Veterans' Health Care: Observations on VA's Assessment of	 
Hepatitis C Budgeting and Funding (25-APR-01, GAO-01-661T).	 
								 
In fiscal year 2000, the Department of Veterans Affairs (VA)	 
requested and received $195 million for Hepatitis C screening and
treatment. VA's budget documentation showed that it had spent	 
$100 million on Hepatitis C screening and treatment, leaving a	 
difference of $95 million between its estimated expenditures and 
its actual expenditures. However, GAO's review of VA's		 
documentation revealed that the difference was much larger--$145 
million. VA's documentation showed that only $50 million was used
for budgeted activities and $50 million was used for an activity 
not included in its original budget--treatment of conditions	 
related to Hepatitis C. It appears, at this time, that VA is	 
unable to develop a budget estimate that can reliably forecast	 
Hepatitis C funding needs. However, VA's Veterans Health	 
Administration (VHA) appears to be taking reasonable steps to	 
improve future budget estimates and thereby minimize the	 
potential for large differences. Such steps include developing a 
Hepatitis C patient registry that could provide the critical data
needed to improve budgetary estimates. However, this registry	 
could take as long as 15 months to become operational, which	 
suggests that it may not provide budgetary data in time to	 
formulate the 2004 budget. In the meantime, VHA's ongoing efforts
to upgrade its data collection systems should help improve budget
estimates for fiscal year 2002. These efforts, however, have	 
provided only minimal help in the development of VA's 2002 budget
for Hepatitis C spending. As a result, it is not possible to	 
conclude with certainty whether VA's fiscal year 2002 spending	 
estimate of $171 million is appropriate.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-661T					        
    ACCNO:   A00897						        
  TITLE:     Veterans' Health Care: Observations on VA's Assessment of
             Hepatitis C Budgeting and Funding                                
     DATE:   04/25/2001 
  SUBJECT:   Budget outlays					 
	     Future budget projections				 
	     Health care services				 
	     Infectious diseases				 
	     Veterans						 
	     Veterans benefits					 
	     VA Veterans Equitable Resource			 
	     Allocation System					 
								 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Testimony.                                               **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-01-661T

Subcommittee on VA, HUD, and Independent Agencies, Committee on
Appropriations, House of Representatives

United States General Accounting Office

GAO Not to be Released Before 9: 30 a. m. Wednesday, April 25, 2001
VETERANS' HEALTH

CARE Observations on VA's Assessment of Hepatitis C Budgeting and Funding

Statement for the Record by Cynthia Bascetta, Director, Health Care-
Veterans' Health and Benefits Issues

GAO- 01- 661T

Page 1 GAO- 01- 661T VA?s Hepatitis C Financing

Mr. Chairman and Members of the Subcommittee: We are pleased to contribute
this statement for the record of the Subcommittee?s deliberations on the
President?s fiscal year 2002 budget request for the Department of Veterans
Affairs (VA). VA?s request includes $171 million so that its Veterans Health
Administration (VHA) can continue efforts to serve veterans who have
Hepatitis C, 1 a chronic bloodborne virus that is transmissible and can
cause potentially fatal liverrelated conditions. VA?s goal is to screen all
previously unscreened veterans during routine clinic visits to VA medical
facilities and provide treatment when medically appropriate and desired. 2

Last May, the Subcommittee expressed concerns about VHA?s use of $195
million requested for Hepatitis C screening and treatment in fiscal year
2000. The Subcommittee also expressed concerns about VHA?s distribution of
the requested fiscal year 2001 Hepatitis C funds ($ 340 million) to the 22
networks that constitute VHA?s health care system; 3 specifically, that
funding provided to networks may not be adequate. 4 Subsequently, Senate and
House conferees mandated VA to submit a report addressing these concerns. 5

In response, VA transmitted a briefing paper to your staff on April 10,
2001. Most notably, VA reported that 478,000 veterans were screened and
77,886 veterans were treated for Hepatitis C- related conditions during
fiscal year 2000 at an estimated cost of $100 million. VA also reported that
while networks received the $340 million requested for Hepatitis C
activities in fiscal year 2001, the current spending estimate has been
reduced to $151 million.

1 VHA launched its systemwide Hepatitis C initiative in fiscal year 1999
with reported expenditures totaling $46 million in that year. 2 Screening
involves assessment of potential risks of exposure to Hepatitis C and
Hepatitis C antibody tests for at- risk patients. 3 VHA?s geographic
networks perform a wide range of activities including health care planning
and budgeting, as well as management of health care delivery at over 700 VA
medical facilities.

4 H. Rep. No. 106- 674, at 11 (2000). 5 H. Conf. Rep. No. 106- 988, at 62
(2000).

Page 2 GAO- 01- 661T VA?s Hepatitis C Financing

As agreed with your staff, we monitored VHA?s ongoing efforts to address
your concerns. We are providing our observations on VA?s response to your
concerns relating to the: (1) difference between VHA?s reported expenditures
for fiscal year 2000 and VA?s original budget estimate and (2) distribution
of fiscal year 2001 funds requested for Hepatitis C screening and treatment.
Our comments are based on work we conducted from July 2000 through April
2001, in accordance with generally accepted government auditing standards.
We examined a wide array of VHA budget documents and analyses for fiscal
years 2000, 2001, and 2002; interviewed over 100 VHA officials, including
financial officers and the Hepatitis C program director; visited nine
hospitals located in six networks; and visited two network offices. We also
reviewed medical records at the nine hospitals visited.

In summary, VA?s briefing paper significantly understates the difference
between its fiscal year 2000 budget and reported expenditures. VA?s original
budget estimated that $195 million would be used for two activities:
screening and antiviral drug therapy. However, VA?s reported expenditures of
$100 million included $50 million for the two budgeted activities and $50
million for an activity not included in its original budget estimate-
treatment of conditions related to Hepatitis C. As a result, while VA?s
briefing paper suggests that the difference between its original budget
estimate and reported expenditures was $95 million, our analysis shows it
was much larger-$ 145 million.

In addition, VHA?s distribution of fiscal year 2001 funds requested for
Hepatitis C ($ 340 million) to the 22 networks appears adequate. Each
network appears to have sufficient resources to screen all previously
unscreened veterans when they visit VA medical facilities during fiscal year
2001, as well as to significantly expand their treatment workloads.

Our assessment identified differences in both Hepatitis C activities that
were included in VA?s original fiscal year 2000 budget: screening and
antiviral drug therapy. VA budgeted $195 million for these activities, but
only spent $50 million, a $145 million difference. However, VA?s briefing
paper shows only a $95 million difference because VA?s reported expenditures
include $50 million for activities not specifically budgeted, such as
treatment of conditions related to Hepatitis C. (See table 1.) We believe
that management decisions could have contributed to lower than expected
screening and treatment expenditures, in addition to the factors VA cited.
Budget Differences

Not Adequately Explained

Page 3 GAO- 01- 661T VA?s Hepatitis C Financing

Table 1: Differences Between Fiscal Year 2000 Budget Estimates and
Expenditures Budgeted activity Budget estimate Reported

expenditure Difference

(Dollars in millions) Screening for Hepatitis C virus $21 $14 ($ 7)
Antiviral drug therapy 174 36 (138) Subtotal (145)

Not specifically budgeted activity

Treatment for related conditions 0 50 50 Total $195 $100 ($ 95)

Source: GAO analysis of VHA data.

VA expended $14 million for Hepatitis C screening- one- third less than the
amount budgeted for fiscal year 2000. VA?s budget assumed that almost
985,000 veterans would be screened for Hepatitis C exposure at an average
cost of $21 per veteran. However, VHA estimates that only 478,000 veterans
were screened at a cost of $30 per veteran- a shortfall of over 50 percent.

VA?s briefing paper reported that two factors caused this workload
difference. First, VA points out that the budget estimate may have been
unrealistically high because it was based on ?untested assumptions?
concerning the number of veterans who use the VA health care system who
would need to be screened for Hepatitis C. Second, VA noted that the number
screened may be underreported due to inadequate data systems.

While VA?s reasons are valid, management decisions also could have
contributed to the lower than expected number of veterans who were screened,
causing the screening workload assumption to appear unrealistically high.
For example, VHA decided to include Hepatitis C funds as part of its general
medical care resource distribution process, without clearly communicating
how much was available for screening and treatment of the Hepatitis C virus.
As a result, network and medical facility staff we interviewed were
generally unaware that they had received $21 million in funding that VA had
requested for increased Hepatitis C screening. Network budget officers,
medical center managers, and clinical Screening Expenditures

One- Third Less Than Estimated

Page 4 GAO- 01- 661T VA?s Hepatitis C Financing

staff told us that they thought VHA did not receive additional funding to
support increased Hepatitis C activities. Those who thought funds were
available were unsure of the amount.

Such perceived funding inadequacies appear to have caused some local
managers to adopt a cautious approach regarding who to screen and when. At
the sites we visited, we noted that while some facility directors instructed
providers to screen all users, others limited screening to selected clinics
or left it to individual providers to decide who should be screened. Our
review of medical records at these sites confirmed that some facilities had
limited screening to certain clinics and that some providers had screened
few veterans for Hepatitis C.

In addition, such situations may have occurred because headquarters managers
failed to establish performance targets for networks, which could be used to
monitor Hepatitis C screening and treatment workloads. Although VHA promised
in its fiscal year 2001 budget request to establish such performance
targets, none have yet been adopted. VA?s briefing paper states that
meaningful and measurable indicators will be identified and incorporated
into performance goals for its 2003 budget request.

Also, VHA?s efforts to evaluate or track performance were further hampered
by a lack of basic data on the numbers of veterans screened. Notably, after
VHA introduced a system to track screening at medical facilities late in
fiscal year 2000, the reported number of veterans screened increased
dramatically at many facilities we visited. Providers told us the tracking
system was a powerful incentive to increase the number of veterans screened.

For antiviral treatment, VA spent $36 million- one- fifth of the amount
budgeted for fiscal year 2000. VA?s budget assumed that nearly 17,000
veterans would be treated and that 70 percent would complete a 12- month
antiviral drug therapy regimen. VA reported, however, that 4,455 veterans
received antiviral drug therapy and that most dropped out of treatment
before 6 months.

VA?s briefing paper characterized its budget estimate as being
unrealistically high. VA explained that fewer patients received antiviral
therapy because of the high number of patients who reject or defer therapy,
or who do not qualify as candidates under treatment guidelines. In addition,
treatment expenditures were lower because larger than expected numbers of
patients were unable to tolerate the frequent side Treatment Expenditures

One- Fifth of Estimate

Page 5 GAO- 01- 661T VA?s Hepatitis C Financing

effects of antiviral drugs, such as anemia, respiratory symptoms, or
depression and, therefore, ended treatment prematurely. 6

VA?s reasons seem valid. However, implementation problems relating to VHA?s
decision to distribute Hepatitis C funding through its general allocation
system without alerting networks to the portion budgeted for Hepatitis C
activities could also be a major contributing factor. As previously
discussed, staff at local facilities we visited perceived that little or no
funds had been appropriated to implement VA?s Hepatitis C initiative.
Providers at some of these facilities told us that this perceived funding
shortage was a factor that ultimately could explain the unexpectedly low
number of veterans treated. Because of the slowly evolving nature of liver
disease caused by the Hepatitis C virus, treatment can frequently be
postponed, however, without adversely affecting a patient?s health or
recovery prospects.

VHA?s budget officials told us that when the budget plan for fiscal year
2000 was originally prepared and submitted to the Congress, Hepatitis C
funds were expected to be used solely for screening veterans and providing
antiviral therapy. Subsequently, VHA decided to report expenditures for
treatment of conditions related to the Hepatitis C virus. Of VA?s reported
expenditures, $50 million was used for those purposes.

Our assessment of VHA?s records indicates that most of this $50 million in
expenditures involved inpatient care and pharmaceuticals. (See table 2.)

Table 2: Hepatitis C Spending Categories for Treating Related Conditions
Activity

Reported expenditures (Dollars in millions)

Inpatient services $19 Outpatient services 6 Pharmaceuticals 25 Total $50

Source: GAO analysis of VHA data documents supporting reported expenditures
for fiscal year 2000.

6 VA supports the research and development of more efficacious antiviral
drugs with fewer side effects; it plans to adopt a new interferon
formulation for Hepatitis C therapy following recent approval by the Food
and Drug Administration. Care for Hepatitis CRelated

Conditions Accounts for Half of VA?s Reported Expenditures

Page 6 GAO- 01- 661T VA?s Hepatitis C Financing

To gain an understanding of these activities, we reviewed medical records at
one medical center in consultation with that facility?s Director of
Hepatology. This review indicated that inpatient expenditures frequently
involved treatment of secondary problems relating to advanced Hepatitis C-
including fluid retention in the abdomen, internal bleeding, neurological
impairment, and liver cancer. Treatments varied from stabilizing patients?
conditions to liver transplants. Our review of medical records indicates
that outpatient expenditures frequently involved treatment of conditions
that could preclude the use of antiviral drug therapy. For example, because
excessive alcohol consumption reduces the effectiveness of antiviral
therapy, VHA may provide alcohol use counseling and treatment in order to
provide veterans with the best opportunity to benefit from antiviral
treatment. Veterans who are intravenous drug users also need counseling and
drug treatment before starting antiviral therapy.

VA?s briefing paper reported that expenditures for such related medical
conditions were probably undercounted for many veterans. To be counted, VHA
requires providers to include a Hepatitis C code in its computerized records
system when veterans receive inpatient or outpatient services for liver-
related conditions, such as cancer; such coding signifies that Hepatitis C
was a co- morbid condition. Officials at one network we visited were
aggressively trying to improve coding accuracy. Their efforts suggest that
more than half of their Hepatitis C- infected veterans received treatments
for Hepatitis C- related conditions that were not coded as such. This
problem persists systemwide, despite VHA?s efforts over the past 2 years to
encourage- through training and other educational aids- accurate coding by
providers.

VA officials told us that the fiscal year 2002 budget estimate for Hepatitis
C of $171 million includes funding for all these activities: screening,
antiviral therapy, and treatment of Hepatitis C- related conditions. This
estimate, they said, was developed using the same estimating model that was
used to identify the Hepatitis C expenditures reported for fiscal year 2000,
rather than the model used to develop fiscal year 2000 and 2001 budget
estimates. Also, VA?s briefing paper reported that its budget planning
process for fiscal year 2003 will include a more comprehensive revision of
its Hepatitis C model.

In this regard, VHA proposes the creation of a registry for its patients
with Hepatitis C infection. This registry will document important
demographic and clinical data, including all inpatient and outpatient care
regardless of diagnostic coding of individual episodes of care. VA plans to
develop a new software system to interface with existing electronic medical
records,

Page 7 GAO- 01- 661T VA?s Hepatitis C Financing

which VHA estimates could become operational by the fourth quarter of fiscal
year 2002.

Distributions to 22 networks appear adequate, given that funding levels
could support significant expansion of screening and treatment workloads. VA
included $340 million to screen and provide antiviral drug therapy to
veterans in its fiscal year 2001 budget request. In November 2000, VHA
distributed these funds to the 22 networks as part of their overall patient
care funding using its Veterans Equitable Resource Allocation model. 7 At
our request, VA identified amounts that each network received as result of
the $340 million being included in its distribution. These amounts ranged
from $5.7 million to $28.3 million.

Our assessment shows that amounts distributed to the 22 networks for fiscal
year 2001 should allow each network to provide Hepatitis C screenings for
all previously unscreened veterans when they visit VA medical facilities for
care during fiscal year 2001. Potential screening workloads for each of the
22 networks range between an estimated 70,000 veterans and 298,000 veterans.
Networks could spend an estimated $128 million to screen such potential
workloads, leaving $212 million available to provide antiviral therapy.

This remaining $212 million appears sufficient to support antiviral therapy
workloads for each network at a significantly higher level than fiscal year
2000. Networks, for example, provided a total of 22,275 months of antiviral
therapy to 4,455 patients in fiscal year 2000. This workload is the
equivalent of 1,856 patient years of care. For fiscal year 2001, networks
could double their workloads at a total cost of about $82 million, leaving
$130 million for further expansion of antiviral treatment workloads or
increased treatments for conditions related to Hepatitis C, such as alcohol
or drug treatment.

VA recently has reported that its Hepatitis C- related spending estimate for
fiscal year 2001 was reduced to $151 million, which represents VA?s best
estimate of how much networks are likely to spend for Hepatitis C

7 VHA used the Veterans Equitable Resource Allocation model to distribute
$17.7 billion (88 percent) of VA?s fiscal year 2001 Medical Care Budget to
its 22 health care networks, including $340 million requested for Hepatitis
C. VHA?S Year 2001

Funding for Networks? Hepatitis C Activities Appears Adequate

Page 8 GAO- 01- 661T VA?s Hepatitis C Financing

screening and treatment. 8 VHA budget officials told us, however, that the
entire $340 million originally requested remains available to the 22
networks for Hepatitis C use, should networks? workloads warrant. These
funds, however, are not limited to Hepatitis C use.

At this time, VA appears unable to develop a budget estimate that can
reliably forecast Hepatitis C funding needs. This situation is troublesome,
because over the past 30 months, VA has spent over $145 million previously
requested for Hepatitis C activities, but has limited experiential data that
can be used to estimate Hepatitis C patients? clinical needs- one of the
most critical elements for budget development.

VHA, however, appears to be taking reasonable steps to improve future budget
estimates and thereby minimize the potential for large differences. Most
notably, VHA?s proposed Hepatitis C patient registry could provide critical
data needed to improve budgetary estimates, as well as overall program
management. VHA, however, estimates that it could take 15 months before this
registry becomes operational, which suggests that it may not provide
budgetary information in time to help formulate VA?s fiscal year 2004
budget. In the meantime, VHA?s ongoing efforts to upgrade its data
collection systems should help improve budget estimates for fiscal year
2003. These efforts, however, have provided only minimal help in the
development of VA?s fiscal year 2002 budget for Hepatitis C spending. As a
result, it is not possible to conclude with certainty whether VA?s $171
million spending estimate for fiscal year 2002 is appropriate.

VA?s budget forecasting uncertainties do not appear to have adversely
affected the availability of fiscal year 2001 Hepatitis C funds for the 22
networks. Our assessment shows that, for fiscal year 2001, each network will
receive an adequate portion of the $340 million requested to significantly
expand Hepatitis C screening and treatment workloads.

8 Department of Veterans Affairs, FY 2002 Budget Submission, Medical
Programs, Volume 2 of 6, April 2001. Concluding

Observations

Page 9 GAO- 01- 661T VA?s Hepatitis C Financing

For questions regarding this statement, please call Cynthia Bascetta at
(202) 512- 7101. Individuals who made key contributions to this testimony
include Paul Reynolds, Frederick Caison, and Carolina Morgan. GAO Contact
and

Staff Acknowledgments

(406202)
*** End of document ***