Formulation of President’s Budget Request for VA Medical Programs Informed by Comparing Cost of Projected Demand and Anticipated Resources

The formulation of the President’s budget requests for VA medical  programs for fiscal years 2005 and 2006 was informed by VA’s comparison  of its estimation of the cost of projected demand and anticipated  resources. Estimated costs for medical care exceeded anticipated  resources in both fiscal years 2005 and 2006, and, in formulating the  budget, VA addressed the difference with cost-saving policy proposals and  estimated savings from management efficiencies. VA Estimated Costs of Medical Programs Based on Projected Demand for Medical Care

VA used an actuarial model to project demand and costs for about   86 percent of its medical programs budget estimate for fiscal years 2005  and 2006. VA used a separate estimation approach, rather than an actuarial model, to  project long-term care demand and costs, which accounted for about   10 percent of the funds requested for medical programs for each of the  fiscal years 2005 and 2006. VA Closely Monitored Budget Execution and Identified Problems, but Did Not Report Them in a Timely and Sufficiently Informative Manner

Anticipating challenges in managing its medical care programs within  available resources, VA closely monitored its medical programs budget  execution from the beginning of fiscal year 2005. VA officials told us that in the middle of fiscal year 2005, it became clear  that demand for health care services was increasing rapidly—confirming  what they had anticipated at the beginning of the fiscal year—and that  spending would have to be carefully controlled to manage within its fiscal  year 2005 budget for the remainder of the year. In July 2005, the President submitted a budget amendment adding   $1.977 billion to his fiscal year 2006 request for VA Medical Services  appropriations. VA’s Reporting of Budget Execution Progress and Problems to Congress Could Have Been More Timely and Informative

Despite VA’s identification of potential fiscal year 2005 budget challenges  as early as October 2004, Congress did not learn of these challenges until  April 2005, when VA reported to Congress that it intended to use funds  allocated for equipment and nonrecurring maintenance to fund patient  care. We also found that these three quarterly reports did not include  information identified in the conference report that would be useful for  congressional oversight. Unrealistic Assumptions, Estimation Errors, and Insufficient Data Contributed to VA’s Requests for Additional Funding

The requests for additional funding for VA medical programs in fiscal  years 2005 and 2006 were caused, in part, by unrealistic assumptions,  errors in estimation, and insufficient data in its budget formulation  process. Moreover, insufficient data in VA’s initial  budget projections contributed to the additional funding requests. For  example, VA underestimated the cost of serving veterans returning from  Iraq and Afghanistan, in part because estimates for fiscal year 2005 were  based on data that largely predated the Iraq conflict and because VA did  not have sufficient data for fiscal year 2006 due to challenges in obtaining  data needed to identify these veterans from DOD, according to VA  officials. Unrealistic Assumptions and Errors in Estimating the Effect of Nursing Home Policies Contributed to Requests for Additional Funding

An unrealistic assumption about the expected time frame in which VA  could implement a fiscal year 2005 proposed nursing home cost-saving  policy contained in the President’s budget request—a reduction in nursing  home patient workload in VA-operated nursing homes—contributed to  $226 million of the request for supplemental funding for that fiscal year,  VA officials said. Appendix I: Objectives, Scope, and Methodology

For fiscal years 2005 and 2006, we examined: (1) how the President’s  budget requests for the Department of Veterans Affairs (VA) medical  programs were formulated, (2) how VA monitored and reported to  Congress on its budget execution, and (3) which key factors in the budget  formulation process contributed to the requests for additional funding.
Why GAO Did This Study

The Department of Veterans Affairs (VA) estimates it will serve 5.4 million patients in fiscal year 2006. Medical services for these patients are funded with appropriations, after consideration by Congress of the President's budget request. VA formulates the medical programs portion of that request. VA is also responsible for budget execution--using appropriations and monitoring their use for providing care. For fiscal years 2005 and 2006, the President requested additional funding for VA medical programs, beyond what had been originally requested. GAO was asked to examine for fiscal years 2005 and 2006 (1) how the President's budget requests for VA medical programs were formulated, (2) how VA monitored and reported to Congress on its budget execution, and (3) which key factors in the budget formulation process contributed to requests for additional funding. To do this, GAO analyzed budget documents and interviewed VA and Office of Management and Budget (OMB) officials.

What GAO Found

The formulation of the President's budget requests for VA medical programs for fiscal years 2005 and 2006 was informed by VA's comparison of its cost estimate of projected demand for medical services to its anticipated resources. VA projected about 86 percent of its costs using an actuarial model that estimated veterans' demand for health care. To project the costs of long-term care (about 10 percent of the funds for VA medical programs in each of these years) and the remaining medical care costs (about 4 percent), separate estimation approaches were used that did not rely upon an actuarial model but used other methods instead. The agency anticipated resources based on prior year appropriations, guidance from OMB, and other factors. For both fiscal years, VA officials told GAO that projected costs--calculated from the actuarial model and other approaches--exceeded anticipated resources and that they addressed the difference in budget requests for those years with cost-saving policy proposals and management efficiencies. Although VA staff closely monitored budget execution and identified problems for fiscal years 2005 and 2006, VA did not report this information to Congress in a sufficiently informative manner. VA closely monitored the fiscal year 2005 budget as early as October 2004, anticipating challenges managing within its resources. However, Congress did not learn of these challenges until April 2005. VA initially planned to manage within its budget for fiscal year 2005 by delaying some spending on equipment and nonrecurring maintenance and drawing on funds it had planned to carry over into 2006. Instead, the President requested additional funds from Congress for both fiscal years 2005 (a $975 million supplemental appropriation in June 2005) and 2006 (a budget amendment of $1.977 billion in July 2005). Congress included in the 2006 appropriations act a requirement for VA to submit quarterly reports regarding the medical programs budget status during this fiscal year. These reports have not included some of the measures that would be useful for congressional oversight, such as patient workload measures to capture costs and the time required for new patients to be scheduled for their first primary care appointment. Unrealistic assumptions, errors in estimation, and insufficient data were key factors in VA's budget formulation process that contributed to the requests for additional funding for fiscal years 2005 and 2006. Unrealistic assumptions about how quickly cost savings could be realized from proposed nursing home policy changes contributed to the additional requests, as did computation errors measuring the estimated effect of one of these changes. Insufficient data in VA's initial budget projections also contributed to the additional funding requests. For example, VA underestimated the cost of serving veterans returning from Iraq and Afghanistan, in part because estimates for fiscal year 2005 were based on data that largely predated the Iraq conflict and because according to VA, the agency had challenges for fiscal year 2006 in obtaining data from the Department of Defense.