[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


             VA PROCUREMENT: IDENTIFYING OBSTACLES TO REFORM

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

                                 HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                      TUESDAY, SEPTEMBER 20, 2016

                               __________

                           Serial No. 114-81

                               __________

       Printed for the use of the Committee on Veterans' Affairs
       
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                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

DOUG LAMBORN, Colorado               CORRINE BROWN, Florida, Ranking 
GUS M. BILIRAKIS, Florida, Vice-         Minority Member
    Chairman                         MARK TAKANO, California
DAVID P. ROE, Tennessee              JULIA BROWNLEY, California
DAN BENISHEK, Michigan               DINA TITUS, Nevada
TIM HUELSKAMP, Kansas                RAUL RUIZ, California
MIKE COFFMAN, Colorado               ANN M. KUSTER, New Hampshire
BRAD R. WENSTRUP, Ohio               BETO O'ROURKE, Texas
JACKIE WALORSKI, Indiana             KATHLEEN RICE, New York
RALPH ABRAHAM, Louisiana             TIMOTHY J. WALZ, Minnesota
LEE ZELDIN, New York                 JERRY McNERNEY, California
RYAN COSTELLO, Pennsylvania
AMATA COLEMAN RADEWAGEN, American 
    Samoa
MIKE BOST, Illinois
                       Jon Towers, Staff Director
                Don Phillips, Democratic Staff Director

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATION

                    MIKE COFFMAN, Colorado, Chairman

DOUG LAMBORN, Colorado               ANN M. KUSTER, New Hampshire, 
DAVID P. ROE, Tennessee                  Ranking Member
DAN BENISHEK, Michigan               BETO O'ROURKE, Texas
TIM HUELSKAMP, Kansas                KATHLEEN RICE, New York
JACKIE WALORSKI, Indiana             TIMOTHY J. WALZ, Minnesota

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

                              ----------                              

                      Tuesday, September 20, 2016

                                                                   Page

VA Procurement: Identifying Obstacles To Reform..................     1

                           OPENING STATEMENTS

Honorable Mike Coffman, Chairman.................................     1
Honorable Ann M. Kuster, Ranking Member..........................     2

                               WITNESSES

Mr. Greg Giddens, Executive Director, Acquisition, Logistics and 
  Construction, U.S. Department of Veterans Affairs..............     4
    Prepared Statement...........................................    23

        Accompanied by:

    Mr. Rick Lemmon, Acting Chief Procurement and Logistics 
        Officer, Veterans Health Administration, U.S. Department 
        of Veterans Affairs

Mr. Michele Mackin, Director, Acquisition and Sourcing 
  Management, U.S. Government Accountability Office..............     5
    Prepared Statement...........................................    25

                        MATERIALS FOR THE RECORD

Letter From Chairman Mike Coffman to: The Honorable Robert A. 
  McDonald.......................................................    32
Letter From Chairman Mike Coffman to: The Honorable Sloan Gibson.    35

                        QUESTIONS FOR THE RECORD

VA Addresses Letter From Chairman Mike Coffman...................    37

 
            VA PROCUREMENT: IDENTIFYING OBSTACLES TO REFORM

                              ----------                              


                      Tuesday, September 20, 2016

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                                  Subcommittee on Oversight
                                        and Investigations,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 4:01 p.m., in 
Room 334, Cannon House Office Building, Hon. Mike Coffman 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Coffman, Lamborn, Roe, Benishek, 
Walorski, Kuster, O'Rourke, and Walz.
    Also Present: Representative Wenstrup.

          OPENING STATEMENT OF MIKE COFFMAN, CHAIRMAN

    Mr. Coffman. Good afternoon. This hearing will come to 
order.
    I want to welcome everyone to today's hearing on VA 
procurement. As a preliminary matter, I would like to ask 
unanimous consent that Dr. Wenstrup, Chairman of the 
Subcommittee on Economic Opportunity, be permitted to join us 
today.
    Seeing no objection, so ordered.
    Over the years, this Subcommittee has discussed countless 
problems in VA contracts from unauthorized purchase cards, 
purchase card commitments, and hospital construction overruns 
in the billions to university affiliate contracts that take 
years to award, to televisions purchased for hundreds of 
thousands of dollars but never used, to a material financial 
statement weakness. These problems run the gamut.
    Today, we will examine the root causes. The GAO has just 
completed an excellent wide-ranging report recommending changes 
to organization, policy, and process. The VA's procurement and 
logistics organization is very complex. There is overlap, 
redundancy, and confusion about who buys what.
    The VA has a headquarters run by Mr. Giddens with four 
organizations awarding contracts. Most of them have multiple 
locations around the country. The VHA's separate headquarters 
is the procurement and logistics office run by Mr. Lemmon. 
Below, there are three regional offices. Two of them have 
centralized contracting offices attached. Below that are 18 
network contracting offices. Then there are the logistics and 
prosthetics organizations with their own component offices.
    The Choice Act independent assessment found widespread 
concern among VA employees about the proliferation of 
contracting organizations and their ability to perform. The 
procurement rules are just as complex. The VA has its own 
acquisition regulations supplementing the Federal Acquisition 
Regulation, the FAR. They are badly out of date. GAO actually 
discovered there were two different versions simultaneously in 
force. Then there are many categories of policy different at 
the VA and VHA levels. Some supersede and contradict each 
other. Cancelled policies are still being followed. Apparently, 
VA does not even have a complete list of them. Companies doing 
business with the VA don't know what the rules are, and even 
the VA contracting officers get confused.
    The Commission on Care recommends simplifying all this into 
one vertically integrated supply chain organization. The 
independent assessment recommended the same thing last year. 
The VA purports to accept the recommendation, but it rejects 
the quote, ``structural solution,'' end quote, meaning 
reorganization. The VA says MyVA is already solving these 
problems. It is not at all clear that that is accurate.
    Regarding MyVA, well, what's in it? Some new analysis--some 
new analytics tools and internal control improvements. Will 
they be enough to resolve the financial statement/material 
weakness? We will know in a few months.
    But the big item in MyVA is the new version of the Medical/
Surgical Prime Vendor contracts, or MSPV. This is an effort to 
pare down the number of different medical and surgical items 
that VHA medical centers use and save money by buying them in 
bulk. It's a good idea.
    The concept called standardization is not new, but the 
implementation is not going well. The reduction of items in the 
MSPV product catalog is huge, down from almost half a million 
items to about 8,000. Decisions about which items make the cut 
and what doctors are allowed to use affect veterans' health 
care. The VA is badly behind schedule in awarding the supply 
contracts for these items. The VA has apparently resorted to 
issuing sole source contracts for thousands of them. This 
undermines the goal of negotiating the best prices. These are 
very important contracts. The VA estimates altogether they are 
worth more than $4 billion.
    I look forward to delving into these issues today.
    I now yield to Ranking Member Kuster for her opening 
remarks.

       OPENING STATEMENT OF ANN M. KUSTER, RANKING MEMBER

    Ms. Kuster. Thank you very much, Chairman Coffman. And I 
agree with everything you've said. I look forward to hearing 
from our witnesses, especially Mr. Giddens, with whom I met 
shortly after you took office as the principal executive 
director of the VA's Office of Acquisition, Logistics, and 
Construction last year. And in our meeting, you promised that 
you would develop a plan to reform VA logistics and supply 
chain management. So I'm very interested in hearing about the 
plan and the steps that you've already taken to reform the 
system, now that we've received the findings of the 
recommendations from the independent assessment Commission on 
Care, and now this GAO report.
    It's my understanding that the VA agrees with the 
recommendations made by GAO, but disagrees with some of the 
recommendations made by the Commission on Care, specifically 
the recommendation that VHA establish a chief supply chain 
officer position to drive VHA supply chain transformation and 
reorganize all VHA procurement and logistics under this 
executive.
    Mr. Giddens, I'm interested to hear why you disagree with 
the recommendation, considering that the GAO, the Commission on 
Care, and the independent assessment found that the VA's 
organizational structure for procurement and supply chain 
management is so confusing to VA contracting personnel and 
contains duplicative functions. So I'd be interested. I myself 
had a hard time following the organizational charts, and I know 
that vendors have brought that same issue to us.
    I'm also interested to learn more about VHA's efforts to 
save taxpayer dollars by transitioning to national contracts 
for medical supplies under the Medical/Surgical Prime Vendor 
program. A significant problem with the MSPV is the VA's 
inability to either determine which supplies should be 
standardized or incorporate VISN and VAMC administrator and 
staff feedback for nonstandardized supplies within its national 
purchasing strategy.
    As the GAO identified, VA's move to next generation MSPV 
without updating obsolete VA acquisition regulations, last 
updated in 2008, seemingly compounds the problem. Considering 
this existing--these existing pitfalls and inefficiencies, I'm 
interested to know how you will quickly ensure VA's national 
purchasing strategy maintains both clinical excellence and 
compliance with program standards.
    The Commission on Care indicated that over 95 percent of 
all clinical supplies in the VHA are acquired using purchase 
cards. This process of procurement is inefficient and costly, 
yet its apparent preference by VA administrators implies severe 
shortfalls in VA's national purchasing strategy, such as the 
lack of clinical flexibility and significant delays in 
acquiring much needed medical equipment and supplies. And I'm 
sure my colleagues would all appreciate knowing how the VA 
intends to resolve this issue, and in particular, the use of 
old computer software that makes the purchasing of supplies so 
cumbersome.
    I know that last year there was talk of a commercial off-
the-shelf system being purchased to help the VA manage its 
supply chain. So I want to know if this is still a potential 
solution to address the VA's out-of-date IT systems. And if 
not, why it is taking so much time for the VA to make a 
decision on that issue.
    Finally, I hope to hear from GAO about how the VA can 
improve its collection and analysis of contracting data to 
better plan for the future and develop strategies to lower the 
cost of supplies. I also want to know what the VA is doing to 
attract and keep top acquisition talent. These two themes of 
inaccurate data collection and lack of properly trained VA 
personnel are reoccurring themes for almost every hearing in 
this Subcommittee. So I want to know which plans and 
recommendations can be put in place today to address these two 
issues.
    It's important that the VA establish a medical supply chain 
that is streamlined and clinically effective. Ultimately, VHA's 
ability to supply medical supplies and medication to patients 
affects our veterans' access to high quality health care, and 
our veterans deserve timely world-class care.
    And with that, Mr. Chairman, I yield back.
    Mr. Coffman. Thank you, Ranking Member Kuster.
    I ask that all Members waive their openings remarks as per 
the Committee's custom.
    Hearing no objection, so ordered.
    With that, I invite the first and only panel to the witness 
table. On the panel we have Mr. Greg Giddens, the Principal 
Executive Director of the Office of Acquisition, Logistics, and 
Construction. He is accompanied by Mr. Rick Lemmon, the Acting 
VHA Chief Procurement and Logistics Officer. We also have Ms. 
Michele Mackin, the Director for Acquisition and Sourcing 
Management at GAO.
    I ask the witnesses to please stand and raise your right 
hand.
    [Witnesses sworn.]
    Mr. Coffman. Very well. Please be seated.
    And let the record reflect that all witnesses have answered 
in the affirmative.
    Mr. Giddens, you are now recognized for 5 minutes.

                   STATEMENT OF GREG GIDDENS

    Mr. Giddens. Good afternoon, Chairman Coffman, Ranking 
Member Kuster, and distinguished Members of the Subcommittee. I 
appreciate the opportunity to discuss the progress that the 
Department of Veterans Affairs has made towards transforming 
procurement and supply chain operations leading to improved 
business outcomes that benefit our Nation's veterans. I'm 
joined today by Mr. Rick Lemmon, acting VHA chief procurement 
and logistics officer.
    Under Secretary McDonald's leadership, the VA is 
transforming the way we do business by embracing a more 
transparent and collaborative culture where we're putting the 
needs, expectations, and interests of veterans and their 
families first. We recognize that persistent challenges exist 
in delivering business solutions that satisfy veterans' needs, 
while simultaneously complying with the vast body of laws and 
regulations that govern Federal acquisition.
    The VA is committed to continuous improvement of our 
procurement practices and procedures, leveraging our buying 
power to achieve cost avoidances, improving our management 
information system to support improved decision-making, 
improving acquisition workforce competencies, and executing our 
acquisition mission in an integrated manner that establishes 
clear lines of authority. The VA has taken steps to improve our 
internal acquisition processes to better communicate with 
employees and provide the support they need to successfully 
carry out their responsibilities.
    Last December, I issued two VA-wide memos, the first 
stating my expectations of how we would improve the way we do 
business by transitioning from a rule base to procurement-
based--principle-based procurements, placing greater emphasis 
on collaboration and rapid sourcing of greater requirements at 
affordable prices. The second memo encourages having early and 
frequent dialog with our industry partners throughout the 
acquisition life cycle. Doing so will improve our ability to 
articulate our requirements and will result in us receiving 
better proposals and ultimately in better serving our veterans. 
The agility of the VA's acquisition and supply chain 
communities to adjust to both regulatory requirements and 
mission challenges continues to improve.
    The transformation of the VHA supply chain is one of the 
MyVA breakthrough initiatives. It's focused on establishing an 
enterprisewide medical/surgical supply chain that leverages the 
VA's buying power to achieve best possible pricing and system 
efficiencies resulting in lower operating costs. This 
initiative is a comprehensive approach consistent with the 
Commission on Care's intent to improve the effectiveness and 
efficiency of the VHA supply chain and is already driving much 
needed improvements in data visibility and quality, 
synchronization of technology deployments, standardization, 
contract compliance, and training. Already in fiscal year 2016, 
VHA supply chain transformation efforts have yielded in excess 
of $75 million in cost avoidance.
    The Department has made steady and significant progress 
over the past 5 years. But admittedly, there is more work to be 
done, as reflected in the recent GAO report. The VA agrees with 
the conclusions in the report, and we are pleased that, in most 
cases, we already have strategies in place that align with 
GAO's recommendations. For example, the Department's initiative 
to streamline internal acquisition policy and procedures to 
clearly delineate what is required by law and statute from what 
are business process improvements. This deliberate separation 
of policy from procedure will create a more agile management 
environment that can respond more quickly to stakeholder and 
customer needs.
    The secretary's senior leaders, managers, and members of 
the acquisition supply chain communities across the Department 
are tackling the many challenges that confront us in a 
transparent manner as mandated by the tenets of MyVA. We made 
progress, but we still have more work to do. We're committed to 
being good stewards of taxpayer resources and ensuring veterans 
and their families receive a seamless unified veteran 
experience across the entire organization and the country.
    Mr. Chairman and Members of the Committee, this concludes 
my statement. Thank you for the opportunity to testify before 
the Committee today. We'd be happy to answer your questions.

    [The prepared statement of Greg Giddens appears in the 
Appendix]

    Mr. Coffman. Well, thank you, Mr. Giddens.
    Ms. Mackin, you are now recognized for 5 minutes.

                  STATEMENT OF MICHELE MACKIN

    Ms. Mackin. Thank you, Mr. Chairman.
    Good afternoon, Ranking Member Kuster and Members of the 
Subcommittee. Thank you for having me here today to discuss VA 
contracting.
    This is a very important issue. It's essentially about how 
the money goes out the door at the Department. As the Chairman 
mentioned, we issued a report last week that covered a number 
of topics, and we made ten recommendations to the VA. Today, 
I'll hone in on three key issues. First, the VA's confusing and 
outdated procurement policy framework; second, its complex 
procurement organizational structure; and third, opportunities 
to save money.
    You may have seen the graphic in our report of a VA 
contracting officer walking through a policy forest in a 
confused manner. The trees represent a number of information 
letters, acquisition flashes, policy memos, and, most 
troubling, two active versions of the Department's acquisition 
regulation, which is the key document contracting officers turn 
to, one dated from 1997, and the other from 2008. It hadn't 
been updated in 8 years, and contracting officers were directed 
to consult each. It's not surprising that we found confusion 
and problems.
    After we raised these issues, the Department rescinded the 
1997 regulation, and it also began to cull through over 170 
information letters, many dating from the 1990s, to determine 
which were still relevant. Without clear, consistent policy and 
guidance, it makes it harder for contracting officers to do 
their jobs.
    Regarding the organizational structure, as we and others 
have noted, the VA is a complex organization, and that applies 
to its procurement function as well. Customers in medical 
centers have to navigate a complex web of national, regional, 
and local contracting organizations to buy what they need. For 
example, the National Acquisition Center, or NAC, is 
responsible for pharmaceuticals and high-tech medical 
equipment. The Strategic Acquisition Center, or SAC, which is 
in two different locations, is responsible for prosthetics and 
patient mobility supplies and services. Adding to the 
complexity, contracting responsibility for medical and surgical 
supplies was recently transferred from the NAC to the SAC. 
While the VA took steps in 2013 to clarify the roles and 
responsibilities of these organizations, we recommended that 
the Department consider additional guidance, and it agreed to 
do so.
    Finally, the VA can do more to leverage its substantial 
buying power. When we looked at medical and surgical supplies, 
we found that contracting and ordering officers are not making 
the best use of national contracts that have significant 
discounts, an average of 30 percent, according to VA officials. 
In some cases this is understandable. The ordering processes 
are extremely outdated and cumbersome. I'll admit I'm old 
enough to remember when we first started using computers, and 
that's what this ordering screen looks like. You have to enter 
the exact item number for the type of bandage you need, for 
example. Because these national contracts are set up to get the 
best prices, it's important that the VA make it easy to use 
them. The VA is in the process of developing a new ordering 
interface.
    A related issue is that while these national contracts are 
supposed to be mandatory, the VA has acknowledged that many 
purchases are occurring in the open market where these 
discounts aren't available. The problem is that no one knows 
the extent of this or where the problems might be because they 
have not been tracking actuals. The Department's in the process 
of revamping how it buys medical and surgical supplies, 
including awarding new contracts, as was mentioned earlier. And 
in doing so, it'll be very important that the Department make 
sure the full scope of the items that medical centers need are 
included on these national contracts. This effort is lagging. 
The VA identified a goal of 8,000 to 10,000 items to put on 
these contracts, and as of July 2016, only 1,800 were under 
contract.
    I'll wrap up by noting that the VA's medical centers 
themselves have opportunities to leverage their buying power at 
a regional level for items they all buy, like landscaping 
services, elevator maintenance, and eyeglasses. While we found 
small pockets of this activity, local autonomy and a preference 
for using their own contracts have presented obstacles that are 
difficult to overcome.
    Mr. Chairman, Ranking Member Kuster, this concludes my 
prepared remarks. Thank you.

    [The prepared statement of Michele Mackin appears in the 
Appendix]

    Mr. Coffman. Thank you, Ms. Mackin.
    The written statements of those who have just provided oral 
testimony will be entered into the record. We will now proceed 
with questions.
    Mr. Coffman. Ms. Mackin, is this just a matter of sorting 
out what each office is in charge of buying, or is the sheer 
number of offices with similar responsibilities the problem?
    Ms. Mackin. I think that the latter point is something the 
Department needs to take a hard look at. As was noted, our 
report wasn't the first to point out the complexity of these 
organizations, but time and again, and we ourselves find in 
going out to the field to the people who are actually buying 
these things, they're confused. And so guidance helps. But I 
think the Department needs to take a look at some streamlining 
activities and what might make sense there.
    Mr. Coffman. Have you seen, Ms. Mackin, the--you know, 
obviously there was a concern previously in this Committee 
about the use of these credit cards or these purchase cards 
where they would do multiple purchases. You know, I can't 
remember what the ceiling amount--not to exceed the ceiling 
whereby they'd have to go through the normal procurement 
process, it was a way to evade the procurement contracting 
process, and they would just, you know, do enough transactions 
to do whatever the price was that they were doing. And it was 
very problematic.
    Are you seeing any evidence that this is still occurring?
    Ms. Mackin. We heard anecdotally. We didn't quantify the 
use of that for this report. But, you know, the national 
contracts are there for a reason. If they're not being used, 
there are other options of using a purchase card or having very 
small local contracts to buy the needed medical and surgical 
supplies. Again, not getting the discounts.
    Mr. Coffman. Well, and I think there were also health 
safety issues involved. I remember, in terms of the procurement 
of tissue and things like that, by evading the normal 
procurement process, that they were actually getting some 
contaminated tissues from that process.
    Why two active sets of regulations that you mentioned, and 
why not just--why haven't they consolidated into one?
    Ms. Mackin. Quite frankly, that was a troubling finding. 
I've never seen anything like that in my several decades of 
working at GAO, and I just have to attribute it to the lack of 
management attention, the lack of people looking out for what 
contracting officers need to do their job. I will say that when 
we raised it, the Department acted very swiftly to rectify the 
situation. But not updating your acquisition regulation for 8 
years is problematic.
    Mr. Coffman. Mr. Giddens, where are we right now with our 
acquisition regulations?
    Mr. Giddens. As Ms. Mackin said, we did rescind the one VA 
acquisition regulation. And we are underway, by December 2017, 
to have available and ready for public comment the update of 
the VA acquisition regulation. And as I mentioned, we're 
separating the process and the procedures that we would use to 
streamline and make business improvements from those that have 
a regulatory impact. Those of a regulatory nature need to go 
through the public comment period. So that's why this effort to 
update, that will take us as we start that and get everything 
ready for posting in 2017 and 2018.
    In the meantime, we've taken steps to provide more clarity. 
We've established a Web site where our procurement 
professionals can go, where the most recent policy guidance is 
available for them to try to streamline that. We'll also be 
working to get feedback from contracting officers out in the 
field, so that we can take additional steps while we work to 
update that VA acquisition reg.
    Mr. Coffman. Ms. Mackin, why doesn't the VA simply adopt 
the FAR, the Federal Acquisitions Regulations? Or, I mean, why 
have a separate--completely separate set of regulations? Is 
that necessary?
    Ms. Mackin. It's very common.
    Mr. Coffman. Okay.
    Ms. Mackin. I think almost every Federal agency has its own 
supplement to the FAR--
    Mr. Coffman. Right.
    Ms. Mackin [continued].--where it can tailor the buying to 
meet its own needs.
    Mr. Coffman. Okay. Thank you.
    Ranking Member Kuster, you're now recognized for 5 minutes.
    Ms. Kuster. Thank you, Mr. Chairman.
    I wanted to ask--and this is either Mr. Giddens or Ms. 
Mackin. I wanted to focus in the GAO, and the Commission on 
Care, and the independent assessment all found that VHA's 
pharmaceutical supply chain performs very well, but the 
medical/surgical supply chain performs poorly in comparison. 
And my question is: Are there any best practices that we can 
identify in the pharmaceutical supply chain policies and 
processes that could be applied to the medical/surgical supply 
chain to improve the outcomes, both for cost and efficiency?
    Mr. Giddens. Yes, ma'am. And that is a finding with our 
pharmacy program. And I'll mention a few things that we've 
done, and Rick may want to add some from VHA in particular. 
Because one of the things that VHA did in the procurement 
logistics office is look at the pharmacy program and adopt some 
of the things, like the formulary. The pharmacy program has a 
formulary. Here are the drugs that are approved for use. That's 
the same approach that they're taking on the med/surg prime 
vendor. What are the items that are approved for use that are 
proven to be clinically safe?
    They do that by engaging clinicians, just like the pharmacy 
program did when they established their formulary. And then 
having a robust mechanism to make sure that we are meeting our 
needs through that prime vendor program, and that we minimize 
the activity, whether it's with purchase cards or other, that 
are done outside the med/surg prime vendor program.
    Rick, did you want to--
    Mr. Lemmon. Yeah. The great thing about the pharmacy prime 
vendor program is that there's clinical involvement and a 
formulary's developed. It's well published, and we buy off that 
contract. That's exactly the approach we're wanting to take 
with med/surg prime vendor.
    Right now, we--I believe we have 38 integrated product 
teams that involve clinicians that's going to help us determine 
the requirements for those products. And then when we go to the 
negotiations, will help us make those decisions on what'll best 
meet their needs.
    And so as we develop the formulary and catalog--and I think 
the Chairman mentioned the sole source contracts that are 
necessary to get the current contract lifted off the ground. 
But as we can replace those with these clinically driven source 
contracts, it will be very similar to what was done with 
pharmacy. And I think that will also produce a great outcome in 
terms of quality and price.
    Ms. Kuster. So thank you.
    One of the issues we talked about, and referring to page 35 
with the page, it looks like--is it DOS? Is this the original 
computer language that you're having to find the actual 
acquisition number? And I'm trying to put together, then we 
learn that 95 percent of the purchases are made outside this 
system with cards.
    What is the status, and how do we bring this system up-to-
date so it's searchable and we can have a process that anyone 
can use anywhere across the country? Because this seems 
unacceptable.
    Mr. Lemmon. Well, certainly what you're referring to, those 
blue screens, is the MUMPS-based programming that's part of the 
VistA architecture and, certainly, the integrated financial 
system that we use as part of that to identify the line items. 
One of the things we recently did, is we purchased what's 
called GUI software. But it will overlay that system until we 
can replace it. And it will provide a very efficient more like 
a Windows-based environment for our clinicians and--
    Ms. Kuster. Are we on task to replace it, though? I mean, 
how do you find people in 2016 that even know how to use this?
    Mr. Lemmon. There's a vendor that produces that software 
that will overlay our VistA system and will allow us to--
    Ms. Kuster. So that normal people can use the system?
    Mr. Lemmon. Yes.
    Ms. Kuster. All right. And then tell me when this is going 
to be replaced completely so we don't have to use these patches 
and overlays.
    Mr. Giddens. The near-term solution with the graphical user 
interface that Rick talked about will be deployed in fiscal 
year 2017, so we will have that capability fully operational in 
2017. The larger issue of the Department not having an 
integrated financial management system is one that we are 
tackling, that we're moving forward with as part of the Federal 
Shared Service program. That's an effort that we started in 
2016. We'll be making the selection in 2017, and working with 
the shared service provider, and start to pilot that in fiscal 
year 2018.
    But that will be the system, in fact, that will reconcile a 
lot of the issues that we're currently seeing with our 
workforce. While workforce has to do procurement in one system, 
and then they have to turn to another system and enter that 
data into another system, anytime you do manual data entry, 
we're introducing errors in reconciliation. And what this 
integrated system will do now, will work from end to end, so 
that information's entered once and used many through the 
system. It is going to be a very powerful enabler for our 
workforce.
    Ms. Kuster. Well, I think I can speak for my colleagues on 
both sides of the aisle that we will be anxiously awaiting the 
report on that being installed. So thank you.
    I yield back.
    Mr. Coffman. Thank you, Ranking Member Kuster.
    Mrs. Walorski, you're now recognized for 5 minutes.
    Mrs. Walorski. Thank you, Mr. Chairman.
    Mr. Giddens, in the past, the VA asked vendors to supply 
surgical products as needed, and bill the VA after the fact. 
This month, the VA started requiring contracts to be issued in 
advance, but there already seems to be a backlog in the 
issuance of contracts. Companies have raised strong concerns 
that they are owed money, but don't have a timeframe as to when 
they'll be paid. The VA apparently owes these companies 
millions of dollars.
    What is the VA doing to remedy the situation, and will 
these be processed and paid prior to the end of this fiscal 
year?
    Mr. Giddens. The effort the VHA started in terms of 
structuring their process so that we procure an item before we 
use that, was started many months ago back in late spring, 
early summer. And they're progressing that implementation. As 
we do so, we have seen some instances where payments to vendors 
are starting to lag behind. But I know Rick and his team have 
been monitoring that, and working with vendors. In particular, 
with different VISNs.
    Mrs. Walorski. And do you have a--is there some kind of a 
timeframe that you look for this to be completed?
    Mr. Lemmon. Well, it's not a one event sort of thing, 
because we're always adding more orders. But--and there's a--I 
guess a typical type of lag time between when the order's 
placed, when the product's provided, and when the vendor is 
paid. There has been some delays due to the new process, but 
we're working at it very hard as far as using overtime and 
shifting resources to address it. We're hoping that within the 
next 30, 60 days, most of it will be worked out.
    But the other exciting thing, is our office has been 
working with prosthetics and with the strategic acquisition 
center at OALC to put together national contracts with these 
implant vendors. And with those, we're going to add tremendous 
efficiency where we can have a much more streamlined process 
and fix this. So we'll have a more permanent fix instead of 
always trying to muscle through an inefficient process that we 
have now. But we had to do it for regulatory compliance, to 
commit the orders in advance of using the products.
    Mrs. Walorski. Mr. Giddens, I have another question. I also 
heard concerns that implementation of a mandatory and additive 
preauthorization process for medical device implants is overly 
burdensome. It requires an additional three administrative 
steps from three different stakeholders. Could you explain the 
justification for these extra steps, and what's being done to 
ensure that veterans receive the proper device in a timely 
manner?
    Mr. Giddens. Well, as Rick said, needs to make those 
processes to be in compliance with regulation. And while 
they're implementing those processes, the end state is the 
national contracts that we're putting in place so that that 
process, on an individual basis on order, can be supported by a 
national contract.
    Mrs. Walorski. And then, Mr. Lemmon, just quickly, this is 
just something that's gone on in my district, and so I'm 
interested. The recently released Commission on Care report 
took issue with the separation of clinical supplies and 
prosthetic medical devices that have caused problems in 
coordinating products needed for procedures. It says that it 
takes the frontline staff members 1 to 3 months to procure 
simple items through your contracting and medical staff, 
complaining the procurement office is not responsive.
    I've had surgeries in my district be rescheduled the day of 
because the medical staff didn't have the devices needed for 
the procedure. I wish I could say this, like, never happened. 
It has. And I wish I could say it happened once, but it hasn't. 
This is happening and continues to happen in my district where 
some of these veterans get a call day of. Oh, the device didn't 
come in or, you know, something happened on the way.
    Do you think the inclusion of more frontline medical staff 
in purchasing would improve this?
    Mr. Lemmon. Well, I think we have to have process 
improvement. And that will be driven by the national contracts. 
Of course, with surgeries, as you know, even in the private 
sector, a lot of times vendors are called in the day of 
surgery. Maybe it's expensive items that aren't routinely 
stocked. And then the surgeon, when they're in the surgery, 
will decide which particular product would best fit with the 
anatomy of the patient. So there's some risk of that. But we 
have to--we're looking at it holistically. We're looking at 
what products we can potentially bring into inventory so we're 
not relying on a vendor delivery. We're also going to implement 
more streamlined processes with ordering officers.
    So the idea with prosthetics, as well as other national 
contracts, we want to get away from transactional contracting 
at the time of need. We want to have well-leveraged national 
contracts that can be efficiently executed at the time a 
clinician or someone needs a product in advance of the need, 
and then have a delivery that's very timely, and we know they 
got a quality product at a good price. So the national 
contracts that Greg's group is working on is going to be just a 
tremendous help. And then we have to work the processes.
    And some of the--when you talk about what we're doing now, 
we're preauthorization. You're talking about an order in 
advance to obligate the funds so we're compliant with 
regulation. But then we have to finalize the order once we know 
what was actually used. And then we have two different systems 
we're doing that in. With the new processes, a lot of those 
steps can be cut out. And so that's the solution to not only 
the problem you mentioned, but also the vendor payment issues. 
We have to unburden our staff and create a very efficient 
process to get these products, and that we're getting a quality 
product at the right price.
    Mrs. Walorski. I appreciate that.
    Thank you, Mr. Chairman. I yield back.
    Mr. Coffman. Retired Sergeant Major Walz, you're now 
recognized for 5 minutes.
    Mr. Walz. Thank you, Chairman. And thank you all for being 
here.
    I'm going to build on where Mrs. Walorski was going from. 
And I just--last week when the VA secretary testified over in 
the Senate, they went down the same line of questioning. And I 
think the question said only 38 percent of supply orders were 
made through standing vendor contracts as opposed to 80 or 90 
percent in the private sector. Went on to talk about how the VA 
does it with pharmaceuticals. And it's kind of the gold 
standard of how you can get cost savings, efficiencies, and the 
mail order pharmacy gets very high--very high marks, and it's 
the best.
    And then they went on to just ask a very simple question: 
What's preventing VHA from doing these kind of master contracts 
across the board? And the answer was: Nothing. I guess the 
question that's troubling me is, even someone who's not really 
familiar with this, this just makes great sense. It's the way 
things are done. It's kind of best practices. Why is the VA 
secretary waiting until 2016 to say this? I guess I'm asking 
all of you, have efforts been made over the years to do what 
seems--and I'm not trying to make light of this. Procurement is 
difficult. And I've been on the other end of that where I'm 
running an armory and procuring. And at times, you did want to 
use that card because I had to go get three cost estimates to 
sharpen the lawn mower blade. By the time I got done with that, 
it probably would have been simpler, more efficient, and more 
cost effective to the taxpayers had I been able to use that. 
But what's really funny, the standing joke was, is you cannot 
use that card. That takes an act of Congress. Little did I 
know, it didn't take an act of Congress. Someone's been using 
them.
    So I guess I'm getting at in asking you: Why did it take 
this long when this is pretty much standard practice everywhere 
else?
    Mr. Giddens. So I don't know in years past why we didn't 
move to this area. We've been working this collectively now for 
almost a year to make sure we get an understanding of what the 
requirements are from VHA, driving in clinicians, looking at 
our spends, so we put the right contracts in place, so that we 
put the right prime vendor vehicle in place. That goes live 
this December. And that'll be the point where I'm sure we will 
learn some things as we turn that on. And we won't get 
everything right, but we'll be in a much better position. And 
we've already seen that leveraging those national contracts 
provide delivery as well as provide value.
    So we're really working through the windshield driving this 
hard to implement what is a generally accepted best practice 
and--
    Mr. Walz. No, and I appreciate that. And I don't want--and 
I know you coming into the job--I guess maybe then I will move 
to the next place, is as you're implementing and doing this--
and I think Mrs. Walorski was getting at this point on this. 
The questions we talked about in our office was, are clinical 
determinations of the primary care providers being taken into 
consideration? Meaning, are you seeing patterns using data of 
things that you know you're going to need because that care has 
shifted in that direction? Are you using that as part of the 
decision-making on the master contracts?
    Mr. Giddens. Yes, sir, we are. And actually, that analytics 
is what informed the work that we're doing to stand this up in 
December. And we're also then working--and I'll let Rick speak 
a little more to this--how they're teaming in clinicians to 
help us understand the way forward.
    But also, there's an element in here that Rick talked about 
with the graphic user interface that's going to allow us to get 
rid of the blue screen that Ranking Member Kuster showed in the 
book. That's going to also give us standard data. One of the 
things that we're suffering from now is, if I may, some medical 
centers call this a water bottle, and others call it a bottle, 
comma, water. We don't have a standard nomenclature. And if you 
don't have that standard nomenclature, it's hard to aggregate 
your data.
    Now, there's some fuzzy logic algorithms that can run and 
some smart computer folks can try to link those together. But 
the graphical user interface that we'll be deploying is going 
to lock those fields down so we all call it the same item. And 
it's going to make the data analytics even more--
    Mr. Walz. So that's all straight and moving forward. 
Because, again, I don't want to oversimplify this, but I do 
think there's somewhat of an analogy here. I go online to shop 
for a dehumidifier at a Lowe's. They tell me which stores 
around me have it in, and how long it would take to get to the 
other one. And they know I, the user, can see that. I would 
think what Mrs. Walorski's talking about is the primary care 
physician should be able to tell where that prosthetic is, or 
where that device is, or where that medical equipment's at.
    Is that an oversimplification or is that the direction 
you're going to? That user interface and that simplicity of 
tracking inventory and procurement is just so simple.
    Mr. Giddens. That's absolutely the direction we're going 
to. And starting with standard data, nomenclature, and 
inventory systems that link to that so that the field will use 
that standard nomenclature is how we will get there. I would 
submit, we really don't even want that physician worried about 
what's going to be there. They need to set what their 
requirement is, and then it show up.
    Mr. Walz. Yeah. True enough. And that is happening. And 
when you say going live in December, what percentage of those 
medical facilities out there are going to be in this 
consolidated supply chain, and who's able to use it?
    Mr. Giddens. I believe we'll be at the 70, 80 percent when 
we go live in December. And that will be available for VHA to 
use across their enterprise.
    Mr. Walz. Great. I yield back.
    Mr. Coffman. Thank you, Sergeant Major Walz.
    Dr. Benishek, you're now recognized for 5 minutes.
    Mr. Benishek. Thank you, Mr. Chairman.
    You know, I was reading some of this stuff here about 
475,000 line items of medical/surgical supplies being narrowed 
down to 16,000. Is that quite right there?
    Mr. Lemmon. Well, no. If you look at maybe every item 
that's available on a Federal supply schedule, I think that's 
where that number came from. The 16,000, in that range, is, 
based on our data analysis, is what we're buying now under the 
old contract. So no. And in the private sector, what we've 
heard from some--like Ascension Health and the Cleveland 
Clinic, they actually, you know, can get down to even a lower 
number as they do a better job working with clinicians.
    Mr. Benishek. Well, I'll tell you what my concern is, and 
that is this. And I worked at the VA. You know, I'm a surgeon. 
And all of a sudden, there would be a new IV catheter, okay, 
that nobody liked. People that were putting in the IV catheters 
didn't like the new IV catheters. But the VA changed their 
brand of IV catheters that they purchased, and nobody seemed to 
know that that was going to happen. All right? And I can 
imagine--you know, I use certain equipment in the operating 
room, but I'm not familiar with another equipment. And there's 
going to be surgeons all over the country that are trained 
differently, that have different experience, they use different 
equipment. So you're going to need to have a lot of different 
equipment.
    So to me--I mean, I understand, you know, having a 
reasonable amount of equipment. But without input from the 
practitioners, that's very difficult to do. And I don't see 
why--you know, Amazon sells 470,000 items, I'm sure. And they 
procure it probably more efficiently than you guys do. So why 
don't we have, you know, more emphasis on the process of 
procurement rather than narrowing down the items? Because, to 
me, that's a critical item.
    I mean, when I find out that I'm going to implant, you 
know, a chemotherapy port, and then all of a sudden they change 
the type of port because they got a better deal, and they 
didn't talk to me about it, well, I'm sort of upset because I 
don't know the details of this port, and I'm going to put it in 
for the first time on a patient that--you know what I mean? I'm 
unfamiliar. That happens. Okay? And I'm sure Dr. Wenstrup might 
have similar experience.
    So, I mean, this is kind of worrisome to me when I hear 
that your primary--or not--maybe not primary, but a significant 
part of your way of solving this problem is to cut down on the 
number of things and not improve the overall efficiency. So I 
just want to make that comment, and that scares me. Okay? So, 
but what is the--are you going to fix this two headquarter 
thing that Ms. Mackin was talking about? I can't remember which 
one it was, the SAC has two separate--what's that about? I 
mean, how does that--why are there two separate locations for 
the same thing?
    Mr. Giddens. That organization has two operating locations. 
It's not that unusual to have. There's a group that's in 
Fredericksburg and a group in Frederick. The group in Frederick 
focuses more on services, and the group in Fredericksburg more 
on supplies and commodities.
    Mr. Benishek. Well, you know, I'm just trying to see that 
there's a lot of thing, to me, about the procurement process 
that could be made better rather than simply diminishing the 
amount of possible supplies. You know what I mean? I understand 
the formulary, how that works in the pharmacy. But even at the 
VA where--and at any hospital that I worked in, frankly, has a 
formulary. And I wasn't very happy with it sometimes because I 
wanted to use a drug that wasn't on a formulary.
    So what--let me ask this other question. So, now, if I'm a 
surgeon and I want to get a product that's not on your thing, 
what do I got to do?
    Mr. Lemmon. Well, it depends on the value of the product. 
Certainly, there's purchase card holders in logistics. If it's 
under the micropurchase threshold, $3,500. We also have network 
contracting offices that can do buys larger than that for 
individual hospitals. But then we're tracking what's being 
bought on the back end for compliance just to make sure we're 
buying the right stuff.
    Mr. Benishek. Right.
    Mr. Lemmon. You know, the idea of having a formulary is not 
that you purchase every product from every vendor. You have to 
do some narrowing to get the cost-savings and value. But at the 
same time, it's critical that we have clinical-driven sourcing. 
The clinicians are involved in making the decisions and then we 
use that.
    Mr. Benishek. What is the clinical process now?
    Mr. Lemmon. Clinicians participate in the individual teams 
that determine what the requirements are.
    Mr. Benishek. What clinicians are those? Now, if I go back 
to the VA and start working again, am I going to have an 
opportunity to provide input? Or is it somebody at some 
university somewhere? I mean, is it a limited number of 
clinicians or does everybody who does that, use that device, 
get a chance to provide input?
    Mr. Lemmon. Certainly, we don't have every clinician in the 
VA that would use a particular item participating in the team. 
But there's--they do have clinical representatives that--
    Mr. Benishek. Well, that's the part I don't like. Okay? 
Because why shouldn't every clinician have input? I mean, 
they're the ones that are actually doing the damn procedure.
    Mr. Lemmon. They do in a way. We do have clinical product 
review Committees in hospitals.
    Mr. Benishek. Well--okay.
    Mr. Lemmon [continuied]. And they forward up the items they 
want us to look at.
    Mr. Benishek. All right. I'm out of time.
    Mr. Coffman. Thank you, Dr. Benishek.
    Mr. O'Rourke, you're now recognized for 5 minutes.
    Mr. O'Rourke. Thank you, Mr. Chairman.
    Ms. Mackin, I wanted to--others have given examples, but I 
wanted to hear from you. Who does this right? Who's the model? 
Who should we be emulating?
    Ms. Mackin. That's hard to answer. I think every government 
agency has its own set of issues. What strikes us about the VA 
is how decentralized it is. And I think there are some 
duplicative functions that the Department might want to take a 
look at, as we've noted, as the Commission on Care noted, as 
the independent assessment noted. This isn't new. I'm not 
saying it's easy, but I think over time, it has become a little 
too convoluted. And I say that because, again, the contracting 
officers and the ordering officials at the medical centers are 
confused.
    Mr. O'Rourke. And, you know, something you said struck home 
with me, which is that this is not the first time that these 
challenges and shortcomings have been brought to the attention 
of Congress. And I recognize that Mr. Giddens is new, 
relatively, in this position. But it is a familiar theme before 
this Committee, at least in the 4 years I've been here is: 
Look. The VA's royally screwed this thing up for a long time. 
But the people who are--were responsible for screwing it up are 
gone. We've got new people in place, and we've got these 
transformational plans that are going to completely, you know, 
bring the VA into line. You guys got nothing to worry about.
    So what cause for optimism do you have, Ms. Mackin, when 
you look at what the VA's doing right now in response either to 
your findings or to previous findings? And what causes for 
concern do you have? And what's your advice to me in my 
oversight function? What should I be looking at in the years 
ahead so that we don't find you or your successor here 5 years 
saying: Look. The VA's now got a graphical user interface, but 
essentially, it's the same screwed-up system and it's still not 
working? What--if you could answer those three questions in the 
3 minutes that we have remaining, that would be helpful to me.
    Ms. Mackin. I mean, it's a multilayered issue. You have the 
procurement policy framework, which I think should be pretty 
easy to streamline. You want one updated acquisition 
regulation. You want to get rid of these 170 information 
letters so people know what they're supposed to be doing. The 
organizational issues we point out will probably be more 
difficult to deal with. But focusing in on the medical/surgical 
supply program, I think the VA is on the right track. They have 
national contracts. That's a good practice. You want to get the 
best prices you can while having all the items, as I mentioned, 
that the clinical staff need.
    What was troubling to us there, though, is are they being 
used? Not as much as the VA would hope. How much are they not 
being used? Nobody knows. There's--you know, they have not been 
tracking the actuals, and you're not going to get the strategic 
savings unless you know who's using the national contracts. And 
just as importantly, who's not using them and why? Is it the 
ordering interface? Is it the items aren't available? You have 
to kind of dig down and understand why they're not being used 
to get the best value.
    Mr. O'Rourke. And to the first question, I mean, any cause 
for optimism? Is there anything that you're seeing in the VA's 
response, say, over the last year, to these problems before 
this report was published, and then the VA's responses report 
specifically that give you cause for hope or show you that the 
VA's essentially on the right track--
    Ms. Mackin. I mean, during our--
    Mr. O'Rourke [continued].--or not? Let me know.
    Ms. Mackin [continued]. During our audit, when we raised 
the procurement policy framework that you have two versions of 
your acquisition regulation, they took immediate action. I 
don't know why it took us to point that out. I mean, that's 
still a concern. But, you know, once we raised the concerns, 
they did start taking action. And so I think that's a good 
thing.
    I think in terms of oversight, you know, are they using 
these national contracts? Are they getting the best value for 
the taxpayer? They have a lot in the works. MyVA, this 
initiative is huge and broad. And there's a lot of, we will do 
this, and we will do that statements.
    Mr. O'Rourke. Right.
    Ms. Mackin. I think for GAO and perhaps Congress, you want 
to see the documentation and the evidence that the outcomes are 
happening.
    Mr. O'Rourke. Yeah. And, Mr. Giddens, just--you don't have 
to answer this if you don't want to, but my constructive 
criticism would be that--and it's something that I see a lot of 
folks from the VA do when they testify before us, they use very 
aspirational language. We're going--we're pursuing supply chain 
transformation efforts. We're responding to stakeholders and 
customer needs. What would be very helpful to me is just the 
numbers. What have you done? What have you not done? When will 
you do the things that you aspire to do? How can we best hold 
you to account?
    The aspirational we will be the best, we'll deliver for 
veterans, we all know that, but--we know you're in this for the 
right reason, that you're going to try your hardest. But it's 
very helpful to me if you could have a concise by-the-numbers 
response to, you know, perhaps the questions that were raised 
today, and perhaps in future testimony, look, here's where we 
are. That is very helpful, because I get that from GAO, for 
which I'm very grateful, and I don't always get that from the 
VA. And, again, you're not unique in that, and I appreciate the 
aspirations that you, you know, set out to achieve. It's just 
that the numbers are going to be very helpful, especially in an 
O&I setting.
    Mr. Giddens. Sir, I'd welcome the opportunity to do that, 
to show the plans and the milestones that we have that support 
those aspirations.
    Mr. O'Rourke. Thank you.
    Mr. Giddens. It's going to happen.
    Mr. Coffman. Thank you, Mr. O'Rourke.
    Dr. Wenstrup, you're now recognized for 5 minutes.
    Mr. Wenstrup. Thank you, Mr. Chairman.
    You know, I appreciate the attempt to bring some order to 
this process. And, you know, Mr. Walz brought up the example of 
Lowe's. You know, they've got to do these types of things 
because customer service is of the utmost importance. And maybe 
that's something that's missing from time to time in your 
situation.
    But you have tremendous buying power. I mean, what hospital 
system would not love to have the buying power of the VA health 
care system and use it to their advantage. It seems to me 
you're holding a lot of cards. And so that goes to withholding 
all those cards, sole source type of purchasing doesn't even 
make sense. Now, you may have something like, hey, a suture 
removal kit. Yeah, anybody can use the same one. You know, that 
kind of thing is fine. But it seems to me what we're doing 
right now is very much related to cost concerns. Now, and 
doctors get that. You know, we've had to deal with that.
    And, you know, when it comes to medical and surgical tools, 
though, when you're operating on somebody, it's what's best for 
the patient. And that patient care comes first and foremost 
over anything else. And so it seems like we're kind of more 
contract driven right now, and the bean counters are making the 
decisions of what we have and don't have. And, you know, what 
happens when doctors don't have a legitimate choice, they 
leave. This happened in our group.
    One of the hospital systems we were heavily entrenched with 
said: This is the only knee implant you can use. Well, guess 
what? It's not the right one for every patient. We left. We 
left that system. Later, they had to come around. They found a 
way to make it work.
    And so, you know, you talk about physician recruitment for 
the VA. You know, you don't want to tie people's hands when 
you're trying to get the best in place. And you talked about 
the vendors delivering that day. You know, sometimes I'd have 
two opposing vendors and say: You know what? Once I get in 
there, I'm going to decide which one is going to be best for 
this patient. That's not a bad thing. That's a good thing.
    So the question comes in, is who's always making these 
calls for the items that are put in the catalog? Maybe 
something's in the catalog that you got to, say request early, 
something like that, but don't make it obsolete, and in no way 
available. And I believe what you were looking for is the 
integrated procurement team that includes physicians. Well, I 
hope it includes the right physicians. Because a lot of times, 
since I've been dealing with health care and the government, 
they'll have physicians, but not physicians that are familiar 
with the things they're making decisions on. So we got to be 
careful on that.
    So the question does come in, what happens when a doc says: 
I need this? And, Mr. Giddens, in August, I think you were on 
the radio and you were talking about ordering officers that 
don't have to decide which is the right kind of bandage. Well, 
I don't consider that a positive because there's a difference 
between Kling, and Kerlix and Webril, and different bandages. 
And they're used for different things. So one size doesn't fit 
all. So sometimes you do have to make a decision on what type 
of bandage and not just say: Well, this is easy. This is the 
only one you got.
    And so the questions come in, what happens when a doc says: 
I need this? And is it a fact right now that the VA is 
selecting one company to supply each type of product? Because 
that, I think, is dangerous.
    The other question I had is, when do we get to see the 
catalog and take a look at it for ourselves? If you would, Mr. 
Giddens.
    Mr. Giddens. Sir, first, to make sure that--to clarify one 
of the earlier points, this is not bean counting first. We are 
putting veterans first. We think as we do that, we will be able 
to realize savings. And talking with health care organizations 
across the country, that's what they've told us too, that they 
could serve their patients, and at the same time be more cost 
effective. They also told us this is not an overnight journey. 
Now, some of them said it took them 5, 7, 8 years.
    So we don't want to rush to this in any way that puts our 
patient and health care delivery at risk. So we intend to be 
deliberate, methodical, and to make best be.
    You mentioned the radio show. The point I was trying to 
make on that is, right now, if you're that ordering officer out 
in the field and you do a search, you may get 5, 7, 10 pages of 
different kind of bandages. We want to, based on clinically 
driven sourcing and getting the right input from the health 
care community, what--if you're looking for a bandage that has 
bacterial properties of this and an absorption rate of this, we 
don't want you to have to look through five different pages. We 
want to provide you the ones for what you need that have 
already been approved for use in the VA, and that we know give 
good clinical outcomes.
    Mr. Wenstrup. I appreciate that clarity.
    Mr. Giddens. And if we can leverage that and now buy at the 
market instead of buying at the eaches, we think we can also 
have some cost avoidance.
    Mr. Wenstrup. And the catalog, when do you anticipate that 
that might be available? Or tentative catalog.
    Mr. Giddens. In December. We'll be happy to, as we start to 
go live, to share that with you.
    Mr. Wenstrup. Okay. I appreciate it.
    Mr. Giddens. And it will be--as Rick stated, it will be 
evolving. That catalog in December, as we continue to get 
feedback, as clinicians continue to work on the integrated 
product teams and procurement teams, that will be adjusted, and 
we'll look at our spend and our analytics, and we'll--so it 
will be an evolving catalog. It is not going to be static. It 
will be dynamic.
    Mr. Wenstrup. And I just--again, I know you've heard it 
already, but the provider input to what they need is best for 
their patient has got to be a big component of this. And I 
understand the need for cost savings as well.
    I yield back. Thank you.
    Mr. Coffman. Yes, sir. Thank you, Dr. Wenstrup.
    Doctor Roe, you're now recognized for 5 minutes.
    Mr. Roe. Thank you, Mr. Chairman.
    A rush in the VA is an oxymoron, Mr. Giddens. And now since 
I've been here, I haven't seen them get in a rush for anything.
    Ms. Mackin, you--
    Mr. Giddens. Well, sir--
    Mr. Roe.--you mentioned confusing, complex, but 
opportunities. And I'd hope that we're going to take advantage 
of some opportunities. And I know that this is a huge system. I 
understand that. And there have to be, when we've seen abuses 
of the system. And I know you have to have rigid ways to do it.
    And I know, Dr. Wenstrup, we all like our toys when we go 
to the operating room, we like what we do. But obviously, there 
needs to be some way that you don't have every gadget in the 
world on there. We understand that.
    Dr. Cosgrove mentioned last week when he was here sitting 
right where you are, about how a different EHR system would 
benefit the VA, instead of having to lay something over--Ms. 
Kuster mentioned a minute ago about that, about it would work 
for an EHR health care system, a supply chain, billing, all the 
things the VA is struggling with with this legacy system. Would 
that be something that would help where you have an off-the-
shelf system, that's number one?
    And, Ms. Mackin, I guess I've got a question for you. Why 
did it take an OIG audit to make the changes? Why didn't the VA 
make those changes before you audited--had to audit the system 
and point these things out?
    Ms. Mackin. If you're referring to the actions that they 
took during our audit?
    Mr. Roe. Yes.
    Ms. Mackin. I mean, I have to just think it wasn't on 
anybody's radar screen enough to start moving. They realized 
that they had two acquisition regulations out there. It just 
was a very slow moving process. And then when we raised it, 
they pretty quickly rescinded the old one. So that was good. 
But, you know, they're still looking at a couple of years 
before they've updated the 2008 version.
    They did agree with all ten of our recommendations. We 
didn't get the letter in time to publish in our report, but we 
heard from Mr. Giddens. So we'll be following up on those 
individual recommendations as well.
    Mr. Roe. Well, it's the--in our Veterans Choice Act, when 
the Committee on care came--the VA seems to always agree, but 
it's implementation of it that seems to be held up. But what 
Mr. Walz was saying a minute ago, you know, I can go--I can go 
to--if I want a product in the world now with the technology we 
have, I can literally go on Amazon and find six, seven 
different versions of what I want at different price points. I 
can do that with airline tickets, I can do that with insurance 
policies. I can do that--and I believe there are health systems 
that do exactly the same thing, to find the best price for a 
product in a competitive system.
    And I don't know whether the VA's system of looking at it 
won't allow them to do it. I don't know whether that's the case 
or whatever. But right now, the technology's out there. You can 
find the best price for almost anything now.
    Mr. Roe. I don't care if it is a pulse oximeter, a blood 
pressure cuff, stethoscope, whatever you're looking at.
    Is that the system, Mr. Giddens, that's going to be in 
place?
    Mr. Giddens. Yes, sir. That's the system that we'll begin 
using this December, where we have looked and put those 
contracts in place that supports that, so that when somebody is 
looking to order, it'll start pushing that with the graphical 
user interface so that they see the right item and how to--
    Mr. Roe. It will search out the lowest price for the same 
product. Is that what you're saying?
    Mr. Giddens. Well, I've actually already done the 
analytics, and I can let Rick talk a little about the 
analytics. We'll have already done the analytics and put the 
right contracts in place so they are getting the best price, 
but we'll continue to monitor the market. We may have a 
contract in place that in 9 months the market has shifted, and 
now that price is not as good. So we want to be looking at what 
the market prices are on an ongoing basis and understand maybe 
our contract price is still good and maybe not, and then we'll 
start making shifts.
    Mr. Roe. Well, that segues into the next question I have, 
which is, in strategic buying contracts, the VA concentrates 
its business with a few big companies. A small orthopedic 
implant startup submitted a statement for the record. They say 
the VA is paying 68 percent too much with the big 
manufacturers. The VA seems to shut these small companies out 
because it's more convenient to get the whole product line from 
one company. That puts the convenience over competition and 
savings. How would you respond to that?
    Mr. Giddens. I don't know any of the details on that 
particular procurement. It's probably in the VHA's--
    Mr. Roe. We can get that for you for the record. You don't 
have to answer now. We can get that for you.
    I notice my time is about out. I yield back.
    Mr. Coffman. Thank you, Dr. Roe.
    We'll do a second round for anybody that has additional 
questions. I have three additional questions.
    Ms. Mackin, GAO's report says the VA is working on an 
updated version of its acquisition regulations, but it won't be 
finished until 2019. Is this reasonable?
    Ms. Mackin. It's a slow process. I will say that they began 
working on it in 2011. I think Mr. Giddens just said they 
expect to be complete in December of 2018. That is a long time. 
I know there's public rulemaking, that's part of it. But it 
seems like a long time.
    Mr. Coffman. Mr. Giddens, Congress has given the VA 
numerous special procurement authorities over the years, none 
of which seem to make the situation any better. Why isn't 
maintaining these regulations more of a priority?
    Mr. Giddens. Sir, I think as we've looked at that, it is a 
priority as we've indicated in working with GAO. We're going to 
look to accelerate that. But there is a large part of 
rulemaking in public comment that we must go through as we 
update the VAAR. That's why we want to separate that and only 
update in the VAAR what is required for rulemaking, and take 
the rest and put in a manual that we can more update as 
business processes are improved.
    Mr. Coffman. Mr. Giddens, how can you demand businesses, a 
lot of them being small businesses, live under these 
regulations if the VA can't even maintain them?
    Mr. Giddens. Well, the regulations that govern us in the 
FAR don't govern those businesses, large or small. They govern 
the interfaces that we have with them, but those interfaces are 
large and defined by the solicitation and the proposal process, 
which are clearly articulated.
    Mr. Coffman. Ms. Mackin, summing this all up, what has 
MyVA, the program MyVA demonstrably accomplished in the supply 
chain realm?
    Ms. Mackin. I think the goals of MyVA are all good, but as 
noted, they're very broad and ``we will'' kind of statements. 
I've seen some numbers about cost savings. I haven't seen any 
backup for those numbers, so that's something I'd be interested 
in taking a look at.
    And I'll just say an organization can't manage what it 
can't measure. And if the VA can't get a good understanding of, 
even after these national contracts are up and running, who's 
not using them and why, they're not going to get where they 
want to get with the cost savings.
    Mr. Coffman. Let me just say, I think Mr. O'Rourke well 
articulated the need to have metrics instead of these 
aspirational goals. You know, what we want are a plan with 
specific metrics that we can measure and that you can measure, 
Mr. Giddens, to say where you are in terms of improving this 
process. Can you comment on that?
    Mr. Giddens. As indicated before, we welcome the 
opportunity to share those plans.
    Mr. Coffman. When do you think you can share those with 
this Subcommittee?
    Mr. Giddens. We can--next week.
    Mr. Coffman. Okay. And I'd like Mr. O'Rourke to take a look 
at those and see if they meet your objectives. I think they 
were very well expressed.
    Any other questions, Mr. O'Rourke, Mr. Walz?
    Let's see where we're at here.
    Our thanks to the witnesses. The witnesses are excused.
    Today, we have had a chance to examine the underlining 
challenges in VA procurement. I hope the VA will consider 
streamlining these organizations and cleaning up the rules.
    One final note, the VA urges us to pass provider agreement 
legislation in every single letter we get from the Department. 
Chairman Miller originally attempted to bring it to the floor 
in May, and it was derailed by last minute objections to the 
cost offset proposed by the President that this Committee under 
both parties has used for years. Chairman Miller again tried to 
bring it to the floor just last week. The bill had to be pulled 
over new objections, but at the last minute by the Secretary of 
Labor that even the VA was not aware of. I reject any 
implication that the Committee has not been working diligently 
on this legislation. I would ask the VA to be vocal in its 
support when it really counts, not just privately.
    I ask unanimous consent that all Members have 5 legislative 
days to revise and extend their remarks, and include extraneous 
materials.
    Without objection, so ordered.
    I would like to once again thank all of our witnesses and 
audience members for joining in today's conversation. With 
that, this hearing is adjourned.

    [Whereupon, at 5:09 p.m., the Subcommittee was adjourned.]


                           A P P E N D I X

                              ----------                              

                   Prepared Statement of Greg Giddens
    Good afternoon, Chairman Coffman, Ranking Member Kuster, and 
distinguished members of the Subcommittee. I appreciate the opportunity 
to discuss the progress that the Department of Veterans Affairs (VA) is 
making towards transforming procurement and supply chain operations 
leading to improved business outcomes that benefit our Nation's 
Veterans, and taxpayers. I am joined today by Mr. Rick Lemmon, the 
Acting Chief Procurement and Logistics Officer for the Veterans Health 
Administration (VHA).
    VA recognizes that persistent challenges exist in delivering 
business solutions that satisfy Veterans needs while simultaneously 
complying with the vast body of laws and regulations that govern 
Federal acquisitions. VA is committed to: continuous improvement of our 
procurement practices and procedures; leveraging our buying power to 
achieve cost avoidances; improving our management information systems 
to support improved decision making; improving acquisition workforce 
competencies; and executing our acquisition mission in an integrated 
manner that establishes clear lines of authority and holds people 
accountable for mission outcomes.
    To that end, the Department has made steady and significant 
progress over the past 5years, but admittedly, there is more work to be 
done, as reflected in the recent Government Accountability Office (GAO) 
report titled, ``Veterans Affairs Contracting: Improvement in Policies 
and Processes Could Yield Cost Savings and Efficiency''. VA agrees with 
the conclusions in the report, and we are pleased to report that in 
most cases, VA already has strategies in place that align with GAO's 
recommendations. For example, the Department initiative to streamline 
internal acquisition policy and procedures to clearly delineate what is 
required by law and regulation from what are business process 
requirements. This deliberate separation of policy from procedure will 
create a more agile management environment that can respond more 
quickly to stakeholder and customer needs.
    Other examples of the Department's focus on improving acquisition 
across the enterprise include enhanced training for members of the 
acquisition team, including both acquisition professionals and the 
customers they support; process improvements to improve visibility over 
acquisition workforce training, certifications, and warrants; and 
improvements in VA's contract writing system to improve visibility of 
contract actions across the entire acquisition life cycle from 
requirements generation to contract closeout. The Department is 
implementing a 5 year acquisition information technology systems 
modernization plan that is replacing legacy, proprietary systems 
technology with world-class, agile, and user-friendly capabilities that 
will be simpler and cheaper to sustain, and will also support rapid 
response to changing customer requirements thereby improving customer 
satisfaction.
    Significantly, under the leadership of Secretary McDonald, VA has 
evolved a new management culture that embraces: industry best practices 
such as continuous process improvement using LEAN principles; an 
overarching leadership philosophy, which values employee creativity and 
diversity and fosters decision making that relies less on bureaucratic 
rules in deference to ``guiding principles'' that focus attention and 
energy squarely on Veteran needs and hold people accountable for 
individual and enterprise business outcomes.
    Apart from improvements that are focused on developing a 
professional contracting workforce, VA has focused heavily on 
establishing an acquisition management framework to provide a 
disciplined, repeatable process for managing programs throughout the 
acquisition lifecycle. Similar to the approach used by the Department 
of Defense (DoD), implementation of a Acquisition Program Management 
Framework (APMF) will complement and support the Department's efforts 
to integrate business functions more effectively to achieve enterprise 
outcomes and results. Specifically, the APMF will help drive desired 
business outcomes and firmly establish accountability for acquisition 
programs as a component of VA's overarching ``Managing for Results'' 
process.
    Key tenets of VA's approach to acquisition service delivery include 
the centralization of policy and workforce development functions, and 
decentralized execution. Centralization of acquisition policy and 
workforce development allows the Department to implement a standardized 
acquisition system and adapt the system to quickly adapt to changes. A 
recent example of this is the Supreme Court ruling in the case 
Kingdomware Technologies, Inc. v. United States. As a result of the 
ruling, contracting in the Department has fundamentally changed. Due to 
continuous efforts to improve integration across VA's acquisition 
community, the Department was able to rapidly revise numerous internal 
acquisition policies and procedures to ensure full compliance with the 
law. In addition, our award winning VA Acquisition Academy was able to 
quickly develop and deliver targeted training for both contracting 
professionals and internal customers to ensure rapid implementation of 
the Court's ruling. Through central management of the enterprise 
acquisition policy framework, VA adapted to the ruling with minimal 
impact to critical timely acquisitions.
    The agility of VA's acquisition and supply chain communities to 
adjust to both regulatory requirements and mission challenges continues 
to improve as VA evolves through the MyVA transformation agenda which 
is focused on optimizing Veteran outcomes and customer experience, 
effective stewardship of resources, operational efficiency, and 
employee satisfaction. Transformation of VHA's supply chain is one of 
the ``MyVA Breakthrough Initiatives''. This initiative is focused on 
establishing an enterprise-wide medical-surgical supply chain that 
leverages VA's scale to drive both effectiveness of acquisitions 
(leveraging VA's buying power to achieve best possible pricing) and 
system efficiencies resulting in lower operating costs.
    This initiative is a comprehensive approach consistent with the 
Commission on Care's intent to improve the effectiveness and efficiency 
of VHA's supply chain and is already driving much needed improvements 
in data visibility and quality, synchronization of technology 
deployments, standardization, contract compliance, and training. 
Already in fiscal (FY) 2016, VHA supply-chain transformation efforts 
have yielded in excess of $75 million in cost avoidance. VHA has also 
developed a 2 year supply-chain transformation stabilization and 
standardization plan that will establish a common operational 
environment to inform investment decisions beyond FY 2018. The 
Department believes that it is prudent to avoid significant technology 
investments beyond those currently in the pipeline until such time that 
a mature supply-chain baseline is established, upon which future 
incremental IT investment decisions can be based. This is especially 
important given VA's Financial Management Business Transformation 
initiative and emerging plans for a new Digital Healthcare Platform 
(DHP), both of which will impact legacy and contemporary supply-chain 
systems and interfaces, as well as influence system-improvement 
alternatives and investment decisions over the next 2 to 5 years. 
Supply-chain system improvements must be integrated and synchronized 
with enterprise financial and health care system enhancements to 
achieve efficiencies in service delivery and support analysis of 
integrated data to meet VA's current and future needs.
    One of the Commission on Care report's recommendations that the 
Department does not believe is prudent at this time is the following. 
Specifically, the Commission suggested establishment of a Chief Supply 
Chain Officer (CSCO) and realignment of all procurement and logistics 
operations under the CSCO executive position. This isolated 
recommendation would not adequately address underlying management 
challenges associated with organizational complexity and the need to 
improve integration processes impacting the supply chain. The 
Department believes that realignment of VHA's supply-chain structure, 
including roles and responsibilities of the various VA Central Office 
staff offices, health networks, and medical facilities, should derive 
from and be integrated with the transformation of the overall VHA 
health care organization structure. The intent of the Commission is 
being met by addressing alignment issues as the supply-chain 
breakthrough initiative evolves and is synchronized with the 
Department's overarching strategies to transform VHA through the MyVA 
initiative.
    The Secretary, senior leaders, managers, and members of the 
acquisition and supply chain communities across the Department are 
keenly aware of the key business drivers fueling the MyVA 
Transformation. For members of the acquisition and supply chain 
communities, these compel us to continuously improve business processes 
and procedures to overcome long-standing system deficiencies; improve 
program execution, oversight and accountability; improve business 
outcomes; provide sound stewardship over resources generously provided 
by Congress and the American people; and be accountable to our 
stakeholders. We are tackling the many challenges that confront us in a 
transparent manner as mandated by the tenets of the MyVA transformation 
initiative. As stated by the Secretary, VA cannot accomplish the 
ongoing transformation through MyVA or recommendations from the 
Commission on Care without critical legislative changes. VA has 
aggressively pursued these needed changes with Congress. Many of these 
proposals are vital to maintaining our ability to purchase community 
care and best serve our Veterans. One of the Secretary's top 
legislative priorities concerns Provider Agreements, which enable 
delivery of necessary care for Veterans through the fullest complement 
of non-VA providers. VA purchased care authorities must be clarified 
and modernized. The future of these authorities will have a direct 
impact on the workload of VA's acquisition workforce. VA and its 
provider partners who use provider agreements are facing continuing 
uncertainty, so expeditious action is necessary. VA transmitted the VA 
Purchased Health Care Streamlining and Modernization Act to Congress on 
May 1, 2015. We strongly support its passage.
    Mr. Chairman and Members of the Committee, this concludes my 
statement. Thank you for the opportunity to testify before the 
Committee today. Mr. Lemmon and I would be happy to respond to any 
questions.

                                 
                  Prepared Statement of Michele Mackin
                      VETERANS AFFAIRS CONTRACTING
  Improvements in Policies and Processes Could Yield Cost Savings and 
                               Efficiency
    Chairman Coffman, Ranking Member Kuster, and Members of the 
Subcommittee:
    The Department of Veterans Affairs (VA) spent about $20 billion on 
goods and services in fiscal year 2015. \1\ The wide range of goods and 
services that VA procures-including construction, information 
technology, medical supplies, and many other categories-is essential to 
meeting its mission to provide health care, pensions, and other 
benefits to the nation's military veterans. Prior assessments of VA 
management, both internal and external, have found shortcomings in VA 
procurement. In 2015, GAO added VA Health Care to our High Risk list 
because of issues including ambiguous policies, inconsistent processes, 
and inadequate oversight and accountability. \2\
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    \1\ For our purposes, "spent" means obligated, as defined in A 
Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP; 31 
U.S.C. Sec.  1501 (a).
    \2\ GAO, High Risk Series: An Update, GAO 15 290 (Washington, D.C.; 
Feb. 11, 2015).
---------------------------------------------------------------------------
    My remarks today are based on our recently issued report on VA 
contracting, and I will summarize a few key findings from that report. 
\3\ I will address 1) the organizational structure of VA's procurement 
function, 2) VA procurement policies, and 3) the extent to which 
opportunities exist to improve VA's key procurement functions and to 
save money.
---------------------------------------------------------------------------
    \3\ GAO, Veterans Affairs Contracting: Improvements in Policies and 
Processes Could Yield Cost Savings and Efficiency, GAO 16 810 
(Washington, D.C.; September 16, 2016).
---------------------------------------------------------------------------
    As part of our work for our September 2016 report, in order to 
evaluate VA's procurement organizational structure, we reviewed policy 
documents and interviewed officials in leadership, local contracting 
office management, and contracting officer roles. To assess VA's 
procurement policies, we obtained and analyzed policy documents, and 
interviewed officials responsible for making and implementing 
procurement policy. To assess opportunities to improve VA's key 
procurement functions and to save money, we obtained and analyzed 
information regarding VA's medical-surgical prime vendor program and 
interviewed officials with roles in management, contracting, and 
operations for the program. We also reviewed a non-generalizable sample 
of 37 contracts and 19 associated task orders from fiscal years 2013 
through 2015. The selected contracts were chosen from the national 
contracting offices and local Veterans Health Administration (VHA) 
contracting offices we visited, and the basis for selection included 
dollar value and whether these contracts were competed or not. 
Additionally, we interviewed contracting officers responsible for each 
of the selected contracts.
    More detailed information on our objectives, scope, and methodology 
for our work can be found in our September 16, 2016 report. We 
conducted the work on which this statement is based in accordance with 
generally accepted government auditing standards. Those 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 serves veterans of the U.S. armed forces, and provides health, 
pension, burial, and other benefits. In fiscal year 2015, VA spent 
about $20 billion on goods and services via contracts-more than a 
quarter of its discretionary budget. As shown in the organizational 
chart below, these contracts were awarded by VA's eight heads of 
contracting activity (HCAs). The department's three operational 
administrations-VHA, the Veterans Benefits Administration, and the 
National Cemetery Administration-operate largely independently from one 
another.


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    In addition to the operating administrations, several VA 
procurement organizations have department-wide roles:

      The Office of Acquisition, Logistics, and Construction 
(OALC) is a VA headquarters organization responsible for directing the 
acquisition, logistics, construction, and leasing functions within VA.
      The Office of Acquisition Operations (OAO), which falls 
under OALC's purview, conducts procurement activities for customers 
across the department and has two primary operating divisions-the 
Technology Acquisition Center (TAC), which focuses on IT purchasing, 
and the Strategic Acquisition Center (SAC), which is responsible for 
procurement of certain types of goods and services for the operating 
administrations, such as VHA.
      The Office of Acquisition and Logistics (OAL) is 
responsible for oversight of contracting across VA, including setting 
policy and issuing warrants to contracting officers.
      The National Acquisition Center (NAC) is an OAL 
contracting organization which serves VHA by providing contracting for 
certain health care-related goods and services.

    VHA provides medical care to veterans and is by far the largest 
administration in VA, with a budget of $61.1 billion for fiscal year 
2016, representing the majority of VA's $75 billion discretionary 
budget. Its 167 medical centers are currently organized into 19 
Veterans Integrated Service Networks (VISN), regional networks that 
manage some aspects of operations. VHA has 19 Network Contracting 
Offices, each of which serves one of the 19 VISNs.
    VA has some organizational and programmatic changes in progress 
that affect procurement. In July 2015, the Secretary of Veterans 
Affairs announced an organizational transformation for the department 
called MyVA. In a related effort, responsibility for the medical-
surgical prime vendor (MSPV) program-a logistics provider that 
facilitates ordering and delivery of supplies to medical centers from 
many different contractors-was recently transferred from NAC to SAC.

VA's Complex Procurement Structure Creates Challenges for Users

    Given VA procurement's highly decentralized structure, a given 
customer-such as a department in a medical center or a program office-
may need to work with multiple contracting entities to meet its 
procurement needs. Figure 2 illustrates the complex working 
relationship between contracting offices and their customers across VA.


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    This can contribute to confusion. Several of the contracting 
officials we spoke with stated that they were, at times, uncertain 
about which contracting office handled what requirements. VA issued a 
memorandum in 2013 to clarify areas of responsibility for the national 
contracting organizations, but confusion remains. VA's Acting Chief 
Acquisition Officer stated that he is aware of overlap in the functions 
of some contracting organizations, especially the NAC and the SAC. At 
one VISN we visited, an official reported procuring one type of high-
tech medical equipment through the SAC even though this area is 
specifically designated as NAC's responsibility because she expected 
that the SAC could execute the purchase more quickly.
    Without clearly delineated organizational roles and customer 
relationships-beyond what was provided in the 2013 memorandum-the 
possibility of duplication in these roles and relationships is 
increased, and customers lack clear guidance on which organization to 
approach for certain types of procurements. In our September 2016 
report, we recommended that OALC assess whether additional policy or 
guidance is needed to clarify the roles of VA's national contracting 
organizations. The Acting Chief Acquisition Officer, OALC said that the 
department agreed with this recommendation.

VA Procurement Policies Are Outdated and Not Always Cohesive and 
    Effectively Communicated

    Key VA procurement policies are outdated and difficult for 
contracting officers to use. Standards for Internal Control in the 
Federal Government state that it is important for an organization's 
management to update its policies over time to reflect changing 
statutes or conditions, and that those policies should be communicated 
to those who need to implement them. \4\ However, many of VA's 
regulations and policies are outdated, most notably the VA Acquisition 
Regulation (VAAR), which has not been updated since 2008. \5\ The 
department has issued a patchwork of policy documents in the interim to 
fill this gap. VA asks contracting officers to refer to two different 
versions of the VAAR, one from 1997 and the other from 2008. This 
causes confusion among contracting officers. In addition, VA 
communicates interim procurement policies in a number of different 
forms, some of which can be duplicative. Figure 3 illustrates the 
numerous sources that contracting officers must turn to for guidance.
---------------------------------------------------------------------------
    \4\ GAO, Standards for Internal Control in the Federal Government, 
GAO 14 704G, (Washington, D.C.: Sept. 10, 2014).
    \5\ While we have not reviewed all Federal Register notices since 
2008 to determine whether there have been any updates, agency officials 
confirmed that the VAAR has not been updated since 2008.


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Note: A regulatory deviation is a policy, procedure, method, or 
practice at any stage of the procurement process that is inconsistent 
with the Federal Acquisition Regulation. Acquisition Flashes 
disseminate information relevant to day-to-day procurement operations. 
Information Letters are policy memoranda.
    The sheer volume and number of different forms of communications-
many of which are outdated-are confusing and present challenges for 
contracting officials seeking appropriate guidance. While VA recently 
fully rescinded the 1997 VAAR after our inquiries, the 2008 version 
remains out of date. A new revision of the VAAR is also in development, 
but has faced delays. VA began the process in 2011 but does not plan to 
finalize the new VAAR until December 2018, including the required 
rulemaking process. The lengthy delay in updating this fundamental 
source of policy impedes contracting officers' abilities to effectively 
carry out their duties. In our September 2016 report, we recommended 
that VA identify measures to expedite the revision of the VAAR, and 
take interim steps to clarify its policy framework; the Acting Chief 
Acquisition Officer, OALC stated that the department agreed with both 
of these recommendations.

VA Can Improve Its Processes for Medical Supply Purchasing and Identify 
    Other Cost Savings Opportunities

    VA medical centers use contractors called medical-surgical prime 
vendors to obtain many of the supplies they use on a daily basis, such 
as bandages and surgical sutures. Officials known as ordering officers, 
who work at the medical centers, regularly place orders. In turn, the 
prime vendor delivers those orders via a local warehouse. The prices 
for these medical supplies are established by VA national contracts, 
which typically provide significant discounts over the Federal Supply 
Schedule prices-an estimated 30 percent on average, according to a 
senior NAC official. Use of these national contracts is also required 
by VA policy and regulation. \6\ Figure 4 provides an overview of the 
MSPV process.
---------------------------------------------------------------------------
    \6\ VA is required to purchase through the MSPV all medical and 
surgical supplies that are available from an MSPV contract. Department 
of Veterans Affairs Memorandum, June 22, 2015, Use of Medical/Surgical 
Prime Vendor (MSPV) Contracts is Mandatory. VA is also required to 
satisfy supplies and services requirements using the order of priority 
listed in VAAR 808.002(a)(2), which lists a higher priority of use for 
national contracts, such as the MSPV contracts, than for Federal Supply 
Schedule Contracts. See also, Department of Veterans Affairs 
Memorandum, May 5, 2016, Class Deviation Veterans Affairs Acquisition 
Regulation (VAAR) Part 808, Required Sources of Supplies and Services, 
and VAAR Subpart 808.002, Priorities for Use of Government Supply 
Sources.


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    However, the current MSPV process is confusing and cumbersome. Most 
orders are placed through the Integrated Funds Distribution Control 
Point Activity, Accounting and Procurement (IFCAP) system, a decades-
old IT system with a text-based interface, which does not include a 
tool to look up items that are available on the national contracts. For 
instance, ordering officers must know the exact item number-which is 
different for each vendor-to enter into IFCAP. The existing tools to 
look up available national contracts are also cumbersome. Along with 
discounted items on national contracts, the MSPV system also allows 
ordering officers to buy thousands of items directly from VA's Federal 
Supply Schedule contracts, which lack the degree of discounted pricing 
of the national contracts. Because of the challenges posed by the 
system, ordering officers in some cases purchase items directly from 
the Federal Supply Schedules, and might miss opportunities to obtain 
discounts on the national contracts.
    Administration of the MSPV program is being transferred from NAC to 
SAC, and, along with this transfer, VHA and SAC are making changes to 
the MSPV program in an effort to address the issues discussed above and 
streamline the process. To support the next generation MSPV, SAC has 
already awarded new prime vendor contracts and is in the process of 
awarding the supporting national contracts for individual types of 
supplies.
    VHA and SAC also plan to implement a new online ordering interface, 
developed by a contractor for VHA, which will provide ordering officers 
a more intuitive interface for the outdated and difficult-to-use IFCAP 
system. Further, unlike the current system, this new interface will 
only permit ordering officers to purchase items from a specific catalog 
of items, not the wider range of Federal Supply Schedule items. VA 
estimates that this catalog will eventually contain 8,000 to 10,000 
items to meet the needs of its medical centers. However, there have 
been some delays in VHA's development of supply requirements and SAC's 
award of new supply contracts, with only about 1,800 items on national 
contracts as of July 2016. VA does not anticipate that SAC will be able 
to award contracts for the full catalog by the time the new MSPV 
contracts become operational in December 2016. In the interim, SAC and 
VHA officials stated that they will allow ordering of Federal Supply 
Schedule items (approximately 4,500) that are not on national 
contracts, to ease the transition.
    Work remains to ensure that the transition to this new approach 
will be successful. Updating the MSPV process affects how essential 
supplies are ordered and delivered at 167 medical centers on a daily 
basis, and facility logistics staff, including ordering officers, must 
be able to implement the new approach. VHA has an outreach plan in 
place, but chief logistics officers at medical centers we visited 
expressed some concerns about the transition-for instance, one reported 
that his office's analysis found 14 items deemed critical to the 
function of the medical center were not on a preliminary list of 
supplies available through the new MSPV, nor were acceptable 
substitutes. If medical centers instead purchase items through their 
local contracting offices because the new MSPV does not meet their 
needs, it will undermine the program's potential to increase efficiency 
and cost savings.
    In our September 2016 report, we recommended that VA take steps to 
facilitate the transition to the new MSPV process, including ensuring 
that SAC collects data to monitor the use of national contracts in the 
new system, that SAC and VHA establish achievable time frames for 
eliminating Federal Supply Schedule items from the MSPV catalog once 
national contracts are in place, and that the new ordering interface 
clearly distinguish between items on national contracts and the 4,500 
items on the Federal Supply Schedules. The Acting Chief Acquisition 
Officer, OALC said that the department agreed with this recommendation.
    VA's substantial buying power presents many opportunities for 
procurement cost savings, but the department has not consistently taken 
advantage of them. A key aspect of strategic sourcing is consolidating 
similar requirements to manage them collectively, reaping cost savings 
and efficiency gains. \7\ VA has done this successfully in some areas, 
such as pharmaceuticals, and the planned changes to the MSPV program 
could result in greater use of discounted national contracts for 
medical supplies if they are successfully implemented.
---------------------------------------------------------------------------
    \7\  GAO, Strategic Sourcing: Improved and Expanded Use Could Save 
Billions in Annual Procurement Costs, GAO 12 919 (Washington, D.C.; 
Sept. 20, 2012).
---------------------------------------------------------------------------
    There are opportunities to better apply strategic sourcing 
principles at the regional level, as well. Within VHA, each of the 19 
VISNs is responsible for a regional network of multiple medical centers 
and clinics. Individual medical centers within each VISN procure many 
goods and services separately, despite the fact that their requirements 
are similar. Consolidating these requirements-such as security 
services, elevator maintenance, and eyeglasses for patients-can realize 
both cost savings and greater efficiency in awarding and administering 
contracts.
    We found efforts underway to consolidate requirements at the 
regional level, but local autonomy and limited planning capacity pose 
obstacles. For instance, one VISN we visited recently began an 
initiative to consolidate requirements for purchases made by all of its 
medical centers, especially services. VISN managers explained that they 
began with the easiest requirements, such as landscaping services and 
parking administration. They issued a draft memorandum with plans to 
broaden this approach to most purchases, but medical center staff 
provided feedback that they preferred their own local contracts and did 
not want VISN-wide contracts to become the default approach. In our 
review of 37 selected contracts, we did find several instances of VISN 
and contracting officials consolidating requirements for greater 
efficiency and to obtain better pricing. This indicates that 
consolidating procurement is possible with leadership buy-in, and that 
there are opportunities to share lessons learned across VISNs. Within 
VHA, in VISNs where there is not a consistent push by local leadership 
to pursue consolidation, it is challenging for efforts driven by 
individual departments or contracting personnel to overcome cultural 
obstacles.
    To provide the necessary leadership commitment to take advantage of 
these opportunities, we recommended in our September 2016 report that 
VHA Procurement and Logistics conduct a review of VISN-level strategic 
sourcing efforts, identify best practices, and, if needed, issue 
guidance. The Acting Chief Acquisition Officer, OALC said that the 
department agreed with this recommendation.
    Chairman Coffman, Ranking Member Kuster, and Members of the 
Subcommittee, this concludes my prepared statement. I would be pleased 
to respond to any questions that you may have at this time.

GAO Contacts and Staff Acknowledgements

    If you or your staff have any questions about this statement, 
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Individuals who made key contributions to the report on which this 
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George Bustamante; Margaret Hettinger; Julia Kennon; Katherine Lenane; 
Ethan Levy; Teague Lyons; Jean McSween; Sylvia Schatz; Erin Stockdale; 
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                        Materials for the Record

 Letter From Chairman Mike Coffman to: The Honorable Robert A. McDonald
    October 14, 2016

    The Honorable Robert A. McDonald
    Secretary
    U.S. Department of Veterans Affairs
    810 Vermont Avenue, N W
    Washington, DC 20420

    Dear Secretary McDonald,

    Please provide written responses to the attached questions for the 
record regarding the oversight hearing of the Committee on Veterans' 
Affairs Subcommittee on Oversight and Investigations entitled, ``VA 
Procurement: Identifying Obstacles to Reform,'' that took place on 
Tuesday, September 20, 2016.

    In responding to these questions for the record, please answer each 
question in order using single-spaced formatting. Please also restate 
each question in its entirety before each answer. Your submission is 
expected by the close of business on Thursday, November 10, 2016, and 
should be sent to Ms. Bernadine Dotson at 
[email protected].

    If you have any questions, please do not hesitate to have your 
staff contact Jon Hodnette, Majority Staff Director, Subcommittee on 
Oversight and Investigations, at 202-225-3569.

    Sincerely,

    MIKE COFFMAN
    Chairman
    Subcommittee on Oversight and Investigations

    MC/wm

    Attachment

    Cc:Ann McLane Kuster, Ranking Member

                        Questions for the Record
                  House Committee on Veterans' Affairs
              Subcommittee on Oversight and Investigations
           "VA Procurement: Identifying Obstacles to Reform"
    1. Please provide a complete response to Chairman Coffman and 
Subcommittee on Economic Opportunity Chairman Wenstrup's letter of 
August 26, 2016 regarding the Next Generation Medical/Surgical Prime 
Vendor (NG-MSPV) program. A copy is attached for reference.

    2. The NG-MSPV contracts, which were awarded in February, require 
the contractors to provide an electronic product database, consisting 
of individual product records in standard format data elements, within 
90 days after award. The electronic product database is a precursor to 
the product catalog, which the contract requires within 120 days after 
award. Please provide the electronic product database.

    3. Please provide the NG-MSPV product catalog to the Committee as 
it currently exists.

    4. Will there be only one product catalog which is used in all NG-
MSPV regions? Or will product catalogs vary from region to region?

    5. Will the final NG-MSPV product catalog be posted online, as the 
existing MSPV catalog is now?

    a. If so, will it be updated dynamically as items are removed and 
added, or will it be updated periodically?
    b. If it will be updated periodically, at what intervals?

    6. The NG-MSPV prime vendor contracts, which were awarded in 
February, stipulate that they shall be implemented within 120 days 
after award. The contracts define implementation as the contractors 
"begin[ning] accepting orders and delivering medical/surgical supplies 
for all facilities." In addition, the contracts' requirements for 
implementation are to (1) "provide an electronic catalog-like 
capability to aid Government personnel in finding non-recurring demand 
or unique medical/surgical supplies;" (2) provide Electronic Data 
Interchange (EDI) interface capabilities in accordance with ANSI ASC 
X.12M Supply Chain Standard Transaction sets; and (3) provide an 
electronic supply chain management interface system, accessible through 
the Internet for each VHA facility.
    Mr. Giddens testified that NG-MSPV ".goes live this December."

    a. When will the NG-MSPV contractors begin accepting orders and 
delivering medical/surgical supplies for all VHA facilities? Please 
also notify the Committee when this begins.
    b. When will the NG-MSPV contractors provide the electronic 
catalog-like capability? Please also notify the Committee when this 
happens.
    c. When will the NG-MSPV contractors provide EDI interface 
capabilities? Please also notify the Committee when this happens.
    d. When will the NG-MSPV contractors provide the electronic supply 
chain management interface system? Please also notify the Committee 
when this happens.

    7. The NG-MSPV prime vendor contracts, awarded in February, 
stipulate that, "The MSPV(s) shall be responsible for all contract 
costs associated with the implementation of the contract." Recognizing 
that implementation is still ongoing, which implementation costs are 
the contractors absorbing and which implementation costs are VA paying?

    8. VA issued solicitation VA119-16-Q-0644 for sheath introducers, 
under NG-MSPV. It contemplates the issuance of a single-award Blanket 
Purchase Agreement. The solicitation requires four categories of sheath 
introducers, each consisting of multiple individual items. The 
solicitation attaches a list of the required items, which are described 
on a "brand name or equal" basis. Multiple brand names are referenced. 
The solicitation employs a "cascading" set-aside methodology.

    a. Based on its market research, has VA determined that it is 
possible for one contractor to provide all four categories of sheaths? 
Please provide the market research and acquisition plan.
    b. Did the contracting officer execute a "brand name or equal" 
determination for this solicitation?
    c. Please provide a copy of the non-manufacturer rule waiver, 
pertaining to NAICS 339112, referenced in the solicitation.
    d. Under the "cascading" set-aside methodology, if an award cannot 
be made under the highest priority, Service Disabled Veteran Owned 
Small Business set-aside and VA proceeds to the next highest priority 
set-aside, will VA reissue the solicitation or amend the solicitation 
to change its set-aside and extend the offeror due date?

    9. VA issued solicitation VA119-16-Q-0027 for endoscopic snares, 
under NG-MSPV. It contemplates the issuance of a single-award or 
multiple-award Blanket Purchase Agreement(s). The solicitation requires 
four categories of endoscopic snares, each consisting of one item.

    a. Formerly, how many individual varieties of endoscopic snares 
were ordered under the previous Medical/Surgical Prime Vendor program?
    b. Please provide the analysis through which VA determined to 
reduce to four the number of varieties of endoscopic snares that may be 
ordered.
    c. Does a non-manufacturer rule waiver exist for endoscopic snares? 
If a waiver does not exist, has VA ever requested one? If a waiver does 
exist, please provide it.

    10. Please provide a list of all national contracts awarded by OALC 
and VHA, including their names, contract numbers, names of contractors, 
and periods of performance. This includes national contracts related to 
MSPV and NG-MSPV, as well as other national contracts.

    11. Mr. Giddens' stated in his written testimony that, "Already in 
fiscal (FY) 2016, VHA supply-chain transformation efforts have yielded 
in excess of $75 million in cost avoidance." Please explain how this 
figure was calculated and provide a numerical accounting.

    12. How much (in total dollars among all purchase orders and other 
contracts) does VA currently owe to vendors for surgical implants that 
have already been implanted in Veterans? Please provide VA's intended 
timeframe to process the purchase orders and pay the invoices. Please 
also notify the Committee when all such vendors have been paid.

    13. During the hearing, Mr. Lemmon and Mr. Giddens indicated a new 
contract vehicle or contracting process is being put into place, which 
will address the issue of delayed payments to surgical implant vendors. 
Does this refer to NG-MSPV or another contract vehicle/process? Please 
explain how the new contract vehicle/process will improve this 
situation. Please indicate when the contract vehicle/process will be in 
place.

    14. Please provide a list of all NG-MSPV Integrated Product Teams 
(IPTs), including their areas of responsibility and members' names, 
titles, and locations. If IPTs have members designated as industry 
liaisons or otherwise tasked to communicate with industry, please 
indicate them.

    15. Will all contracts comprising items on the NG-MSPV product 
catalog (meaning national contracts or any other categories of 
contracts) be single-award? If there will be a mix of single-award and 
multiple-award contracts, how is it decided when each will be used? How 
is clinician input considered to determine whether VA will rely on one 
vendor or multiple vendors for a given category of products?

    16. Is it correct that the Strategic Acquisition Center charges a 
3% user fee on its contract vehicles? Why is this fee much higher than 
the National Acquisition Center's Industrial Funding Fee?

    17. The Strategic Acquisition Center has issued multiple draft 
versions of its prosthetics catalog and is requiring contractors to 
submit proposals (not capabilities statements, but proposals) in 
response to the draft versions. Please explain why VA is asking for 
proposals during market research.

    18. On September 30, 2016, VA provided the below response 
[excerpted] to an inquiry about national contracts for orthopedic 
implants. Please determine whether Impact Medical/BZ Medical's offered 
products are comparable, if the pricing is a result of an overstock, if 
the products are gray market products, if the market has changed since 
the national contracts were originally awarded, and whether the 
national contract pricing should be renegotiated. Please advise the 
Committee whether VA determines the products to be comparable and 
whether VA renegotiates the national contract pricing.

    When VHA learns of vendors offering pricing that is more favorable 
than national contract pricing, we must first determine if the products 
offered are in-fact comparable. Next it is important to determine is 
[sic] the lower pricing is due to overstock situations, gray market 
products, or has the market legitimately changed since the award of the 
contract. If the market has changed VHA will engage the National 
Contracting Office responsible for the contract and ask that the 
contract price be renegotiated. Depending on the outcome of the 
negotiation the entire requirement could be re-competed. This activity 
is managed by the VHA Vendor Relations Office and the VHA Program 
Executive Office.

                                 
    Letter From Chairman Mike Coffman to: The Honorable Sloan Gibson

    August 26, 2016

    The Honorable Sloan Gibson Deputy
    Secretary
    U.S. Department of Veterans Affairs
    810 Vermont Avenue, N W
    Washington, DC 20420

    Dear Deputy Secretary Gibson,

    We are concerned that implementation of the Next Generation 
Medical/Surgical Prime Vendor (NG-MSPV) program, as it is currently 
conceived, will result in drastic reductions in medical and surgical 
product availability within the Veterans Health Administration (VHA). 
Overly restricting the range of available products could damage the 
quality of veterans' care as well as lead clinicians to circumvent NG-
MSPV, undermining the success of the program.

    The process of designing the NG-MSPV product catalog seems to be 
entirely led by the procurement and standardization offices, not the 
clinicians who actually use the medical and surgical supplies. We have 
been informed, variously, that VA intends to reduce the catalog from 
between 476,000 and 506,000 line items to between 8,000 and 14,000 line 
items. The catalog will go from being unwieldly large to inadequately 
small. Furthermore, VA has given itself an unrealistically short 
timeframe to implement these changes. When the Strategic Acquisition 
Center (SAC) awarded the NG-MSPV distribution contracts in late 
February, VA set a 120-day implementation period in which to re-compete 
and award the underlying supplier contracts before NG-MSPV becomes 
mandatory for ordering all medical and surgical items. This 
implementation period has elapsed, and VA does not appear close to 
finishing the supplier contracts. According to available data, SAC is 
able to award up to a few dozen supplier contracts \1\ per month. At 
this pace it will take several years to re-compete and award supplier 
contracts for 14,000 product line items. For this reason, it is our 
understanding that VA has decided to delay the NG-MSPV implementation 
deadline until the end of the year and has imminent plans to issue 
sole-source contracts for as many as 5,000 product line items. Sole 
sourcing such a large number of contracts is alarming because it locks 
in higher pricing and indicates VA has run out of time.
---------------------------------------------------------------------------
    \1\ Typically these are Blanket Purchase Agreements (BPAs) created 
by the SAC against Federal Supply Schedules (FSS), which are created 
and administered by the National Acquisition Center (NAC).

    We support VA's ongoing standardization efforts where they are 
appropriate. The supply chain must be manageable and rational. However, 
the available information about NG-MSPV's implementation seems to 
indicate that VA created an unrealistic goal motivated by logistical, 
not medical, considerations and now risks neither saving money nor 
ensuring clinicians have adequate access to the medical and surgical 
---------------------------------------------------------------------------
products they need.

    The key question is how VA determined the appropriate size of the 
NG-MSPV product catalog, and how meaningfully clinicians were involved 
in making this decision. NG-MSPV program officials have explained 
several times that development of the catalog is an ongoing process and 
items will be continually added and removed as needed. Nonetheless, it 
is crucial that the product catalog meets the needs of providers on the 
day NG-MSPV becomes mandatory. For NG-MSPV to be successful, clinician 
buy-in is imperative. The NG-MSPV program office, SAC, and VHA must 
support a clinically-led process to develop the requirements and make 
the standardization decisions.

    Please provide answers to the following questions:

    1) How were clinical end-users and experts involved in designing 
the NG-MSPV program strategy and product catalog? Please identify these 
personnel by name and title.

    2) How many product lines does VA intend to include in the NG-MSPV 
catalog? Please provide the list of product lines intended for the 
catalog.

    3) How many individual contracts, roughly, will these product lines 
comprise?

    4) How did VA decide which product lines in the old MSPV catalog 
are unnecessary and should be removed?

    5) Please detail the process by which NG-MSPV program personnel and 
the SAC consulted VISNs and VAMCs while designing the NG-MSPV program 
strategy and catalog.

    6) When will NG-MSPV become mandatory for use?

    7) Which product lines will the sole-source supplier contracts 
include? Please provide complete copies, including attachments, of all 
sole-source supplier contracts as they are awarded.

    8) How did VA determine this reduction in the range of available 
medical and surgical items will not degrade the standard of care for 
veterans?

    9) VHA has gone to great lengths to hire and retain medical 
professionals. What steps has VHA taken to ensure that frustration with 
perceived limited choice of products under NG-MSPV does not deter 
clinicians from practicing in VHA?

    10) In designing the NG-MSPV product catalog, how did VA consider 
the variations of VAMCs' needs across different geographic regions, 
patient mixes, and academic affiliations?

    11) Has VA determined whether the removal of familiar items or the 
addition of unfamiliar items will necessitate retraining medical or 
surgical staff? If so, what is VA's plan to provide the training?

    12) Please detail the process by which physician and surgeon input 
into the product catalog was collected. Please provide copies of any 
surveys, desired product lists, or reports that were generated.

    13) Please detail the process by which, after NG-MSPV becomes 
mandatory for use, physicians and surgeons will be consulted as to 
which items should be added to the catalog. Who will make the final 
decision about adding items?

    14) Please detail, step-by-step, the procedure for approving and 
adding items to the catalog after NG-MSPV becomes mandatory for use. 
How long will an addition take?

    15) Will any other avenues be allowed, besides NG-MSPV, to procure 
categories of medical and surgical items included in NG-MSPV? For 
instance, if an uncommon surgical instrument is suddenly needed that is 
not specifically included in the product catalog but whose category is 
included. Please detail these avenues and their procurement procedures.

    16) Will anyone in VA be allowed to procure any of the over 450,000 
items that are being removed from the product catalog, or will these 
items cease to be available? If these items will remain available in 
some way, please detail the procurement procedures.

    17) How have VAMCs been instructed to respond to clinicians who 
express objections or reservations about the reduced NG-MSPV product 
catalog? How will these objections or reservations be cataloged?

    18) In July 2015, VA requested and obtained from the Small Business 
Administration (SBA) a Non-manufacturer Rule waiver for MSPV. At the 
time, VA conducted incomplete market research and identified 16 items 
in the product catalog available from small business manufacturers. SBA 
instructed VA to submit revised market research by May 31, 2016, at 
which time SBA would reissue a modified waiver. Please provide VA's 
revised market research that was submitted to SBA, and the modified 
Non-manufacturer Rule waiver that SBA issued.

    Please provide this information in electronic, soft-copy format by 
the close of business Friday, September 16, 2016. Do not alter the 
documents in any way, including but not limited to application of 
redactions or a water mark or by disabling printing. The Committee will 
continue to consider these deliverables to remain open until it is 
satisfied by the responses provided. If you have any questions, please 
do not hesitate to have your staff contact Dr. Eric Hannel, Majority 
Staff Director of the Subcommittee on Oversight & Investigations, at 
(202) 225-3569.

    Thank you for your time and attention. We know that we share the 
same desire to ensure that our veterans' health care providers have 
access to the proper implements and equipment. We look forward to 
continuing to work on this issue together.

    Sincerely,

    MIKE COFFMAN
    Chairman
    Subcommittee on Oversight and Investigations

    BRAD WENSTRUP, D.P.M.
    Chairman
    Subcommittee on Economic Opportunity

    Cc: Mark Takano, Acting Ranking Member

    MC/wm


                                 
                        Questions for the Record
                  House Committee on Veterans' Affairs
              Subcommittee on Oversight and Investigations
          ``VA Procurement: Identifying Obstacles to Reform''
    1. Please provide a complete response to Chairman Coffman and 
Subcommittee on Economic Opportunity Chairman Wenstrup's letter of 
August 26, 2016 regarding the Next Generation Medical/Surgical Prime 
Vendor (NG-MSPV) program. A copy is attached for reference.

    VA Response: Enclsoure 1 is VA's responsed jointly signed letter, 
signed December 16, 2016.

    2. The NG-MSPV contracts, which were awarded in February, require 
the contractors to provide an electronic product database, consisting 
of individual product records in standard format data elements, within 
90 days after award. The electronic product database is a precursor to 
the product catalog, which the contract requires within 120 days after 
award. Please provide the electronic product database.

    VA Response: The required electronic product database is required 
within the 120 day implementation period. VA issued the notice to 
proceed starting the implementation period on July 29, 2016; therefore 
the prime vendors are currently in the process of creating their 
databases. Veterans Health Adminstration (VHA) is currently in the 
process of compiling the electronic product database .

    3. Please provide the NG-MSPV product catalog to the Committee as 
it currently exists.

    VA Response: The most current product catalog is available at: 
http://www.va.gov/officeofacquisitionoperations/sac/mspvng.asp.

    4. Will there be only one product catalog which is used in all NG-
MSPV regions? Or will product catalogs vary from region to region?

    VA Response: VA is developing and will maintain one product catalog 
to be used across VHA. The product catalog will include items that are 
available to all facilities, with few exceptions if there are 
facilities, VISN, or region specific contracts in place for items that 
do not conflict with the catalog, requests to add those contracted 
items may be submitted directly to the MSPV-NG Program Management 
Office in VHA.

    5. Will the final NG-MSPV product catalog be posted online, as the 
existing MSPV catalog is now?
    a. If so, will it be updated dynamically as items are removed and 
added, or will it be updated periodically?
    b. If it will be updated periodically, at what intervals?

    VA Response: The MSPV-NG product catalog is a dynamic document and 
will be continuously updated and maintained through the duration of the 
MSPV-NG program. Updates to the product catalog are scheduled to be 
posted on the 1st and 15th of each month at: http://www.va.gov/
officeofacquisitionoperations/sac/mspvng.asp.

    6. The NG-MSPV prime vendor contracts, which were awarded in 
February, stipulate that they shall be implemented within 120 days 
after award. The contracts define implementation as the contractors 
``begin[ning] accepting orders and delivering medical/surgical supplies 
for all facilities.'' In addition, the contracts' requirements for 
implementation are to: (1) ``provide an electronic catalog-like 
capability to aid Government personnel in finding non-recurring demand 
or unique medical/surgical supplies;'' (2) provide Electronic Data 
Interchange (EDI) interface capabilities in accordance with ANSI ASC 
X.12M Supply Chain Standard Transaction sets; and (3) provide an 
electronic supply chain management interface system, accessible through 
the Internet for each VHA facility.
    Mr. Giddens testified that NG-MSPV ``.goes live this December.''
    a. When will the NG-MSPV contractors begin accepting orders and 
delivering medical/surgical supplies for all VHA facilities? Please 
also notify the Committee when this begins.
    b. When will the NG-MSPV contractors provide the electronic 
catalog-like capability? Please also notify the Committee when this 
happens.
    c. When will the NG-MSPV contractors provide EDI interface 
capabilities? Please also notify the Committee when this happens. When 
will the NG-MSPV contractors provide the electronic supply chain
    d. management interface system? Please also notify the Committee 
when this happens.

    VA Response: The contractors will provide their electronic catalog 
submissions, EDI interface capabilities, and electronic supply chain 
management interface systems no later than November 28, 2016. 
Contractors began accepting orders on December 1, 2016, with deliveries 
starting the following day.

    7. The NG-MSPV prime vendor contracts, awarded in February, 
stipulate that, ``The MSPV(s) shall be responsible for all contract 
costs associated with the implementation of the contract.'' Recognizing 
that implementation is still ongoing, which implementation costs are 
the contractors absorbing and which implementation costs are VA paying?

    VA Response: As stipulated in the contract, contractors are 
responsible for the following activities and associated costs:
    ``34.1.1. Assist facilities with the identification of facility 
recurring and nonrecurring medical/surgical supplies and gather product 
usage data from each individual facility covered by the contract.
    34.1.2. Negotiate distribution agreements, as necessary, with 
Federal Government product contractors for 100% of the medical/surgical 
supplies identified in the Government provided master listing of 
approved medical/surgical supplies and their associated pricing for 
inclusion in the electronic catalog, by the contract effective date. 
The MSPV shall provide immediate notification to the Contracting 
Officer concerning problems with the execution of distribution 
agreements.
    34.1.3. Load all facility medical/surgical supplies into the MSPV 
data base using Federal Government contract pricing as provided at 
www.va.gov/vastorenac, located under the topic?Med/Surg MSPV Program 
and Standardization. Maintain accuracy by utilizing this source in 
resolving pricing discrepancies. Update the MSPV data base when change 
notices are received from the VA by the effective contract date.
    34.1.4. Ensure full capability to deliver 100% of the medical/
surgical supplies required by the contract customers timely at the 
appropriate inventory levels within the phase-in period.
    34.1.5. Set-up facilities with any value added services requested 
by facilities (reference Section 5.5).
    34.1.6. Mutually establish delivery days, times and delivery 
points.
    34.1.7. Coordinate and provide necessary training to using 
facilities..''
    VA has taken on the cost for creating the product catalog 
(formulary), creation of an ordering officer tracking tool, creation of 
other tracking tools to monitor compliance and usage of the contract.

    8. VA issued solicitation VA119-16-Q-0644 for sheath introducers, 
under NG-MSPV. It contemplates the issuance of a single-award Blanket 
Purchase Agreement (BPA). The solicitationrequires four categories of 
sheath introducers, each consisting of multiple individual items. The 
solicitation attaches a list of the required items, which are described 
on a ``brand name or equal'' basis. Multiple brand names are 
referenced. The solicitation employs a ``cascading'' set-aside 
methodology.
    a. Based on its market research, has VA determined that it is 
possible for one contractor to provide all four categories of sheaths? 
Please provide the market research and acquisition plan.

    VA Response: VA intends to issue a single BPA to one contractor 
that will serve as the single source of supply to provide all four 
types of sheath introducers enterprise-wide. The intention is that no 
more than one contractor will be selected to provide products for a 
particular type of forceps, considering standardization is a top 
priority of this acquisition. Successful award of this acquisition will 
allow VHA to maintain uniformity amongst the four types of sheath 
introducers being utilized by its field activities. Our market research 
and acquisition plan are included as enclosures 2 and 3, respectively.

    b. Did the contracting officer execute a ``brand name or equal'' 
determination for this solicitation?

    VA Response: VA did not execute a brand name of equal 
determination, because it is not required under Federal Acquisition 
Regulation (FAR) 6.302-2.

    c. Please provide a copy of the non-manufacturer rule waiver, 
pertaining to NAICS 339112, referenced in the solicitation.

    VA Response: Enclosure 4 provides the responsive document.

    d. Under the ``cascading'' set-aside methodology, if an award 
cannot be made under the highest priority, Service Disabled Veteran 
Owned Small Business set-aside and VA proceeds to the next highest 
priority set-aside, will VA reissue the solicitation or amend the 
solicitation to change its set-aside and extend the offeror due date?

    VA Response: As indicated in the solicitation, the procurement 
opportunity is a single event welcoming all interested offerors, 
precluding VA from having to reissue or amend the solicitation as a 
set-aside:

    ``1. Any award(s) resulting from the items listed on Tab 1 of this 
solicitation will be made using the following the tiered set-aside 
order of precedence:
    a. Any award under this solicitation will be made on a competitive 
basis first to an eligible Service Disabled Veteran Owned Small 
Business [SDVOSB] in accordance with VAAR 819.7005, provided that there 
is adequate competition among such firms.
    b. If there is inadequate competition for award to a SDVOSB 
concern, award will be made competitively to a Veteran Owned Small 
Business (VOSB) concern in accordance with VAAR 819.7006, provided that 
there is adequate competition among such firms.
    c. If there is inadequate competition for award to a SDVOSB or VOSB 
concern, award will be made competitively to a Small Business (SB) 
concern in accordance with FAR Subpart 19.5.
    d. If there is inadequate competition for award to any of the small 
business concerns provided in paragraphs (a) through (c), award will be 
made on the basis of full and open competition considering all offers 
submitted by responsible business concerns.
    2. Adequate competition shall be deemed to exist if-
    a. At least one acceptable offer is received from a SDVOSB concern; 
or
    b. At least two competitive offers are received from qualified, 
responsible business concerns at the tier under consideration; and
    c. Award will be made at fair market prices as determined in 
accordance with FAR 13.106-3(a).''

    9. VA issued solicitation VA119-16-Q-0027 for endoscopic snares, 
under NG-MSPV. It contemplates the issuance of a single-award or 
multiple-award Blanket Purchase Agreement(s). The solicitation requires 
four categories of endoscopic snares, each consisting of one item.
    a. Formerly, how many individual varieties of endoscopic snares 
were ordered under the previous Medical/Surgical Prime Vendor program?

    VA Response: The previous Medical/Surgical Prime Vendor included 
all varieties of endoscopic snares including specialized items that had 
a low volume.

    b. Please provide the analysis through which VA determined to 
reduce to four the number of varieties of endoscopic snares that may be 
ordered.

    VA Response:
      Based upon our historical procurement spend and market 
research (enclosure 4), VA, with clinical expertise from the Integrated 
Product Team (IPT), determined that the national BPA would focus on the 
80% endoscopic snares solution for this national BPA. Consequently, low 
volume specialized snares were excluded.
      After SMEs analyzed the historical spend endoscopic 
snares; it was determined there were four logical groupings; micro, 
mini, medium (standard), and jumbo. After additional analysis of 
historical spend the SMEs combined the Micro/mini into one contract 
line-item number within the solicitation.
      A formal technical evaluation was conducted by the 
clinician SMEs which included physical testing, inspection, and 
literature review.
      An award was made as a national BPA with a procurement 
value estimated at $1.35 million over 5 years (base and 4 option years) 
for micro/mini, medium, and jumbo endoscopic snares.
    c. Does a non-manufacturer rule waiver exist for endoscopic snares? 
If a waiver does not exist, has VA ever requested one? If a waiver does 
exist, please provide it.

    VA awarded a national BPA with a procurement value estimated at 
$1.35 million over 5 years (base and 4 option years) for micro, mini, 
medium, and jumbo endoscopic snares. Market research (Enclosure 5) 
along with the technical evaluation process, which included physical 
testing, inspection, and literature review supported the solicitation 
for four contract line-item numbers. As the solicitation sought only 
``manufacturers'' for endoscopic snares, a non-manufacturer rule waiver 
is not applicable.

    10. Please provide a list of all national contracts awarded by OALC 
(Office of Acquisition, Logistics, and Construction) and VHA, including 
their names, contract numbers, names of contractors, and periods of 
performance. This includes national contracts related to MSPV and NG-
MSPV, as well as other national contracts.

    VA Response: Enclosure 6 lists OALC and VHA national contracts.

    11. Mr. Giddens' stated in his written testimony that, ``Already in 
fiscal (FY) 2016, VHA supply chain transformation efforts have yielded 
in excess of $75 million in cost avoidance.'' Please explain how this 
figure was calculated and provide a numerical accounting.

    VA Response: By September 20, 2016, VA recorded $91.8 million in 
cost avoidance across the following categories. By the end of September 
2016, VHA supply chain transformation efforts recorded $101 million in 
cost avoidance/savings.
      ``Inventory Management'' (Reduce/Reutilize) realized 
$14.9 million in cost avoidance and savings combined. Facilities are 
better managing stocks on hand to ensure that stockage levels are 
right-sized and that consumables no longer required in one location are 
reutilized within the VHA supply chain.
      ``Redistribution of Equipment'' realized $9 million in 
cost avoidance. Facilities report excess equipment that is available to 
other facilities in need, preventing the purchase of new equipment for 
those receiving the reported excess.
      ``Medical Product Databank'' (MedPDB) realized $5.9 
million in savings. Facilities utilize this tool to find better pricing 
opportunities through contracts that are in place and available for the 
same item they may be purchasing locally at a higher price.
      ``National Contracts'' realized $44.8 million in savings. 
Through strategic sourcing efforts, products that are purchased by 
multiple facilities are competed for better pricing and placed on 
national contracts available to all facilities.
      ``Regional Contracts'' realized $8.9 million in savings. 
Where appropriate, regional contacts have been and continue to be 
awarded for better pricing when combining the demands of all facilities 
within the specific region.
      ``De-Obligation of Equipment Funds'' realized $8.2 
million in cost avoidance. Prior to purchase, funds that were 
previously obligated for equipment that is no longer required is 
returned for redistribution for other purchases as the orders for 
unneeded equipment are cancelled.

    12. How much (in total dollars among all purchase orders and other 
contracts) does VA currently owe to vendors for surgical implants that 
have already been implanted in Veterans? Please provide VA's intended 
timeframe to process the purchase orders and pay the invoices. Please 
also notify the Committee when all such vendors have been paid.

    VA Response: VHA will routinely have a balance owed to implant 
vendors because the ordering and payment processes are continuous. As 
of October, the open obligations were approximately $30.8 million. As 
discussed at the hearing, calculating a total dollar amount for vendor 
payments owed is a constantly moving target as the ``open obligations'' 
include orders awaiting cancellation, not yet delivered orders, 
delivered orders pending payment, and paid orders.
    The intended payment date is within 30 days of receipt, which 
complies with the Prompt Payment Act. Payments to implant vendors are 
high priority until late payments are reconciled. VHA is focused on 
making payments older than 60 days from delivery and continuous 
improvement of our payment process by working with the vendor community 
to identify overdue payments and reduce payment backlog. As we pursue 
these holistic efforts to improve efficiencies, unburden our staff, and 
reconcile vendor payments within 30 days, we anticipate more accurate 
and verifiable calculations at each stage of the ordering process will 
result.

    13. During the hearing, Mr. Lemmon and Mr. Giddens indicated a new 
contract vehicle or contracting process is being put into place, which 
will address the issue of delayed payments to surgical implant vendors. 
Does this refer to NG-MSPV or another contract vehicle/process? Please 
explain how the new contract vehicle/process will improve this 
situation. Please indicate when the contract vehicle/process will be in 
place.

    VA Response: There are three initiatives to increase efficiency in 
our implant supply chain management. First is the award of contracts to 
our top 20 implant vendors which is in effect as of November 2016. The 
second initiative is to put implants into the NG-MSPV catalog during 
fiscal year 2017 for stock-level ordering to support just-in-time 
ordering. Finally, VHA is investigating the clinical and economic 
feasibility of maintaining many more implants as stock items within 
each hospital to accelerate delivery of care and reduce just-in-time 
ordering within the next few years.

    14. Please provide a list of all NG-MSPV Integrated Product Teams 
(IPTs), including their areas of responsibility and members' names, 
titles, and locations. If IPTs have members designated as industry 
liaisons or otherwise tasked to communicate with industry, please 
indicate them. (Jodi Cokl/Jaime Friedel)

    VA Response: Enclosure 7 lists MSPV-NG IPT members by focus.

    15. Will all contracts comprising items on the NG-MSPV product 
catalog (meaning national contracts or any other categories of 
contracts) be single-award? If there will be a mix of single-award and 
multiple-award contracts, how is it decided when each will be used? How 
is clinician input considered to determine whether VA will rely on one 
vendor or multiple vendors for a given category of products?

    VA Response: The MSPV-NG Formulary development employed Clinical 
Product Review Committees (CPRC) and the IPTs to help to identify new 
items while the MSPV-NG program management office regularly reviews 
proposed items with IPTs. All clinicians on the Clinical Product Review 
Committees (CPRCs) and the IPTs are practicing in the VISNs and VAMCs 
across VHA. This broad spectrum engagement ensures that the program 
will simultaneously meet clinicians' needs by improving product safety 
and ensuring the right supplies are available without regard to the 
product supplier. VA conducts extensive market research using the 
identified minimum technical requirements, which is then validated for 
inclusion into MSPV-NG. Also, national BPA and blanket operational 
agreements (BOA) are examined for MSPV-NG inclusion, and solicitations 
will include the MSPV-NG language to obtain vendor buy-in once awarded. 
If clinicians and vendor agree to participate, then these commodity 
items will also be added into the MSPV-NG Formulary. There will be a 
mix of single and multiple-award contracts issued, with the majority 
being single. The decision is ultimately guided by the work of the 
CPRCs and IPTs, however, the Contracting Officer retains the authority 
to determine which approach will be the most advantageous to the 
Government.

    16. Is it correct that the Strategic Acquisition Center charges a 
3% user fee on its contract vehicles? Why is this fee much higher than 
the National Acquisition Center's Industrial Funding Fee?

    VA Response: The Strategic Acquisition Center rate for assisted 
contracting services (open market procurements) was 3 percent for 
fiscal year (FY) 2016. The industrial funding fee rate pertains to 
schedule-based procurements (Federal Supply Schedule) and was 0.5 
percent for both the National and Strategic Acquisition Centers

    17. The Strategic Acquisition Center has issued multiple draft 
versions of its prosthetics catalog and is requiring contractors to 
submit proposals (not capabilities statements, but proposals) in 
response to the draft versions. Please explain why VA is asking for 
proposals during market research.

    VA Response: The Strategic Acquisition Center rate for assisted 
contracting services (open market procurements) was 3 percent for 
fiscal year (FY) 2016. The industrial funding fee rate pertains to 
schedule-based procurements (Federal Supply Schedule) and was 0.5 
percent for both the National and Strategic Acquisition Centers. 
Enclosure 8 provides the FY 2016 VA Supply Fund Fee Structure The 
Strategic Acquisition Center has issued multiple draft versions of its 
prosthetics catalog and is requiring contractors to submit proposals 
(not capabilities statements, but proposals) in response to the draft 
versions. VA actively engaged Industry in the design and development of 
prosthetic implant and accessories catalogs. To ensure availability of 
implants for nationwide usage, VA reviewed clinical procurement 
histories and identified the specific items, by manufacturer, that were 
the most requested by VA physicians, to meet patient-specific 
requirements. Based on the clinical demand history and anticipated 
demands over a 5-year period, VA pursued efforts to ensure the 
availability of the vendor's product line with clinical demands for 
product(s). In accordance with 38 U.S. Code Sec.  8123 - Procurement of 
Prosthetic Appliances, VA may procure prosthetic appliances and 
necessary services required in the fitting, supplying, and training and 
use of prosthetic appliances by purchase, manufacture, contract, or in 
such other manner as determined to be proper, without regard to any 
other provision of law. Under this authority, VA issued draft requests 
for proposal (RFP) for prosthetics implantable devices and required 
that sole source offerors submit proposals. VA completed the market 
research prior to the release of the draft RFPs. VA issued solicitation 
amendments to the draft RFPs, when change was necessary. VA issued the 
final RFP on September 13, 2016, which resulted in seven sole source 
awards on September 30, 2016.

    18. On September 30, 2016, VA provided the below response 
[excerpted] to an inquiry about national contracts for orthopedic 
implants. Please determine whether Impact Medical/BZ Medical's offered 
products are comparable, if the pricing is a result of an overstock, if 
the products are gray market products, if the market has changed since 
the national contracts were originally awarded, and whether the 
national contract pricing should be renegotiated. Please advise the 
Committee whether VA determines the products to be comparable and 
whether VA renegotiates the national contract pricing.
    When VHA learns of vendors offering pricing that is more favorable 
than national contract pricing, we must first determine if the products 
offered are in-fact comparable. Next it is important to determine is 
[sic] the lower pricing is due to overstock situations, gray market 
products, or has the market legitimately changed since the award of the 
contract. If the market has changed VHA will engage the National 
Contracting Office responsible for the contract and ask that the 
contract price be renegotiated. Depending on the outcome of the 
negotiation the entire requirement could be re-competed. This activity 
is managed by the VHA Vendor Relations Office and the VHA Program 
Executive Office.

    VA Response: A determination has not yet been made whether the 
products are comparable. Our next course of action will be determined 
after an assessment of Impact Medical/BZ Medical's products is made. 
The VHA Vendor Relations Office will coordinate this effort with the 
Healthcare Commodity Program Executive Office. It is anticipated that 
the assessment will be completed by January 2017.

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