VA Health Care: Closing a Chicago Hospital Would Save Millions and
Enhance Access to Services (Letter Report, 04/16/98, GAO/HEHS-98-64).

Pursuant to a congressional request, GAO reviewed whether the Veterans
Health Administration (VHA) could serve Chicago veterans with three
hospitals, focusing on: (1) the extent of the resources that could be
redirected to improve patient care; and (2) the potential impact of one
hospital closure on VHA's other missions.

GAO noted that: (1) VHA can meet the health care needs of Chicago-area
veterans by operating three hospitals instead of four; (2) VHA began
fiscal year (FY) 1997 operating 1,665 inpatient medicine, surgery, and
psychiatry beds at the four Chicago hospitals, and veterans used 850
beds a day, on average; (3) the large supply of unused beds provides
sufficient capacity to meet the needs of veterans now using Lakeside or
West Side; (4) for example, during FY 1997, veterans used an average of
145 and 198 beds a day at Lakeside and West Side, respectively, while
during the same period Hines Hospital closed 262 beds and North Chicago
closed 244 beds; (5) moreover, veterans' demand for VHA hospital care is
expected to continue declining as: (a) treatments shift from inpatient
to outpatient settings; and (b) the Chicago-area veteran population
continues to decrease; (6) in addition, other Chicago public and private
hospitals have about 5,700 excess beds, which VHA could use on a
contract basis to meet veterans' inpatient needs closer to their homes,
as VHA does elsewhere; (7) regardless, veterans would continue to have
good access to health care if either Lakeside or West Side hospital is
closed because most of the veterans using these facilities live in
essentially the same residential areas; (8) GAO's analysis showed that
consolidating services into three locations could reduce VHA
expenditures an estimated $200 million over the next 10 years by
lowering facility operating and maintenance costs as well as avoiding $6
million to $27 million in renovation costs; (9) in addition, VHA could
potentially generate millions of dollars in revenues through the lease
or sale of property from the closed location; (10) VHA would, however,
incur one-time costs for relocating some clinical services, but the
savings could be used to enhance services to veterans, including adding
needed new community-based outpatient clinics and buying new equipment;
(11) VHA would also be able to meet its education, research, and DOD
contingency missions by operating three hospitals; (12) this is because
the three remaining locations would likely carry the same workload that
four locations would have, thereby providing a sufficient number of
patients for VHA to maintain a comparable level of education and
research opportunities; and (13) VHA will also be able to provide a
flexible portion of its operating beds for military casualties, if
needed, which was set at about 40 percent in 1997.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-98-64
     TITLE:  VA Health Care: Closing a Chicago Hospital Would Save 
             Millions and Enhance Access to Services
      DATE:  04/16/98
   SUBJECT:  Health services administration
             Veterans hospitals
             Veterans benefits
             Defense contingency planning
             Health resources utilization
             Health care costs
             Hospital bed count
             Patient care services
             Health care cost control
IDENTIFIER:  Chicago (IL)
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on VA, HUD, and Independent
Agencies, Committee on Appropriations, U.S.  Senate

April 1998

VA HEALTH CARE - CLOSING A CHICAGO
HOSPITAL WOULD SAVE MILLIONS AND
ENHANCE ACCESS TO SERVICES

GAO/HEHS-98-64

Chicago Hospital Closure

(406143)


Abbreviations
=============================================================== ABBREV

  CBOC - community-based outpatient clinics
  DOD - Department of Defense
  HUD - Department of Housing and Urban Development
  VA - Department of Veterans Affairs
  VHA - Veterans Health Administration

Letter
=============================================================== LETTER


B-278852

April 16, 1998

The Honorable Christopher S.  Bond
Chairman, Subcommittee on VA, HUD,
 and Independent Agencies
Committee on Appropriations
United States Senate

Dear Mr.  Chairman: 

The Veterans Health Administration (VHA) currently operates four
hospitals--Lakeside, West Side, Hines, and North Chicago--in the
Chicago area at an annual cost of approximately $563 million.\1 These
hospitals have experienced a significant reduction in inpatient
workload over the last decade.  This was caused primarily by changes
in the health care environment such as a shift from an emphasis on
inpatient treatment to an outpatient-based health care system and a
declining veteran population.  In fiscal year 1996, the four
Chicago-area hospitals provided inpatient care to about 18,700
veterans. 

In May 1996, VHA began restructuring to improve the efficiency of the
Chicago Lakeside and West Side hospitals by integrating management
and consolidating or reengineering administrative and clinical
services.  These hospitals were selected because they are close
together and offer essentially the same services.  VHA's primary
planning assumption is that both hospitals would continue operating
because four hospitals are needed to serve Chicago veterans as well
as meet VHA's medical education and research goals and the Department
of Defense's (DOD) contingency mission.  VHA's planning assumption
also recognizes the political difficulties inherent in assessing
whether to close a hospital. 

In November 1996, you expressed concern that this planning assumption
may limit VHA's opportunities to save money and improve care to
veterans.  As agreed with your office, we assessed whether VHA could
serve Chicago veterans with three hospitals and, if so, (1) the
extent of the resources that could be redirected to improve patient
care and (2) the potential impact of one hospital closure on VHA's
other missions. 

Although we analyzed data regarding all four Chicago hospitals, our
viability assessment focused primarily on whether VHA could meet
veterans' needs if it closed either the Lakeside or the West Side
hospital.  We examined these two hospitals more extensively because
of the analyses VHA had already done to integrate their management
and clinical operations.  We recognize that a similar assessment
encompassing the Hines and North Chicago hospitals would need to be
completed before final decisions are made concerning how to best meet
veterans' needs in the Chicago area.  We performed our work between
October 1996 and January 1998 in accordance with generally accepted
government auditing standards.  (App.  I contains a more detailed
discussion of our scope and methodology.)


--------------------
\1 VHA, within the Department of Veterans Affairs (VA), is
responsible for providing medical care to eligible veterans. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

VHA can meet the health care needs of Chicago-area veterans by
operating three hospitals instead of four.  VHA began fiscal year
1997 operating 1,665 inpatient medicine, surgery, and psychiatry beds
at the four Chicago hospitals, and veterans used 850 beds a day, on
average.  The large supply of unused beds provides sufficient
capacity to meet the needs of veterans now using Lakeside or West
Side.  For example, during fiscal year 1997, veterans used an average
of 145 and 198 beds a day at Lakeside and West Side, respectively,
while during the same period Hines Hospital closed 262 beds and North
Chicago closed 244 beds.  Moreover, veterans' demand for VHA hospital
care is expected to continue declining as (1) treatments shift from
inpatient to outpatient settings and (2) the Chicago-area veteran
population continues to decrease.  In addition, other Chicago public
and private hospitals have about 5,700 excess beds, which VHA could
use on a contract basis to meet veterans' inpatient needs closer to
their homes, as VHA does elsewhere.  Regardless, veterans would
continue to have good access to health care if either Lakeside or
West Side hospital is closed because most of the veterans using these
facilities live in essentially the same residential areas. 

Our analysis showed that consolidating services into three locations
could reduce VHA expenditures an estimated $200 million over the next
10 years by lowering facility operating and maintenance costs as well
as avoiding $6 million to $27 million in renovation costs.  In
addition, VHA could potentially generate millions of dollars in
revenues through the lease or sale of property from the closed
location.  VHA would, however, incur one-time costs for relocating
some clinical services, but the savings could be used to enhance
services to veterans, including adding needed new community-based
outpatient clinics and buying new equipment. 

VHA would also be able to meet its education, research, and DOD
contingency missions by operating three hospitals.  This is because
the three remaining locations would likely carry the same workload
that four locations would have, thereby providing a sufficient number
of patients for VHA to maintain a comparable level of education and
research opportunities.  VHA will also be able to provide a flexible
portion of its operating beds for military casualties, if needed,
which was set at about 40 percent in 1997. 


   BACKGROUND
------------------------------------------------------------ Letter :2

VHA operates one of the nation's largest health care systems,
including 173 hospitals and over 400 outpatient clinics nationwide;
VHA had about 45,700 hospital beds nationwide in fiscal year 1996. 
VHA hospitals also purchase health care from other public and private
providers under certain conditions, such as during medical
emergencies or when they do not provide the services themselves.  VHA
served about 2.6 million of the estimated 26 million veterans at a
cost of approximately $17 billion in fiscal year 1996. 

In 1995, VHA restructured its system into 22 service networks
covering specified geographic areas that reflect patient referral
patterns and the availability of medical services.  The Great Lakes
network operates eight hospitals that served over 138,000 veterans
living in parts of Illinois, Indiana, Michigan, and Wisconsin at a
cost of about $915 million in fiscal year 1996.  Of these, four are
located in the Chicago area (Hines, Lakeside, North Chicago, and West
Side).  The network also operates 12 outpatient clinics including
three in the Chicago area (Evanston, Hyde Park, and Oak Park). 

The Lakeside and West Side hospitals are located about 6 miles apart
in the city of Chicago (within Cook County).  Hines Hospital is also
located in Cook County approximately 10 miles west of the West Side
facility.  North Chicago Hospital is located about 35 miles north of
the Lakeside and West Side hospitals.  Figure 1 shows the location of
the four Chicago-area hospitals. 

   Figure 1:  Chicago-Area VHA
   Hospitals Are Located in Close
   Proximity

   (See figure in printed
   edition.)

The four hospitals spent approximately $563 million serving over
78,000 veterans of an estimated Chicago-area veteran population of
722,900.  The hospitals operated 1,665 beds for these veterans, who
had over 29,200 inpatient admissions and nearly 905,000 outpatient
visits.  Hines, Lakeside, and West Side are tertiary care hospitals
that provide acute inpatient medical, surgical, and psychiatric care;
North Chicago, on the other hand, is a psychiatric center, which
provides limited inpatient medical care.  (Fig.  2 shows fiscal year
1997 average daily bed use for these facilities.\2 )

   Figure 2:  Average Daily Bed
   Use of Chicago-Area Hospitals,
   FY 1997

   (See figure in printed
   edition.)

Sources:  VHA:  Chicago Health Care System Director's Office
(Lakeside and West Side); Medical Administration Service (Hines and
North Chicago). 

Veterans' use of inpatient services has declined in recent years as
the Great Lakes network takes steps to meet veterans' needs in the
most appropriate settings.  For example, changes in the delivery of
health care have allowed the network to perform more surgeries on an
outpatient basis.  Also, improved utilization review policies and
procedures have reduced inappropriate admissions and lengths of
hospital stays.  These factors, among others, contributed to a
39-percent decline in average daily bed use among the four
Chicago-area VHA hospitals since fiscal year 1994.  Hines and North
Chicago had the largest declines, as figure 3 shows. 

   Figure 3:  Chicago-Area VHA
   Hospitals' Bed Use Has Declined

   (See figure in printed
   edition.)

Sources:  VHA:  Chicago Health Care System director's office
(Lakeside and West Side); Medical Administration Service (Hines and
North Chicago). 

In contrast, veterans' use of outpatient services at the four
hospitals has increased by about 13 percent since 1994.  Hines
Hospital accounted for most of this growth, as figure 4 shows. 

   Figure 4:  Chicago-Area VHA
   Hospitals Had Varied Growth in
   Outpatient Usage, FY 1994-96

   (See figure in printed
   edition.)

Source:  VA, Summary of Medical Programs, October 1, 1993 Through
September 30, 1994, Summary of Medical Programs, October 1, 1994
Through September 30, 1995, and Summary of Medical Programs, October
1, 1995 Through September 30, 1996 (Washington, D.C.:  National
Center for Veteran Analysis and Statistics). 

The Great Lakes network expects outpatient usage to continue growing
as it takes additional steps to increase veterans' access to primary
care by establishing community-based outpatient clinics (CBOC).  The
network plans to establish 15 new CBOCs by fiscal year 2000,
including 8 in Illinois--2 of which are to be in Chicago.  Network
officials estimate that it will cost $7.5 million to operate these 15
new CBOCs, which must be financed using existing resources. 

In addition to serving veterans' health care needs, VHA has three
other medical-related missions:  health care education and training,
research, and contingency backup to the nation's defense and disaster
medical services.  First, VHA's health care education and training
programs help to ensure an adequate supply of clinical care providers
for veterans and all U.S.  citizens.  Each year, VHA budgets an
amount for resident training; these funds are allocated to networks
on the basis of an annual appropriation.  Nationwide, VHA has
affiliated with 105 medical schools, which annually train about
33,000 residents in VHA facilities.  Residents rotate among medical
schools' hospitals, VHA hospitals, and other facilities; about 9,100
are working in VA facilities each day.  VHA reimburses residents
about $350 million for work done in VHA facilities.  The four Chicago
hospitals serve as training sites for 1,335 residents annually
through affiliations with four medical schools (see table 1). 



                          Table 1
          
          Chicago-Area VHA Hospitals Are Source of
                   Training for Residents

                                           Daily
                                          number
                                Annual        of
                             number of  resident  VHA cost
                             residents         s       (in
VHA         Affiliated      trained at   trained  millions
hospital    medical school         VHA    at VHA         )
----------  --------------  ----------  --------  --------
Hines       Loyola                 523       182      $6.0
             University
Lakeside    Northwestern           297       102       3.9
             University
North       University of          137        55       2.0
 Chicago     Health
             Sciences/
             Chicago
             Medical
             School
West Side   University of          378       134       4.5
             Illinois at
             Chicago
==========================================================
Total                            1,335       473     $16.4
----------------------------------------------------------
Second, the mission of VHA's research program is to contribute to the
nation's knowledge about disease and disability.  Each year the
Congress appropriates money for medical research.  VHA allocates
monies to researchers based on headquarters' review of research
proposals.  VHA employees who hold faculty appointments at affiliated
medical schools perform nearly all VHA-funded research.  Nationwide,
in fiscal year 1996, VHA spent $257 million for 1,666 research
projects.  The four Chicago hospitals spent $11.3 million for 124
projects during fiscal year 1996. 

Third, VHA serves as a contingency backup to DOD medical services,
and during national emergencies it supports the National Disaster
Medical System.  In serving as backup to DOD medical services, VHA
will provide as many beds as it can make available.  For example, in
1997, VHA plans called for providing 10,781 beds within 72 hours of
DOD's request for assistance in caring for returning casualties, and
a maximum of 13,545 beds--about 30 percent of VHA's total operating
beds--available nationwide as soon as possible. 

Through its ongoing restructuring effort, VHA has taken over 200
integration actions affecting the Lakeside and West Side
facilities.\3 In general, these actions involve three types of
changes: 

  -- unifying management of numerous administrative activities
     instead of using separate management teams at each facility;

  -- consolidating some services at a single location rather than
     continuing to provide them at multiple sites; and

  -- reengineering other services by standardizing operating
     policies, practices, and databases. 


--------------------
\2 Average daily bed use, also referred to as average daily census,
represents the total number of beds occupied for a period of time
divided by the total number of days in the period (generally 365
consecutive days). 

\3 We are currently studying the impact of VHA's integration actions
and will report our results at a later date. 


   CONSOLIDATING SERVICES INTO
   THREE CHICAGO HOSPITALS APPEARS
   TO BE A VIABLE OPTION FOR
   MEETING VETERANS' HEALTH CARE
   NEEDS
------------------------------------------------------------ Letter :3

Based on the extent of unused inpatient capacity and the decreasing
demand for services, VHA can meet veterans' current and future
inpatient and outpatient demands by closing one of its four Chicago
hospitals.  Veterans' access to VHA care would remain essentially
unchanged, because most veterans using the Lakeside and West Side
hospitals live in the same area now served by three of the four
hospitals. 


      UNUSED INPATIENT CAPACITY AT
      VHA HOSPITALS
---------------------------------------------------------- Letter :3.1

VHA has sufficient capacity available to meet veterans' needs using
three VHA hospitals.  VHA's four Chicago hospitals operated 1,665
medicine, surgery, and psychiatry beds at the beginning of fiscal
year 1997.  Veterans used an average of 850 of these beds a day
during 1997.  Of the remaining 815 beds, VHA closed (removed) 639
because of a lack of demand.  Moreover, 262 of the 639 beds were
closed at Hines.  In fact, as table 2 shows, more beds were closed at
Hines during fiscal year 1997 than the current demand for beds at
either Lakeside or West Side. 



                          Table 2
          
          Closed Beds at Hines During Fiscal Year
           1997 Compared With Current Demand for
               Beds at Lakeside and West Side

                    Medicine            Psychiat
                          \a   Surgery        ry     Total
------------------  --------  --------  --------  --------
Hines--beds closed       160        42        60       262
 in 1997
Lakeside--current         93        23        29       145
 demand for beds
West Side--              103        26        69       198
 current demand
 for beds
----------------------------------------------------------
\a This category includes general medicine, neurology, rehabilitation
medicine, and intermediate care beds. 

Source:  VHA:  Chicago Health Care System director's office (Lakeside
and West Side); Medical Administration Service (Hines and North
Chicago). 

The remaining 377 closed beds afford VHA greater flexibility to close
a Chicago hospital.\4 For example, if VHA closed West Side, then it
could use 51 beds at Lakeside, 244 beds at North Chicago, and the 262
beds at Hines.  In contrast, if VHA closed Lakeside, then it could
use 82 beds at West Side, 244 beds at North Chicago, and 262 beds at
Hines.  (See table 3.)



                                Table 3
                
                Beds Closed at Lakeside, West Side, and
                  North Chicago VHA Locations, FY 1997

                                        Medici  Surger  Psychi
                                            ne       y    atry   Total
--------------------------------------  ------  ------  ------  ------
Lakeside                                     0      11      40      51
West Side                                   42      20      20      82
North Chicago                               38     N/A     206     244
======================================================================
Total                                       80      31     266     377
----------------------------------------------------------------------
Note:  N/A = not applicable. 

Source:  VHA:  Chicago Health Care System director's office (Lakeside
and West Side); Medical Administration Service (Hines and North
Chicago). 

Chicago-area veterans' demand for inpatient care (currently at 850
beds) is expected to decrease, which will further increase VHA's
supply of unused beds.  This decline in demand for inpatient care is
attributable to VHA's actions expected to improve service delivery
efficiency as well as to the decline in the veteran population.  For
example, VHA estimates that the Chicago-area veteran population will
decrease by about 27 percent by the year 2010.  This decline is
expected to occur at a constant rate, as figure 5 shows. 

   Figure 5:  VHA Projects Steady
   Decline in Chicago-Area Veteran
   Population

   (See figure in printed
   edition.)

Source:  VHA estimates based on the 1990 National Census as provided
by the National Center for Veteran Analysis and Statistics. 

VHA should need fewer beds in the future as the veteran population
declines and the demand for inpatient care decreases.  In fiscal year
1997, veterans used Chicago beds at the rate of roughly 12 beds per
1,000 veteran users, which was about the same as the fiscal year 1996
VHA national average.\5 If veterans' use of Chicago hospitals in
future years is at the same rate as the past year, then overall use
will decline.  In 5 years, at the same bed rate, assuming that a
9-percent decrease in the number of veterans will result in an
equivalent decrease in veteran users, veterans will need about 58
fewer beds than are currently used.  Moreover, if the Chicago
hospitals' efficiency initiatives continue to be successful, further
reductions in veterans' bed use are likely.  For example, VHA's
Southwest network has the lowest bed usage of the 22 networks--6 beds
per 1,000 veteran users.  If the Chicago-area VHA hospitals could
achieve this use level, they would need 426 fewer beds to support the
inpatient workload. 


--------------------
\4 The costs to reopen some of these wards for inpatient use are
discussed later in this report. 

\5 Since beds for patients with spinal cord injury and those for
rehabilitation of the blind are included in the nationwide analysis,
for comparative purposes, they are added to the operating bed totals
for the Chicago-area hospitals. 


      UNUSED INPATIENT CAPACITY IN
      NON-VHA HOSPITALS
---------------------------------------------------------- Letter :3.2

Like VHA, other public and private hospitals in Chicago have many
unused beds.  VHA has instructed networks to establish integrated
systems where VHA hospitals refer patients to local providers for
care where and when appropriate to best meet the needs of those
veterans.  In October 1996, the Congress relaxed the requirements VHA
must follow to contract with such hospitals to better meet veterans'
health care needs.\6 This should afford VHA opportunities to meet
many veterans' needs more conveniently and potentially at less cost. 

Chicago-area hospitals have substantial excess capacity that VHA
could use for inpatient services.  The Illinois Department of Public
Health licensed beds at 71 hospitals to operate in Cook County in
1997.  On the basis of the 56 hospitals that responded to a 1995
American Hospital Association survey, these hospitals have more than
5,700 excess beds a day.  For example, on any given day, three
hospitals located within about six blocks of West Side Hospital--Cook
County Hospital, Rush-Presbyterian-St.  Luke's, and the University of
Illinois at Chicago--could potentially accommodate nearly 640
inpatients for medical, surgical, and psychiatric services. 
Similarly, excess bed capacity also exists in the areas surrounding
VHA's Hines, Lakeside, and North Chicago hospitals. 

Moreover, many veterans live closer to other public and private
hospitals with excess capacity than they do to VHA's hospitals.  For
example, about 2,000 veterans reside in an area about 7 miles north
of Lakeside and West Side, where there are seven private hospitals
with a combined total of over 700 unused beds daily.  These veterans
currently occupy about 24 medicine and surgery beds a day at Lakeside
and West Side that VHA could contract for, thereby providing a more
convenient option for veterans than the VHA hospitals.  (See app.  II
for a summary of the number of unused beds in Cook County.)


--------------------
\6 P.L.  104-262 (1996). 


      MAINTAINING AVAILABILITY OF
      OUTPATIENT CARE
---------------------------------------------------------- Letter :3.3

VHA can also meet veterans' outpatient treatment needs while
operating three hospitals, but some service delivery changes would be
required.  VHA currently operates up to 46 different primary care and
specialty care clinics located within each Chicago-area hospital. 
Primary care clinics generally operate 5 days a week, whereas
specialty clinics operate less frequently and their schedules vary by
clinic.  During fiscal year 1996, veterans visited the four
hospitals' outpatient clinics about 905,000 times.  About half of
these visits were made to Lakeside and West Side, as table 4 shows. 



                          Table 4
          
             Outpatient Usage Varied Widely at
            Chicago-Area VHA Hospitals, FY 1996

                                                Percentage
                                                        of
                                  Outpatient    outpatient
Hospital                              visits        visits
------------------------------  ------------  ------------
Hines                                320,511            35
West Side                            284,034            31
Lakeside                             151,009            17
North Chicago                        149,282            17
==========================================================
Total                                904,836           100
----------------------------------------------------------
VHA has at least five options for maintaining the current level of
services with three hospitals.  First, on the basis of estimates from
each facility's outpatient service chief, three of the four
outpatient treatment areas could absorb at least a 10-percent
increase in workload without additional resources such as space and
staff.  For example, VHA may be able to handle as many as 30,000
additional outpatient visits at Lakeside or 28,000 visits at West
Side. 

Second, VHA has the option to extend the hours for outpatient clinics
located in the hospitals.  For example, two service chiefs estimated
that by (1) extending operating hours to nights and weekends and (2)
increasing the number of staff, workload could be increased by 30 to
50 percent.  The increased workload would be handled by shifting
staff from the location that would be closed.  VHA could handle an
additional 200,000 or more visits at the three remaining hospitals. 

Third, VHA could convert some inpatient wards into outpatient clinic
areas.  This could allow the remaining hospitals to handle more of
Lakeside's or West Side's visits.  As previously discussed, the
delivery of health care is shifting from an emphasis on inpatient
care to outpatient treatment.  As the number of inpatient wards
continues to decline, VHA can modify the existing space into
outpatient treatment areas.  We discuss later in this report the
estimated costs to convert inpatient wards into outpatient treatment
space and the costs associated with the other options (see "VHA Will
Incur Costs in Closing a Hospital"). 

Fourth, VHA could establish additional CBOCs to provide expanded
primary care capabilities.  These clinics enable VHA to, among other
things, (1) improve veterans' access to care, (2) shorten waiting
times at hospital-based outpatient clinics, and (3) provide treatment
in settings more appropriate for outpatient services.  Fifth, VHA has
the option of building new outpatient capacity for primary care or
specialty care on the grounds of an existing hospital location or at
a remote location. 


      MAINTAINING ACCESSIBILITY OF
      CARE
---------------------------------------------------------- Letter :3.4

VHA should be able to maintain veterans' access to care if services
are consolidated in three hospitals.  This is because the Lakeside
and West Side hospitals are about 6 miles apart and, as a result, are
competing to attract veterans from essentially the same geographic
area.  In fact, veterans living in the vicinity of the three
hospitals located in Cook County do not rely on any one hospital for
their care. 

Most veterans in the Chicago area live within 25 miles of the three
VHA hospitals, and closing one hospital will not increase that
distance.  By reopening some wards, VHA can close one of the
facilities, shift the workload to the other three hospitals, and
continue to provide the same level of inpatient service that is now
available to veterans in the Chicago area.  As figure 6 shows, three
hospitals--Hines, Lakeside, and West Side--are located in Cook
County, which accounts for the vast majority of the hospitals'
primary service areas, which we defined as a 25-mile-wide area
surrounding each facility. 

   Figure 6:  Service Areas for
   Three Chicago-Area VHA
   Hospitals

   (See figure in printed
   edition.)

Veterans living in the same vicinity use all three VHA hospitals
located in Cook County (see table 5).  The veteran population in Cook
County was estimated to be 411,000 in fiscal year 1996.  Of these,
about 49,500 veterans use the three hospitals annually, accounting
for about 75 percent of the total veterans served. 



                          Table 5
          
             Cook County Veterans' Usage of VHA
                     Hospitals, FY 1996

                                 Number of
                              veterans who   Percentage of
VHA hospitals in Cook             received  total veterans
County                            services          served
--------------------------  --------------  --------------
Hines                               19,043            38.5
West Side                           18,565            37.5
Lakeside                            11,903            24.0
==========================================================
Total                               49,511             100
----------------------------------------------------------
Moreover, city of Chicago veterans' use preferences are not greatly
affected by the accessibility of VHA's hospitals.  For example,
Chicago veterans live in 66 different residential areas as defined by
U.S.  Postal Service zip codes.  During fiscal year 1996, West Side
Hospital attracted the largest number of inpatient and outpatient
users in 31 of the 66 areas, although these users represented a
majority (more than 50 percent) in only 19 areas, as table 6 shows. 
(See app.  III for a breakdown of each Chicago zip code area and the
number of veterans residing in these areas who used the three
hospitals for inpatient and outpatient services.)



                          Table 6
          
          City of Chicago Veterans Used All Three
           Chicago-Area VHA Hospitals in FY 1996

                                 Number of       Number of
                               areas where     areas where
                              facility had    facility had
Facility used by most       largest number   more than 50%
veterans                          of users        of users
--------------------------  --------------  --------------
West Side                               31              19
Lakeside                                18              12
Hines                                   16               9
Evenly                                   1  Not applicable
 distributed
----------------------------------------------------------
During discussions with us in July 1997, veterans also expressed a
willingness to use different hospitals.  For example, during
interviews we conducted with 190 veterans who received care at either
the Lakeside or West Side VHA hospitals, 75 percent indicated that
they would use another VHA facility if the one they presently use was
closed.  Of the remaining 25 percent, 17 percent of the veterans were
not certain where they would obtain care, and 7 percent said they
would use non-VHA care. 

Also, VHA currently operates a shuttle service between the Lakeside
and West Side hospitals that runs throughout the day.  A more limited
service is available between these two hospitals, Hines, and an
outpatient clinic in Crown Point, Indiana.  VHA could modify this
system to minimize veterans' inconvenience caused by the shifting of
services if a hospital is closed.  Depending on which hospital is
closed, VHA could expand its service to (1) include North Chicago;
(2) run between any outpatient clinics not already part of the
shuttle service, including new clinics that may open in the future;
and (3) run more frequently to certain locations.  VHA has recognized
that making modifications to existing transportation systems was
integral in helping veterans adjust to service delivery changes at
other locations. 


   MEETING VETERANS' HEALTH CARE
   NEEDS IN THREE RATHER THAN FOUR
   HOSPITALS COULD SAVE MILLIONS
------------------------------------------------------------ Letter :4

If VHA consolidated services into three hospitals it could reduce
expenditures over the next 10 years by about $200 million or more for
(1) facility operating and maintenance costs and (2) renovation
costs.  Additionally, VHA may be able to generate revenues through
the lease or sale of the fourth hospital. 

VHA will likely need to use some of the savings from consolidating
services to prepare existing or new space for the workload to be
relocated, primarily to meet veterans' outpatient treatment needs. 
In this regard, VHA has many relocation options, and the extent of
relocation costs could vary greatly depending on the hospital to be
closed and the mix of options VHA determines to best meet veterans'
needs.  For example, VHA's costs to prepare space to accommodate the
smallest hospital's workload could be relatively low--perhaps as
little as $5 million--if VHA decides to use existing space to treat
the closed hospital's workload.  This may involve expanding the hours
of operation at the remaining three hospitals' outpatient clinics or
converting inpatient space into outpatient treatment areas.  VHA may
also decide to rely, in part, on new CBOCs to help meet veterans'
needs.  In contrast, relocation costs could be much higher, as much
as $50 million, if VHA decides to construct new outpatient space at
one of the existing hospitals or in another location. 

VHA would need to develop a more detailed plan to determine which
hospital to close and how to meet veterans' needs in the remaining
hospitals.  Regardless, all of the relocation costs should be
incurred within 1 to 2 years, while the savings will continue to
accrue indefinitely.  The potential savings and costs associated with
closing a hospital are described in greater detail in the following
section. 


      VHA CAN SAVE MILLIONS IN
      FACILITY OPERATING AND
      MAINTENANCE COSTS
---------------------------------------------------------- Letter :4.1

Through consolidating services, VHA can save millions by reducing or
eliminating facility operating and maintenance costs.  VHA spent
approximately $563 million during fiscal year 1996 to provide health
care services to veterans at the four Chicago-area locations.  Of the
$563 million, about $404 million was directly related to the delivery
of medical care, including direct clinical costs such as surgery and
indirect clinical costs such as pharmacy and laboratory.  The
remaining approximately $159 million was for facility operating and
maintenance costs, such as utilities, cleaning, security, and
maintenance.  These costs generally represent about 25 to 35 percent
of a facility's operating budget, as figure 7 shows. 

   Figure 7:  Facility Operating
   and Maintenance Costs at
   Chicago-Area VHA Hospitals Are
   Significant

   (See figure in printed
   edition.)

Source:  VHA, VHA/CFO Financial Management Office, Accounting/Reports
and Systems Service, Washington, D.C. 

By consolidating services in three locations, VHA can realize
significant savings from facility operating and maintenance costs. 
This is because most of these costs are related to operating at the
location, such as utilities, security, and maintenance.  Thus, most
of these costs would not be shifted, along with patients, to other
locations.  Facility operating and maintenance costs are primarily
devoted to labor, although about 38 percent are for nonlabor
expenses. 

VHA could save roughly $20 million annually in facility operating and
maintenance costs if it closed one Chicago hospital.  Specifically,
VHA could avoid spending $21 million to $23 million\7 a year to
operate and maintain either Lakeside or West Side.  However, with the
shifting of the closed hospital's workload to other VHA locations,
those facilities would incur a relatively small increase in operating
costs (possibly about $1 million) for utilities.  For example, two
VHA engineers estimated that utility costs would increase by 15 to 25
percent if all of the workload from either Lakeside or West Side
shifted to one location. 


--------------------
\7 These savings estimates were developed jointly by the director's
financial staff at the VA Chicago Health Care System and GAO. 


      VHA CAN SAVE MILLIONS BY
      FORGOING RENOVATIONS
---------------------------------------------------------- Letter :4.2

VHA expects to spend significant amounts of resources to renovate and
maintain the four hospitals over the next 5 years and beyond.  The
Lakeside and West Side hospitals began serving veterans over 40 years
ago.  Although the facilities have been significantly modernized
during the intervening years, each remains in need of extensive
renovations.  VHA could save millions of dollars by consolidating
into three locations and avoiding future capital investments at the
Lakeside or West Side location. 

The Lakeside and West Side hospitals both need renovations.  VHA
engineers at both hospitals estimate that a total of almost $73
million will be needed to improve these facilities so that VHA can
continue to meet veterans' health care needs, about $6 million to $27
million of which will be needed within the next 5 years for West Side
and Lakeside, respectively.  These capital expenditures include such
items as correcting fire safety deficiencies, improving air
conditioning, renovating inpatient ward areas, renovating outpatient
space, removing asbestos, improving roads, and modernizing elevators. 


      ADDITIONAL REVENUES POSSIBLE
      THROUGH LEASE OR SALE OF
      UNUSED PROPERTIES
---------------------------------------------------------- Letter :4.3

VHA could also generate revenue through the lease or sale of its
excess real property that would result by consolidating services into
three locations.  The value of real estate leases and sales depends
largely on the location of the properties, amount of space available,
condition of the buildings, and local market conditions.  Lakeside
and West Side are located in areas that seem likely to generate
millions of dollars in potential revenues. 

Currently, by law, proceeds from the lease or sale of VHA property
must be deposited into the miscellaneous receipts account of the U.S. 
Treasury or into specific designated funds or accounts.  For example,
all of the net proceeds for leases up to 3 years are deposited into
the miscellaneous receipts account.  For long-term leases up to 35
years, 25 percent of the revenues are deposited in the medical care
account of the VHA facility at which the property is located.  The
remaining 75 percent of the lease revenues are deposited into a VHA
nursing home revolving fund.  Proceeds from the sale of long-term
leased property valued at more than $50,000 are also deposited into
the nursing home revolving fund.  Moreover, the proceeds from the
sale of nonleased real property are also deposited into the nursing
home revolving fund.  Legislation would be required to authorize VHA
to use any of the revenues generated by lease or sale for another
purpose, such as improving hospital or outpatient health care
services to veterans. 


      VHA WILL INCUR COSTS IN
      CLOSING A HOSPITAL
---------------------------------------------------------- Letter :4.4

VHA will incur one-time costs to relocate inpatient and outpatient
workload if a hospital is closed.  In doing this, VHA has a variety
of options.  Shifting inpatient workload will involve minimal costs
if patients are placed in underused inpatient wards in the other
three hospitals.  At most, VHA would have to reopen five to seven
wards (assuming that inpatient wards consist of about 30 beds),
depending on which hospital is closed, in order to meet the veterans'
demand for inpatient beds at Lakeside and West Side.  VHA may have to
spend money to return closed wards to operation.  For example, VHA
has modified some wards and turned the space into administrative or
other medical care areas by replacing the beds with furniture and
other equipment.  In these instances, no structural changes were made
to the rooms, and such things as hook-ups for medical gases are still
intact.  Consequently, returning these areas to their original
purpose involves little expense.  VHA engineers estimated, on the
basis of how the inpatient areas are currently used and the extent of
the changes that would be needed, that to restore a ward to inpatient
use could be up to $85,000 or less; but some wards could be restored
at little or no cost, especially those closed during fiscal year
1997. 

The hospital-based outpatient clinics may also experience an
increased workload from closing one hospital.  Depending on the
amount of the workload, the remaining clinics may be able to absorb
the additional workload in the current space.  In doing so, by
shifting staff and other resources from the closed location, minimal
additional costs would be incurred.  However, VHA may need additional
outpatient treatment space as a result of closing one hospital.  As
previously discussed, VHA has several options for obtaining such
space.  Depending on the option selected, the costs could vary
significantly.  The least costly option, if space is available, might
be converting inpatient wards to outpatient treatment areas.  On the
basis of previous experience converting inpatient wards into
outpatient areas, one hospital engineer estimated that it would cost
between $50,000 and $100,000 to modify an inpatient floor and create
additional outpatient treatment work space. 

In another option, consistent with VHA's long-range strategic
planning, VHA could create additional CBOCs.  VHA would incur
start-up costs to establish new CBOCs.  For example, some of the
recently proposed clinics have an estimated average start-up cost of
approximately $120,000.  However, VHA expects that these costs will
be recovered and, in the long run, CBOCs can meet veterans'
outpatient health care needs at less expense than that currently
incurred by hospital-based outpatient treatment clinics. 

Finally, VHA could opt to build new outpatient capacity.  According
to VHA estimates, a freestanding clinic that could provide about half
of the outpatient workload of the smallest VHA hospital in Chicago
could be built today for between $21.5 million and $26 million.  A
clinic designed to accommodate all of the outpatient visits from the
smallest hospital could be built for an additional $25 million.  In
contrast, VHA may be able to expand its existing capacity at lower
costs.  For example, VHA could add to its existing facilities at West
Side to accommodate an additional 50,000 to 100,000 outpatient
visits.  VHA estimates this space could be built for between $13.2
million and $28.8 million, depending on whether one floor or two
floors are built on the existing site. 


   VHA CAN FULFILL ITS OTHER
   HEALTH-RELATED MISSIONS IN
   THREE HOSPITALS
------------------------------------------------------------ Letter :5

Closing either the Lakeside or West Side hospital should not hamper
VHA's ability to meet its other health-related missions.  VHA can
continue to provide education and research opportunities to
physicians and residents in three locations.  Also, closing one
hospital should not impede VHA from meeting its DOD contingency
mission. 


      VHA CAN PROVIDE EDUCATION
      OPPORTUNITIES
---------------------------------------------------------- Letter :5.1

VHA can meet its educational mission in three hospitals because VHA
would have the same level of inpatient and outpatient workload in
three locations that it now has in four.  As such, the number of
residents should be unaffected by the closing because VHA hospitals
would continue to provide care to the same number of patients. 
However, VHA and its affiliated medical schools would need to make
some changes in where residents obtain their education opportunities. 
In essence, the four medical schools would need to share the workload
at three hospitals.  For example, two schools could share a single
hospital, as is done at VHA hospitals in St.  Louis and Washington,
D.C. 

VHA could also develop a networkwide strategy whereby schools train
residents at more than one VHA facility, as medical schools now
routinely do with other Chicago-area non-VHA hospitals.  The medical
schools at University of Illinois at Chicago and Northwestern
University train residents at multiple sites.  The University of
Illinois at Chicago, for example, trains residents at 15 other
hospitals, while Northwestern sends residents to 4 other hospitals. 


      VHA CAN PROVIDE RESEARCH
      OPPORTUNITIES
---------------------------------------------------------- Letter :5.2

Likewise, VHA and medical schools will need to make some changes in
the way research is conducted, but research opportunities should
remain the same or even improve.  As with education opportunities,
the medical schools would likely need to share research laboratories
as well as patients.  In this regard, through the consolidation of
facilities, VHA could provide improved research opportunities to what
currently exist at the four hospitals.  Since the inpatient demand
for care would probably not decrease as a result of closing a
hospital, allocating the workload among three hospitals would
increase the number of patients at each location, thereby
strengthening the research base.  By increasing the number of
veterans available for study at each location, VHA physicians could
have better opportunities to meet their research mission. 


      VHA CAN MAKE BEDS AVAILABLE
      TO DOD DURING NATIONAL
      EMERGENCIES
---------------------------------------------------------- Letter :5.3

VHA can meet its DOD contingency back-up mission in fewer hospitals,
as well.  Since 1982, VHA has planned to transfer or divert certain
veterans to community hospitals in order to make inpatient beds
available for DOD.  Moreover, the number of beds VHA plans to make
available to DOD has been decreasing in recent years.  In 1993, the
four VHA hospitals planned to make available 1,003 operating beds to
DOD in case of national emergency.  But in 1997, these hospitals
planned to provide 686 (about 40 percent) of their 1,665 operating
beds.  VHA expects this number will continue to decline as hospitals
reduce their inpatient bed capacity. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

VHA faces numerous challenges in meeting veterans' needs while
operating on a tighter budget.  Toward that end, VHA has achieved
some efficiencies within the Lakeside and West Side hospitals, such
as unifying management of administrative activities and consolidating
some services at a single location.  However, operating four
hospitals does not give VHA the flexibility to spend its scarce
resources in ways that could improve veterans' access to care. 

More specifically, consolidating patient workload into three
locations is viable.  There is sufficient capacity to meet veterans'
needs and VHA's other health care missions including medical
education and training, research, and backing up DOD's health
services.  Closing a hospital would allow VHA to avoid spending
roughly $200 million on facility operating and maintenance costs over
the next 10 years.  In addition, the sale or lease of the closed
facility could provide substantial additional revenues for VHA. 

While we believe that our general estimates are sufficient for
assessing viability, we recognize that VHA would need to develop a
more detailed plan to meet veterans' needs in three hospitals and to
identify which hospital to close. 


   RECOMMENDATION
------------------------------------------------------------ Letter :7

We recommend that the Secretary of Veterans Affairs direct the Great
Lakes network director to develop and implement a detailed plan for
meeting veterans' needs in three hospitals.  This plan should explore
all options available and select those that maximize veterans' access
to services while minimizing, to the extent practical, the impact on
employees, medical schools, and others.  The plan should also
identify which of the four VHA hospitals in the Chicago area to
close. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :8

We received oral comments on a draft of this report from VHA's Deputy
Under Secretary for Health and DOD's Office of the Assistant
Secretary of Defense (Health Affairs) for Mobilization.  Northwestern
University Medical School and the University of Illinois at Chicago
Medical School provided written comments.  Their comments and our
responses are described in the following sections.  The comments in
their entirety from Northwestern University Medical School and the
University of Illinois at Chicago Medical School are in appendixes IV
and V, respectively. 


      DEPARTMENT OF VETERANS
      AFFAIRS
---------------------------------------------------------- Letter :8.1

VA did not concur with our recommendation that the Great Lakes
network director should develop and implement a detailed plan for
meeting veterans' health care needs in three VA Chicago-area
hospitals.  While acknowledging that we make a credible case that
services should be consolidated, VA did not agree that a hospital
closure is necessarily the best approach at this time.  Rather, VA
believed further analysis is needed before making such a decision. 
Therefore, VA will immediately devise plans for a comprehensive,
objective assessment of veterans' needs and resources for the entire
Chicago service area.  VA plans to use a consultant from outside VA
to conduct the analysis, which will consider all available options,
including hospital closure.  If this comprehensive assessment
demonstrates that a hospital closure is needed to best meet the
health care needs of Chicago-area veterans, VA will initiate such
action, assuming any revenues obtained from the leasing or sale of VA
properties may be used by VA to improve services for Chicago-area
veterans. 

VA's proposed actions meet the intent of our recommendation--namely,
that they should result in the development and implementation of a
detailed plan to meet veterans' needs in three hospitals if doing so
is in the best interest of Chicago-area veterans.  We recommend that
a plan be developed because we recognize that decisions on which
hospital to close and how individual services will be merged among
the remaining three hospitals require more detailed information and
analyses. 

We are concerned, however, about VA's suggestion that a hospital
should be closed only if VA can retain revenues resulting from the
lease or sale of the properties.  While it seems reasonable that VA
should try to obtain statutory authority to retain such revenues to
further improve services for Chicago veterans, we believe that VA's
administrative decision to close a hospital should be linked to
whether it needs the hospital, not to legislative decisions on how
resulting revenues should be used. 


      DEPARTMENT OF DEFENSE
---------------------------------------------------------- Letter :8.2

DOD agreed with our conclusion that VA's ability to meet DOD's
contingency needs should not be adversely affected if VA closes one
of its four Chicago-area hospitals. 


      NORTHWESTERN UNIVERSITY
      MEDICAL SCHOOL
---------------------------------------------------------- Letter :8.3

The dean of Northwestern University Medical School also disagreed
with our recommendation that VA develop a detailed plan to meet
veterans' needs by operating three Chicago-area hospitals.  The dean
contended that our report did not provide sufficient information or
data to support a conclusion that closing a VA hospital is a viable
option.  More specifically, he stated that (1) all relevant factors
were not considered and (2) measurement and analyses of factors
considered were significantly flawed. 

For example, the dean cited quality of care as a relevant factor that
was not considered.  More specifically, he implied that Chicago-area
VA hospitals and their staffs may not be equally adept at all
procedures and, if so, that care could be diminished by closing one
VA hospital.  We considered quality of care as an important factor
but did not specifically address it in our report because we
concluded that VA's quality control measures would be appropriate,
whatever the treatment setting, to ensure that veterans would receive
the same or higher quality of health care in three Chicago hospitals
as currently provided in four. 

The dean also cited three examples of relevant factors that were
inadequately considered.  First, the dean said that we based our
decision on bed capacity, without sufficient data on the availability
of caregivers to absorb additional workloads associated with
transferring hundreds of inpatient days or thousands of outpatient
visits.  We believe that our study provides sufficient data to show
how workload could be accommodated if a hospital is closed. 
Specifically, our report shows that VA has (1) unused inpatient and
outpatient capacity and (2) several options for meeting veterans'
inpatient and outpatient needs.  VA, for example, may opt to recruit
new physicians and provide the services at the remaining hospitals or
decide to purchase these services from other public or private health
care providers.  Our work assumes, given the number of hospitals and
empty beds throughout Cook County, that sufficient caregivers are
available, as needed.  In fact, VA may find that purchasing some
services is more efficient than directly providing them, especially
those that are more specialized or in less demand. 

Second, the dean contends that our report does not address veterans'
future health care needs.  On the contrary, our work shows the extent
to which the veteran population is decreasing and is projected to
continue declining until the year 2010.  Concomitantly, veterans'
demand for inpatient medicine, surgery, and psychiatry beds has
dramatically decreased over the past several years.  Moreover, we
discuss VA's efforts to shift from a hospital-based health care
system to one that is focused primarily on the delivery of outpatient
services.  Consistent with this, our report shows the changes in
outpatient usage at the four Chicago-area hospitals and discusses
options for meeting veterans' demand for such services. 

Third, the dean pointed out that our report does not discuss access
to public transportation and highways.  While our report does not
explicitly address veterans' access to local transportation routes or
highway systems, it does provide information on veterans' access
patterns for the three VA hospitals in Cook County.  In summary, our
analysis shows that veterans living in the same areas frequently
access more than one VA hospital.  This suggests that local
transportation may not present a significant obstacle to veterans
seeking VA care in Chicago-area hospitals.  Our report also mentions
that VA could consider expanding its existing shuttle system to
ameliorate any inconveniences caused by the shifting of services if a
hospital is closed. 

In addition, the dean stated that our report underestimates the
difficulties inherent in closing a facility without losing the
benefits of current medical school affiliations.  In this regard, he
said that VA benefits from uncompensated health care that the
Northwestern University Medical School faculty physicians provide to
veterans.  He believes that such care can only be replicated at
significant expense, if at all, if a VA hospital closes. 

We agree that VA will need to consider uncompensated care when
deciding how to best meet Chicago-area veterans' health care needs. 
The dean, however, is not able to provide any data to measure the
magnitude of the costs of uncompensated care provided at this time. 
Thus, VA will have to determine the cost and compare it with the
potential savings from closing a hospital.  Ultimately, if VA cannot
obtain the same level of uncompensated care after a hospital is
closed, VA will need to spend some of its savings (realized through
hospital closure) to purchase the needed services. 


      UNIVERSITY OF ILLINOIS AT
      CHICAGO MEDICAL SCHOOL
---------------------------------------------------------- Letter :8.4

The dean of the University of Illinois at Chicago Medical School
disagreed with our recommendation that VA develop a detailed plan to
meet veterans' needs in three VA Chicago-area hospitals.  In general,
he concluded that (1) essential stakeholders are being well served by
the present system and (2) a decision to close a hospital should be
made only after ongoing efficiency initiatives associated with VA's
integration of the West Side and Lakeside hospitals have had
sufficient time to work. 

The dean pointed out that VA has produced real cost savings by
integrating services in 32 clinical and administrative areas.  In
addition, a joint dean's committee was recently established involving
members of both medical schools, which should help VA achieve
additional cost savings.  While VA has realized some efficiencies,
its operation of four hospitals limits its opportunities to become
more efficient.  In other words, operating four rather than three
hospitals results in annual expenditures of about $20 million a year
more than necessary to meet veterans' needs in the Chicago area. 

The dean also stated that although it is true the University of
Illinois at Chicago Medical School has other affiliated hospitals,
none is so integral to its educational program as VA's West Side
Hospital.  He said that assuming that losses of educational processes
in a VA hospital could be quickly replaced by opportunities at other
hospitals is incorrect.  Such substitutions, while possible, would be
qualitatively different from the experience currently afforded at
that hospital. 

The closing of a VA hospital in the Chicago area does not preclude
medical schools from continuing their educational processes in a VA
hospital; rather, medical schools would continue to have the
opportunity to share education and training at the same VA hospital,
as medical schools in St.  Louis, Missouri, and Washington, D.C., do
now.  While such an arrangement in Chicago would obviously
necessitate major changes in the structure and management of medical
schools' educational processes, the schools could potentially benefit
from a broader base of patients, which in turn would enhance their
teaching and research. 


---------------------------------------------------------- Letter :8.5

As agreed with your office, we will send copies of this report to the
Secretary of Veterans Affairs, interested congressional committees,
and other interested parties.  We will make copies available to
others upon request. 

Please contact me on (202) 512-7101 if you have any questions about
this report.  Other GAO contacts and staff acknowledgments are listed
in appendix VI. 

Sincerely yours,

Stephen P.  Backhus
Director, Veterans' Affairs
 and Military Health Care Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

In considering the viability of VHA meeting Chicago-area veterans'
needs with three rather than four hospitals, we relied on most of the
same critical factors used (1) in our prior studies that considered
service delivery options available to VHA when deciding how to meet
veterans' health care needs and (2) by two private consulting firms
that VHA used to study the potential for consolidating services among
VHA hospitals.  These critical factors are (1) the availability of
VHA inpatient and outpatient capacity, (2) the magnitude of veterans'
health care usage, and (3) the comparability of VHA hospitals'
primary service areas. 

To assess these factors, we visited the Hines, Lakeside, North
Chicago, and West Side hospitals.  During our visits, we met with
hospital directors and their staffs, including associate directors,
chiefs of staff, service chiefs, and facility engineers.  To assess
the general operating conditions, we visually inspected each
hospital's (1) inpatient treatment areas, including beds currently in
use; (2) outpatient treatment areas; and (3) administrative areas. 
We also examined areas currently being renovated and those needing
future renovation and/or new construction. 

We also reviewed documents obtained from VHA (headquarters, the Great
Lakes network, and each of the four hospitals), the American Hospital
Association, and the Illinois Department of Public Health.  These
documents included policy memorandums, reports, studies, facility
development plans, hospital floor plans, inpatient workload data,
hospital operating cost data, veteran population information (actual
and estimates), and inventories of public and private hospital beds
and workloads in Cook County, Illinois.  (We used the information on
public and private sector hospitals in Cook County to determine the
availability of potential contract beds to meet veterans' needs.)

To obtain information on why veterans seek health care at VHA medical
centers and where they would go for health care if the facility they
now use did not exist, we interviewed 190 veterans at Lakeside and
West Side hospitals during 4 days in July 1997.  We spoke with
inpatients on the day of their discharge and with outpatients who had
scheduled appointments; the majority of our interviews were with
outpatients. 

To determine whether VHA can meet the primary care and outpatient
treatment needs of veterans with fewer than four hospitals, we
interviewed the chief of ambulatory care and facility engineers at
each of the four hospitals.  We learned, on the basis of their
professional judgments, the (1) extent that existing space is used,
(2) potential for providing increased care within the existing space,
and (3) various options available to VHA to meet veterans' demand for
outpatient treatment with one fewer hospital.  In addition, we
considered whether outpatient clinics can be used to a greater extent
to meet veterans' primary care needs. 

We reviewed the Great Lakes network's business plan and other network
planning documents.  During these reviews, we assessed (1) the
current number and capacity of the community-based outpatient clinics
(CBOC), (2) VHA's plans to create additional CBOCs, and (3) the costs
of providing primary health care through the CBOC initiative.  We
also reviewed VA's strategic plan for fiscal years 1998 through 2003
and VHA's plan, Vision for Change--A Plan to Restructure the Veterans
Health Administration. 

To assess potential savings of consolidating services in three
hospitals, we developed, with VHA staff at Lakeside and West Side
hospitals, estimates for facility overhead costs and potential
savings that could be achieved by consolidating each hospital's
services into the other three hospitals.  This included estimating
the number of staff who would transfer to the remaining hospitals in
order to manage the increased workload.  To derive estimates of
potential savings from renovations, VHA staff identified future
hospital renovation needs and provided estimates of costs for these
renovations.  Savings would be achieved by closing one hospital and
avoiding future renovation costs.  We also discussed with VHA staff
other budget impacts or revenue opportunities from closing a hospital
such as leasing or sale of the facilities.  We relied on VHA
estimates on savings and revenues where available. 

We also assessed potential costs of relocating services from four
hospitals to three.  In doing this, we obtained estimates from VHA
staff for (1) returning closed beds to operation, (2) converting
inpatient wards into outpatient treatment areas, (3) establishing
CBOCs, and (4) constructing new outpatient capacity. 

To assess VHA's ability to perform its education and research
missions using three hospitals, we discussed VHA's education and
research requirements with VHA officials and compared these
requirements with VHA's capacity when operating fewer locations in
the Chicago area. 

To determine whether VHA can fulfill its DOD contingency role with
one less hospital, we discussed VHA's plans for providing inpatient
beds to DOD with VHA and DOD headquarters staff.  In addition, we
reviewed our prior testimony, which examined VHA's plans for ensuring
that veterans who need care are able to get it during a national
emergency.\8 In doing this, we updated the number of operating beds
that VHA plans to offer DOD in meeting its contingency backup role. 


--------------------
\8 Health Care:  Readiness of U.S.  Contingency Hospital Systems to
Treat War Casualties (GAO/T-HRD-92-17, Mar.  25, 1992). 


COOK COUNTY PUBLIC AND PRIVATE
SECTOR HOSPITALS
========================================================== Appendix II

                                         Average
                              Operatin     daily    Unused
Name              Location      g beds   bed use      beds
----------------  ----------  --------  --------  --------
Northwest         Arlington        401       249       152
 Community         Heights
MacNeal           Berwyn           329       200       129
St. Francis       Blue             234       174        60
 Hospital and      Island
 Health Center
St. James         Chicago          348       237       111
 Hospital and      Heights
 Health Centers
Bethany           Chicago          126        72        54
Charter           Chicago          123       N/A       N/A
 Behavioral
Chicago           Chicago          102        60        42
 Lakeshore
Columbus          Chicago          284       172       112
Cook County       Chicago          811       523       288
Doctor's          Chicago          200       N/A       N/A
 Hospital of
 Hyde Park
Edgewater         Chicago          201       151        50
 Medical Center
Grant             Chicago          212       114        98
Hartgrove         Chicago          119        92        27
Holy Cross        Chicago          300       196       104
Illinois Masonic  Chicago          645       497       148
 Medical Center
Jackson Park      Chicago          254       145       109
Loretto           Chicago          222       153        69
Louis A. Weiss    Chicago          200       115        85
 Memorial
Mercy Hospital    Chicago          487       N/A       N/A
 and Medical
 Center
Methodist         Chicago          189       N/A       N/A
 Hospitals of
 Chicago
Michael Reese     Chicago          523       292       231
 Hospital and
 Medical Center
Mount Sinai       Chicago          357       268        89
 Hospital and
 Medical Center
Northwestern      Chicago          730       421       309
 Memorial
Norwegian-        Chicago          230       N/A       N/A
 American
Our Lady of the   Chicago          273       N/A       N/A
 Resurrection
 Medical Center
Provident         Chicago           86        64        22
 Hospital of
 Cook County
Ravenswood        Chicago          321       205       116
 Hospital
 Medical Center
Resurrection      Chicago          633       559        74
 Medical Center
Roseland          Chicago          128       N/A       N/A
 Community
Rush-             Chicago          816       574       242
 Presbyterian-
 St. Luke's
 Medical Center
Sacred Heart      Chicago           96       N/A       N/A
Saint Anthony     Chicago          176        86        90
Saint Bernard     Chicago          194       N/A       N/A
Saint             Chicago          240       190        50
 Elizabeth's
Saint Joseph      Chicago          492       223       269
 Health Centers
 and Hospital
Saint Mary of     Chicago          305       226        79
 Nazareth
South Shore       Chicago          125        70        55
Swedish Covenant  Chicago          282       210        72
THC-Chicago       Chicago           67        46        21
Thorek Hospital   Chicago          144        86        58
 and Medical
 Center
Trinity           Chicago          228       134        94
University        Chicago          102        72        30
University of     Chicago          570       482        88
 Chicago
 Hospitals
University of     Chicago          431       322       109
 Illinois
 Medical Center
Vencor Hospital   Chicago          166        89        77
 Chicago--North
Forest            Des               80       N/A       N/A
                   Plaines
Holy Family       Des              183        93        90
 Medical Center    Plaines
Alexian Brothers  Elk Grove        378       238       140
 Medical Center    Village
Evanston          Evanston         377       317        60
Saint Francis     Evanston         461       311       150
Little Company    Evergreen        367       N/A       N/A
 of Mary and       Park
 Health Centers
Riveredge         Forest           164        82        82
                   Park
Glenbrook         Glenview          80        66        14
Ingalls Memorial  Harvey           432       276       156
South Surburban   Hazel            214       156        58
                   Crest
Suburban Cook     Hinsdale          81       N/A       N/A
 County TB
 Sanitorium
 District
Hoffman Estates   Hoffman          193       115        78
 Medical Center    Estates
Woodland          Hoffman           94        40        54
                   Estates
LaGrange          LaGrange         231       138        93
 Memorial
Loyola            Maywood          536       358       178
 University
 Medical Center
Gotlieb Memorial  Melrose          212       125        87
                   Park
Westlake          Melrose          239       158        81
 Community         Park
Vencor Hospital-  Northlake         78        63        15
 -Chicago
Christ Hospital   Oak Lawn         800       N/A       N/A
 and Medical
 Center
Oak Park          Oak Park         176       111        65
West Suburban     Oak Park         273       162       111
 Hospital
 Medical Center
Olympia Fields    Olympia          174       N/A       N/A
 Hospital and      Fields
 Medical Center
Palos Community   Palos            337       210       127
                   Heights
Lutheran General  Park Ridge       587       406       181
Rush North Shore  Skokie           251       168        83
 Medical Center
CPC Streamwood    Streamwood       100       N/A       N/A
==========================================================
Total                                                5,716
----------------------------------------------------------
Note:  N/A = Not available.  These hospitals did not provide their
average daily bed usage to the American Hospital Association for
inclusion in the 1996 AHA Guide. 

Source:  American Hospital Association, AHA Guide, 1996-97 Edition
(Chicago, Ill.:  American Hospital Association). 


VETERANS' USAGE OF VHA HOSPITALS,
BY CITY OF CHICAGO ZIP CODE
========================================================= Appendix III

                   Number of veteran inpatient
                           discharges                Number of veteran outpatient visits
              -------------------------------------  ------------------------------------
City of
Chicago zip                  West                                   West
code           Lakeside      Side   Hines     Total   Lakeside      Side  Hines     Total
------------  ---------  --------  ------  --------  ---------  --------  -----  --------
60601                 1         3       2         6         20        13      9        42
60602                 0         3       2         5          8         9      4        21
60603                 0         1       0         1          5         6      2        13
60604                 1         2       0         3          3         8      4        15
60605                24        29      10        63        104        78     38       220
60606                 2         3       2         7          8        10      4        22
60607                16        54      20        90         61       170     71       302
60608                12       137      30       179         48       502     95       645
60609                37       169      58       264        148       611    164       923
60610               112        32      28       172        466       156     67       689
60611                77         4       6        87        254        32     27       313
60612                22       222      48       292         77       878    137     1,092
60613                55        15      21        91        234       100     63       397
60614                60        23      16        99        246       103     65       414
60615                90        90      34       214        357       374     97       828
60616                60        75      35       170        236       283     98       617
60617               108       123      65       296        496       601    207     1,304
60618                70        43      37       150        319       198    125       642
60619               193       260      94       547        804     1,118    263     2,185
60620               132       322     120       574        501     1,391    298     2,190
60621                68       192      96       356        242       765    214     1,221
60622                49        66      33       148        211       276     85       572
60623                14       210      75       299         61       728    209       998
60624                26       193     104       323         87       756    229     1,072
60625                53        19      31       103        239       127     97       463
60626                65        41      23       129        290       144     65       499
60627                15        25      20        60         79       141     50       270
60628               120       297     112       529        495     1,199    294     1,988
60629                20        78     100       198        117       409    291       817
60630                31        12      31        74        128        76    151       355
60631                 7         6      22        35         37        25    102       164
60632                18        63      63       144         76       266    276       618
60633                10         7       7        24         55        28     24       107
60634                28         9     106       143         90        80    441       611
60635                 7         7      70        84         30        39    312       381
60636                59       247      60       366        189       917    159     1,265
60637               126       135      72       333        463       599    193     1,255
60638                10        43     145       198         30       188    497       715
60639                39        48      69       156        140       239    257       636
60640               135        65      40       240        511       235    157       903
60641                45        24      75       144        208       124    255       587
60642                 5         3      17        25         17        38     44        99
60643                69       136      70       275        274       590    176     1,040
60644                25       188     132       345         96       690    374     1,160
60645                28        12      10        50        136        69     43       248
60646                12         6      18        36         61        41     62       164
60647                53        80      37       170        218       294    129       641
60649               125       118      74       317        497       560    163     1,220
60650                 3        19     135       157         17        76    532       625
60651                30       134      75       239        174       552    248       974
60652                 4        25      32        61         29       112    130       271
60653                72       132      54       258        306       512    136       954
60654                 0         0       3         3          1         2      4         7
60655                 4         6      42        52         20        53    108       181
60656                 9         5      60        74         43        33    270       346
60657                56         9      18        83        244        84     47       375
60658                 4         4      16        24         10        29     70       109
60659                11         4       3        18         73        40     26       139
60660                56        16      25        97        261       121     66       448
60661                 1         1       0         2          8         4      4        16
60664                 0         0       1         1          4         3      3        10
60666                 0         2       0         2          2         3      2         7
60680                 8        45       3        56         26        70     21       117
60681                 1         0       0         1          2         2      0         4
60690                 9         8       2        19         20        26      7        53
60714                 6         3      16        25         29        23     91       143
=========================================================================================
Total             2,608     4,353   2,825     9,786     10,741    18,029  8,952    37,722
-----------------------------------------------------------------------------------------
Source:  Fiscal year 1996 VA inpatient and outpatient treatment
files. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM NORTHWESTERN
UNIVERSITY MEDICAL SCHOOL
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)Appendix V
COMMENTS FROM THE UNIVERSITY OF
ILLINOIS AT CHICAGO
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)

Appendix VI GAO CONTACTS AND STAFF ACKNOWLEDGMENTS

GAO CONTACTS

Paul Reynolds, Assistant Director, (202) 512-7109
Timothy Hall, Evaluator-in-Charge, (202) 512-7192

STAFF ACKNOWLEDGMENTS

In addition to those named above, the following individuals made
important contributions to this report:  Walter Gembacz collected and
analyzed facility operating and maintenance costs data and acted as
an adviser throughout this assignment; John Borrelli assessed the
impact on VHA's health care missions related to medical education and
research; Lesia Mandzia conducted a survey to determine the impact on
veterans of closing a hospital; John Kirstein helped collect and
analyze facility operating and maintenance costs data; Jonathan
Ratner provided guidance in analyzing and reporting the costs of
closing a facility; and Joan Vogel and Ann McDermott provided
technical support. 


*** End of document. ***