Specifically, it discusses the evolution of hospital care during the 20th century, factors contributing to the declining demand for hospital care in community and VA hospitals, the extent to which excess capacity exists in community and VA hospitals, and actions taken by community and VA hospitals to increase efficiency and compete for patients. To identify factors contributing to the declining demand for care in community and VA hospitals, we interviewed policy analysts from associations and think tanks, including the American Medical Association (AMA), AHA, and the CATO Institute; obtained the views of representatives from the major veterans service reviewed many studies and reports on hospitals, including those prepared by the Pew Health Professions Commission, Prospective Payment Assessment Commission, Physician Payment Review Commission, HIAA, Hay Group, National Committee for Quality Health Care, Congressional Research Service, the former Office of Technology Assessment, HCFA, and VA; reviewed our prior reports and testimonies on VA health care, Medicare, and health care cost containment; and reviewed reports and studies on VA health care prepared by the VA Office of Inspector General and others. 4.3). 5.2.) Overall, about 26 percent of community hospital beds exceeded demand in 1995, and over 65 percent may exceed demand within the next 15 years. However, new users attracted through community-based clinics are unlikely to generate as much hospital demand as current users because new users have indicated they are more likely to choose their local hospital rather than a distant VA facility. Multiple Challenges Face VA Concerning Hospital Closures

Most of the hospital beds in both VA and the private sector will likely exceed demand within the next 15 years, leading to more closing of both VA and community hospitals. 7.3.) Changes in materials management, however, create policy issues and management challenges. If VA decides to try and preserve certain VA hospitals by competing with private-sector hospitals, then it will probably have to expand its marketing efforts. That change, however, did not force hospitals to directly compete with each other for market share. 11.4). Until recently, both nonfederal and VA teaching hospitals had steadily increased their use of medical residents partly because residents were a lower cost labor source. 12.1.) Similarly, the Council on Graduate Medical Education recommended an overall reduction in the nation’s physician supply and the number of physicians in training. For example, should VA hospitals receive the same kinds of incentives to reduce the number of residency positions that the Congress provided non-VA hospitals through the Balanced Budget Act of 1997? 13.1.) 14.2). Conclusions, Agency Comments, and Our Evaluation

		Conclusions

Both VA and community hospitals are struggling to survive. Demand for hospital care, which increased for much of the century, has steadily declined since the 1980s in community hospitals and since the 1960s in VA hospitals. Decisions about the future of VA hospitals, whether it be to close hospitals or open them to nonveterans, have significant implications for veterans, VA employees, affiliated medical schools, community hospitals, and taxpayers. It is therefore important that the Congress and the administration have available sufficient information to properly weigh the potential effects of VA health care system infrastructure changes on all affected stakeholders. We recognize that VA’s strategic goals and performance measures call for increasing VA’s market share of mandatory veterans.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed major issues and challenges that Congress and the administration will face in the next few years concerning Department of Veterans Affairs (VA) hospitals, focusing on: (1) how VA and community hospitals' care evolved during the twentieth century, including changes in supply and demand; (2) factors contributing to the declining demand; (3) the extent of excess capacity; (4) actions taken to increase efficiency and compete for patients; and (5) changes in hospitals involved in training the nation's physicians and conducting medical research.

What GAO Found

GAO noted that: (1) both community and VA hospitals are struggling to survive; (2) demand for hospital care abruptly reversed and has steadily declined since the 1980s in community hospitals and since the 1960s in VA hospitals; (3) although many factors contributed to the reversal, medical advances and changes in health insurance mainly drove changes to community hospitals; (4) VA hospitals, however, were mainly affected by declining numbers of veterans and the improving health care options available to veterans through Medicare and other insurance; (5) GAO's work, and studies by others, suggest that if trends continue, 60 percent or more of community hospital beds and over 80 percent of VA hospital beds may not be needed in the next 15 years; (6) if such reductions occur, many hospitals will cease operation; (7) VA's current strategy for attracting new users may not generate the demand needed to preserve VA hospitals; (8) new users have indicated they are more likely to choose their local hospitals rather than a distant VA facility; (9) if VA decides to directly compete with community hospitals for market share, then it will have to subsequently decide whether to adopt private-sector marketing techniques; (10) both VA and community hospitals are fundamentally changing the ways they operate; (11) such changes include the hospitals' basic structure and management; reinvention of basic work, procurement, and supply processes; development of new marketing strategies; and methods and procedures of monitoring and delivering patient care; (12) teaching hospitals' use of medical residents as a lower cost labor source is often seen as contributing to the oversupply of physicians; (13) Congress, through the Balanced Budget Act of 1997, gave non-VA teaching hospitals financial incentives through the Medicare program to reduce residency positions; (14) both VA's strategic goals and the incentives it is creating through some of its restructuring efforts suggest that VA, like many community hospitals, is focusing its marketing efforts on attracting revenue-generating patients; (15) decisions on the future of VA hospitals, whether they mean closing hospitals or opening them to nonveterans, have significant implications for veterans, VA employees, affiliated medical schools, community hospitals, and taxpayers; and (16) therefore, Congress and the administration must have sufficient information for properly assessing the potential effects of VA's health care system changes on all stakeholders.