VA’s Difficulty in Estimating Cost-Savings Could Mean Shortfalls and Cuts to Services

by U.S. Medicine

April 9, 2012

By Stephen Spotswood

WASHINGTON — Will VA’s inability to correctly estimate savings from cost-cutting measures mean the agency ultimately will have to make difficult trade-offs? And will those trafe-offs include fewer financial resources than anticipated for healthcare services?  Those are  frequently expressed concerns for legislators and veteran service organizations (VSOs) as VA’s FY 2013 and advance FY 2014 budget proposals are shopped around Capitol Hill. Such worries are backed up by a recent report from the Government Accountability Office (GAO).


John Gingrich

VA’s budget request for FY 2012 and the advance budget for FY 2013 — presented this time last year — included a total of $2.5 billion in savings from six agencywide operational improvements. Of that, $1.2 billion is expected in 2012. If those savings do not come to fruition, VA will face a budget shortfall.

Those figures are from the recent GAO report, which found VA is not always able to accurately track estimated savings.

One example cited by the GAO is the realigning of VA clinical staff and resources to use less costly healthcare providers. That plan calls for the use of selected nonphysician providers, such as nurse practitioners instead of physicians, and selected licensed practical nurses instead of certain types of registered nurses. According to VA, this will meet patient needs while saving as much as $151 million a year in 2012 and 2013.

When presenting the plan, VA officials said this was based on their belief that 3% of physician positions and 3.6% of registered nurse positions across VA healthcare could be filled by lower-paid clinical staff. According to GAO, however, VA lacked documentation to support how these percentages were determined. Also, VA data systems do not provide information about the extent to which hospitals are filling vacated positions with lower-paid staff. These data blind spots mean both the correct estimated saving and the actual savings are unknown to VA.

Another area of proposed savings is reducing costs for medical and administrative support activities. By employing resources more efficiently in VAMCs, VA estimates it will see an additional $150 million a year in savings in 2012 and 2013. Yet, VA could offer no analysis to support the $150 million in savings, according to the GAO report.

“VA headquarters officials told us they expect VAMCs to reduce medical and administrative support costs without compromising veterans’ quality of care and access to medical services,” the report states. “However, officials have not provided any guidance to VAMCs for how they are to reduce costs.”

GAO also found flaws in VA’s plans to save money by reducing costs associated with operating and leasing VA property and by reducing acquisition costs.

Budget Shortfalls in Past

Flawed planning based on faulty assumptions has led to previous budget shortfalls. In 2006, GAO reported on planned management efficiency initiatives by VA and found the department lacked a methodology for determining both its estimated savings and the ability to track those savings.

In part because VA did not meet its targeted savings, the agency had to ask Congress for a supplemental appropriation to meet funding needs for that year.

The group of VSOs that publish the Independent Budget, an independent estimate of what VA’s budget request should be for the coming year, said this was an ongoing concern.

In written testimony presented to the Senate VA Committee, Carl Blake, legislative director for the Paralyzed Veterans of America and longtime spokesperson for the Independent Budget, called management improvements “a popular gimmick used by previous administrations to generate savings and offset growing costs to deliver care.”

Blake noted that those savings rarely are realized, leaving VA short of necessary funding and forced to cut costs in other areas.

VA concurred with most of GAO’s criticisms about its need to have better methodologies to track savings. In his reply to the report, however, John Gingrich, VA’s chief of staff, did not express any trepidation about whether VA would meet its goals for 2012.

According to Gingrich, VA achieved a savings of more than $1 billion in 2011 — greater than estimated — and should hit $1.2 billion by the end of this fiscal year.

“VA is confident in achieving our goal,” Gingrich said.  

Also high on the list of VSO worries is VA’s ability to accurately estimate medical-care collections from third-party insurers obligated to pay for covered care provided in VA facilities.

In previous years, VA has had to lower its initial estimates. In the original appropriation estimate for FY 2012, VA projected collections of $3.7 billion. Last year, that estimate was revised to $3.1 billion. This year, the estimate was lowered again to $2.7 billion. At the same time, the estimate for FY 2013 collections was lowered from $3.3 billion to $3.0 billion.

“It’s been a roller-coaster ride in recent years to determine estimates for medical-care collections,” Blake told the Senate committee.

According to Blake, these revisions to estimated collections mean the funding provided to VA ultimately was insufficient to meet the demand on the healthcare system and that facilities will be required to unexpectedly cut costs.

Methodology for Estimating and Process for Tracking Savings Need Improvement

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