may 
have difficulty determining whether they have that specific type of 
RME.
VA Reports It Plans to Change Its Oversight of Purchasing and Tracking
    During our preliminary work, we discussed with VA headquarters 
officials examples of steps VA plans to take to improve its oversight 
of VAMCs' purchasing and tracking of expendable medical supplies and 
RME. For example, VA plans to change its oversight of the use of 
purchase cards. Specifically, VA headquarters officials told us that 
designated VAMC staff are currently responsible for reviewing purchase 
card transactions to ensure that purchases are appropriate. However, 
one VA headquarters official stated that these reviews are currently 
conducted inconsistently, with some being more rigorous than others. VA 
headquarters officials stated that VA plans to shift greater 
responsibility for these reviews from the VAMCs to the VISNs, effective 
October 1, 2010. In addition, VA plans to standardize the reviews by, 
for example, adding a checklist for reviewers. Because this change has 
not yet been implemented across VA, we can not evaluate the extent to 
which it will address the appropriateness of purchases using purchase 
cards.
    Our preliminary work also shows that VA plans to create a new 
inventory management system. VA headquarters officials told us that 
they are developing a new inventory management system--Strategic Asset 
Management (SAM)--which will replace GIP and AEMS/MERS and will include 
standardized names for expendable medical supplies and RME.\19\ 
According to these officials, SAM will help address inconsistencies in 
how information about these items is entered into the inventory 
management systems. VA headquarters officials stated that SAM will help 
improve VA's ability to monitor information about expendable medical 
supplies and RME across VAMCs. VA provided us with an implementation 
plan for SAM, which stated that this new system would be operational in 
March 2011. At this time, we have not done work to determine whether 
this date is realistic or what challenges VA will face in implementing 
it.
---------------------------------------------------------------------------
    \19\ SAM will be used to track additional items besides expendable 
medical supplies and RME.
---------------------------------------------------------------------------
    Mr. Chairman, this concludes my statement. I would be pleased to 
respond to any questions you or other Members of the Committee may 
have.
GAO Contacts and Staff Acknowledgments
    For further information about this statement, please contact Debra 
A. Draper at (202) 512-7114 or [email protected]. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this testimony. Key contributors to this statement 
were Randall B. Williamson, Director; Mary Ann Curran, Assistant 
Director; David Barish; Alana Burke; Krister Friday; Melanie Krause; 
Lisa Motley; and Michael Zose.

                                 
 Prepared Statement of Belinda J. Finn, Assistant Inspector General for
          Audits and Evaluations, Office of Inspector General,
                  U.S. Department of Veterans Affairs

    Mr. Chairman and Members of the Subcommittee, thank you for this 
opportunity to testify on the findings of the Office of Inspector 
General (OIG) on the Veterans Health Administration's (VHA) contracting 
and procurement practices and possible solutions to VHA procurement 
problems. I am accompanied today by Maureen Regan, Counselor to the 
Inspector General.
Background
    In December 2009, the OIG testified on acquisition deficiencies in 
VA.\1\ At that time, numerous OIG audits, investigations, reviews, and 
inspections had identified systemic issues such as poor acquisition 
planning, problematic contract award processes, poorly written 
contracts, and inadequate contract monitoring that impacted VA's 
efforts to effectively and economically deliver goods and services to 
VA facilities. Our testimony also addressed concerns that procurement 
problems led to inadequate competition for contracts, the misuse of 
funds, and a general lack of assurance that VA procurements achieved 
fair and reasonable prices or were in the best interest of the 
Government. We attributed many of these systemic procurement problems 
to VA's decentralized organizational structure for procurement 
activities, inadequate oversight and accountability, and inaccurate and 
incomplete procurement data.
---------------------------------------------------------------------------
    \1\ Statement of Maureen T. Regan, Counselor to the Inspector 
General, Office of Inspector General, Department of Veterans Affairs, 
Before the Subcommittee on Oversight and Investigations, Committee on 
Veterans Affairs, United States House of Representatives, December 16, 
2009.
---------------------------------------------------------------------------
Update
    Our work since we testified in December continues to identify 
systemic weaknesses in procurement practices that negatively impact 
VA's ability to obtain quality goods and services in a timely manner at 
fair and reasonable prices. We also continue to identify compliance 
issues with Federal Acquisition Regulations (FAR) and VA Acquisition 
Regulations (VAAR) and find that data in the VA and VHA acquisition 
support information systems is incomplete and unreliable. The impact of 
these weaknesses is significant for VHA because of the high dollar cost 
of health care-related goods and services--$9.05 billion spent in 
fiscal year (FY) 2009--and because they negatively impact VHA's 
oversight and ability to make good decisions.
    I will now discuss the results of recent work which continues to 
highlight weaknesses in VHA's acquisition processes.
Audit of Oversight of Patient Transportation Contracts
    Our May report on patient transportation services contracts, Audit 
of Oversight of Patient Transportation Contracts, (Report Number 09-
01958-155, May 17, 2010), found that VHA missed opportunities to 
provide full and open competition in their efforts to solicit offers 
from potential contractors and make contract awards. Contracting 
officers (COs) did not properly plan and prioritize for the time needed 
to open new solicitations needed for ambulance services, medical car 
patient transportation, and other patient transportation requirements.
    We identified 9 of 36 patient transportation contracts, with an 
estimated value of about $12.3 million, that were inappropriately 
awarded as sole-source and then were extended for up to 6 months after 
the contract expired. According to COs that we interviewed, this was 
due to acquisition staff shortages that increased their workload and 
resulted in insufficient time to solicit new contracts. For seven of 
nine contracts, the required information, including the number of trips 
and the type of equipment needed, was not provided by the requesting 
service in order to develop an accurate solicitation proposal. In 14 of 
the 36 contracts (39 percent) we reviewed, basic contract documentation 
required by the FAR such as price negotiation memoranda, determinations 
of price reasonableness, best value analyses, notices of awards, 
insurance certificates, and Contracting Officer Technical 
Representatives (COTRs) designation letters were missing. We also found 
that COs did not adequately monitor the contractor performance which we 
estimated could result in VHA overpaying contractors as much as $91.8 
million over the next 5 years if COTRs did not consistently review 
contractor invoices and verify the appropriateness of charged mileage 
rates and additional mileage charges.
    This national audit highlights serious weaknesses in acquisition 
award and administration processes that fail to adequately protect 
VHA's contractual interests. VHA needs to provide more oversight to 
ensure it has adequate statements of work that can guide its staff to 
know what VHA is buying and measure contractor performance effectively.
VHA Recovery Act Audits
    We have issued two audit reports dealing with VHA Recovery Act 
contract awards for non-recurring maintenance (NRM) projects, American 
Recovery and Reinvestment Act Oversight Advisory Report--VHA Non-
Recurring Maintenance Contract Award Oversight Needs Strengthening 
(Report Number 09-01814-97, March 15, 2010) and American Recovery and 
Reinvestment Act Oversight Advisory Report: Veterans Health 
Administration's Efforts to Meet Competition Requirements and Monitor 
Recovery Awards (Report Number 09-00969-248, September 17, 2010).
    Our March review found that COs failed to maximize competition 
because they did not consistently and properly publicize solicitations 
in FedBizOpps, as required. The more recent September review, which was 
conducted after the Office of Acquisition, Logistics, and Construction 
(OAL&C) issued policy guidance and VHA increased its oversight of these 
awards, found that VHA achieved a competition rate of over 98 percent. 
These contracts, where VHA oversight processes generally ensured COs 
used competition and properly assessed bids, demonstrate how 
strengthened national and field-level acquisition oversight and 
governance structures can improve competition and reduce unnecessary 
sole-source contracting.
    Although oversight improved compliance with FAR competition 
requirements, we found that COs were not performing adequate contractor 
responsibility determinations to mitigate possible risks to Recovery 
Act funds and to ensure VHA received the best value. Sixty of the 65 
contracts (92 percent) we reviewed, valued at $83.1 million, lacked 
adequate contractor responsibility determinations. This occurred 
because guidance from OAL&C failed to include all elements required to 
make contract award responsibility determinations. Additionally, some 
COs did not address all the elements because they relied heavily on 
their prior experiences with prospective contractors, instead of 
checking the General Service Administration's Excluded Parties List 
System or obtaining reports to assess the contractor's current 
financial resources as required.
Federal Supply Schedule Contracts for Professional and Allied Services
    Our June report, Audit of VISN Procurement Practices for FSS 
Professional and Allied Health care Staffing Services (Report Number 
08-00270-162, June 7, 2010) found that health care services orders were 
not being adequately reviewed and had ordering and competition issues. 
Task orders issued by VA entities against these schedules totaled $339 
million in FY 2009.
    Review of these health care services orders supported that:

      Contracting officers had not adequately assessed Federal 
Supply Schedule (FSS) health care staffing services vendors' price 
quotes to ensure the reasonableness of prices.
      Contracting officers did not ensure labor rates for FSS 
health care services orders remained at or below FSS not to exceed 
(NTE) rates.
      Contracting officers did not effectively evaluate all-
inclusive FSS health care staffing services orders to prevent improper 
payments. We found that improper payments occurred when order prices 
exceeded FSS NTE rates and FSS vendors received unsupported travel 
reimbursements.

    Weaknesses related to ordering and competition issues included:

      Contracting officers did not ensure adequate competition 
when they failed to issue requests for quotations to a minimum of three 
FSS health care staffing vendors.
      Contracting officers did not adequately plan when they 
used local contracts to order health care staffing services even though 
the same vendors offered the same services for less on the FSS.
      Controls were not adequate to prevent Medical staff from 
bypassing contracting officers and making unauthorized commitments when 
they inappropriately placed orders directly with FSS vendors.

    As a result we concluded that Veterans Integrated Service Network 
(VISN) procurement practices and ordering procedures are not 
consistently ensuring the proper, cost effective use of FSS health care 
staffing services contracts, the integrity of the FSS procurement 
process, and compliance with the FAR. We reported that strengthened FSS 
health care staffing services procurement practices could reduce VHA 
expenses and improper payments by at least $7.7 million annually or 
$38.5 million over the next 5 years.
    A companion report also found similar systemic weaknesses in 
acquisition processes, Review of Federal Supply Schedule 621 I--
Professional and Allied Health care Staffing Services (Report Number 
08-02969-165, June 7, 2010). This report details how VHA paid more than 
fair and reasonable prices due in part to a failure by contracting 
officers at VA's National Acquisition Center to comply with FSS 
contract requirements and award contracts with fair and reasonable 
pricing.
Other Reports
    Our inspection of the Brachytherapy program at the VA Medical 
Center in Philadelphia, Health care Inspection Review of Brachytherapy 
Treatment of Prostate Cancer, Philadelphia, Pennsylvania and Other VA 
Medical Centers (Report Number 09-02815-143, May 3, 2010), revealed 
that between 1999 and April 2005, the Medical Center inappropriately 
purchased services from the University of Pennsylvania without a 
contract in place. Since April 2005, the Medical Center was purchasing 
services under an interim contract that was issued and extended in 
violation of VA policy. The interim contract was inappropriately 
extended despite the fact that VA had received a proposal from the 
University for a long-term contract. Further, a pre-award review 
provided to the contracting officer showed that the prices being paid 
under the interim contract were significantly higher than what was 
determined to be fair and reasonable. In addition, we found that the 
COTR was approving payments without verifying that the services were 
provided and approving payments for engineering services that were 
outside the scope of the interim contract.
    Our continuing health care inspections of the administration of 
Community Based Outpatient Clinic (CBOC) contracts have identified 
deficiencies in contract administration that have resulted in 
overpayments that may be uncollectible. The reviews found that COTRs 
were not complying with their responsibilities under the contract to 
notify vendors of patients who were disenrolled because they had not 
been seen within a 12-month period, had changed to another clinic, or 
who had died. Because payment under these contracts is set at a 
capitated rate, VA overpaid for veterans who should have been taken off 
the rolls. The inspections also found that COTRs were not consistently 
holding contractors accountable for meeting performance standards set 
forth in CBOC contracts. For example, at one clinic a COTR was required 
to assess the contractor's compliance with access to care and entry of 
medical data benchmarks on a quarterly basis and assess penalties for 
noncompliance. However, the COTR had completed only one assessment 
during the calendar year reviewed.\2\ In a similar case involving a 
different CBOC, OIG inspectors found that the former and current COTRs 
on a CBOC contract did not assess whether the contractor met 
performance criteria and whether financial penalties applied.\3\ Good 
administration of CBOC contracts is critical because VHA had more than 
200 contracted CBOCs nationwide as of July 2009.
---------------------------------------------------------------------------
    \2\ Community Based Outpatient Clinic Reviews-Smithville, MS and 
Memphis, TN; Knoxville, TN; and Norton, VA; Chattanooga and Nashville, 
TN (Report Number 10-00627-174, June 16, 2010).
    \3\ Community Based Outpatient Clinic Reviews-Macon and Albany, GA; 
Beaver Dam, WV and Rockford, IL; Sioux City, IA and Aberdeen, SD; and 
Waterlook, IA and Galesburg, IL (Report Number 09-01446-37, December 2, 
2009).
---------------------------------------------------------------------------
OIG Contract Review Work
    Our Office of Contract Review (OCR) conducts pre-award, post-award, 
drug pricing, and special reviews of vendor proposals and contracts 
through a reimbursable agreement with VA's OAL&C. The majority of 
reviews are related to FSS contracts awarded by the VA National 
Acquisition Center for pharmaceutical, medical and surgical supplies, 
and equipment; and contracts for health care resources awarded by VA 
medical facilities. In FY 2010 to date, OCR completed 65 pre-award and 
26 post-award reviews. The pre-award reviews identified more than $370 
million in cost savings that could be achieved during contract 
negotiations and post-award reviews recovered more than $20 million for 
VA's Supply Fund.
    Pre-award reviews are required for both FSS and health care 
resources proposals where the estimated contract costs exceed 
predetermined dollar thresholds. The pre- award reviews provide 
valuable information to assist contracting officers in negotiating fair 
and reasonable contract prices. Of the 65 pre-award reviews, 32 were 
for health care resource proposals. The potential cost savings for 
these proposals was more than $39 million.
    OCR continues to identify information submitted by vendors that is 
not accurate, complete, and current that would result in VA paying 
inflated contract prices. Also, OCR continues to identify the lack of 
communication between procurement and program officials and inadequate 
planning as a management challenge for health care resources contracts. 
The lack of communication and poor planning results in higher and 
unnecessary contract costs because requirements have not been properly 
identified, the statements of work are inadequate, and the estimated 
quantities are overstated. We also routinely find that VHA's health 
care resources contracts lack adequate oversight provisions to ensure 
VHA receives the services it pays for.
    Post-award reviews are conducted to determine if a contractor 
submitted accurate, complete, and current pricing data to the 
contracting officer during negotiations as required by the terms of the 
contract. These reviews also determine whether the vendor adhered to 
other terms and conditions of the contract such as the Price Reductions 
Clause. Post-award reviews include OCR's efforts to ensure 
pharmaceutical vendors are in compliance with statutory drug pricing 
provisions contained in Section 603 of P.L. 102-585, The Veterans 
Health Care Act of 1992, which sets statutory price limits of covered 
drugs for VA, the Department of Defense, the United States Public 
Health Service, and the Coast Guard. OCR's post-award program is a 
significant factor in the success of VA's voluntary disclosure program 
where a vendor can disclose non-compliance with contract terms and 
conditions that resulted in the Government overpaying for goods or 
services and reimbursement agreements are established. These voluntary 
disclosures are typically resolved administratively but are referred to 
the Department of Justice if warranted.

Recent VA Actions
    VA has made progress in the development of its acquisition 
workforce. VA established its Acquisition Academy in September 2008 to 
address growing acquisition workforce challenges. VA's acquisition 
workforce, consisting of COs, COTRS, and program/project managers, has 
lost institutional knowledge through downsizing and retirements and is 
trying to keep pace with the increasingly numerous and complex 
contracts needed to support VA's mission.
    VA's recent implementation of an automated acquisition information 
system, eCMS, to monitor contracts and orders demonstrates the 
potential eCMS has to increase transparency and VA acquisition 
oversight capabilities at the local and national levels. However, we 
are continuing to find VHA and VA need to ensure that staff properly 
and consistently use the system across the country for all procurements 
at or above $25,000. Before VA can consistently rely on this 
acquisition information system to leverage its significant buying 
power, it must have assurance that the system provides adequate 
visibility and transparency over complete and accurate information.

Conclusion
    VHA needs to ensure that its program offices and acquisition 
personnel are engaging in disciplined acquisition practices that 
consistently protect the Government's interests. VHA cannot realize its 
full buying potential unless it better ensures compliance with 
regulations and establishes visibility and transparency over purchases.
    We understand that VA recognizes deficiencies in its acquisition 
processes and infrastructure and has taken steps to strengthen 
contracting practices. However, many of VA's reforms are still in the 
early process of planning and implementation. Our oversight will 
continue to provide valuable information to VA and Congress as VA 
pursues its acquisition initiatives. Future OIG work will focus on the 
effectiveness of VA's efforts to improve the skills and competencies of 
its acquisition workforce, program managers, and program staff serving 
as COTRs because the performance of these key personnel is critical to 
the improvements VA needs to make in its acquisition processes.
    Mr. Chairman, this concludes my statement and we would be pleased 
to answer any questions that you or other Members of the Subcommittee 
may have on these issues.

                                 
   Prepared Statement of Frederick Downs, Jr., Chief Procurement and
           Logistics Officer, Veterans Health Administration,
                  U.S. Department of Veterans Affairs

    Good morning Chairman Michaud, Ranking Member Brown, and Members of 
the Subcommittee. Thank you for inviting me to discuss the Veterans 
Health Administration (VHA) Contracting and Procurement practices.
    Acquisition reform is a central piece of the Secretary's charge to 
fundamentally change the Department of Veterans Affairs (VA) in ways 
that will transform it into a 21st Century organization that is people-
centric, results-driven, and forward-looking.
    VA is in the process of developing a strategic roadmap to guide 
this acquisition transformation, while ensuring that we always remain 
focused on satisfying Veterans' needs and customer service 
expectations, while controlling costs. A central part of this effort is 
establishing an Integrated Operating Model for the Department to 
provide a strong management infrastructure across functional work 
domains. This will ensure that service delivery requirements are fully 
satisfied, necessary innovation and improvements are achieved, and 
accountability is fixed for performance outcomes at all levels 
throughout the Department. A top initiative under the Integrated 
Operating Model is the Department's Acquisition Transformation 
initiative. VHA fully embraces the Secretary's transformation vision 
and the implementation of this Integrated Operating Model.
    VA is committed to providing the most advanced, creative, and 
innovative technologies to meet the needs of our Veterans. Within VHA, 
our health care experts are directly involved in patient care and 
provide input on current practices, while developing technical 
knowledge to drive the selection and purchase of new technologies. As 
new technologies become available, VHA staff members from clinical, 
logistics and acquisition disciplines form a team to carefully review 
potential applications before determining which advances to adopt. VHA 
leadership is committed to obtaining the most advanced and innovative 
technologies while improving the guidance, oversight, and business 
processes associated with contracting and procurement in the delivery 
of services to our Veterans.
    My testimony today will cover VHA's recent reorganization of 
contracting and procurement processes, highlighting the strengths of 
our program. I will also touch on issues of particular interest to the 
Subcommittee, including the use of purchase cards at VHA medical 
centers. Finally, I will conclude with a brief discussion of how VA 
uses innovative technologies to better serve Veterans.
Reorganization of VHA Acquisitions
    VHA continues to transform and improve its acquisition operations. 
This year we have implemented a new acquisition business model that 
promotes centralized decision-making and decentralized execution. VHA 
has realigned its acquisition staff under a centralized structure with 
three regional offices. These regional offices will concentrate on 
running an acquisition organization with a deliberate approach to 
training and oversight. The four major focus areas of our organization 
are:

    1.  Customer and stakeholder satisfaction;
    2.  Operational regional service area offices;
    3.  Performance monitors; and
    4.  Seamless transition.

    VHA's primary goal in reorganizing its acquisition operations is to 
transform into a customer-focused organization through the effective 
and innovative use of acquisition policies, procedures and processes to 
provide the best possible care to our Veterans and reduce the risk of 
patient safety. Veterans Integrated Service Network (VISN) Directors 
and the Network Contract Managers will collaboratively prepare Customer 
Service Agreements. The agreements will focus on establishing customer 
service measures that meet the intent of regulations established in the 
Federal Acquisition Regulation (FAR) and Veterans Affairs Acquisition 
Regulation (VAAR) while simultaneously providing excellent customer 
service and patient care. VHA leadership has communicated clear 
expectations for each acquisition organization and provided appropriate 
training to staff to ensure they are competent and effective leaders 
within the organization.
    All acquisition personnel previously reporting to the VISN or 
Medical Center Directors have now been realigned under the Procurement 
and Logistics Office (PL&O). This Office has created three Service Area 
Offices based on geographic location: Pittsburgh, PA, Minneapolis, MN, 
and Sacramento, CA. VHA has created several goals for these Service 
Area Offices:

      Achieve cost savings of 3.5 percent in fiscal years 2010 
and 2011, as identified in the Office of Management and Budget's (OMB) 
Improving Government Acquisition Initiative;
      Enforce standardization of contract requirements; and
      Establish staff as business consultants and value-added 
team members for VHA.

    To achieve the cost savings goal, VHA will leverage its buying 
power by combining procurements across the country to obtain more 
favorable pricing and discounts. VHA also intends to reduce the 
administrative costs associated with Interagency Acquisitions, for 
example the requirements sent to the Army Corps of Engineers, by 
bringing these services back into VHA. VHA has further stepped up 
efforts to decrease the use of sole source and other high-risk 
contracts, focusing instead on increasing competition and securing 
better prices. This reorganization will help ensure fiscal 
responsibility for the Department and for the American taxpayer. This 
structure allows the VHA PL&O to drive organizational standardization 
and individual performance, while promoting direct responsibility and 
accountability through a professional certified workforce.
    VHA's reorganization also included developing quality assurance and 
compliance programs to promote standardization and greater compliance 
with Federal regulations and policies. The quality assurance program is 
designed to plan, implement, monitor, identify and correct processes. 
It establishes checks and balances as required by the VA Office of 
Acquisition and Logistics Information Letter 001AL-09-02, Integrated 
Oversight Process, dated June 19, 2009. The overall goal is to 
implement an oversight process that is efficient in how time and 
resources are allocated and effective by holding acquisition 
professionals responsible for building quality into the acquisition 
process.
    The VHA Operations Quality Assurance Office provides direct 
oversight to VHA acquisition activities and conducts yearly site visits 
to Service Area Offices. The Quality Compliance Office provides the 
Chief Procurement Office a comprehensive assessment of the entire 
acquisition program, not just individual procurement actions. The 
compliance program's key elements include: (1) organizational 
management; (2) human capital; (3) acquisition planning and information 
management; and (4) contracting. The goals of the quality compliance 
program are to ensure compliance with VA policies, procedures and 
regulations; determine if the processes are helping us achieve our 
stated objectives; validate our processes and discover ``best 
practices'' to improve our business model; and establish an 
ISO9001:2008 Quality Management Standards organization. ISO9001:2008 is 
a family of standards for quality management systems developed by the 
International Organization for Standardization. Combined, the Quality 
Assurance and Quality Compliance programs will provide oversight 
necessary for VHA to become a world-class professional acquisition 
organization. In sum, this reorganization improves oversight, 
performance, and customer service, and ensures VA policies and 
procedures are followed. All of this contributes directly to achieving 
the Department's mission and improving patient care.

Purchase Cards
    As part of the overall VHA acquisition reorganization, VHA is 
establishing a centralized purchase card program under the Network 
Contract Managers. VHA's PL&O has implemented VISN Purchase Card 
Manager and Purchase Card Coordinators to monitor all credit card 
transactions within a VISN. These coordinators previously reported to 
their own facility. Reporting to centralized Network Contract Managers 
increases oversight of the facility level. Under the existing 
structure, most purchase card coordinators fulfill this responsibility 
as a collateral duty and do not report to an acquisition professional. 
Full-time, dedicated VISN Purchase Card Managers and Purchase Card 
Coordinators will conduct daily reviews of transactions, increase the 
number of audits and other reporting mechanisms for oversight, and will 
be dedicated to monitoring the purchase card program.
    Based on an audit of VHA government purchase card practices issued 
in 2008 by VA's Office of the Inspector General, VHA implemented 
training to approving officials on using the revised approving official 
checklist to ensure cardholders maintain adequate documentation to 
support their purchases. On February 18, 2010, the Deputy Under 
Secretary for Health for Operations and Management mandated that all 
purchase card approving officials receive this training. Each VISN 
Purchase Card Manager submitted written certification when the training 
was complete. Moreover, to monitor the appropriate use of purchase 
cards, VHA Handbook 1730.1 requires the Facility Director to perform an 
annual review of the Purchase Card Program and provide certification of 
the program to their respective VISN Director by June 30 of each year. 
The Handbook also requires the VISN Purchase Card Program Managers 
chair an annual review team and conduct site reviews at each facility 
within their area of responsibility. Managers conduct reviews using 
several audit guides in addition to the requirements identified in the 
1730.1 Handbook. VHA's P&LO is developing standard operating procedures 
that address cardholder audits and site reviews, and these tools will 
be the standard practice for all VISNs.

Health Care Resources
    VHA provides care to Veterans directly in a VHA facility or 
indirectly through either fee-basis care or through contracts with 
local providers. This strategic mix of in-house and external care 
provides Veterans the full continuum of health care services covered 
under our benefits package. VHA health care resource contracting is 
accomplished under the provision of VA Directive 1663, ``Health Care 
Resources Contracting.'' VA's Directive 1663 further implements 
provisions of Public Law 104-262, ``The Veterans Health Care 
Eligibility Reform Act of 1996,'' which significantly expanded VA's 
health care resources sharing authority in title 38 United States Code 
(U.S.C.) sections 8151 through 8153.
    VHA medical center directors and VISN directors determine when 
additional health care resources are required. It is VHA policy to 
provide Veterans care within the VA system whenever feasible. However, 
there are times when VHA is unable to provide care within the system. 
For example, VHA may have difficulty recruiting a qualified clinician. 
In these cases, the medical center director must first consider sending 
patients to another VHA medical center. Contracting for necessary 
services will only be considered if other options within VHA are not 
appropriate or viable. If contracting for services is required, a 
competitive bid is the first option considered.
    There are two principal avenues to contract for health care 
services: conventional commercial providers and academic affiliates. 
VHA's academic affiliates (schools of medicine, academic medical 
centers and their associated clinical practices) provide a large 
proportion of contracted clinical care both within and outside of VHA. 
All non-competitive VHA health care resource contracts $500,000 or more 
and competitive contracts over $1.5 million are reviewed through a 
thorough process that includes the Office of General Counsel (for legal 
sufficiency), VHA's Patient Care Services (for quality and safety), 
VHA's Office of Academic Affiliations (for affiliate relations 
assessment), and VHA's PL&O (for acquisition technical review for 
policy compliance).
    VHA exercises its responsibility to provide quality contracted care 
to Veterans through several clinical and administrative oversight 
mechanisms. This includes credentialing and privileging, quality and 
patient safety monitoring, and specific quality of care provisions 
included in the contract itself. Facility directors are responsible for 
ensuring that these oversight mechanisms are consistently and 
effectively applied to all in-house contracted care. All applicable VHA 
quality and patient safety standards must be met for medical services 
provided under contract in a VHA facility. Ensuring quality standards 
for VHA contracted care outside of a facility is more difficult, but 
VHA includes language in contracts that allows for industry standard 
accreditation or certification requirements, clinical reporting, and 
oversight. The Office of Acquisition, Logistics, and Construction is in 
the process of developing policy to implement Federal Acquisition 
Certification (FAC) for Contracting Officers' Technical Representatives 
(COTR). The new guidance will requires training to maintain or be 
designated as a COTR. This will further help ensure health care staff 
are well-trained to manage important health care contracts.

VHA Logistics
    VHA's P&LO also develops and fosters best practices in logistics 
for VHA. Through the VHA Acquisition Board, P&LO develops the annual 
VHA Acquisition plan that forms the basis for VHA's acquisition 
strategy. This strategy seeks to procure high quality health care 
products and services in the most cost effective manner. P&LO develops 
and implements a comprehensive plan for the standardization of health 
care supplies and equipment. This includes developing and administering 
clinical product user groups. P&LO is also responsible for improving 
supply chain management within VHA, which includes establishing and 
monitoring logistics benchmarking data. P&LO serves as the liaison for 
logistics staff in each of the 21 VISNs.
    VHA's supply chain processes utilize the Integrated Funds 
distribution Control Point Activity, Accounting and Procurement (IFCAP) 
module that includes a Generic Inventory Package (GIP). The GIP system 
fully integrates and allows for a seamless relationship between 
purchasing and expendable supply inventory. Use of GIP allows 
logistical managers to automate inventory practices that track 
expendable items from purchase until use by the end user. VHA tracks 
over 1,300 inventories consisting of 928,816 line items. The 
inventories include medical, surgical, dental, imaging, and laboratory 
supplies, as well as engineering and environmental management supplies.
    VHA classifies equipment as non-expendable or expendable and tracks 
this equipment in the Automated Engineering Management System/Medical 
Equipment Reporting System (AEMS/MERS). For AEMS/MERS, this includes 
tracking the location of equipment, maintaining ownership, and 
submitting a work order as needed. VHA currently tracks over 17,000 
equipment lists, which make up 2.1 million pieces of equipment. Through 
the 3rd quarter of fiscal year 2010, VHA has inventoried 13,000 of 
these equipment lists, ensuring that equipment is found and being used 
properly. The remaining 4,000 lists are expected to be inventoried in 
the 4th quarter of 2010.
    VHA continues to make improvements to the lifecycle management of 
equipment and expendable supplies. These improvements have included 
updating policies and procedures over the last 2 years, providing new 
training programs for logistical staff, improving oversight through 
management reports on equipment, and strengthening communication 
channels with stakeholders in engineering, bio-medical engineering, and 
information technology.

Medical Equipment in VHA
    VHA has approximately $5 billion worth of medical equipment in 
service at more than 1,400 sites of care with over 750,000 discrete 
devices in hundreds of different categories. VHA centralized the 
responsibility for medical equipment maintenance, including all 
equipment in all clinical departments, within Biomedical Engineering 
(BME). BME provides corrective maintenance, periodic maintenance and 
training, and education to ensure safe, high quality care. BME works 
directly with clinicians, logisticians and acquisitions staff to 
facilitate the strategic purchasing of equipment. BME strategically 
identifies equipment due for replacement, conducts market research, 
defines functional requirements with clinicians, writes specifications 
and statements of work, leads in the technical evaluation of proposals 
and is the contracting officer's technical representative (COTR) on 
contracts. When combined with our logistics and centralized procurement 
functions, a VISN-focused BME program is allowing VHA to improve its 
maintenance and technology management, realize cost savings, and 
strategically lead VHA to provide the best health care possible to our 
Nation's Veterans.

Conducting Business with VHA
    VHA's mission is to honor American's Veterans by providing 
exceptional health care that improves their health and well-being. VHA 
will continue to use and support new and innovative technologies to 
enhance the quality of life for Veterans. Providing service, supply and 
construction acquisitions are central to VHA's success in meeting its 
mission. We purchase these goods and services on national, regional, 
and local levels. Acquisitions are accomplished by sealed bidding, 
negotiation, or simplified acquisition procedures. Purchases are 
accomplished through the use of mandatory sources such as VA's Federal 
Supply Schedules Parts 65 and 66. A significant portion, however, is 
acquired from sources obtained through the publication of solicitations 
in the Federal Business Opportunities (FedBizOpps), commercial 
advertising, or any other accepted means that will provide the 
procuring activity with a sufficient number of responsible bidders and 
offerors to ensure full and open competition. The most suitable, 
efficient, and economical procedure will be used, taking into 
consideration the circumstances of each acquisition.

Conclusion
    Mr. Chairman, this concludes my statement. Thank you again for the 
opportunity to speak about VHA's reorganized contracting and 
procurement functions. Our recent reorganization establishes more 
accountable business practices that allow VHA to continue to provide 
the highest quality of care for our Veterans at the best rate of return 
for the American taxpayer. I am prepared to respond to any questions 
you or the Members of the Subcommittee may have at this time.

                                 

                           The Coalition for Government Procurement
                                                    Washington, DC.
                                                 September 20, 2010
The Honorable Michael H. Michaud
Chairman, House Veterans' Affairs Subcommittee on Health
338 Cannon House Office Building
Washington, D.C. 20515

Re: Hearing on ``VHA Contracting and Procurement Practices'' before the 
    Subcommittee on Health of the U.S. House of Representatives 
    Committee on Veterans' Affairs

Dear Chairman Michaud:

    On behalf of the Coalition for Government Procurement (Coalition), 
I am writing to thank you for your offer to submit for the record the 
Coalition's views on contracting with the Department of Veterans 
Affairs (VA). We submit our remarks for the hearing on ``VHA 
Contracting and Procurement Practices'' before the Subcommittee on 
Health of the U.S. House of Representatives Committee on Veterans' 
Affairs on September 23, 2010.
    The Coalition for Government Procurement (CGP) is a multi-industry 
association representing over 330 member companies that sell commercial 
products and services to the Federal Government, including 
pharmaceutical and medical device manufacturers that sell commercial 
products to the Federal Government primarily through the Federal Supply 
Schedules administered by the VA under a delegation of authority from 
the General Services Administration (GSA).
    We are writing today based on our members' experiences with the VA 
National Acquisition Center (NAC). Three years ago we reached out to 
the VA NAC with concerns about the timeliness of contract actions and 
the significant delays our members were experiencing. At that time, we 
were told by VA officials that they had just gone through personnel 
changes and to please give them time to adjust. We agreed to give NAC 
officials time to reorganize and bring new hires up to speed.
    Our members have been patient and since then have experienced 
reorganization at the VA NAC designed to improve efficiency. Today, 
however, the VA NAC remains among the slowest contracting centers in 
government acquisition. The length of time needed to negotiate Federal 
Supply Schedule (FSS) contracts and contract modifications has worsened 
not improved, and is particularly slow when compared to FSS contract 
actions at the General Services Administration.
    The Coalition has enjoyed strong relationships with VA officials at 
the VA NAC and here in Washington, DC, and has discussed with them our 
concerns. However, VA officials in Washington have been reluctant to 
meet with us, despite our members accounting for a significant amount 
of the business that runs through the VA NAC. By comparison, the 
Coalition regularly meets with officials from GSA concerning the 
Schedules program that GSA administers.
    Last year, the VA NAC reorganized in an effort to resolve problems 
with the length of time it takes to process contract actions, including 
awards and modifications. In order to streamline the process and 
prevent backlogs, the VA changed the system of assigning contracting 
officers from one in which contracting officers were assigned to 
contractors for the life of the contract, commencing with pre-award 
negotiations. Under the reorganization, the contracting officer 
assigned to negotiate the contract has no responsibility for 
administering the contract. Post-award, the contracting officer 
processing a modification request or answering a question is the next 
available one, not the same one, much like a call-in center, and thus 
there is no familiarity with the contractor or continuity of service.

Survey Results
    The Coalition surveyed all of our health care members doing 
business with the VA regarding their experience with the VA NAC since 
the reorganization. All ratings were made in comparison to members' 
contracting experience prior to the reorganization. Over 40 members 
responded. These companies account for well over half of the total 
sales made through NAC FSS contracts. As such, we believe that these 
results show that the NAC currently cannot keep pace with innovations 
and new products that could have a significant impact on the care 
provided to veterans. Based on the survey results, there is no question 
in our members' minds the VA NAC is broken.
    A summary of the survey results are below:

      85 percent said the VA NAC was more efficient before the 
reorganization
      Over 75 percent said the timeliness of VA NAC Contracting 
Officers in responding to their questions regarding the administration 
of their contract was below average or poor
      74 percent said the timeliness of VA NAC Contracting 
Officers in responding to their needs was below average or poor
      75 percent said their experience in adding products or 
services to their contract was below average or poor
      66 percent said their experience with the VA NAC 
concerning contract modifications was below average or poor
      46 percent said the original award process took over 1 
year
      48 percent said it took over 6 months for their last 
modification request to be processed
      Over 50 percent said the knowledge level of the 
Contracting Officers assisting them was below average or poor
      59 percent said their experience in adjusting prices on 
their contract was below average or poor
      Over 78 percent ranked their overall experience with the 
VA NAC as below average or poor
Reform
    Clearly, there are opportunities for procurement reforn1 at the VA 
NAC. First, we would encourage the Subcommittee to look at management 
of the NAC. Our members did not experience the contracting issues 
expressed in the survey results previously. It is worth noting that at 
least one prior NAC Executive Director was a pharmacist at the VHA, 
came up through the FSS program ranks, and understood how the program 
worked. After the prior Executive Director left, there was 
a 2-year long search tor his replacement. The problems began in the 
past three to 4 years since his departure and have been exacerbated by 
the reorganization.
    In fairness to the NAC, in our view, one of the primary reasons the 
procurement system at the NAC is broken is the inappropriate insertion 
of the VA Office of Inspector General (OIG) into the contracting 
process. We believe the OIG has an important and necessary role to play 
in preventing fraud and abuse and assisting the Contracting Officers' 
determination of fair and reasonable prices. That role does not include 
serving as a defacto program manager looking over the shoulders of 
Contracting Officers and second guessing their decisions to award 
contracts. Particularly with respect to pre-award audits, the OIG 
should be in a supportive role and not assume primary price negotiation 
and decision-making responsibility. In short, the OIG should not have 
operational responsibility, but that is what the case is here.
    The Coalition is very familiar with the role of the GSA OIG and 
regularly interfaces with that office. In our experience, the GSA OIG 
acts within the customary role of an IG. As a result, contracting 
officers at GSA are more willing to work with contractors and are far 
more flexible regarding the supporting documentation necessary for them 
to establish fair and reasonable prices. We believe it is the VA's 
requirement for pre-award audits on most FSS contracts and contract 
modifications, and the usurpation by the VA OIG of the contracting 
officer's role as the determinator of fair and reasonable prices that 
is the cause of the sustained delays in contract actions at the NAC.
    Our survey results are clear on this issue. When asked ``In your 
negotiations with the VA, what did your CO rely on?'', many members 
said the VA OIG Pre-Award Audit. We hear frequently from our members 
that after receiving and accepting an offer from a Contracting Officer, 
the OIG will step in and make the Contracting Officer withdraw the 
offer. There will never be true reform unless the VA OIG understands 
its role and operates appropriately.
    A final issue of concern is the grade of VA Contracting Officers. 
Our understanding is that VA CO's are one grade below the level of 
their colleagues in other agencies. This makes it difficult for the VA 
to retain experienced, senior level contracting officials. The VA 
should give serious consideration to increasing the grade of its 
Contracting Officers in order to attract and retain high caliber 
personnel.
Recommendations

    1.  The VA should reconsider the reorganization of the NAC
    2.  The VA OIG Must Operate appropriately, and not as a defacto 
program manager
    3.  The VA should increase the grade of its Contracting Officers

    The Coalition appreciates the opportunity to provide input on this 
important topic.

            Sincerely,

                                                        Larry Allen
                                                          President

                                 
  Statement of Hon. Bart Gordon, a Representative in Congress from the
                           State of Tennessee

    Thank you, Chairman Michaud and Ranking Member Brown, for holding 
this important hearing on the Contracting and Procurement Practices of 
the Veterans Health Administration. As I am not a member of this 
committee, I appreciate the opportunity to submit my statement and 
questions for the record.
    The VA Consolidated Mail Outpatient Pharmacy (CMOP) program is an 
important resource for our veterans. The program provides mail order 
refills of prescriptions to veterans using advanced automated systems 
at seven facilities located throughout the country. This provides an 
efficient, effective and safe manner for our veterans to receive the 
medication they need without having to leave home.
    I am submitting this statement today to seek clarification of the 
VA's decision to switch from blister pack to bottle delivery in the 
distribution of medication through the Mid-South CMOP. My primary 
concern is ensuring the VA conducts the most efficient and effective 
policy for all United States veterans and taxpayers.
    Seven years ago, Murfreesboro Pharmaceutical Nursing Supply (MPNS) 
was awarded a contract with the Mid-South CMOP to supply veterans in 
the region with the delivery of medication through the outpatient 
program. MPNS was specifically contracted to supply this medication in 
blister packs because, at that time, the VA determined them to be safer 
and more efficient for the veteran and the delivery process than the 
traditional method in a 120cc bottle.
    The contract has been extended six times but expired January 31, 
2010. In May of this year, the VA announced it would no longer provide 
this medication in blister packs, but instead would switch to bottles.
    Seven years ago, MPNS advised the VA and was later contracted 
specifically to provide blister packs. Blister packs maintain the 
integrity of the medication during transport, and avoid theft by being 
less-easily detected during delivery. Over these years, MPNS has 
provided a cost efficient and effective service without issue.
    Why now, in 2010, is the VA changing a process that has worked 
effectively? An individual analysis by the company estimates it can 
save the VA more than $300,000 per year by continuing to provide the 
medication under existing procedures.
    Three weeks ago, I asked for documentation of the business case 
review that was cited by the VA as a reason for changing its existing 
policy to use blister packs. On September 22, I received a chart of 
final numbers showing differences between the CMOP automated fill 
procedure and the MPNS manual fill. I have yet to receive any 
documentation of the methodology used in determining these numbers, and 
I am requesting it again now.
    This is one small instance in an incredibly complex system. If the 
VA feels a change in policy is prudent, I respect and applaud that 
decision. But before we change procedure, we must be sure that this 
change is necessary and warranted. My concern is that this change will 
not only cost jobs, but also cost the taxpayers and veterans.

                                 
   Statement of Richard Reeves, Chief Executive Officer, Murfreesboro
            Pharmaceutical Nursing Supply, Murfreesboro, TN

    Mr. Chairman and Members of the Subcommittee, on behalf of 
Murfreesboro Pharmaceutical Nursing Supply (MPNS) located in 
Murfreesboro, TN, and its 20 employees, I am pleased to submit the 
following statement for the record.
    At the outset, I want to commend you and the Subcommittee for 
holding this important hearing. As a Veteran, I truly believe that our 
collective effort to provide the brave men and women who fight on 
behalf of our country with the best quality health care is one of our 
most fundamental responsibilities. Having been a proud participant in 
the contracting process that delivers medication to our Veteran's, I am 
pleased to see the Subcommittee take a comprehensive view of the 
Department of Veteran's Affairs (VA) contracting practices.
    As a matter of background, MPNS was founded in 1982 to provide 
pharmacies a user-friendly solution to regulatory changes in the long-
term care industry. The solution MPNS brought to the table was 
providing long term care pharmacies FDA compliant and cGMP adhering 
repackaged unit dose medications in a universal format from a 
centralized closed door pharmacy.
    In 2003, the VA, and in particular the Consolidated Mail Outpatient 
Pharmacy (CMOP) approached MPNS to provide recommendations and advice 
on more effective formats for the delivery of medication than 
traditional 120cc bottles. The VA had grown concerned that this 
particular medication (for erectile dysfunction) was not being 
delivered in the most optimal nor cost effective manner. We concurred!
    Seems that this particular medication was only to be delivered in 
doses of 2, 4 or 6 pills and in a 120cc bottle. In the course of 
delivery, it sounded as though there were 6 marbles in a bottle, making 
the medication a prime target for tampering or theft and re-sale.
    MPNS recommended going with a solution of blister packs. This 
delivery method would meet the standards of the CMOP in correcting 
their concerns and also save significant revenue for the VA that we 
would hope would be directed to other programs for our Veteran's 
returning from combat. For the past 7 years, the Mid-South CMOP has 
been the only one utilizing this automated method and MPNS has been 
providing the service with no complaint.
    Mr. Chairman, the use of blister packs with pharmacies is a crucial 
delivery method that should be considered for all medications and with 
each CMOP. I first recommended this method to the CMOP not for my own 
purposes, but because it is simply the safest and most economical 
format for the delivery of medication under any circumstance.
    The following are just a few of the key issues comparing blister 
pack delivery to bottle delivery:
    A 120cc vial (bottle) costs the CMOP 60-65 cents per prescription 
due to the added cost of the bottle. This is twice the amount of the 
blister pack. The blister pack is priced based on a per tablet charge 
of 8 cents. Delivery of the medication was based on packages of 2, 4 or 
6 tablets per childproof vial. Most deliveries averaged 4 tablets for 
an average cost of 32 cents per delivery. At no time should a delivery 
in this scenario exceed 48 cents. From our experience with ED 
medication and based on 1 million deliveries, using blister packs can 
save the VA around $300,000 annually. There will be times when the 
delivery of medication will include medication that far exceeds our 
example, making the bottle delivery more cost effective. However, for 
smaller deliveries, the CMOP should not give up it's ability to provide 
medication on a per pill cost and utilize a more effective means of 
delivery of that medication.
    In addition to the cost of the medication, you must consider the 
integrity of the medication. In some cases the dosage can be diminished 
in the delivery process if it is chipped as a result of the medication 
rattling in a bottle. This issue also addresses discretion related to 
the mailing of the product. One of the participating factors in the 
Mid-South CMOP using blister packs had been an issue of discretion and 
concern over theft.
    Finally, every year, millions of prescription bottles find their 
way into our landfills. VA should be taking a responsible look at ways 
they can decrease their participation in this issue by finding more 
environmentally responsible formats of delivery such as blister packs.
    Mr. Chairman, our goal today is to inform you of this issue. We 
respectfully request that the Subcommittee work with the VA to develop 
a plan for all upcoming procurements through the CMOP to utilize 
blister packs wherever possible. Further, we believe that the VA should 
use its upcoming CMOP procurements to test automated blister pack 
delivery against automated bottle delivery methods between two willing 
CMOP's to determine which method is more cost effective.
    Thank you.

                   MATERIAL SUBMITTED FOR THE RECORD

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Mr. Mark Munroe
Senior Vice President, Sales and Marketing
Mobile Medical International Corporation
P.O. Box 672
2176 Portland Street
St. Johnsbury, VT 05819

Dear Mr. Munroe:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``VHA Contracting and Procurement Practices,'' which took place on 
September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

    1.  Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?
    2.  To what do you attribute the notable differences in your 
contracting experiences with the Muskogee, Miami, and New Orleans 
VAMCs? You cited strong leadership at the Muskogee VAMCS. Have there 
also been specific policies that may have contributed to these very 
different experiences?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

     U.S. House of Representatives--Committee on Veterans' Affairs
                         Subcommittee on Health
             ``VHA Contracting and Procurement Practices''
                           September 23, 2010
                Mobile Medical International Corporation
                         Response to Questions

    Question 1: Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?

    Response: Yes. There are a number of standards which MMIC would 
recommend be implemented to help facilitate and improve the contract in 
process. They are:

    1.  Standards initially need to be developed that take into 
consideration the medical requirements at all VA medical centers.
    2.  Standards need to be religiously followed and not be deviated 
from without proper documentation.
    3.  Quality of care for our veterans needs to be placed at the top 
of those standards.
    4.  During any acquisition process an acquisition plan needs to be 
developed. That plan needs to be followed and plan should be the same 
across all Medical Centers.

    Question 2: To what do you attribute the notable differences in 
your contracting experiences with the Muskogee, Miami, and New Orleans 
VAMCs? You cited strong leadership at the Muskogee VAMCS. Have there 
also been specific policies that may have contributed to these very 
different experiences?

    Response: At the Muskogee VAMC strong leadership was the key. 
However, Muskogee's use of an acquisition plan that was not only 
developed across all divisions, but also followed by each division was 
forefront in their success. A policy which requires each medical center 
to develop and follow such a plan should be implemented. Contents of a 
sample plan are attached to this response.
    Additionally, health and safety of all Veterans serviced was placed 
at the forefront in Muskogee. During an open solicitation for a 
solution, Muskogee leadership did not waiver from the following 
requirements that the chosen solution:

    1.  Have a history of success at other VA and government owned 
Medical Centers
    2.  Demonstrate a history of:

       a.  JCAHO accreditation
       b.  Medicare Certification
       c.  State Licensure

                            Acquisition Plan

Acquisition Background and Objectives
Statement of Need
Cost
Capability or Performance
Delivery or Performance-Period Requirements
Trade-Offs
Risks
Plan of Action
Sources
Competition
Source-Selection Procedures
Acquisition Considerations
Budgeting and Funding
Product or Service Descriptions
Contractor versus Government Performance
Inherently Governmental Functions
Management Information Requirements
Test and Evaluation
Logistics Considerations
Contractor Access to Federally-Controlled Facilities and/or Information
Contract Administration
Other Considerations
Milestones for the Acquisition Cycle
Acquisition Plan Preparation Participants

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Mr. Derek Newell
President
Robert Bosch Healthcare
2400 Geng Road, Suite 200
Palo Alto, CA 94303

Dear Mr. Newell:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``VHA Contracting and Procurement Practices,'' which took place on 
September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

    1.  Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?
    2.  In your testimony, you noted that home health device companies 
contracting with VA may need to make an investment, such as installing 
hardware, without any certainty as to how many units of the device VA 
will purchase. How does VA currently address this concern of 
prospective contractors?
    3.  In your testimony you mentioned that companies such as Bosch 
often do not understand the innovations that VA is looking for until a 
solicitation is issued. Can you please expand on the benefits that the 
innovation grants can have for remedying this gap between the VA and 
prospective contractors? What other measures might VA take?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

  Bosch Healthcare Responses to Veterans Health Subcommittee Questions
                           November 15, 2010

    Question 1: Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?

    Response: As the largest health care provider in the Nation, the 
VHA is a leader in the establishment and use of new and innovative care 
technologies, such as telehealth. As a result, the private health care 
system often follows the VHA's lead in the use and deployment of these 
technologies. Vendors routinely offer the VHA the newest and most 
cutting edge technologies, often developed prior to a private sector 
demand--making the VHA the first customer for new technologies and 
products. However, the VHA's Federal Supply Schedule contracts contain 
sales provisions that require prior sales of devices in the commercial 
sector. This is problematic because, as noted earlier, the commercial 
sector often follows--rather than leads--the VHA's vision for and 
procurement of new technologies. Therefore, Bosch Health care 
recommends that the VHA develop a contracting mechanism that would 
allow and encourage VHA adoption of new technologies without provisions 
requiring prior commercial sales.

    Question 2: In your testimony, you noted that home health device 
companies contracting with VA may need to make an investment, such as 
installing hardware, without any certainty as to how many units of the 
device VA will purchase. How does VA currently address this concern of 
prospective contractors?

    Response: Our experience has been that VA is attempting to address 
this concern through monthly contracting fees (per patient per month) 
where investment costs are incorporated into the ``General Services'' 
fees. In theory, this practice could work; however, the VHA generally 
is only willing to guarantee a minimal number of devices for purchase. 
Thus, the number of devices that VHA is willing to guarantee falls 
short of the number needed to minimize the investment risk of its 
partners. We recommend that when entering agreements, the VHA work with 
its vendors to jointly establish the number of devices that is 
sufficient to incentivize private sector investment without placing 
undue burden on the VA budget.

    Question 3: In your testimony you mentioned that companies such as 
Bosch often do not understand the innovations that VA is looking for 
until a solicitation is issued. Can you please expand on the benefits 
that the innovation grants can have for remedying this gap between the 
VA and prospective contractors? What other measures might VA take?

    Response: The Innovation Grants are a good start to a partnership 
with the private sector to spur development and testing of innovative 
products and methodologies. However, this type of endeavor is more 
suited for the innovations of industry rather than fulfillment of the 
VHA's vision. As a result, we believe another approach is also in 
order--one that would allow the VHA to share its vision of the tools, 
devices, methodologies, and processes that are needed for next 
generation health care.
    Such an approach would include a complete technology roadmap 
consisting of VHA's vision, its short- and long-term goals, and its 
ideas about specific technology solutions that would meet those goals. 
In turn, this would create the clarity and transparency needed for 
vendors to address the VA's specific needs and plan for the future. 
This challenge can be achieved by VA communicating more frequently with 
its industry partners, and should include (1) a focus on the health 
specialty or VHA product line in question, (2) what VHA believes is 
currently working or not working in that area, and (3) its ``wish 
list'' for future product development.

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Mr. Lincoln Moss
Senior Vice President and Chief Operating Officer
Ramtech Building Systems
1400 U.S. Highway 287 South
Mansfield, TX 76063

Dear Mr. Moss:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``VHA Contracting and Procurement Practices,'' which took place on 
September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

    1.  Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?
    2.  In your contact with VA, what opportunities have you had to 
express your views on the merits of moving from a design-bid-build 
approach to a design-build approach, or other changes in the 
procurement process that you feel would represent an improvement?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

                       Modular Building Institute
         Committee on Veterans' Affairs, Subcommittee on Health
                 United States House of Representatives
    Follow-Up Questions on VHA Contracting and Procurement Practices
                      Wednesday, November 3, 2010

    Question 1: Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?

    Response: The primary focus of our testimony on VHA Contracting and 
Procurement Practices was the advantage to the Department of Veterans 
Affairs that a Design-Build project delivery system offered over 
traditional Design-Bid-Build. We are firmly convinced that by adopting 
a culture that embraces Design-Build, the VHA will achieve greater 
efficiency and value in future construction projects.
    Not only are there less ``moving parts'' to the process, this 
approach allows alternate forms of constructions to participate, 
potentially increasing value even further. As an industry, MBI 
understands it is vitally important that veterans play an active role 
in the Contracting process when it comes to working with the Department 
of Veterans Affairs and the VHA. It is our goal to ensure that when it 
comes to construction projects, veteran involvement increases. It is 
our belief that the VHA and the VA, in general should incorporate the 
changes discussed in our September 23rd Testimony to maximize veteran 
involvement.
    If this simple but fundamental construction policy was changed it 
would reflect greater opportunities for design-build contractors, who, 
in turn, would be able to partner with veteran-owned businesses to 
complete projects.
    Undoubtedly, one of the top goals of the VA is to ensure that there 
are increased contracting opportunities for SDVOBs with the VA. To that 
end, MBI feels this one change could greatly increase SDVOB 
participation in construction projects.

    Question 2: In your contact with VA, what opportunities have you 
had to express your views on the merits of moving from a Design-Bid-
Build approach to a Design-Build approach, or other changes in the 
procurement process that you feel would represent an improvement?

    Response: While MBI has reached out to the Department of Veterans 
Affairs, Office of Construction on this matter, to date, we have not 
received a response to our request for a meeting to discuss the current 
construction policies within the VA. MBI remains committed to working 
on this issue through all appropriate channels and is continuing to 
pursue the VA to discuss this matter in greater detail.

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Jay Wise, Ph.D.
Chief Executive Officer
Wise Knowledge Systems, Inc.
6210 Bear Creek Road
Pipe Creek, TX 78063

Dear Dr. Wise:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``VHA Contracting and Procurement Practices,'' which took place on 
September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

     1.  Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?
     2.  In your testimony you cited leadership concerns with bearing 
on the VA contracting and procurement process. In addition to these 
concerns, are there structural or policy barriers that have played a 
role in your experience with VA?
     3.  Has the KBES been tested and deployed? If so, where? What were 
the results?
     4.  What do you think would be the best application of the medical 
KBES for the VA at this time?
     5.  What evidence do we have that KBES could materially support 
the VA in its attempt to improve diagnosis and treatment of Traumatic 
Brain Injury?
     6.  Is KBES being used in military medicine now?
     7.  What do you recommend that VA do with your KBES technology?
     8.  Why do you believe that VA failed to acquire KBES after some 
staff had initially positively discussed its potential use in the VA 
system?
     9.  Did VA promise you a contract?
    10.  What would it cost and how long would it take for VA to 
contract with you?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

  Questions and Responses for Chairman Michaud: Wise Knowledge Systems
                              Dr. Jay Wise
                          For Chairman Michaud

    Question 1: Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?

    Response: The first most important recommendation would be to 
install and support individuals who have a real interest and energy for 
helping our veterans, rather than dismissing promising technology 
because ``nobody at the VA wants to work''.
    Secondly, you might consider the advantage of installing an ad hoc 
panel of scientists to evaluate technologies presented to the VA/VHA. 
These would need to be ``honest third party'' individuals whose central 
concern is the welfare of our veterans. Please note that WKS was told 
that they did not need to go thru the evaluation procedure because we 
were a proved technology used in the DoD, years ago, when Wise 
Knowledge Systems (WKS) first contacted the VA! Had WKS had that 
opportunity, much of this unfortunate history might have been avoided.

    Question 2: Leadership concerns and obstacles to VA contracting and 
procurement processes. Structural and policy barriers.

    Response: Again, the policies of the VA, while not entirely 
understood here at WKS, seem sufficient to provide the VA/VHA with 
strategically sound technologies.
    The key issue is that individuals such as Dr. Paul Tibbits, CIO of 
the VA, and Ms. Lloyd of the VHA, and others, seem both overwhelmed by 
the ``portfolio'' of technology they deal with, and the situation they 
repeatedly reported: ``the VA is broken and nobody here wants to 
work''.

    Question 3: Has IKBES been tested and deployed? If so, where? What 
were the results?

    Response: Please see our written testimony for the documents that 
support the successes in application, deployment, and testing for KBES. 
Please especially note the correspondence from Joe Goodin of the Navy.
    A full description of the architecture, application, and results of 
application of KBES is available to you on request.
    KBES has received positive test validation and deployment successes 
in active military operations with the Navy SMART (Shipboard Medical 
Administrative Readiness Tool). We refer you to the letter from Joe 
Goodin of the Office of Naval Operations. Additionally KBES medical 
applications have received validation and praise in application in the 
private sector in cardiac care optimization, neonatal disease mapping, 
juried scientific journals (please refer to our written testimony), and 
is part of the collection at the Smithsonian Institute. As deployed, 
the KBES analyses are proven to be 95 percent accurate, or better, in 
providing decision support and optimizing medical outcomes.
    Wise Knowledge Systems, Inc. has received positive praise following 
analysis of KBES technology by:

    Paul Tibbits, M.D.--Veterans Administration
    Roy Pratt---HP
    Joe Goodin--Office of the Chief of Naval Operations
    The Smithsonian Institute
    Dr. John Sharp--UMKC School of Medicine
    Frank Sisti--Software Engineering Institute
    Dr. Dale Alverson--Telemedicine Director, University of New Mexico
    Ciro Rodriquez--U.S. Congress, House of Representatives
    W.C. Vanderwagen, M.D.--Indian Health Service
    Wendell Porth--St. Luke's Lutheran Hospital
    Bill Silva--Dyncorp
    Wise Knowledge Systems, Inc. clients, since 1985

    Question 4: What do you think would be the best application of the 
medical KBES would be for the VA at this time?

    Response: WKS feels that the most strategically significant and 
efficient se of the medical KBE at this time would be to be deployed in 
support of the emerging science associated with Combat Related 
Traumatic Brain Injury (CRTBI). An SOW and details for this deployment 
were provided, repeatedly, to Dr. Tibbits who agreed that there could 
be great benefit from KBES supporting the work on CRTBI, and then 
changed his focus to another project when he ''could not find a 
customer''.

    Question 5: What evidence do we have that KBES could materially 
support the VA in its attempt to improve diagnosis and treatment of 
Traumatic Brain Injury?

    Response: Please review the KBES successes reflected in our 
correspondence in our written testimony. KBES has successfully 
supported major advances in the treatment of very complex medical 
issues including Medical Readiness for our Navy.
    Our private sector successes includes the improvement of the 
diagnosis and treatment strategies for acute myocardial infarction 
resulting in a significant reduction of the length of stay and cost of 
cardiac care, and better positive outcome; and the mapping and 
strategic intervention plans for Neonatal Respiratory Distress 
Syndrome.
    While CRTBI is a very complex issue, WKS believes it will benefit 
from the robust analytic and predictive capabilities of KBES, just as 
the previous applications have benefited.

    Question 6: Is KBES being used in military medicine now?

    Response: No. Please refer to our written testimony for the 
explanation from the Navy.

    Question 7: What do you recommend that the VA do with your KBES 
technology?

    Response: With the license from WKS, the VA could use KBES in any 
situation that would be improved by accurate and responsive outcome 
prediction and the deployment of positive strategic actions.
    KBES supports planning, decision discovery and support, in very 
large and complex human issues.
    Medicine might be the most appropriate and urgent application, but 
very likely, not the only application for the VA.

    Question 8: Why do you believe that VA failed to acquire KBES after 
some staff had initially positively discussed its potential use in the 
VA?

    Response: WKS was told that the reason there would be no 
acquisition of KBES by the VA was because ``the VA is immature (Dr. Pat 
Pearcy at SPAWAR, and Dr. Mike Valivullah at VA), the VA is broken, and 
nobody at the VA wants to work (Dr. Paul Tibbits, Deputy CIO of VA, Ms 
Lloyd VHA, and others)''. WKS was told that the acquisition of the KBES 
technology would mean ``work'' for the VA.
    Please note, in meeting, each of these individuals praised the KBES 
technology, saying it would help the VA medical mission, and other than 
Ms. Lloyd, that they would recommend a ``pilot'' project to Dr. Tibbits 
for funding.

    Question 9: Did VA promise you a contract?

    Response: Yes.
    On multiple occasions, Dr. Paul Tibbits, Deputy CIO of VA, said he 
had ``no problem contracting directly'' with WKS.
    Dr. Tibbits has said ''I will just go down the hall and get the 
money from my boss,'' and ``I will ask SPAWAR (Dr. Pat Pearcy) to do a 
contract with you now''.

    Question 10: What would it cost and how long would it take for VA 
to contract with you?

    Response: VA contracting with WKS should be very straightforward.
    WKS is VA a GSA veteran owned certified small business.
    The VA (Dr. Tibbits and others) have said they would not use the 
GSA in acquisition, as ``the GSA is not helping us''.
    The license for the WKS KBES technology is $450k, and depending on 
the scope of the project (looking at an estimate for CRTBI) the 
development cost should be circa $350k-$450k.
    WKS' interest in pursuing this issue is the welfare of our 
veterans. Finances are of lesser concern to WKS.
    If the VA will use KBES to benefit our veterans, these costs may be 
able to be lowered.
    The typical time required to produce a medical KBES is about 6 
months. CRTBI may take just a bit longer. We will know more on that 
once we have begun the development process.

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Mr. James A. Clair, M.P.A., M.S.
Chief Executive Officer
Goold Health Systems
45 Commerce Drive, Suite 5
P.O. Box 1090
Augusta, ME 04332

Dear Mr. Clair:

    Thank you for your testimony at the U.S. House of Representatives 
Committee on Veterans' Affairs Subcommittee on Health oversight hearing 
on ``VHA Contracting and Procurement Practices,'' which took place on 
September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

    1.  Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?
    2.  In your testimony, you discussed how Goold Healthcare Systems 
can work with VA to improve their pharmacy benefits program. Other 
witnesses have cited a concern that, prior to a solicitation being 
issued, they have little understanding of VA's goals and perspective. 
Have you encountered the same issues, or have you been able to 
communicate with VA?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________


                                               Goold Health Systems
                                                       Augusta, ME.
                                                  November 23, 2010

The Honorable Michael H. Michaud
Chairman, Subcommittee on Health
Committee of Veterans' Affairs
U.S. House of Representatives
335 Cannon House Office Building
Washington, DC 20515

Dear Congressman Michaud,

    I am writing in response to your October 4th letter in which you 
asked two questions to follow-up on the September 23rd oversight 
hearing on ``VHA Contracting and Procurement Practices.''
    Listed below are your questions along with my responses:

    Question 1: Are there any other recommendations for improving the 
contracting process at VHA that you would like to share with us?

    GHS Response: I recommend that the VHA publish the means by which 
they monitor, audit and analyze existing VHA contracts so that the 
public can understand the value of the services each vendor/contractor/
subcontractor provides to the VHA. A more public contract review 
process will help Congress, and the public, understand that the VHA is 
continuously monitoring, and improving, their contract oversight 
process.
    In addition, I recommend that the VHA more earnestly seek out small 
companies with whom they can provide contracting opportunities. Smaller 
companies can very often provide services in a more efficient, nimble 
and cost-effective manner than their larger competitors yet can 
presently be eliminated from consideration due to contract requirements 
that favor the larger companies.

    Question 2: In your testimony, you discussed how Goold Health 
Systems can work with VA to improve their pharmacy benefits program. 
Other witnesses have cited a concern that, prior to a solicitation 
being issued, they have little understanding of VA's goals and 
perspective. Have you encountered the same issues, or you have you been 
able to communicate with VA?

    GHS Response: Goold Health Systems has never competed for work at 
the VA. Therefore, we don't have a perspective on the degree to which 
they communicate their goals and perspectives (and timelines and 
objectives) about the matters for which they solicit bids.
    We have extensive experience competing in other public 
solicitations and know that the best procurements are those that are 
open, well-communicated and fairly judged. The best results for the 
public agency are when they have a wealth of qualified competitors 
submitting proposals at optimally competitive prices.
    I want to thank you and the Subcommittee Members again for the 
opportunity to testify on September 23rd and to provide additional 
recommendations now so that the VHA procurement practices are optimally 
effective.
    I would be pleased to answer your questions or provide any 
additional information.

            Sincerely,

                                                     James A. Clair
                                            Chief Executive Officer

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Gene L. Dodaro
Acting Comptroller General of the United States
U.S. Government Accountability Office
441 G Street, NW
Washington, D.C. 20548

Dear Comptroller General Dodaro:

    Thank you for the testimony of Debra A. Draper, Director, Health 
Care, at the U.S. House of Representatives Committee on Veterans' 
Affairs Subcommittee on Health oversight hearing on ``VHA Contracting 
and Procurement Practices,'' which took place on September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

     1.  How were the incidents mentioned in Ms. Draper's testimony 
discovered?

          How were patients impacted by these incidents?
          Could these incidents have been prevented by VAMCs 
following the policies GAO identified?

     2.  Why are committee reviews important for patient safety?
     3.  Why are VAMCs not always following the required committee 
review and approval process?
     4.  In her testimony, Ms. Draper mentioned VA's double signature 
policy related to the purchasing of supplies and equipment. Could you 
please elaborate on how this policy is connected to patient safety?
     5.  Why are VAMCs not entering information about expendable 
medical supplies in GIP?
     6.  Does VA headquarters provide sufficient guidance to VAMCs on 
implementing its policies on purchasing and tracking of expendable 
medical supplies and reusable medical equipment?
     7.  Will VA's new inventory management system, Strategic Asset 
Management, address the problems about items not being listed in VA's 
inventory management systems?
     8.  Is it a violation of VA policy to purchase instruments, such 
as surgical or dental instruments, with purchase cards? What about 
other reusable medical equipment?
     9.  What gaps has GAO identified in VA's requirements for tracking 
medical equipment in its inventory management systems?
    10.  Why is oversight of VA's policies on purchasing and tracking 
important for patient safety?
    11.  Is VA doing enough oversight of VAMCs' purchasing and tracking 
policies?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

                              U.S. Government Accountability Office
                                                    Washington, DC.
                                                   November 8, 2010

The Honorable Michael H. Michaud
Chairman
Subcommittee on Health
Committee on Veterans' Affairs
House of Representatives

Subject: Responses to Questions for the Record; Hearing Entitled 
    Veterans Health Administration Contracting and Procurement 
    Practices

Dear Mr. Chairman,

    This letter responds to your October 4, 2010, request that we 
address several questions for the record related to the Subcommittee's 
September 23, 2010, hearing on the Veterans Health Administration's 
contracting and procurement practices. Our responses to the questions, 
which are in the enclosure, are based on our ongoing work on the 
Department of Veterans Affairs' oversight of compliance with its 
policies for purchasing and tracking expendable medical supplies and 
reusable medical equipment. Our response to these questions is based on 
work we performed in accordance with generally accepted government 
auditing standards.
    If you have any questions about our responses or need additional 
information, please contact me on (202) 512-7114 or at [email protected].

            Sincerely yours,

                                                    Debra A. Draper
                                              Director, Health Care
Enclosure

                               __________

 Questions for the Record Submitted by the Honorable Michael H. Michaud
      for Debra A. Draper, Ph.D., M.S.H.A., Director, Health Care
                 U.S. Government Accountability Office
  Veterans Health Administration Contracting and Procurement Practices
         Subcommittee on Health, Committee on Veterans' Affairs
                     U.S. House of Representatives
                           September 23, 2010

    Question 1: How were the incidents mentioned in Ms. Draper's 
testimony discovered?

    Response: The incident in which an incorrect expendable medical 
supply item was purchased and subsequently used in dialysis machines, 
which resulted in the potential cross-contamination of veterans' blood, 
was discovered by VA medical center (VAMC) staff on October 21, 2009 
during an annual, routine maintenance inspection of the VAMC's dialysis 
machines. Initially the incident was presumed to be the result of a 
defect in the machine. On October 26, 2009, the VAMC staff contacted 
the manufacturer and during discussions with the manufacturer 
determined that an incorrect expendable medical supply item had been 
purchased and was in
      
use in the machines. That incorrect item allowed veterans' blood to 
pass into the machine during treatment and resulted in potential cross-
contamination with the blood of veterans who were subsequently treated 
using these machines.
    Another incident, which involved the improper reprocessing \1\ of 
an auxiliary water tube, a type of reusable medical equipment (RME) 
used with a colonoscope, was discovered by VAMC staff in March 2009. 
Initially, in response to a VA patient safety alert that was issued on 
the auxiliary water tube in December 2008, officials from the VAMC 
checked their inventory management systems and concluded--incorrectly--
that the tube was not used at the facility because it was not listed in 
the facility's inventory management systems. However, during an in-
depth inspection of the facility's reprocessing activities, which 
consisted of searching all clinical areas of the VAMC for RME, VAMC 
staff determined that the auxiliary water tube was, in fact, being used 
at the facility.
---------------------------------------------------------------------------
    \1\ Reprocessing refers to the steps by which RME is prepared for 
reuse and includes cleaning and disinfecting or sterilizing the medical 
equipment.

---------------------------------------------------------------------------
      How were patients impacted by these incidents?

    According to VAMC staff, the incident in which an incorrect 
expendable medical supply item was purchased and subsequently used in 
dialysis machines potentially exposed 83 veterans to infectious 
diseases, such as Human Immunodeficiency Virus (HIV), Hepatitis B, and 
Hepatitis C. As of June 2, 2010, the VAMC reported that testing for 82 
of the 83 veterans had been completed and that no veterans had acquired 
infectious diseases as a result of this incident. The VAMC found that 
one of the 83 veterans identified was dialyzed on an uncontaminated 
machine and therefore this veteran was not notified or tested for these 
infectious diseases.

    According to VAMC staff, the incident that involved the improper 
reprocessing of an auxiliary water tube potentially exposed 2,526 
veterans to infectious diseases, such as HIV, Hepatitis B, and 
Hepatitis C. As of August 17, 2010, the VAMC reported that it had 
successfully notified 2,523 of the 2,526 veterans of possible exposure 
to infectious diseases and that there were 17 new positive test 
results. VA reports that these results are not necessarily linked to 
RME issues and is continuing its evaluation.\2\
---------------------------------------------------------------------------
    \2\ The VAMC reported that it was unable to contact the remaining 
three veterans.

      Could these incidents have been prevented by VAMCs 
---------------------------------------------------------------------------
following the policies GAO identified?

    The incident in which an incorrect expendable medical supply item 
was purchased and subsequently used in dialysis machines may have been 
prevented had the VAMC followed VA's purchasing policies. VA policy 
requires that a designated VAMC committee review and approve proposed 
purchases of any expendable medical supplies that have not been 
previously purchased by the VAMC. However, the incorrect item that was 
used in conjunction with the dialysis machines was not reviewed and 
approved by a VAMC committee. If the item had gone through the 
Committee review and approval process, a clinical representative on the 
Committee may have recognized that it was inappropriate for use in 
dialysis machines and not approved the purchase. Furthermore, VA policy 
requires that all approvals for purchases of expendable medical 
supplies must be signed by two officials, the official placing the 
order and the official responsible for approving the purchase. However, 
the staff member working in the dialysis department purchased the 
incorrect item without obtaining the signature of an approving 
official. An approving official may have recognized that the item was 
inappropriate for use in dialysis machines and not approved the 
purchase.

    The incident that involved the incorrect reprocessing of an 
auxiliary water tube may have been recognized 3 months earlier, and 
fewer veterans would have been potentially exposed to improperly 
reprocessed RME, had the auxiliary water tube been listed in one of the 
facility's inventory management systems. However, VA policy does not 
currently require information about RME valued under $5,000 that is not 
purchased on a recurring basis to be entered into an inventory 
management system. This incident does not indicate a lack of compliance 
with VA's requirement for entering information on RME into an inventory 
management system, because the auxiliary water tube is valued at less 
than $5,000 and is not purchased on a recurring basis. However, this 
incident exposed a gap in VA policy with regard to tracking RME. In 
part because the item was not listed in the facility's inventory 
management system, personnel incorrectly concluded that the item was 
not in use.

    Question 2: Why are Committee reviews important for patient safety?
      
    Response: The Committee review and approval process is important 
for patient safety because Committees review and approve proposed 
purchases to evaluate the cost effectiveness of the purchase, as well 
as its likely impact on veterans' care. Therefore, without this review, 
the VAMC has no assurance that expendable medical supplies and RME that 
are purchased are appropriate or safe for use on veterans. For example, 
the Committee that reviews and approves proposed RME purchases often 
includes a representative from the department responsible for 
reprocessing the RME. This individual serves on the Committee to 
determine whether the VAMC has the capability to reprocess the RME 
correctly and to ensure that staff is appropriately trained to do so. 
Proper reprocessing of RME is important to ensure that veterans are not 
exposed to infectious diseases during treatment.

    Question 3: Why are VAMCs not always following the required 
Committee review and approval process?

    Response: We are unable to determine why VAMCs do not always follow 
VA's required Committee review and approval process. However, we found 
several instances at the VAMCs we visited in which clinical department 
staff placed orders for expendable medical supplies or surgical 
instruments, a type of RME, directly with the vendor instead of 
following this process. In these cases, officials outside the clinical 
departments may not be aware that the supplies have been ordered.

    Question 4: In her testimony, Ms. Draper mentioned VA's double 
signature policy related to the purchasing of supplies and equipment. 
Could you please elaborate on how this policy is connected to patient 
safety?

    Response: While one purpose of this policy is to prevent fraudulent 
purchases from occurring through segregating purchasing 
responsibilities, such as completing a purchase order and approving a 
purchase order, this policy is also connected to patient safety as it 
helps VAMCs identify whether proposed purchases are correct and 
appropriate for the clinical department making the purchase.

    Question 5: Why are VAMCs not entering information about expendable 
medical supplies in the Generic Inventory Package (GIP)?

    Response: We are continuing to evaluate why VAMCs are not entering 
information about expendable medical supplies in GIP. Based on our 
preliminary work we have found that officials from one VAMC we visited 
incorrectly believed that VA policy does not require expendable medical 
supplies used in only one clinical department to be entered into GIP. 
In contrast, officials from another VAMC correctly believed that VA 
policy requires them to enter information about all expendable medical 
supplies in GIP regardless of whether they are used facility-wide or 
only in a limited number of clinical departments. However, this 
facility had difficulty ensuring that supplies that are ordered by 
clinical department staff on a recurring basis are actually entered 
into GIP.

    Question 6: Does VA headquarters provide sufficient guidance to 
VAMCs on implementing its policies on purchasing and tracking of 
expendable medical supplies and reusable medical equipment?

    Response: We are continuing to evaluate whether VA headquarters 
provides sufficient guidance to VAMCs on implementing VA's policies on 
purchasing and tracking of expendable medical supplies and RME; 
however, we found that in some cases these policies lack clarity or 
appear to contradict each other. For example, VHA Handbook 1761.02 
states that purchase cards are not authorized for purchasing equipment, 
while VHA Handbook 1730.01 states that ``national policy allows 
purchase cards to be used for repair and equipment purchase.'' \3\
---------------------------------------------------------------------------
    \3\ See VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 
2009) and VHA Handbook 1730.01, Use and Management of the Purchase Card 
Program (Aug. 27, 2008).

    Question 7: Will VA's new inventory management system, Strategic 
Asset Management, address the problems about items not being listed in 
---------------------------------------------------------------------------
VA's inventory management systems?

    Response: Because Strategic Asset Management (SAM) is not expected 
to be operational until March 2011, we cannot determine if the problems 
we identified would be fully addressed by the implementation of SAM. 
However, it does appear that this system will address the problem of 
inconsistent naming of RME in VA's inventory management systems as it 
is expected to help standardize names for all expendable medical 
supplies and RME. Inconsistent naming of RME in VA's inventory 
management systems makes it difficult for VAMCs to locate a specific 
type of RME in response to a manufacturer or FDA recall or patient 
safety alert.
      
    Question 8: Is it a violation of VA policy to purchase instruments, 
such as surgical or dental instruments, with purchase cards?

    Response: According to a VA headquarters official, it is not a 
violation of VA policy for clinical department staff to purchase 
instruments using purchase cards because instruments are not considered 
to be ``equipment'' for purposes of VA's purchasing and tracking 
policies, even though they are a type of RME. However, we have found 
that this may contribute to a potential patient safety concern because 
at some VAMCs, purchases made by clinical department staff using 
purchase cards were not always reviewed and approved as required by a 
Committee and that the department responsible for reprocessing the 
instruments may be unaware of the purchases. To prevent this problem 
from occurring, some VAMCs we visited have developed policies that 
prohibit clinical department staff from purchasing instruments using 
purchase cards.

      What about other reusable medical equipment?

      We have found that VA's policies on purchasing equipment appear 
to contradict each other. VHA Handbook 1761.02 states that purchase 
cards are not authorized for purchasing equipment, while VHA Handbook 
1730.1 states that ``national policy allows purchase cards to be used 
for repair and equipment purchase.'' \4\
---------------------------------------------------------------------------
    \4\ See VHA Handbook 1761.02, VHA Inventory Management (Oct. 20, 
2009) and VHA Handbook 1730.01, Use and Management of the Purchase Card 
Program (Aug. 27, 2008).

      VA headquarters officials told us that clinical department staff 
is not permitted to purchase RME using purchase cards. However, VA 
headquarters officials also told us that some VAMC staff members may be 
granted the authority by a VAMC Committee to use purchase cards to 
---------------------------------------------------------------------------
purchase RME.

    Question 9: What gaps has GAO identified in VA's requirements for 
tracking medical equipment in its inventory management systems?

    Response: We are continuing to evaluate VA's requirements for 
tracking medical equipment and expendable medical supplies in its 
inventory management systems. Through our preliminary work, we have 
identified, for example, a gap in VA's requirements for tracking 
medical equipment in the Automated Engineering Management System/
Medical Equipment Reporting System (AEMS/MERS)--VA's inventory 
management system for equipment. VA policy only requires RME costing 
$5,000 or more and with a useful life of 2 years or more to be entered 
in AEMS/MERS. Certain RME costs less than $5,000 and would therefore 
not be required to be entered in AEMS/MERS. This means that VAMCs' 
inventory of medical equipment could be incomplete. This gap has 
important patient safety implications. For example, in response to a VA 
patient safety alert that was issued on the auxiliary water tube in 
December 2008, officials from one VAMC checked their inventory 
management systems and concluded--incorrectly--that an auxiliary water 
tube, a type of RME, was not used at the facility. However, in March 
2009, the VAMC discovered that the tube was in use and was not being 
reprocessed correctly, potentially exposing veterans to infectious 
diseases.

    Question 10: Why is oversight of VA's policies on purchasing and 
tracking important for patient safety?

    Response: Oversight of VAMC's compliance with VA's policies on 
purchasing and tracking is important for patient safety because 
compliance with these policies can help prevent patient safety 
incidents. For example, compliance can help prevent the purchase of 
incorrect medical supplies and the purchase of RME that VAMC staff 
members are not trained to reprocess or that the VAMC cannot reprocess 
correctly because it lacks the appropriate equipment. Compliance with 
these policies can also help ensure that VAMCs do not use expired 
supplies and that they are able to identify supplies and equipment that 
are the subject of a patient safety alert or a recall in a timely 
manner.

    Question 11: Is VA doing enough oversight of VAMCs' purchasing and 
tracking policies?

    Response: We are continuing to evaluate the oversight of compliance 
with VA's purchasing and tracking requirements by VA headquarters, 
selected Veterans Integrated Service Networks, and selected VAMCs.

                                 
      
                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Honorable George J. Opfer
Inspector General
Office of the Inspector General
U.S. Department of Veterans Affairs
801 I Street, N.W.
Washington, D.C. 20002

Dear Inspector General Opfer:

    Thank you for the testimony of Belinda J. Finn, Assistant Inspector 
General for Audits and Evaluations, at the U.S. House of 
Representatives Committee on Veterans' Affairs Subcommittee on Health 
oversight hearing on ``VHA Contracting and Procurement Practices,'' 
which took place on September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

    1.  During OIG's audit of oversight over patient transportation 
contracts, you found that contracting officers cited staff shortages 
and heavy workloads as a factor contributing to the issues you 
unearthed surrounding these contracts. Were there other factors as 
well? Are shortages in contracting officers a common problem within 
VHA, and if so, how can this issue be addressed?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

                                U.S. Department of Veterans Affairs
                                        Office of Inspector General
                                                    Washington, DC.
                                                  November 15, 2010

The Honorable Michael H. Michaud
Chairman
Subcommittee on Health
Committee on Veterans' Affairs
United States House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

    This is in response to your October 4, 2010, letter following the 
September 23, 2010, hearing on VHA Contracting and Procurement 
Practices. Enclosed is our response to the additional hearing question.
    Thank you for your interest in the Department of Veterans Affairs.

            Sincerely,

                                          /s/Richard J. Griffin for
                                                    GEORGE J. OPFER
                                                  Inspector General
Enclosure

                               __________

              Questions From the Honorable Michael Michaud
     For Belinda Finn, Assistant Inspector General for Audits and 
                              Evaluations
    Office of Inspector General, U.S. Department of Veterans Affairs
                   Before the Subcommittee on Health
                     Committee on Veterans' Affairs
                 United States House of Representatives
          Hearing on VHA Contracting and Procurement Practices

    Question 1: During OIG's audit of oversight over patient 
transportation contracts, you found that contracting officers cited 
staff shortages and heavy workloads as a factor contributing to the 
issues you unearthed surrounding these contracts. Were there other 
factors as well? Are shortages in contracting officers a common problem 
within VHA, and if so, how can this issue be addressed?

    Response: Our current work shows that contracting staff 
inexperience is also a challenge and that staff could benefit from 
training. With the loss of institutional knowledge resulting from 
retirements, VA's acquisition workforce has been strained to keep pace 
with the increased amount of and complexities associated with 
outsourced work in support of VA's mission. In response to this 
challenge, VA created an Acquisition Academy to address the growing 
acquisition workforce challenge facing the Department to help meet 
required certification standards for the acquisition workforce.
    Our audits and reviews frequently report that contracting officers 
staffing shortages are an issue. The total staff authorized for 
Veterans Integrated System Network (VISN) contracting activities is 
2,111 full time equivalents (FTEs). In June of 2010, the vacancy rate 
was approximately 28 percent; by September 30, 2010, the vacancy rate 
was just under 10 percent.
    VA has developed a workforce modeling tool to determine whether 
staffing levels are sufficient to meet the demands of the workload. 
However, to remain useful this tool needs constant maintenance 
including the monitoring of current contract workload and staffing 
levels. Indications are that the information in this tool has not been 
kept current. Also, VA's Electronic Contract Management System (eCMS) 
has a workload data tool that provides the functionality needed for the 
purpose of monitoring workload and staffing levels. VA and Veterans 
Health Administration acquisition management need to decide which tool 
is best suited to monitor workload, determine appropriate staffing, and 
commit the resources to maintain and monitor workload and staffing 
levels.
    To address staff shortages, VA can aggressively pursue options to 
recruit staff trained in acquisition support activities or provide more 
opportunities for VA staff to assume these mission-critical 
responsibilities. In addition, VA should consider evaluating the 
adequacy of the training provided at the VA Acquisition Academy to VISN 
contracting officers, Contracting Officers Technical Representatives, 
and other acquisition support staff. During 2010 audit work, we 
performed a survey of VISN Network Contract Managers (NCMs). Nine out 
of 16 NCMs, who reported taking training at the Academy, responded that 
the training contracting officers receive from the Academy did not 
adequately prepare them to support the needs of program officials and 
comply with acquisition laws, regulations, and VA policy. When asked to 
explain why the training was not adequate, NCMs recommended that 
training needed to be more tailored to the VA environment. NCMs also 
responded that there was a need for health care contract training.
    Another step that could improve the development of VA's acquisition 
workforce is to ensure the entire VA procurement force is trained and 
uses the same acquisition support information system. Use of eCMS is 
mandated, however the system is not fully utilized and information 
within the system is often incomplete. VA can develop specific 
performance measures that align with the performance related to the 
use, quality, and completeness of the information in eCMS. VA's ability 
to obtaining reliable information and transparency over all 
acquisitions and to assess how well these acquisitions complied with 
laws, regulations and policies is key to helping identify systemic 
weaknesses in acquisition practices and to tailor training requirements 
to address deficiencies in the future.

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                    October 4, 2010

Honorable Eric K. Shinseki
Secretary
U.S Department of Veterans Affairs
810 Vermont Avenue, NW
Washington, D.C. 20420

Dear Honorable Shinseki:

    Thank you for the testimony of Frederick Downs, Jr., Chief 
Procurement and Logistics Officer in the Veterans Health 
Administration, and Dr. Andrea Buck, National Director of Medicine, at 
the U.S. House of Representatives Committee on Veterans' Affairs 
Subcommittee on Health oversight hearing on ``VHA Contracting and 
Procurement Practices,'' which took place on September 23, 2010.
    Please provide answers to the following questions by Monday, 
November 15, 2010, to Jeff Burdette, Legislative Assistant to the 
Subcommittee on Health.

     1.  Does the VA have any policies in place that limit the 
dispensing of the initial supply of expensive brand name drugs that 
have high discontinuation rates? If yes, can you define, by therapeutic 
drug class or NDC, the types of drugs that have less than 30-day or 90-
day supplies? If not, can you explain your rationale?
     2.  As you know, pharmacy high-cost users account for a 
disproportionately high percentage of a plan's drug expenditures. Are 
there any programs in place to identify, monitor then manage, the drug 
utilization for these members? Please explain.
     3.  Management of narcotic use is a balance between pain 
management and potential abuse. Are there programs in place to 
identify, monitor then manage VA patients using chronic pain 
medication? Please explain.
     4.  Prescription refills of maintenance medications are a routine 
event in most cases. However, issues can arise for non-maintenance 
medications. Can you please explain how early refills for non-
maintenance drugs are presently managed?
     5.  How do you respond to the concerns that GAO and OIG raised in 
their testimony? What steps has VHA taken to address contracting and 
procurement weaknesses and deficiencies that GAO and OIG have 
identified over the years?
     6.  What are the different ways that vendors can get their 
products to veterans? Are there multiple ways to do this and what is 
VHA doing to ensure that there is transparency this process?
     7.  Would VA be willing to share de-identified pharmacy and 
medical claims data for an independent review, providing the entity 
performing the reviews signed a Non-Disclosure and HIPAA Business 
Associate Agreement?
     8.  In his testimony, Mr. Downs noted that ``as new technologies 
become available, VHA staff members from clinical, logistics and 
acquisition disciplines form a team to carefully review potential 
applications before determining which advances to adopt''. This is 
contrary to what we heard at a recent Health Subcommittee hearing on 
wireless health technologies. We heard about the lack of transparency 
and the difficulties that companies face in informing VHA about their 
products. Can you explain this disconnect?
     9.  How does the VHA Procurement and Logistics Office prioritize 
procurement requests from the program office?
    10.  What coordination exists between the VHA Procurement and 
Logistics Office and the VHA policy/program offices?
    11.  In his testimony, Mr. Downs referred to VHA's use of the 
Generic Inventory Package and how VHA tracks over 1,300 expendable 
inventories consisting of 928,816 line items. Is there a threshold, 
such as a dollar amount, that dictates which expendable equipments are 
entered into the Generic Inventory Package?

        a.  What is the difference between the GIP and the Automated 
Engineering Management System/Medical Equipment Reporting System (AEMS/
MERS)? Do the two programs overlap in function?

    12.  GAO identified gaps in VA policies regarding entering 
information on expendable medical supplies and RME into VA's inventory 
management systems. Does VA have plans to address those gaps so that 
VAMCs will have an accurate record of the medical supplies and medical 
equipment they use? If so, how does VA plan to do so?
    13.  Please describe VA's current oversight to ensure that VAMCs 
comply with VA's policies for purchasing and tracking of expendable 
medical supplies and reusable medical equipment. Does VA plan to 
strengthen its oversight and, if so, what steps does VA plan to take to 
do this?
    14.  What role do the VISNS currently have in overseeing VAMC 
compliance with VA's policies on purchasing and tracking of expendable 
medical supplies and reusable medical equipment? Please describe any 
plans VA Central Office has to change or enhance this oversight.
    15.  How will SAM enhance VA's ability to oversee purchasing and 
tracking of expendable medical supplies and reusable medical equipment 
by VAMCs?
    16.  Could you explain the relationship between the VHA Procurement 
and Logistics Office and the central VA National Acquisition Center? 
Under what circumstances does a local VA medical center obtain goods 
through the VHA Procurement and Logistics Officer versus the VA 
National Acquisition Center?
    17.  How does VA central office monitor VISNs to ensure that they 
are adequately overseeing VAMC compliance with VA's policies on 
purchasing expendable medical supplies and reusable medical equipment?
    18.  What oversight do VAMC acquisition and Materiel Management 
(A&MMS) departments receive from the VISN and VA central office 
regarding compliance with 1) VA's prime vendor program; 2) small 
business programs and socioeconomic goals; 3) the Federal supply 
schedule program; and 4) general purchasing and acquisition policies.
    19.  What steps is VA taking to standardize certain types of 
reusable medical equipment, such as using the same type of 
colonoscopes, across VAMCs?
    20.  20) How will VAMCs be impacted by VHA's new acquisitions and 
contracting policy requiring all items over $3,000 to be purchased by a 
VISN-level contracting officer, which goes into effect on October 1, 
2010?
    21.  When are VAMCs required to make purchases from prime vendors?
    22.  Please describe the process by which VAMCs may negotiate 
prices under the Federal supply schedule program. To what extent are 
VAMCs successful at negotiating lower prices under the Federal supply 
schedule program.
    23.  Please describe the extent to which VAMCs met the prescribed 
small business programs and socioeconomic goals in fiscal year 2008 and 
2009? What steps have VAMCs taken to meet these goals?
    24.  Could you explain the process of how VA medical centers obtain 
and provide Durable Medical Equipment (DME) to veteran patients?
    25.  Is there a dollar threshold for local medical center 
acquisitions? Could the local VA medical center make acquisitions using 
government purchase cards?
    26.  The VHA Operations Quality Assurance Office provides direct 
oversight to VHA acquisition activities and conducts annual site visits 
to Service Area Offices. Has the VHA Operations Quality Assurance 
Office identified the same weaknesses that GAO and OIG have found over 
the years? Also, GAO and OIG have independence and can expose problems 
without any fear or recourse. What assurances does the VHA Operations 
Quality Assurance Office have that they will not face any retribution 
from their oversight activities and that their findings will be taken 
seriously?
    27.  Does VHA use competitive bidding in the procurement of DME 
such as beds, wheelchairs, walkers?
    28.  It is my understanding that the Prosthetics and Clinical 
Logistics Office (P&CLO) generally oversees DME procurement and 
utilization, but medical facilities administer the home oxygen and 
respiratory services locally to provide eligible VA patients home 
oxygen and respiratory services, is that correct? If so, could you 
explain why home oxygen and respiratory services are administered 
locally, whereas other DME purchases are overseen and administered by 
the Prosthetics and Clinical Logistics Office?
    29.  It is my understanding that VHA uses several contracting 
mechanisms for acquisition of pharmaceuticals, medical and surgical 
supplies, prosthetics, information technology. For example VA uses the 
Federal Supply Schedule (FSS), Blanket Purchase Agreements (BPA), 
National Contracts, etc, when procuring pharmaceuticals for veterans. 
Could you explain to the Committee what mechanisms are used to purchase 
medical and surgical supplies, prosthetics, and medical information 
technology? What office or offices in VHA oversees these acquisitions?
    30.  As you are aware, VA and DoD have made substantial progress in 
increasing joint procurement activities since December 1999. This was 
done to eliminate redundancies in purchases. Could you please provide 
the Committee with an update of current joint DoD-VA procurement 
activities? How do VA and DoD collaborate to make medical acquisitions?
    31.  In Mr. Downs' testimony, he noted that all acquisition 
personnel previously reporting to the VISN or medical center directors 
have now been realigned under the VHA Procurement and Logistics Office. 
When did this change take place and what are some improvements that you 
have observed as a result of this change?
    32.  In 2006, Secretary Nicholson signed VA Directive 1663 which 
established specific policies and procedures for the award of sole-
source health care resource contracts to VA affiliated institutions. An 
OIG audit issued in September 2008, showed that VHA entities were not 
complying with the Directive.

        a.  What actions have you taken since the OIG Audit was issued 
to ensure compliance with this Directive?
        b.  What percentage of health care resource contracts awarded 
by VHA in FY 2009 and FY 2010 complied with the Directive?
        c.  Given the significant potential cost savings identified by 
the pre-awards, what actions have you taken to ensure that all 
proposals for contracts with an estimated value $500,000 or more are 
referred to the OIG for a pre-award?

    33.  To optimize the performance of VA's acquisition system, the 
former Secretary of Veterans Affairs established a Procurement Reform 
Task Force in June 2001 and a final report was released in May 2002. It 
is my understanding that the VA began implementing recommendations made 
by the Task Force. Were the recommendations fully implemented? Have 
there been any new initiatives to improve VA's medical acquisition 
system?.
    34.  I understand you signed an executive decision memorandum April 
29, 2010, which directed the Chief Acquisition Officer to implement the 
Acquisition Transformation Initiative at VA. Under this initiative, VA 
is to establish a strategic acquisition center to implement strategic 
sourcing initiatives for VA and handle contracting requirements 
exceeding field purchasing thresholds. However, I recently learned VHA 
is moving forward to increase its contracting workforce by an 
additional 400 FTE, and is currently advertising senior executive 
positions for VHA's three Service Area Offices. How does VHA's actions 
in this regard comport to Secretary Shinseki's direction to the Chief 
Acquisition Officer? What is the rationale and justification behind 
such an increase given the new strategic acquisition center will 
provide contracting support to VHA above a notional threshold for field 
purchases? Will this not complicate the Chief Acquisition Officer's 
ability to implement the Secretary's Acquisition Transformation 
Initiative?

        a.  Another key change is that all acquisition authorities will 
flow from the Chief Acquisition Officer in the Office of Acquisition, 
Logistics, and Construction to the Heads of Contracting Activities who 
will be directly accountable to the Chief Acquisition Officer for 
ensuring compliance with enterprise policies, processes, and systems.

            i.  What actions are being taken by VHA to ensure that the 
proper flow of information from the Chief Acquisition Officer to the 
Head of Contracting Activities in VHA?
           ii.  What actions are being taken by VHA to ensure the HCA's 
implement these policies, processes, and systems, and are held 
accountable?

    35.  I'm interested in some general statistics about the contracts 
that VA awards. How many contracts did VHA award in fiscal year 2009? 
What percentage of the contracts were competitive versus sole-source 
contracts? What was the percentage of performance-based contracts?
    36.  In 2010, OIG's Office of Contract Review conducted pre-award 
reviews of 32 health care resource proposals. These reviews identified 
$39 million in potential cost savings that could be realized during 
negotiations.

        a.  What is the amount spent annually on contracts awarded on a 
sole-source basis to VA affiliated institutions?
        b.  What actions have you taken or are you planning to take to 
ensure that the cost savings identified in the pre-award reports are 
realized by negotiating lower prices?

    Thank you again for taking the time to answer these questions. The 
Committee looks forward to receiving your answers by November 15, 2010.

            Sincerely,

                                                 MICHAEL H. MICHAUD
                                                           Chairman

                               __________

                        Questions for the Record
                            Chairman Michaud
  House Veterans' Affairs Subcommittee on Health Oversight hearing on
             ``VHA Contracting and Procurement Practices''
                           September 23, 2010

    Question 1: Does the VA have any policies in place that limit the 
dispensing of the initial supply of expensive brand name drugs that 
have high discontinuation rates? If yes, can you define, by therapeutic 
drug class or NDC, the types of drugs that have less than 30-day or 90-
day supplies? If not, can you please explain your rationale?

    Response: There is not a national policy; however, Veterans 
Integrated Service Networks (VISNs) and facilities are not prohibited 
from having policies and procedures in place to limit initial supplies 
of medications. These regional and local policies and procedures are 
typically based on drug safety, cost, and utilization patterns. Each 
VISN Pharmacist Executive (VPE) and Chief of Pharmacy has access to a 
business analysis tool for data mining to assist in identifying 
regional and/or local patterns in drug utilization where limits on 
initial dispensing of certain medications may be required. The 
following are known examples where VISNs and/or facilities have 
implemented initial supply limits: atypical antipsychotics, pain 
medications, warfarin, growth factors, oncology medications, 
cholinesterase inhibitors, erythropoiesis-stimulating agents, and non-
formulary brand name medications.

    Question 2: As you know, pharmacy high-cost users account for a 
disproportionately high percentage of a plan's drug expenditures. Are 
there any programs in place to identify, monitor then manage the drug 
utilization for these members? Please explain.

    Response: VA prescription drug costs per patient include all 
patients receiving drugs from VA pharmacies. In contrast, other 
prescription benefits plans report per member per month or per member 
per year, which underestimates costs because members that do not use 
the benefit are counted in the calculation. Patients served by other 
prescription benefit plans are typically younger with fewer chronic 
diseases than patients served by VA; therefore their prescription costs 
would be expected to be lower than VA's costs. Despite these 
differences, VA's costs are significantly lower than other health 
plans. VA closely manages drug utilization for all patients, not just 
high-cost users, to ensure safe, effective and appropriate medication 
use.
    According to a presentation entitled ``Overview and Update on DoD 
Pharmacy'' presented at the 2010 Military Health System Conference, the 
pharmaceutical cost per Department of Defense eligible beneficiaries 
aged 65 and older was $1,927 in fiscal year (FY) 2009, compared to $686 
in the same age group in VA during the same time period. According to 
the Pharmacy Benefit Management Institute (PBMI) 2009 Prescription Drug 
Benefit Cost and Plan Design Survey, completed by 417 employers 
representing 7,041,676 members, the average net prescription drug cost 
per retiree per month extrapolates to $1,770 per member per year. In 
comparison, the VA average prescription drug cost per unique patient in 
FY 2009 was $697 and VA's cost is a gross cost; it does not subtract 
first party co-payments. According to Express Scripts, the overall per 
member per year drug cost was $911 based on the 36 million lives in the 
commercial client groups. In comparison, the VA average prescription 
drug cost per unique patient in FY 2009 was $697; again, other plans 
have younger, healthier patients than VA's patients and include all 
members, and unlike VA, patients are included regardless of whether or 
not they use the prescription benefit.
    VA Pharmacy Benefits Management Services (PBM) monitors utilization 
and conducts safety and efficacy reviews using a central drug 
utilization analysis database. The results of these analyses are then 
used to assess future needs. One of the ways the database is utilized 
is to identify potential areas for managing drug costs through cost-
avoidance initiatives. These are developed nationally, and may be 
implemented at the VISN or local medical care facility level. The 
intent of the program is to actively pursue pharmacy efficiencies and 
appropriateness of use for selected pharmaceuticals and reduce the 
variance in drug cost per patient across the system while assuring no 
negative impact on the quality of care. The program was formally 
initiated in FY 2007 and has resulted in substantial cost avoidance and 
a subsequent reduction in the variance in drug cost per patient. The 
program documented cost avoidance of $264 Million in FY 2007, $354 
Million in FY 2008, $191 Million in FY 2009 and $112 Million projected 
for FY 2010. As a result of these efforts, the variance in cost per 
patient has decreased substantially between VISNs. VA's average cost of 
a 30-day equivalent outpatient prescription changed from $13.03 in FY 
1999, to $12.64 in FY 2009, a 3.0 percent decrease over a 10-year 
period.

    Question 3: Management of narcotic use is a balance between pain 
management and potential abuse. Are there programs in place to 
identify, monitor then manage VA patients using chronic pain 
medication? Please explain.

    Response: VHA appreciates the important balance between meeting the 
needs of Veterans with pain by providing access to opioid analgesic 
medications and concerns about patient opioid misuse, abuse, and 
addiction and public safety concerns related to diversion. VHA has been 
in the forefront of efforts to address this issue and has developed a 
comprehensive approach for promoting safe and effective use of opioids.
    In October 2009, as directed by Congress, VHA published a 
comprehensive policy for pain management (VHA Directive 2009-053). The 
policy articulates standards for pain assessment and treatment 
including parameters for safe and effective prescribing of opioid 
analgesics. Earlier in 2007, VHA launched a comprehensive Opioid-High 
Alert Medication Initiative to address concerns about safe prescribing 
of opioids in both inpatient and outpatient settings. Parameters of 
safe prescribing were established, and a comprehensive approach to 
dissemination and implementation of these standards was undertaken. A 
recent Health Analysis and Information Group (HAIG) Pain Management 
Survey documented a high level of implementation of these standards 
across VHA facilities.
    A key to safe and effective use of opioids for the management of 
pain is the education and training of both prescribers to assure their 
competencies in this practice area and the education of patients and 
families about benefits and risks of opioid analgesics. In 2010, VHA 
and DoD collaborated in the publication of a Chronic Opioid Therapy 
Clinical Practice Guideline (CPG) that articulates state-of-the-science 
practice recommendations for the use of this class of medications. The 
CPG specifically addresses the balance of promoting effective use of 
these medications for the management of chronic pain and strategies for 
evaluating and mitigating risk. Supporting the CPG is a comprehensive, 
web-based educational program available on the VHA's Learning 
Management System (LMS). Both the CPG and LMS course on opioid therapy 
recommend the use of a Opioid Pain Care Agreement as a key resource for 
promoting education of patients and family members about the potential 
benefits and risks of chronic opioid therapy, for establishing the 
parameters of safe prescribing of opioid therapy, and for generally 
promoting well-informed shared medical decision-making involving 
prescribers and patients. Currently under review in the VA Central 
Office concurrence process, is a VHA Directive, a national standard 
Opioid Pain Care Agreement and supplemental patient educational tools 
to be used for these purposes. Finally, this comprehensive approach is 
supported by a variety of additional educational efforts including 
workshops at national pain management leadership conferences and 
regularly scheduled educational teleconferences.
    Through the national Pharmacy Benefits Management Services (PBM), 
VHA also conducts semi-annual opioid prescription reviews that identify 
patients who obtain prescription fills from more than one facility 
either within Veterans Integrated Service Networks or VISNs (``Multi-
site'') or between VISNs (``Multi-VISN''). After contacting providers 
and patients, locally designated personnel identify the one site that 
will fill future opioid prescriptions. Local personnel may take 
additional steps as indicated to address any patient drug-seeking or 
other aberrant drug-related behaviors. These prescription reviews have 
reduced the number of Multi-site and Multi-VISN opioid prescription 
fills since their inception in late 2002.
    In addition to the Multi-site and Multi-VISN opioid prescription 
surveillances, the PBM has recently implemented semi-annual Large Dose 
opioid prescription reviews that identify patients who have been 
prescribed aberrantly large doses of opioids, defined as the top 10 
largest quantities of opioids in each VISN. Locally designated 
personnel evaluate the Large Dose patient cases for appropriateness in 
terms of quality of care and safety using a protected peer review 
process.

    Question 4: Prescriptions refills of maintenance medications are a 
routine event in most cases. However, issues can arise for non-
maintenance medications. Can you please explain how early refills for 
non-maintenance drugs are presently managed?

    Response: In VA, all refills are managed by the facility where the 
prescription was originally written. The VA computer system 
automatically builds a 10 day early window into the request process for 
all refillable prescriptions. This has the effect of generally ensuring 
that patients receive the next refill in plenty of time. In all cases, 
the patient must request a refill; they are not automatically sent. 
This is done to avoid waste by sending patients prescriptions that have 
been discontinued or modified by their provider and to prevent unsafe 
conditions resulting from the stockpiling of unneeded medications. 
Requests for refills beyond the 10-day window are handled on a case-by-
case basis by local pharmacy staff members based on the unique 
situations encountered by patients. In some cases, a partial quantity 
may be dispensed to bridge the patient's supply until receipt of the 
regularly scheduled refill or until the next medical appointment. 
Requests for early fills for controlled substances are generally 
referred to the patient's provider as running out of these medications 
can signal a change in medical condition or potential misuse.

    Question 5: How do you respond to the concerns that GAO and OIG 
raised in their testimony? What steps has VHA taken to address 
contracting and procurement weaknesses and deficiencies that GAO and 
OIG have identified over the years?

    Response: The acquisition concerns raised by GAO and OIG during 
their testimony are valid. VHA has taken several steps to address 
acquisition deficiencies including: realigning VHA's acquisition 
workforce and establishing a VHA Compliance/Quality division 
responsible for tracking, reviewing and addressing recommendations.
    The purpose of the realignment was to provide decision makers with 
the appropriate authority to execute strategic procurement programs, 
improve procurement oversight and create the best opportunity for 
stewardship. The realignment created a regional infrastructure with 
three service area office's being responsible for regions of 6-8 
Networks or Program Offices. Each Service Area Offices (SAO) includes 
the following staff: SAO Director, SAO Deputy Director, Quality 
Reviewers, Training Officers, Data/Program Analysts, Finance/Budget 
Specialists and an Administrative Officer dedicated to regional 
management of the Networks. At the national level, the VHA Procurement 
& Logistics Office (P&LO) monitors the metrics established for each SAO 
to determine if the SAO regions are compliant with procurement 
regulations and guidelines. This robust system drastically improved the 
oversight and monitoring of procurement functions.
    In addition, the National VHA Quality/Compliance team is 
responsible for ensuring that the recommendations made by the OIG/GAO 
are instituted and all Networks comply with the requirements. This team 
tracks the OIG/GAO audits and monitors the associated recommendations. 
This team is also responsible for conducting random internal audits to 
ensure continued compliance.

    Question 6: What are the different ways that vendors can get their 
products to Veterans? Are there multiple ways to do this and what is 
VHA doing to ensure there is transparency in this process?

    Response: A vendor can get their products to Veterans by 
identifying and responding to procurement opportunities in their 
product or service area by visiting the FedBizOpps (FBO) Web site at 
www.fbo.gov. The FBO site is the Federal Civilian and Military 
Government single point of entry for business opportunities over 
$25,000. A vendor can also establish a General Service Administration 
(GSA) Federal Supply Schedule (FSS) contract. Federal agencies can use 
Government-wide Acquisition Contracts (GWACs) and GSA FSS contracts to 
make purchases for commonly used products and services. These 
opportunities are typically not advertised on the FBO Web site, they 
are normally competed among pre-qualified vendors under contract. VHA 
ensures transparency by advertising procurement opportunities above 
$25,000 and competing procurements, to the maximum extent possible.

    Question 7: Would VA be willing to share de-identified pharmacy and 
medical claims data for an independent review, providing the entity 
performing the reviews signed a Non-Disclosure and HIPAA Business 
Associate Agreement?

    Response: VA can provide de-identified health care claims data upon 
request through FOIA. These are very large files and a focused request 
would be more appropriate. VA can provide fee claims data, although at 
this point approximately 5 percent of claims are received 
electronically and it is unlikely that a review of this very small 
percentage of claims would realize any significant result.
    Given the potential volume for these files, there will likely be 
costs to the VA to provide these data.
    Representatives from the Chief Business Office would be more than 
happy to meet with any vendor to discuss tools they may have that could 
improve our health care claims processing.

    Question 8: In his testimony, Mr. Downs noted that ``as new 
technologies become available, VHA staff members from clinical, 
logistics and acquisition disciplines form a team to carefully review 
potential applications before determining which advances to adopt''. 
This is contrary to what we heard at a recent Health Subcommittee 
hearing on wireless health technologies. We heard about the lack of 
transparency and the difficulties that companies face in informing VHA 
about their products. Can you explain this disconnect?

    Response: VHA's statement is accurate. As new technologies become 
available, VHA staff members from clinical, logistics, and acquisition 
disciplines form a team to carefully review potential applications 
before determining which advances to adopt. There are many standards 
that must be met and verified before we can allow health information to 
be broadcast via various wireless mediums. As such, some wireless 
health technologies present unique challenges to the VA as one of our 
primary concerns is to protect Veterans' health information. This does 
not mean VHA is not pursuing these technologies; however, the team must 
validate that the technology meets VHA's predetermined requirements 
before recommending a potential wireless technology solution. 
Additionally, VHA is not able to review every vendor's technological 
solution; but VHA makes a concerted effort to meet with as many vendors 
as possible.

    Question 9: How do VHA Procurement and Logistics Office prioritize 
procurement requests from the program office?

    Response: Procurement requests from the program offices are 
prioritized based on the needs of the requesting service. VHA 
acquisition staff work with their respective customers to establish 
priorities given: (1) When the procurement is needed and (2) dollar 
value and complexity of the procurement.

    Question 10: What coordination exists between the VHA Procurement 
and Logistics Office and VHA policy/program offices?

    Response: On all issues impacting VHA acquisition, the VHA 
Procurement and Logistics Office (P&LO) closely coordinates with the 
appropriate VHA policy/program offices. When an acquisition policy, 
process, procedure or other change within acquisition is anticipated, 
P&LO identifies the appropriate stakeholders and develops a plan of 
action including determining the impact on: (1) Leadership; (2) 
stakeholders; (3) resource management; (4) budget/finance; (5) 
personnel; and (6) operations. This information is communicated with 
the appropriate offices; and the identified implementation team works 
with the VHA policy/program offices to accomplish the established 
objectives.

    Question 11: In his testimony, Mr. Downs referred to VHA's use of 
the Generic Inventory Package and how VHA tracks over 1,300 expendable 
inventories consisting of 928,816 line items. Is there a threshold, 
such as a dollar amount that dictates which expendable equipments are 
entered into the Generic Inventory Package?

    Response: No, there is not a threshold to determine which 
expendable equipment is entered into the Generic Inventory Package 
(GIP).

    Question 11(a): What is the difference between the GIP and the 
Automated Engineering Management System/Medical Equipment Reporting 
System (AEMS/MERS)? Do the two programs overlap in function?

    Response: The GIP is the inventory system utilized for consumable 
supplies. To date, VHA tracks over 1,300 expendable inventories 
consisting of 928,816 line items. The Automated Engineering Management 
System/Medical Equipment Reporting System (AEMS/MERS) is utilized to 
maintain equipment inventory and maintenance information for Non-
Expendable (NX) Items (Equipment items which have been formally 
classified as NX and assigned a category stock number by the cataloging 
division of Office of Acquisition, Logistics, and Construction). The 
two programs do not overlap in function.

    Question 12: GAO identified gaps in VA policies regarding entering 
information on expendable medical supplies and RME into VA's inventory 
management systems. Does VA have plans to address those gaps so that 
VAMCs will have an accurate record of the medical supplies and medical 
equipment they use? If so, how does VA plan to do so?

    Response: Yes. P&LO is currently collaborating with the VACO 
Medicine Program office (responsible for programmatic oversight of 
reusable medical equipment processes), and the VACO Real Time Location 
System (RTLS) Program office in identifying and pursuing supply and 
equipment tracking technology, which will address those gaps which have 
been identified. It is expected that the technology ultimately adopted 
will be in collaboration with the Strategic Asset Management (SAM) 
initiatives so that this technology can be integrated with and 
incorporated into VA's overall SAM system, anticipated to begin 
national deployment in Fiscal Year 2013.

    Question 13: Please describe VA's current oversight to ensure that 
VAMCs comply with VA's policies for purchasing and tracking of 
expendable medical supplies and reusable medical equipment. Does VA 
plan to strengthen its oversight and, if so, what steps does VA plan to 
take to do this?

    Response: P&LO currently monitors and reports performance 
achievements in the management of consumable and NX items for all 
facilities and at a VISN and national level. This oversight is based 
upon established performance thresholds for effective management of 
consumable supplies based upon GIP data reports and NX inventory 
compliance reports. In addition to these reports, the Office of 
Business Oversight--Management Quality Assurance Section conducts 
assessment reviews of facilities, comparing actual records and business 
processes at a site to those requirements contained within VA and VHA 
policy and directives. P&LO currently has an initiative under way to 
enhance the Logistics Operations Team by building an assessment and 
compliance team, which will be charged with ongoing assessment and 
assistance activities directed to all facilities.

    Question 14: What role does the VISNs currently have in overseeing 
VAMC compliance with VA's policies on purchasing and tracking of 
expendable medical supplies and reusable medical equipment? Please 
describe any plans VA Central Office has to change or enhance this 
oversight.

    Response: VISNs, through the network Chief Logistics Officer (CLO) 
with programmatic oversight responsibility are expected to ensure 
compliance with VA and VHA level policy on tracking of expendable 
supplies and NX equipment. P&LO currently has an initiative under way 
to enhance the Logistics Operations Team by building an assessment and 
compliance team, which will be charged with ongoing assessment and 
assistance activities directed to all facilities. Additionally, P&LO is 
pursuing an initiative directed towards a standardized network level 
Logistics organization, to include staffing requirements designed to 
enhance overall program oversight.

    Question 15: How will SAM enhance VA's ability to oversee 
purchasing and tracking of expendable medical supplies and reusable 
medical equipment by VAMCs?

    Response: The SAM initiative is designed to centralize the 
consumable and NX equipment asset data from all field level sites to a 
centralized database, utilizing nationally standardized item 
nomenclature. Standardizing the data will enhance VA's ability to track 
and monitor all assets within the system in a consistent manner.

    Question 16: Could you explain the relationship between the VHA 
Procurement and Logistics Office and central VA National Acquisition 
Center? Under what circumstances does a local VA medical center obtain 
goods through the VHA Procurement and Logistics Officer versus the VA 
National Acquisition Center?

    Response: The National Acquisition Center (NAC) has responsibility 
for National Contracts and Blanket Purchase Agreements, in support of 
National Standardization, which are established under the Federal 
Supply Schedule Program. All of these programs are open to VA medical 
centers. Most of these contracts and agreements include other 
Government agencies such as the Department of Defense, Indian Health 
Service and Bureau of Prisons. Most of the solicitations for these 
contracts and agreements are competitive, best value procurements. 
Essentially, the NAC establishes National contracts that can be 
utilized by the Networks under P&LO. The local VA Medical Centers 
(VAMCs) do not obtain goods or services through P&LO instead the 
procurements are accomplished through the Network procurement 
activities that report to the P&LO infrastructure. The VAMC procurement 
activity makes the determination of whether to use the NAC or local 
procurement process based on whether the requirement is National in 
scope or whether this requirement presents an opportunity for National 
standardization.

    Question 17: How does VA Central Office monitor VISNs to ensure 
that they are adequately overseeing VAMC compliance with VA's policies 
on purchasing expendable medical supplies and reusable equipment?

    Response: P&LO is establishing a methodology to monitor Network 
compliance with VA policy on purchasing supplies and reusable medical 
equipment. P&LO's initiative to enhance the Logistics Operations 
infrastructure, as referenced in 13 and 14 above, will increase the 
level of oversight and monitoring related to the request, review, and 
approval processes. Additionally, the acquisition realignment 
initiative will enhance compliance with the appropriate sourcing 
related to this issue.

    Question 18: What oversight do VAMC acquisition and Materiel 
Management (A&MMS) departments receive from the VISNs and VA central 
office regarding compliance with 1) VA's prime vendor program; 2) small 
business programs and socioeconomic goals; 3) the supply schedule 
program; and 4) general purchasing and acquisition policies?

    Response: VA's prime vendor programs: Network and VAMC Logistics 
program offices are provided with VA Medical/Surgical Prime Vendor 
(MSPV), Pharmaceutical Prime Vendor (PPV) and Subsistence Prime Vendor 
(SPV) reports of compliance related to commitment versus actual 
expenditures, as well as, order fill rates and invoice/payment 
processes. P&LO receives compliance reports from the NAC, reviews and 
disseminates these reports to identify out of line situations and 
requests appropriate corrective action on the part of the network Chief 
Logistics Officer, who is expected to effect the corrective action 
through program oversight communication with the deficient VAMC 
Logistics Manager.
    Small business programs and socioeconomic goals: VHA socioeconomic 
spend goals are incorporated into the annual P&LO performance metrics, 
as well as the performance plans of VISN leadership. These metrics are 
monitored throughout the year by VA Central Office leadership and VISN 
Directors.
    The supply schedule program: Oversight of the VA Federal Supply 
Schedule (FSS) program fall within the auspices of the VA Office of 
Acquisition, Logistics and Construction (OALC). The National 
Acquisition Center is a strategic purchasing arm of the VA, and 
maintains and administers the FSS program.
    General purchasing and acquisition policies: It is the 
responsibility of OALC to develop, communicate, and enforce policies to 
ensure VA complies with Federal laws, policies, and regulations 
governing procurement and logistics activities. VHA does not create 
acquisition policy, but rather institutes standard operating procedures 
to ensure uniformity of contracting efforts and practices throughout 
the VISNs and operating locations.

    Question 19: What steps is VA taking to standardize certain types 
of reusable medical equipment, such as using the same type of 
colonoscopes, across VAMCs?

    Response: VA chartered an Integrated Procurement Team (IPT) to 
address lease versus purchase options as a way to standardize 
gastrointestinal (GI) endoscopes across VAMCs. The IPT recommended 
leases as the best method to ensure standardization of GI endoscopes 
across VAMCs. Leases allow upgrade to current generation technology 
through lease amendments as new technology becomes available, ongoing 
refresher training for personnel on care and handling of the equipment, 
and continuous maintenance for the endoscopes at a fixed price. This 
allows facilities the flexibility to trade up or trade out as needed 
without having to maintain an inventory of GI endoscopes of varying 
age. However, the lease must be amended at an increased cost to add or 
substitute a newer model.
    The lease recommendation from the IPT team was accepted and the 
medical facilities in the field have received instruction from the 
Deputy Under Secretary for Health for Operations and Management to 
implement standardization of endoscopes through leasing as early as 
possible in the current fiscal year.

    Question 20: How will VAMCs be impacted by VHA's new acquisitions 
and contracting policy requiring all items over $3,000 to be purchased 
by a VISN-level contracting officer, which goes into effect on October 
1, 2010?

    Response: VAMCs will be minimally impacted by requiring purchases 
above $3,000 to be completed by the Network Contracting Activities 
(NCA). The purchasing agents previously responsible for these purchases 
were realigned under the NCA. Therefore, the workload for these 
purchases will be readily absorbed by the NCA.

    Question 21: When are VAMCs required to make purchases from prime 
vendors?

    Response: VAMCs are required to make purchases from prime vendors 
when the items required are included under the umbrella of the prime 
vendor contract. Exceptions are provided for emergency or non-core list 
items.

    Question 22: Please describe the process by which VAMCs may 
negotiate prices under the Federal supply schedule program. To what 
extent are VAMCs successful at negotiating lower prices under the 
Federal supply schedule program?

    Response: In accordance with the Federal Acquisition Regulations 
(Part 8), prices found within the General Services Administration and 
the Federal Supply System GSA/FSS programs have already been determined 
to be fair and reasonable. However, VHA contracting officers do attempt 
to seek additional price considerations when placing orders. It is 
mandatory to request a price discount when orders are placed in excess 
of the per-contract maximum order threshold. In an effort to better 
leverage VA and government-wide spending, the VHA CLOs have been 
evaluating commonly-procured and high volume medical/surgical items 
purchased under the FSS program. Prices of competing vendors have been 
analyzed, so greater negotiating power can be achieved in the future.

    Question 23: Please describe the extent to which VAMCs meet the 
prescribed small business programs and socioeconomic goals in fiscal 
year 2008 and 2009. What steps have VAMCs taken to meet these goals?

    Response: In FY 2010, VHA exceeded the small business goals in all 
except two categories (refer to the chart below). In FY 2009, VHA 
exceeded the small business goals in all except two categories (refer 
to the chart below). In FY 2008, VHA exceeded the small business goals 
in all except one category (refer to the chart below). Each Network has 
a Small Business Liaison responsible for working with the Network 
Contract Activities to meet socioeconomic goals. The steps taken for 
VAMCs to meet these goals include: participation in small business 
vendor outreach and monthly National small business conferences to 
discuss small business concerns, and provide training on FAR Part 19 
compliance and other special small business programs/initiatives.


                                   FY 2010 VHA Small Business Accomplishments
----------------------------------------------------------------------------------------------------------------
                                                                                                          SDB +
         VA-Wide Goal            SDVOSB     VOSB      8(a)    SDB (5%)    WOSB      HUBZone      SB       8(a)
                                  (10%)     (12%)     (0%)                (5%)       (3%)      (33.5%)    (5%)
----------------------------------------------------------------------------------------------------------------
VHA Accomplishments               l7.7%     20.2%       .7%      6.7%      3.3%        2.2%     35.1%      7.4%
----------------------------------------------------------------------------------------------------------------


     

                                   FY 2009 VHA Small Business Accomplishments
----------------------------------------------------------------------------------------------------------------
                                                                                                          SDB +
         VA-Wide Goal            SDVOSB     VOSB      18(a)   SDB (5%)    WOSB      HUBZone      SB       8(a)
                                  (7%)      (10%)     (0%)                (5%)       (3%)      (28.7%)    (5%)
----------------------------------------------------------------------------------------------------------------
VHA Accomplishments              15.65%    18.69%     1.02%     7.24%     3.61%       2.21%    34.58%     8.26%
----------------------------------------------------------------------------------------------------------------


     

                                   FY 2008 VHA Small Business Accomplishments
----------------------------------------------------------------------------------------------------------------
                                                                                                          SDB +
         VA-Wide Goal            SDVOSB     VOSB      8(a)    SDB (5%)    WOSB      HUBZone      SB       8(a)
                                  (10%)     (12%)     (0%)                (5%)       (3%)      (33.5%)    (5%)
----------------------------------------------------------------------------------------------------------------
VHA Accomplishments              11.67%    14.89%     1.95%     7.26%     4.53%       3.10%    38.33%     9.21%
----------------------------------------------------------------------------------------------------------------


    Question 24: Could you explain the process of how VA medical 
centers obtain and provide Durable Medical Equipment (DME) to Veterans 
patients?

    Response: Every VAMC has a Prosthetic and Sensory Aids Service 
(PSAS) that is responsible for the procurement of all devices for the 
personal use of a Veteran. Whenever a qualified VA clinician determines 
that a particular device is needed, an electronic request is sent to 
PSAS to determine if this is something that can be stock issued 
directly to the patient, mailed from stock to the Veteran, or purchased 
from a vendor and shipped to either the hospital, third party vendor, 
or to the Veteran's home for installation and training. The method that 
is pursued is based upon the availability of the prescribed item, any 
fitting or training required for it, and other logistical issues such 
as size or timing. The provision of these items is a very personalized 
approach specific to the needs and preferences of each Veteran. If not 
stock issued the same day, all requests are initially acted upon within 
5 days. VHA has been monitoring this for several years and has steadily 
increased the complexity and compliance standards for the delivery of 
goods to Veterans.

    Question 25: Is there a dollar threshold for local medical center 
acquisitions? Could the local VA medical center make acquisitions using 
government purchase cards?

    Response: No, there is no dollar threshold for local VA medical 
center acquisitions. The VAMC determines which purchases should be made 
by acquisition versus small purchasing based on the dollar value and 
complexity of the procurement.
    The VAMCs are able to make acquisitions using the purchase card. 
However, the purchasing ability is limited by the given purchase card 
holder's authority. To monitor the purchase card program, centralized 
purchase card program managers have been established at every Network. 
Additionally, facility purchase card coordinators are being realigned 
under the purchase card managers in the acquisition chain of command.

    Question 26: The VHA Operations Quality Assurance Office provides 
direct oversight to VHA acquisition activities and conducts annual site 
visits to Service Area Offices. Has the VHA Operations Quality 
Assurance Office identified the same weaknesses that GAO and OIG have 
found over the years? Also, GAO and OIG have independence and can 
expose problems without any fear or recourse. What assurances does the 
VHA Operations Quality Assurance Office have that they will not face 
any retribution from their oversight activities and that their findings 
will be taken seriously?

    Response: The VHA Quality Assurance Office (QA) has been able to 
validate that weaknesses identified in the OIG/GAO report exist. The 
VHA QA office has been working with the QA staff at each Network on 
establishing action plans to address the deficiencies identified in the 
OIG/GAO audits. Additionally, the QA office works with the compliance 
team to identify key areas to review during internal audits.
    P&LO leadership has clearly delineated the roles and 
responsibilities of this office. All Service Area Offices (SAOs) and 
staff are aware of the role of QA, and acknowledge that their quality 
team must work closely with QA to address all recommendations and 
findings. The QA office will not face retribution and their findings 
will be taken seriously because the QA office reports to P&LO 
independently of the SAOs. As such, P&LO will ensure that there is no 
retribution and will monitor the implementation and execution of QA 
recommendations as part of the SAO performance.

    Question 27: Does VA use competitive bidding in the procurement of 
DME such as beds, wheelchairs, and walkers?

    Response: The Prosthetic and Sensory Aids Service has been very 
aggressive in its approach to competitive bidding. For high volume or 
high cost items, VHA has been pursuing national contracts in 
conjunction with the National Acquisition Center. We analyze our 
extensive database to look for opportunities to use our economies of 
scale by securing national contracts. These national contracts not only 
guarantee a lower price for the government, but they also elevate the 
standard of care being provided to Veterans because VHA identifies what 
features and criteria a device must have to meet VHA's requirements. We 
also work closely with the Office of Small and Disadvantaged Business 
Utilization (OSDBU) to ensure that we are meeting small business goals 
to the maximum extent possible, while meeting the needs of the Veteran 
and the agency. Between FY 2002-FY 2009, VHA realized a cost savings of 
over $380 million by using National contracts.

    Question 28: It is my understanding that the Prosthetics and 
Clinical Logistics Office (P&CLO) generally oversees DME procurement 
and utilization, but medical facilities administer the home oxygen and 
respiratory services locally to provide eligible VA patients home 
oxygen and respiratory services, is that correct? If so, could you 
explain why home oxygen and respiratory services are administered 
locally, whereas, other DME purchases are overseen and administered by 
the Prosthetics and Clinical Logistics Office?

    Response: We apologize if we were unclear in a previous answer that 
led you to believe this. The Prosthetic and Sensory Aids Service out of 
Central Office creates policy covering all items and services for the 
personal use of the Veteran including home respiratory care, durable 
medical equipment, and home and vehicle adaptations, but all of these 
procurements are actually handled by the local medical centers' 
Prosthetic and Sensory Aids Services.

    Question 29: It is my understanding that VHA uses several 
contracting mechanisms for acquisition of pharmaceuticals, medical and 
surgical supplies, prosthetics, and information technology. For example 
VA uses the Federal Supply Schedule (FSS), Blanket Purchase Agreements 
(BPA), National Contracts, etc, when procuring pharmaceuticals for 
Veterans. Could you explain to the Committee what mechanisms are used 
to purchase medical and surgical supplies, prosthetics, and medical 
information technology? What office or offices in VHA oversees these 
acquisitions?

    Response: The methods used to purchase pharmaceuticals, medical and 
surgical supplies, prosthetics and information technology vary 
depending on the acquisition. VHA procures in compliance with Federal 
Acquisition Regulations (FAR) and VA Acquisition Regulations (VAAR). 
The methods used to purchase pharmaceuticals, medical and surgical 
supplies, prosthetics and information technology include: 1. FAR/VAAR 
Part 8--required sources of Supplies and Services i.e. AbilityOne, 
Federal Prison Industries, FSS, etc.; 2. FAR/VAAR Part 15--contracting 
by negotiation: best value, tradeoff or lowest price technically 
acceptable source selections using full and open competition; 3. FAR/
VAAR Part 13--Simplified Acquisitions; 4. FAR/VAAR Part 19--Small 
Business Set-Asides; 5. use of contract vehicles such as Government-
Wide Acquisition Contracts, Multiple-Award Contracts; 6. Prime Vendor 
Programs (Med/Sug, Pharmaceutical and Subsistence; 7. National 
Contracts and 8. utilizing unique statutory authorities under 38 U.S.C. 
8127 & 8128 (Veterans First Program); 38 U.S.C. 8123 (Procurement of 
Prosthetic Appliances). In VHA, P&LO oversees these acquisition through 
SAO oversight and management of field acquisition activities.

    Question 30: As you are aware, VA and DoD have made substantial 
progress in increasing joint procurement activities since December 
1999. This was done to eliminate redundancies in purchases. Could you 
please provide the Committee with an update of current joint DoD-VA 
procurement activities? How do VA and DoD collaborate to make medical 
acquisitions?

    Response: The need for more initiatives within the medical/surgical 
commodity is evident. As a formal work group of the joint VA/DoD Health 
Executive Council (HEC), the Acquisition and Medical Materiel Work 
Group meets regularly to discuss ways to increase joint contracts and 
sales. High on the work group's agenda are initiatives and strategies 
to affect the expansion of the medical/surgical joint contracts.
    During the past year, DoD and VA awarded four new joint radiology 
contracts. These contracts were: ICAD, Aurora Advanced Breast Imaging, 
iCRco and Neurologica. In addition to these awards, four new offers for 
new joint radiology contracts were received during this year's open 
season from Bronchus Technology, Technical Communities, Ultrasonix and 
Insighttec. The VA National Acquisition Center (NAC) and the DLA Troop 
Support Medical work on potential joint contracts. For radiation 
therapy, DoD and VA awarded 10 follow-on contracts.
    There are currently eighty-six joint national contracts for 
pharmaceutical, two Blanket Purchase Agreements, seven pending 
contracts (at NAC going through the award process) and thirty-one 
proposed contracts which may or may not come to contracting as they are 
currently undergoing clinical review.
    A comparison of joint contract sales (in millions) is shown below. 
A total of 27.4 percent of all contract sales are joint/shared sales.
      

----------------------------------------------------------------------------------------------------------------
                                                       FY 2010 (thru 2nd   FY 2009 (thru 2nd   Change (thru 2nd
                      Commodity                              Qtr)                Qtr)                Qtr)
----------------------------------------------------------------------------------------------------------------
Pharmaceuticals                                                  $86.98              $96.75             ($9.77)
----------------------------------------------------------------------------------------------------------------
Medical/Surgical Supplies                                        $0.015              $0.016            ($0.001)
----------------------------------------------------------------------------------------------------------------

Equipment                                                        $223.5             $368.63           ($145.13)
----------------------------------------------------------------------------------------------------------------

Total                                                           $310.50             $465.40           ($154.90)
----------------------------------------------------------------------------------------------------------------


    Question 31: In Mr. Down's testimony, he noted that all acquisition 
personnel previously reporting to the VISN or medical center directors 
have now been realigned under the VHA Procurement and Logistics Office. 
When did this change take place and what are some improvements that you 
have observed as a result of this change?

    Response: On January 27, 2009, all acquisition workforce members 
that reported to the Network/Program Contract Managers (NCM/PCMs) were 
realigned under the new acquisition organization. The improvements that 
have been observed since this change include: (1) Transformation into a 
customer-focused organization; (2) improved fiscal responsibility; (3) 
increased performance oversight; (4) improved ability to implement and 
enforce acquisition metrics; (5) increased ability to involve customers 
in the full acquisition cycle; (5) increased opportunity for cost 
savings; and (6) standardized processes and procedures throughout the 
Service Area Office regions. These improvements have been validated 
through the various Network performance metrics established and 
reviewed by P&LO. These metrics include: procurement action lead time 
(tracks the amount of time from a completed acquisition package to 
award); purchase cards (verify that the purchase card holders 
reconciliations are performed within 30 days); customer survey 
(measures the level of customer satisfaction) ; electronic contract 
management system (eCMS) compliance (ensures procurement actions above 
$25,000 are in eCMS); unauthorized commitments (tracks the number and 
dollar value of unauthorized commitments); and socioeconomic goals 
(identifies percent of awards in the socioeconomic categories).
    The second phase of the acquisition realignment occurred on October 
1, 2010. As of this date, all warranted purchasing agents realigned 
under the acquisition chain of command. This change will allow VHA to 
improve training, oversight and management of all warranted individuals 
with purchasing responsibilities.

    Question 32: In 2006, Secretary Nicholson signed VA Directive 1663, 
which established specific policies and procedures for the award of 
sole-source health care resource contracts to VA affiliated 
institutions. An OIG audit issued in September 2008 showed that VHA 
entities were not complying with the Directive.

    Question 32(a): What actions have you taken since the OIG Audit was 
issued to ensure compliance with this Directive?

    Response: A memorandum was issued to the field by the Medical 
Sharing Director on August 2008, defining the review process and 
thresholds.
    Integrated Oversight Process (IOP) Review Checklists have been 
developed to identify the steps as required in VA Directive 1663, which 
include verification of the OIG pre-negotiation review defined in VA 
Directive paragraph 4.b.8.

    Question 32(b): What percentage of health care resource contracts 
awarded by VHA in FY 2009 and FY 2010 complied with the Directive?

    Response: Presently, this information is not known. For future 
purposes, the Medical Sharing Office could generate a monthly or 
quarterly report and have the SAO certify that pre-negotiation reviews 
were conducted in accordance with the directive.

    Question 32(c): Given the significant potential cost savings 
identified by the pre-awards, what actions have you taken to ensure 
that all proposals for contracts with an estimated value of $500,000 or 
more are referred to the OIG for a pre-award?

    Response: Using the IOP Checklists as mentioned above, allows for a 
quality check point to ensure appropriate reviews are conducted. If an 
OIG review has not been completed as required, it will be noted during 
the pre-award Contract Review Team (over $500K) or Contract Review 
Board (over $5M) review.

    Question 33: To optimize the performance of VA's acquisition 
system, the former Secretary of Veterans Affairs established a 
Procurement Reform Task Force in June 2001 and a final report was 
released in May 2002. It is my understanding that the VA began 
implementing recommendations made by the Task Force. Were the 
recommendations fully implemented? Have there been any new initiatives 
to improve VA's medical acquisition system?

    Response: VA continues to improve its medical acquisition system 
through the Acquisitions Realignment. The purpose of the realignment 
was to provide decision makers with the appropriate authority to 
execute strategic procurement programs, improve procurement oversight 
and create the best opportunity for stewardship. The realignment 
infrastructure ensures increased oversight and compliance with 
procurement regulations. These changes should effectively address the 
recommendations from the 2002 Procurement Reform Task Force.

    Question 34: I understand you signed an executive decision 
memorandum April 29, 2010, which directed the Chief Acquisition Officer 
to implement the Acquisition Transformation Initiative at VA. Under 
this initiative, VA is to establish a strategic acquisition center to 
implement strategic sourcing initiatives for VA and handle contracting 
requirements exceeding field purchasing thresholds. However, I recently 
learned VHA is moving forward to increase its contracting workforce by 
an additional 400 FTE, and is currently advertising senior executive 
positions for VHA's three SAOs. How does VHA's actions in this regard 
comport to Secretary Shinseki's direction to the Chief Acquisition 
Officer? What is the rationale and justification behind such an 
increase given the new strategic acquisition center will provide 
contracting support to VHA above a national threshold for field 
purchases? Will this not complicate the Chief Acquisition Officer's 
ability to implement the Secretary's Acquisition Transformation 
Initiative?

    Response: The VHA contracting workforce increases are to supplant 
the lack of personnel increases over the last several years. Within 
many VISNs there has been no increase in contracting personnel over the 
past 7 years, while there has been a substantial increase in workload. 
Additional personnel are required at the VHA level due to workload 
increases created as VHA corrects deficiencies in its acquisition 
programs. VHA fully supports the Integrated Acquisition Model, and 
requires additional staff to support this initiative. P&LO used the VA 
OALC staffing tool to determine additional staffing needs. OALC's 
staffing tool validated that VHA needed to hire an additional 399 
acquisition staff. However, this staff number was based only on a $7.4 
billion VHA spend; the actual spend for FY 2009 was $11.3 billion. VHA 
will request assistance from OALC to re-run the staffing tool using the 
final FY 2010 amount spent, which was approximately $13 billion.
    Currently, VHA has 1,575 operational acquisition staff and 194 
existing 1105 purchasing staff. This is significant because in FY 2009, 
VHA assumed additional contracting responsibilities for VHA Central 
Office Programs, absorbed the workload from over 1,000 non-acquisition 
staff and received an increase in workload from the reduction of the 
use of Miscellaneous Obligations (1358s). The ongoing VHA Acquisition 
Realignment established the proper acquisition structure and will 
drastically improve VHA Acquisition Operations. We do not see this as 
overlapping with the Strategic Acquisition Center implementation or 
complicating the implementation of the Secretary's Acquisition 
Transformation Initiative. Instead, this further supports the agency-
wide goal to improve acquisition. Essentially, VHA's realignment and 
potential staffing increases create an acquisition infrastructure that 
supports both the integrated acquisition model and Secretary's 
Acquisition Transformation Initiative.
    With regard to the Service Area Office Director positions; these 
positions were originally proposed as Senior Executive (SES) positions 
in the PricewaterhouseCoopers Study (PWC). The study indicated that SES 
positions for the VHA Service Area Offices (SAO) are reasonable due to 
the scope, size and complexity of VHA Acquisition operations, including 
interactions with National Unions, VISN Network Directors, Medical 
Center Directors and senior health care professionals. In addition to 
the approval of the SES positions in August 2010, VHA also received 
approval to upgrade the Network Contract Managers from GS-14s to GS-
15s. The actions being taken to upgrade positions and obtain additional 
staff will ensure succession planning and compliance with the SAO SES 
recommendation in the PWC study.

    Question 34(a): Another key change is that all acquisition 
authorities will flow from the Chief Acquisition Officer in the Office 
of Acquisition, Logistics, and Construction to the Heads of Contracting 
Activities who will be directly accountable to the Chief Acquisition 
Officer for ensuring compliance with enterprise policies, processes, 
and systems.

    Question 34(i): What actions are being taken by VHA to ensure the 
proper flow of information from the Chief Acquisition Officer to the 
Head of Contracting Activities in VHA?

    Response: The Chief Acquisition Officer provides information 
directly to the Head Contracting Activity in VHA. In addition, when 
acquisition information is provided to the Chief Procurement and 
Logistics Officer (CP&LO), the CP&LO ensures that VHA's HCA is informed 
and advised on the potential impact on VHA acquisition activities.
    Question 34(ii): What actions are being taken by VHA to ensure the 
HCA implements these policies, processes, and systems are held 
accountable?

    Response: As new policies, processes and systems are implemented, 
the VHA Quality Assurance (QA) team develops a plan of action and/or 
standard operating procedure, if necessary. The QA works closely with 
the SAOs to ensure that SAO and VISN staff are informed and trained on 
the new policies, processes and/or systems. To ensure compliance, the 
QA team conducts compliance reviews at the SAO level; corrective action 
is initiated as necessary. The SAO level QA staff implements the 
corrective action at the VISN level.

    Question 35: I'm interested in some general statistics about the 
contracts that VA awards. How many contracts did VHA award in fiscal 
year 2009? What percentage of the contracts was competitive versus 
sole-source contracts? What was the percentage of performance-based 
contracts?

    Response: The total contract actions awarded by VHA in 2009 were 
71,695, of which 22 percent were noncompetitive; 25 percent were 
performance based and 15.65 percent were awarded to Service-Disabled 
Veteran Owned Small Businesses (SDVOSBs).

    Question 36: In 2010, OIG's Office of Contract Review conducted 
pre-award reviews of 32 health care resources proposals. These reviews 
identified $39 million in potential cost savings that could be realized 
during negotiations.

    Question 36(a): What is the amount spent annually on contracts on a 
sole-source basis to VA affiliated institutions?

    Response: Annually, approximately $181 million is awarded on a 
sole-source basis to VA affiliated institutions. In FY 2010, 9 percent 
of health care resource contracts were awarded sole-source to VA 
Affiliated institutions; none of these institutions are SDVOSBs.

    Question 36(b): What actions have you taken or are you planning to 
take to ensure that the cost of savings identified in the pre-award 
reports are realized by negotiating lower prices?

    Response: VHA has created a Cost Price Work Group to identify best 
practices to develop training information for the VHA contracting 
officers. VHA has requested assistance from OALC in defining the 
duties, responsibilities and authorities in regard to Medical Sharing.

                                 

                                     Committee on Veterans' Affairs
                                             Subcommittee on Health
                                                    Washington, DC.
                                                   October 19, 2010

Belinda J. Finn
Assistant Inspector General for Audits and Evaluations
U.S. Department of Veterans Affairs
Office of Inspector General
801 I Street, NW
Washington, DC 20001

Dear Ms. Finn:

    Thank you for testifying at the House Committee on Veterans 
Affairs' Subcommittee on Health oversight hearing on ``VHA Contracting 
and Procurement Practices'' held on September 23, 2010. We would 
greatly appreciate if you would provide answers to the enclosed follow-
up questions in writing by Friday, November 19, 2010.
    Due to the delay in receiving mail, please also provide your 
responses to Dolores Dunn, Minority Staff Director to the Subcommittee 
on Health. If you have any further questions, please call (202) 225-
3527.

            Sincerely,

                                                Henry E. Brown, Jr.
                                                     Ranking Member

                               __________

                                        Office of Inspector General
                                                    Washington, DC,
                                                  November 16, 2010

The Honorable Henry E. Brown, Jr.
Ranking Member
Subcommittee on Health
Committee on Veterans' Affairs
United States House of Representatives
Washington, DC 20515

Dear Congressman Brown:

    This is in response to your October 19, 2010, letter following the 
September 23, 2010, hearing on VHA Contracting and Procurement 
Practices. Enclosed are our responses to the additional hearing 
questions.
    Thank you for your interest in the Department of Veterans Affairs.

            Sincerely,

                                      /s/ by Richard J. Griffin for
                                                    GEORGE J. OPFER
                                                  Inspector General
Enclosure

                               __________

             Questions from the Honorable Henry Brown, Jr.
     For Belinda Finn, Assistant Inspector General for Audits and 
                              Evaluations
    Office of Inspector General, U.S. Department of Veterans Affairs
   Before the Subcommittee on Health, Committee on Veterans' Affairs
                 United States House of Representatives
          Hearing on VHA Contracting and Procurement Practices

    Question 1: Please comment on the development of the VA's 
acquisition workforce. What further steps would you recommend VA take 
to ensure it has acquisition staff with the skill sets needed to 
provide appropriate contract oversight?

    Response: To further develop VA's acquisition workforce, VA could 
consider evaluating the adequacy of the training provided at the VA 
Acquisition Academy to Veterans Integrated Service Network (VISN) 
contracting officers, Contracting Officers Technical Representatives, 
and other acquisition support staff. During fiscal year 2010 audit 
work, we performed a survey of VISN Network Contract Managers (NCMs). 
Nine out of 16 NCMs, who reported taking training at the Academy, 
responded that the training contracting officers receive from the 
Academy did not adequately prepare them to support the needs of program 
officials and comply with acquisition laws, regulations, and VA policy. 
When asked to explain why the training was not adequate, NCMs 
recommended that the training needed to be more tailored to the VA 
environment. NCMs also responded that there was a need for health care 
contract training.
    Another step that could improve the development of VA's acquisition 
workforce is to ensure the entire VA procurement workforce is trained 
and uses the same acquisition support information system. Use of the 
Electronic Contract Management System (eCMS) is mandated, however the 
system is not fully utilized and information within the system is often 
incomplete. VA can develop specific performance measures on the use, 
quality, and completeness of the information in eCMS. VA's ability to 
obtain reliable information and transparency over all acquisitions and 
to assess how well these acquisitions complied with laws, regulations 
and policies is key to helping identify systemic weaknesses in 
acquisition practices and to tailor training requirements to address 
deficiencies in the future.

    Question 2: What can VA do to ensure the completeness and accuracy 
of information in the system? Note we have addressed how improving the 
eCMS program is needed to promote visibility and transparency in VA 
acquisition processes in our September 23, 2010 testimony.

    Response: In response to the above-referenced survey, VISN NCMs 
identified the need to integrate eCMS with the Integrated Funds 
Distribution, Control Point Activity, Accounting and Procurement system 
(IFCAP) to ensure VA and the Veterans Health Administration (VHA) 
information systems are connected and compatible. In our July 2009 
audit, we recommended VA determine the feasibility of integrating eCMS 
with IFCAP or the Financial Management System in order to avoid or 
minimize the duplicate data entry and streamline the process. VA agreed 
to implement this integration. Once in place, we expect that the 
integration will help strengthen the management of VA's acquisition 
processes.
    VA recently reported to Office of Inspector General (OIG) auditors 
that VA's vendor is scheduled to complete a release of eCMS in November 
2010, which will provide drop down lists for improved data consistency. 
The release will also incorporate mandatory data elements. Furthermore, 
VA reported to the OIG that an Action Review and Approval process will 
be introduced in calendar year 2011. This feature will provide business 
rules to enforce compliance at selected acquisition process milestones. 
After these changes are implemented, VA can consult with NCMs to 
determine whether these improvements effectively meet their needs and 
if other improvements to eCMS are needed. VA can greatly benefit from 
fully leveraging the use of eCMS from the standpoint of relying on a 
standardized management tool to improve the procurement process; 
however, VA cannot fully realize the benefits without ensuring the tool 
properly integrates with existing and planned financial systems.

    Question 3: In a written statement submitted for the September 23, 
2010, hearing on VHA procurement, the Coalition for Government 
Procurement (Coalition) alleges numerous problems with the timeliness 
of awards at VA's National Acquisition Center (NAC). The Coalition 
alleges that one of the primary reasons the NAC is broken is the 
``inappropriate insertion of the VA Office of Inspector General (OIG) 
into the contracting process.'' The Coalition implies that the OIG has 
assumed primary price negotiation and decision-making responsibility 
for contracts negotiated by the NAC. The Coalition also asserts that it 
hears ``frequently from its members that after receiving and accepting 
an offer from a Contracting Officer, the OIG will step in and make the 
Contracting Officer withdraw its offer.'' Please explain the role of 
the OIG with respect to contracts awarded at the NAC and address in 
your response whether the statements by the Coalition are accurate.

    Response: We have had the opportunity to review the statement 
submitted for the record to the Subcommittee on Health by Mr. Larry 
Allen on behalf of the Coalition for Government Procurement 
(Coalition). As way of background information, one component of the OIG 
is the Office of Contract Review (OCR). This group of 25 auditors and 
management analysts is responsible for conducting pre-award reviews of 
proposals submitted to the NAC by vendors seeking Federal Supply 
Schedule (FSS) contracts or modifications to those contracts and 
proposals for sole-source health care resource contracts. These reviews 
provide information and recommendations to VA contracting officers for 
use during contract negotiations. These services have been provided to 
VA since 1993 under a reimbursable agreement between the OIG and VA's 
Office of Acquisition and Logistics.
    We also note that the Coalition is not a vendor, does not contract 
with VA, and to our knowledge, has not participated in the contracting 
process with VA on behalf of any of its members. Furthermore, the OIG 
and the Coalition have not engaged in discussions during any pre- or 
post-award review.
    The Coalition's assertion regarding OIG actions in the contracting 
process are erroneous. The OIG has never assumed primary price 
negotiation and decision-making authority in the award of a contract or 
modification. During contract negotiations, contracting officers can, 
and do, consult with OCR staff who conducted the pre-award review to 
clarify findings and recommendations or seek additional review. Any 
involvement by OCR during contract negotiations is at the request of 
the contracting officer and does not constitute ``primary negotiation 
or decision-making authority'' or ``operational responsibility'' as 
alleged by the Coalition.
    The Coalition criticizes VA's decision to conduct pre-award reviews 
of proposals submitted by vendors to determine whether the prices 
offered are fair and reasonable. The basis of the criticism is that 
this process is the cause for delays in award. The Coalition's position 
is not unexpected because these reviews often find that prices offered 
by vendors are not fair and reasonable when compared to those paid by 
commercial customers. As noted in our written statement, in 2010 pre-
award reviews identified over $370 million in potential cost savings if 
the contracting entity negotiated fair and reasonable prices. In the 
past 5 fiscal years, the potential cost savings identified in the pre-
award reviews exceeded $1.54 billion. These reviews have consistently 
shown that vendors fail to provide accurate, current, and complete 
information with their proposals. Although it can take up to 90 days to 
conduct these reviews, they are necessary to ensure that VA pays fair 
and reasonable prices for commercial products and services.
    VA's pre-award program has been cited by the Government 
Accountability Office (GAO) as a best practice (Contract Management: 
Further Efforts Needed To Sustain VA's Progress in Purchasing Medical 
Products and Services, June 22, 2004). In a separate report, Contract 
Management: Opportunities To Improve Pricing of GSA Multiple Award 
Schedules Contracts (issued on February 11, 2005), GAO stated:

       The more than 1,200 FSS and 330 national contracts that VA has 
awarded have resulted in more competitive prices and have yielded 
substantial savings. VA has achieved these favorable prices and 
savings, in part, by exercising its audit rights and access to 
contractor data to pursue best prices aggressively for medical supplies 
and services. For example, pre-award audits of vendors' contract 
proposals and post-award audits of vendors' contract actions resulted 
in savings of about $240 million during fiscal years 1999 to 2003.

    In the report, GAO was critical of GSA's failure to conduct pre-
award and post-award audits and its negative impact on Government 
pricing. GAO also noted in this report that the price negotiation tools 
available to contracting entities to analyze information provided by 
vendors and make price reasonableness determinations were not 
effective.
    The Coalition also criticizes VA contracting officers for relying 
on the pre-award review during negotiations. The criticism is based on 
the results of a survey question asking Coalition members: ``In your 
negotiations with the VA, what did your CO rely on.'' The Coalition 
states that many members responded ``the VA-OIG Pre-Award Audit.'' It 
is understandable that the Coalition and its members see this as a 
negative because the use of the pre-award report often results in the 
negotiation of lower prices. As a result, the profits the vendor 
anticipates receiving by charging VA more than fair and reasonable 
prices for products and services are decreased. Contracting Officers 
should be applauded for relying on the information obtained during the 
pre-award review to negotiate lower pricing for VA.
    The Coalition further alleges that that after receiving and 
accepting an offer from a contracting officer, the OIG will step in and 
make the contracting officer withdraw the offer. However, the Coalition 
did not provide any evidence to support this allegation. This scenario 
could not happen because the OIG does not have any authority to make a 
contracting officer withdraw an offer that has been accepted. Such an 
action could only be taken by the contracting officer or someone within 
the contracting officer's chain of command. In addition, if a vendor 
believes VA has acted inappropriately during the award process, the 
vendor has the right to file a protest. To our knowledge, no protest 
has been filed alleging inappropriate actions by the OIG during 
contract negotiations.

                                 
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