    VA Health Care: Experiences in Denver and Charleston Offer
    Lessons for Future Partnerships with Medical Affiliates
    (28-APR-06, GAO-06-472).

    The Department of Veterans Affairs (VA) maintains affiliations
    with medical schools, including the Medical University of South
    Carolina (MUSC) and the University of Colorado at Denver and
    Health Services Center and University of Colorado Hospital (UCH),
    to obtain enhanced medical care for veterans. As part of their
    plans for new medical campuses, both UCH and MUSC proposed
    jointly constructing and operating new medical facilities with VA
    in Denver and Charleston, respectively. This report discusses (1)
    how VA evaluated the joint venture proposals for Denver and
    Charleston and the status of these proposals, (2) the challenges
    these proposals pose for VA, and (3) the lessons VA can learn
    from its experiences in Charleston and Denver for future
    partnerships.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-472
        ACCNO:   A52725
      TITLE:     VA Health Care: Experiences in Denver and Charleston
    Offer Lessons for Future Partnerships with Medical Affiliates
         DATE:   04/28/2006
      SUBJECT:   Evaluation criteria
    	     Health care facilities
    	     Hospital planning
    	     Joint ventures
    	     Lessons learned
    	     Medical schools
    	     Strategic planning
    	     Veterans hospitals
    	     Veterans' medical care
    	     Charleston (SC)
    	     Denver (CO)

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    GAO-06-472

         * Report to the Chairman, Committee on Veterans' Affairs, House of
           Representatives
              * April 2006
         * VA HEALTH CARE
              * Experiences in Denver and Charleston Offer Lessons for Future
                Partnerships with Medical Affiliates
         * Contents
              * Results in Brief
              * Background
              * VA Lacks Departmental Criteria to Evaluate Joint Venture
                Proposals
                   * VA Does Not Have Criteria at the Departmental Level to
                     Evaluate Joint Venture Proposals Consistently
                   * VA Decided to Construct Stand-alone Facility in Denver, but
                     Negotiations about Location Continue
                        * Lack of Leadership Buy-in and Miscommunication
                          Prolonged Negotiations and Created Atmosphere of
                          Mistrust
                   * VA and MUSC Have Identified Multiple Options for Sharing
                     Resources and Space, but No Decision Has Been Made
                        * Limited Collaboration and Communication Stalled
                          Negotiations in Charleston for About 3 Years
              * Joint Venture Proposals in Charleston and Denver Pose Multiple
                Challenges
                   * VA's Current Sharing Arrangements with Medical Affiliates
                     and DOD Could Be Instructive As VA Considers Current and
                     Future Joint Ventures
              * VA Could Learn Several Lessons from Its Experiences with Denver
                and Charleston Joint Venture Proposals
                   * Lack of Criteria at Departmental Level Results in
                     Inconsistent Evaluations
                   * Lack of Communications Strategy Leads to Misinformation and
                     Confusion
                   * Lack of Leadership Support Can Hinder Negotiations
                   * Lack of Extensive Collaboration Hampers Negotiations
              * Conclusions
              * Recommendations for Executive Action
              * Agency Comments
              * Scope and Methodology
         * Description of Planning Models Identified by Steering Group
         * Related GAO Products

    Report to the Chairman, Committee on Veterans' Affairs, House of
    Representatives

    April 2006

    VA HEALTH CARE

    Experiences in Denver and Charleston Offer Lessons for Future Partnerships
    with Medical Affiliates

    Contents

    Tables

    Figures

    April 28, 2006Letter

    The Honorable Steve Buyer Chairman Committee on Veterans' Affairs House of
    Representatives

    Dear Mr. Chairman:

    For decades, the Department of Veterans Affairs (VA) has maintained
    partnerships, or affiliations, with university medical schools to obtain
    medical services for veterans and provide training and education to
    medical residents. These affiliations help VA fulfill its mission of
    providing health care to the nation's veterans. Today, VA has affiliations
    with 107 medical schools, including the Medical University of South
    Carolina (MUSC) in Charleston, South Carolina, and the University of
    Colorado's School of Medicine-through the University of Colorado at Denver
    and Health Sciences Center and the University of Colorado Hospital
    (UCH)-in the Denver, Colorado, area.1 For example, many MUSC physicians
    serve as residents at VA's medical facility in Charleston, the Ralph H.
    Johnson VA Medical Center, and UCH physicians do the same at VA's Eastern
    Colorado Health System in Denver. As part of their plans for new medical
    campuses, UCH and MUSC proposed jointly constructing and operating new
    medical facilities with VA in Denver and Charleston, respectively.
    Although VA has a long history of partnering with its medical affiliates
    for training and education as well as purchasing medical services from its
    medical affiliates, this type of joint venture would represent a departure
    from VA's typical relationship with its medical affiliates.

    In addition to partnering with university medical schools, VA manages a
    diverse inventory of real property to provide health care to veterans.
    However, many of VA's facilities were built more than 50 years ago and are
    no longer well suited to providing accessible, high-quality,
    cost-effective health care in the 21st century. To address its aging
    infrastructure, VA initiated the Capital Asset Realignment for Enhanced
    Services (CARES) process-the most comprehensive, long-range assessment of
    its health care system's capital asset requirements ever undertaken by VA.
    In February 2004, the CARES Commission-an independent body charged with
    assessing VA's capital assets-issued its recommendations regarding the
    realignment and modernization of VA's capital assets necessary to meet the
    demand for veterans' health care services through 2022. In Denver, the
    commission recommended VA build a replacement medical center with the
    Department of Defense (DOD) on the former Fitzsimons Army Base in Aurora,
    Colorado, which is just outside of Denver. The commission also noted
    widespread agreement among stakeholders that the new VA facility should be
    located near a new UCH facility, which was being constructed at the
    Fitzsimons site. In Charleston, the commission did not recommend replacing
    the current medical facility. However, the commission recommended that,
    among other things, VA promptly evaluate MUSC's proposal to jointly
    construct and operate a new medical center with VA in Charleston, noting
    that such a joint venture arrangement could serve as a possible framework
    for partnerships in the future. In responding to the commission's
    recommendations in May 2004, the Secretary stated that VA would build a
    replacement VA medical center on the Fitzsimons site with "some shared
    facilities with the UCH" and continue to "consider options for sharing
    opportunities with MUSC."2

    This report discusses (1) how VA evaluated the joint venture proposals
    involving its facilities in Charleston and Denver and the status of these
    proposals; (2) the challenges that VA faces in sharing facilities and
    services with its medical university affiliates in Charleston and Denver;
    and (3) the lessons VA can learn, if any, from its experiences in
    Charleston and Denver if it moves forward with other partnerships. To
    address these objectives, we analyzed agency documents and interviewed
    officials at VA, MUSC, UCH, and the University of Colorado at Denver and
    Health Sciences Center. We also met with local stakeholders, such as
    officials from the Fitzsimons Redevelopment Authority (FRA) in Aurora, the
    mayors of Charleston and Aurora, and representatives from the VA employee
    union in each location to obtain their perspectives on the joint venture
    proposals and to obtain information on local capital asset planning and
    its impact. We also discussed the CARES review process and CARES
    Commission recommendations with VA officials. We assessed the reliability
    of the information obtained from VA, MUSC, and UCH. We concluded that the
    information was sufficiently reliable for our purposes. We also reviewed
    GAO's body of work on VA's management of its capital assets and on leading
    practices for realigning federal agency infrastructure, collaboration
    among organizations, and organizational transformations.3 In September
    2005, we also testified before the Subcommittee on Health, Committee on
    Veterans' Affairs, House of Representatives, on the joint venture proposal
    involving VA's facility in Charleston and MUSC.4 Although we examined the
    joint venture proposals for VA's Denver and Charleston facilities and the
    associated studies and planning documents, we did not evaluate the merits
    of the proposals. We conducted our work from June 2005 through February
    2006 in accordance with generally accepted government auditing standards.

    Results in Brief

    Because it lacks criteria at the departmental level, VA evaluated
    proposals for joint ventures with local medical affiliates in Denver and
    Charleston using criteria developed specifically for each location, and
    while VA opted to build a stand-alone facility in Denver, it is still in
    the process of considering a joint venture in Charleston. In both
    locations, multiple iterations of the joint venture proposals have been
    considered, and negotiations between VA and its medical affiliates have
    stretched over a number of years, delaying decisions regarding the
    facilities in Denver and Charleston. For example, in Denver, VA officials
    at the facility and network level5 and UCH officials in 1999 began
    informally discussing the possibility of constructing and operating a
    joint facility on the former Fitzsimons army base in Aurora, Colorado,
    which was closed as part of DOD's base realignment and closure process.
    Negotiations over different aspects and revisions of the joint venture
    proposal continued until late 2004, at which time VA decided against a
    joint facility with UCH. Similarly, negotiations over the joint venture
    proposed between VA and MUSC in Charleston began in 2002, and, to date, no
    decisions have been made. However, a steering group composed of VA and
    MUSC officials issued a report in December 2005 that outlined options for
    a joint venture ranging from sharing of medical services, which could
    occur with VA maintaining its existing building, to a large, new building
    with space for both VA and MUSC. Complex arrangements such as the joint
    venture proposals in Denver and Charleston require extensive negotiations
    between the potential partners. However, negotiations in both locations
    were hampered by limited communication and collaboration and lack of VA
    leadership support, among other things. For example, in Charleston, for a
    2-year period after the joint venture was proposed, there was little
    communication between VA and MUSC, which caused negotiations to stall
    during this period. In Denver, top VA leadership was not fully supportive
    of exploring a joint venture with UCH, resulting in delays in negotiations
    and misunderstandings between VA and UCH.

    Joint ventures proposed by VA's medical university affiliates in Denver
    and Charleston present several challenges to VA. These challenges include
    addressing institutional changes for VA and institutional differences
    between VA and its medical affiliates, identifying legal issues and
    seeking legislative remedies, and balancing funding priorities. For
    example, capital expenditures for a joint venture would have to be
    considered in the context of other VA capital priorities, and VA would
    have to ensure that a joint venture would allow VA to fulfill its other
    departmental missions, such as supporting national, state, and local
    emergency management. In addition, a joint venture would also require VA
    to depart from its traditional health care model of providing medical
    services in house and adopt one that includes sharing capital assets with
    an affiliate. Although addressing these issues will be difficult, the
    VA-MUSC steering group has begun to work through some of these challenges.

    Its experiences in Denver and Charleston offer several lessons for VA as
    it considers other similar opportunities. One of the most important
    lessons to emerge from VA's experience with the joint venture proposals in
    Denver and Charleston is the need to develop criteria at the departmental
    level to evaluate the merits of joint venture proposals on a consistent
    basis. A set of criteria for evaluating decisions regarding
    infrastructure, including joint ventures, would enhance the transparency
    of these decisions and help ensure that the decisions were made in a
    manner that was fair to joint venture partners and other stakeholders,
    such as veterans and employees. The lack of departmental-level criteria
    forced VA to evaluate the proposals without a consistent framework that
    would allow VA to determine and assess the effects of each proposal on
    medical care cost and quality within the context of its overall mission.
    Another important lesson of VA's experience in Denver and Charleston is
    the need for a communications strategy for communicating with its medical
    affiliate and stakeholders. Such a strategy could help facilitate
    negotiations with the medical affiliate as well as help address concerns
    voiced by veterans and employees, such as the impact of the joint venture
    on patient care. A communication strategy would help ensure that these
    groups receive a message that is consistent in tone and content. The lack
    of such a strategy contributed to breakdowns in communications in both
    Denver and Charleston during key points of the negotiations and hindered
    progress. For example, in Charleston, there was limited communication
    between VA and MUSC for about 2 years; as a result, negotiations stalled.
    Other lessons that VA could take away from its experiences in Denver and
    Charleston include that negotiations are facilitated by VA leadership
    support for exploring the possibility of joint ventures and extensive
    collaboration between the potential joint venture partners.

    To better position VA to consider future joint venture proposals with
    medical affiliates, we are recommending that the Secretary develop
    criteria at the departmental level for evaluating joint venture proposals
    on a consistent basis and a strategy for communicating with the
    department's affiliates and stakeholders about joint venture proposals. VA
    reviewed a draft of this report and agreed with the report's conclusions
    and recommendations.

    Background

    VA manages a large health system for veterans, providing health care
    services to over 5 million beneficiaries. The cost of these services in
    fiscal year 2005 was over $30 billion. According to VA, its health care
    system now includes 157 medical centers, 862 ambulatory care and
    community-based outpatient clinics, and 134 nursing homes. VA health care
    facilities provide a broad spectrum of medical, surgical, and
    rehabilitative care. The management of VA's facilities is decentralized to
    21 regional networks referred to as Veterans Integrated Service Networks
    (networks). The Charleston facility is part of Network 7, or the Southeast
    Network, and the Denver facility is located in Network 19, or the Rocky
    Mountain Network.6

    To meet its mission of serving the needs of the nation's veterans, VA
    partners with medical universities and DOD. In 1946, VA established a
    program to enter into partnerships with medical universities, now referred
    to as academic affiliations, to provide high quality health care to
    America's veterans and to train new health professionals. Today, VA
    maintains affiliations with 107 of the nation's 126 medical schools. In
    addition to academic affiliation agreements, VA purchases clinical
    services from medical schools for the treatment of veterans.7 Similarly,
    in 1982, the VA and DOD Health Resources Sharing and Emergency Operations
    Act (Sharing Act)8 was enacted to provide for more efficient use of
    medical resources through greater interagency sharing and coordination.
    For example, the VA Medical Center in Louisville and the Ireland Army
    Community Hospital in Fort Knox, Kentucky, have engaged in sharing
    activities to provide services to beneficiaries that include primary care,
    acute care pharmacy, ambulatory, blood bank, intensive care, pathology and
    laboratory, audiology, podiatry, urology, internal medicine, and
    ophthalmology. Given the importance of these partnerships to VA's ability
    to meet its mission, VA's 2003-2008 strategic plan includes goals for
    sustaining partnerships with medical universities and sharing resources
    with DOD.

    VA's Denver and Charleston medical facilities have long-standing
    affiliations with local medical universities. VA's facility in Denver is
    affiliated with the University of Colorado's School of Medicine-through
    the University of Colorado at Denver and Health Sciences Center and
    UCH-and VA's facility in Charleston is affiliated with MUSC. These
    affiliations provide both VA facilities with the majority of VA's medical
    residents who rotate through all VA clinical service areas. Both VA
    facilities also purchase a significant amount of medical services from
    their affiliates. Specifically, the Denver facility annually obtains $9
    million worth of services from UCH, and the Charleston VA facility buys
    $13 million in services annually from MUSC. The medical services purchased
    are in such areas as gastroenterology, infectious disease, internal
    medicine, neurosurgery, anesthesia, pulmonary, and cardiovascular
    perfusion. In addition to these services, VA also has a medical research
    partnership with MUSC for a mutually supported biomedical research
    facility, the Thurmond Biomedical Research Center. Table 1 provides more
    detailed information about the VA facilities in Charleston and Denver and
    their medical affiliates.

    Table 1: Information on VA's Facilities in Charleston and Denver and
    MUSC's and UCH's Facilities

                            Charleston,              Denver,
                           South Carolina            Colorado
                            VA's Ralph H.       MUSC              VA's        UCH
                                  Johnson                      Eastern
                           Medical Center                     Colorado
                                                                Health
                                                                System
    Year built: Main              1966       1955              1951       1921
    hospital
    Square footage             352,000 1,530,125a           670,000 1,200,000b
    Beds                           126        709               128        420
    Inpatient                    4,510     28,591             4,750     19,622
    admissions
    Outpatient visits          370,917   551,914c           481,769    546,248
    Annual operating              $160       $559              $267       $490
    budget (in
    millions)

    Source: GAO presentation of VA, MUSC, and UCH data.

    aThe MUSC medical center includes the Institute of Psychiatry (62,299
    square feet), Children's Hospital (347,697), North Tower and Main Hospital
    (545,201), Rutledge Tower (383,752), and Charleston Memorial Hospital
    (191,176).

    bBy 2008, UCH will have approximately 1.8 million gross square footage of
    fully operational facilities, with about 1.5 million gross square footage
    dedicated to clinical and patient care services. This number does not
    reflect gross square footage at UCH's current facility in Denver.

    cThis number does not include same-day surgeries (6,802) or emergency
    visits (35,375).

    VA Lacks Departmental Criteria to Evaluate Joint Venture Proposals

    VA evaluated the joint venture proposals for its facilities in Denver and
    Charleston on an ad hoc basis because it lacks criteria at the
    departmental level to evaluate such proposals consistently. VA has decided
    against a joint facility in Denver, but it is still in the process of
    considering such a facility in Charleston. In both locations, multiple
    iterations of the joint venture proposals have been considered, and
    negotiations between VA and its medical affiliates have stretched over a
    number of years. Negotiations in both locations were hampered by limited
    communication and collaboration, a lack of top VA leadership support for
    the proposals, and no single VA point of contact for the medical
    affiliates.

    VA Does Not Have Criteria at the Departmental Level to Evaluate Joint
    Venture Proposals Consistently

    VA does not have criteria at the departmental level that could be used to
    evaluate joint venture proposals on a consistent basis. Consequently, VA
    officials identified factors for considering the specific joint venture
    proposals in Charleston and Denver. Some of the identified factors were
    consistent between the two locations, and others were site-specific, but
    it is not clear how any of the factors weighed in VA's consideration of
    the proposals.

    In studies and correspondence regarding the joint venture proposal in
    Denver, VA officials identified several factors that they believed to be
    important in considering the joint venture proposal. In particular, in
    correspondence between VA and UCH in 2002, and again in 2004, the
    Secretary of VA identified four major considerations-(1) maintaining VA's
    identity; (2) maintaining VA's governance; (3) balancing and evaluating
    priorities within VA's capital asset program, including the CARES process;
    and (4) securing funding. In 2002, a VA taskforce composed of
    headquarters, network, and facility officials examined the potential for a
    VA-UCH joint facility and identified additional factors critical to the
    decision-making process. These factors included maintaining VA's
    commitment to providing health care to meet veterans' unique needs and
    research programs, VA's aging infrastructure, and the gap between health
    care demand and capacity and funding. Another consideration that arose
    through the course of negotiations was VA's space requirements for a new
    facility and the associated acreage of land needed and available on the
    Fitzsimons campus. VA did not indicate how the factors identified in the
    studies or correspondence weighed in its decision making regarding the
    joint venture proposal.

    Similarly, the VA-MUSC steering group identified a set of criteria to help
    identify and analyze the joint venture proposal for Charleston. As shown
    in table 2, these criteria include enhanced quality and service and
    financial viability. The steering group's report did not indicate how or
    why these criteria were chosen, provide an explanation of the individual
    criterion, or indicate the relative importance of the criteria. While the
    steering group used the criteria in identifying and evaluating options for
    further consideration, it is not clear how, if at all, these criteria will
    be used by VA leadership in making a final decision on the joint venture
    proposal. In meetings with VA officials about the joint venture proposal
    in Charleston, officials identified other considerations that could
    influence the decision-making process, including the condition of the
    existing VA facility and the need to balance investment priorities across
    the region and nation.

    Table 2: Criteria Identified by the VA-MUSC Steering Group

    Criterion
    o Enhance quality and service
    o Improve access
    o Financial viability
    o Optimal legal authorities
    o Enhance efficient infrastructure sharing
    o Maximize land utilization and development
    o Collaborative governance structure
    o Maintain unique VA identity
    o Become a regional center of excellence
    o Enhance Department of Defense services
    o Produce serendipitous win-wins
    o Serve as a national model for collaborations

    Source: Collaborative Opportunities Steering Group, Final Report, December
    2005.

    VA Decided to Construct Stand-alone Facility in Denver, but Negotiations
    about Location Continue

    VA has decided against a fully-integrated facility with UCH in Denver.
    Negotiations between VA and the University of Colorado at Denver and
    Health Services Center and UCH stretched over a number of years, and a
    number of different options were considered. The lack of leadership buy-in
    and miscommunication about VA's intentions regarding the future Denver
    facility prolonged negotiations and created an atmosphere of mistrust
    between the parties. Figure 1 provides a time line of key events in the
    negotiations between VA and UCH.

    Figure 1: Time Line of Key Events in the Negotiations between VA and UCH

    In 1995, the University of Colorado decided to relocate its Health
    Sciences Center campus, including its affiliated UCH, from downtown Denver
    to the former Fitzsimons Army Medical Base located in nearby Aurora,
    Colorado, which was closed as part of DOD's base realignment and closure
    process. UCH determined that its facility in downtown Denver lacked the
    space to accommodate its patient population and that there was little room
    for expansion. The availability of land at the Fitzsimons site offered an
    opportunity for UCH to move and expand the size of its campus. When
    Fitzsimons closed, DOD turned a portion of the 577 acres the base occupied
    over to the U.S. Department of Education so that it could convey land to
    public educational institutions.9 The University of Colorado applied for
    and received 227 acres from the U.S. Department of Education, and the
    University leased about 55 acres to UCH for its new inpatient and
    outpatient pavilions. The majority of the land at Fitzsimons-about 332
    acres-was purchased by FRA for $1.85 million.10 FRA plans to develop a
    biomedical research park on this land. The remaining land at Fitzsimons is
    owned by the City of Aurora, a private entity, and a nonprofit
    organization.

    In late 1999, VA officials at the facility and network level and UCH
    officials began to informally discuss the possibility of relocating VA's
    Denver medical center to the Fitzsimons campus. UCH and VA officials were
    concerned that UCH's move to Fitzsimons, about 6 miles from its downtown
    Denver location, would strain their affiliation because of the amount of
    time it would take doctors to travel between the facilities. The UCH
    president also suggested that colocating the UCH and VA medical center at
    Fitzsimons could achieve cost efficiencies through integrating inpatient
    activities, such as medical and surgical specialty labs, and sharing some
    patient treatment. In considering a possible joint venture, facility and
    network VA officials worked with UCH officials to examine options for
    moving VA's medical center to the Fitzsimons campus as well as sharing
    services and facilities with UCH. In particular, these officials jointly
    funded a study to determine the feasibility and cost of different options,
    including constructing free-standing facilities with limited sharing to
    jointly constructing and operating a new fully-integrated facility at
    Fitzsimons. The study, completed in 2001, concluded that a fully
    integrated, or joint, facility was the most cost-effective option. A
    second study commissioned by VA's Network 19 in 2002 also analyzed a range
    of options, including a joint VA-UCH facility; but this study did not
    recommend which option to pursue. These studies were shared with VA's
    central office, veteran service organizations, and the Congress, and
    became the basis of the joint venture proposal and negotiations.

    The Secretary of VA established a task force to examine the joint venture
    proposal to integrate the Denver medical center and UCH on the Fitzsimons
    campus in July 2002. The task force was composed of VA officials at the
    departmental, network, and facility levels. In September 2002, the task
    force issued a draft report, which examined seven alternatives-ranging
    from maintaining the status quo to constructing a fully integrated
    facility with UCH. The task force's report presented advantages and
    disadvantages of each alternative. It did not recommend which alternative
    to pursue.

    In September 2002, the president of UCH sent a letter to the Secretary of
    VA asking that VA make a decision within 1 year regarding moving the VA
    facility to the Fitzsimons campus. In October 2002, the Secretary
    responded that VA could not commit to a joint UCH-VA hospital within that
    time frame. The Secretary indicated that a number of important questions
    remained unanswered, including how the joint hospital would be governed.
    Furthermore, he noted that the proposal to relocate the Denver medical
    center to Fitzsimons had to be evaluated in the context of the CARES
    Commission report, which was not scheduled to be completed until the
    following year. The Secretary's response effectively ended discussions
    about constructing and operating a fully-integrated facility with UCH.

    In January 2003, VA began developing a proposal for a joint VA-DOD
    facility on the Fitzsimons campus. Specifically, the proposed joint
    federal facility would house VA and DOD, and the two entities would share
    some medical services and equipment. The joint VA-DOD facility, which was
    referred to as the federal tower, would be built on UCH-leased land at
    Fitzsimons and would be connected to UCH's inpatient pavilion by a 2-story
    clinical facility. (See fig. 2.) The clinical facility would house
    operating rooms, imaging, and pathology laboratories, among other things,
    that would be shared by VA, UCH, and DOD. With this concept in hand, VA,
    UCH, and DOD began discussions about the availability of land adjacent to
    the UCH inpatient pavilion for the federal tower. In August 2004, the UCH
    president estimated that 18 acres of land was available adjacent to the
    UCH facility for the federal tower. However, soon thereafter, a survey of
    the land indicated that approximately 12 acres were available for the
    federal tower once easements and setbacks were taken into account.

    Figure 2: Federal Tower Proposal at Fitzsimons

    In December 2004, in a letter to UCH, the Secretary stated that the
    approximate 12 acres would be insufficient to meet VA's space requirements
    for a new medical center. Specifically, the Secretary stated that
    predesign planning for the new facility revealed that VA needed
    approximately 1.46 million square feet to meet the specialized needs of
    veterans and DOD patients. To accommodate these space requirements, VA's
    architectural firm outlined three design options-ranging from a 6-story VA
    hospital on 38 acres to a 8- to 10-story VA hospital on 20 acres. Based on
    this analysis and other considerations, the Secretary concluded that VA
    needed about 38 acres on the Fitzsimons campus for the joint VA-DOD
    facility. This decision ended negotiations over building the federal tower
    on UCH-leased land and connecting it to UCH's inpatient pavilion with a
    clinical facility. UCH subsequently decided to use the land adjacent to
    the inpatient pavilion for other purposes.

    After land negotiations with UCH ended, VA officials began looking for a
    new location on the Fitzsimons site for a stand-alone VA medical center.
    The conference report accompanying VA's appropriation act for fiscal year
    2004 directed VA to continue efforts to "co-locate the Denver VA medical
    center with ... [UCH] at the Fitzsimons campus."11  While there is no
    statutory requirement to locate the VA medical center at Fitzsimons, VA
    considers this language in the conference report to express the will of
    Congress and, as a result, has gone forward with efforts to purchase
    property from FRA for such a purpose. In July 2005, VA signed a memorandum
    of understanding with FRA to set forth the conditions under which VA and
    FRA will proceed with discussions that may lead to the purchase and
    conveyance of about 40 acres located on the southeast corner of the
    Fitzsimons campus. (See fig. 3.) According to FRA officials, this piece of
    land is currently owned by FRA and three other entities. According to a VA
    official, in February 2006, VA offered FRA $16.50 per square foot for the
    FRA-owned portion of the land. (VA is in the process of surveying the land
    to determine the total square footage.) The VA official responsible for
    the land negotiations at Fitzsimons told us that VA's offer is valid for 6
    months, and that VA expects to finalize the purchase of the FRA-owned
    portion of the land by the end of this fiscal year. VA is currently
    negotiating with the other three land-holding entities about the purchase
    of their land. According to the VA official, he does not foresee any "show
    stoppers" in the negotiations with these three entities, and therefore VA
    expects to reach agreement with these entities in the coming months.

    Figure 3: Location of Land That VA Is Currently Pursuing at Fitzsimons in
    Relation to UCH facilities

    Lack of Leadership Buy-in and Miscommunication Prolonged Negotiations and
    Created Atmosphere of Mistrust

    Negotiations between VA and UCH on the different joint venture proposals
    were hampered by a lack of VA leadership buy-in and miscommunication. For
    instance, although VA officials at the facility and network levels worked
    with UCH officials in developing the joint facility proposal, the current
    network director told us that the Secretary was never fully supportive of
    this concept. Rather, according to the network director, the Secretary
    envisioned a stand-alone facility adjacent to the UCH complex. When VA
    decided to pursue a stand-alone facility, UCH officials said they felt as
    though they had been misled by VA officials, including the Secretary,
    about VA's interest in a joint facility. Further, in a correspondence from
    the UCH president to VA in 2004, the UCH president noted that a
    freestanding VA medical center on the Fitzsimons campus was never
    discussed. UCH officials also told us that at no time did UCH ever
    consider a freestanding facility for VA on its new campus because there
    would be limited opportunities for sharing capital and operating costs. In
    addition, there was miscommunication about the amount of land available
    for a federal tower and VA's space requirements. Specifically, UCH
    officials told VA officials that there were about 18 acres available for
    the federal tower; however, the survey revealed that only a little more
    than 12 acres were available. In addition, in December 2004, the Secretary
    of VA informed UCH that VA needed 1.46 million square feet for its new
    facility. According to UCH officials, these space requirements ran counter
    to estimates that were discussed with VA facility and network level
    officials and, according to the UCH president in 2004, would result in a
    facility that was about 50 percent larger than the existing VA medical
    center in Denver.12 These events contributed to an atmosphere of mistrust
    between VA and UCH.

    VA and MUSC Have Identified Multiple Options for Sharing Resources and
    Space, but No Decision Has Been Made

    VA has not made a decision regarding a joint venture with MUSC.
    Negotiations between VA and MUSC have stretched over a number of years and
    have been hampered by limited collaboration and communication among the
    parties. VA's Under Secretary for Health and the president of MUSC are
    currently considering the results of a recent report that identifies and
    analyzes options for sharing facilities and space in Charleston. Figure 4
    provides a time line of key events in the negotiations between VA and UCH.

    Figure 4: Time Line of Key Events in the Negotiations between VA and MUSC

    In November 2002, the president of MUSC sent a proposal to the Secretary
    of VA about partnering with MUSC in the construction and operation of a
    new medical center in phase II of MUSC's construction project. Under
    MUSC's proposal, VA would vacate its current facility and move to a new
    facility located on MUSC property. MUSC also indicated that sharing
    medical services would be a component of the joint venture. Although VA
    and MUSC currently share some services, the joint venture proposal,
    according to MUSC officials, would have increased the level of sharing of
    medical services and equipment, thereby creating cost savings for both VA
    and MUSC.

    To meet the needs of a growing and aging patient population, MUSC has
    undertaken a multiphase construction project to replace its aging medical
    campus. Construction on the first phase began in October 2004. Phase I
    includes the development of a 4-story diagnostic and treatment building
    and a 7-story patient hospitality tower, providing an additional 641,000
    square feet in clinical and support space. Phase I also includes the
    construction of an atrium connecting the two buildings, a parking
    structure, and a central energy plant. Initial plans for phases II through
    V include diagnostic and treatment space and patient bed towers. According
    to MUSC officials, as of September 2005, there are approximately 24 months
    remaining for the planning of phase II. As shown in figure 5, phases IV
    and V would be built on VA property. In particular, phase V would be built
    on the site of VA's existing medical center.

    Figure 5: MUSC's Construction Plan, 2002

    Note: The circle highlights some of VA's existing property.

    In response to MUSC's proposal, VA formed an internal workgroup composed
    of officials primarily from VA's Network 7 to evaluate MUSC's proposal.
    The workgroup analyzed the feasibility and cost-effectiveness of the
    proposal and issued a report in March 2003, which outlined three other
    options available to VA: replacing the Charleston facility at its present
    location, replacing the Charleston facility on land presently occupied by
    the Naval Hospital in Charleston, or renovating the Charleston facility.
    The workgroup concluded that it would be more cost-effective to renovate
    the current Charleston facility than to replace it with a new facility.
    This conclusion was based, in part, on the cost estimates for constructing
    a new medical center. In April 2003, the Secretary of VA sent a response
    to the president of MUSC, which stated that if VA agreed to the joint
    venture, it would prefer to place the new facility in phase III-which is
    north of phase I-to provide better street access for veterans. (See fig. 6
    for MUSC's proposal and VA's counterproposal.) In addition, the Secretary
    indicated that MUSC would need to provide a financial incentive for VA to
    participate in the joint venture. Specifically, MUSC would need to make up
    the difference between the estimated life-cycle costs of renovating the
    Charleston facility and building a new medical center-which VA estimated
    to be about $85 million-through negotiations or other means. The Secretary
    stated that if these conditions could not be met, VA would prefer to
    remain in its current facility.

    Figure 6: MUSC's Proposal (2002) and VA's Counter Proposal (2003)

    Note: The circle highlights some of VA's existing property.

    The MUSC president responded to VA's counterproposal in an April 2003
    letter to the Secretary of VA. In the letter, the MUSC president stated
    that MUSC was proceeding with phase I of the project and that the joint
    venture concept could be pursued during later phases of construction. The
    letter did not specifically address VA's proposal to locate the new
    facility in phase III, or the suggestion that MUSC would need to provide
    some type of financial incentive for VA to participate in the joint
    venture. To move forward with phase I, the MUSC president stated that MUSC
    would like to focus on executing an enhanced-use lease (EUL) for Doughty
    Street. Although MUSC owns most of the property that will be used for
    phases I through III, Doughty Street is owned by VA and serves as an
    access road to the Charleston facility and parking lots. The planned
    facility for phase I would encompass Doughty Street.13 (See fig. 7.)
    Therefore, MUSC could not proceed with phase I-as originally planned-until
    MUSC secured the rights to Doughty Street. To help its medical affiliate
    move forward with construction, VA executed an EUL agreement with MUSC in
    May 2004 for use of the street.14 According to the terms of the EUL, MUSC
    will pay VA $342,000 for initial use of the street and $171,000 for each
    of the following 8 years.

    Figure 7: Construction of Phase I of MUSC's Project, July 2005

    Note: The photograph shows the initial construction for phase I of MUSC's
    project. Doughty Street will be encompassed by MUSC's new facility.

    To facilitate negotiations on the joint venture proposal, a congressional
    delegation visited Charleston to meet with VA and MUSC officials to
    discuss the joint venture proposal on August 1, 2005. After this visit, VA
    and MUSC agreed to jointly examine key issues associated with the joint
    venture proposal. Specifically, VA and MUSC established the Collaborative
    Opportunities Steering Group (steering group). The steering group is
    composed of five members from VA, five members from MUSC, and a
    representative from DOD, which is also a stakeholder in the facility
    health care market.15 The steering group chartered four workgroups:

    o The governance  workgroup examined ways of establishing organizational
    authority within a joint venture between VA and MUSC, including shared
    medical services.

    o The clinical service integration  workgroup identified medical services
    provided by VA and MUSC and opportunities to integrate or share these
    services.

    o The legal  workgroup reviewed federal and state authorities (or
    identified the lack thereof) and legal issues relating to a joint venture
    with shared medical services.

    o The finance  workgroup provided cost estimates and analyses relating to
    a joint venture with shared medical services.

    The steering group and workgroups were intended to help VA and MUSC
    determine if the joint venture proposal would be mutually beneficial. On
    December 7, 2005, the steering group issued its final report to the Under
    Secretary for Health and to the president of MUSC. According to the
    report, the steering group concluded that the most advantageous options
    were those that provide a revenue stream for VA and provide MUSC access to
    new space without capital financing. Therefore, the group explored
    construction models that incorporated benefits to both organizations that
    included taking advantage of VA's access to capital financing and access
    to MUSC revenue streams. As shown in table 3, the report identifies six
    planning models, ranging from constructing a new medical facility with
    space for VA and MUSC, to sharing that could occur with VA maintaining its
    existing facility. Four of the models-A, A-1, A-2, and B-include varying
    levels of shared space between VA and MUSC. These four models also call
    for VA to overbuild the facility-that is, build it bigger than VA
    needs-and lease the excess space to MUSC, thus providing VA with a revenue
    stream to offset some of the cost of construction. The amount of excess
    space built and leased by VA varies among the four models. Any option
    pursued that involves VA building a new medical facility over-capacity for
    the purpose of leasing the underutilized space requires close scrutiny,
    since real estate leasing agreements are currently not part of its
    mission. In addition, such options would also require specific
    congressional authorization and appropriation since the costs of any of
    the planning models identified would exceed $7 million, the threshold for
    such action.

    Table 3: Description of Planning Models Identified by Steering Group

    Model     Description
    	Model A   Construct a new, oversized VA medical center to replace all VA
                 services. Excess capacity is leased to MUSC.
    Model A-1 Construct a new, oversized VA medical center to replace all VA
                 services. Excess capacity is leased to MUSC. MUSC would
                 construct an adjacent tower.
    Model A-2 Construct a new, oversized VA medical center to replace all VA
                 services, with administrative and clinical services located in
                 separate buildings. Excess capacity is leased to MUSC.
    Model B   Construct a new, slightly oversized VA medical center to replace
                 all VA services. Excess capacity is leased to MUSC.
    Model C   Construct a new VA medical center, with no excess space
                 available for leasing. Additional sharing between VA and MUSC
                 consists of shared high tech equipment and contracts for
                 services.
    Model D   VA remains in its current facility, with renovations as
                 appropriate. Additional sharing between VA and MUSC consists of
                 shared high tech equipment and contracts for services.

    Source: GAO summary of information in the Collaborative Opportunities
    Steering Group, Final Report, December 2005.

    The steering group's December 2005 report does not recommend an option
    that VA should pursue. Rather, the report outlines the perceived
    advantages and disadvantages, as well as the costs, of each option.16 (See
    app. I for the advantages, disadvantages, and costs of the different
    models.) However, the report does note that two options were rejected by
    steering group members. In particular, the finance workgroup rejected
    Model A-2-which included an oversized new VA medical center and separate
    buildings for administrative and clinical services-because, among other
    things, the construction of a separate building to house administrative
    services was not cost-effective. Additionally, MUSC deemed Model B-which
    included a replacement VA medical center with moderate excess space to
    lease to MUSC-not to be a viable option because it did not meet its total
    bed replacement needs. Although the report identifies options that provide
    a revenue stream for VA, the report notes that there is not sufficient
    revenue or cost avoidance in any of the models for VA to achieve a 30-year
    payback on the construction investment. According to VA officials, the
    next step is for the Capital Asset Board of the Veterans Health
    Administration to make a recommendation regarding the options contained in
    the report. VA expects the Capital Asset Board's recommendations by the
    end of April 2006.

    Limited Collaboration and Communication Stalled Negotiations in Charleston
    for About 3 Years

    Prior to the summer of 2005, limited collaboration and communication
    generally characterized the negotiations between MUSC and VA over the
    joint venture proposal. In particular, before August 2005, VA and MUSC had
    not exchanged critical information that would help facilitate
    negotiations. For instance, MUSC did not clearly articulate to VA how
    replacing the Charleston facility, rather than renovating it, would
    improve the quality of health care services for veterans or benefit VA.
    MUSC officials had generally stated that sharing services and equipment
    would create efficiencies and avoid duplication, which would lead to cost
    savings. However, MUSC had not provided any analyses to support such
    claims. Similarly, as required by law,17 VA studied the feasibility of
    coordinating its health care services with MUSC, pending construction of
    MUSC's new medical center. This study was completed in June 2004. However,
    VA officials did not include MUSC officials in the development of the
    study, nor did they share a copy of the completed study with MUSC. VA also
    updated its cost analysis of the potential joint venture in the spring of
    2005, but again, VA did not share the results with MUSC. Because MUSC was
    not included in the development of these analyses, there was no agreement
    between VA and MUSC on key input for the analyses, such as the specific
    price MUSC would charge VA for, or the nature of, the medical services
    that would be provided. As a result of the limited collaboration and
    communication, negotiations stalled-prior to August 2005, the last formal
    correspondence between VA and MUSC leadership on the joint venture
    occurred in April 2003.

    Joint Venture Proposals in Charleston and Denver Pose Multiple Challenges

    The joint venture proposals under consideration in Charleston and
    previously proposed in Denver raise a number of challenges for VA and its
    medical affiliates. These challenges-which were identified by VA, MUSC, or
    UCH officials as well as previous studies prepared for or by VA, MUSC, or
    UCH-include addressing institutional changes for VA and institutional
    differences between VA and its medical affiliates, identifying legal
    issues and seeking legislative remedies, and balancing funding priorities.
    Although addressing these issues will be difficult, it is not
    insurmountable, as evidenced by the VA-MUSC steering group's efforts to
    address some of these challenges, as well as by VA's past partnerships
    with some medical affiliates and DOD.

    o Addressing institutional changes and differences: The joint ventures
    proposed in Charleston and Denver pose a series of institutional changes
    for VA and reveal a number of institutional differences between VA and its
    medical affiliate that would need to be reconciled. Specifically, as an
    in-house health care service provider with other departmental priorities,
    by jointly constructing and operating a hospital with a nonfederal health
    system, VA would deviate from its current health care model. Although VA
    purchases significant amounts of medical services from its medical
    affiliates, the relationship between VA and its affiliates has centered on
    providing enhanced care for veterans as well as training medical school
    residents and conducting medical research. According to VA, altering this
    historical relationship to include jointly constructing and operating
    facilities would introduce legal, administrative, and management
    complexities that might require additional authorities. In addition,
    according to VA and some stakeholders, a joint facility could diminish
    VA's identity by deviating from a VA medical facility that treats only
    veterans to one with a mixed-patient population served by providers from
    different health systems. Hence, if maintaining VA's identity is important
    to VA leadership, steps would need to be taken to protect VA's identity in
    a joint facility.

    Adding to the challenge of expanding affiliation relationships to include
    joint ventures involving major capital are inherent differences between VA
    and its medical affiliates-from their missions to their funding processes.
    For example, in addition to its mission of providing care for our nation's
    veterans, VA is also responsible for supporting national, state, and local
    emergency management and serving as backup to DOD during war and other
    national emergencies. In addition, funding decisions for both VA and MUSC
    must go through several layers of review. VA's major capital investments
    (over $7 million) must be evaluated at multiple levels within VA and
    approved by the Office of Management and Budget and by Congress,18 while
    such investments by MUSC must be approved by its board, and if requiring
    state funds, by the state legislature. These differences would need to be
    considered in any joint venture between VA and a medical affiliate.

    o Identifying legal issues and seeking legislative remedies: Joint venture
    proposals raise many complex legal issues. The specific legal issues
    raised depend on the type of joint venture proposed, but many involve real
    estate, construction, contracting, and employment. In Charleston, the
    legal workgroup identified VA's and MUSC's legal authorities, or lack
    thereof, on numerous issues relating to each option considered. The legal
    workgroup concluded that VA has the legal authority to pursue any of the
    six planning models identified but that specific considerations would
    arise for each model. For example, legislative authorization and
    appropriation are required for any major VA construction project over $7
    million. In addition, while VA is authorized, under its EUL authority, to
    lease underutilized real property for up to 75 years, the authorization
    does not provide for building a new medical facility over-capacity for the
    purpose of leasing the underutilized space.19

    o Developing appropriate governance plans: A venture involving a jointly
    operated facility would require the parties to agree to a plan for
    governing it. Any governance plan would have to maintain VA's direct
    authority over and accountability for the care of VA patients. In
    addition, if shared medical services were a component of a joint venture
    between the VA and an affiliate, the entities would need a mechanism to
    ensure that the interests of the patients served by both are protected
    today and in the future. For instance, VA might decide to purchase
    operating room services from its affiliate. If the sharing agreement were
    dissolved afterwards, it would be difficult for VA to resume the
    independent provision of these services. Therefore, a clear plan for
    governance would ensure that VA and its affiliate could continue to serve
    their patients' health care needs as well as or better than before. To
    address possible governance issues in Charleston, the steering group
    recommended instituting a joint governance council that would include a
    nonaffiliated third party to oversee the sharing relationship in areas
    other than research and educational activities. The joint governance
    council's decisions would be advisory in nature-and not legally binding-in
    order not to undermine the current authority of VA or MUSC.

    o Balancing funding priorities: VA leadership must weigh joint venture
    opportunities against VA's capital assets and health care service needs
    throughout the nation when making funding decisions and recommendations.
    VA operates a nationwide health care system for veterans, including 157
    medical centers and over 800 clinics. According to VA, its capital
    requirements are significant given the amount of real property it owns and
    uses and the age and condition of most of its facilities. Further, in
    2004, the Secretary of VA estimated that implementing CARES will require
    additional investments of approximately $1 billion per year for at least
    the next 5 years, with substantial infrastructure investments then
    continuing indefinitely. Balancing these competing capital requirements is
    made more difficult by the fiscal challenges facing the federal
    government. Given the size of the government's projected deficit, VA, like
    other federal agencies, could face constrained budgets in the future,
    making funding of even high priority capital requirements challenging.

    Additional challenges are likely to be identified as VA continues to
    explore the proposed joint venture with MUSC or other possible joint
    ventures in the future. In particular, should VA decide to pursue a joint
    venture with MUSC or other medical affiliates in the future, it would
    likely face additional challenges during the implementation phase. For
    example, due to the inherent differences in the purposes for which VA's
    and MUSC's information management systems were designed, the systems would
    not be compatible. According to MUSC officials, VA's and MUSC's
    computerized patient record systems are different, and their billing
    systems are incompatible. Therefore, at least initially, the systems would
    not be integrated, and parallel systems would need to be implemented-which
    could result in added costs in terms of staff time and raise the potential
    for errors.

    VA's Current Sharing Arrangements with Medical Affiliates and DOD Could Be
    Instructive As VA Considers Current and Future Joint Ventures

    Partnerships with other health providers are not new to VA. For instance,
    the Mike O'Callaghan Federal Hospital, an integrated federal hospital
    jointly constructed by the VA and Air Force in Las Vegas, Nevada,
    currently serves as a model of joint operation and shared medical
    services.20 However, joint ventures of this magnitude with DOD are
    limited. Further, VA has not entered into a joint venture with a medical
    affiliate of the magnitude proposed in Charleston or Denver. However,
    there are instances of significant capital ventures between VA and its
    affiliates involving high-priced medical equipment. For example, VA's
    Western New York Healthcare System in Buffalo, New York, houses a Positron
    Emission Tomography (PET) scanner that was purchased by its affiliate. In
    exchange, VA purchases scans from its affiliate for veterans and provides
    operational and administrative staff to support the equipment.

    These past capital ventures are on a smaller scale than the joint ventures
    proposed in Charleston and Denver, but they could be somewhat instructive
    as VA considers current and future joint venture proposals and attempts to
    address the associated challenges. For example, in these past capital
    ventures, VA had to ensure that veterans received the appropriate access
    to equipment and services, and VA accomplished this through the terms and
    conditions outlined in the contract. In addition, VA had to address
    governance, legal, and information management challenges in establishing
    these capital-sharing arrangements. The difficulty of addressing such
    challenges, however, likely increases as the complexity and magnitude of
    the proposed joint venture grows.

    VA Could Learn Several Lessons from Its Experiences with Denver and
    Charleston Joint Venture Proposals

    Because VA may explore the possibility of entering into partnerships with
    other medical affiliates in the future, the lessons learned from VA's
    experiences in Charleston and Denver could be instructive. It is possible
    that more opportunities for similar joint ventures or sharing arrangements
    will present themselves in the coming years. In particular, our analysis
    of VA data on its major medical facilities indicates that 43 percent of
    these facilities, like the medical center in Denver, consist of buildings
    with an average age of over 50 years, although some have undergone
    extensive renovations over the years. Given the age of these facilities,
    many of them may need to be replaced or extensively renovated in the
    future. Additionally, disasters, such as Hurricane Katrina, could force
    unplanned renovations or replacements. As VA moves forward in making
    necessary renovations or replacements throughout the country, there could
    be opportunities for joint ventures with its medical affiliates. VA will
    have to determine if these opportunities are in the best interest of the
    federal government and our nation's veterans.

    The lessons that emerged from our work in Charleston and Denver reflect
    how the absence of practices that we have emphasized in previous reports
    can hamper effective consideration of potential joint ventures. These
    reports examine leading practices for realigning federal agency
    infrastructure, collaboration among organizations, and organizational
    transformations.21  The lessons include establishing criteria to evaluate
    the joint venture proposal, obtaining leadership buy-in and support for
    the joint venture, ensuring extensive collaboration among stakeholders,
    and developing a strategy for effective and ongoing communications.

    Lack of Criteria at Departmental Level Results in Inconsistent Evaluations

    One of the most important lessons from VA's experiences in Denver and
    Charleston is that the absence of criteria at the departmental level to
    evaluate joint venture proposals can result in inconsistent evaluations,
    misunderstandings, and delays. The joint venture proposals for VA's
    medical centers in Denver and Charleston presented VA with a new
    opportunity-that is, the proposals involved joint construction and service
    sharing on a scale beyond anything VA had experienced in partnering with
    its medical affiliates in the past. VA did not have criteria at the
    departmental level for evaluating and negotiating joint venture proposals,
    which led to inconsistent evaluations of the Denver and Charleston
    proposals. For instance, in Denver, VA facility and network officials
    worked collaboratively with UCH officials on the joint venture proposals,
    including jointly funding a study to assess the feasibility and cost of
    various options. In contrast, VA facility and network officials did not
    include MUSC officials in the development of the study that examined the
    feasibility of coordinating VA's health care services with MUSC, nor did
    they share a copy of the completed study with MUSC. This contributed to
    the negotiations between VA and MUSC stalling for over 2 years. VA
    officials in Denver also told us that the lack of departmental criteria
    hampered negotiations, and noted that on the basis of their experience a
    common tool or process is needed to assess joint venture proposals so that
    they can be evaluated consistently.

    As we have emphasized in previous work on realigning federal
    infrastructure, a set of criteria for evaluating decisions regarding
    infrastructure enhances the transparency of these decisions and helps
    ensure that the decisions are made in a manner that is fair to all
    stakeholders and that is efficient and effective.22 Although we recognize
    that every joint venture is likely to be different, criteria would
    establish a framework for evaluating future joint venture proposals. In
    addition to identifying the factors VA would consider in evaluating
    proposals and indicating how these factors would be measured, the criteria
    would help ensure that proposals are evaluated consistently-regardless of
    location or officials involved. The criteria would also serve to
    communicate VA's expectations for joint ventures. That is, they would
    identify what VA is looking for in potential joint ventures, such as
    improved medical care for veterans and reduced operating costs. By
    documenting and sharing these criteria with potential partners, VA would
    help ensure that its positions are understood from the outset and thus
    eliminate possible misunderstandings. The VA-MUSC steering group's efforts
    to identify criteria to evaluate the Charleston proposal and the studies
    conducted in Denver could serve as starting points for the development of
    criteria.

    Lack of Communications Strategy Leads to Misinformation and Confusion

    VA's experiences in Denver and Charleston highlighted the fact that the
    absence of sustained communication with potential joint venture partners
    and stakeholders as well as within VA can be detrimental to negotiations.
    Breakdowns in communication occurred in both locations during key points
    of the negotiations and hindered progress. For example, in Charleston,
    there was limited communication between VA and MUSC for about 2 years; as
    a result, negotiations stalled. In addition, in both locations, a primary
    point of contact-either a single individual or a group-was not identified
    to represent VA's position in negotiations with the medical universities.
    Rather, various VA officials at the facility, network, and departmental
    levels often maintained separate contacts with UCH and MUSC officials. As
    a result, according to MUSC and UCH officials, they received mixed signals
    as to VA's intentions regarding the proposals. Similarly, MUSC and UCH
    also contacted and communicated with different VA officials at the
    facility, network, and departmental levels, which also led to confusion.

    In our previous work on organizational transformations, we have noted that
    creating an effective, ongoing communication strategy is essential to
    implementing significant organizational changes like the joint ventures
    proposed in Charleston and Denver.23 Such a strategy should entail
    communicating information early and often to help build an understanding
    of the purpose of the planned change and build trust among VA and its
    medical affiliates as well as stakeholders, such as employees and
    veterans, who could have concerns over such issues as the impact of a
    joint venture on patient care. The strategy should also encourage
    communication by facilitating a two-way honest exchange with, and allow
    for feedback from, stakeholders. A communications strategy can also help
    ensure that these groups receive a message that is consistent in tone and
    content. Sharing a consistent message with stakeholders helps reduce the
    perception that others are getting the "real" story when, in fact, all are
    receiving the same information. The strategy should also make it clear
    that it is essential to have a primary point of contact with the necessary
    authority to negotiate effectively with partners, make timely decisions,
    and move quickly to implement top leadership's decisions regarding the
    joint venture. Good communication is central to forming the effective
    internal and external partnerships that are vital to the success of
    transforming endeavors such as joint ventures. In Charleston, the steering
    group has taken steps to improve communication by establishing a plan for
    VA and MUSC to share information about the potential joint venture with
    stakeholders such as employees and veterans groups.

    Lack of Leadership Support Can Hinder Negotiations

    Another lesson that emerged from VA's experience with the joint venture
    proposals for Denver and Charleston is that leadership buy-in and support
    are critical. The proposed joint venture in Denver did not come to
    fruition largely because VA leadership never fully supported the concept.
    In particular, when the joint venture was first proposed, UCH and VA
    officials at the network and facility levels worked extensively together
    on the proposal. Top level VA management, however, was not involved in
    these efforts. Moreover, in response to UCH's request for a 1-year time
    frame for a decision regarding a joint facility, in October 2002, the VA
    Secretary wrote that VA "cannot now commit to a joint University-VA
    hospital within the one-year timetable you propose. However, I feel
    strongly that we should not preclude a freestanding VA medical center at
    Fitzsimons in the future." According to UCH officials, this decision was
    unexpected given the fact they had worked closely with VA facility
    officials on a possible joint venture. Certainly it is the VA Secretary's
    prerogative to extend or withhold support for different proposals, and the
    Secretary must determine whether the proposals are in the best interest of
    veterans. However, VA's experiences in Denver and Charleston indicate that
    without such support negotiations for joint ventures will be hampered.

    Our previous work on organizational transformation indicates that support
    from top leadership is indispensable for fundamental change, such as a
    joint venture.24 Top leadership's clear and personal involvement in the
    transformation represents stability for both the organization's employees
    and its external partners. Top leadership must set the direction, pace,
    and tone for the transformation. Likewise, when a transformation requires
    extensive collaboration with another organization, as would be the case
    with a joint venture, committed leadership at all levels is needed to
    overcome the many barriers to working across organizational boundaries. If
    VA decides to pursue a joint venture with MUSC in Charleston, or other
    similar projects with medical affiliates or other partners, success will
    hinge on the level of support the project receives from top VA management.

    Lack of Extensive Collaboration Hampers Negotiations

    Another lesson that emerged from the experiences in Denver and Charleston
    is that a lack of, or limited, collaboration hampers negotiations. For
    example, in Charleston, VA and MUSC did not initially exchange or share
    critical information, such as the feasibility study, which contributed to
    the negotiations stalling from about 2003 to 2005. In addition, until the
    VA-MUSC steering group was formed in Charleston, there was limited
    collaboration between VA and its stakeholders. This heightened the
    stakeholders' anxiety about the proposed joint venture and led to the
    spread of misinformation about the proposed joint venture. In Denver,
    although VA officials from the facility and network level and UCH
    officials met frequently after UCH proposed the joint venture, VA
    officials with the necessary decision-making authority were not involved
    in these initial discussions. Consequently, when the Secretary of VA
    decided against a joint venture in Denver, UCH officials felt misled,
    which resulted in an atmosphere of mistrust between the entities.

    Our previous work on collaboration between organizations suggests several
    practices that VA might benefit from as it continues to consider a joint
    venture in Charleston as well as other such opportunities that may occur
    in the future.25 These practices include ensuring the involvement of key
    stakeholders, defining and articulating a common outcome, establishing
    mutually reinforcing or joint strategies, identifying and addressing needs
    by leveraging resources, and agreeing on roles and responsibilities. The
    VA-MUSC steering group illustrates how some of these practices can be
    implemented. For example, the steering group was led by senior VA and MUSC
    officials and consisted of VA and MUSC staff who have knowledge in key
    areas (e.g., finance). In addition, the communications plan the VA-MUSC
    steering group established includes a presentation to use when
    communicating with stakeholders about the joint venture proposal.

    Conclusions

    To address future health care needs of veterans, VA's challenge is to
    explore new ways to fulfill its mission of providing veterans with quality
    health care. The prospect of jointly constructing and operating medical
    facilities with medical affiliates presents an opportunity for VA to
    consider the feasibility of expanding its relationships with university
    medical school affiliates to include the sharing of medical services in an
    integrated hospital. This is just one of several ways VA could provide
    care to veterans. It is up to VA, working with its stakeholders, and
    Congress to determine if expanding VA's relationship with medical
    affiliates to include joint ventures-of the scale proposed in Denver and
    Charleston-is in the best interest of the federal government and the
    nation's veterans, as well as how such joint ventures fit within the
    context of the CARES framework.

    VA will be in a better position to consider future joint ventures if it
    learns from its experiences with the joint venture proposals in Denver and
    Charleston. Among these lessons is the importance of leadership support
    and extensive collaboration. In addition, VA's experiences in Denver and
    Charleston indicate that having a set of criteria at the departmental
    level would provide a clear basis for making decisions on joint venture
    proposals. Although each proposal will likely be somewhat unique, and
    should be evaluated on its own merits and circumstances, criteria provide
    a framework for future evaluations and negotiations. A set of criteria at
    the departmental level helps ensure that proposals are evaluated in a
    consistent fashion across the country as well as communicates VA's
    expectations for joint ventures. Another important lesson is that a
    strategy for communicating with its medical affiliates and stakeholders,
    including veterans and employees, can help VA avoid the problems that
    hampered progress in negotiations over the Denver and Charleston joint
    venture proposals. A communications strategy helps build understanding and
    trust between VA and its medical affiliates and stakeholders as well as
    helps ensure that these groups receive a message that is consistent in
    tone and content. Establishing a set of evaluation criteria and a
    communications strategy are tangible steps VA could take to better
    position itself in considering future joint venture proposals.

    Recommendations for Executive Action

    To ensure that there is a clear basis for evaluating future joint venture
    proposals as well as to help ensure early and frequent communication
    between VA and its medical affiliates and stakeholders during
    negotiations, we recommend that the Secretary of VA take the following two
    actions:

    o Identify criteria at the departmental level for evaluating joint venture
    proposals. In order to foster an atmosphere of collaboration, VA should
    share these criteria with potential joint venture partners.

    o Develop a communications strategy for use in negotiating joint venture
    proposals.

    Agency Comments

    We provided a draft of this report to VA for its review and comment. On
    April 10, 2006, VA's audit liaison provided VA's comments on the draft
    report via e-mail. VA agreed with the report's conclusions and
    recommendations. We also provided UCH and MUSC officials portions of the
    draft report that related to their joint venture proposals. UCH and MUSC
    officials provided technical clarifications to these portions of the draft
    report, which we incorporated where appropriate.

    Scope and Methodology

    To address our objectives, we analyzed VA, UCH, and MUSC planning
    documents, presentations, and studies related to the joint venture
    proposals as well as correspondence between VA and these medical
    affiliates regarding the proposals. We also examined the recommendations
    of the CARES Commission and the Secretary's CARES Decision report, VA's
    5-year capital plan (2005-2010), and federal statutes and accompanying
    reports. In addition, we interviewed officials from VA, DOD, MUSC, and UCH
    to obtain information on the history and status of the joint venture
    proposals as well as the challenges associated with implementing such
    proposals. We also interviewed local stakeholders, including officials
    from the Fitzsimons Redevelopment Authority in Aurora, Colorado, the
    mayors of Charleston and Aurora, and representatives from the VA
    employees' unions in each location to obtain their perspectives and to
    obtain information on local capital asset planning and its impact. We also
    toured VA and MUSC facilities in Charleston and VA and UCH facilities in
    the Denver area. Finally, we synthesized information obtained from VA,
    MUSC, and UCH officials and reviewed our past work on organizational
    transformation and collaboration among organizations to identify lessons
    learned from VA's experiences with joint venture proposals in Charleston
    and Denver.26 Although we examined the joint venture proposals for VA's
    Denver and Charleston facilities and the associated studies and planning
    documents, we did not evaluate the merits of the proposals. We assessed
    the reliability of the information obtained from VA, MUSC, and UCH. We
    concluded that the information was sufficiently reliable for our purposes.

    We are sending copies of this report to congressional committees with
    responsibilities for veteran issues; the Secretary of Veterans Affairs;
    and the Director, Office of Management and Budget. We also will make
    copies available to others upon request. In addition, this report will be
    available at no charge on GAO's Web site at h  ttp://www.gao.gov.

    If you or your staff have any questions on matters discussed in this
    report, please contact me on (202) 512-2834 or at g  oldsteinm@gao.gov.
    Contact points for our Offices of Congressional Relations and Public
    Affairs may be found on the last page of this report. Key contributors to
    this report include Chris Bonham, Nikki Clowers, Daniel Hoy, Jennifer Kim,
    Edward Laughlin, Susan Michal-Smith, James Musselwhite, Jr., and Michael
    Tropauer.

    Sincerely,

    Mark L. Goldstein Director, Physical Infrastructure Issues

    Appendix I

    Description of Planning Models Identified by Steering Group

    Model A: Construct a
    new, oversized VA
    medical center to
    replace all VA services.
    Excess capacity is
    leased to MUSC.
    Advantage                Disadvantage        Construction    Life cycle
                                                    cost            cost
    Provides VA with $6.7    Requires the        $545.6 million  $4.3 billion
    million annually to      largest             + activation
    enhance care             construction
                                investment by VA
    Provides VA with extra   MUSC construction
    bed capacity to meet     must meet VA
    disaster needs           security
                                requirements,
                                raising
                                construction costs
    Model A-1: Construct a
    new, oversized VA
    medical center to
    replace all VA services.
    Excess capacity is
    leased to MUSC. MUSC
    would construct an
    adjacent tower.
    Advantage                Disadvantage        Construction    Life cycle
                                                    cost            cost
    Reduces VA's             Requires large      $368 million +  $4.2 billion
    construction investment  investment by VA    activation
                                for construction
    Provides MUSC with a     VA security and
    lower construction cost  safety
                                specifications may
                                need to be met if
                                buildings are
                                connected
    Provides VA with $4.2    Separate
    million annually to      construction
    enhance care             reduces the
                                coordination and
                                compatibility of
                                space
    Provides VA with extra   Eliminates some VA
    bed capacity to meet     lease revenue and
    disaster needs           negatively affects
                                payback
    Model A-2: Construct a
    new, oversized VA
    medical center to
    replace all VA services,
    with administrative and
    clinical services
    located in separate
    buildings. Excess
    capacity is leased to
    MUSC.
    Advantage                Disadvantage        Construction    Life cycle
                                                    cost            cost
    Reduces VA's             Volume of           Not calculated  Not
    construction investment  administrative                      calculated
                                space is small and
                                construction costs
                                are similar to
                                Model A
    Builds adjacency of VA   Some operational
    and MUSC                 inefficiencies
                                arise through lack
                                of adjacency
    Provides VA with         MUSC construction
    additional annual        must meet VA
    revenue to enhance care  security
                                requirements,
                                raising
                                construction costs
    Model B: Construct a
    new, slightly oversized
    VA medical center to
    replace all VA services.
    Excess capacity is
    leased to MUSC.
    Advantage                Disadvantage        Construction    Life cycle
                                                    cost            cost
    Somewhat less initial VA MUSC does not       $444.4 million  $4.2 billion
    investment required      consider this model + activation
                                viable since it
                                must still
                                construct beds
                                elsewhere
    Provides VA with $4.9    Requires second
    million annually to      largest investment
    enhance care             by VA for
                                construction
    Provides VA with extra   MUSC construction
    bed capacity to meet     must meet VA
    disaster needs           security
                                requirements,
                                raising
                                construction costs
    Model C: Construct a new
    VA medical center, with
    no excess space
    available for leasing.
    Additional sharing
    between VA and MUSC
    consists of shared high
    tech equipment and
    contracts for services.
    Advantage                Disadvantage        Construction    Life cycle
                                                    cost            cost
    Provides VA with         Results in          $317.2 million+ $4.1 billion
    state-of-the-art patient demolition of a     activation
    care and administrative  facility currently
    space, including private considered to be
    and semiprivate patient  sound
    rooms and efficient
    energy systems
    Potentially improves     Requires a sizable
    adjacency of VA and MUSC construction
                                investment by VA
    Provides VA with         Eliminates revenue
    opportunities to address sources that would
    specialty care at a      offset construction
    network level            costs through space
                                and service sharing
    Potential for VA and     Duplicates
    MUSC to reduce the size  construction of
    of new facilities by     some services that
    planning to share some   could potentially
    capacity through         be shared
    contracts
    Maintains greater VA and
    MUSC autonomy
    Avoids further
    investment into VA's
    aging infrastructure
    Provides VA with $4.3
    million annually to
    enhance care
    Model D: VA remains in
    its current facility,
    with renovations as
    appropriate. Additional
    sharing between VA and
    MUSC consists of shared
    high tech equipment and
    contracts for services.
    Advantage                Disadvantage        Construction    Life cycle
                                                    cost            cost
    No up-front construction Existing facility   $27.1 million   $3.9 billion
    costs for VA             is dated and will
                                require continued
                                investment
    Continues use of a sound Replacement may be
    facility                 necessary at some
                                future date
    Opportunities for        Duplicates
    increased sharing have   construction of
    been identified that do  services that could
    not necessarily require  potentially be
    construction             shared
    Provides VA with         Charleston area
    opportunities to address veterans may have
    specialty care at a      to travel to other
    network level             VA medical centers
                                for some care
    Maintains current access Requires that the
                                facility be
                                renovated to
                                withstand disasters
    Maintains more VA and    Less bed capacity
    MUSC autonomy            for potential
                                disaster and DOD
                                needs
                                Existing facility
                                may not withstand
                                strong hurricane or
                                flood

    Source: Collaborative Opportunities Steering Group, Final Report, December
    2005.

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    (543137)

    www.gao.gov/cgi-bin/getrpt? GAO-06-472 .

    To view the full product, including the scope and methodology,
    click on the link above.

    For more information, contact Mark L. Goldstein at (202) 512-2834 or
    goldsteinm@gao.gov.

    Highlights of GAO-06-472 , a report to the Chairman, Committee on
    Veterans' Affairs, House of Representatives

    April 2006

    VA HEALTH CARE

    Experiences in Denver and Charleston Offer Lessons for Future Partnerships
    with Medical Affiliates

    The Department of Veterans Affairs (VA) maintains affiliations with
    medical schools, including the Medical University of South Carolina (MUSC)
    and the University of Colorado at Denver and Health Services Center and
    University of Colorado Hospital (UCH), to obtain enhanced medical care for
    veterans. As part of their plans for new medical campuses, both UCH and
    MUSC proposed jointly constructing and operating new medical facilities
    with VA in Denver and Charleston, respectively.

    This report discusses (1) how VA evaluated the joint venture proposals for
    Denver and Charleston and the status of these proposals, (2) the
    challenges these proposals pose for VA, and (3) the lessons VA can learn
    from its experiences in Charleston and Denver for future partnerships.

    What GAO Recommends

    GAO recommends that VA establish criteria for evaluating joint venture
    proposals and a strategy for communicating with stakeholders when
    negotiating such proposals. VA agreed with GAO's conclusions and
    recommendations.

    VA evaluated the joint venture proposals for its medical facilities in
    Denver and Charleston using criteria developed specifically for each
    location, and while VA opted to build a stand-alone facility in Denver, it
    is still considering a joint venture in Charleston. Because the proposals
    involved joint construction and service sharing on a scale beyond anything
    VA had experienced with its medical affiliates in the past, VA did not
    have criteria at the departmental level to evaluate the proposals on a
    consistent basis in both locations. In both locations, negotiations
    between VA and its medical affiliates stretched over a number of years, in
    part because they were hampered by limited collaboration and
    communication, among other things. While VA decided against a joint
    venture in Denver, it has made no decision on Charleston. A VA-MUSC
    steering group, formed last summer to study the joint venture proposal in
    Charleston, issued a report in December 2005 that outlined the advantages
    and disadvantages of different options.

    The joint ventures proposed in Denver and Charleston present a number of
    challenges to VA, including addressing institutional differences between
    VA and its medical affiliates, identifying legal issues and seeking
    legislative remedies, and balancing funding priorities. For example,
    capital expenditures for a joint venture would have to be considered in
    the context of other VA capital priorities. Although addressing these
    issues will be difficult, the VA-MUSC steering group's efforts could
    provide insight into how to tackle them.

    VA's experiences with joint venture proposals in Denver and Charleston
    offer several lessons for VA as it considers similar opportunities in the
    future. One of the most important lessons is that having criteria at the
    departmental level to evaluate joint venture proposals helps to improve
    the transparency of decisions concerning joint ventures and VA's ability
    to ensure that the decisions are made in a consistent manner across the
    country. Another key lesson is that having a strategy for communicating
    with stakeholders, such as employees and veterans, helps VA build
    understanding and trust among stakeholders. The following table identifies
    these and other lessons from VA's experiences in Denver and Charleston.

    Lessons Learned from VA's Experiences in Denver and Charleston

               o  Criteria at the departmental level help provide clarity and
               consistency in evaluation approach.
               o  A communications strategy helps avoid misinformation and
               confusion.
               o  Leadership support facilitates negotiations.
               o  Extensive collaboration assists negotiations.
    *** End of document. ***