As part of the President’s request for funding to provide medical services  to veterans, VA develops an annual budget estimate detailing the amount  of services it expects to provide as well as the estimated cost of providing  those services. Higher-than-Expected Obligations for the CIC Program and Hepatitis C Drugs Accounted for VA’s Fiscal Year 2015 Projected Funding Gap

		Higher-than-Expected Obligations for the CIC Program Accounted for 85 Percent of VA’s Projected Fiscal Year 2015 Funding Gap

Our preliminary work suggests that the higher-than-expected obligations  identified by VA in April 2015 for VA’s CIC program accounted for $2.34  billion (or 85 percent) of VA’s projected funding gap of $2.75 billion in  fiscal year 2015. These higher-than-expected obligations for the CIC  program were driven by an increase in utilization of VA medical services  across VA, reflecting, in part, VA’s efforts to improve access to care after  public disclosure of long wait times at VAMCs. The unexpected increase in CIC obligations in fiscal year 2015 exposed  weaknesses in VA’s ability to estimate costs for CIC services and track  associated obligations. VA officials told us that they did not  determine a projected funding gap until April 2015, because they did  not complete their analysis of comparing estimated obligations with  estimated costs until then. To address the fiscal year 2015 projected funding gap, on July 31, 2015,  VA obtained temporary authority to use up to $3.3 billion in Veterans  Choice Program funds for obligations incurred for medical services from  non-VA providers, whether authorized under the Veterans Choice  Program or CIC, starting May 1, 2015 and ending October 1, 2015. VA officials told us that VA did not anticipate in its budget the obligations  for new hepatitis C drugs —which help cure the disease—because the  drugs were not approved by the Food and Drug Administration until fiscal  year 2014, after VA had already developed its budget estimate for fiscal  year 2015. The new drugs costs between $25,000 and $124,000 per  treatment regimen, and according to VA officials demand for the  treatment was high. Officials told us that about 30,000 veterans  received these drugs in fiscal year 2015. VA has Taken Steps to Better Track Obligations and Project Health Care Utilization, but Systems Deficiencies and Budgeting Uncertainties Remain

		VA Has Taken Steps to Better Track Obligations, but Deficiencies Remain in the Systems for Tracking Obligations

Our preliminary work indicates that VA has developed new processes to  prevent funding gaps for fiscal year 2016 and future years by improving  its ability to track obligations for CIC services and hepatitis C drugs. In August 2015, VA issued a standard operating procedure to all  VAMCs for recording estimated costs for inpatient and outpatient CIC  in FBCS. In November 2015, VA allocated funds for CIC and hepatitis C drugs  to each VAMC. Officials from the Office of  Finance within the Veterans Health Administration told us that once a  VAMC had obligated its CIC and hepatitis C drug funds, it would have  to request additional funds from VA. VA would, in turn, evaluate the  validity of a VAMC’s request and determine whether additional funds  may be made available. VA is Using More Recent Data to More Accurately Project Future Health Care Utilization, but Budgetary Uncertainties Remain

Our preliminary work indicates that VA updated its EHCPM to include  data from the first 6 months of fiscal year 2015, reflecting increased  health care utilization in that year, which VA officials told us will inform  VA’s budget estimate for fiscal year 2017 and advance appropriations  request for fiscal year 2018. VA has also taken steps to help increase utilization of the Veterans  Choice Program. However, by  establishing appropriate internal controls, VA can help reduce the risks  associated with the weaknesses in its budgetary projections and  monitoring.
Why GAO Did This Study

VA projected a funding gap in its fiscal year 2015 medical services appropriation account and obtained temporary authority to use up to $3.3 billion in Veterans Choice Program funding to close this gap. GAO was asked to examine VA's fiscal year 2015 projected funding gap and changes VA has made to help prevent potential funding gaps in future years. This statement is based on GAO's ongoing work and provides preliminary observations on (1) the activities or programs that accounted for VA's fiscal year 2015 projected funding gap in its medical services appropriation account and (2) changes VA has made to prevent potential funding gaps in future years. GAO reviewed data VA provided on its obligations and related documents to determine what activities accounted for the projected funding gap in its fiscal year 2015 medical services appropriation account, as well as the factors that contributed to the projected funding gap. GAO interviewed VA and Office of Management and Budget officials to identify the steps taken to address the projected funding gap. GAO also examined changes VA made to better track obligations and project future budgetary needs. GAO shared the information provided in this statement with VA and incorporated its comments as appropriate.

What GAO Found

GAO's ongoing work indicates that two areas accounted for the Department of Veterans Affairs' (VA) fiscal year 2015 projected funding gap of $2.75 billion. Specifically,
Higher-than-expected obligations for VA's longstanding care in the community (CIC) program—which allows veterans to obtain care from providers outside of VA facilities—accounted for $2.34 billion or 85 percent of VA's projected funding gap. VA officials expected that the new Veterans Choice Program—which was implemented in fiscal year 2015 and also allows veterans to access care from non-VA providers under certain conditions—would absorb veterans' increased demand for care after public disclosure of long wait times. However, administrative weaknesses slowed enrollment into this new program. The unexpected increase in CIC obligations also exposed VA's weaknesses in estimating costs for CIC services and tracking associated obligations. VA officials did not determine that VA faced a projected funding gap until April 2015—6 months into the fiscal year, after they compared estimated authorizations with estimated obligations for CIC.
Unanticipated obligations for hepatitis C drugs accounted for the remaining portion—$408 million—of VA's projected funding gap. VA did not anticipate in its budget the obligations for these costly, new drugs, which can help cure the disease, because the drugs did not gain approval from the Food and Drug Administration until fiscal year 2014—after VA had already developed its budget estimate for fiscal year 2015. VA officials told GAO that in fiscal year 2015 about 30,000 veterans received these drugs, which cost between $25,000 and $124,000 per treatment regimen.
GAO's ongoing work indicates that VA has taken steps to better track obligations and project future healthcare utilization, but systems deficiencies and budgetary uncertainties remain. Specifically, GAO's preliminary results indicate that VA has taken the following steps:
VA issued a standard operating procedure to help VA medical centers (VAMC) more accurately estimate the costs associated with authorizations for CIC.
VA directed VAMCs to compare their estimated costs for CIC authorizations with estimated obligations for CIC on a monthly basis.
VA allocated funds to each VAMC for CIC and hepatitis C drugs and began tracking VAMCs' obligations with monthly reports. Officials told GAO that once a VAMC has obligated its funds, it would have to request additional funds. VA would determine whether additional funds may be made available. These processes are necessary because continued deficiencies in VA's financial systems present challenges in tracking of obligations.
VA updated the model it uses to inform most of its budget estimates for medical services. It now includes more recent data that reflect increased healthcare utilization among veterans in fiscal year 2015. However, VA officials noted uncertainties remain about the forecasted utilization of the Veterans Choice Program and emerging health care treatments, which could affect the accuracy of the health care budget estimates.