VA Health Care: Framework for Analyzing Capital Asset Realignment
for Enhanced Services Decisions (18-AUG-03, GAO-03-1103R).	 
                                                                 
On May 14, 2003, as requested, we briefed Congress on our	 
preliminary views on the Capital Asset Realignment for Enhanced  
Services (CARES) process initiated by the Department of Veterans 
Affairs (VA). On July 29, 2003, we shared our additional	 
perspectives, which Congressional Staff indicated would be	 
helpful to the Commission as it considers the draft National	 
CARES Plan that VA presented on August 4, 2003. For this reason, 
we are providing an overview of the approach that we plan to use 
during our continuing review of CARES.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-1103R					        
    ACCNO:   A08129						        
  TITLE:     VA Health Care: Framework for Analyzing Capital Asset    
Realignment for Enhanced Services Decisions			 
     DATE:   08/18/2003 
  SUBJECT:   Federal property management			 
	     Financial analysis 				 
	     Financial management				 
	     Health care planning				 
	     Real property					 
	     Strategic planning 				 
	     Health care services				 
	     Veterans benefits					 
	     VA Capital Asset Realignment for			 
	     Enhanced Services Initiative			 
                                                                 

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GAO-03-1103R

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets United States
General Accounting Office

Washington, DC 20548

August 18, 2003 The Honorable Everett Alvarez, Jr. Chairman, CARES
Commission Department of Veterans Affairs

Subject: VA Health Care: Framework for Analyzing Capital Asset Realignment
for Enhanced Services Decisions Dear Mr. Chairman:

On May 14, 2003, at your request, we briefed you on our preliminary views
on the Capital Asset Realignment for Enhanced Services (CARES) process
initiated by the Department of Veterans Affairs (VA). On July 29, 2003, we
met with your staff to share our additional perspectives, which they
indicated would be helpful to the Commission as it considers the draft
National CARES Plan that VA presented on August 4, 2003. For this reason,
we are providing, for your consideration, an overview of the approach that
we plan to use during our continuing review of CARES.

As you know, VA operates one of the nation*s largest health care systems,
having provided health care services to almost 4.3 million veterans in
fiscal year 2002. In 1999, we reported that better management of VA*s
large, aged capital assets* consisting of a real property infrastructure
that includes over 4,700 buildings and structures and 15,000 acres of
land* could significantly reduce funds used to operate and maintain
underused, unneeded, or inefficient properties. 1 We also noted that these
funds could be used to enhance health care services for veterans.
Specifically, we recommended that VA develop market- based asset-
restructuring plans 2 that are consistent with guidelines from the Office
of Management and Budget (OMB), which provide key principles and concepts
for disciplined, cost- effective management of real property. 3 In
response, VA initiated the CARES process in October 2000.

1 See U. S. General Accounting Office, VA Health Care: Capital Asset
Planning and Budgeting Need Improvement, GAO/ T- HEHS- 99- 83 (Washington,
D. C.: Mar. 10, 1999), and VA Health Care: Improvements Needed in Capital
Asset Planning and Budgeting, GAO/ HEHS- 99- 145 (Washington, D. C.: Aug.
13, 1999).

2 VA subsequently defined a health care market as a geographic area having
a sufficient population and geographic size to benefit from the
coordination and planning of health care services and to support a full
health care delivery system. 3 Office of Management and Budget, Capital
Programming Guide, Version 1.0 (Washington, D. C.: July 1997).

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 2

The challenge of misaligned infrastructure is not unique to VA. We
identified federal real property management as a high- risk area in
January 2003 because of the nationwide importance of this issue for all
federal agencies. 4 We did this to draw attention to the need for broad-
based transformation in this area, which, if well

implemented, will better position federal agencies to achieve mission
effectiveness and reduce operating costs. But VA and other agencies face
common challenges, such as competing stakeholder interests in real
property decisions. In VA*s case, this involves achieving consensus among
such stakeholders as veterans* service organizations, affiliated medical
schools, employee unions, and communities. Recently, bills have been
introduced in the Senate and House that would require a minimum 60- day
period for congressional committees to review and consider CARES decisions
before implementation. 5 VA*s draft National CARES Plan proposes a wide
range of health care asset

realignments and service enhancements based on analysis of VA*s current
capacity and accessibility to veterans and projections of the capacity
necessary to meet the future health care needs of veterans. This plan
includes recommendations for realigning clinical services from certain VA
locations to existing VA- owned, new VAowned, or non- VA- owned health
care delivery locations and includes proposals to open some new VA
delivery locations and close others. The Commission will play a critical
role in

reviewing the draft national plan and documents that support it,

collecting information through site visits and public hearings, and

making specific recommendations to the Secretary based on its acceptance,
modification, or rejection (with supporting comments) of VA*s draft
recommendations.

Like the Commission, our continuing review of CARES is intended to help
assure that veterans* health care needs are met effectively and
efficiently. In developing our approach, we relied on our prior
testimonies and reports, 6 OMB*s guidelines for capital planning, VA*s
CARES guidelines and other documents, VA*s capital investment guidelines,
and Commission documents. In addition, we spoke with Commission staff and
VA*s CARES staff. We conducted our work from February through August 2003
in accordance with generally accepted government auditing standards.

In summary, our approach for analyzing CARES decisions will focus on a
series of fundamental questions regarding whether

appropriate alternatives were considered and

key impacts of competing alternatives were appropriately evaluated. 4 See
U. S. General Accounting Office, High Risk Series: Federal Real Property,
GAO- 03- 122 (Washington, D. C.: January 2003) . 5 S. 1283, H. R. 2659,
and H. R. 2808, 108 th Cong. (2003). 6 See Related GAO Products at the end
of this report.

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 3

As shown in the figure below, our framework examines whether choices about
the development of capital asset realignment alternatives ensure
consideration of alternatives that potentially provide the greatest
payoffs, particularly in comparison to the status quo, that is,
maintaining VA*s existing real property infrastructure for the delivery of
health care. It also examines the impacts of such alternatives, focusing
on comparisons of their key costs and benefits in a manner consistent with
OMB and CARES guidelines.

Figure 1: GAO*s Framework for Analyzing CARES Decisions

In our view, the success of CARES depends on ensuring that the best
alternatives for meeting veterans* needs within a market are recommended
and a transparent public record is developed that sufficiently documents
the justification supporting CARES decisions. A complete, fact- based
public record can facilitate political consensus by allowing the Congress
and other stakeholders to focus their deliberations on tradeoffs among the
benefits and costs of alternatives for realigning health care assets and
enhancing care.

Ensuring That Appropriate Alternatives Are Considered

OMB guidelines state that when evaluating capital assets, a comparison of
alternatives is critical for ensuring that the best alternative is
selected. In its guidance, OMB challenges decision makers to consider the
different ways in which various functions, most notably health care
service delivery in VA*s case, can be

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 4

performed. Moreover, OMB encourages the use of imagination, tempered with
experience, to develop ideas that could have the greatest payoffs. In this
regard, OMB labeled the development of alternatives the single most
important element in that process.

OMB's guidelines also suggest that alternatives include an assessment of
the continued viability of existing capital assets. VA currently owns and
operates significant investments in real property at 173 health care
delivery locations. For CARES purposes, VA designated 77 geographic areas
as health care markets with the goal of ensuring the availability of an
appropriate continuum of care for veterans in each market. Thus, in the
CARES context, assessing the desirability of VA*s existing assets would
mean evaluating the contribution of VA*s current delivery locations to
their respective markets* continuum of care. A full assessment of
alternatives for any market will require consideration of alternatives to
the status quo for each location, including whether some existing
locations might need to be supplemented or enhanced and whether it might
be better to replace some existing locations with a more effective and
efficient configuration of assets. VA's CARES process also targets higher
priority situations that warrant special attention, including

markets with the largest increases or decreases in predicted workload
(such as the number of days of inpatient care and outpatient visits) over
the next 20 years,

markets with the largest proportions of veterans who have long travel
times to existing VA health care delivery locations,

individual health care delivery locations that are proximate to each
other, and

individual inpatient care delivery locations that are predicted to have
small workloads.

Consistent with OMB and CARES guidelines, our approach will examine
whether alternatives considered by VA and the Commission represent the
best CARES service realignment outcomes that are potentially available for
each individual health care delivery location within the CARES- designated
markets. Toward that end, we plan to review whether the evidence indicates
that consideration was given to realignment alternatives that reflect an
appropriate range of alternatives involving health care services, delivery
locations, and capital investments. In terms of the health care services
offered at individual locations, alternatives range from maintaining the
status quo to closing a delivery location. Intermediate alternatives could
involve realigning one or more clinical services (such as vascular surgery
or hemodialysis) or groups of related services (such as acute inpatient
care or inpatient surgery) from one location to another. In terms of
delivery locations, alternatives include maintaining existing or
developing new VA- owned delivery locations, collaborating with other
federal agencies such as the Department of Defense (DOD), or purchasing
care from nonfederal providers such as community hospitals. In terms of
capital investment decisions, alternatives include renovating existing
assets, acquiring new assets, and disposing of unneeded assets.

Potentially viable alternatives would depend on the individual
circumstances within CARES- designated markets, most notably, whether VA
owns and operates assets at

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 5

more than one health care delivery location in a market. Of the 74 CARES
markets currently under consideration, 7 24 have a single delivery
location with significant real property investments, 47 have two or more
such locations, and 3 have no locations with significant real property
investments. For example, the best alternatives in VA*s 24 single-
location markets could include the status quo, establishment of a new VA
delivery location, collaborating with federal agencies, or purchasing care
from private providers. In the 47 markets where VA operates multiple
delivery locations, the best alternatives for delivery locations could
also involve realigning individual services, groups of services, or all
services to nearby VA delivery locations.

Ensuring That Key Impacts of Competing Alternatives Are Evaluated

OMB guidelines state that robust comparisons of costs and benefits
facilitate selection among competing alternatives and that information
regarding such analyses of competing alternatives should be provided in a
simple, easy to understand format. Doing so involves identifying the
likely consequences of specific alternatives on key impact areas and then
comparing the costs and benefits of competing alternatives to determine
which alternative best meets veterans* health care needs effectively and
efficiently. Consistent with OMB guidelines, CARES guidelines call for
impact analyses of specific costs and benefits to be considered when
evaluating health care service realignment alternatives. Our approach to
reviewing competing alternatives will focus on whether evidence is
available for decision makers and stakeholders to understand the trade-
offs among key impact areas* quality of care, access to care, cost to the
government, support for VA*s other strategic goals, and economic impact on
the local community.

Quality of care includes continuity and coordination of care and patient
safety. We will examine evidence documenting how alternatives are likely
to preserve or improve the quality of care, for example, by ensuring that
the volume of procedures will be sufficient to maintain the proficiency of
providers, such as surgeons. Similarly, we will examine documentation
indicating how outcomes could be affected if there are changes in
interdependent services, such as cardiac surgery and intensive care.

Access to health care services is also a key impact area. For CARES, VA
defines reasonable access in terms of travel times to its health care
delivery locations. We will examine evidence to determine how the
percentage of patients currently meeting VA*s access goals compares to the
expected percentage of patients meeting VA goals under each competing
alternative and whether CARES realignments bring services closer to where
veterans live. CARES also addresses access to health care in terms of
capacity and projected workloads. We will examine evidence of the likely
effects of realignment alternatives on ensuring that capacity will match
projected demand, an important factor in ensuring reasonable access in
terms of waiting times for appointments.

7 Three of VA*s markets are not currently being considered because VA made
realignment decisions for those markets during a pilot phase of the CARES
process. These markets cover parts of Indiana, Illinois, Wisconsin, and
Michigan.

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 6

In addition, the cost to the government, which involves one- time,
recurring, and opportunity costs, is another key area in which
alternatives can have varying impacts. We will examine evidence
documenting how alternatives differ in their life cycle costs* the
discounted present value of all one- time capital costs, continuing costs
of operation and maintenance, and cost offsets available through potential
revenue generation. A focus on life cycle costs is especially critical to
assessing the efficiency of resource use when there is significant
variation across competing alternatives in the initial one- time capital
investment requirements and ongoing costs of operation and maintenance.

Another key element is support of other VA strategic goals. These
strategic goals include educating health care professionals, conducting
research, and serving as a primary backup to DOD in the event of a
national emergency or natural disaster, and other strategic goals related
to providing disability compensation and ensuring that veterans* burial
needs are met. For example, we will examine evidence documenting how
alternatives affect education programs, research opportunities and
funding, and VA*s ability to meet DOD contingency needs in the event of
national emergency.

Economic impact on communities, including employees and local health care
delivery systems, is the final key element we will review. For example, we
will examine evidence to determine how alternatives could affect
employment opportunities and the viability of other health care providers
and related businesses and how VA plans to mitigate likely adverse
consequences of CARES decisions.

OMB guidelines state that once the impacts on these key elements have been
identified for each alternative developed, the best alternative can be
identified through an explicit comparison of their relative expected costs
and benefits. We will examine evidence to determine whether descriptions
of such comparisons demonstrate how the recommended alternative better
ensures appropriate quality of care, reasonable access to care, reasonable
cost to the government, effective support for other VA strategic goals,
and acceptable economic impact on communities. Because decisions will
typically involve trade- offs between benefits and costs, we will focus
especially on whether the priorities that influenced trade- off choices
were clearly articulated. Finally, we will examine the explanations to
determine if decisions in different markets were based on different
priorities and if so, whether such differences were well documented.

Concluding Observations

Veterans and stakeholders such as affiliated medical schools, employee
unions, communities, and the Congress will likely be more confident that
CARES service realignments and enhancements represent the best
alternatives for meeting veterans* health care needs if the public record
provides transparent and well- supported answers to the types of questions
we are using in our approach. Reaching consensus on the realignment of
VA*s health care capital assets as expeditiously as possible

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 7

depends on the sufficiency of the information provided in support of CARES
decisions and the clarity of that documentation.

- - - - - We will send copies of this report to interested congressional
committees and the Secretary of Veterans Affairs. The report will also be
available at no charge on GAO*s Web site at http:// www. gao. gov. We will
make copies available to others upon request. If you have questions,
please contact me at (202) 512- 7101 or Paul Reynolds at (202) 512- 7109.
Kristen Joan Anderson and Frederick Caison also contributed to this
report. Sincerely yours,

Cynthia A. Bascetta Director, Health Care* Veterans*

Health and Benefits Issues

GAO- 03- 1103R Enhancing VA Health Care by Realigning Assets 8 Related GAO
Products

Department of Veterans Affairs: Key Management Challenges in Health and
Disability Programs. GAO- 03- 756T. Washington, D. C.: May 8, 2003.

VA Health Care: Improved Planning Needed for Management of Excess Real
Property. GAO- 03- 326. Washington, D. C.: January 29, 2003.

High- Risk Series: Federal Real Property. GAO- 03- 122. Washington, D. C.:
January 2003.

Major Management Challenges and Program Risks: Department of Veterans
Affairs. GAO- 03- 110. Washington, D. C.: January 2003.

VA Health Care: Community- Based Clinics Improve Primary Care Access.
GAO01- 678T. Washington, D. C.: May 2, 2001.

VA Health Care: VA Is Struggling to Address Asset Realignment Challenges.
GAO/ T- HEHS- 00- 88. Washington, D. C.: April 5, 2000.

VA Health Care: Improvements Needed in Capital Asset Planning and
Budgeting. GAO/ HEHS- 99- 145. Washington, D. C.: August 13, 1999.

VA Health Care: Challenges Facing VA in Developing an Asset Realignment
Process. GAO/ T- HEHS- 99- 173. Washington, D. C.: July 22, 1999.

Veterans* Affairs: Progress and Challenges in Transforming Health Care.
GAO/ THEHS- 99- 109. Washington, D. C.: April 15, 1999.

VA Health Care: Capital Asset Planning and Budgeting Need Improvement.
GAO/ T- HEHS- 99- 83. Washington, D. C.: March 10, 1999.

Executive Guide: Leading Practices in Capital Decision- Making. GAO/ AIMD-
99- 32. Washington, D. C.: December 1998.

VA Health Care: Closing a Chicago Hospital Would Save Millions and Enhance
Access to Services. GAO/ HEHS- 98- 64. Washington, D. C.: April 16, 1998.
(290321)

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