VA, Legislators Debate Owning vs. Leasing Medical Buildings

by U.S. Medicine

November 13, 2016

By Sandra Basu

Not everything is leased. Last year, site safety manager Jon Thornburgh and Dr. John Baye interacted with hundreds of construction crew members during a monthly safety stand down at the Southeast Louisiana Veterans Health Care System medical center under construction in New Orleans. VA photo.

Not everything is leased. Last year, site safety manager Jon Thornburgh and Dr. John Baye interacted with hundreds of construction crew members during a monthly safety stand down at the Southeast Louisiana Veterans Health Care System medical center under construction in New Orleans. VA photo.

WASHINGTON—Should VA own or lease its medical facilities and, when it does decide to rent, is it overpaying?

These questions were raised last month at a hearing held by the House Committee on Transportation and Infrastructure subcommittee. A VA officials responded, however, that leasing medical space gives VA the flexibility to adapt to changing medical technology, among other benefits.

“Meeting the ever-changing pace of medical advancement is a constant challenge for any medical system,” explained James Sullivan, VA director of the Office of Asset Management. “VA finds that leasing versus owning provides one of the more flexible approaches to meet that challenge.”

At the onset of the hearing, Subcommittee Chairman Rep. Lou Barletta (R-PA) said the process has not always gone smoothly.

“Medical facilities—whether owned or leased—are a critical part of delivering healthcare services,” Barletta suggested. “Unfortunately, the VA has struggled greatly to acquire healthcare facilities on time, on budget and in compliance with the law.”

Sullivan told lawmakers that VA owns approximately 155 million square feet in more than 6,300 buildings. In addition, VA has approximately 25 million square feet of leased space, with terms ranging from a few months to 20 years. Through authority delegated through the General Services Administration, VA can lease for longer periods of time.

Sullivan told lawmakers that VA “does not need more owned legacy assets” to address outpatient access needs, adding, “We have enough old and obsolete facilities. We do not want to add any more to our current portfolio.”

He noted that VA has 24 major medical leases awaiting congressional authorization, many of which were originally submitted to VA’s authorizing committees almost three years ago.

With the flexibility offered by leasing, Sullivan pointed out, VA has the ability when assets become “unneeded or obsolete or do not meet current medical practices to walk away at the end of the lease term.”

While VA still needs owned facilities, he cited advances in radiology imaging and oncology, as examples of evolving technological that VA can better address through leasing.

Up-to-Date Technology

“It’s night and day from what it was 20 years ago,” Sullivan emphasized. “We need to have those facilities that have that up-to-date technology.”

Rebecca Shea, acting director of Infrastructure Issues at the Government Accountability Office (GAO), told lawmakers at the hearing that “disposing of federally-owned facilities can be difficult, suggesting a certain level of support for VA’s argument for this flexibility.” She said that VA has cited flexibility to move when necessary as a justification in all of its proposals for leases since 2015.

GAO recommended in a recent report, however, that VA needs to provide Congress with more information on how it uses the flexibility afforded through leasing, such as why VA makes a decision to move to a new leased location and how far VA has moved from a previously occupied medical facility, she stated.

That report noted that, “although VA has justified leasing its major medical facilities to its department leadership and congressional decision makers based on the flexibility that leasing offers compared to other alternatives, VA has not provided these stakeholders with information on the extent to which it has benefited from that flexibility, nor does VA regularly assess information that would help it do so.”

Greater transparency, Shea said, “could help decision-makers and taxpayers understand the value of leasing in cases in which VA proposes leasing major medical facilities when other alternatives, such as construction of a federally-owned facility, may have a lower cost.”

Lawmakers continued to question VA on the benefits of leasing, including the cost of leasing over building a facility.

“If the cost of the lease covers the entire cost of construction that you are paying for and yet you don’t have an asset in the end … what is the benefit from a public sector standpoint?” Rep. Mark Meadows (R-NC) asked.

Sullivan answered that the benefit is that the agency doesn’t end up with an obsolete facility at the end of 20 years that it would have to update if it was owned.

“We have, unfortunately, many of those facilities in VA,” he said, adding that construction requires VA to have the full amount of money upfront vs. leasing, in which not as many funds are immediately required.

Rep. Ryan Costello (R-PA) agreed that there are enough examples of VA construction projects ending up more expensive than they should be, which, he said, seems to point to “leasing versus building.” Still, he wanted to know how VA is addressing GAO’s concerns about the need for better information on how it uses the flexibility afforded through leasing.

VA agreed with GAO’s recommendation and Sullivan said that VA can provide the needed information.

“Clinicians live in these facilities day to day, and they know there is no way that they should stay in [these] facilities. … We need to get the data to make it clear to everyone, and that is fair,” Sullivan explained.

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